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05DAMASCUS6384 2005-12-08 09:23:00 CONFIDENTIAL Embassy Damascus
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DE RUEHDM #6384/01 3420923
P 080923Z DEC 05
					  C O N F I D E N T I A L DAMASCUS 006384 



E.O. 12958: DECL: 12/06/2015

5323 D) DAMASCUS 6280 E) ANKARA 7073

Classified By: CDA: Stephen Seche for Reasons 1.5 b/d

1. (C) Summary: Trade sanctions under the Syria
Accountability Act (SAA), which place a general ban on U.S.
exports to Syria, have negatively impacted certain segments
of the Syrian population and specific economic and commercial
sectors (reftels A,B,C,D), but they have not significantly
reduced the flow of U.S. goods into the Syrian market. The
ease with which U.S. commodities can be purchased and shipped
from Dubai, Lebanon, Turkey and other countries in the region
has provided a market opening for Syrian vendors to illegally
import U.S. goods and undercut the Syrian businessmen who
have been willing up until now to cooperate with U.S. export
licensing requirements. As a result of this competition,
many Syrian businessmen who were once abiding by U.S.
sanctions feel increasingly pressured to buy U.S. goods
without a license in order to maintain their businesses'
competitiveness in the Syrian market. End summary.

2. (C) After SAA sanctions were initially imposed in May
2004, many Syrian businessmen with long-standing ties to U.S.
companies adopted a strategy that in the short-term would
require them to abide by U.S. sanctions restrictions, but in
the long-term would allow them to maintain their U.S.
business ties during and after sanctions. Though this group
is generally predisposed to building stronger ties between
the U.S. and Syria and has been optimistic about the future
of U.S.-Syrian relations, it is becoming progressively more
disenchanted with the U.S. export license process and feels
increasingly threatened by Syrian companies that are
illegally importing U.S. commodities without export licenses.

3. (C) Syrian companies have exploited the limitations
emplaced by the SAA to gain market share for American
products by illegally importing U.S. goods from the Gulf and
neighboring countries and selling them in the Syrian market
at premium prices. The Syrian end-users who ultimately buy
the U.S. commodities are either ignorant of or indifferent to
the SAA. Syrian consumers we've queried have expressed their
belief that if a product is obtained through a legitimate
financial transaction, then the acquisition of the commodity
is legal and the origin or components of the item are
unimportant. Most Syrians are unaware that U.S. trade
sanctions even exist. And of those conscious of them, most
would agree with the comments of one Post contact who
insisted that it is unrealistic to expect buyers of U.S.
goods in the Syrian market to be responsible for determining
how the products arrived in Syria. According to another
Syrian, though purchasing U.S. goods in Syria might
technically be illegal, it is certainly not &haram8
(morally wrong).

4. (C) Post has heard a lot of anecdotal evidence about how
U.S. goods enter the Syrian market and offers the following
examples. An agent for Siemens Telecommunications says that
it is well-known in the Syrian IT community that American
products such as Sun Microsystems and Oracle computer
equipment are being shipped from countries in Asia or from
Dubai. This, he claims, is providing an &escape door8 for
local suppliers who want to sell U.S. products in Syria
without obtaining an export license. In another instance,
the sole distributor in Syria for Boston Scientific medical
supplies recently expressed frustration that Boston
Scientific products have been shipped without an export
license to Syria from Europe by another vendor to fulfill a
contract with a public hospital. The Boston Scientific
distributor, who had competed for the same contract, said
that because his business proposal built in the financial
costs of the export license application process, it was less
competitive. Lastly, in the past few weeks the Consular
Section has interviewed several applicants who have wanted to
buy used automobile parts for shipment to Syria via Dubai or
Lebanon and another applicant who wanted to continue to ship
synthetic yarn to Syria from his companies in Lebanon and
Turkey (established after U.S. sanctions were imposed). In
many cases these visa applicants, who have continually
imported U.S. commodities into Syria since the imposition of
sanctions, have been surprised to learn that the re-export of
goods is not legal under the SAA.

