Some Israeli officials have argued that Palestinians benefit by working in settlement businesses, producing what one factory owner calls “goods of peace.” But many work in settlements only because Israel’s stifling of the Palestinian economy has deprived them of alternatives. Because the government rarely conducts labor inspections, Palestinian workers often earn less than the Israeli minimum wage. If workers complain, employers sometimes retaliate by fabricating a “security incident” that will deprive Palestinians of their work permits, according to the H.R.W. report.

To view goods made under these conditions as no different than products made within Israel requires going blind to such indignities. Unfortunately, that is exactly what new legislation that will soon land on President Obama’s desk would require the United States government to do. Under a provision of a larger piece of legislation, popularly known as the Customs Bill, that has been approved by the House and is expected to soon pass the Senate, American officials will be obligated to treat the settlements as part of Israel in future trade negotiations.

The ostensible reason this provision was added to a bill on international trade is to combat the Boycott, Divestment and Sanctions movement, a grass-roots campaign that seeks to pressure Israel to change its policies toward the Palestinians. But under existing law, Washington already forbids American companies to cooperate with state-led boycotts of Israel. Under the guise of an antiboycott provision, the Customs Bill extends similar protections to “Israeli-controlled territories” — meaning settlements. For American trade negotiators, the industrial zones dotting the occupied territories would have the same status as the high-tech industry in Tel Aviv, just as settler zealots insist.

This potential, and largely unnoticed, shift in American policy comes just as frustration with the stalled peace process and Israel’s deepening grip on the occupied territories is leading to more targeted pressure on Israel’s settlements. This month, the pension board of the United Methodist Church decided that five Israeli banks that fund construction in the settlements are ineligible for its investment. In November, the European Union, Israel’s largest trading partner, declared that products made in the occupied territories should be labeled separately from Israeli goods.

As the H.R.W. report makes clear, these steps are consistent with international law. Since all companies that do business in or with settlements inevitably contribute to human rights violations, they should stop. And since no country recognizes Israeli sovereignty over the occupied territories, all of Israel’s trading partners should insist that the label “Made in Israel” be removed from products from the settlements.