Israel has temporarily averted increased European Union duties on goods worth 204.6 million euro - goods that were manufactured in Jewish settlements in territories under the control of the Palestinian Authority.
Shimon Peres faces questions over duty
A major political and financial row between the European Union and Israel has been postponed after the EU threatened to impose higher rates of duty on Jewish products that were manufactured in settlements in the Gaza Strip and West Bank.
The EU has taken issue with the fact that products made in Jewish settlements within areas officially under Palestinian Authority control - the West Bank, Gaza Strip, East Jerusalem and the Golan Heights - cannot be sold under the "Made in Israel" label under trade agreements signed in 2000. The goods in question, worth 204.5 million euro ($200m), fall into this category.
Under the agreement, Jewish products made in Israel are subject to low or zero tariffs. Israeli goods from Palestinian areas are not covered. These would be subject to normal tariffs of duty. Products from the settlements make up about 2 per cent of the 7.7 billion euro ($7.6bn) -worth of exports from Israel to the EU and it is this percentage that would be affected.
The EU has an agreement with the Palestinian Authority, which allows exports from the West Bank and Gaza to enter Europe at similar low tariffs to those of Jewish products manufactured on Israeli soil.
In a bid to avoid a very sensitive political situation that calls into question the borders and legality of the occupied territories, Shimon Peres, the Israeli foreign minister, addressed the European Union-Israel Association Council in Luxembourg on Monday.
The crisis was temporarily averted when an agreement was made to suspend action on the issue until "technical talks" could be resumed next year. However, the issue is far from resolved.
Consequences for relations
It is unacceptable that Israel does not respect the agreement," said Danish Foreign Minister Per Stig Moeller, who chaired the meeting.
Per Stig Moeller led the European dissent.
The EU told the Israeli Foreign Minister that it could still impose full duties if no agreement was reached in the coming months, but Peres warned that the impositions could have grave consequences for relations.
"It would sound like an alarm," Peres told the Jerusalem Post after the meeting. "It would demonstrate Europe does not consider the very complicated situation as it is."
"This is a disproportionate issue," Peres said. "Financially, it's unimportant, politically it is very emotional. We should try to look at it technically, for a technical solution."
"Made in Israel"
It is not the first time that the issue has surfaced. Five years ago, the EU first began arguing that products from the settlements should not enjoy the tariff-free "Made in Israel" status.
In November 2001, a meeting between the EU and Israel ended with the Europeans threatening to send "advisory notes" to European importers, saying they themselves may face duties on settlement products in the future.
As well as haggling over financial matters, the EU delegation at Monday's meeting used the simmering disagreement to vent its collective spleen over a range of grievances it has with Israel.
"Israel must proceed with easing of restrictions on Palestinian population and allow full, safe, and unfettered access to the occupied territories for international and humanitarian personnel," added Per Stig Moeller.
"Israel must immediately stop the on-going expansion of settlements."
The European Union is also demanding that millions of dollars in tax revenues, which Israel has withheld from the Palestinians, be paid back.