Israel sees the European Union’s recently issued guidelines on labeling some of its settlement products as the thin edge of the wedge. It fears this will open the door to stronger measures against its illegal settlement enterprise and is marshaling pro-Israel forces in Europe as well as in the United States. One of its oft-repeated arguments is that labeling harms Palestinian workers.

In this policy brief, Al-Shabaka Policy Fellow Nur Arafeh and Policy Advisors Samia al-Botmeh and Leila Farsakh debunk Israel’s arguments by demonstrating the devastating impact Israel’s settlement enterprise has had on the Palestinian economy, dispossessing Palestinians of their land, water, and other resources and creating mass unemployment. They also address the status of those Palestinian workers – a minority of the work force – that have been forced to earn a living in the very settlements that have done so much damage to the Palestinian economy and to Palestinian rights more broadly. They go on to examine the European Union (EU) move and recommend additional steps the EU should take to be fully compliant with international and European law. 1


It has taken years for the EU to develop its position on the labeling of goods produced in the settlements Israel has built in Palestinian and Syrian territory since occupying it in 1967. The European Commission issued a statement in 1998 that Israel was suspected of a breach of the EU-Israel Association Agreement, which was signed in 1995 and came into effect in 2000, and which exempted Israeli goods from customs duties. In 2010, the European Court of Justice confirmed that products originating in the West Bank did not qualify for preferential customs treatment under the EU’s Association Agreement with Israel, and that assertions by Israeli authorities were not binding upon EU customs authorities.

However, it was only in 2015 that the EU took the long overdue step of aligning its actions with its own regulations, partly in response to growing civil society pressure to recognize the illegality of settlements. On September 10, the European Parliament passed a resolution calling for the labeling of goods produced in the Israeli settlements as produced in “Israeli settlements” rather than in “Israel” and ensuring that they would not benefit from preferential trade treatment under the EU-Israel Association Agreement. Two months later, on November 11, the EU issued its long-awaited guidelines regarding labeling, which it described in low-key language as an “Interpretative Notice.” However, settlement products will still be traded with the European Union (EU), leaving it to consumers to make an “informed decision” as to whether to buy these products or not.

Israel claims that the EU move is “discriminatory” and that it is harmful to the Palestinian economy in general and to Palestinian workers in particular. This is clearly an attempt by Israel to divert international attention from the reality of the illegal settlement enterprise, its profoundly negative effects on the Palestinian economy, and the moral and legal obligations of the EU. In fact, Israel’s entire settlement enterprise is illegal under international law, as reaffirmed by the International Court of Justice in its Advisory Opinion on Israel’s Separation Wall in 2004. Israel’s transfer of its population to the occupied territory is a breach of the Hague Regulations of 1907 and the Fourth Geneva Convention of 1949.

The Settlements’ Economic Exploitation of the OPT

This policy brief focuses on the territories Israel occupied in 1967 – the West Bank, including East Jerusalem, the Gaza Strip, and the Golan Heights – and more specifically on the Israeli settlements and outposts that were built in the occupied Palestinian territory (OPT). 2 It does not tackle all of Israel’s violations of international law and of Palestinian rights.

The fact that Israel’s settlement construction has been based on the economic exploitation of the OPT has been widely documented. This has included the confiscation of large swathes of Palestinian land and destruction of Palestinian property to use for construction and agriculture purposes; seizure of water resources to the extent that 599,901 settlers use six times more water than the whole Palestinian population in the West Bank of some 2.86 million; appropriation of touristic and archeological sites; and exploitation of Palestinian quarries, mines, Dead Sea resources, and other non-renewable natural resources, as will be discussed below.

Settlements have also been supported by an infrastructure of roads, checkpoints, and the Separation Wall, leading to the creation of isolated Bantustans in the West Bank, and to the appropriation of more Palestinian land.

As a result, Israeli settlements now control around 42% of West Bank land. This figure includes built-up areas as well as the municipal boundaries of the Israeli settlements. These boundaries actually encompass an area 9.4 times larger than the built-up areas of the West Bank settlements and are off-limits to Palestinians unless they have permits.

The majority of settlements in the West Bank are built in Area C, which represents 60% of the West Bank and which is richly endowed with natural resources. 3 According to a World Bank study, 68% of Area C has been reserved for Israeli settlements, while less than 1% has been allowed for Palestinian use.

Within Area C, Israeli settlement exploitation is concentrated in the Jordan Valley and the northern part of the Dead Sea. Israeli settlements control 85.2% of these areas, which are the most fertile land in the West Bank. Their abundant water supply and favorable climate provide the best conditions for agriculture. Indeed, they yield 40% of date exports from Israel. Meanwhile, Palestinians are prevented from living there, building, or even herding their livestock under the pretext that the land is either “state land,” “a military zone” or a “natural reserve.”