Israel is an associated state of the European Union. The relations between the two are framed in the European Neighbourhood Policy (ENP), the Euro-Mediterranean Partnership, and the Union for the Mediterranean.
Relations between Israel and the European Union are generally positive on the economic level, though affected by the Israeli-Palestinian conflict on the political level. In particular, Israel views four decades of EU declarations on the Israeli-Palestinian conflict as one-sided and pro-Palestinian.
Israel and the European Economic Community established diplomatic relations as early as 1959. A first free trade area agreement was signed in 1975. In the Essen Council in 1994, the EU signaled its willingness to establish special relations with Israel.
Multilaterally, Israel takes part in the 1995 Barcelona process (Euro-Mediterranean Partnership), and the subsequent 2008 Union for the Mediterranean, and since 2003 in the European Neighbourhood Policy (ENP).
Bilaterally, after a Cooperation Agreement in 1975, an Association Agreement came into force in 2000, providing for preferential economic, commercial, technological and research status between the parties. It included measures for the creation of a free trade area in industrial goods, and the liberalisation of trade in agricultural goods, of services, and of capital movements. The agreement also set the basis for cultural, research and political cooperation.
The EU-Israel Association Agreement forms the legal basis governing relations between Israel and the European Union, modeled on the network of Euro-Mediterranean Agreements between the Union and its partners in the southern flank of the Mediterranean Sea.
The agreement with Israel incorporates free trade arrangements for industrial goods and concessionary arrangements for trade in agricultural products (a new agreement here entered into force in 2004), and opens up the prospect for greater liberalisation of trade in services and farm goods from 2005. The Association Agreement was signed in Brussels on 20 November 1995, and entered into force on 1 June 2000, following ratification by the 15 Member States' Parliaments, the European Parliament and the Knesset. It replaces the earlier Co-operation Agreement of 1975.
The Association Agreement established two main bodies for the EU-Israel dialogue. The EU-Israel Association Council (held at ministerial level) and the EU-Israel Association Committee (held at the level of senior officials) meet at regular intervals to discuss political and economic issues, as well as bilateral and regional co-operation.
Article 2 of the Association Agreement states:
Relations between the Parties, as well as all the provisions of the Agreement itself, shall be based on respect for human rights and democratic principles, which guides their internal and international policy and constitutes an essential element of this Agreement.
Since 1998, Israel and the EU have been in dispute over the legal treatment of products exported to the EU from the occupied Palestinian territories. Israel argues that these are produced in its customs territory and should thus be subject to the Association Agreement and benefit from preferential treatment. The EU maintains that the Territories are not part of Israel, and are illegal under international law, and such products do not therefore benefit from preferential treatment.
A 2001 avis by the European Commission confirmed the lack of preferential status for such products, inducing infuriated reactions from Israel, though the economic significance of the Territories-based Israeli products is very limited (EUR100 mln/year over a total of EUR6 bln/year). Differently from the EU, the United States admit custom-free goods exported from the Territories under their 1985 free trade agreement.
A solution was negotiated in 2004, whereby the Israeli authorities would specify on the certificate of origin the geographic location of the production site (e.g., Israel, Barkan), without having to specify whether the goods originated in the Territories. The EU customs authorities are then able to discern the exact origin and provide preferential treatment only to goods from Israel proper, giving de facto meaning to the EU policy of non-recognition of the Territories as part of the State of Israel
The 2010 ruling of the European Court of Justice in the Brita case confirmed that products originating in the West Bank do not qualify for preferential customs treatment under the EC-Israel Agreement, and that contrary assertions by Israeli authorities are not binding upon EU customs authorities. In its reasoning, the ECJ relied on the presence of two, distinct and equal Association agreements, one with Israel, applying to the "territory of the State of Israel", and one with the PLO, applying to the territory of the West Bank and the Gaza Strip, and on the general principle of customary international law that an obligation cannot be imposed on a third party without its consent. The Court concluded that the EC-Israel Agreement may not be interpreted in such a way as to compel the Palestinian authorities to waive their right to exercise the competence conferred upon them by virtue of the EC-PLO Agreement and, in particular, to refrain from exercising the right to issue customs documents providing proof of origin for goods manufactured in the West Bank and the Gaza Strip. It follows that products originating in the West Bank do not fall within the territorial scope of the EC-Israel Agreement and, therefore, do not qualify for preferential treatment under that agreement.
In 2015, the Israeli Foreign Ministry announced that "Israel is suspending its diplomatic dialogue with the EU in various forums" due to a policy passed by the EU to label products from the West Bank. Israel expressed displeasure that "the EU has chosen, for political reasons, to take such an exceptional and discriminatory step, inspired by the boycott movement, particularly at this time, when Israel is confronting a wave of terrorism targeting any and all of its citizens", adding that the labelling decision would "have implications for Israel-EU relations." The Prime Minister of Israel, Benjamin Netanyahu, reiterated that the decision was "hypocritical and [set] a double standard", adding that the EU "should be ashamed" of its actions. The United States said it did not regard the EU move as a boycott.
