International Christian Embassy Jerusalem, September 16, 2002

Just days after Israeli Foreign Minister Shimon Peres told the Cabinet that he was encountering a "silent boycott" of Israeli goods throughout Europe, Israel has proposed an interim solution to avert the European Union’s long-standing threat to impose customs duties on Israeli goods produced in the disputed territories.

Peres, who returned last week from a brief stopover in Paris, still has good relations with the EU among Israeli officials. He argued in the Cabinet on Sunday that Israel’s current policies in the territories are to blame for the growing European "boycott" of Israeli goods, not the EU governments themselves.

The ongoing customs dispute with the EU, however, threatens to undermine Peres’ case.

The EU has granted Israel a special trading status, but is refusing to recognize arrangements that exist between the Palestinian Authority and Israeli Government, whereby goods originating in the territories can be labeled as produce of Israel.

Israeli officials see the EU using its massive economic muscle to make a political statement about Israel’s borders, effectively threatening sanctions.

European sources said the EU would be willing to consider a "technical" solution to the dispute. But Israeli sources said they doubted the EU would accept Israeli proposals, as so far the Europeans have demonstrated no flexibility on this matter.

Economically, the issue is negligible: While Israeli exports to the EU totaled $7.6 billion last year, only $100 million of this came from Judea/Samaria, Gaza, eastern Jerusalem or the Golan Heights, and customs duties on exports from the territories would amount to a mere $7 million a year.

But the issue is highly charged politically: The EU is using the duties to promote its preferred solution to the Israeli-Palestinian conflict - a full Israeli withdrawal to the pre-1967 borders - while Israel opposes allowing the border issue to be predetermined.

"It's not up to the EU to decide where our borders are," explained one Israeli official.

Israel's proposal to the EU will essentially be to defer the issue until Israel and the Palestinians agree on permanent borders - which, according to the EU's most recent diplomatic initiative, is supposed to happen in 2005.

The situation hurts all Israeli exports to Europe, since importers say they have no way of knowing which goods are made in the territories.

Israeli diplomatic sources said that exporters to Britain are getting around the problem by labeling their goods as originating in a given region, without the word "Israel," and that the British have so far accepted this solution.

But both Israeli and French officials denied yesterday's media reports of Israeli farmers in the Jordan Valley being told by French customs officials that they would have to label their dates "Produce of Palestine" to avoid the duties. But the fact remains that, if the EU gets its way -- that may be exactly what they will have to do.