It is not "made in Israel" but "made in the occupied West Bank”

via Christian Science Monitor/Yahoo News

In the 45 years since gaining control of the West Bank, Israel has refrained from formally annexing the territory claimed by the Palestinians, in part out of fear of an international uproar. In trade, however, Israel has been labeling goods from Jewish settlements there as "Made in Israel" for years.

Now South Africa says it wants retailers of Israeli exports to designate products from the settlements – considered illegal by most of the international community – as made in the "occupied West Bank," a decision that some here fear could lead to a cascade of similar international efforts.

Indeed, South Africa's decision last week was followed by the government of Denmark within days, and has outraged Israeli officials who criticized the labeling rules as a "racist" step on the way to boycotting settlement products.

So far, international efforts to boycott settlement businesses have found little success. And while analysts say the move is unlikely to hurt Israel economically – West Bank industry is a fraction of the overall economy – the policy has the potential isolate Israel diplomatically if other countries follow suit.

"When people are asking, 'is it from the territories, is not?' It's mostly a political blow, not an economic blow," says Alon Liel, a former director general of the Israeli Foreign Ministry. "Because of South Africa's history of apartheid, it attracts attention regarding the legality of the settlements and fixes attention on the 'A' word. That is very meaningful because Israel has a soft belly here."

IN PICTURES – Unsettled: Jewish settlements in the West Bank

Palestinian officials welcomed the move as another lever to pressure Israel into halting expansion of Jewish settlements in the West Bank, a bone of contention which has stymied peace negotiations for more than a year and a half.

Boycott coming?

The move also raises fears that it will morph into a general boycott of all Israeli products – a stated goal of the Palestinian "Boycott, Divestment, and Sanctions" (BDS) movement.

A spokesman for the South African Embassy in Israel denied that the move amounts to a boycott because the country is not banning the import of products from the Jewish settlements. That said, the South African government wants to give citizens the option to avoid West Bank goods with transparent labeling.

"It's just to give our buying public a choice whether or not to buy," says Eugene Grobrer, the deputy head of mission at the South African Embassy in Israel. "It's for the consumer to decide what to do because there is a lot of sympathy for the Palestinian cause."

Though suburban towns have always been the most visible footprint of Israeli settlements established in the West Bank, there are several industrial zones around the West Bank which attract dozens of Israeli companies with government subsidies and tax breaks. Some of the settlements cultivate fields for agricultural exports.

In recent years, Mul-T-lock, an Israeli company acquired by a company in Sweden, relocated its facilities back across the Green Line into Israel, but it remains an exception.

Pro-Palestinian activists have sought a blanket ban on Israeli products at supermarkets in the US and Britain, with mixed success.

IN PICTURES – Unsettled: Jewish settlements in the West Bank

Racist, says Foreign Ministry

Israeli officials have expressed indignation to South African counterparts, arguing that the decision singles out Israeli manufacturers while ignoring other international territorial disputes. They argue that the settlement goods carry the "Made in Israel" label to indicate the goods are manufactured under Israeli standards, and don't point to a future annexation.

"Stigmatizing and shaming one country and its products based on national and political criteria … is tantamount to a move that bears clear racist characteristics," says Yigal Palmor, a spokesman for the Israeli foreign ministry.

Palestinian government officials said the move is a legitimate way to to contain Israel's settlement build-up and denied it's aimed at all Israeli goods.

"It is significant politically, and it will be significant economically in the future, because we hope other countries will join the boycott," says Ghassan Khatib, a Palestinian government spokesperson. "The hope is that this will contribute to holding Israel responsible for settlement expansion and hopefully stopping settlements expansion, which is necessary for the two-state solution."

Even though Israel's economy has barely felt any impact from the sanctions effort, one Western diplomat who has followed the boycott movement believes that it has long term potential to inflict damage. South Africa's move could start a slow moving snow ball if other Israeli products are tainted by consumers who can't distinguish.

"It's sheds light on this untenable contradiction about the territories. The Israeli authorities are seeking once again to erase the Green Line," says the diplomat, who was not authorized to comment publicly. "It opens up a can of worms if this starts being successful."