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Home > News & Politics > Israel >E.U., Israel tussle over West Bank products




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E.U., Israel tussle over West Bank products
Tax fight over West Bank goods only adds to Israel-Europe tension

By Jessica Steinberg
Jewish Telegraphic Agency
April 10, 2001

JERUSALEM-- When British-born Peter Wiseburgh established Soda-Club Enterprises in 1991, he probably didn't expect to be part of a spat with the European Union over Israel's borders.

Wiseburgh's Israeli company wanted to export in-home carbonation systems that turn tap water into sparkling water. It chose to establish a production plant in a former munitions factory in the Mishor Adumim industrial zone, which is in the West Bank but is often considered part of greater Jerusalem.

"We were looking for a large factory, and this popped up and we took it," Wiseburgh said. "The Israeli government encouraged us to go there. Now they have to find some reasonable way to overcome what is a bureaucratic problem."

Despite the lack of an Israeli-Palestinian peace agreement, it was assumed in the early 1990s that West Bank products exported to the European Union would enjoy the tax-exempt status granted other Israeli products under the Israel-E.U. free-trade agreement.

In 1997, however, as Europe adopted an increasingly hostile tone toward Benjamin Netanyahu's Likud government, the European Union effectively defined everything across the Green Line-Israel's border before the 1967 Six-Day War-as Palestinian land.

Feeding the E.U.'s decision was a boycott campaign led by left-wing Israeli activists against Israeli products made in the West Bank and Gaza Strip.

Taken together, the steps placed Soda Club and dozens of other Israeli companies at the center of a growing political storm.

Israel and the European Union agreed to a 10-month hiatus to settle the question of whether West Bank products would enjoy the tax-free status given Israel's other European exports. That period will expire at the end of May.

On May 21, a joint committee on the Israel-E.U. association will meet in Brussels to discuss, among other matters, whether to differentiate between goods prepared in Israel proper and those made by Israeli companies in the West Bank.

Most of the Israeli companies in question-whether they're growing flowers, developing Dead Sea beauty products or producing seltzer-making systems-set up shop in the West Bank for the cheap and plentiful real estate.

But E.U. officials see the moves as a ploy to get tax breaks for products made in occupied territory. A decision to tax such exports could have serious economic consequences for Wiseburgh and other Israeli entrepreneurs in the West Bank and Gaza Strip.

More importantly, however, it would mark a further deterioration in Israel's relations with Europe at a time when the European Union is demanding a larger role in Israeli-Palestinian peace efforts. Israelis increasingly perceive the European Union as biased toward the Palestinians, who claim all of the West Bank for themselves.

The question is, will the 15 E.U. countries let politics interfere with business?

Possibly, but not definitely, said Victor Harel, deputy director-general for economic affairs at the Israeli Foreign Ministry.

"Everything in terms of our relations with the E.U. is connected to what's happening on the ground," Harel said. "If the political situation remains the same, I don't think there's any major interest on either side to turn this into a political issue."

Nevertheless, the May meeting could be the opening battle in an E.U. attempt to define Israel's borders.

During quieter times, the issue of rules of origin wouldn't be so volatile.

But Israeli officials fear E.U. legislators may call for sanctions against Israel because of alleged human rights violations during the past six months of violence, and because of Israel's decision to withhold tax receipts it owes the Palestinian Authority.

E.U. nations are among the largest foreign donors to the Palestinian Authority, and some are highly resentful of economic sanctions Israel has imposed in an effort to compel the Palestinians to curb violence.

Still, Harel believes both sides will find a technical way to address the border issue, letting the E.U. Customs Commission discuss customs borders rather than political borders.

"Our position is clear," Harel said. "There are no customs unions between us and the Palestinian borders, so anything produced over the Green Line should go into the European Union free of any tax."

The entire matter of rules of origin-where a product originates and how this affects customs duties-is a complex, technical matter.

During the last 10 months, Israel's Foreign Ministry has answered almost 2,000 requests from E.U. customs authorities seeking to determine where the products exported to E.U. nations are produced.

The ministry has 10 months to answer each request, during which each Israeli company must provide the necessary documentation.

"This has been bubbling along for ages, and it's no secret that both sides were hoping there would be a peace agreement by now and everyone would know where Israel's borders are," said David Kriss, spokesman for the Delegation of the European Commission in Israel.

"But given that things haven't been solved, and there's been increasing pressure on the E.U. commission to do its job and enforce the agreements, things have come to a head."

Most of the players believe the two parties will use existing E.U. institutions to solve the dispute.

"I don't think we'll hear more than mild criticism, unless the situation deteriorates," Harel said.

For the Soda Club's Wiseburgh, the whole matter is distressing. He doesn't want to worry about tax duties on his injection-molded plastic jars, syrup containers or aluminum cylinders.

"We ought to have enough political clout to say, 'Let's not make an issue out of this at this point in time,' " he said.




© JTA Inc., 2001. May not be reproduced without written permission.












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