The European Union's top court ruled on Tuesday that products made in Israeli settlements must be clearly labelled as produced in the Occupied Territories when sold in EU countries. 

In its ruling, the Luxembourg-based European Court of Justice (ECJ) said goods from territories occupied by Israel "must bear the indication of their territory of origin", and that where goods come from an Israeli settlement within that territory, this should also be indicated. Labels, the court said, must not imply that goods produced in the Occupied Territories come from Israel itself.

The judgment stems from a case brought by Psagot Winery and the European Jewish Association against the French government. Psagot Winery, which is based in the Israeli-occupied West Bank, challenged a French law requiring wine labels to state that its products came from Israeli settlements in the Occupied Territories, arguing that this was not in line with EU labelling rules. France's Supreme Court, the Conseil d'Etat, referred the case to the ECJ as the final arbiter of EU law.

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In its ruling, the court concluded that the products could not be labelled "Israel" because labels must "prevent consumers from being misled as to the fact that the State of Israel is present in the territories concerned as an occupying power and not as a sovereign entity".

The EU has strongly opposed the expansion of Israeli settlements, saying such settlements use land claimed by Palestinians and undermine any hope for a two-state solution. Israel says the labelling is unfair and discriminatory and that other countries involved in disputes over land are not treated the same way.

But the court stated that EU labelling rules were designed to provide consumers with a range of information about products. This included information that would enable consumers to make choices based on ethical criteria, including that a product originated in a territory that was under illegal occupation according to international law.

"The provision of information to consumers must enable them to make informed choices, with regard not only to health, economic, environmental and social considerations, but also to ethical considerations and considerations relating to the observance of international law. The Court underlined in that respect that such considerations could influence consumers' purchasing decisions," the ruling said.

Labelling products that have been made in the Occupied Territories as coming from Israel could mislead consumers, the court said.

While the winery that brought the case is based in the West Bank, the court applied its ruling to all territory captured by Israel in the 1967 war, including east Jerusalem and the Golan Heights, both of which Israel has annexed, as well as the West Bank.

The court's judgment follows the recommendation of one of the ECJ's advocate generals, Gerard Hogan, who recommended that the court rule that labels should indicate that items were produced in the Occupied Territories if they came from Israeli settlements there.

François-Henri Briard, lead counsel for Psagot Winery, said the court was wrong and its ruling was political.

"EU rules are there to provide fair and relevant information to consumers, not to cater to political prejudices," he said in a statement. "If such labelling is applied to Israeli products, surely it will also need to be applied to scores of other countries around the world [that] could be argued to be in violation of international law."

Israel's foreign ministry said the ruling "serves as a tool in the political campaign against Israel", and the Israeli foreign minister, Israel Katz, told Reuters he would work with foreign ministers of EU countries to prevent its implementation.

Psagot Winery has hired Covington & Burling to lobby against implementation of EU regulations on country-of-origin labels. Records list Stuart Eizenstat, former ambassador to the EU, as the lead lobbyist. Covington did not respond to a request for comment.

The Lawfare Project, a group of legal professionals that campaigns for Israeli interests, said in a statement that the court's decision "mandates religious discrimination" by treating Jewish-owned and Muslim-owned businesses differently, even if they operate in the same geographic location. It also said the decision was "driven by foreign policy concerns".

"It also opens up a Pandora's box of unintended consequences, allowing anyone to sue to add labelling requirements based on subjective 'ethical considerations'," the statement said.