5. (C) The SARG has consistently downplayed the effectiveness
of U.S. sanctions and has historically helped facilitate
sanctions-busting activities. After U.S. sanctions were
imposed in 2004, the SARG changed its law to permit the
import of goods from non-country of origin if the commodities
enter the country through one of the seaports. Additionally,
last year the SARG also lifted a ban on second-hand machinery
imports (reftel E). In a statement to the Financial Times,
Deputy Prime Minister for Economic Affairs Abdullah Dardari

said that there is "no shortage of sanctions busters willing
to evade current U.S. measures against the country." A post
contact in Lattakia elaborated on Dardari,s statement and
claimed that because U.S. companies often cannot or do not
closely monitor the end-users of their products, it has been
easy for Syrians to create front companies in, or ship goods
directly from, third countries.

6. (C) Though other posts in the region may see other causes,
recent trade statistics from the U.S. Bureau of Census World
Trade Atlas may help explain how U.S. goods are still flowing
into Syria. Though direct export of U.S. goods to Syria has
decreased due to sanctions (so far 20 percent in 2005), the
export of U.S. commodities to countries that most often
re-export to Syria has increased. Comparing the first nine
months in 2004 (January to September) with the same period in
2005, total U.S. exports to Jordan increased by roughly 22
percent. Exports to Saudi Arabia increased by 26 percent.
UAE, a regional trade hub that serves as a major transit
point for prohibited U.S. goods into Syria, witnessed a 102
percent in U.S. exports in the same period. Although U.S.
exports to Lebanon have decreased (which may partially be
explained by the SARG,s decision in recent months to
decrease the amount of Lebanese goods officially allowed into
Syria), an importer-exporter in Lattakia claims that overall
the imposition of U.S. sanctions has increased the number of
Lebanese businessmen shipping U.S. goods to Syria by at least
50 percent.

7. (C) Syrian businessmen who are trying to abide by the
mandates of U.S. sanctions law have expressed frustration
about the perceived inconsistency and inefficiency of the
export license process as well as the threat posed by
competing vendors who are importing U.S. goods illegally.
The comment of one Syrian businessman, that he believes that
the USG has deliberately stopped (approving) export licenses
to Syria until the end of the year (when the Mehlis
investigation is concluded), highlights the sense of
victimization prevalent in the community of Syrian
businessmen with historical ties to the U.S. The initial
willingness of Syrian businessmen to import U.S. commodities
within the framework of the SAA has diminished as they have
watched their market shares (and in some cases the financial
viability of their companies) erode. Post contacts have
confided that for the sake of their "bottom line," they are
willing to incur the costs of applying for U.S. export
licenses only for "complex" commodities (e.g. often technical
equipment that cannot be obtained from third countries) and
prefer to purchase other U.S. goods in the Syrian market.
Others have stated that while they have waited for export
license decisions they have had contracts cancelled, have
been charged penalty fees for not fulfilling contractual
obligations, and have been blacklisted from applying for SARG
tenders. In many instances these businessmen have ultimately
decided to purchase U.S. goods from neighboring countries.
One contact, an agent solely for a U.S. medical supplies
company, has said that his business cannot endure the 6 to 8
month decision-making period for export licenses and that he
has contemplated turning to Asian and European companies.
Econoff recently witnessed this shift to alternate markets at
a healthcare exhibition in Damascus sponsored by the
Syrian-American Medical Society at which no U.S. medical
supplies or equipment were displayed.

8. (C) Comment: Post has heard a consistent refrain from
the Syrian business community that it, not the SARG, is
bearing the brunt of the effects of the SAA. Contacts have
also repeatedly expressed that though they value their
business ties to the U.S. and have made considerable effort
to comply with the SAA, the wide availability of competing,
illegally obtained U.S. goods in the Syrian market is forcing
them to chose between legality or continued financial
viability. When obliged to make this decision we have and
will continue to see a number of Syrian businessmen choose
the latter. End comment.