(Corrects story published on Aug. 14 to remove reference to sanctions and Super Bowl ads in 24th paragraph.)
Aug. 14 (Bloomberg) -- Ahava Dead Sea Laboratories Ltd., which makes skin creams from mineral-rich mud, moved its executives and researchers to new locations in Israel to get them away from its factory in a West Bank settlement.
That won’t be enough for Ahava to skirt a new European Union ban on funding operations on Israeli-occupied land as the company seeks a 6.2 million-euro ($8.25 million) EU grant to produce a new line of SuperFlex cosmetics for the elderly.
Israel objects to the funding restrictions, meant to discourage settlement activities on land Palestinians claim for their state, and a 15-year research collaboration with its largest trade partner could founder if it pulls out of an EU grant program in protest. The loss of funds would be “catastrophic,” said former lawmaker Naomi Chazan.
“It’s not just the actual funds that Israel would lose but all the connections to the academic world in terms of scientific access, scientific innovation and collaborations,” Chazan, a professor emerita of political science, said in a telephone interview.
While Israel has said it cannot accept the new guidelines, it is looking for a compromise. Today, it began negotiations with the EU on participating in its 80 billion-euro research grant program for the next seven years, Horizon 2020. At that session, it told the EU it would be unable to join the program if the guidelines aren’t changed, the Israeli Foreign Ministry said in an e-mailed statement.
“Israel expressed its hope that a way to reach positive understandings on the guidelines’ implementation will be found, so as to enable Israel to participate in Horizon 2020,” it said.
An investment of 535 million euros for the 2007-2013 agreement earned Israel 637 million euros in grants, said David Kriss, an EU spokesman in Tel Aviv.
“The guidelines are an expression of frustration regarding settlement building, which threatens to make a two-state solution impossible, as well as a response to concerns by European taxpayers that EU funds were being invested in illegal settlements,” Kriss said.
The restrictions build on a broader European effort, including plans to label the origin of settlement goods, to squeeze businesses such as Ahava that operate in the West Bank and east Jerusalem, captured from the Jordanians in 1967 and the heart of the Palestinians’ hoped-for state.
While falling short of Palestinian-led campaigns to boycott all settlement-made products, the new limits will test whether the EU can use the research funds it parcels out to influence policy and discourage Jewish settlement.
Israeli Prime Minister Benjamin Netanyahu says the restrictions, issued last month before Israel and the Palestinians renewed long-stalled talks, threatens peacemaking. A second round of negotiations is scheduled in Jerusalem today.
“I have to say, on a sad note, that I think Europe, the European guidelines by the EU, have actually undermined peace,” Netanyahu told German Foreign Minister Guido Westerwelle on his Aug. 12 visit to Jerusalem.
Last month, Netanyahu said Israel would accept “no external dictates” on its borders.
Israel says east Jerusalem and the West Bank aren’t occupied because they weren’t recognized as belonging to anyone before the 1967 war. The Palestinians say Israeli construction in those two territories is a war crime that violates the Fourth Geneva Convention.
Hanan Ashrawi, a former Palestinian negotiator, praised the EU guidelines, saying Israel’s occupation of the West Bank and east Jerusalem must be “held to account.”
For Ahava, interpretation of the EU’s guidelines will be key. Like other companies in the West Bank, including SodaStream International Ltd., it has so far avoided EU sanctions by having its official headquarters inside Israel’s internationally recognized borders.
Ahava’s SuperFlex project, conducted with The Hebrew University in Jerusalem, uses nanotechnology to produce skin care products for the elderly, with two-thirds of the funding coming from the EU. Its West Bank location means it will no longer qualify for the funds, said Kriss, the EU spokesman.
Ahava, a closely held company with $160 million in global sales last year, argues that its research facility is located inside sovereign Israel, about 15 kilometers (9 miles) south of its factory in the Mitzpe Shalem settlement. Executives now sit 130 kilometers from the West Bank factory at an office park beside Israel’s Ben-Gurion International Airport.
“The EU’s decision does not concern Ahava,” the company said in an e-mailed statement.
Pro-Palestinian activists say the headquarters address is a smokescreen that lets companies operate from occupied land.
Scientific and technological innovation drives Israel’s economy, which is powered by industries such as electronics, aerospace, medical systems and biotechnology. High-tech exports account for more than 30 percent of Israel’s foreign trade, according to the Israel Export Institute.
“Israel and Europe have great business ties, but the political forces in Brussels are casting a cloud over some of our collaborations,” said Dan Catarivas, director of the foreign trade and international relations division at the Manufacturers Association of Israel.
The European Union bought $14.4 billion in Israeli exports in 2012, or 31 percent of total sales abroad. Exports from the West Bank account for $100 million, less than 1 percent, the Manufacturers Association said.
Nasdaq-traded Sodastream acknowledges “rising political tensions and negative publicity may negatively impact demand for our products or require us to relocate additional manufacturing activities to other locations.”
“We may in the future be required to transfer additional manufacturing activities to a location outside of the disputed territories,” it wrote in its annual 20-F statement to the U.S. Securities and Exchange Commission, filed in April.
Sodastream, whose shares have risen 53 percent in the past 12 months, says hundreds of Palestinian employees would be hurt if it were forced to leave its West Bank factory in Mishor Adumim near Jerusalem.
Settler spokesman Dani Dayan said the EU action represents a “moral low” for the organization and will inflict little damage on settlements.
Peace Now, an Israeli organization opposed to settlements, hailed the EU guidelines.
“Settlers have been trying to blur the border lines but this works to make the division more clear,” said Lior Amihai, who follows settlement construction for Peace Now.
To contact the editor responsible for this story: Andrew J. Barden at email@example.com