Syria Today | Sealing the Deal

Sealing the Deal

Words John Dagge
Photos Phil Sands

After years of political wrangling, Syria’s long-delayed Association Agreement (AA) with the European Union is expected to be ratified by EU member states by the middle of the year.

Part of a broad European effort known as the Barcelona Process aimed at boosting relations with Southern Mediterranean countries, the deal is set to give Syrian traders and businessmen improved access to the EU’s 450 million consumers. At the same time, European businesses will be able to export to Syria without being subject to the high customs duties that currently protect Syrian firms

A version of the deal was initialled in 2004, but put on hold following the assassination of former Lebanese Prime Minster Rafik Hariri in February 2005. As Europe has moved to re-engage Syria over the past 12 months, concluding the AA has been high on the agenda. On December 14, the Syrian State Planning Commission head Tayssir Raddawi and Deputy Director General of the Directorate for External Relations at the European Commission Hugo Mingarelli initialled a revised agreement in Syria.

“This agreement is very important for Syria,” Bahar al-Deen Hassan , a member of the Syrian parliament and the national Chamber of Commerce, said at a press conference following the signing ceremony. “We expect to see Syria be successful in exporting goods to Europe, especially clothes, textiles and agricultural products.”

Risks and opportunities
In all, the Syrian-EU AA stacks up at 77 pages in length. As with all deals, however, the devil is in the detail and the agreement’s appendixes are a massive 433 pages long. While the deal aims to create a free trade area between the EU and Syria, restrictions and quotas on many goods and industries remain.

While agriculture has been highlighted as an economic sector which will benefit from the deal, a range of quotas and tariffs will still apply to Syrian products at the end of its 12-year implementation period. All of which has many observers questioning the trade benefits Syria will derive from the deal.

“Europe has not opened up its market to agricultural products from abroad, we are still subject to quotas and tariffs,” Nabil Sukkar, managing director of the Syrian Consulting Bureau, said. “The agricultural part is not reciprocal. Europe is actually keeping its common agricultural policy and keeping its restrictions on imports.”

Complex rules of origin clauses – regulations which set out what can be classified as a Syrian product – may also work to restrict trade benefits. A study by Anja Zorob, a senior research fellow at the Institute of Development Research and Development Policy at the Ruhr University of Bochum in Germany, found Syria’s access to EU markets could be “seriously impeded” by the EU’s right to resort to contingent protection measures. In addition, there is a rules of origin regime which stipulates that at least 40 percent of the components in any Syrian good must be made in Syria for it to be eligible for duty free or preferential access to the EU.

“Complex rules of origin or restrictive product and processing standards are threatening to increase transaction costs in trade with the EU,” Zorob said. “In the worst case they may contribute to a full erosion of the preferential access Syrian merchandise exports enjoy on the European market.”

However, Syria will also draw benefits from the deal. A potential rise in the flow of investment dollars, with the agreement working to reduce some of the uncertainties potential European investors have regarding Syria, stands as a major advantage.

“The trade side is not going to be all that beneficial,” Sukkar said. “The more beneficial aspect will be if we see investments coming from Europe to Syria and to South-Med countries. That is the big benefit, because first you benefit from the investment and second you benefit from the technology coming with the investment.”

EU Assistance to Southern Mediterranean Countries (EURm)

* Source: European Commission

Syria can also bank on a rise in the amount of EU funding flowing into the country. While the EU remains the country’s largest foreign donor, its contribution is the smallest to any of its Southern Mediterranean partners. For the period 2007 to 2013, the EU has set aside SYP 7.9bn (EUR 130m) for Syria under its European Neighbourhood and Partnership Instrument (ENPI). Impressive, but far behind the EUR 654m set aside for Morocco, EUR 632m to the West Bank and Gaza, EUR 558m for Egypt, EUR 300m for Tunisia, EUR 265m to Jordan, EUR 220m for Algeria and EUR 187m for Lebanon.

Cheaper imports of some goods will result in lower prices to local consumers. Increased competition is also expected to spur efficiency gains among Syrian manufacturers, although many market watchers fear these workshops will be put out of business altogether, unable to compete with their much larger and technologically advanced European counterparts.

It’s a risk the government admits. “Any agreement has risks and opportunities,” Syrian Deputy Prime Minister for Economic Affairs Abdullah Dardari told journalists after the December 14 initialling ceremony. “Undoubtedly some industries will suffer and more competitive industries will emerge.”

The first step
The greatest benefits to Syria under an AA are likely to be those which are not easily assigned a dollar value. Central to this is creating better ties with the international community and paving the way for a lifting of US sanctions.

“Syria was anxious to sign now because it wants to remove or to counter US efforts to isolate it,” Sukkar said. “From that point of view, it’s helpful. The fact that there is an agreement has a psychological effect. When you say I am in an AA it gives confidence to investors.”

The agreement could also work to lock in the reform process and give decision makers the excuse they need to push through potentially unpopular reforms.

“Locking in economic reform and enhancing its credibility is generally regarded as one of the most important effects of regional integration,” Zorob said. “The AA and the agreements signed with partners in the region, such as the Greater Arab Free Trade Area (GAFTA) and the Turkish-Syrian Free Trade Agreement, are currently the only instruments the government can use to credibly lock in economic reform.”

While welcoming the agreement, Sukkar said it should be a first step in the process of creating an Arab-EU free trade market. To do this, the EU’s free trade agreements should be linked to the GAFTA.

“Why is this better?” Sukkar asked rhetorically. “Because given an Arab free trade area, anyone from Europe investing in Syria can sell their products in the rest of the Arab world. Without this a European businessman investing in Syria can only sell their products in the Syrian market. With an Arab free trade area the benefit to European investors is much larger so they have more incentive to come here.”

Above and beyond any of this, Sukkar said, is the need to rethink the Euro-Med partnership given the significant changes which have taken place in Europe since the Barcelona Process was launched.

“A free trade agreement is in itself not sufficient to upgrade the region to a higher standard of development,” he said. “For the agreement to have an impact on the region there should be a commitment on the part of Europe to upgrade the level of development of Southern Mediterranean countries to a certain level that should be agreed upon within a certain period of time.”

Furthermore, a lack of regional peace will undermine any development gains in the region.

“The lack of security in the region is the major obstacle to development,” Sukkar said. “The lack of a regional political agreement regarding the Arab-Israeli dispute has hindered the success of the AA. If we don’t give it the necessary priority, then any development will always be threatened by the lack of security in the region.”