Israeli goods made in the West Bank will not benefit from trade privileges
The European Court of Justice has ruled that Israeli goods made in Jewish settlements in the occupied West Bank cannot be considered Israeli.
This means goods made by Israelis or Jews in the West Bank cannot benefit from a trade deal giving Israel preferential access to EU markets.
EU import duties on Israeli goods from the settlements may now be imposed, making them less competitive.
Jewish settlements in the West Bank are illegal under international law.
The EU has agreements with both Israel and the Palestinians that end customs duties.
Israeli companies based around settlements manufacture a host of products including confectionery, wine, cosmetics and computer equipment.
Some of the companies employ Palestinian workers, who are restricted from working in Israel.
Palestinians have long argued that Israeli goods made in settlements should not receive trade privileges, as settlements are not part of Israel.
Pro-Palestinian campaigners have also regularly protested that European supermarkets stock goods with Israeli labels on farm products from the West Bank.
The ruling on Thursday by the EU court in Luxembourg stems from a case brought by the German drinks company Brita.
It imports products from an Israeli company based in Mishor Adumin in the West Bank and was refused preferential trade treatment by the German customs authorities.
On appeal, a German court asked the European Court of Justice for its decision.
European Court of Justice rulings are binding on member states. The decision reflects what has been the general policy of the EU on the issue.
In December the UK government said that food labels would distinguish between goods from Palestinians in the occupied territories and produce from Israeli settlements.
Israel has yet to formally comment on the court ruling.
"The European Union takes the view that products obtained in locations which have been placed under Israeli administration since 1967 do not qualify for the preferential treatment provided for under [the EC-Israel Agreement]," the judges said.
"As it is, despite a specific request from the German authorities, the Israeli authorities did not reply to the question whether the products had been manufactured in Israeli-occupied settlements in Palestinian territory.
"The Court notes in this respect that, under the EC-Israel Agreement, the Israeli authorities are obliged to provide sufficient information to enable the real origin of products to be determined."