Israel offers EU trade row deal

Ehud Olmert (left) says compromise is needed to protect the economy

Israeli Trade Minister Ehud Olmert has offered the European Union a compromise plan to resolve a long-running dispute over "made in Israel" export labels.

Mr Olmert's plan would see products labelled by their town of origin, bypassing Brussels' concerns over exports from the West Bank and Gaza.

The EU has a free trade agreement with Israel, but says it should not cover exports from West Bank settlements, which are built on occupied territory.

Israel has vigorously opposed the EU's distinction, saying it second guesses the possible outcome of final status talks with the Palestinian Authority.

But the EU has recommended that member states demand deposits from Israeli exporters, refundable when the exact origin of products can be verified.

Divisions

The Israeli Foreign Ministry has criticised Mr Olmert's concession of more precise labelling, accusing the minister of unilaterally reversing official policy.

"This shows that the left hand does not know what the right hand is doing," one senior ministry official was quoted as saying in the Jerusalem Post newspaper.

But Mr Olmert insists his proposals are needed to boost trade at a time of severe economic difficulties. Israel is expected to scrape out of a two year recession this year with 1% growth.

"Everyone who is playing politics with this issue is endangering our ability to protect the country's economy," the minister told Israeli Channel 1 Television.

The European Commission, which last week expressed frustration at the Israeli position, has said it will now consider the new proposals.

"This now needs to be carefully examined by the commission before we can pronounce on the content," a spokesperson for Pascal Lamy, EU trade commissioner, told BBC News online. "No compromise has been reached."

Stalled talks

The EU agreed to start "technical talks" on the issue last year with Shimon Peres, then Israeli foreign minister. But Mr Peres has subsequently left the government of prime minister Ariel Sharon.

Products from Israeli settlements in the West Bank account for 1-2% of the country's $7.6bn worth of annual exports to the EU.