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ip/98/426

Strasbourg, 13 May 1998

EU - Israel : Implementation of the interim agreement in the framework of a strengthened regional cooperation

The European Commission has approved two Communications to the Council of Ministers and the European Parliament in view to facilitate the establishment of a Euro-Mediterranean Free Trade Area. The first document relates to the Implementation of the interim agreement on Trade and Trade-related matters between the European Union (EU) and Israel. It refers to a number of areas in the EU-Israel trade relations where action for clarification may be needed. In particular the Communication addresses the questions of alleged exports to the EU of goods produced in the Israeli settlements, in East Jerusalem, in the Golan Heights and in the West Bank and Gaza Strip under the label "made in Israel". The EU will take steps to verify the accuracy of these allegations according to the procedures that have been agreed with Israel as a follow-up to the Co-operation Committee. Should these violations of the Protocol on rules of origin be confirmed they should be ended. The second Communication suggests that regional integration would be improved by extending cumulation of origin to all Mediterranean countries. As a first step, the Commission proposes to offer cumulation of origin to certain countries which have expressed visible interest.

The Euro-Mediterranean Partnership launched at the Barcelona Conference in November 1995 provided a clear geopolitical and economic scenario for a priority region in the EU's foreign policy. The Partnership consists of a far-reaching double structure at both multilateral and bilateral level, with the declared long-term goal of the progressive establishment of a Euro-Mediterranean area of regional security, shared prosperity and mutual understanding. A major instrument of the economic chapter is the establishment of a free trade area to be achieved by the target date of 2010.

Parallel action at both multilateral and bilateral levels has already started to substantially foster political, economic and social integration in the region, North-South as well South-South, that is, among the Mediterranean partners themselves.

The Euro-Mediterranean Partnership is predicated on achieving regional integration both between the EU and third Mediterranean Countries and between third Mediterranean Countries themselves.

The Barcelona Declaration stated that in parallel to the agreements to be concluded between the EU and the Mediterranean partners, the latter would eventually conclude bilateral free-trade agreements between themselves. In order for the establishment of a free trade area to function the so-called South-South dimension of regional integration is crucial.

One important measure to achieve this objective is the introduction of diagonal cumulation of origin. Under interim agreement, as in the previous Cooperation Agreement, the rules on preferential origin provide for bilateral cumulation between the EU and Israel; this means that EU materials used in Israel have the same status as Israeli materials for the purpose of determining the originating status of the finished product. With the conclusion of the Euro-Mediterranean agreements, it is intended to extend this principle to other members of the region that is bilateral EC-Israel, EC-Egypt, EC-PLO etc. cumulation, would be replaced by "diagonal" cumulation.

Building on this, the communication to the Council and the Parliament proposing the cumulation of origin in the euro-mediterranean area foresees the steps to be followed to progressively put in place the cumulation envisaged in particular to establish the same set of rules of origin applicable reciprocally, across the region, and to conclude administrative cooperation agreements to control the implementation. The Commission considers that the creation of a "Mashrak " pole of attraction around countries that have already expressed an interest in cumulation, notably Egypt, Israel, Jordan and the West Bank and Gaza, would constitute an acceptable way to take forward the aim of regional integration in the Mediterranean. When technically prepared, other interested countries such as Syria and the Lebanon could be merged.

Subsequently, the possibility of establishing a link between the "Maghreb" and "Mashrak " poles should be examined.

Given the centrality of the principle of the rule of law for the EU, it is clear that to make cumulation functional and operational, full compliance with all agreements freely entered into already is a clear precondition for the granting of diagonal cumulation of origin.

EU-Israel relations on trade and trade-related matters

The 1994 Essen European Council emphasised the privileged partnership between the EU and Israel. The EU is currently exploring possibilities to further deepen the framework of its relations with Israel. In order to do so it is important to ensure that present relations with Israel take place according to the framework of existing agreements.

In July 1997 the Commission informed the Israeli authorities of a number of areas in EU-Israel trade relations where action was required. The issues at stake were mainly linked to the unsatisfactory implementation of the Protocol on Rules of Origin attached to the EU-Israel Interim Agreement. The situation was such that the Commission had grounds to believe that Israel was not complying in full with all its contractual obligations agreed with the EU.

