This is the first time corporations have challenged customs authorities over the long-running issue that has split the European Union, left the Commission impotent to apply European Community law and is centred on illegally produced goods.

Under a EU-Israel trade accord, Israel is allowed to export goods to the EU under a preferential tariff system that has reduced to zero the duty on many products.

The arrangement specifically applies to goods produced within Israel's internationally recognised borders of 5 June 1967, before it illegally occupied the West Bank and Gaza Strip.

Made in Palestine

Instead, Israel, with flagrant disregard for the agreement, has stamped many goods produced by Jewish settlements in the illegally occupied territories with “Made in Israel,” allowing settlers to take advantage of the accord.

Israel “has admitted in questionnaires sent by some member states that the goods do come from the occupied territories yet it will not say this publicly”

Unidentified EU diplomat

What is more, the illegal exports amount to about 4.65 million euros ($5.48 million), just 0.06% of Israel's total €7.82 billion of annual exports to the EU. The transgression clearly benefits settlers, all defined as illegal occupiers under international law.

“The tariffs are a pittance for Israel,” one EU diplomat who declined to be named told the Financial Times.

“It has admitted in questionnaires sent by some member states that the goods do come from the occupied territories yet it will not say this publicly,” the diplomat added.

Due warning

In November 2001, the Commission issued a formal notice to importers, warning them certain goods would be eligible for tariffs if the customs authorities verified their origin.

In the past two years, German customs have demanded 190,750 euros and 2.1 million euros in insurance guarantees from importers, the Netherlands 147,000 euros in guarantees, France 21,700 euros in taxes and 87,000 euros in guarantees and Britain 41,500 pounds($69,100, €58,600) in taxes and 72,100 pounds in guarantees.

“The importers know what is at stake,” said a Commission official, suggesting the suits could likely fail.

If customs pass the suits onto the European courts of justice, Israel may well argue that under Community law an importing country must accept the "legally made" determination of the exporting country.

The companies filing suits were not identified.