Published in European-Israeli Relations: Between Confusion and Change, 2006.
“The European Union is Israel’s largest trading partner even if trade with the United States is growing rapidly and exports to it equal those to the EU. The EU is Israel’s largest source of imports by far, with close to $17.4 billion in goods and services in 2005, while Israeli exports to it are about $12.3 billion. This leaves a trade gap of about $5 billion in favor of the EU.”
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.
“Israeli companies should make a greater effort to penetrate the European market. Even more so as in Eastern Europe eight rapidly developing countries joined the EU in the enlargement of May 2004.”
When asked why, even taking all this into account, the trade gap is still major, Eran answers that the EU initially made some concessions to Israel. One was that there were clauses that were applied by the EU first, and only several years later by Israel. For instance, the EU dropped its tariffs immediately upon agreements coming into force, while Israel did so only after several years.
The Internet and Electronic Systems
Eran remarks: “It seems to me that structurally our economy is strong enough to compete. Where it is not, we should ask for concessions. One concerns certain issues of agriculture. For instance, the EU could give Israel larger quotas for certain flowers, or longer entry seasons without customs for certain fruits.
“But this concerns a relatively small segment of Israel’s overall exports. More important for us is to open the European market in areas where we have a relative advantage. The Internet and electronic systems now dominate many aspects of trade between individual countries. These are areas where Israel is relatively strong and we want to include these in our trade agreements within the EU.
“There are beginnings of regulations in the EU and elsewhere. Questions that emerge are: what control should governments have in these areas, and how should these be taxed? The EU and Israel have formed a joint working group to study how to proceed in these areas. It is important that we facilitate the relationship between Israeli companies and their European counterparts. We are talking mainly about services in telecommunication, information, various aspects of trade, and so on.”
“Space research is another area where Israel has a relative advantage. The EU is aware that it is lagging behind the United States and is trying to create its own capabilities. One important aspect is the Galileo program, which is the European equivalent of the American GPS system. We were one of the first non-European countries to reach agreement with the EU to join this program. Israel has contributed $18 million to it.
“This will allow Israeli companies with know-how and expertise in the relevant areas to participate in the various activities, including having a share in the production of whatever components are necessary.We are also aiming to become full members of the European Space Agency, which is a European though not an EU one.
“Israel also participates in the sixth-framework R&D program of the EU, which covers the period 2004-2008. This is the central EU program of R&D activities. We are now conducting negotiations on the level of Israeli financial participation in it. The EU has decided to dramatically increase its R&D budget in its financial prospective for the years 2007-2013.
“This means Israel will also have to increase its contribution in parallel unless the formula is changed. Such an increase, which might reach 30 percent per year, is an almost impossible challenge for us. Prime Minister Ehud Olmert has already discussed with several commissioners finding a way for Israel also to participate fully in the seventh program.
“At present Israel contributes about 50 million euros a year, which is a respectable amount of money. We have seen a full return on investment, even though it is difficult to measure. Not all benefits are measurable or even visible. Many connections are created between Israeli and European entities, either academic or industrial ones, that go beyond what one can see.”
“The environment is yet another field of interest. Israel faces the same problems on its Mediterranean shores as EU members such as Greece and Italy. That means we should have a similar approach to solutions and be given observer status in the European Environment Agency. This would enable us both to observe European policymaking and give an opinion when asked.
“Another important issue is whether Israel can join the European Investment Bank (EIB). At present its membership is open only to EU countries. Why should Israel not be able to participate in the activities of this bank as it does in regional banks in other areas of the world?
“We are, for example, participants and members of the Inter American Development Bank. We are also shareholders and have a member on the board of the European Bank for Reconstruction and Development (EBRD). It was created after the fall of the Iron Curtain in order to assist the East European countries.
“I have had conversations with the EIB’s vice-president on both the possibility of Israel participating in its activities, and it becoming active in Israel. There are potential areas of interest to the bank, such as water desalination or infrastructure.
“This would mean European companies could build desalination plants in Israel that would be partly financed by the EIB. They are already looking at participating in some transportation projects such as the light train project in Tel Aviv and the future train link between Tel Aviv and Jerusalem. They were starting to be interested in future transportation between Gaza and the West Bank, assuming this will be an underground train. I recognize a growing interest on both sides that could enhance economic relations. A major benefit of being a member of the EIB is that they could finance Israeli projects in Israel. This would be in line with their many domestic portfolios in Europe.”
