MOVING FORWARD ON THE SYRIA-TURKEY FREE TRADE

C O N F I D E N T I A L SECTION 01 OF 02 DAMASCUS 001082

SIPDIS

SIPDIS

NEA/ELA
NSC - EABRAMS/MSINGH
TREASURY FOR GLASER/LEBENSON
EB/ESC/TFS FOR SALOOM

E.O. 12958: DECL: 03/08/2016
TAGS: ECON ETRD SY
SUBJECT: MOVING FORWARD ON THE SYRIA-TURKEY FREE TRADE
AGREEMENT

REF: 05 DAMASCUS 5373

Classified By: A/CDA Kathy Johnson-Casares, reasons 1.4 b/d


1. (C) Summary: The Syrian press reported last week on the
Turkish Parliament's approval of the Syria-Turkey Free Trade
Agreement (FTA),indicating that it would increase bilateral
trade to $2 billion by 2007. Turkish diplomatic contacts
have stated that implementation of the agreement is still
contingent on final ratification and signature by the Turkish
Council of Ministers, and are uncertain how soon this will
happen. Reaction from the Syrian business community on this
latest news is mixed; some contacts are optimistic that
approval will add an attractive new market while others worry
about the potential costs to Syria's weak industrial sector,
especially textiles and ready-made garments (RMG). While the
Syria-Turkey FTA is heralded by the SARG as positive for the
Syrian economy, several contacts in the business community
are skeptical of how soon benefits of the free trade
agreement will be realized, pointing to competition from the
unstemmed flow of third country goods entering the Syrian
market already under GAFTA. End summary.


2. (U) The local press reported last week that Turkey took
another step toward ratifying the Syria-Turkey FTA when the
agreement was approved by the Turkish Grand National Assembly
on March 1. Media reports suggested that the Syria-Turkey
FTA, which now awaits implementation by the Council of
Ministers, is expected to increase bilateral trade from $800
million USD in 2005 to $2 billion USD by 2007. While the
SARG has previously trumpetted the importance of
Syrian-Turkish economic cooperation as a sign of the strength
of political relations (reftel),local media reports on the
Turkish Parliament,s recent approval of the Syria-Turkey
FTA have been muted.


3. (C) Ferit Orcun Basaran, economic officer at Turkey,s
Embassy in Damascus, confirmed that the press reports
regarding the FTA were generally accurate. He verified that
the agreement will not be implemented without the approval of
the Turkish Council of Ministers, and acknowledged that he
was not certain when the Council would meet to discuss the
issue. Basaran commented that the FTA is generally supported
by Turkish exporters, and emphasized that the Syria-Turkey
FTA succeeds Turkey's free trade agreements with other
EU-Mediterranean Association Agreement partner countries,
such as Morocco, Tunisia, and Egypt. He also pointed out
that the benefits of the FTA would not be immediate for all
Turkish exporters since the reduction on customs duties for
Turkish exports to Syria would be phased-in over a 12-year
period, whereas customs duties on all Syrian exports would be
eliminated upon implementation of the FTA. While the FTA is
expected to increase the trade and investment volume between
the two countries, the SARG,s projections are viewed by Post
contacts to be overly optimistic.


4. (C) Abulhuda Lahham, board member of the Damascus Chamber
of Commerce and member of the Syrian-Turkish Business
Council, spoke positively about the Turkish Parliament,s
recent approval of the FTA, and is confident that the Turkish
government will implement it prior to a Syrian trade
delegation visit to Turkey at the end of April. The FTA with
Turkey, deemed by Lahham as "unavoidable," will immediately
eliminate the customs duties on Syrian exports once
implemented, and according to supporters, will have the
potential to expose 75 million Turkish citizens to Syrian
goods. Opponents of the FTA are concerned that it will
significantly increase competition for Syrian industrialists,
as Turkish goods are viewed by Syrians to be "European" and
thus of better quality than the Syrian equivalents. Lahham,
too, admits that in the short-term, Syrian industrialists,
particularly producers of machinery, textiles, and chemicals,
will face increased competition. However, he believes
Euro-Mediterranean Association Agreements. that FTAs, such
as the Greater Arab Free Trade Agreement (GAFTA) and the
Syria-Turkey FTA have provided a "wake-up call" for Syrian
industrialists "who thought they could sleep through
globalization" under SARG protectionist measures". Lahham
postulated that the Syria-Turkey FTA may be the beginning of
a possible series of several bilateral trade agreements that
the SARG pursues in the near future, mentioning the

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possibility of an FTA with China in order to cut out trade
intermediaries and staunch the flow of third-country goods
that are entering the Syrian market duty-free under GAFTA.


5. (C) Rami Kuweifati, a textile producer in Aleppo, offered
a more lukewarm reaction to progress on the Syria-Turkey FTA.
In conversations with the Aleppo Chamber of Industry,
Kuweifati was informed that the agreement had not been
officially signed and was not expected to be implemented in
the near future. Kuweifati admitted that the FTA with Turkey
has the potential to put several Syrian textile and RMG
companies out of business because Turkish garmets -
especially for men and women - are viewed as more
fashionable. However Kuweifati, who produces children's
clothing, is hopeful that the elimination of customs duties
on Syrian children's clothes exported to Turkey (currently 40
to 50 percent) will provide new markets for his company.


6. (C) Comment: The limited Syrian press coverage and the
subdued reaction of Post contacts suggest that the recent
approval of the FTA by the Turkish Parliament does not
represent a significant change in the two countries'
bilateral economic relationship. Though many established
Syrian exporters are enthusiastic about the profit-making
possibilities under the Syria-Turkey FTA, several contacts in
the business community have expressed concern about the
limited benefits they currently enjoy under GAFTA, Syria's
most recently implemented trade agreement. Secondly, Syria's
historically important textile and RMG industries are bracing
themselves for significant new competition from a more
efficient and competitive Turkish industry. Until the SARG
can more clearly articulate the potential benefits, they at
least can be expected to welcome continued delays in
implementing the FTA.
SECHE