Elephants in the Room

Europeans Pushing to Boycott Israel Over Annexation Should Think Twice

Calls for economic sanctions against Israel risk a costly collision with U.S. anti-boycott laws, as companies such as Airbnb can attest.

Israeli Prime Minister Benjamin Netanyahu points at a map of the Jordan Valley in Ramat Gan, on Sept. 10, 2019.
Israeli Prime Minister Benjamin Netanyahu points at a map of the Jordan Valley in Ramat Gan, on Sept. 10, 2019. MENAHEM KAHANA/AFP via Getty Images

Israel’s new government, led by Prime Minister Benjamin Netanyahu and Defense Minister Benny Gantz, may soon declare Israeli sovereignty over roughly 30 percent of the West Bank, including major Israeli settlement blocs and the Jordan Valley. Some European governments are reportedly pushing the European Union for a tough response against Israel, including economic sanctions. European governments should reject these ideas—not just because they’re wrong, but also because they carry significant risks for European companies and economies.

An Israeli declaration of sovereignty over parts of the territories captured in the 1967 Six-Day War would do little to change the facts on the ground in the decadeslong Arab-Israeli conflict. Some argue that it could even bring Israel closer to making territorial concessions to the Palestinians, with Israelis feeling more secure in the long-term vision of a demilitarized Palestinian state in which Jewish population centers in the West Bank become part of Israel and Israel maintains security control over the Jordan Valley. Indeed, the prospect that incorporating a large part of the West Bank into Israel proper might be a prelude to Palestinian statehood in the rest is already drawing concern from Netanyahu’s right flank.In Britain, 127 members of Parliament urged Prime Minister Boris Johnson to impose sanctions should Israel proceed with a West Bank sovereignty declaration.

Israel, of course, is a democratic ally that enjoys strong relations with Europe, including in trade and tourism. It aligns with Europe in the post-World War II international order more than any other Middle Eastern country.

But in lockstep with Palestinian leaders, the governments of France, Belgium, Ireland, and Luxembourg are reportedly pressing the EU as a bloc to adopt punitive measures against Israel. Josep Borrell, the European Commission’s vice president and foreign-policy chief, warned that any steps to annex Palestinian territory would “not pass unchallenged.” In Britain, 127 members of Parliament urged Prime Minister Boris Johnson to impose sanctions should Israel proceed with a West Bank sovereignty declaration.

That some European governments would threaten sanctions against Israel while refusing to impose sanctions on Iran and Hezbollah is disappointing. If they’re serious, these European governments should be on notice: Their companies will pay the price.

Three-fifths of the 50 U.S. states have already adopted laws prohibiting boycotts of Israel. Most prohibit government contracts with companies that engage in a broad range of boycott-related activities. Florida, Illinois, New Jersey, Texas, and eight other states mandate the divestment of public pension funds from such firms. New York is considering doing the same.

Typically, these states publish lists of restricted companies. Illinois’s list, for example, includes companies found to engage in “actions that are politically motivated and are intended to penalize, inflict economic harm on, or otherwise limit commercial relations with the State of Israel or companies based in the State of Israel or in territories controlled by the State of Israel.” This definition of boycotting Israel would apply to firms that comply with such a boycott recommended by the United Nations Human Rights Office and by a proposed boycott law in Ireland.

The potential financial impact of divestment by U.S. states on European businesses and economies is substantial. A review of annual financial reports of public investment funds in U.S. states with divestment laws revealed total holdings of international equities amounting to at least $170 billion, much of it in European companies. With the proposed bill in the state of New York, this total could increase to more than $200 billion. One Illinois pension fund alone listed the European multinationals Roche, Nestle, Novartis, Allianz, and Enel among its top direct holdings in international equities. Undisclosed holdings in European companies via private equity funds account for billions more.

If a company is found to be engaged in boycotting Israel, these states’ pension systems are required to divest its shares and warn fund managers against including the company in indirect investments, including index and private equity funds.

The laws don’t just affect companies found to be boycotting Israel directly. Any company that uses socially responsible investing criteria for its own portfolio investments or corporate pension fund is also at risk of U.S. state blacklisting if these criteria contribute to anti-Israel boycotts.

Several European firms can already attest to the risks of these laws. Major European companies such as Denmark’s Danske Bank and the Dutch pension fund PGGM were blacklisted by the state of Illinois as Israel boycotters based on publicly available information. (Both companies denied the accusation; Danske Bank said its own blacklisting of several Israeli companies was due to investment criteria barring certain investments in areas on conflict that aren’t specifically aimed at Israel.) To be removed from the blacklist, the firms were required to sign legal affidavits affirming that they do not engage in boycotts of Israel. These companies expended considerable time and resources to restore their reputations and avoid divestments.

Airbnb, the online home rental service, had its own lamentable experience with U.S. state laws relating to Israel boycotts. In 2018, the company decided to boycott listings in Israeli settlements in the West Bank, but it had little choice but to reverse its decision after IllinoisTexas, and Florida took steps to blacklist Airbnb from future investment. Had Airbnb remained on these blacklists, fund managers and private equity firms with state pension business would have been required to steer clear of the company’s most recent funding rounds and any future initial public offering. Airbnb was also forced to settle multiple lawsuits filed in the United States alleging that the company was engaging in discriminatory practices, given that it did not apply its policy to all disputed territories such as Western Sahara and Northern Cyprus.

The United States has federal laws, too, that were adopted in response to the Arab League’s boycott of Israel in order to deter state-sponsored boycotts of Israel. The Trump administration could raise the ante by issuing an executive order threatening a menu of sanctions against foreign firms that boycott Israel—as an economic security umbrella to defend one of the closest U.S. allies.

As European governments, companies, and nongovernmental organizations consider gearing up to challenge a possible decision by Jerusalem to extend Israeli sovereignty over parts of the West Bank, they may wish to think twice before playing hardball. With companies throughout Europe reeling from the economic effects of the novel coronavirus, now is not the time for additional financial risks. Intense diplomacy is certainly expected, but sanctions on Israel should be off the table for more reasons than one.

Richard Goldberg is a senior advisor at the Foundation for Defense of Democracies. He served on Capitol Hill, on the U.S. National Security Council, and as the governor of Illinois’s chief of staff. Twitter: @rich_goldberg

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