Trade restrictions and public morals - How far can one go?

The issue of restricting trade on the grounds of "public morals" or other exceptions is always a slippery slope. Are there any limits to the use of these exceptions (Article XX of GATT covers General Exception)? Can it be used as a "protectionist" tool in a discriminatory manner to achieve political objectives?

Recently, Opinio Juris carried a piece about the issue of the EU ban on trade in products from Israeli settlements in the West Bank. The debate revolved an opinion given by James Crawford that banning imports of goods from settlement territory would be in consonance with both EU as well as global trade law. In the context of the WTO, would it violate GATT obligations of MFN and quantitative restrictions or would the measure be in consonance with the general exceptions provided under Article XX of the GATT? Can a country ban import of these goods on the ground that being from a territory "occupied" by a country it affects their public morals? To what extent can political leanings and political disputes determine trading decisions?

The opinion, which was a detailed exposition of the international law on the point, alluded to the WTO obligations and stated:

"133. For the sake of completeness, it might also be mentioned that in extending a ban on settlement trade, the EC would not be in breach of its obligations under the General Agreement on Tariffs and Trade (GATT), now subsumed within the covered agreements of the World Trade Organization (WTO). Although  GATT Article I requires that most favoured nation treatment be extended to Israel as a WTO Member, and GATT Article XI forbids the use of quantitative restrictions such as a ban on imports, both these provisions are phrased in terms of products originating in the ‘territory’ of another WTO Member. As a matter of international law, the West Bank and Gaza cannot be considered to be Israel’s territory; thus the EC is not prevented by its  GATT/WTO obligations from banning settlement trade."

Thus, the violation of GATT/WTO obligations has been viewed in terms of a technicality that the settlement does not constitute the territory of Israel. Would the analysis have been different if international law held that it could be considered Israel's territory? Would the general exceptions provision of GATT have come to EU's rescue? Would it have been argued that settlement goods cannot be imported because it effects the public morals of the consumers in EU? What are the dangers of this interpretation? Can it be used as a tool to fight international, political conflicts? Positions can be taken depending on one's political standing and trade restrictions can be used as a ground to pressurise and intimidate trading partners. A deeper analysis of the use of the general exceptions in the context of political disputes in the international arena must be made so that international trade does not become a victim of international politics.