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Jerusalem Center for Public Affairs
Strategic Alliances for a Secure, Connected, and Prosperous Region

Israel and the European Union

Filed under: Europe and Israel

Oded Eran is a career diplomat who became Israel’s ambassador to the EU in December 2002. He notes that Israel-EU trade in services is also beginning to develop. Israel now wants to expand relations in areas not yet covered by its Free Trade Agreement with the EU. Israel has signed two economic agreements with the EU in the past, the first in 1975 and the second in 1995, which deal mostly with tariffs and quotas.

“Economic factors are influencing all international entities, both states and organizations. Nowadays these relations seem to be even further increasing in relative importance. The fact that Israel is the largest importer in the Middle East of goods and services is an important consideration in EU policy toward Israel.”

Condemning Israel Frequently

Such a statement begs the question: why has the EU condemned Israel politically so often while it does not blame its smaller Arab trading partners? Eran replies that the EU criticizes Israel on issues that are also criticized, be it in a softer tone, by the United States. He considers that the difference between the United States and the EU on key political issues in the Israeli-Palestinian conflict is only minor.

“The difference between the two is in the day-to-day behavior on the current aspects of the conflict. It may well be that because of the balancing forces within the EU-the wish to play a role in the Middle East and the economic implications-the EU refrains from translating this criticism into sanctions. In April 2002 the European Parliament endorsed an anti-Israeli policy. Two hundred sixty-nine members (MEPs) voted for a resolution that the EU ‘suspend immediately’ its trade and cooperation agreement with Israel. Two hundred eight voted against and twenty-two abstained. Yet this resolution was not enacted by the European Commission.

“There have also been various calls by NGOs and EU member states to impose sanctions on Israel. These, however, were neither discussed in the Commission nor in its Council of Ministers. Germany, Italy, and Britain opposed these initiatives. My hypothesis is that the great trade surplus somewhat influences the EU’s approach to the Israeli-Palestinian dispute. On the other hand, the EU tends to be reticent about imposing sanctions, even in far more extreme cases than this conflict. The Iranian nuclear program, which potentially endangers Europe, is an example.”

Preferring to Settle

“Rather than imposing sanctions the EU may occasionally exert pressures on Israel. This was, for instance, the case concerning the question of exports from Judea and Samaria and other territories under Israeli control. The EU considered that the Free Trade Agreement should not be applied to goods manufactured there. We eventually reached an accommodation and found a way to distinguish between exports from within Israel’s Green Line and others.

“This issue concerned perhaps 1 percent of Israeli exports. If the EU had decided to act unilaterally on it, we might have gone to arbitration. Both sides, however, preferred to settle.

“The EU now imposes duties on these goods without saying explicitly that they come from Judea and Samaria. The practice is that on the certificate of origin, Israel or the exporter mentions the town where the product is manufactured. This can, for instance, be Tel Aviv, Israel, or Barkan, Israel. At the customs points in Europe, the officials have a list of all towns and settlements. On its basis they decide whether duties should be paid or not.”

Explaining the Trade Gap

Eran explains that while the trade gap with the EU is huge, part of it derives from Israel procuring capital goods there, which are probably around one-third of total imported goods. “These assist in developing Israel’s economy and will in future lead to more exports. Israel’s trade deficit with the EU was in the past in the $6-8 billion range. As  mentioned, it has come down to $5 billion in 2005 on a much larger trade volume.

“This trade gap also derives in part from the fact that Israeli companies are more geared to exports to the United States. We have in recent years also found rapidly increasing new markets in the Far East.