“Political considerations were sometimes an unseen and unwritten impediment to economic collaboration. Both the Madrid Conference in 1991 and the Oslo Agreement of 1993 were turning points. They led to increased direct foreign investment in Israel and created an economically sound atmosphere for putting one’s money in our country in a number of areas. The EU has only a limited economic competence and by its nature has no influence over companies’ direct investment. All it can do is give the impression that the political atmosphere is conducive to investment.
“Despite the Palestinian uprising, Israeli economic performance attracts European companies to look deeper into the potential of several business areas. That was also the case when we discussed with the EIB areas such as telecommunication, transportation, and energy. We discussed the economic prospects and not the political side.
”At present Israel’s economic prospects look much brighter than they did in the first years of the Palestinian uprising. The EU and Israel have agreed on an Action Plan. This was a by-product of the enlargement of the Union. As a result of that, the EU now had direct borders with countries such as Ukraine, Moldova, and the very problematic-from the EU point of view-Belarus. On these borders there are many problems with illegal immigration, illegal workers coming in, and smuggling. Because of its specific history Israel has much useful know-how in border protection.
“The EU also had to define a policy for these new neighbors that were not candidates to become EU members. This led to a new European Neighborhood Policy and also included five Mediterranean countries, of which Israel is one. These agreements are based on the principle of differentiality, recognizing the partners’ different levels of economic development and their individual circumstances.
“This is unlike, for instance, the Barcelona process where every participant country has to progress at the same pace. This process was launched by the EU in 1995. It covered all the non-EU countries, including Jordan and the Palestinian Authority but excluding Libya. It aims at creating a political dialogue and establishing a Free Trade Area between the EU and each participant and among the non-EU participants themselves not later than 2010.
“Europe recognizes the special characteristics of Israel, allowing it to make progress according to its capabilities without taking into account the performance of Morocco, Tunisia, or Egypt. This 2004 agreement is set forth in a very comprehensive document. It deals with a political dialogue and cooperation in areas that are not covered by the existing association agreement. In some fields, such as space, new agreements may replace in future what is stated in the current association agreement. The life span of the Action Plan is three years, of which half has by now passed.”
Eran adds: “In the Action Plan it has also been agreed to have a political dialogue. It covers many issues that include the Middle East peace process, anti-Semitism, methods of combating terror, human rights abuses, weapons of mass destruction, cooperation with other countries, and Israeli participation in international bodies. Inaddition to political and economic dialogue, it also includes cooperation in fields such as justice, youth exchanges, sport-that is, areas not usually covered by economic agreements. It is a policy document, and we are working on turning it into something concrete.”
On the political side, Eran stresses that the East European countries’ entrance into the EU has made a significant difference for Israel. “Inthe past, from time to time, the Germans told us: ‘We are the only ones who defended you.’ Now many others do. The EU position has generally become more complicated with twenty-five members. Defining a common stance has become more difficult. Sweden and Ireland are probably the countries that most frequently raise their voices against Israel.
“The East Europeans are indeed friendly to Israel. The Czech Republic has been courageously in the forefront of the friends oflsrael. I have also rarely heard about any anti-Israeli initiative from the other two new members, Malta or Cyprus. Italy under Prime Minister Silvio Berlusconi was very friendly to Israel. The position of the new government of Romano Prodi still remains to be seen.”
The Beginning of a Change?
“When I came to Brussels as ambassador, the EU commissioner for external relations was Chris Patten from the UK.” Eran observes diplomatically: “There is no way to describe him as friendly to Israel, or even friendly to a specific government in Israel. For example, he tried, albeit not forcefully, to prevent the negotiations over the Action Plan. At the time several states criticized Israel or made public statements, yet to the best of my knowledge there was no attempt by any state to table a motion against Israel.
“There are some interesting signs of change. One notices a growing realism in the EU that their megaphone diplomacy is counterproductive to any constructive role they want to play in the Middle East. This came to the fore when, at the end of 2005, a report was prepared by the consuls-general of some European countries in Jerusalem including the UK, Belgium, Spain, France, and Greece. It was very critical of Israeli activities. Parts of the report were leaked.
“The EU Council of Ministers decided not to publish it after various lower bodies had decided to recommend publication. This I read as a sign of increased political realism. Itdidn’t mean the EU had changed its policies on the question of Jerusalem, but it understood that it doesn’t always have to express its views.”
