http://fmep.org/blog/2016/03/eu-labeling-carrots-and-sticks-work/

EU Labeling: Carrots and Sticks Work

Blog Post

March 1, 2016 Mitchell Plitnick Last November, when the European Union announced the implementation of long-standing regulations regarding the labeling of products from Israeli settlements, the government of Prime Minister Benjamin Netanyahu played one of its biggest cards, suspending contact with the EU regarding the Israeli-Palestinian conflict. After nearly three months, which saw accusations of European anti-Semitism and Congressional condemnation of the European decision, Netanyahu backed down. The EU held to its position and refused to grant Israel any compensation for it. The episode reveals the enormous amount of untapped potential for altering the status quo with regard to Israel’s occupation of the West Bank and its siege on the Gaza Strip.
The EU decision to label certain products as coming from Israeli settlements was both the long-delayed implementation of existing policy and a show of impatience with the Netanyahu government’s intransigence on the peace process. It was also a counter to the attempts by Netanyahu and his supporters, particularly in the United States, to blur the line between Israel within its internationally recognized borders and the settlements in areas captured in 1967.
That’s why Netanyahu reacted so harshly to a seemingly minor decision, one which would have only a negligible impact on the settlements’ economy, let alone all of Israel’s. Netanyahu went after the EU labeling regulations with every tool he could realistically employ. Israel could, of course, take measures to restrict trade with Europe or even break off all diplomatic relations. But since the EU is Israel’s top trading partner, has a great many friendly trade deals with Israel, and accounts for some 27% of Israel’s export business, that would be unwise to say the least.
Netanyahu did not just climb down from his position, he unconditionally surrendered. In a last-ditch effort, he tried to get EU Foreign Affairs chief Federica Mogherini to state that there would be no further EU measures in this vein, which Mogherini flatly refused to do. Netanyahu was left with the choice of a serious erosion in EU-Israel ties or accepting the labeling measure and moving on. He chose the latter.http://fmep.org/blog/2016/03/eu-labeling-carrots-and-sticks-work/