The municipality of Modi’in-Maccabim-Reut appears for the first time on the European Union’s newly published list of settlements whose exports will not be considered as made in Israel,and thus will not be eligible for tax breaks when imported to EU member countries.

The information was confirmed by the spokesman of the EU Delegation in Israel, who said that the EU does not recognize the region defined as “no man’s land” as a part of Israel. This means that parts of Modi’in and Maccabim-Reut are included in the list of places not recognized as being in Israel for tax purposes under the free-trade agreement between Israel and the European Union.

The no-man’s land refers to the strip of land between Israel and the West Bank, about 1 to 3 kilometers wide, whose sovereignty was unclear after the 1948 War of Independence. Another such area is found in Jerusalem, between the eastern and western parts of the city.

In 1995, Israel and the European Union signed a trade agreement, which came into effect under the EU-Israel Association Agreement in June 2000. Under the agreement, in bilateral trade deals, most goods made in Israel or Europe received preferential tax breaks from the importing country. During the past decade, Israel and the EU reached an arrangement whereby products must be labeled with their place of manufacture and that those items made in the areas settled by Israel since 1967 will not be eligible for tax breaks, referring to the 1967 Six-Day War.

In 2010, the EU Court in Luxembourg ruled that “products obtained in locations which have been placed under Israeli administration since 1967 do not qualify for the preferential treatment provided for under that [EU-Israel] agreement.”

According to the Association Agreement, as of August 13, 2012, Israeli companies exporting to Europe must write the name of the place in which its goods are produced, along with its postal code, so that the EU can confirm that the product was not made beyond the 1967 border.

If the item is indeed found to be produced in an area the EU considers outside of Israel, the declaration that the good was made in Israel will be denied and the European importer will be forced to pay import tax, which will significantly reduce competition between exporters from Israeli settlements and those from Europe.

Modi’in and Maccabim-Reut were added to the EU list because parts of those cities were built in what the EU now considers to be no man’s land. Other locations listed by the EU as not being a part of Israel include communities in the Golan Heights, the Jordan Valley and East Jerusalem. They include Alonei Habashan, Ein Zivan, Merom Golan, Majdal Shams, Neveh Ativ, Katzrin, Givat Yoav, Shaked, Ariel, Sha’arei Tikva, Oranit, Barkan, Yitzhar, Itamar, Emanuel, Beit El, Kalya, Vered Jericho, Nokdim, Givat Ze’ev, East Jerusalem, the industrial area of Atarot, Ma’aleh Adumim and Mishor Adumim.

“The European Union's move comes after recent announcements that South Africa and Denmark have banned goods produced in Israeli settlements from being labeled as made in Israel,” noted lawyers Gill Nadal and Omer Wagner, who specialize in imports, exports and international trade law.

While the moves by South Africa and Denmark do not bar Israeli goods from being imported there or impose extra taxes on them, the European Union’s move is meant to impose taxes on products made in the settlements, the lawyers said. In addition, this appears to be “the first time that Modi’in, Maccabim and Reut have not been considered a part of the State of Israel.”

“In our opinion, the European Union’s interpretation of the term ‘the State of Israel’ as it appears in the trade agreement constitutes a deviation and breach of contract. The State of Israel would be better off trying to convince the Europeans to change their minds. If need be, the State of Israel should examine the possibility of settling the dispute via international conflict-resolution mechanisms,” said the lawyers.