Dead Sea Products Could Be First Test of EU Labeling Rules

The Ahava cosmetics company proves how tricky things can be when some operations are in the West Bank, some in Israel proper.

File photo of Ahava cosmetics
AFP

Some Israeli companies did not bother waiting for the official European Union guidelines that require goods produced in the settlements to be labeled as such. Seeing the writing on the wall, they began moving their facilities back into Israel’s internationally recognized borders well before last week’s announcement.

The most recent case involved SodaStream, the seltzer-machine manufacturer, which relocated earlier this year from the West Bank industrial zone of Mishor Adumim to the Negev. The move followed an aggressive campaign against the company by the international boycott, divestment and sanctions movement.

Among the other big Israeli exporters to transfer their West Bank operations to less contested zones in recent years are the Barkan winemaker, the Bagel-Bagel pretzel company and the Swedish-owned Mul-T-Lock lock manufacturer.

According to the Israel Manufacturers Association, about 600 factories owned by Israelis operate in the West Bank and Golan Heights, and few are major exporters. Although Israel effectively annexed the Golan Heights, the EU does not recognize Israeli sovereignty over the territory, captured from Syria during the 1967 Six-Day War. It therefore requires that products from there be labeled as well.

Only an estimated $150 million of the annual $15 billion in Israeli exports to the EU is believed to originate in the settlements. And even among those companies that do sell their wares in Europe, the vast majority specialize in industrial components and spare parts, not the type of merchandise typically displayed on retailers’ shelves for discerning customers.

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As a result, the new EU labeling requirements are not likely to affect most of these companies.

There is one high-profile exception, however, and that is the Ahava cosmetics company – among Israel’s most recognized brands abroad. The firm, which makes skin care products out of Dead Sea salts and minerals, has its main manufacturing facility, as well as its popular visitors center, on Kibbutz Mitzpeh Shalem – in the West Bank just beyond the Green Line, Israel’s pre-1967 borders.

It has therefore found itself high up on the hit list of anti-occupation groups in recent years. But the case of Ahava also proves how tricky things can get when determining what qualifies as an Israeli-made product.

Because it is not a publicly traded company, Ahava is not required to publish financial data. But according to various reports, its sales last year totaled $47 million, with Germany and France its two main markets in Europe.

Under Israel’s free trade agreement with the EU, exports from Jewish locales in the West Bank and Golan Heights do not qualify for preferential tax treatment. So that customs officials abroad can identify products made in the settlements, all Israeli exports to Europe must carry zip codes that indicate their place of origin. As it turns out, some Ahava products enjoy tariff-free status in the EU, while others do not.

How so? Under the terms of the free trade agreement, for an Israeli product to qualify for preferential treatment, most of its inputs must originate on the Israeli side of the Green Line – and most of its processing must take place there as well.

Although anti-occupation groups have challenged its claim, Ahava has insisted for years that the Dead Sea salts and minerals it uses in its products are purchased from Dead Sea Works, which only mines areas of the sea on the Israeli side. Raw materials for some of its soap products come from another kibbutz plant in northern Israel.

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If that weren’t confusing enough, it turns out that not all Ahava products are manufactured at the main West Bank plant. Some are produced at a factory in the southern town of Yeruham in which Ahava holds a stake, and yet others, according to government sources familiar with the company’s operations, are made at a facility in central Israel.

In some cases, the controversial Mitzpeh Shalem plant is used only for packaging. The location of Ahava’s official headquarters, incidentally, is listed as Holon, a Tel Aviv suburb.

The company declined to answer questions related to its operations and the ramifications of the new EU labeling requirements.

Ahava products sold overseas say on their packaging that they are made in “Dead Sea, Israel.” Anti-occupation groups maintain that this labeling is deceptive since the company’s main factory is in the West Bank, two of its key shareholders (the settlements of Mitzpeh Shalem and Kalia) are located there, and it uses minerals and salts – an allegation denied by the company – harvested from a section of the Dead Sea in the West Bank.

Under the new EU labeling directive, each member state will have to set its own guidelines for labeling. Some may choose to adopt the free-trade-agreement formula, which would let Ahava continue labeling at least some of its products as Made in Israel.

There are indications, however, that the company may forgo the opportunity to test the limits of the new labeling requirements. In its last public statement to the press, issued last summer, Ahava said it was considering opening a new plant not far from its existing facility but within Israel’s internationally recognized borders. It did not say whether the new plant would come in addition to the existing facility or instead of it.

Even if Ahava and other companies in similar situations can prove that their products qualify for a Made in Israel label, their victory may come at a high price. As one senior industry official warned: “Some importers may decide that all the verification work required is not worth the hassle and may simply decide to remove these products from their shelves.”