People have the freedom to boycott whom they wish. Only Companies can't boycott a particular country because of other foreign government's pressure.
I imagine this Arab league has pressured companies not to trade with Israel if they want access to their markets. A business might weigh the relatively small business opportunities in Israel against a much larger Arab world and choose the later. By making it a rule that no American business can enter into such a boycott the Arab league loses the ability to make american businesses choose. I suppose they could boycott all american products but, that defeats the purpose of the boycott. A smart move by America.
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