The mayor of the little town where Jesus was born is denouncing Neiman Marcus for misrepresenting the origin of Christmas gifts imported from Bethlehem.
"I'm astonished ... This is illegal," Vera Baboun said of the Dallas-based luxury chain's sales of imported olive wood labeled incorrectly as products of Israel.
The mayor added: "It’s not Israel. Bethlehem is Palestine."
Labels placed on the nativity scenes being sold at the department stores read: "Hand crafted in Bethlehem, Israel."
The Palestinian city is in the Israel-occupied West Bank.
Baboun said she planned to take action to prevent the issue from reoccurring at least on her end, adding she felt "so bad" upon learning her town's products were being marketed dishonestly.
"It’s unacceptable ... From our side, from the olive wood store and from their side," she said. "God knows how much we are working in order to keep this a traditional and a national Bethlehemite product. And this is very important."
Palestinian officials say the labels are intended to mislead.
"First of all, no matter the effort displayed either by Israel or by some of their allies, Bethlehem is an integral part of Palestine. And Bethlehemites are Palestinians -- both Christians and Muslims," said Xavier Abu Eid, a PLO official.
Abu Eid, whose family is from the Bethlehem area, said the labeling aimed to "normalize" Israel's annexation of Palestinian territory.
"To say that Bethlehem is part of Israel is not only an attempt to normalize the annexation of occupied territory. But it's also an attempt at fooling the consumers. The consumers have the right to know from where the product is coming. And this product in particular is coming from Bethlehem, Palestine."
A Neiman Marcus spokesperson replied to inquiries on this topic with an email statement that said the company could not discuss logistics because doing so might disclose proprietary information.
The statement also said "Our import division is based in our Distribution Center in Longview, Texas and they are in charge of making sure all of our imported products, fashion, fur, home goods, etc. are properly labeled in accordance with all applicable laws."
Katrina Skinner, a spokeswoman for US Customs and Border Protection, said that origin labels bearing the name "Bethlehem, Israel" would not be in compliance with federal regulations.
"With respect to the specific inquiry concerning the use of the marking 'Made in Bethlehem, Israel,' the language would be considered not legally marked in accordance with the policy stated in T.D. 97-16 because Bethlehem is within the West Bank," she said.
Companies like Neiman Marcus can be fined a percentage of their imports' value if found to be not compliant. It is usually around 10 percent of the import price. Penalties increase for egregious violations like undermining foreign sanctions, or for mislabeling products to indicate they were from areas subject to less taxes.
But compliance experts say the real risk is losing trust.
"The biggest issue with any compliance challenge isn't the money that you pay for the fine. It's the loss of trust and credibility you have with your consumers," says Ryan McConnell, a compliance specialist and adjunct professor at the University of Houston's law school.
"If you bought something thinking it was one thing and it was something else, and that mattered to you, you'll remember that forever. And you'll tell your friends about it, and you might not shop at that store anymore," he said. "And that's the kind of stuff you can't fix."
In January, the Obama administration reiterated longstanding United States policy on the labeling of goods from the West Bank. The move was widely seen as a message to Israeli settlers not to label their products as "Made in Israel." The U.S. views Israel's settlements in the West Bank as illegitimate.
But the customs rules for labeling West Bank goods apply equally to U.S. importers receiving Palestinian products.
Regulations distinguishing Israel from the Palestinian territories date back to the 1990s. The Clinton administration issued the rules in 1995 and 1997 requiring unique origin labels for imports manufactured in Israel, as opposed to those produced in the West Bank or Gaza Strip.