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Quick Thoughts: Hugh Lovatt on Calls for European Union “Differentiation” in Relations with Israel

[On 22 July 2015 the European Council on Foreign Relations (ECFR) issued “EU Differentiation and Israeli Settlements”, a report that called upon the European Union (EU) to take a more robust approach to Israel and foreign institutions implicated in the occupation and specifically Israel’s illegal settlement enterprise in the occupied Palestinian territories. Jadaliyya asked Hugh Lovatt, Israel/Palestine Project Coordinator at ECFR, to explain the logic behind the report and particularly its calls for sanctions against the Israeli financial sector]

Jadaliyya (J): "Differentiation" is perhaps the key concept in the European Council on Foreign Relations’s recent report on relations with Israel. Please explain this term and its relevance.

Hugh Lovatt (HL): “Differentiation” refers to the European Union’s requirement to differentiate between Israel and the occupied territories, and particularly between Israel and its settlement activities irrespective of their geographical origin, within the framework of EU-Israel bilateral relations. Our premise is that the European Union is a rules-based community and therefore has a duty to ensure that its actions conform to its own rules and regulations, as well as to the various tenets of international law. This means that the EU has a legal duty to not recognize an illegal annexation, and to refrain from assisting policies that violate international law in the context of a military occupation of foreign territory, as in the case of Israeli control over the occupied Palestinian territories.

Israel is particularly exposed to the EU’s legal requirements given the depth and breadth of its ties to Europe. Israel can only continue to benefit from significant interactions with Europe if it accommodates the EU’s need to comply with its own legal requirements and obligations. This would require Israel to either create its own clear differentiation or end its settlement policies. The alternative would be for Israel to lose the ability to conduct normal relations with Europe.

So the more Europe’s commitment to its own legal stipulations clashes with Israel’s political insistence on blurring the distinction between Israel and the occupied territories, the more Europe should challenge Israeli efforts to integrate its settlements as fully as possible into Israel’s economic and social fabric. Based on this, we think that EU differentiation represents one of the most powerful tools at the EU’s disposal for challenging the incentive structure that underpins Israeli support for the status quo. 

J: Why did ECFR choose to focus specifically on banking and finance in this report rather than, for example, settlement products as many other organizations do, or other sectors that are also largely unexplored?

HL: Our report looks at a number of areas where differentiation could be deepened. For example, we explore what implications the EU’s non-recognition requirement might have on the pension entitlements of dual EU-Israeli citizens living in Jewish settlements in the occupied territories. Another issue concerns the legal status within the EU of documents issued by Israeli entities in the occupied Palestinian territories, such as academic degrees issued by Ariel University in the West Bank. We also ask whether it should remain permissible for organizations based in Europe that support settlement activities to receive tax deductions within the EU. 

However, in our view EU differentiation can have the greatest impact if applied to Israel’s financial sector. This is because Israeli banks play an integral part in the maintenance and expansion of Israeli settlements. At the same time, these financial institutions engage in daily transactions with European banks. This would seem to raise a serious question as to whether the day-to-day exchange of funds between European and Israeli financial institutions complies with the EU’s requirement to not provide material support to the occupation.

Although the EU has so far taken no action on this front, merely mentioning this issue in our report caused the value of several Israeli banks to drop by some 2.5 per cent. To my mind this highlights the anxiety already felt by many within Israel's financial sector in this regard, and exposes Israel's Achilles’ heel: the fact that in reality there is no such thing as a settler economy distinct from that of Israel, and that it takes very little for EU measures directed against the settlements to have an impact on the day-to-day lives of ordinary Israelis within the Green Line. Thus far such Israelis have generally viewed themselves as insulated from the consequences of the occupation.

J: Is ECFR primarily calling on the EU to apply existing European legislation concerning relations with Israel, or also to expand this legislation?

HL: Based on our assessment it is not new legislation that is required, but rather a more coherent implementation of existing rules. The legal basis exists in both EU and international law as well as in the legislation of individual EU member states. Just as importantly, the political mandate for further action also exists, thanks to a number of European Union Foreign Affairs Council Conclusions collectively adopted by all EU Foreign Ministers, most recently in July. Even EU members such as Germany and the Czech Republic, who tend to be more supportive of Israel than other EU governments, have shown themselves to be receptive to this approach.

J: Does ECFR think its recommendations stand a realistic chance of being implemented? If so, which ones does it consider most likely to be implemented and which would it consider the most important?

HL: A number of steps recommended in our report, such as labelling settlement products and issuing business advisories, have already been adopted by a majority of EU member states. What is needed is for the European Commission to issue its own EU-level guidelines, something it looks like doing shortly in the case of labelling. Issues relating to the legal status of settlement documents and pensions for dual EU-Israel citizens are currently also under discussion. Action on Israel’s financial sector remains a distant prospect, but the same considerations identified in our report have already led a number of European banks and pension funds to divest from Israeli entities implicated in the occupation.

To conclude, I would say that differentiation has already become de-facto EU policy in all but name. Given the non-existent prospects for initiating a meaningful peace process any time soon, it is also increasingly difficult for the EU to justify slowing down the implementation of this principle in order to not “rock the diplomatic boat”. Ultimately, the more that differentiation builds up its own momentum, the more its logic will require further action, and the more this will impact Israeli calculations towards continuing the occupation and start gnawing away at the sense of impunity with which Israel behaves in the occupied Palestinian territories.

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