COLUMN ONE : Cracks in a 45-Year Boycott : With Cokes in Saudi Arabia and Toyotas coming to Tel Aviv, Arab sanctions against Israel are weakening. But ban on direct trade will probably endure.

Coca-Cola for years has been a staple in Tel Aviv. But Damascus and Abu Dhabi belong to the Pepsi generation. You can buy Subarus and Mitsubishis in downtown Jerusalem. But if you want one of the two best-selling Japanese cars in the world, Toyota and Nissan, you must fly to Riyadh or Bahrain.

In the Arab world, you can’t watch productions starring Paul Newman, Elizabeth Taylor and Frank Sinatra, longtime supporters of Israel, on television and movie screens.

In Jerusalem, you can’t buy a Toshiba computer, unless it was brought in by a third party. You also can’t fly Japan Air Lines to Ben-Gurion Airport. You can’t even get there via EgyptAir, which officially made peace with Israel in 1979 but had to create a special carrier to fly from Cairo to Tel Aviv.

In fact, there are many things you can’t do because of the Arab League’s boycott of Israel.

No economic sanctions in the world have persisted longer than this 45-year-old attempt by the Arab world to strike back across the Jordan River in a place where bullets and missiles could not reach.

Since even before Israel’s birth in 1948, and more so since, the Arab states have doggedly pursued the economic ruin of the Jewish state, banning not only investment and trade with Israeli companies but in many cases with international firms which do business with Israel.

“Unlike other economic sanctions employed in modern history, the Arab boycott is unique in that it does not seek to modify a state’s behavior, but rather it aims to erase a state from the map. As such, the boycott is a form of blatant economic warfare,” the Israeli Foreign Ministry said in a recent report, which called the boycott “the longest-lasting attempt to coerce and destroy a sovereign state by non-military means.”

But now Israeli officials hope that the conclusion of the Persian Gulf War may have opened the first important cracks in the boycott, as the coalition against Iraq responds to U.S. pressure to implement the kind of real-world “confidence-building measures” that American officials say are necessary to assure any kind of lasting peace in the Middle East.

Kuwait, which for decades maintained one of the most zealous, well-staffed boycott enforcement offices in the region, is no longer requiring boycott compliance clauses in contracts for reconstruction.

Coca-Cola was removed from the Arab boycott list earlier this month for the first time since it opened its bottling plant in B’nai Brack outside of Tel Aviv in the 1960s. Pepsi-Cola, for years the cola of choice of the Arab world, is now on sale in the first of 30 Pepsico-owned Pizza Huts scheduled to open in Israel over the next decade.

In an even more important development, Japan, whose private sector has historically maintained the strictest compliance with the Arab boycott of any country in the world, appears to be opening the way for the first time to significant trade with Israel.

Toyota, the world’s No. 2 auto maker, announced last month it would begin selling 5,000 Corollas a year in Israel beginning in 1992. Nissan has indicated it is ready to make a similar move, and Mazda appears to be not far behind.

Passion for Gems

In Israel--the only country in the world that has a trade surplus with Japan, thanks to the Japanese passion for Israeli-cut diamonds--these are indicators that Japanese investment and access to Japanese markets for Israel’s growing high-tech industries may not be far off.

“Toyota is the beginning of a new era,” said well-known Israeli journalist Yehuda Litani. “If Toyota is not afraid, no one is afraid. If Toyota is here, the boycott does not exist.”

Europe is moving into position, as well, with Germany announcing last week that it is preparing to adopt stiff anti-boycott legislation. Italian Foreign Minister Gianni De Michelis told Anti-Defamation League leaders this month that negotiations are under way between the European Community and the Arab Gulf countries to eliminate the boycott, the Israeli press reports.

“There’s no question that there’s been more attention paid to the Arab boycott since the Gulf crisis than in its entire 45-year history, and for the first time we see evidence that the boycott is weakening, with promises that it may weaken still further,” said Will Maslow, general counsel for the American Jewish Congress, which monitors the boycott and enforcement of international anti-boycott laws.

The secret of the boycott’s success over the years has been the simple balancing act it requires of companies considering business in the Middle East: trade with 4.6 million Israelis or 180 million Arabs.

Israel-Japan trade topped $1.4 billion last year, compared with an estimated $20 billion between Japan and the Arab world.

Under the primary boycott, adopted in 1946, Arab states refuse to buy from, sell to, or otherwise deal with Israelis.

Under a secondary boycott in effect in more than half the 21 Arab countries since the early 1950s, Arabs refuse to deal with companies that have factories, agencies or offices in Israel; which have trademarks or copyrights belonging to Israeli companies; which use Israeli consultants, or which use shipping firms whose ships call on Israeli ports or deliver oil to Israel. Under a tertiary boycott, subsidiaries and subcontractors are included.

