Peace May Spell End of Arab Economic Boycott of Israel : Mideast: Move would likely halt practice of shunning companies doing business with Jerusalem.

The economic boycott of Israel that for years made Coca-Cola politically incorrect in the Arab world could soon become a casualty of peace in the Middle East, according to a variety of Arab officials and analysts.

Arab states are likely to consider lifting at least the secondary boycott under which Arabs have shunned all companies doing business with Israel, and may also open the door to joint Israeli-Arab investments when the climate becomes right, these officials say.

“The Arab boycott of Israel is a dying horse. It would be much easier just to kill it than to sit and watch it die a slow death,” an Arab Gulf state official said in an interview Saturday.

Palestinians are urging a cautious approach to easing the boycott and have suggested that Arab states impose conditions, such as a freeze on settlement building in the occupied territories or guarantees for free exports from the occupied West Bank, before abandoning the leverage that the boycott holds.

There are substantial fears among Palestinians that the peace agreement to be signed Monday will open the door for Israel to Arab nations, one of the largest consumer markets in the world, without providing guarantees for the development of the Palestinian economy.

Further, how can the Palestinians be sure that billions of dollars in potential investment money from the oil-rich Gulf states will go to Palestine, and not Israel?

The boycott, instituted under the direction of the Arab League several years after its creation in 1945, bars companies doing business with Israel from selling goods or services to Arab countries. Under its provisions, Coke was sold for years in Israel while Arabs drank Pepsi-Cola.

It includes secondary and tertiary boycott provisions that penalize firms for sales by their subsidiaries or by other companies that use their products and deal with Israel. America has made it illegal for U.S. companies to uphold the boycott for the past 16 years.

The Arab League said last week that it has no immediate plan to consider lifting the boycott when its council of foreign ministers meets in Cairo next Sunday.

But Arab officials say that with the prospect of Israeli peace accords soon with Jordan and Syria as well as the Palestinians, there is little doubt that the boycott issue will be raised soon.

“The boycott is one of the features of the state of belligerency between Israel and the Arabs. The boycott is a product of confiscating the rights of Palestinians in the Arab territories. So if we are about to reach an agreement on that, of course the boycott will be meaningless,” said one Arab official.

“If we don’t have a problem, we don’t have a boycott,” said another Arab official.

But most Arabs predicted that the secondary boycott will be much quicker to fall than the primary boycott, which will probably remain in place pending a permanent resolution of the Palestinian conflict.

Israel estimates that the boycott has cost it up to $45 billion over the years in lost trade and investment.

Kuwait and to a lesser extent Saudi Arabia have effectively not been enforcing the secondary boycott for American companies since the end of the Persian Gulf War, and there are so many other leaks that Israel in fact has substantial business links with the Arab world.

But the new Declaration of Principles that will be signed by Palestinians and Israelis in Washington contains a significant economic component, calling for economic cooperation, so detailed that some Palestine Liberation Organization officials here fear they may have been caught off guard.

“The fear in the Arab world is that the Israelis are going to use this to simply further their own interests without any interest of the other countries,” one PLO official said. “Israel may be trying to protect their market and at the same time use the West Bank and Gaza as a steppingstone for opening up the Arab markets.”

Israel, they say, seems to have its eye not only on attracting Arab investment but on entering into joint ventures with Arabs, exporting Israeli technology to Arab nations with pools of cheap labor.

The West Bank and Gaza Strip together constitute Israel’s second-largest trading partner, behind the United States. But most of this trade is one way, with Israeli goods flooding the territories while Palestinian exports are severely restricted. Some estimates say the trade imbalance approaches $1 billion a year.

Multilateral peace talks since the opening of the Madrid peace conference nearly two years ago have explored new avenues of economic cooperation, and Arab officials now say they expect a variety of joint Israeli-Palestinian investment projects, particularly in infrastructure such as water desalination plants and power facilities.

Arabs have been exploring the idea of a regional market that includes Israel since the peace talks began, some fearing that a regional market would add economic domination to Israel’s military dominion, others arguing that economic links are an inevitable consequence of political peace.

“Peace in the Middle East cannot be fully realized unless the principle of a common market embracing all nations in the region, including Israel, is accepted,” liberal Egyptian columnist Mohammed Sid-Ahmed wrote last spring.

Syria and Lebanon have not participated in the multilateral economic talks, and, absent a full peace treaty, they might be expected to be the thorn in any plan to drop the boycott soon.

“The Arab boycott is a decision of the Arab League, and it has to be discussed with the Arab League first in order to come up with binding obligations which will have their impact on the boycott,” one Arab official said. “But that doesn’t mean that unilaterally some Arab countries could not start to be more or less flexible in the application of the boycott rule.”