Upgrading the Association Agreement has long been on hold following a vote in the European Parliament to postpone the issue in December 2008, due to continuing settlement building and the blockade of the Gaza Strip.
The Agreements on Conformity Assessment and Acceptance of Industrial Products (ACAA)  which focus on pharmaceutical products were adopted by the European Parliament on 23 October 2012, following a debate that had lasted for more than two years. Ratification of the ACAA will make it easier to export Israeli pharmaceuticals and other goods to the 27 EU member countries, and vice versa. Following a controversial debate, 379 members of the European Parliament voted in favor and 230 against ratification. The ACAA are in conformity with the Brita ruling on the non-preferential access of goods produced in the Israeli settlements.
Trade between the EU and Israel is conducted on the basis of the Association Agreement. The European Union is Israel's biggest trading partner. In 2013 the total volume of bilateral trade (excluding diamonds) came to over EUR27 billion. In 2013, 32% of Israel's exports (excluding diamonds) went to the EU, and 34% of its imports (excluding diamonds) came from the EU.
Total EU trade with Israel rose from EUR19.4 billion in 2003 to EUR31.0 billion in 2012 and EUR31.4 billion in 2013. EU exports to Israel reached EUR17.9 billion in 2013, while imports from Israel were EUR13.5 billion. The trade deficit with Israel was EUR4.4 billion in the EU's favour in 2013.
Under the Euro-Mediterranean Agreement, the EU and Israel have free trade in industrial products. The two sides have granted each other significant trade concessions for certain agricultural products, in the form of tariff reduction or elimination, either within quotas or for unlimited quantities.
Israel was the first non-European country to be associated to the European Union's Framework Programme for Research and Technical Development (RTD). Israel's special status is the result of its high level of scientific and research capability and the dense network of long-standing relations in scientific and technical co-operation between Israel and the EU. The European Commission signed an agreement with Israel in July 2004 allowing for its participation in the EU's Galileo project for a global navigation satellite system. As of 2014, Israel was a member of the European science organization, CERN, becoming the only non-European member.
Israel, because of its high national income, is not eligible for bilateral funding under MEDA. It has, however, been involved in a wide variety of Euro-Mediterranean regional programmes funded under MEDA:
The European Union has been criticized for funding Israeli human rights non-governmental organisations (NGOs).NGO Monitor claim they have identified over USD 48 million that have been allocated to Israeli and Palestinian NGOs by the European Commission. In response, the Israeli Knesset attempted to pass two bills that would limit the amount that a foreign government or organization could donate. However, these two bills were never passed into law.
In 2012, the European Court of Justice dismissed a lawsuit that would have required the European Union to release details of its funding of Israeli NGOs. The lawsuit, which was filed in January 2010, charged that the European Commission had failed to fulfill European Union transparency obligations after NGO Monitor had tried for 13 months to obtain documentation detailing EU nongovernmental agency funding. Under the European Freedom of Information Act, such funding details must be made available upon request. However, the EC cited "public security", "privacy" and "commercial interests" in denying the information request.
The European Union attaches great importance to the finding of a just and final settlement to the Arab-Israeli conflict and supports initiatives to further the Israeli-Palestinian peace process, through the role of the Special Envoy for the Middle East Peace Process through its involvement in support of the Quartet (EU, US, Russia, UN), its programmes of humanitarian and other assistance for Palestinians in the West Bank and the Gaza Strip, by virtue of the commitments entered into by Israel, the Palestinian Authority and the EU in the European Neighbourhood Policy Action Plans, as well as through programmes for civil society and people-to-people contacts. The EU is also the largest donor of aid to the Palestinian autonomous areas.
The EU has been more critical of Israel and more supportive of the Palestinians than the US. The general position of the EU is that a Palestinian state should be based on the 1967 borders with land swaps, Jerusalem should be divided and become the capital of both states, and a negotiated settlement be found for the Palestinian refugee issue, although member states have sometimes been divided on these issues. However, all EU states universally consider Israeli settlements illegal under international law. The EU has insisted that it will not recognize any changes to the 1967 borders other than those agreed between the parties. Israel's settlement program has, thus, led to tensions. The most difficult of these issues, however, is Jerusalem. Israel has insisted that the city will remain its undivided capital, and is fiercely opposed to its re-division. Israel does not regard Jewish neighborhoods in East Jerusalem as settlements, while the EU does. East Jerusalem has been a de facto part of Israel following Israel's unilateral annexation of the area, while the EU, along with the rest of the international community, regards it as occupied territory subject to negotiations. The EU has frequently criticized Jewish construction in East Jerusalem.