Secret Blacklist

A Damascus-based office maintains the official blacklist of prohibited companies, and though the list has not been made public for more than 15 years, it is said to name up to 6,000 firms.

In this month’s amendments, one of two routine adjustments made every year, Coca-Cola was removed from the list, probably in recognition that Coke is available in several Arab countries, including Saudi Arabia, Bahrain, Lebanon, Yemen and Egypt, and in North Africa. Three other U.S. businesses were also removed from the list, despite their continued business dealings with Israel, including J. B. Williams Co., Helene Curtis International S. A. and Home Insurance Co.

But 110 new companies were added to the list, including 104 companies or subsidiaries held by British media tycoon Robert Maxwell, who heads a European-Israeli business group and owns interests or sits on the board of two Israeli publications. Among the others added to the list were two U.S. companies, LeClic Products Inc. and Phoenix Ware.

For some Israeli officials, these are indicators that the boycott is not yet over, at least within hard-line Arab states like Syria, home of the boycott office.

“Talks are there. Action is missing,” said government spokesman Yosef Olmert.

Indeed, most Western and Israeli officials agree that the most that can be hoped for in upcoming diplomatic forays is an end to the secondary boycott of Israel.

The bans on direct trade between Israel and Arab states are likely to remain in place as long as the state of war remains, they concede.

There has never been consensus within the Arab world about the secondary boycott--individual countries decide which parts of the blacklist to enforce or whether to enforce it at all, often seemingly on individual market considerations.

But many Arabs continue to defend the boycott and criticize the current U.S. political campaign to end it.

“All this hoopla from Washington sounds all the more ridiculous these days when it is the United States itself which spearheads almost every boycott in effect, including food and medicine against Iraq, even after the end of the Gulf crisis, and a number of other countries, mainly from the Communist Bloc in Southeast Asia and Cuba, which do not agree with Washington’s way of doing things,” Palestinian journalist Maher Abukhater, editor of the Jerusalem-based Al Fajr, wrote recently.

“But when the Arabs, who everyone agrees are in a state of war with Israel over what everyone agrees is an illegal occupation of Arab territory, decide to impose a boycott, such action is condemned as mean-spirited and lacking in largess and prompts the United States to enact laws to fight it.”

The Arabs’ complaints about U.S. campaigns against the boycott is a longstanding one, and not without reason. The U.S. has one of the toughest anti-boycott measures in the world, adopted in 1977, imposing fines and potential criminal penalties against companies found to be honoring foreign boycotts by furnishing boycott-related information about their business activities. A separate tax law passed a few years later requires companies that cooperate with foreign boycotts to forfeit certain tax credits.

Safeway Fine

In the largest enforcement action under the law, Safeway was fined $995,000 on a complaint filed in 1987 for not allowing goods from blacklisted companies to be shipped to its stores, according to records maintained by the American Jewish Congress. Sara Lee was fined $725,000 in 1988 for furnishing the names and nationalities of members of its board of directors and its relationship with blacklisted companies in doing business with Arab countries.

Earlier this year, the Commerce Department referred for Justice Department investigation allegations that Baxter Corp., the world’s largest hospital supply company, sold one of its companies in Israel and took other actions to remove itself from the blacklist and win a contract with the Syrian army. The case marks the first time that the United States has pursued possible criminal penalties under the anti-boycott statute.

Still, Jewish groups and a New York congressman have expressed concern that enforcement actions under the statute declined 77% in fiscal 1989, a figure U.S. officials attribute largely to compliance by U.S. companies to the statute, and, in some cases, a lack of enforcement staff.

France and the Netherlands also have anti-boycott statutes, and Belgium and Luxembourg have language prohibiting discrimination in foreign contracting. But except for Germany, none of the other EC countries has moved to adopt anti-boycott legislation, though Europe remains Israel’s largest trading partner.

Yet the Arabs have been able to point to few concrete impacts of the boycott on the Israeli economy, which reached a gross national product of $50 billion last year.

“In the beginning, the idea was, if you can’t destroy Israel politically or militarily, let’s try to strangle Israel economically. If this is the aim, it has not been achieved,” said Gad Gilbar, a Haifa University economist who has studied the boycott for years.

“On the contrary, Israel has over the years become--true, with enormous aid--one of the more developed countries of the world with a very solid beginning of sophisticated industries, many of which the Arabs, with all their money, do not have. The boycott did not achieve anything near to destroying the Israeli economy.

“But who knows what would have happened if the Israeli economy would not have been faced with the boycott?” Gilbar added.