Protocol 4 to the EU-Israel Interim Agreement concerns the definition of origin, the concept of "originating products" and methods of administrative co-operation. It specifies the origin criteria for different categories of products. Products are considered originating in Israel (a) if they are "wholly obtained in Israel", for instance vegetable products harvested in Israel, or (b) products obtained in Israel which contain materials not wholly obtained there, provided that the said materials have undergone sufficient working or processing in Israel within the meaning of Article 5 of the Protocol. The possibility of acquiring originating status is also stated.

The EU-Israel Interim Agreement allows bilateral cumulation. However, it does not yet allow diagonal cumulation. Therefore, goods substantially manufactured elsewhere cannot be exported into the EU as if originating in Israel. Such exports would violate the Protocol on rules of Origin annexed to the EU-Israel Interim Agreement on Trade and Trade-related matters.

With reference to the so-called orange juice case, the November 1997 Co-operation Council with Israel has already allowed considerable progress regarding the implementation of customs co-operation procedures so as to be able to verify EU complaints regarding certificates of origin and the full compliance of exporting firms in this respect.

Thus, following firm EU action, significant progress has been made regarding the orange juice case and the necessary administrative structural reforms to ensure the proper implementation of the EU-Israel agreement. The Commission hopes that ongoing progress will be completed soon in order to reinstate normal trade practices.

However, two main outstanding obstacles remain in the way for correct implementation of the EC-Israel Interim Agreement. Both relate to exports to the EU of products as if originating in Israel whilst effectively produced in:

1) Israeli settlements, East Jerusalem and the Golan Heights:

According to the international community and international public law including all relevant UN Security Council Resolutions, neither Israeli settlements in the West Bank and Gaza Strip, nor the Israeli unilaterally annexed areas of East Jerusalem and the Golan Heights, are part of the State of Israel.

The EU has constantly held this position, notably in the 1980 Venice declaration, the October 1996 Luxembourg Council declaration, the December 1996 declaration of the Dublin European Council and the June 1997 Amsterdam "Call for Peace".

Preferential access to EU markets for exports originating in Israeli settlements in the West Bank and Gaza Strip, on the one hand, and in East Jerusalem and the Golan Heights, on the other, would contravene agreed rules of origin.

There are indications that these violations are currently taking place. The EU should take steps to verify the accuracy of this information according to the procedures of the EU-Israel Interim Agreement. If such violations of the rules of origin should be confirmed they should be brought to an end.

2) - the West Bank and Gaza Strip.

The EU decided in 1986 to grant preferential trade regime for products originating in territories occupied by Israel. Israel only allowed its implementation in 1988 following strong European Parliament pressure.

The Interim Association Agreement between the EU and the PLO was concluded on the basis of the provisions in the 1995 Israeli-Palestinian Interim Agreement that allow the PLO to conduct and sign agreements for the benefit of the PA in the sphere of economic co-operation. The EU-PLO Agreement entered into force on 1 July 1997.

Preferential access to EU markets for exports originating in the West Bank and Gaza Strip as originating in Israel under the EC-Israel Interim Trade Agreement, is a violation of the latter given that it does not apply to these territories.

Israeli restrictions on the Palestinian economy inevitably lead to violations of the EU-Israel Agreement by both Israeli and Palestinian economic operators, given that the increased difficulties imposed upon Palestinian exporters to export directly into the EU drive them to export their produce as originating in Israel and to declare their imports as if destined for Israel.

Furthermore, those same restrictions on Palestinian free trade with the rest of the world impede Palestinian economic development and the full implementation of the EU-PLO agreement.

There is ample evidence that the practices of exporting Palestinian products as "made in Israel" under Israeli certificates of origin apply to a substantial proportion of total exports into the EU of Palestinian originating products.

The EU will take steps to verify the accuracy of this information according to the procedures that have been agreed with Israel as follow-up to the Co-operation Committee. Should these violations of the Protocol on rules of origin be confirmed they should be ended.


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