In a stinging rebuke to Israel, the European Unioninsisted on Wednesday that some goods produced on land seized in the 1967 war must be labeled “made in settlements,” a mandate that added to Israel’s deep unease over a growing international boycott.
European officials tried to play down the decision, saying the guidelinesmerely clarified existing rules. But the move exacerbated already simmering tensions between Israel and Europe as Israeli politicians condemned it as an echo of the Holocaust-era branding of European Jews and their storefronts with yellow stars.
The European Union is Israel’s top trading partner, though products from the occupied West Bank, the Golan Heights and East Jerusalem that will now require special labels amount to less than 1 percent of Israel’s $13 billion in annual exports to the bloc’s 28 countries. But while the immediate economic impact is expected to be minimal, there is fear that the logic behind the labeling could be extended to the broader economy by targeting businesses that have operations or affiliates in the contested areas, as many do.
For example, Israeli banks that provide mortgages to homeowners in theWest Bank could become vulnerable to divestment from Europe, retail chains with outlets in settlements could be barred from the Continent and manufacturers that use parts made in factories there could face labeling or sanctions.
Some have even suggested that settlement residents could lose the privilege that allows Israeli citizens to travel to Europe without a visa.
“The Israeli pushback is about trying to intimidate Europeans from not going further down this path,” said Daniel Levy, Middle East director at the European Council on Foreign Relations. “The Israelis want this process to move as slowly as possible, because at a minimum it’s a headache, and at a maximum, ultimately, it could be devastating.”
The European Union’s decision to proceed on guidelines years in the making, despite fierce lobbying by Israel and intervention by a group of United States senators, came after several of its member states, and its own Parliament, formally or symbolically recognized an independent Palestinian state. Those resolutions reflect mounting frustration in Europe over the stalemated peace process and the growing political pressure on leaders in countries with large Muslim populations sympathetic to thePalestinian cause.
A spokesman for the European Commission, speaking on the condition of anonymity because of the sensitivity of the subject, said Wednesday’s move “in no way changes” the bloc’s stance on the peace process or Israel’s special treatment in European markets, where “Made in Israel” items carry little or no tariffs. But “products coming from the settlements cannot benefit from those preferences,” the spokesman said.
Israel summoned the European Union ambassador, Lars Faaborg-Andersen, to the foreign ministry and informed him that Israel was suspending diplomatic talks scheduled for various forums in the coming weeks. Prime Minister Benjamin Netanyahu and a host of other Israeli leaders denounced the move as hypocritical because no such labels were proposed for products from occupied territories elsewhere in the world, and they said it was particularly painful after weeks of Palestinian attacks against Israeli Jews.
“The E.U. should be ashamed,” Mr. Netanyahu said in a statement. “The E.U. has decided to label Israel, and we are not prepared to accept the fact that Europe is labeling the side that is being attacked by terrorism.”
The labeling rules apply to fresh fruit and vegetables, wine, honey, olive oil, eggs, poultry, organic products and cosmetics coming from Israeli-owned businesses and farms outside the state’s original borders.
Rather than “product of Israel,” these goods must be labeled with the term “settlement,” or “its equivalent,” the rules say, as in “product of West Bank (Israeli settlement).” Goods from Palestinian-owned businesses can say “product of Palestine” or “product of West Bank (Palestinian product).”
The producer, exporter and importer are responsible for complying with the regulations, but it is up to member countries to ensure that the rules are followed, officials in Brussels said. The new standard is optional, not mandatory, for packaged foods and industrial products.
The guidelines from the European Commission, the bloc’s executive body, come after foreign ministers from some member nations, first in 2013 and again this April, urged Brussels to take action. Some nations — Britain in 2009, Denmark in 2013 and Belgium in 2014 — had already issued their own labeling guidelines.
Palestinian leaders welcomed the initiative, but said it did not go far enough.
Settlement-based businesses “make products with stolen natural resources on the land of the Palestinian people,” Saeb Erekat, secretary general of the Palestine Liberation Organization, said in a statement. “Those products should not only be labeled, but should be banned.”
The boycott movement, which started a decade ago, calls for cultural, academic and economic boycotts of Israel and has gained steam over the past year. The movement has growing support on American college campuses, and has claimed credit for the withdrawal by various international companies from projects in East Jerusalem and the West Bank. Israeli professors lately have reported cold treatment from universities abroad. This past weekend, the Brazilian singer Caetano Veloso announced that he would no longer perform in Israel because of what he saw this summer in the West Bank after a concert he did in Tel Aviv in defiance of calls for a boycott.
There are about 1,000 Israeli companies operating in more than a dozen industrial zones in West Bank settlements, and roughly 23,000 acres of Jewish-run farms. The Golan Heights has many wineries whose wares have won international accolades.
About 25,000 Palestinians work legally for Israelis in the West Bank, earning as much as three times the wages paid by Palestinian companies, and Mr. Netanyahu and other Israelis said they would be the first to suffer from the step. But Mohammed al-Arqawi, a Palestinian union leader affiliated with the boycott movement, said such consequences were worth achieving a broader goal.
“We believe that economic and political pressure is needed to challenge Israel’s ability to deny us our basic rights,” he said in a statement. “People who are genuinely concerned about Palestinian workers should take action to end Israel’s deliberate destruction of the Palestinian economy and its exploitation and oppression of our people.”
Israeli politicians aligned with Mr. Netanyahu and those very much opposed to him seemed to be competing in their condemnations on Wednesday.
Yair Lapid, head of the centrist Yesh Atid party, said the move “discriminates against Israel and encourages terror.”
Avigdor Lieberman, the ultranationalist former foreign minister, wrote in apost on Facebook: “Each time Europe marks Jews is a sign that anti-Semitism, insanity and hypocrisy have taken over and will lead to disaster for the entire free world.” Michael B. Oren, a lawmaker in Mr. Netanyahu’s coalition and former Israeli ambassador to Washington, included with his denunciation a Nazi-era photo of a storefront painted with “Jude,” the German word for Jew, and a Star of David.
For Vered Ben-Sadon, it was personal. She is co-owner of the Tura Winery in the West Bank settlement of Rechalim, which exports 40 percent of its 56,000 bottles annually with labels that say “wine from the Land of Israel.” She is also the granddaughter of a Holocaust survivor.
“In the past Jews were marked with a yellow patch, and today they are looking to mark our products,” Ms. Ben-Sadon, 38, said on Israel Radio. “Europe, rather than atoning for what it did 70 years ago, is repeating the same ideas.”
But Yariv Oppenheimer, director of the Israeli group Peace Now, said that anyone who likened labeling to a boycott — which he opposes — was “getting confused.”
“This decision can strengthen Israel because it says there is a difference, and what is produced in Israel is legitimate — buy it, invest and continue the ties,” Mr. Oppenheimer said in a radio interview. “It is the right of every person and every country to say we don’t want to be part of this thing you are doing in the territories.”