Syria Today | Enter the Dragon

Enter the Dragon

By Dana Kassab
Image Ghalia Lababidi

As imports from China continue to boom, is Syria's economy paying the price?

Trade between Syria and China is big business. In 2009 it was worth nearly SYP 100bn (USD 2.16bn) according to figures from the International Monetary Fund (IMF), and similar volumes are expected by the Ministry of Economy for 2010. But the trade is almost entirely one way. Exports from Syria to China made up just 0.26 percent of the 2009 total trade volume, at SYP 260m (USD 5.6m). The rest is Chinese imports, which are piling up in Syrian markets.

This is not an isolated issue. China-made products flood markets the world over, often driving local industries out of business. Syria, which only began transitioning to an open market in 2005, is notably vulnerable to this effect. While the Syrian government is nevertheless embracing Chinese trade, businesses affected by the influx of Chinese goods are calling for the return of some of the protectionist measures that once characterised the Syrian economy.

Dumping is one major concern. Local industries, such as textiles, have filed a number of complaints against Chinese imports since a specialised anti-dumping unit was established in the Ministry of Economy back in 2006. Khaled Salloutah, deputy minister of economy, was unable to give the exact number of complaints, but said none have been validated by the unit. According to experts, this is due to differing definitions over what constitutes dumping – illegally flooding markets – and what it means to partake in fair competition in the international economy.

Origins of the relationship
Syrian-Chinese economic relations picked up after President Bashar al-Assad's visit to Beijing in 2004, the first for a Syrian president. At the time, he signed with China nine agreements and memorandums, focusing mainly on economic cooperation. Ever since, Syria and China have signed more than a dozen such agreements involving economic cooperation, avoidance of double taxation, and the establishment of the Syrian-Chinese Business Council in 2009.

While such agreements are primarily intended to boost political ties, they have tended to impact economic and business relations. And so far, the huge trade imbalance between the two countries suggests China is the main beneficiary of such agreements.

Of course, Syria is a much smaller economy than China, and so inevitably will produce less. However, some economists argue that Syria should be looking for a much better deal from its trade agreements with the economic superpower.

"We should restrict the agreements to the sectors or products in which we might have an edge over Chinese products," Raslan Khadour, a professor at the faculty of economics at Damascus University, said, citing olive oil and citrus fruits as two examples.

The dumping debate
As for dumping, the government's anti-dumping unit has always rejected suggestions that Chinese companies are illegally flooding the market, determining that Chinese prices are low but fair. Dumping by definition is not simply selling goods at a price that is lower than the local market value, according to the Unit. To prove dumping, imports must cause "material injury" to 25 percent of the local production of the product in question, meaning a quarter of the related local industry must be proved to be harmed by the price of the Chinese imports. Also, those imports must be sold in the Syrian market at a lower price than the price of the same product in the Chinese market. These criteria come from Law 42 of 2006, which takes its language directly from the definition of dumping used by the World Trade Organization.

Mohammad Atassi, general manager of the Federation of Syrian Chambers of Industry, argued that China is successful in foreign markets such as Syria not because of dumping but because it is good at "mass production" that dramatically reduces costs. To compete in the international market "you need to find your competitive edge", Atassi said. Prior to the transition to a social-market economy in 2005, Syrian businesses had no need to find and improve such competitive edges, he argued, because competition was relatively minimal. In the international arena – and particularly with pressure from China and other large-scale economies – Syrian businesses are now being forced to determine what added value their products can provide consumers. This process is healthy for the evolution of the Syrian economy, Atassi argued.

The number of dumping complaints decreased in recent years, Atassi added, as Syrian industrialists began to understand that their new business challenges were not just about Chinese products but the need to adapt to a new market order.

Deputy Minister of Economy Khaled Salloutah agreed.

"Liberalisation of external trade constitutes an incentive for local industries to upgrade their products and compete in the market," he said.

Business relations with China have other benefits, he added. For example, China constitutes a more accessible source of raw materials and manufacturing equipment which help smaller enterprises access the market.

Modest protectionism

While focused on promoting the benefits of a more open Syrian economy, the government has begun reinstating in recent years some modest protectionist measures to shield local industries.

Chinese goods, for example, must now be imported directly from China, rather than through third-party Arab countries, a technique used to take advantage of tax breaks offered by free-trade agreements between Arab countries.

Further, the Syrian cabinet issued a decision in 2009 setting minimum prices for imports. The prices, according to Salloutah, are determined in close coordination with representatives from the private and business sectors. A recent Syrian delegation to China also began discussions to establish a committee tasked with ensuring that Chinese imports accessing the Syrian market met minimum Syrian quality standards.

Despite these measures, many Syrian businesses still feel unfairly pressured by open trade with China. They criticise the speed at which they were forced to make the transition to a new economic system. Through the 1990s, Syria banned import of all goods that were locally produced. Under this system, however, local industries had little incentive to improve and expand, Salloutah said. ­­­­When their inability to remain competitive became problematic after the markets opened up, he argued, companies turned to the government, expecting it to return to its "parental role".

Such an attitude ensures the competitiveness of Syrian businesses will only decline further, Atassi argued.

"Criticising market liberalisation and demanding protectionism instead of reconsidering business policies will get us nowhere," he said.

"Industrialists should understand that Syria is transforming into a social market economy. This is irreversible; this is a reality that is here to stay."

Additional reporting by Muhammad Atef Fares.