Syria Today | An Agreement Surrounded by Uncertainty

An Agreement Surrounded by Uncertainty

Words Anja Zorob

In December 2008, the draft Syrian-European Association Agreement (AA) was “re-initialised” after having been frozen for four years following mounting political reservations from the European side. If the AA is now actually signed, the network of bilateral free trade agreements between the EU and its Mediterranean partners will finally be complete.

The Syrian leadership has in the meantime also conceded that the implementation of this treaty, which is the most far-reaching of all agreements signed between the EU and its Mediterranean partners, will not only offer opportunities for growth and development, but also form a serious challenge to the Syrian economy and society.

The bilateral agreements between the EU and its Mediterranean partners form the backbone of the Euro-Mediterranean Partnership (EMP) or ‘Barcelona Process’, which was launched in November 1995. Besides trade-related and economic provisions, these agreements include measures to foster dialogue on political and human rights issues, as well as social and cultural affairs. While the AAs with all other Mediterranean Partner Countries (MPCs) went into force in recent years, the Syrian-European AA was initialled for the first time only in October 2004.

In November 2008, the delegations of both parties agreed on a new draft for the agreement which took into account recent developments, including the latest EU enlargement and the deregulation of the Syrian trade regime enacted in recent years.

According to Abdullah Dardari, the Syrian deputy prime minister for Economic Affairs, the final signature of the Syrian-European AA will take place in the coming months. He has also expressed the hope that it would not have to be initialled a third time. It is unclear whether he was joking or whether he was referring to the fact that only some of the obstacles which blocked the European Council’s approval in the past seem to have been removed.

Beyond speculation about when the Syrian-European AA will actually be signed and how much time ratification by the 27 EU members will take, there are numerous other questions surrounding this agreement.

As mentioned above, the Syrian treaty is the most comprehensive of all the agreements negotiated with the MPCs. This applies to all parts of the agreement and provisions belonging to the three “baskets” of the Euro-Mediterranean Partnership, including a political and security partnership, an economic and financial partnership and a partnership in social, cultural and human affairs.

With regard to the trade-related and economic provisions, the Syrian-European agreement resembles the EU’s “most advanced” bilateral free trade agreements with Chile and Mexico, countries which have a more developed economy than Syria and all other Arab-Mediterranean economies.

In 2003, Euro-Med ministers of trade decided to widen the scope of their partnership to include the liberalisation of trade in services. In addition, most provisions in which the Syrian-European AA goes beyond the treaties with other MPCs were introduced in Action Plans negotiated with the latter as part of the European Neighbourhood Policy.

Nevertheless, the Syrian-European AA remains the first and only agreement with the EU’s Mediterranean partners which includes the full range and scope of provisions. These include an almost full opening of the Syrian agricultural market, the liberalisation of trade in services, selective opening of government procurement and harmonisation of customs procedures, to issues like close cooperation in enforcing competition rules, a detailed dispute settlement mechanism and, last but not least, the contentious clause on weapons of mass destruction.

Benefits for Syria
So what economic benefits can Syria expect from the AA? Where are the risks and potential negative effects of free trade with European countries?

In general, it is important to state that the effects of free trade and integration with another country or block on trade, investment and growth cannot be determined a priori. They depend on a variety of criteria and preconditions, including the precise contents of an agreement, the level of economic development in the countries concerned and their relations between each other at the outset.

Given the fact that the Syrian economy still lags behind most MPCs in terms of competitiveness and economic diversification, free trade with the EU will confront the Syrian economy with potentially high losses in income and employment and many local firms may not withstand European competition. In addition, there is a substantial risk of trade diversion robbing the Syrian government of tariff revenues without resulting in increased efficiency or benefiting Syrian consumers.

While “adjustment costs” will grow in the short term, opportunities for improving market access for Syrian exports to the EU may be realised only in a longer-term perspective and only if the EU is prepared to offer substantial assistance to the Syrian administration in, for example, simplifying customs procedures. Syrian industrial goods have had duty-free access to EU markets since the 1970s. In the new agreement, enhanced market access is delivered only via the guarantee of new and relatively substantial agricultural concessions. The reciprocal liberalisation of services and opening of public procurement will certainly benefit European companies the most.

Finally, there is a real risk that bilateral free trade with the EU will lead to a so-called hub-and-spokes pattern of investment, in which future foreign direct investment (FDI) flows will be (re-)directed to the EU, the hub, at the expense of Syria and the other MPCs, the spokes.

In short, there are many risks and negative effects associated with the Syrian-European AA, whereas the incentives for Syrian companies to switch from import-substitution to export-oriented production as part of an outward-oriented development strategy seem to be quite meagre. This is why proponents of the AA, and free trade agreements between developing countries and a strong developed partner in general, emphasise the expected long-term benefits.

Such benefits include improved efficiency as a result of opening the Syrian market to foreign competition and enforcement of strong competition rules on the domestic market, or growing FDI inflows and related technology transfers taking advantage, for example, of rights of establishment guaranteed to European investors in the AA. Most importantly, the treaty with the EU may deliver an effective mechanism to catalyse additional reforms and credibly anchor measures of trade liberalisation conducted in recent years in Syria by a legally binding international agreement.

Achieving the benefits of free trade and integration depends on the fulfillment of numerous preconditions, particularly in the case of Syria. It is however indisputable that the conditions for Syria’s economic development will only improve with a substantial deepening and widening of economic, social and probably also political reform in Syria, combined with significantly enlarged financial and technical assistance offered the EU.

Dr. Anja Zorob is a senior research fellow at the Institute of Development Research and Development Policy at the Ruhr University of Bochum in Germany.