ISRAEL - May 21 - The EU Hits Israel.

In a meeting in Brussels between European and Israeli diplomats and trade experts, the Europeans say they are completing a review of imports from Israeli companies that could lead to the revocation of their duty-free treatment under Israel's trade pact with the EU. The Europeans contend that Israel has exported juice from West Bank, oranges and flowers from Gaza as goods "Made in Israel", gaining free access to the European market in contravention of their strict rules of origin governing imports. The EU Ambassador to Israel Giancarlo Chevallard, interviewed by phone after taking part in the meeting in Brussels, says: "We do not consider this to be in accordance with our trade agreement. Our agreement only includes the pre-'67 frontiers". European trade officials say they have sent written queries to more than a thousand Israeli companies seeking precise information about the location of their facilities and the source of their raw materials. Officials say $2 bn of Israel's annual $7 bn exports to Europe could be penalised by a policy change, as many Israeli manufactured goods incorporate some materials from settlement communities. Lucrative sales of winter fruits and vegetables from the Jordan River Valley, divided between Israel and the West Bank but managed by Israelis as a single agricultural district, could also be penalised. The biggest and most visible targets of the threatened tariff move would be vintage wines from the Golan Heights and cosmetics derived from Dead Sea minerals, high-profile products with little connection to the embattled Jewish settlements of Gaza and the West Bank. EU officials say the tariff review is aimed at cutting off indirect economic support for Jewish settlements. The EU's external relations commissioner Chris Patten in a speech to the European Parliament last week said: "The EU's position on settlements is clear: All settlement activities in Gaza, the West Bank, including East Jerusalem, and on the Golan Heights are illegal under international law and constitute a major obstacle to peace". European diplomats have characterised their determination to enforce the change as part of an effort to force a halt to Israeli settlement activity as part of a broader Middle East peace initiative. Israeli officials have denounced the policy shift, although some peace advocates here welcome the tougher European line. A spokesman for an organisation representing the 200,000 Jewish settlers in Gaza and the West Bank Yehoshua Mor-Yosef says: "I don't believe it will have a very serious impact. Most of things we make are sold inside Israel. Very little goes to Europe".