In 2008, during the French presidency of the Council, the European Union strived to increase co-operation with the US on Middle-Eastern issues, inter alia with a view to coordinating common pressures on Israel. In late 2009 and 2010, a Swedish-drafted EU paper called for Jerusalem to be divided and become the joint capital of Israel and a Palestinian state, and criticized Israel's building in East Jerusalem. The draft was met with Israeli opposition and was eventually not adopted.
European Union foreign ministers welcomed Prime Minister Benjamin Netanyahu's conditional endorsement of a future Palestinian state in June 2009, but said it was not enough to raise EU-Israel ties to a higher level and questioned the conditions set for backing a Palestinian state and Netanyahu's defense of Jewish settlements. In December 2010, a group of 26 former EU statesmen, including former Foreign Affairs Chief Javier Solana, submitted a written petition calling for the EU to ban imports of settlement products, force Israel to pay the majority of aid required by the Palestinians, link an upgrade in diplomatic relations to a settlement freeze, and send a high-level delegation to east Jerusalem to support Palestinian claims to sovereignty. The request was rebuffed by Foreign Affairs Chief Catherine Ashton.
Allegations of anti-Israel bias and a new antisemitism from within the EU have been raised by eurosceptics, such as Nigel Farage from the UK Independence Party. Eurosceptic MEPs such as Farage have also criticised an alleged 300 million euros per annum (as of 2009) going to the Palestinian National Authority from the EU.
The EU has also been highly critical of Israeli military actions in the Palestinian territories and Lebanon, often referring to them as "disproportionate" and "excessive force" and calling for an immediate cease-fire. During Operation Defensive Shield in 2002, the European Parliament passed a non-binding resolution calling for economic sanctions on Israel and an arms embargo on both parties. Following the Gaza War, the European Parliament endorsed the Goldstone Report. The EU has also been critical of Israel's Gaza blockade, referring to it as "collective punishment."
EU member states had no common response to the Palestinian Authority's announcement that it would declare independence in September 2011, through the Palestine 194 diplomatic campaign to gain membership for the State of Palestine in the United Nations. Some stated that they might recognize the state if talks did not progress, or to punish Israel for settlement construction. When Palestine was admitted to UNESCO as a full member in October 2011, five EU members states were among the 14 countries that joined Israel in voting against (Czech Republic, Germany, Lithuania, Netherlands and Sweden); eleven voted in favour of Palestinian membership (Austria, Belgium, Cyprus, Finland, France, Greece, Ireland, Luxembourg, Malta, Slovenia, Spain) and eleven abstained (Bulgaria, Denmark, Estonia, Hungary, Italy, Latvia, Poland, Portugal, Romania, Slovakia, United Kingdom).
A classified working paper produced by European embassies in Israel, parts of which were obtained by the Haaretz newspaper, recommended that the European Union should consider Israel's treatment of its Arab citizens a "core issue, not second tier to the Israeli-Palestinian conflict". Other issues considered material to relations with Israel include the lack of progress in the peace process, the continued occupation of the Palestinian territories, Israel's definition of itself as Jewish and democratic, and the influence of the Israeli Arab population. Israel's Foreign Ministry replied that the EU members of the Security Council called this "inappropriate bickering" that would make them "irrelevant", and accused the EU of "interfering" in Israel's internal affairs. However, the EU had a divided internal reaction to the working paper: countries including Britain were seeking concrete punitive measures against Israel if they did not address Israeli Arab issues, while other countries including Poland and the Netherlands made their opposition clear to such actions. The final paper did not include any specific EU planned actions on the matters it discussed.
A classified document by EU delegates, obtained by Ynet, suggested funding Palestinian construction projects in Area C of the West Bank without Israel's cooperation, undermining Israeli control. Under the Oslo Accords, Area C is under full Israeli civil and security control. It contains all of Israel's West Bank settlements and a small Palestinian population. The document expressed concern that Israel's policies would undermine the prospect of a Palestinian state on the 1967 borders, and called on Israel to support Palestinian construction across Area C and in East Jerusalem.
A published EU report in early 2012 made an urgent call for the EU to adopt a more "active and visible" implementation of its policy towards Israel and the peace process. A potentially radical proposal for "appropriate EU legislation to prevent/discourage financial transactions in support of settlement activity" was the first indication that some member states were seeking European divestment from businesses actively involved in the settlement enterprise. Under one interpretation of the proposal, the Commission would use legislation to force companies in Europe to break their links with businesses involved in settlement construction and commercial activities. The report also recommended the EU prepare a blacklist of settlers involved in violence, in order to possibly ban them from entering EU member states, encourage PLO activity and representation in east Jerusalem, and for senior EU officials to avoid being escorted by Israeli representatives or security personnel in east Jerusalem. The issue of the PLO/Fatah and East Jerusalem has been a flashpoint between Israel and many EU countries because EU diplomats have often met their Palestinian counterparts in the city but have rarely met with Israeli government officials there (even in West Jerusalem, which the EU sees as a current and future part of Israel), which also ties into how the EU has tried to present Tel Aviv as the Israeli capital even though the central seat of government and most government facilities are located in Jerusalem.
