ISRAEL-EC ROW SET TO DEEPEN.

A row between Israel and the European Commission (EC) over Israel's violation of its trade agreement with Europe has intensified following Tel Aviv's refusal to address any of Brussels' concerns.

A 40-page report submitted to the EC by Israel in early July was "not a basis for a serious discussion," said well-placed officials in Brussels.

A short-lived informal dialogue on the issue between Israel and the EC had been suspended, he added. Europe could soon implement regulations which, although not formally banning the entry of products from Israeli settlements in occupied Arab territories, would have the same effect.

The row erupted early this year when Brussels complained that Israel was violating its trade accord with Europe. Israel was stung, retorting that Europe was seeking to pre-empt the outcome of the Middle East peace process.

EC-Israeli economic relations are governed by an Interim Agreement on Trade and Trade-related matters which came into force in 1996 and which provides for a wide range of tariff reductions and exemptions for Israeli products entering Europe and for European products entering Israel.

The agreement explicitly applies to "the territory of the State of Israel". Under international law, that means Israel without the occupied Arab territories. Israel, however, routinely exports goods from its settlements as if they had been produced in Israel itself, and enjoying the preferential tariffs of the agreement with the EC.

A closely related issue is Israel's interference with Palestinian trade with the outside world, for example by delaying the movement of perishable goods for security checks.

Israel's practices not only violate its own trade agreement with the EC. They also prevent the application of an EC trade accord with the Palestinians which went into effect last July but which Israel refuses to recognise.

In response to the EC's complaints, Israel established an inter-ministerial committee to examine the issue and in June an Israeli delegation held informal talks with the EC in Brussels.

No substantive progress was made but it was agreed that the Israelis would prepare a report to act as a basis for further discussions. They were given a lengthy checklist of points to be addressed.

The Israelis, however, produced a report which is "highly technical and very theoretical and which doesn't touch many of the issues we're interested in," said the EC official. It says nothing at all about the crucial issue of settlements and its terminology reflects Israel's refusal to recognise the EC-PLO trade agreement.

EC officials stress that progress will be impossible unless Israel recognises the 1997 EC-PLO trade agreement. If Israel does not act, the EC could call a meeting of a Customs Cooperation Committee established under the EC-Israel Interim Agreement to resolve contentious matters.

The committee could formally warn European importers to take special care with documentation and tariffs relating to goods from Israeli settlements in occupied territories.

A bigger problem for Israel than tariffs could be non-recognition of official Israeli certificates of origin and quality accompanying the goods.

"In law, the settlements are not Israeli, so we could never accept Israeli certificates," stressed the EC official.

Since virtually all goods traded internationally require certification, goods from Israeli settlements could in effect be banned from Europe.

The ball is in Israel's court. "We want proposals which might resolve at least some of the outstanding issues," said the EC official. "We won't have any more informal contacts with the Israelis if we're not discussing serious issues."

A spokesman for the Israeli mission to the EC suggested that the lack of progress was "because it's the summer vacation period" but he then conceded that movement was awaiting "decisions which must be taken in Israel".