Israel's ministers debate economic consequences of boycott

Israeli ministers continue to disagree over the repercussions of an economic and exports boycott.

al-monitor Secretary-General of the Organization for Economic Cooperation and Development Jose Angel Gurria (R) speaks during a news conference with Israel's Finance Minister Yair Lapid in Tel Aviv, Dec. 8, 2013. Photo by REUTERS/ Nir Elias.

Topics covered

israeli settlements, israeli economy, european union, boycott of israeli goods

Feb 3, 2014

The [Israeli government] officials discussing the effects of the global boycott against Israel are divided over the potential danger to the state. However, they all agree on one point — the situation at the moment may be unpleasant, but it is not that bad either. The prospects that the boycott will escalate into an all-out international embargo on trade with Israel, on the scale of the global boycott against the apartheid regime in South Africa, seem to be rather flimsy at present.

There are two main contending forces in the debate — the one attempting to play up the danger of the boycott gaining strength against Israel as the likelihood of reaching a diplomatic agreement between Israel and the Palestinian Authority is drifting away, while the other side seeks to play down the threat. On one side of the arena stands Finance Minister Yair Lapid, who said last week that according to a study conducted by the Ministry of Finance, in the event that the European Union would cancel the agreement granting Israel a special status in its relations with the European Union countries on the economic, diplomatic and cultural levels, and the like, it would have immediate negative repercussions on the Israeli economy, leading to the dismissal of 9,800 employees and causing the gross national product (GNP) an economic damage in the amount of 20 billion shekels [$5.6 billion]. Justice Minister Tzipi Livni, who serves as chief Israeli negotiator vis-a-vis the Palestinian Authority, is of the same opinion as Lapid.

On the other side of the arena stands Economy and Trade Minister Naftali Bennett, who has already been heard to say that missiles on the Ben Gurion Airport will weigh on the Israeli economy even more heavily than any boycott on exports from Israel. Yesterday, Feb. 2, Defense Minister Moshe Ya'alon followed suit and, in the line adopted by Bennett, stated at the Munich Security Conference that he hoped “we reach an agreement with the Palestinians, but even if an agreement is not reached — we will manage.”

Apprehensive of the 'day of judgment' looming ahead

According to evaluations by senior government officials, as well as by research fellows of the Molad research institute, which is associated with the Israeli diplomatic left, the truth lies somewhere in between. The boycott is unlikely to do the Israeli economy any irreversible damage, as Israel will always be able to fall back on markets like those of the United States, South America and Southeast Asia, to compensate for the partial loss of markets in Europe. Be that as it may, the foreseen scenario would still leave Israel scarred, hurt its image and undermine its international status far more severely than can be quantified in terms of shekels.

The question right now on the agenda, which both government officials and [Israeli] exporters are seeking to answer, is whether and when the damage to the Israeli economy will grow to become a major issue significantly affecting the economy. Or, to put it more precisely, the parties concerned are trying to anticipate the events that are bound to culminate in the “day of judgment” scenario materializing, as government officials yesterday, Feb. 2, characterized it.

One prerequisite is a stormy break-up of the talks currently held between Livni and the Palestinian Authority's chief negotiator, Saeb Erekat. The talks, launched last August, are scheduled to be carried on for nine months at the most. In fact, Erekat has already announced that he will not agree to the extension of the talks beyond the stipulated time frame. Needless to say that this statement of his may be challenged by the US administration, and diplomatic pressure could be exerted on him in case the Americans believe that the continuation of the talks is likely to bear fruit.

A second essential condition is a significant increase in the calls for boycott against the Israeli government, or more specifically, against Israeli companies that are doing business in the settlements. However, for such calls to seep into the mainstream of the public and the political echelons in Europe, they should be given legitimacy by official or academic bodies.

Indeed, one can already see this trend growing — for instance, in the UK, where heavy pressure exerted by pro-Palestinian organizations, as well as calls for boycott made by associations of university professors, have led the British Department of Trade and Investment to issue an advisory to British businessmen, warning them against deals with the Jewish settlements beyond the Green Line, for fear of “image damage.” It should be noted, though, that the message contained also a statement voicing the British government’s objection to any boycotts against Israel.

Meanwhile, the trend does not look positive. This week, the Danish Danske Bank announced the termination of ties with [the Israeli] Bank HaPoalim due to its activities beyond the Green Line, while the Swedish Nordea Bank asked [the Israeli] Bank Leumi and Mizrahi Tefahot Bank for clarifications regarding their activities in the territories. Furthermore, the National Pension Fund of Norway has reconfirmed its decision to refrain from investment in [the Israeli-based international holding and investment company] Africa Israel — this, for the very same reasons. And only last November, the Israeli government had to approve a complex legal settlement versus the European Union, so as to allow Israel to sign the Horizon 2020 [scientific cooperation] agreement and thus assure the participation of Israeli scientists in joint studies and research grants.

Having studied in depth the issue of boycott against Israel, Assaf Sharon, who serves as an academic director and a research fellow at the Molad research institute, believes Israel should be concerned not only over the implications of a boycott on trade with Israel, but also over the future economic relations of Israel, which are liable to decline, in the event that Israel's economic relations are denied the opportunity of further upgrading them.

As a case in point, Sharon cites the agreement on the upgrading of relations [between Israel] and the European Union, which was frozen during Operation Pillar of Defense. The agreement was designed to improve the status of Israel vis-a-vis the EU countries by removing trade and customs barriers and laying the groundwork for scientific and technological cooperation. However, so far, there has been no progress in the talks between the two sides — and this, due to the disagreements on the conflict between Israel and the Palestinians.

The impact is still limited

The [Israeli] government, for its part, is not waiting idly. In the Ministry of Strategic Affairs, headed by former Finance Minister Yuval Steinitz, they have been busy recently, formulating a strategy that is aimed at forestalling or, at least, significantly reducing the scope of a boycott. The plan is budgeted at several dozen million shekels, and it is to include an open public relations campaign, as well as meetings with European politicians. As part of the campaign, pro-Israeli activists will be urged to thwart boycott initiatives [against Israel] and perhaps even encourage purchase of Israeli products.

Meanwhile, it seems that neither the warnings by the British government nor the calls for a boycott have had any effect on British investors, as illustrated, for instance, two weeks ago, when the Israeli government issued state bonds on the London stock exchange. In fact, demands were particularly high, and some 1.5 billion euros were raised at a yield of 2.93%. That public offering has been deemed a great success, which only goes to show that boycotting peppers from the Jordan Valley is one thing, while issuing bonds on the stock market is quite another.

Continue reading this article by registering at no cost and get unlimited access to:
  • Al-Monitor Archives
  • The Week in Review
  • Exclusive Events
  • Invitation-only Briefings

More from  Mickey Peled