US embassy cable - 05TELAVIV2749

S E C R E T TEL AVIV 002749 
 
SIPDIS 
 
E.O. 12958: DECL: 03/02/2015 
TAGS: ECON, ETRD, IS, ECONOMY AND FINANCE, SETTLEMENTS 
SUBJECT: LABELING SETTLEMENT GOODS: NOT ALL IS SETTLED 
 
Classified By: Ambassador Daniel C. Kurtzer for reasons 1.4 (b) and (d) 
 
1. (C)  Summary.  The agreement between the EU and the GOI on 
labeling requirements for goods produced outside of Green 
Line Israel came into force on February 1, 2005.  The 
agreement calls for identification on customs shipping 
documents of the city of origin for all products shipped from 
Israel to areas in the EU customs zone.  Within days of 
implementing the agreement the GOI announced its intention to 
compensate manufacturers whose goods are now subject to 
customs duties.  The EU considers this circumvention of the 
agreement by the GOI and is considering options it can take 
under WTO rules.  End Summary. 
 
2. (C)  Beginning in 2000, the EU called on Israel to 
identify goods produced outside of Green Line Israel that are 
exported to Europe, as these goods are not subject to 
preferential treatment under the EU-Israel trade agreement. 
The EU-Israel settlement goods agreement implemented on 
February 1 calls for the location (town) producing the goods, 
the zip code, and the word Israel to be placed on the EU 
customs form.  Customs authorities in the EU are then 
responsible for checking the origin of the product against a 
list of communities in what the EU defines as Green Line 
Israel, and in the case of Jerusalem, against the local 
postal code directory.  Those goods that are produced in 
Israeli settlements outside of Green Line Israel are subject 
to tariffs upon entry to the EU, to be collected by 
individual member states.  The agreement does not call for 
any change in the labeling of the products themselves, as 
some European consumer groups have demanded.  In addition, 
there is no mechanism for dealing with companies that 
manufacture in the West Bank or Gaza, but maintain an office 
in Israel.  In some cases, the company may list the corporate 
headquarters address (inside Green Line Israel) on the 
customs certificate to avoid the tariff. 
 
3. (S)  On Wednesday, April 6 Ministry of Industry, Trade, 
and Labor (MOITL) Director of Bilateral Trade Agreements (and 
chief POC for EU Affairs) Boaz Hirsch told Econoff that the 
GOI impetus for resolving the dispute over settlement goods 
was driven in part by GOI interest in participating in 
pan-Med cumulation plans.  The EU is considering a system of 
Pan-Mediterranean cumulation of content, applied to rules of 
origin, for countries that are not part of the EU customs 
zone, but that have free trade arrangements with the EU.  For 
example, the EU is considering allowing cumulation of content 
for Israeli and Jordanian produced goods based on a tariff 
reduction program that the GOI and GOJ agreed to last 
December.  While the Israel-Jordan agreement is not a 
free-trade agreement, interlocutors predict that the 
agreement has liberalized trade sufficiently to win EU 
approval for cumulation of content. 
 
4. (S)  Hirsch claimed that the Ministry of Finance (MOF) is 
participating in internal GOI discussions on how to create a 
compensation systems for any revenues that exporters may lose 
as a result of the settlement goods agreement.  Hirsch 
described the plan as forming an "insurance program" to 
protect Israeli goods from "political discrimination." 
However, all of the cases he cited as precedence for such a 
program involved decisions by consumers or governments to 
unilaterally boycott Israeli products.  In this case, the GOI 
has negotiated an agreement regarding settlement goods. 
Director of International Affairs, MOF Department of Customs, 
Uri Bruck denied that customs is participating in any way 
with the GOI committee examining compensation options. 
 
5. (C)  Responding to the GOI intention to "insure" goods 
from the settlements, Emmanuel Giaufret, European Commission 
Political and Economic Chief, responded that, in effect, the 
program was intended to circumvent the agreement reached with 
the European Union (EU).  Internally, the EU has considered 
raising the "insurance program" as an illegal trade subsidy, 
but is unlikely to pursue this option because the EU does not 
formally recognize the settlements as Israeli territory.  The 
compensation would go to producers outside the territorial 
bounds of Israel, as recognized by the EU, and thus might not 
qualify under WTO rules. 
 
********************************************* ******************** 
Visit Embassy Tel Aviv's Classified Website: 
http://www.state.sgov.gov/p/nea/telaviv 
 
You can also access this site through the State Department's 
Classified SIPRNET website. 
********************************************* ******************** 
KURTZER