Trade with the Settlements: How EU Law Points the Way Out of the Deadlock

The International Court of Justice’s Advisory Opinion of 2024 on Legal consequences arising from the policies and practices of Israel in the Occupied Palestinian Terrritory, including East Jerusalem has prompted many scholarly comments on third states’ obligations to react to violations of international law by Israel in the Occupied Palestinian Territory (OPT) (notably here and here). Much has been written also on the rather passive stand of the European Union (EU) in this respect (notably here and here), which manifested itself again this summer when the EU Foreign Affairs Council proved unable to take measures with respect to the Israeli settlements in the OPT. Less attention has been given to how this deadlock, and the EU’s posture towards Israel more generally, relate to the legal intricacies of the EU’s decision-making process as well as to its foundational principles. This post argues that banning trade with the settlements is a matter of the Union’s living up to its foundational principles, which include respect for international law and the rule of law. It also argues, more specifically, that the European Court of Justice’s jurisprudence points the way out of the current deadlock.

The European Union’s Decision-Making Process on Trade with Israeli Settlements

While the EU’s decision-making on Israel has been difficult for quite some time, as explained here, the latest episode of the drama started earlier this summer. During a meeting of the Foreign Affairs Council on Monday, July 13, 2026, the Member States of the European Union were again unable to agree on measures regarding Israeli settlements in the OPT.

Just a few days before the Council meeting, the Commission had proposed several options in a brief note, including an import ban on products from the settlements, as explained here. According to the Commission, such a measure could only be adopted unanimously, as it would be intended to influence the Israeli government’s policy. It would thus not qualify as a trade measure but as a political coercive measure or sanction. This view is shared by Germany and Italy, but is contested by Belgium, Spain, Ireland, the Netherlands, and Sweden, which consider that the envisaged import ban is a trade measure that can be adopted by qualified majority. The question is of major practical importance since unanimity among Member States is extremely difficult to achieve where Israel is concerned.

Division of competences in the European Union Legal Order

To fully understand this difference of opinion, one must first grasp the very nature of the European Union. The European Union is not a sovereign state but a supranational organisation, governed by the Treaty on the European Union (the TEU), the Treaty on the Functioning of the European Union  (the TFEU), and the Charter of Fundamental Rights of the European Union (the Charter). According to Article 2 TFEU, the Union only has the competences conferred on it by the treaties. Article 3 TFEU provides that the Union has exclusive competence with respect to external trade. Pursuant to Article 17(2) TEU and Article 207 TFEU, the right to initiate legislative proposals in this area belongs to the European Commission, which is the independent executive Institution of the Union. It is then for the European Parliament and for the Council, composed of the representatives of all the Member States, to enact such legislation. The Council exercises this competence pursuant to the qualified majority rule consecrated by Article 16(3) TEU. 

In other areas, however, state sovereignty still prevails, which finds expression in the role of the European Council as well as in the predominance of unanimity vote. The European Council – which is not to be confused with the Council of the European Union – is composed of the heads of state or heads of government of the 27 Member States, the President of the European Council and the President of the Commission, and is in charge of setting the general political directions and priorities of the Union (Article 15 TEU). Article 31(2) TEU stipulates that decisions in matters of Common Foreign and Security Policy shall be taken by the “European Council” and the “Council” acting unanimously, except where otherwise provided. In particular, unanimity is the rule for EU targeted restrictive measures (or “sanctions”) against listed individuals or groupings pursuant to Council Decision (CFSP) 2020/1999 and Council Regulation (EU) 2020/1998 concerning restrictive measures (in particular the freezing of funds) against serious human rights violations and abuses. Some Israeli individuals and non-governmental organisations responsible for promoting illegal settlements in the OPT are subject to restrictive measures on that basis.

Trade in the European Union Legal Order

It does not follow from the above that banning trade with the Israeli settlements is a coercive measure subject to unanimity vote. Pursuant to the EU treaties, trade is indeed inseparable from respect for human rights and international law. Article 21 TEU thus stipulates that the Union’s actions on the international stage are guided by the principles which have guided its establishment, including respect for human rights and international law. Article 207 TFEU explicitates that the common commercial policy shall be conducted in the context of the principles and objectives of the Union’s external action. 

