Finance Ministry sees West Bank boycott costing economy NIS 2 billion

For comparison, the 2014 summer war with Gaza reduced economic growth by an estimated NIS 3.5 billion.

By
July 7, 2015 19:45
4 minute read.
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BDS logo. (photo credit: BDS)

 
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An official European boycott of West Bank products would only cost Israel’s economy some NIS 2 billion, roughly 0.2 percent of gross domestic product, according to a 2013 study by the Finance Ministry on the possible economic effects of an anti-Israel boycott, made public by the ministry on Tuesday.

For comparison, the 2014 summer war with Gaza reduced economic growth by an estimated NIS 3.5b.

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The report, which then-finance minister Yair Lapid mentioned in a 2013 speech warning of the looming threat of the Boycott, Divestment and Sanctions (BDS) movement, spelled out five different scenarios. The analysis was based on 2012 trade figures, which put Israeli exports to Europe at NIS 83b., including NIS 2.1b. in goods originating beyond the pre-1967 lines.

The ministry estimated West Bank-originated products at 2.5% of Israel’s total exports.

In the mildest of the five scenarios, Europe would mandate labeling of goods produced in the West Bank and the boycott of goods would be purely voluntary, based on activists consciously avoiding such products.

That situation, the study estimated, would reduce overall exports by NIS 1.07b. annually, shave NIS 0.48b. off GDP and lead to 435 lost jobs.

The second scenario envisaged the EU cutting off products from the West Bank, a partial boycott from non-EU states and a related 1% drop in exports from within the pre-1967 lines. That scenario would cause a NIS 4.37b. drop in exports, a NIS 2.06b. reduction in GDP and a loss of 1,805 jobs.

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The third scenario anticipated that Europe would scrap the legal basis of its 1995 trade agreement with Israel – the association agreement that dramatically reduced trade tariffs. As the old trade barriers were put back into place, Israeli exports would suffer a NIS 3.41b. loss, and the economy would lose NIS 1.55b in value and around 1,408 jobs.

In reality, canceling the association agreement could have vastly more dramatic implications, but for the purpose of the study it just referred to Israel losing preferential trade status with EU states. Lapid stumbled in his 2013 speech, saying such a move was under consideration.

European diplomats denied that such a prospect had even been mentioned.

The study’s fourth scenario built on the second scenario, but envisioned a 20% drop in exports to the EU from within the 1967 borders, plus the severing of foreign investment from the EU. That situation would amount to a NIS 19.76b. decline in exports, a NIS 10.88b. economic contraction and the loss of 9,801 jobs.

The final scenario envisioned a complete embargo on Israeli products in Europe and estimated the damages at NIS 84.4b. in lost exports, NIS 40.35b. in economic losses and the elimination of 36,500 jobs.

How would such scenarios come about? The study cited a model that political scientists Martha Finnemore and Kathryn Sikkink laid out in a 1998 paper on how international norms are adopted.

New norms begin to emerge from “norm entrepreneurs,” or “norm leaders, and after a certain tipping point begin to “cascade” as others adopt them. In the end, they are internalized and no longer questioned, the way issues like opposition to slavery or support of women’s suffrage have been.

“The tipping point in Israel’s international relationships could push Israel’s economy from its current growth path to another path in which the Israeli economy returns to be a relatively closed one and the quality of life is lower,” the Finance Ministry study said.

In the view of the study’s authors, there are already seeds sprouting anti-Israel norms.

“Since the September 11 attacks, when Israel positioned itself with the West in the ‘war on terror,’ there has been a deterioration in Israel’s standing in the world, particularly in liberal circles,” the report said.

A worst-case scenario, beyond the one envisaged in the study, could have wider economic repercussions. The reduction of exports and investment would open a waning trade deficit; require the Bank of Israel to wear down its reserves to stabilize the shekel; lead to an interest rate spike; increase borrowing costs; and threaten Israel’s financial stability.

But the likelihood of the scenarios laid out in the study may be implausible.

As The Economist recently noted, divestment campaigns seldom have significant economic effects on their targets.

“Israel’s borrowing costs have fallen and its stock market has boomed despite the BDS [boycott, divestment, sanctions] movement, which is intended to press it into making peace with Palestinians,” the article said.

More often, BDS is used as a public advocacy tool, meant to sway public opinion.

A recent study by the RAND Corporation on the costs of the Israeli-Palestinian conflict, which estimated the cost of BDS at a cumulative $47b. over a decade, agreed that there are few examples of such campaigns being effective.

“Evidence on the effectiveness of sanctions is mixed, making an assessment of the potential economic effects of the BDS movement problematic,” the report said.

Indeed, the most recent and high-profile BDS incident turned out to be more bark than bite.

In June, France’s Orange CEO Stephane Richard allegedly told a group in Cairo that he wished he could quickly cut ties with Israel, where local cellular provider Partner Communications licenses its brand.

He has since come to Israel, expressed his love of the country and said his company has no plans to divest from its high-tech accelerator or numerous other business holdings in Israel. He explained that the company simply wanted to put an end to brand licensing agreements with independent operators. Partner was the only such example, and Orange later reached an agreement that would see it pay as much as €90 million to cancel it.

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