The Volokh Conspiracy
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An important battle just played out in Canada at the intersection of geopolitical territorial disputes and international trade law. The issue was the labeling of Israel products produced in the West Bank (Judea and Samaria). On July 6, the Canadian Food Inspection Agency (CFIA) issued a notice that wines produced in this region cannot be labeled "Made in Israel," as they had long been.
Within a day, the Canadian government reversed the decision, and in doing made an important statement about such labeling controversies, which have been cropping up around the world. Canada's decision to repeal its short-lived ban on "Made in Israel" labels for such products should give impetus to the United States to reexamine its labeling policy.
The terse CFIA letter (prompted, if you take their word for it, by anti-Israel boycott activists) advanced a consumer-information argument for the labeling ruling. Because Canada does not recognize Israel's sovereignty over these territories, the label would be "misleading" to consumers under Canada's Food and Drugs Act.
The notion that "Made in Israel" labels in such a context are misleading has been rejected in recent years by the U.K. Supreme Court and French appellate courts, as I describe in my academic paper, "Economic Dealings With Occupied Territories." Quite simply, such labels are not understood by consumers as making any statement about the importing state's view of sovereignty in a disputed territory. The U.K. court noted that it would be impossible to show that the typical consumer relies on such an assumption to their material detriment.
That is why the European Union imports products from occupied Western Sahara labeled "Made in Morocco" despite not regarding it as Moroccan sovereign territory, as well as allowing "Made in Palestine" and "Made in Taiwan" labels on consumer goods despite not recognizing even the existence of those countries. Indeed, bottles from occupied Nagorno-Karabakh are imported into Canada and Europe with labels describing them as "Armenian" products or even products of "Artsakh," the Armenian name for the region that the international community regards as occupied Azerbaijani territory.
In short, no one thinks the typical consumer relies on food labels to determine sovereignty issues.
What makes the Canadian episode notable is that in quickly reversing itself, Ottawa sustained the "Made in Israel" labels on a much broader grounds than their simply not being misleading. In its revised decision, Canada concluded that "these wines adhere to the [Canada-Israel Free Trade] Agreement and therefore we can confirm that the products in question can be sold as currently labelled." The agreement provides that its provisions apply "with respect to Israel [to] the territory where its customs laws are applied." Under the Oslo Accords, Israel exercises exclusive customs control of the relevant areas.
This is quite common. For international trade purposes, the "territory" of a country does not mean its sovereign territory but rather its customs territory, which is often broader. This allows countries to import goods from, say, the Falklands/Malvinas without taking any position on the sovereignty dispute over that territory.
This need not be explicit in most trade agreements as a result of Article XXVI(5)(a) of the General Agreement on Trade and Tariffs, which makes clear that a country's territory for trade purposes can include non-sovereign territory. In the Canadian-Israel one, it happens to be explicit.
What makes the CFIA reversal significant is it explicitly says that if the product can be considered Israeli for customs purposes, it is not misleading to the consumer to label it as such. This is somewhat consistent with the EU position—which denies both Israel customs and labeling status to West Bank products and gives both Moroccan customs and labeling status to Western Saharan products.
It is, however, inconsistent with U.S. labeling policy. Under a 1996 piece of trade legislation, the president is authorized to give Israeli products from the West Bank Israeli customs treatment, which President Clinton immediately did. Since then, such goods are considered "articles of Israel" for trade purposes. It certainly cannot be misleading to label them "Made in Israel" if they are legally called "articles of Israel."
Yet soon after, the Customs Service issued a notice that such products must be labeled "Made in the West Bank." This is particularly strange because the labeling of goods does not imply any sovereignty recognition—as evident by the fact that Customs had instructed such products to be labeled "Made in Israel" for decades before that, without any suggestion that this amounted to a recognition of Israeli sovereignty in the West Bank and Gaza.
The Customs directive flies in the face of the 1996 Free Trade Agreement Implementation Act and other laws. The Clinton/Obama regulations were a mistake, which helps explain why they have never been enforced (though they do have a chilling effect on importers). Yet they may be used by future administrations. Similarly, anti-Israel activists in Canada are already planning lawsuits over the revised directive.
Ottawa's quick realization that products with Israeli customs status can and should be labeled "Made in Israel" is a wake-up call to the Trump administration to quickly revise the Clinton/Obama policies, which can be done through a simple executive action. Congress could also exercise its Foreign Commerce power to make clear in law that such goods can be labeled "Made in Israel."
Certainly it would be incongruous for the Trump administration to find itself with a less pro-Israel policy than the Trudeau government has.