Arab Boycotts Hitting Hard on Israeli Economy

Fuad Abu Ayta, the noodle king of the West Bank, was careful to design macaroni to meet the tastes not only of his Palestinian customers but also for Israeli clients who prefer thick-strand spaghetti to the thin style of Arab choice.

His business thrived in both Israel and the occupied West Bank and Gaza Strip until one day this fall, when someone noticed that the noodles he sold in Israel were packed in plastic bags that carried red, white, green and black labels, the colors of the outlawed Palestinian flag.

At the urging of industrialists in Israel, the army raided Abu Ayta’s factory last month and burned the bags. As 60,000 wrappers went up in smoke, the authorities explained that the colors were considered an incitement to rebellion.

Abu Ayta protested that they were nothing of the sort. He had used the same wrappers a year before the Arab uprising began two years ago Dec. 9. But his argument

failed, largely because it was not really the colors that bothered Israeli manufacturers of spaghetti and other goods. Rather, it is the Arab boycott of Israeli goods that is on their minds. They want the Israeli government to stop it.

“If it was the flag colors, no problem,” said Abu Ayta, who has been making noodles since 1953. “But I’m afraid they don’t want us to sell at all.”

Abu Ayta now prints his labels in orange, blue and white.

The “noodle war,” as the affair is known in the West Bank, was a symptom of a larger economic conflict between Israel and Palestinians, with roots in the 2-year-old uprising. Slowly and steadily, Palestinians have weaned themselves from a variety of Israeli products, often substituting home-grown goods or just doing without.

The consumer boycott in the West Bank and Gaza has contributed to a yearlong recession in Israel. A captive market has escaped, and Israeli manufacturers are rankled.

Meanwhile, Palestinians continue to work and sell inside Israel; although Arab manufactured goods are few, the income from Israel helps keep the uprising afloat by providing scarce cash to the rebellious population of 1.7 million.

“We want the rules to be the same for both sides. If we buy from the Palestinians, we want the Palestinians to buy from us,” said Dan Bibro, who operates the Israel Cold Storage Co., a purveyor of fish and meat products.

If the Palestinians do not buy, Bibro suggested, the government should force Arab manufacturers to print their labels in Arabic so that consumers can more readily identify products from the occupied land.

The Israel Manufacturers Assn. estimates that Israel’s food industry alone has lost $100 million in sales in the West Bank and Gaza because of the boycott. It was the association that complained to the government about Abu Ayta’s labels.

Total Israeli sales of about $1 billion a year have dropped by 30% to 50% since the uprising began in December, 1987, according to government estimates.

Still, the government resists cracking down on Palestinian products. Any such move, officials say, would further alienate the territories from Israel. It is government policy to maintain as much normal contact as possible under Israeli occupation and not create a de facto state of separation.

In any case, the boycott can almost never be total. Palestinians perforce must buy plenty of products from Israel because there are no viable alternatives. Israeli enterprises control the import of flour and fuel, for example.

Still, Trade and Industry Minister Ariel Sharon, a leading hawk, chastised the Defense Ministry for failing to take action against Palestinian businesses. “We have to stop playing bleeding-heart games,” he said.

The boycott is not the only negative effect of the intifada on the Israeli economy. Construction has been slowed by the frequent strikes by Palestinian workers, who make up almost the entire work force on building sites. The uprising has also had “an adverse effect” on the willingness of Israelis to make new investments inside Israel, a recent Bank Hapoalim report said.

The uprising is, however, only partly responsible for the Israeli recession. A Bank of Israel report published this summer noted that the government has no “well-thought-out, long-term economic policy.”

The government has been trying to reconcile its preoccupation with inflation and concern over growing unemployment, now at a decade-high 9%. The anti-inflation battle has slowed the economy; recently, the government began to increase spending, which will probably boost the nation’s economic growth next year as well as the inflation rate, which will surge higher than the current 20% a year.

While Israel counts its economic woes, the Palestinians are faced with shattering prospects. Despite Israeli claims that the intifada has been a godsend for the Palestinians as Arab businesses try to replace Israeli goods, the overall effect of the turmoil has been devastating.

Some of the damage is self-inflicted and results from the Palestinians’ efforts to protest Israeli rule by all means available. Frequent commercial strikes reduce retail sales. Attacks on cars with stones and gasoline bombs have curtailed visits by Israeli businessmen and free-spending consumers, especially crippling commercial cities such as Bethlehem, Qalqilya and Ramallah that did a brisk trade with the visitors.

Many clothing and shoe factories that did piecework for Israeli firms are closed because of the hostility or threats of anti-Israeli activists opposed to doing business with Israel.

The small size of the Palestinian market inhibits any real effort to replace Israeli goods with local items. The main exception has been soft drinks. Back-yard vegetable gardens have been only marginally successful, and the lack of industry continues to force migrant labor into Israel to take low-skill jobs.

Israel’s campaign to crush the uprising has spilled over far into the economic arena. Taxes were raised on Arab businesses to make up for declining revenues. Authorities have denied export permits for important cash crops, such as melons and grapes, as well as for quarried stone, a major West Bank product. The army has imposed curfews on wide areas during harvest time, reducing the amount of food that farmers can haul in from their fields.

Moreover, it is hard to move money in and out of the occupied lands: To prevent funds from being used to pay activists in the uprising, Israel limits remittances from abroad to $250 a month.

All of this turbulence has hit an economy that was weak to begin with. The West Bank and Gaza were virtual mercantile colonies of Israel; the balance of trade was $814 million in favor of Israel before the intifada.

Meanwhile, the Israeli government has continued a program of confiscating land, especially traditional communal holdings, and has put more than half of the territory under direct government control, either as military zones or land earmarked for development of settlements. Seventy percent of the water resources are diverted to Israel, and construction by Palestinians is virtually at a standstill due to stiff building rules designed to restrict the expansion of Arab towns.

Despite these hardships, there appears to be little chance that the boycott will be called off or commerce regularized soon. Youthful members of rebel “strike forces” are constantly on the lookout for merchants selling Israeli goods.