Business Owners in Israeli Settlements Confront Boycott Threat

EU officials may require Israel to label products from its settlements

Sara Toth Stub, WSJ

JERUSALEM— Yaakov Berg said he first feared for the future of his winery a couple of years ago when a South African importer requested that he label his wine “Made in Occupied Palestine.” He refused, and lost the customer.

Last year, his sales to Europe and South Africa declined 50%, hurt by unofficial boycotts of goods made in Israeli settlements in the contested West Bank, Golan Heights and Jordan Valley.

So, to save his Psagot Boutique Winery, located in the West Bank north of Jerusalem, Mr. Berg is trying to reach global buyers by setting up an online store with a warehouse in the U.S. By selling online, he can bypass importers who are embracing the boycott calls and appeal to Evangelical Christians, who he says are eager to support Israel.

Mr. Berg said he would continue to identify his wine’s place of origin as the Judean Hills, a geographic description found in the Bible. “If I sit in my winery and do nothing, I will lose all of my business,” said the 38-year-old vintner, who has been raising grapes and making wine with his wife Naama since 2003. “This is my way of fighting back.”

With Israeli-Palestinian peace talks off the table and a newly elected Israeli right-wing government in power, politicians, economists and business owners here are increasingly worried about the vulnerability of Israel’s export-dependent economy.

On Tuesday, European Union officials said they were working to enact a measure requiring Israel to label products from its settlements, the Associated Press reported. The prospect of EU action added to fears here that the boycott movement could snowball, and pushed the issue to the top of Israel’s political agenda.

Prime Minister Benjamin Netanyahu told his cabinet this week that Israel  plans to step up efforts to fight the growing global calls for boycotting Israel and its products. “We are in the midst of establishing an offensive—first of all offensive, but also defensive—network in the face of attempts to boycott the State of Israel,” Mr. Netanyahu said at the weekly cabinet meeting.

His remarks came after Stephane Richard, chief executive of French telecom giantOrange SA, said last week, following pressure from European and Arab customers, that he planned to end an agreement that allows an Israeli cellular-service provider to use his company’s brand name. Orange later said it was considering leaving Israel for business, not political, reasons.

French Foreign Minister Laurent Fabius said Friday that France opposes a boycott of Israel, but individual companies can choose their own policies.

Last week, Israel also faced a motion to have it expelled from FIFA, the world soccer organization, and was the target of a new boycott by Britain’s National Union of Students.

“The danger isn’t the small enterprises in the West Bank, but a more general boycott,” said Michael Sarel, an economist and former director of economics at the Israeli Finance Ministry, which has carried out several simulations to assess the movement’s potential impact.

Farmers, factory owners and technology entrepreneurs in the Israeli-occupied territories are scrambling to adapt to the threat that their foreign customers might flee as the boycott movement gains steam. Its organizers aim to force Israel to vacate land on which Palestinians hope to establish a state.

OferTex Textile Recreation recently opened a factory in Egypt, to satisfy European clients who don’t want to buy its cleaning cloths made in the contested West Bank.

Farmers in the Jordan Valley have courted Russian customers, although they pay less than European companies for produce. Lipski Installation & Sanitation Products, located in the Israeli-controlled Barkan Indistrial Zone on the West Bank, is hoping to shift the bulk of sales to the U.S. from Europe to help offset the impact of the boycotts. The company makes plastic products including pipes and toilet seats.

Many Israelis play down the Boycott Israel movement as one made up of extremists with limited impact. Exports from the West Bank make up less than 1% of the country’s gross domestic product, according to government figures.

“We are talking about peanuts here economically,” said Joseph Ackerman, director of the Responsible Business Conduct unit at the Ministry of Economy, which works with Israeli companies who claim they are affected by boycotts. “But this is also a branding issue, and psychologically, and politically it’s an issue,” he said.

Launched by the Palestinian Authority in 2005, the movement known as Boycott, Divestment and Sanctions, or BDS, has picked up steam, in part because of deteriorating Israeli-Palestinian relations.

In the past year, peace talks with Israel have collapsed, and Israel has waged an armed campaign with Islamic militants in the Gaza Strip.

Europe, where the movement has gained popularity, is currently Israel’s largest export market, accounting for $24.5 billion of its goods a year. In 2014, exports to Europe accounted for 35% of Israel’s total trade, according to the Central Bureau of Statistics.

In the U.S., legislation criminalizes boycotting Israeli products. Recently a handful of states, including Tennessee and Indiana, have passed anti-BDS resolutions.

Across the West Bank, exporters say they have been losing contracts with mainly European clients and are taking various measures to cushion the blow. “We have to make up for the loss in Europe,” said Danny Mayerfeld, sales manager at OferTex Textile Recreation, a textile company that has appeared on activists’ list of boycott targets. “We have been blacklisted.”

Although the European Union has said it isn’t backing BDS, it has stopped funding research at Israeli institutions on land conquered in 1967. The Palestinian Authority fines local shops caught selling products made in the settlements.

France is pushing for a U.N. deadline to create a Palestinian state, and some Israeli government officials fear that in a worst-case scenario, a withdrawal from the West Bank could eventually be enforced with sanctions.

The loss of contracts with Europe has some settlement-based companies considering cuts to their heavily Palestinian workforces. Demand for Palestinian workers in the Jordan Valley’s agriculture industry, which employs about 6,000 Palestinians, is down.

The area’s revenue has dropped about 20% this year as European buyers abandon it, said David Elhayani, head of the Jordan Valley Regional Council. There are some 40,000 Palestinians employed in Israel’s settlements.

Mr. Berg says he knew that the location of his vineyard, in the Israeli settlement of Psagot, overlooking the Palestinian city of Ramallah was on land Israel conquered from Jordan in the Six Day War. But rather than arguing about politics, he is marketing himself as a Jewish farmer growing grapes where his ancestors grew them more than 2,000 years ago.

He has used that narrative to gain wealthy Jewish backers. Mr. Berg hopes his store, called Blessings of Israel, will sell products from his and other small businesses in Israel and its settlements. It plans to open ahead of Christmas.

“If you want to fight the evil, you need to bring more light,” he says. “That’s what our sages say, and that’s what I am trying to do.”