One group of economists estimated recently that Israel might have required 10% less injection of capital over the past decade if it weren’t for the boycott.

At the same time, Israeli trade with the Arab world has been far from nonexistent--it simply has been kept underground. During the Iran-Iraq War, some Israeli economists say, Iraqi soldiers ate cucumbers and tomatoes grown in Israel and shipped via Jordan. Kuwait is reported to have imported chocolates from Israel’s Elite candy manufacturer.

Jordan, Syria, Lebanon and Saudi Arabia have all been recipients of Israeli agricultural products; many have been buyers of other Israeli products--everything from fresh and canned foods to tires, air conditioners, textiles, cosmetics and pharmaceuticals. They were shipped without labels or through third countries, such as Greece and Cyprus, Israeli economists and businessmen say. Israeli agricultural industry products, especially Israel’s unique drip irrigators, have been exported to Jordan and Libya, among other Arab countries.

Many economists say Israeli exports to the Arab world amount to hundreds of millions of dollars a year; some put the figure as high as $1 billion.

In another sign of a possible easing of boycott restrictions as a “confidence-building measure” attached to the peace process, an Israeli political analyst with close ties to the government said there are reports that Jordan is considering removing its requirement that only goods from West Bank factories built before the Israeli occupation in 1967 can be shipped across bridges into Jordan.

“This opens the field now to new merchandise that would penetrate the Arab world, that was made by Israeli know-how or by secret Israeli partners,” said the analyst, who asked not to be identified. “We have signs now that the Jordanians would consider it, and the Americans would welcome such a step.”

In exchange, he said, the Jordanians are seeking alternative “confidence-building measures,” including an easing of restrictions against Palestinians in the West Bank.

Diminished Impact

Overall, the impact of the boycott has diminished in recent years, with the waning influence of Arab petrodollars in a declining oil market.

Japan now relies on the Gulf for only 70% of its crude oil, compared with 90% in the 1970s. Also, diplomats say car companies in Japan now assume they have a strong enough foothold in Arab markets so the Arabs won’t stop importing their cars even if the Japanese export to Israel.

And smaller Japanese auto manufacturers, like Subaru and Mitsubishi, which have sold well in Israel for years, have proved that the Israeli market can be lucrative, they say. Pressure from the Jewish lobby in the United States, in some cases threatening a boycott of Japanese products in the United States, has also been cited as a factor.

But most diplomats say the Japanese rush into Israel is inevitably linked to criticism of Japan’s lukewarm support of the coalition against Iraq during the Gulf crisis.

“The Japanese government has never, never supported the Arab boycott. They have been and they still are against the Arab boycott,” said Minister Takashi Nakamoto, the No. 2 Japanese diplomat in Israel. “At the same time, as you know, Japan is a free trade market, so the Japanese government cannot direct private enterprises to ignore the boycott, or be against it.

“The mainstream of government now is to really try to encourage the Japanese private companies to have correct and fair attitudes with Israel, compared with the Arab countries,” he said.

Despite the apparent movement on the part of Japanese auto manufacturers, and some minor movement of other Japanese investors into Israel, there are still no indications that Japan’s major international trading companies are prepared to move into the Israeli market.

Japan’s Reluctance

Mitsubishi Corp., Mitsui Corp. and Sumitomo Corp. are represented all over the world, but not in Israel. “This is very, very unfortunate,” Nakamoto said.

“The difference between the Israeli market and the Japanese market is so big it is a challenge to the imagination of both sides to try to learn from each other,” said Moshe Kobi, who heads the Israeli Finance Ministry’s economic warfare office.

“Because the trend right now all over the world is going toward much more cooperation between countries, among industries, in order to develop the economy of each state, and one major point in developing such relationships is through international trade, and once we can establish free international trade, it is going to help everyone, even in the world peace process.”

Economic War: The Arab Boycott

Who has been affected by the Arab boycott?

INDIVIDUALS: Paul Newman, Elizabeth Taylor and Frank Sinatra, all staunch supporters of Israel, whose works as a result are not shown in the Arab world.

COMPANIES: Coca-Cola, Pepsico, Japan Air Lines, Mitsubishi and Toyota.

HOW IT WORKS: Under the primary boycott, adopted in 1946, Arab states refuse to buy from, sell to or otherwise deal with Israelis. Under a secondary boycott in effect in more than half the 21 Arab countries since the early 1950s, Arabs refuse to deal with companies that:

* Have factories, agencies or offices in Israel.

* Have trademarks or copyrights belonging to Israeli companies.

* Use Israeli consultants.

* Use shipping firms whose ships call at Israeli ports.

* Deliver oil to Israel.

Under a tertiary boycott, subsidiaries and subcontractors are included.