The Arab League boycott of the State of Israel is a significant barrier to U.S. trade and investment in the region. While the primary aspect of the boycott prohibits the importation of Israeli-origin goods and services into boycotting countries, the "secondary" and "tertiary" aspects discriminate against U.S. and other foreign firms that wish to do business with both Israel and boycotting countries. These aspects constrain U.S. exports. The secondary aspect prohibits individuals (and private and public sector firms and organizations) in Arab League states from engaging in business with U.S. and other foreign firms that contribute to Israel's military or economic development. Such firms are placed on a blacklist maintained by the Damascus-based Central Boycott Office (CBO), a specialized bureau of the Arab League. The tertiary aspect of the boycott prohibits business dealings with U.S. and other firms that do business with blacklisted companies.

The CBO uses a variety of means to determine compliance with the boycott, including analyzing information obtained through questionnaires sent out to third-country individuals and firms. If the CBO suspects that a firm has engaged in proscribed activities, it may recommend that the boycott representatives of the member states add the firm to the blacklist. Boycott representatives of Arab League states are supposed to meet in Damascus twice a year to consider adding foreign firms to (or removing foreign firms from) the blacklist, but CBO officials have recently been forced to postpone meetings because they have been unable to assemble a quorum.

Under U.S. antiboycott legislation enacted in 1978, U.S. firms are prohibited from responding to any request for information that is designed to determine compliance with the boycott, and are required to report receipt of any such request to the U.S. Department of Commerce's Office of Antiboycott Compliance. U.S. antiboycott laws also prohibit U.S. firms from taking certain other actions, including refusal to do business with a blacklisted company.

Arab League governments have consistently maintained that only the Arab League as a whole can revoke the boycott. Enforcement of the boycott, however, remains the responsibility of individual member states, and enforcement efforts vary widely from country to country. Egypt has not enforced any aspect of the boycott since 1980, pursuant to its 1979 Treaty of Peace with Israel, although U.S. bidders occasionally find some government agencies still use out–of–date forms containing boycott language. Jordan ended its enforcement of the boycott with the signing of the Israel–Jordan Peace Treaty in October 1994. Other Arab League states appear to be moving towards ending their enforcement of the secondary and tertiary aspects, but of these, only the Gulf Cooperation Council (GCC) states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates) have done so publicly. (Besides Egypt and the GCC, Arab League members include the PLO and the following states: Algeria, Comoros, Djibouti, Iraq, Lebanon, Libya, Mauritania, Morocco, Somalia, Sudan, Syria, Tunisia, and Yemen.)

Where enforced, the boycott serves as a ban or zero quota on the products of a blacklisted firm. Given that the boycott is unevenly applied, that it results in lost sales and foregone opportunities, and that it may serve to distort investment decisions by firms, it is difficult to quantify accurately the economic harm done to U.S. firms by the policy. In order to address this difficulty, in November, 1993 the U.S. Trade Representative requested that the U.S. International Trade Commission (USITC) undertake an economic analysis of the impact of the boycott on U.S. firms. The request was made pursuant to Section 332(g) of the Trade and Tariff Act of 1930. The USITC instituted investigation No. 332-349, Effects of the Arab League Boycott of Israel on U.S. Businesses, on December 2, 1993, and issued their report on November 16, 1994. The main findings of the report were as follows:

a. Lost sales and business opportunities for U.S. businesses in Arab League countries and/or Israel arising from being blacklisted or from seeking to avoid such blacklisting exceeded $400 million in 1993. The ITC estimates the actual cost of the boycott to be even higher because many of the effects of the boycott were difficult to quantify, including:

delays in concluding transactions, difficulty obtaining intellectual property protection if blacklisted, and the difficulty of competing with foreign competitors who do not face antiboycott compliance laws similar to those in the United States.

b. The 1993 cost of compliance with U.S. antiboycott laws was estimated at an additional $160 million.