Wednesday, July 25, 2007

What the Arab League boycott of Israel does, and why U.S. tax laws penalize it

from AP: "The U.S.'s antiboycotting measures" by PAUL CHAVEZ

Imagine that you're the owner of a U.S.-based oil services company that specializes in custom rigs and drillings.

One day your business contact in the Middle East sends a letter asking questions such as: Do you or any of your subsidiaries now or have ever had a branch or assembly plant in Israel? Can you provide a certificate stating that products related to the drilling project have not been manufactured in Israel?

Such are the types of requests American firms can encounter when doing business in countries that observe the Arab League's boycott of Israel, according to a government Web site. The U.S. Treasury Department publishes a quarterly list of countries that participate in the boycott, the latest of which included Kuwait, Lebanon, Libya, Qatar, Saudi Arabia, Syria, the United Arab Emirates and Yemen last week.

The 23-member Arab League has maintained an official boycott since the founding of Israel in 1948. Enforcement, however, is sporadic and some Arab League members have limited trade relations with Israel and are therefore not on the list.

The United States opposes the boycott against Israel, and U.S. lawmakers in the 1970s passed legislation to discourage companies from cooperating with it. Companies must notify the government if they are asked to comply with the boycott, and violators can face fines and even jail time.

The Internal Revenue Service also denies tax benefits to U.S. taxpayers who participate in the boycott.

"I think it has helped," said Stan Smilack, a tax lawyer in Washington D.C. with Steptoe & Johnson. "It has prohibited a significant amount of discrimination against Israel and Israelis."


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