On June 21, 2000, Israel and the member states of the European Union (EU) signed a trade agreement for products from Israel to be imported into the EU-countries at a preferential tariff rate. Theoretically, this agreement only applied to products of Official Israeli origin. Thus, products of firms operating in the West Bank were not intended to take advantage of the agreement. But soon after it was established, many firms located in the West Bank still labelled their products as being of Israeli origin. In response to this problem, the European Commission (EC) issued a technical arrangement to Protocol 4 in the EU-Israel Trade Agreement whereby Israeli firms would have to acquire a certificate of origin for their products. Specifically, this meant that exporters would have to provide a proof of the precise location of the production facilities in order to claim the associated trade benefits. In addition, retailers in the EU selling Israeli products originating from the West Bank were expected to distinguish these products from products originating from Official Israel. This was implemented in all EU member countries, including the UK, from February 1, 2005.
The policy had two main effects on the profitability of Israeli producers operating in the West Bank. First, consumers in the EU-countries gained knowledge about the true origin of the products. This may have had an influence on demand and affected consumption choices. Second, because of the differentiation in place-of-origin (between Official Israel and the West Bank), the products were no longer qualified to take advantage of the EU-Israel Trade Agreement. This was, in effect, the same as imposing a tariff on the products.
This thesis investigates the impact of these effects on Israeli vegetable producers exporting to the UK. It finds that although the value of their exports decreased after the implementation of the amendment to Protocol 4, the negative impact on the profitability of exporters may in part have been counteracted by a more beneficiary subsidization policy of the Israeli Government. Furthermore, the impact of political perceptions on consumption is questionable (due to both the asymmetrical impact of consumers with different political perceptions and the unverified relationship between perceptions and consumption). As a result, it is believed that a large share of the decrease in the value of exports is due to the direct effect of expulsion from the Trade Agreement.