Eran adds: “I also feel some change in France since 2005. Saying this, however, one has to be very careful. The EU, either collectively or its individual member states, have not changed their views on the Middle East conflict. By changing their practical behavior on some issues, it has become more feasible for Israel to conduct a serious political dialogue with them.
“I think it is possible and necessary to have such talks with Europe on Lebanon. The French historical role in that country, the
U.S. engagement elsewhere in the region (Iraq, Afghanistan), and the possibility that EU member states are major contributors to the international force that is being deployed there, are some of the reasons we should have this dialogue.
”Yet still every month statements critical of Israel keep coming out of the monthly meetings of the EU foreign ministers. These are written by mid-level diplomats of the member states. It rarely happens that they are not automatically approved by the ministers. The latter traditionally discuss the Middle East over lunch at these meetings. They hardly change the texts that have been written by these diplomats. Their final, written declarations do not even necessarily reflect the views expressed during lunch.
“More recently, while not changing its position toward Israel, the EU statements have become more critical of the Palestinian Authority. They are increasingly making demands regarding reforms and fighting corruption.
“The EU’s declared policy since the establishment of the llamas government has been unequivocal. The EU demanded that this government recognize Israel’s right to exist, accept all previous agreements between Israel and the Palestinians, and agree to the road map. Pending fulfillment of these three conditions, the EU refrains from having a dialogue with the llamas government and bypasses it in channeling its assistance to the Palestinians.”
Paying Attention to the EU Parliament
“It seems to me that there is growing support for Israel in the European Parliament since the entry of the new member states into the EU. Among the MEPs one finds a variety of views. Some call for Israeli membership in the EU, others for sanctions and boycotting of Israel. The overwhelming majority understand the problems we face in the Middle East from terror and extremism.
“Israel will have to pay more attention to the European Parliament and not only to the Council of Ministers and the commissioners. The Parliament is trying to assume a more decisive role in the EU’s decision-making.
“There is no doubt that terrorism has changed the views of Europeans generally, from the leaders to the people in the street. They see it as a menace to the fabric of European society. This leads to a growing understanding of Israel’s problems. The EU should long ago have put Hizballah on the list of terrorist organizations as it did with Hamas.
”Although the EU and especially France was instrumental in achieving UN Security Council Resolution 1559 on Lebanon, it should have exerted more effort to have it fully implemented, including the dismantlement of the militias. Although there has not been unequivocal support for Israel’s battle against Hizballah, nor has there been significant pressure on Israel to end the military campaign in a way that would leave it exposed to similar threats in the future. The EU, which in my view will play a major role in the attempts to stabilize Lebanon, will be tested in its ability to do so in a way that prevents the recurrence of the circumstances that led to the crisis in July-August 2006.
“European leaders unequivocally denounced the genocidal statements against Israel by Iranian president Ahmadinejad. Possibly his words changed European attitudes toward the Iranian nuclear program and made them more determined to confront this issue. One will have to wait and see. The Europeans can go beyond words, but their decision-making process is very slow as it needs the approval of the twenty-five member states. It will remain slow for a long time to come, certainly compared to a presidential decision in the United States.”
Eran concludes: “On the political side, the Gaza disengagement in summer 2005 and its mode of implementation transformed Europe’s perception of Israel’s then prime minister Ariel Sharon. Other important factors were the death of Arafat, the improved EU-U.S. dialogue on the Middle East, the EU position on Iran, and Israel’s acceptance of the road map.
“The EU’s only role in the Palestinian-Israeli conflict before the disengagement had been as a financial donor. Thereafter the EU assumed additional roles, one of which was operating the Rafiah crossing between Gaza and Egypt.
“A second was the upgrading of the Palestinian internal security forces and a third, the facilitation of trade relations between Israel and the Palestinian Authority. Hamas’s accession to power has posed major question marks concerning the last two.”
In an article in the Financial Times at the end of 2005, Eran underlined that the EU’s new role was assumed with Israel’s full concurrence.1 He maintained that there is thus an opportunity to transform the new opening into a profound and permanent change of heart and mind. He wrote that: “Europe and Israel have to return to a constructive political dialogue building on their revived mutual confidence.” He also stated: “If Israel trusts in Europe’s ability to play an effective and impartial role, that would ease the country’s deeply entrenched reluctance to admit the EU into sensitive areas affecting Israel’s security.”
- Oded Eran, “Israel and Europe Must Nurture Detente,” Financial Times, 16 December 2005.