In recent years the Israeli-Palestinian conflict has been playing out on a battleground that's barely a couple square inches in size. It's the labels of consumer goods produced in areas under Israeli occupation.
Last year the European Union, for example, instructed member countries to not allow imports of products from Jewish settlements in the West Bank to be labeled as, "Made in Israel." The European Union, like the U.S. considers the settlements illegal.
Instead, certain products have to be specifically marked as coming from settlements in the West Bank. This infuriated Israel. Members of the U.S. Congress denounced the move and considered legislation to counter it.
In its fine print, labeling touches some of the most sensitive issues of the conflict. It's about who has sovereignty over land. And to understand where the labeling issue started we turn back 30 years, to an experimental Palestinian lingerie factory launched in the 1980s.
Then, as now, Israeli farmers and factories operating from settlements in the West Bank export much more than Palestinian businesses in the territory.
But Charles Shamas, a Yale graduate from a Lebanese American family, went to the West Bank to try to help develop the Palestinian economy. This was before there was even a Palestinian government.
He wanted to figure out how to create good manufacturing jobs independent from Israeli markets or ownership.
"We were going to try something nobody had done," says Shamas, now 67 and living in Jerusalem.
"You had to produce a product that by its quality commanded a premium," he recalls. "So we said, well, obviously you have to be niche oriented. And (if) you're going to hit high value-added niches, you have to be able to export."
Former U.S. diplomat R. Nicholas Burns, now a professor at Harvard, knew Shamas then and describes the standard practice.
"The reality in the 1980s and 1990s was that (Palestinian) products were bought up by Israeli middlemen and shipped out of the West Bank and the Gaza Strip as Israeli products with an Israeli label on them," he said.
Shamas wanted to change that. To make his case to Western policy makers, he argued a logical extension of the laws in their own countries. He said that since the U.S. and Europe do not recognize the West Bank as being part of Israel, his lingerie from there should be distinguished from Israeli products.
"Do what your understanding of your own law requires you to do," Shamas says he told Western trade officials.
He says U.S. officials found a regulation allowing the goods to be marked, "Made in the Israeli Occupied West Bank."
It might not seem like a victory these days. It didn't call the lingerie even, "Palestinian" let alone something as bold as, "Made in Palestine."
But for Palestinians involved, it was better than being identified as Israeli. And the label was seen as the lingerie took off. A collection was featured in the 1987 winter collection of Bonwit Teller, then a top New York store. It was advertised in fashion magazines.
The factory is closed now – it shut in 1990 amid bouts of West Bank violence and troubles with the Israeli military's regulations. But racks of robes and camisoles still hang in the old production room, on the third floor of a concrete building with a heavy metal door.
"It gave me pride that this item of such quality is making it to top markets in America with the label," said the former production manager, Salwa Duiabis, as he gave a tour of the old facility.
Burns calls Shamas a "pioneer" who brought attention to a "hidden issue."
Fast forward to today and that labeling is a thorn in Israel's side.
Exports from Israeli settlements make up only about 1 percent of total Israeli exports, estimates Ohad Cohen, head of Israel's Foreign Trade Commission. And they dwarf Palestinian products in volume.
But the distinction Shamas helped forge on those lingerie labels still applies.
For example, in 1995, a year after the Palestinian Authority came into existence, the U.S. changed its policy and forbade the word "Israel" from appearing on products from the West Bank or Gaza, including the phrase "Israeli occupied." They can say "West Bank" or "Gaza" now, though enforcement is often lax.
Last year's EU ruling requiring special labels for Israeli settlements in the West Bank was a watershed. European officials said they were just informing consumers about product origins, but you can hear Shamas' old logic in their reasoning – that diplomatic policies apply in trade.
"What we want to achieve with this is simply to ensure that we are abiding by the legal standards that we have put down ourselves," says the EU's ambassador to Israel, Lars Faaborg-Anderson.
Those rules are just starting to take hold but have already caused problems for Israeli settler and farmer David Elhayani. He said all the attention makes it harder to get his dates and herbs into European shops.
Six or seven years ago, he says, 80 percent of his date crop went to Europe.
"Most of our products are now going to Russia," he said.
Prices are lower. "It affects us," he added. "And when I mean us, it's the families, the children, the growers."
Critics of the EU decision say it is actually being inconsistent by requiring special labels only for Israeli settlements, not other territories considered occupied around the world.
International law expert Eugene Kontorovich of Northwestern University and Israel's Kohelet Policy Forum, who has written extensively on the subject, says Europe is using the technical issue of product labeling to pressure Israel politically.
"The reason the Europeans are doing this and not doing overt political measures is because overt political measures would require a consensus of the EU that they don't have," he said.
Critics also point out that Palestinians working for Israeli farms and factories in the West Bank are affected. One prominent recent example was a controversy over the location of the factory for the Sodastream drinks maker.
And even though the overall economic impact is still small and technically just deals with how a product is marked, Israel says the implications are part of a effort to bring economic pressure on the country.
"The labeling is just one part of the big plan," says Cohen, of Israel's Foreign Trade Commission.
SCOTT SIMON, HOST:
The Israeli-Palestinian conflict is shifting to a financial front as Americans and Europeans raise questions about products made in Israeli-occupied areas. Europe has product labeling rules. The issue is debated in the U.S., too. NPR's Emily Harris traces the origins of the debate to an old lingerie factory in the West Bank town of Ramallah.
EMILY HARRIS, BYLINE: (Unintelligible) Get your exercise today.
SALWA DUIABIS: (Laughter).