Another 2012 EU report recommended that the EU undermine Israeli control of Area C of the West Bank by pursuing and funding Palestinian building projects undertaken without receiving Israeli building permits, which are required in Area C.
EU foreign policy chief Catherine Ashton said she was following with great concern the case of Khader Adnan, a prisoner on hunger strike detained without trial by Israel. Adnan ended his hunger strike after 66 days, after reaching a deal with prosecutors an hour before his case was due to be heard by the Supreme Court of Israel. The EU has been critical of Israel's system of administrative detention.
In 2013 the EU adopted a binding directive according to which the Israeli government will be required to state in any future agreements with the EU that settlements in the West Bank, including East Jerusalem are outside the state of Israel. The directive partially implements an earlier EU foreign ministers' declaration  that "all agreements between the state of Israel and the EU must unequivocally and explicitly indicate their inapplicability to the territories occupied by Israel in 1967". The guidelines prohibit the issuing of EU grants, funding, prizes or scholarships to Israeli entities unless a settlement exclusion clause is included. Israeli institutions and bodies situated across the pre-1967 Green Line will be automatically ineligible. The EU directive is similar to the one signed between the United States and Israel in 1972 whereby Israel undertook, in exchange for science funding, to restrict the projects within the 1967 borders. The guidelines do not restrict grants issued by individual EU member states. In advance of the publication of the Guidelines, there was, in Israel, a political and media storm. News Media have suggested Israel will take some action against the EU. Maja Kocijancic, spokeswoman for EU foreign policy chief Catherine Ashton, has said: "The EU is concerned by reports in the Israeli media that the Israeli Minister of Defense has announced a number of restrictions affecting EU activities supporting the Palestinian people. We have not received any official communication from the Israeli authorities. Our delegations on the spot are seeking urgent clarifications".
Israel responded to this initiative by declaring that it will not sign any future agreements with the EU until it "clarifies" its position that no Israeli organization with connections beyond the Green Line can cooperate or receive EU funding.
The Israeli government has hinted several times that an EU membership bid is a possibility, but the EU itself proposes instead the closest possible integration "just short of full membership." Faster advancement of such plans is somewhat hampered by the current instability in the Middle East and conflicts in the West Bank, Gaza Strip, and Lebanon. European public opinion of some of Israel's policies, especially those related to the aforementioned areas of conflict is, in general, poor.
The European Union's former High Representative for Common Foreign and Security Policy, Javier Solana, stated in 2009 that Israel had a very significant relationship with the EU, amounting almost to full cooperation through participation in the EU's programmes. Former Spanish foreign minister Miguel Ángel Moratinos spoke out for a "privileged partnership, offering all the benefits of EU membership, without participation in the institutions". On 11 January 2005, industry commissioner and vice president of the commission Günter Verheugen even suggested the possibility of a monetary union and common market with Israel.
However, a growing number of EU member states have considered granting formal recognition to the State of Palestine meaning Israel may oppose EU membership, or EU members may oppose the integration of Israel on political and cultural grounds.
Although Israel is not geographically located in Europe, it is a member in many European transnational federations and frameworks, and takes part in many European sporting events and the Eurovision Song Contest.
An argument for the inclusion of Israel into the EU as a full member is that it has a partly "European" culture, as a significant number of Israelis are either Jews who migrated to Israel from Europe, or descendants of such people. Israel also has a GDP per capita similar to many richer European countries. Some claim that allowing Israel into the EU would create a precedent for other geographically non-European countries to apply for membership, but in fact this precedent already exists as Cyprus, which is already a member state, is geographically in Asia. Proponents of Israel's accession to the EU claim that Israel's situation is similar to that of Cyprus--a country outside of Europe geographically, but a part of Europe culturally and socially.
Moreover, like most western European countries, Israel is a member of the OECD and from an economic perspective matches the European Union extremely well, with essentially every significant economic indicator (GDP per capita, government deficit, public debt level, current account surplus, inflation level, etc.) closely matching the overall EU average. Israel is however not included among the nine countries that are part of the EU agenda for future enlargement of the European Union.
The European Council has not been asked to take a stance regarding whether or not Israel is a European state, but similar circumstances to Morocco (being geographically outside Europe and without exceptional features such as CoE membership) may preclude its inclusion as a full member into the EU as well.
The principle of Israel joining the European Union has been supported by some politicians in both Israel and Europe, including;