Israel is entering into a sensitive economic and diplomatic confrontation within the European Union, with proposals to restrict trade in settlement products in the West Bank being transferred to the table of the foreign ministers of the 27 countries, amid Israeli fears that it will become a legal precedent that may later extend to banks, companies, and supply chains operating within the Green Line as well.
According to a report by journalist Anna Barsky in the Israeli newspaper “Maariv”, European Union foreign ministers are discussing, today, Monday in Brussels, the possibility of imposing new restrictions on trade in products originating in Israeli settlements in the West Bank.
The discussion is based on a confidential document prepared by the European Commission, which includes three main alternatives: adopting a licensing system for imports, imposing high customs duties that make it difficult to market products within European markets, or implementing a complete ban on trade in them, with other options allowing the imposition of a partial ban.
The discussion comes as a direct extension of a decision taken by European Union leaders during the June summit, in which they asked the Commission to provide practical alternatives, against the backdrop of the deteriorating situation in the West Bank, and the increasing pressure exerted by a group of member states to push the Union to take steps against the settlements.
In parallel, some countries supporting the step rely on the advisory opinion issued by the International Court of Justice in The Hague in July 2024, which considered that the continued Israeli presence in the territories is illegal, and that countries should refrain from taking steps that help maintain the status quo.
At the current stage, no vote or binding decision is expected, as ministers are supposed to discuss the level of political support enjoyed by each alternative, in addition to the crucial legal issue regarding whether the move can be approved by a qualified majority within European trade policy, or be considered a political penalty that requires unanimous approval by member states.
From the Israeli point of view, the discussion goes beyond the issue of limited trade in dates, wine, and agricultural and industrial products, as Israel fears that the issuance of a joint European decision will create a legal and political precedent that could be used in the future to expand restrictions, to include Israeli companies operating outside the Green Line, in addition to banks, investment institutions, and supply chains that do not completely separate Israel from the settlements.
Israeli circles also fear what is known as the “Brussels effect,” that is, the practical transformation of European rules into an international standard followed by parties outside the European Union.
Even if the ban is officially limited to settlement products, commercial companies, banks, investment funds, insurance companies and marketing networks around the world may, on their own, tighten their policies towards Israeli companies, for fear of getting involved in legal problems or suffering damage to their image and reputation.
On the other hand, European Union officials confirm that the step does not constitute a boycott of Israel, but rather a possible expansion of a policy that has been in place for years, as settlement products do not currently benefit from the customs privileges stipulated in the trade agreement between Israel and the European Union, and some of these products are required to display labels indicating the country of origin.
The countries supporting the move believe that the question is whether the existing separation between Israel and the settlements should also be reflected in the form of additional trade restrictions.
Accordingly, Israeli efforts are focusing on preventing the document from moving from the stage of presenting alternatives to the stage of preparing a binding legal proposal, after the discussion itself has become mature within the European Union institutions.
The key to the confrontation is mainly the positions of Berlin and Rome, as it will be very difficult to secure a qualified majority from at least 15 countries representing 65% of the European Union population, if Germany and Italy oppose the move.
However, if one of the two countries changes its position, especially Italy, the balance of power within the union may witness a fundamental shift.
Israel seeks diplomatically to maintain a blocking bloc of countries that are reluctant to impose a trade embargo, challenge the possibility of its passage by a qualified majority, and present the step as a political punishment that requires full approval from member states.
Israel is dealing with the process as a battle to contain the damage, as efforts are focused on delaying the process, reducing the severity of the alternatives proposed, and preventing the emergence of a European legal precedent that can be relied upon in the future to expand the scope of economic measures against Israeli activities outside the Green Line.
Israeli circles say that the separation that the European Union seeks to impose between Israel and the settlements will not necessarily remain limited to products manufactured within the West Bank.
These circles fear that European companies will choose to stay away from any Israeli supplier whose product source is not completely clear, and that the licensing system will also oblige exporters operating within the Green Line to provide detailed proof of the origin of raw materials and production and packaging sites.
One of the arguments previously used by Israel is that imposing restrictions on industrial zones in the West Bank could harm the thousands of Palestinian workers who work there.
On the other hand, supporters of the ban in Europe believe that the employment of Palestinians cannot justify, from their point of view, the continuation of trade that supports the settlement project.
The official Israeli position is that the settlements are not illegal, and that the dispute over the future of the territories should be resolved through negotiations, not through unilateral punitive measures.
Israel also rejects the European interpretation of the advisory opinion issued by the International Court of Justice in 2024, on which some jurists and countries call for stopping trade with settlements.
Israeli Foreign Minister Gideon Sa’ar had previously strongly attacked European measures against settlers, as he described the European Union’s decision, after imposing sanctions on Israeli citizens and organizations in May, as “arbitrary and political,” stressing that it was not based on any basis.
Sa’ar also protested the inclusion of Israeli entities and members of the Hamas movement within the same sanctions framework, considering that the matter entailed a morally distorted comparison.
Israel’s ability to influence the debate also declined due to the severe crisis between Sa’ar and European Union foreign policy chief Kaya Kallas.
Last month, Saar announced that he had cut off contact with her, after a report stated that she had compared Israel to South Africa during the apartheid era.
Callas is responsible for managing the meetings of the Union’s foreign ministers and coordinating between member states, which means that cutting off the channel of direct communication with her reduces Israel’s ability to move in the heart of the European system, at a stage described as extremely sensitive.
The map of powers within Europe has also become more difficult for Israel, after Ireland passed legislation banning the import of settlement products, and at least 10 countries called for pushing the European Union towards taking a similar step.
At the same time, Israel lost an important part of the political “safety net” that it had relied on for years, following the political change that Hungary witnessed.
During recent months, the European Union was able for the first time to impose sanctions on Israeli settlers and organizations, after the Hungarian objection that had previously hindered the passing of similar steps was removed.
From the Israeli point of view, this is a clear indication that the ability to rely on an automatic veto exercised by a single state is gradually declining.
However, the road to adopting a comprehensive European ban is still long, in the absence of a final legislative formula or agreement on the legal path, as well as the absence of a clear majority in support of the step.
The Union’s leadership also acknowledged, in the conclusions of previous discussions, that countries are still divided, and that their positions have not witnessed a sufficient shift to allow the adoption of binding measures.
For Israel, the immediate success is that the meeting ended without a decision, and without assigning the Commission to prepare a binding ban.
However, simply placing the option of a complete ban on settlement products officially on the table of the Union’s foreign ministers constitutes in itself an important political shift, as the step that was previously considered a demand raised by Ireland, Spain, and human rights organizations, has today become a possibility that the European Union institutions are seriously considering, opening the door to an economic confrontation whose borders may not remain limited to the settlements.
