Select Committee on European Legislation Thirty-First Report


IMPLEMENTATION OF EC/ISRAEL TRADE AGREEMENT

(19154)

8797/98

SEC(98)695

Commission Communication on the implementation of the Interim Agreement on trade and trade-related matters between the European Community and Israel.
Legal base:
Document originated: 12 May 1998
Original language: French
Forwarded to the Council: 14 May 1998
Circulated by the Council in the original language:
20 May 1998
Circulated by the Council in English:
25 May 1998
Deposited in Parliament: 3 June 1998
Department: Foreign and Commonwealth Office
Basis of consideration: EM of 12 June 1998
Previous consideration: None
Committee's assessment: Politically important
Committee's decision: Cleared



The Commission Communication

    8.1  The Commission recalls that the Barcelona Conference in November 1995 launched the Euro-Mediterranean Partnership and that this incorporates multilateral and bilateral activities which aim to establish, progressively, a Euro-Mediterranean area of regional security, shared prosperity and mutual understanding. The Commission says that actions at both levels and in parallel have already started to make substantial progress in fostering political, economic and social integration in the region, North-South, as well as South-South among the Mediterranean partners themselves.

    8.2  The Barcelona Declaration stated that, parallel with the Association Agreements between the Community and the Mediterranean partners, the latter would conclude bilateral free trade agreements between themselves, and eventually a Euro-Mediterranean Free Trade Area (FTA) would be established, with a target date of 2010. An essential tool for facilitating the gradual establishment of this FTA, through the development of South-South commercial ties, is, the Commission says, the progressive introduction by the EC of diagonal cumulation of origin[10]. We report on the Communication on the technical steps that must be taken so that the EC is in a position to grant diagonal cumulation of origin to the Mediterranean partners at paragraph 10 below. The Commission emphasises that a necessary pre-condition for making diagonal cumulation functional is full compliance with those agreements which have already been entered into.

        —  EC bilateral relations with Israel

    8.3  The Euro-Mediterranean Association Agreement was concluded in 1995[11] and, when ratified, will replace the 1975 EC/Israel Co-operation Agreement. At present, economic and trade relations between the European Community and Israel are governed by the Interim Agreement on Trade and Trade-related Matters, pending ratification of the Euro-Mediterranean Association Agreement.

    8.4  The Commission notes that Israel has expressed a wish to expand present co-operation to new areas. The Commission says that "the EU is willing to do so provided that the rules of the Interim Agreement are complied with and provided that the peace process will be sustained".

        —  Implementation of the EC-Israel Interim Agreement

    8.5  This agreement allows bilateral cumulation, but not yet diagonal cumulation. Therefore, goods substantially manufactured elsewhere cannot be exported into the European Community as if originating in Israel. The Commission says that in July 1997 it noted that Israel was not complying in full with its obligations. Considerable progress has since been made in the case of Brazilian orange juice being sold into the EC as Israeli, which caused an estimated loss to the EC budget of 40 million ECU (£27 million).[12] However, the Commission says, two obstacles stand in the way of correct implementation. Both relate to exports to the European Community of products as if originating in Israel whilst in fact being produced in:

        —  Israeli settlements, East Jerusalem and the Golan Heights, and

        —  the West Bank and Gaza Strip.

    8.6  Article 38 of the Interim Agreement specifies that it applies to the territory of the Member States and "to the territory of the State of Israel". The Commission concludes that, according to international public law, including the relevant UN Security Council Resolutions, these territories cannot be considered to be part of the State of Israel.

        —  Alleged violations

    8.7  The Commission says that there is evidence that many products produced wholly, or substantially processed, in the West Bank and Gaza Strip, are being exported into the European Community as Israeli originating products. It details some of the main alleged violations of the Interim Agreement. These include:

        —  exports. Palestinian products are said to be subject to security checks three or four times en route to Israeli outlets, making for damage, delay, extra costs and a bad reputation with European partners, particularly in relation to perishable products, such as fruit and flowers. To avoid delays, some producers of cut flowers export through the Israeli agency AGREXCO, which requires them to deposit a sum equal to the 14% duty that would be charged by the EC if it were to discover that the flowers had been exported as if of Israeli origin.

        —  imports. It has been alleged that pledges required of Palestinian importers are not required from Israeli importers and appear to be designed to protect the Israeli importing agent for the same product. The Commission suggests that import licences are often not granted, or are delayed, by the Israeli authorities. One reason often given is that the products fail to meet standards which, it is alleged, are not included in the Israeli import regulations.

    8.8  It has also been alleged that priority is given to Israeli shipments and that at some outlets Palestinian exporters have to pay higher handling charges. The Commission suggests that, until they have access to the outside world, it is crucial that Israel facilitates the free movement of Palestinian goods through its territory.

    8.9  In conclusion, the Commission says that the EC 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 of November 1997. If proved, these violations of the rules of origin constitute major obstacles to trade between the EC and the Palestinians and should be brought to an end.

The Government's view

    8.10  The Minister of State at the FCO, Mr. Henderson, says that the Commission's view on the extent of the State of Israel is in line with the agreed EU position and with international law. He says that the report

        "...also highlights the concerns of all Member States, including the UK, that the Palestinians should be allowed to benefit from the EC/PLO agreement signed last year."

    8.11  The Minister says that the Communication will be discussed in bilateral talks between the Commission and Israel, before any formal Council Conclusions are made. Depending on the results of these consultations, Conclusions may be adopted at the 29 June General Affairs Council.

        "Any concrete steps will need to be taken in the light of progress on regional cumulation of origin, ... which would allow an Israeli manufacturer of goods for export to the EU under the EC/Israel agreement to use Palestinian originating materials and vice-versa. The Government strongly supports this goal. The Government is also keen to ensure that any action taken on the EC/Israel agreement does not inadvertently harm the interests of Palestinian exporters, or prejudice current EU efforts to secure progress in the Middle East Peace Process."

Conclusion

    8.12  On 18 February 1998, we considered the Commission's Communication on the role of the EU in the Peace Process and its future assistance to the Middle East[13] and on 11 March a letter from the Minister of State at the FCO, Mr Henderson, in which he informed us that the 23 February General Affairs Council had agreed a strategy aimed at improving the effectiveness of EU assistance to the Palestinians. This included intensification of the EU/Israel dialogue on the removal of obstacles to Palestinian economic development. The Minister expected the EU to decide to maintain its financial assistance to the Palestinian Authority, despite its effectiveness having been undermined by Israeli actions and concerns over corruption and mismanagement of resources by the Palestinian Authority. This Communication provides details on the obstacles which was lacking from the earlier Communication.

    8.13  The Minister places faith in regional cumulation of origin resolving "many of the problems identified" in this Communication. He also says that the Government supports "the Commission's analysis that the establishment of regional cumulation of origin will require the removal of Israeli barriers to the Palestinian economy, and Israeli recognition of the EC/PLO agreement."[14] We ask the Minister to inform us after the 29 June General Affairs Council of the Council's decision on how it intends to proceed.


10  Incorporation of materials from one or more EC partners within a regional grouping into articles exported as originating products from solely one of the partners; as opposed to bilateral cumulation of origin: incorporation of materials from the EC into articles exported as products originating in one EC partner. Back

11  (16788) 10781/95; see HC 51-viii (1995-96), paragraph 11b (31 January 1996). Back

12  1 ECU = £0.6771. Back

13  (18830) 5390/98; see HC 155-xvii (1997-98), paragraph 4 (18 February 1998). Back

14  See paragraph 10 below Back


 
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