British customs officials are "strongly concerned" that Israeli-produced goods made in settlements on the occupied West Bank may be circumventing import taxes en-route to British high streets, the BBC's Tim Franks learns.

The British Government believes that Israeli settlements on occupied territory are illegal. So does every other government in the world, except for Israel.

For that reason goods produced on settlements in the West Bank are not supposed to benefit from a free trade agreement between the EU and Israel. They are supposed to be subject to import duty.

But the BBC has discovered that HM Revenue and Customs is strongly concerned that the system is being abused and that these goods may be coming into Britain for free.

Ahava is one of the better known brands to come from the occupied West Bank.

Tourists pack the visitor centre for the skin care company, located on a settlement called Mitzpe Shalem, just next to the northern part of the Dead Sea.

The company is doing well. Its range of products using minerals extracted from the Dead Sea and processed nearby are on sale in Britain and across Europe.

Ahava CEO Yaacov Ellis said exports are doing so well that the company plans to open soon a second store in Britain along with a number elsewhere in Europe.

He added that one big help over the last few years has been the free trade agreement between the European Union and Israel signed in 2000.

"I think it is very important, not just for us, for anyone who deals with the export between the countries. Now of course we are like a European country."

'Potential for abuse'

But under the terms of that free trade agreement, produce from the territories occupied by Israel since the 1967 Israeli-Arab war are not supposed to benefit from duty free import.

This applies to the West Bank, the Golan Heights and, until Israeli withdrew its settlers in 2005, also included the Gaza Strip.

Mr Ellis says that although the Ahava factory is indeed in the West Bank, the company can still benefit as it has other operations located inside Israel.

"Well, the core of the company is located here and near Tel Aviv area. The company has a few sites in Israel, so we are using there [Mizpe Shalem] for manufacturing, but it does not affect our sales."

It is true that we were talking at the company's Head Office just south of Tel Aviv.

But the European Commission, guardians of EU law, said in a statement to the BBC that the law is clear.

"The rules of origin of a product refer to the place where the product or most of it was manufactured."

There is no suggestion that Ahava is doing anything illegal.

Under EU law, it is up to member states to police the free trade agreement, to decide what goods should benefit from duty free import and what should not.

But British officials have told the BBC that they are "strongly concerned" about what they call "the potential for abuse" of the system.

HM Revenue and Customs are, they say, investigating and British officials say there is a further problem with produce from the West Bank: not just paperwork for customs, but labelling for consumers.

'Informed choice'

At a number of settlements across the West Bank, polythene tunnels house row upon row of the fragrant herbs available cheaply in shops and markets around Israel.

Some of them are also exported to the United Kingdom where the supermarkets chop them up, package them and label them as "West Bank" produce.

But although the herbs do indeed come from the West Bank, the geographical label does not tell consumers whether they are buying from a Palestinian farmer or from an Israeli settler.

Waitrose is one of the British supermarkets selling herbs which they label as coming simply from "the West Bank".

In a statement to the BBC, it confirmed that the imported herbs came from West Bank farms which it described as "Israeli-managed".

"While it is not a legal requirement for us to label where our herbs come from at all, we still choose to do this," the statement said.

"All our herbs from the West Bank are labelled as 'West Bank', in line with the geographical region and EU legislative advice."

Waitrose may be meeting its legal requirement, but Mike Bailey from Oxfam says that it is not good enough.

"The settlements on the West Bank are illegal under international humanitarian law and that creates a lot of problems for the Palestinians that live there.

"Consumers that are buying produce that are grown in illegal settlements need to have that information so that they can make an informed choice."

The Foreign Office seems inclined to agree.

British officials have now tabled a proposal at the European Council, the EU forum for member states, calling for discussion on possible ways to tighten the policing of the rules on import duty and change them on labelling, so that consumers can make "an informed choice between Palestinian goods and settlement goods".

It has become a reflex of journalism and international politics to describe Israeli settlements as illegal under international law.

The problem that the British government is now trying to conjure with is what can be done beyond ritual condemnations.