HARRIS: All right, so let's go.
HARRIS: Palestinian Salwa Duiabis leads me up the stairs of what was once a lingerie factory. It's now a Ramallah office building. On the third floor, she stops. We're in the old design room.
DUIABIS: Used to have a huge cutting table. I think it was about 10 meters long.
HARRIS: That was 30 years ago.
So now there's a pingpong table here and a couple other tables and lingerie.
HARRIS: Still on hangers, hardly dusty are silk teddies, nightgowns, robes and slips. In 1987, lingerie made in this shop was a featured collection at the top New York department store, Bonwit Teller. Duiabis remembers.
DUIABIS: It made me so proud because it was a product made by Palestinians, and the Palestinians controlled every aspect of the cycle - the design, the procurement, the export.
HARRIS: Export especially because of the label.
DUIABIS: It gave me pride that this item of such quality, competitive, is making it to top markets in America with a label saying made in the Israeli-occupied West Bank.
HARRIS: That used to be one choice of wording the U.S. allowed to label items made in the West Bank. For the Palestinians sewing slips for export at that time, the label Occupied West Bank was better than being called an Israeli factory, the default then. The man behind the lingerie factory started it as an experiment.
CHARLES SHAMAS: It was a practical laboratory, not just an investigative laboratory. We were going to try to do something nobody had done.
HARRIS: Charles Shamas is now 67 years old and living in Jerusalem. He's a Yale grad from a Lebanese-American textile family. Back in the 1980s, he wanted to document how to create good Palestinian manufacturing jobs.
SHAMAS: You had to produce a product that commanded a premium. You have to be able to export.
HARRIS: That's to reach wealthy Westerners. But Shamas couldn't just decide himself how to identify where the lingerie was made. Labels follow the laws of the importing countries. So he asked U.S. and European trade officials to tell him what a Palestinian factory should do.
SHAMAS: But nobody ever raised the question before. And so the Europeans never thought they had to do anything. And with the Americans, we said the same thing.
HARRIS: Here's why asking how, legally, to label lingerie Made in the West Bank was a powerful question to pose. In their foreign policy, neither the U.S. nor Europe recognizes the West Bank as part of Israel. That long-held position was taken to push for peace talks. But Shamas argued it ought to be applied to product labels.
SHAMAS: We're saying you do what your understanding of your own law requires you to do.
HARRIS: In the late '80s, Shamas met Nicholas Burns who was then a U.S. diplomat in Jerusalem. Burns was charged in part to help Palestinian entrepreneurs like Shamas.
NICHOLAS BURNS: Oh, I think he was one of the pioneers because until Charles came along and began to talk to foreign aid organizations and foreign governments, this was a hidden issue.
HARRIS: Burns says Shamas' efforts to get the West Bank identified as separate from Israel for the purposes of trade affected more than lingerie.
BURNS: There are many Palestinian farmers in the West Bank. There are olive growers. There are orange growers. And the reality in the 1980s and 1990s was that their products were bought up by Israeli middlemen and shipped out of the West Bank and the Gaza Strip as Israeli products with an Israeli label on them.
HARRIS: What words are sewn on a tiny label in a robe or stamped on a box of oranges may seem mundane. But former U.S. diplomat Burns compares it to the pride in a Made in America label. And from a few shipments of underwear 30 years ago, fast-forward to today and labeling is a prominent and contested issue. Officially, the U.S. no longer permits the word Israel on any product made in the West Bank or Gaza.
The European Union last year told member countries to require special labels for products from Israeli settlements in the West Bank, which Europe considers illegal. The European Union's ambassador to Israel, Lars Faaborg-Andersen, says the intent is to help consumers.
LARS FAABORG-ANDERSEN: In Europe, we have legislation which requires that consumers are correctly informed as to the origin of a product.
HARRIS: When the ambassador explains further, you can almost hear the logic Shamas used on European officials 30 years ago, that countries should make labeling laws consistent with their foreign policy.
FAABORG-ANDERSEN: What we want to achieve with this is simply to ensure that we are abiding by the legal standards that we put down ourselves. That's all there is to it.
HARRIS: The Israeli government strongly opposes this European move, saying it's part of a much larger push by outside groups to use economic pressure against Israel, even to force it out of existence. Head of Israel's Foreign Trade Administration, Ohad Cohen.
OHAD COHEN: The labeling is just one part of the big plan. It doesn't matter whether it has a minor economic effect. We are not willing to take that.
HARRIS: The European rule is just starting to take effect. But Israeli settler and farmer David Elhayani says attention to the issue has already made it harder to get his dates and herbs into European shops.
DAVID ELHAYANI: If it was 80 percent goes to Europe seven and six years ago, now it's about 30 percent are going to Europe and most of our product are going now to Russia.
HARRIS: Prices are lower, and no one is making up the difference, Elhayani says.
ELHAYANI: Its affect - us And when I mean us, it's the families, the children, the growers.
HARRIS: In the U.S., rules say products from the West Bank cannot be labeled as Israeli. But Elhayani and other Israeli settlers say they have shipped that way for years. Enforcement is difficult. And now the original intent of the U.S. law is being re-examined.
DUIABIS: This is one of my favorites. I like the black chiffon (laughter).
HARRIS: Most people involved in the fight today over product labeling have never heard of that old lingerie factory in Ramallah. It closed in 1990, but the questions it raised are still at play in this conflict's ever-growing economic front. Emily Harris, NPR News, Ramallah. Transcript provided by NPR, Copyright NPR.