A row between Israel and the European Commission (EC) over Israel's violation of its trade agreement with Europe has intensified following Tel Aviv's refusal to address any of Brussels' concerns.

A 40-page report submitted to the EC by Israel in early July was "not a basis for a serious discussion," said well-placed officials in Brussels.

A short-lived informal dialogue on the issue between Israel and the EC had been suspended, he added. Europe could soon implement regulations which, although not formally banning the entry of products from Israeli settlements in occupied Arab territories, would have the same effect.

The row erupted early this year when Brussels complained that Israel was violating its trade accord with Europe. Israel was stung, retorting that Europe was seeking to pre-empt the outcome of the Middle East peace process.

EC-Israeli economic relations are governed by an Interim Agreement on Trade and Trade-related matters which came into force in 1996 and which provides for a wide range of tariff reductions and exemptions for Israeli products entering Europe and for European products entering Israel.

The agreement explicitly applies to "the territory of the State of Israel". Under international law, that means Israel without the occupied Arab territories. Israel, however, routinely exports goods from its settlements as if they had been produced in Israel itself, and enjoying the preferential tariffs of the agreement with the EC.

A closely related issue is Israel's interference with Palestinian trade with the outside world, for example by delaying the movement of perishable goods for security checks.

Israel's practices not only violate its own trade agreement with the EC. They also prevent the application of an EC trade accord with the Palestinians which went into effect last July but which Israel refuses to recognise.

In response to the EC's complaints, Israel established an inter-ministerial committee to examine the issue and in June an Israeli delegation held informal talks with the EC in Brussels.

No substantive progress was made but it was agreed that the Israelis would prepare a report to act as a basis for further discussions. They were...

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