LABELING SETTLEMENT GOODS: NOT ALL IS SETTLED

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.

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KURTZER