Arabs Ease Boycott Linked to Israel : Mideast: Saudi Arabia, five other nations agree to end curbs against firms dealing with Jewish state.

UNITED NATIONS —  Saudi Arabia and the other oil-rich Persian Gulf monarchies agreed Friday to end their boycott of companies doing business with Israel, declaring that the blacklist is no longer needed because of Israel’s peace agreements with Jordan and the Palestinians.

Foreign ministers of the six-nation Gulf Cooperation Council announced the step--which removes a serious irritant from U.S.-Arab relations--after a lunch meeting with Secretary of State Warren Christopher.

With Prince Saud al Faisal, the Saudi foreign minister, at his side, Christopher said, “There is a commitment from the states of the Gulf Cooperation Council to no longer enforce the secondary and tertiary aspects of the boycott and not discriminate against American companies.

“These are very significant moves ahead,” he added.

A senior U.S. official said later that the step is far more important symbolically than it is economically because few Arab states have enforced the boycott in recent years.

However, Friday’s announcement was the first time that a significant group of Arab countries made the non-enforcement policy official and public.

The U.S. official said the announcement should reassure firms that “err on the side of caution” that they can do business on both sides of the Arab-Israeli conflict. He said companies such as Motorola, which have long been on the Arab blacklist, should now be able to compete for business in the Gulf countries without any impediments.

Several years ago, Arab governments offered to lift the boycott in exchange for a moratorium on Israeli construction of Jewish settlements in the West Bank and Gaza Strip. But the GCC action came despite continued Israeli settlement activity.

A senior Gulf diplomat said the boycott had been intended to pressure Israel to make peace with the Palestine Liberation Organization.

When PLO Chairman Yasser Arafat and Israeli Prime Minister Yitzhak Rabin shook hands on the White House lawn a year ago, the primary reason for the boycott was pared away, he said.

“You can’t be more royalist than the king,” the diplomat said. “Whatever the Palestinians can live with, we can live with.”

Moreover, the diplomat said the boycott could make it more difficult for U.S. firms to do business with the newly established Palestinian self-governing authority in the Gaza Strip and the West Bank town of Jericho because the Israeli and Palestinian economies are so closely intertwined.

Israeli Foreign Minister Shimon Peres, here to attend the General Assembly session, said the Arab decision, though incomplete and slow in coming, is still important.

“It is a step in the dismantling of the walls of hatred,” he said.

The decision affects only the members of the GCC--Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates.

The boycott was imposed by the Arab League and only that organization can officially end it. However, the league allows member states to ignore the boycott if they deem that to be in their national interest, creating the loophole that the GCC used to end enforcement.

The GCC countries are the richest in the Arab world and account for a large percentage of all business dealings between Arab states and the rest of the world.

As the GCC diplomat said wryly, “American companies are not doing great business with Djibouti and Libya.”

The GCC ministers said they will urge the Arab League to repeal the secondary and tertiary aspects of the boycott as soon as possible.

The secondary boycott bars Arab governments from doing business with companies that do business with Israel, while the tertiary boycott bars Arab governments from doing business with companies that do business with companies doing business with Israel.

The primary boycott, banning direct dealing between Arab states and Israel, remains. The GCC diplomat hinted that the primary boycott will be lifted after Israel and Syria reach a peace settlement.

The diplomat said the GCC action may strengthen Rabin’s hand in his negotiations with Syria because it will show the Israeli public that peace brings a tangible payoff.

Syria is demanding the return of the Golan Heights, occupied by Israel during the 1967 Arab-Israeli war, as part of any peace settlement. Rabin has indicated that he is ready to exchange some land for peace, although he says he will not return all of the strategic plateau that overlooks both northern Israel and most of Syria. But Rabin is facing strong opposition within Israel to any sort of territorial concession.

The U.S. official said Israel and Syria have narrowed their differences as a result of negotiations conducted by U.S. mediators, but he said the two countries remain far from agreement on a peace treaty.

Christopher plans to visit the Middle East during the first half of October to continue his shuttle diplomacy between Rabin and Syrian President Hafez Assad.

Apart from any impact the boycott decision may have on the Israel-Syria talks, the most significant psychological effect may be in the United States, where the boycott has long been a corrosive factor in U.S.-Arab relations.