This constitutional principle has previously led the Union, acting by a qualified majority, to enact trade measures to ensure respect for international law and human rights in the Union’s trade relations. The Union thus prohibits international trade in certain products due to their intrinsic characteristics, such as instruments of torture as provided in Regulation 2019/125 concerning trade in certain goods which could be used for capital punishment, torture or other cruel, inhuman or degrading treatment or punishment. The Union also prohibits international trade in products due to the conditions under which they were produced, such as products made with forced labour, as foreseen in  Regulation 2024/3015 on prohibiting products made with forced labour on the Union market. By the same logic, the Union has the right to deny access to its internal market to products that, by their nature or the circumstances under which they were produced, are contrary to public morality. All of this may be decided by a qualified majority, which is the general rule under Article 16(3) TEU.

The European Union, the Court of Justice, and the Rule of Law

The division of competences between the Union and its Member States does not, therefore, justify the Commission’s failure to present a trade measure enacted by qualified majority as an option to the Foreign Affairs Council of 13 July 2026. This failure neglects how the division of competences must be put in practice pursuant to EU law. To operate under the rule of law, which is another of the Union’s foundational principles, the division of competences is accompanied with constitutional safeguards aimed at identifying the appropriate legal basis of prospective EU instruments, which have been developed by the European Court of Justice, the Union’s constitutional court.

According to the settled case law of the Court of Justice (in the Titanium Dioxide, Agreement with Kazakhstan, and Armenia CEPA cases), determining the appropriate legal basis for an instrument of EU law does not depend simply on an Institution’s conviction. It must be based on “objective factors amenable to judicial review”. Those factors include in particular “the aim and content of the measure”. These, in turn, must be identified by reference to the body of the text. As stated in the Armenia CEPA judgment, “while general objectives may be set out in the preamble or in the initial articles of the measure concerned, it is the scope of the obligations effectively provided for in order to pursue the objectives in question, and the predominance of certain matters covered that are decisive for determining the field that it covers”. These criteria are complemented with a “centre of gravity” or “main purpose” test as stated in the Agreement with Kazakhstan judgment: “If examination of an EU measure reveals that it pursues two purposes or that it compromises two components and if one of these is identifiable as the main of predominant purpose or component, whereas the other is merely incidental, the measure must be founded on a single legal basis, namely that required by the main or predominant purpose or component”.

These criteria are more than technical devices facilitating the EU decision-making process. Allowing the European Institutions and the Member States to ascertain the apppropriate legal basis of a prospective measure by reference to objective factors amenable to judicial review is a matter of respect for the rule of law, which the Court’s jurisprudence and Article 2 TEU consecrate as one of the values on which the Union is founded.

Trade with the Settlements and the Union’s Foundational Principles

In the light of these principles, the Commission is not entitled to decree that an import ban on products from the Israeli settlements is a coercive measure subject to unanimity vote, without having even submitted a draft regulation to the Council. This puts the cart before the horse. The Court’s jurisprudence makes it clear indeed that the appropriate legal basis does not depend simply on an Institution’s conviction. It must be based on objective factors and ultimately on the scope of the obligations effectively provided for in the instrument concerned. To answer the question that divided the Foreign Affairs Council on 13 July 2026, a text is needed.

Further, if one considers what might be the text, the proposed import ban on products from Israeli settlements would indeed tend to qualify as a trade measure that can be adopted by a qualified majority. Just like the ban on trade in products made with forced labour, the proposed measure would target the import of specific products because of the conditions under which they were produced. In principle, therefore, this is a measure in the field of foreign trade. This qualification as a trade measure pursuant to Article 207 TEU can further be strengthened by appropriately wording the regulation.

It is therefore up to the Commission to submit to the Member States a draft regulation enacting a foreign trade measure that can be adopted by a qualified majority. If the Commission also considers coercive measures against Israel to be necessary, it should submit a separate proposal to that effect, which may require unanimity. The “foreign trade” measure may be less ambitious, but no less important for that: rather than using sanctions to pressure Israel into complying with international law and human rights, it aims to ensure that the Union itself comes to terms with—as Article 21 TEU puts it—“the principles which have inspired its own creation”.