Identifier
Created
Classification
Origin
06DAMASCUS2633
2006-06-06 12:23:00
CONFIDENTIAL
Embassy Damascus
Cable title:  

GAFTA: MORE BURDEN THAN BENEFIT FOR SYRIA?

Tags:  ECON ETRD EINV SY 
pdf how-to read a cable
VZCZCXRO9322
PP RUEHAG RUEHBC RUEHDE RUEHKUK
DE RUEHDM #2633/01 1571223
ZNY CCCCC ZZH
P 061223Z JUN 06
FM AMEMBASSY DAMASCUS
TO RUEHC/SECSTATE WASHDC PRIORITY 9427
INFO RUEHEE/ARAB LEAGUE COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUEHTV/AMEMBASSY TEL AVIV PRIORITY 1054
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHMFISS/HQ USCENTCOM MACDILL AFB FL PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHEHAAA/WHITE HOUSE WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 DAMASCUS 002633 

SIPDIS

SIPDIS

NEA/ELA
NSC FOR ABRAMS/SINGH
TREASURY FOR GLASER/LOEFLER

E.O. 12958: DECL: 06/01/2016
TAGS: ECON ETRD EINV SY
SUBJECT: GAFTA: MORE BURDEN THAN BENEFIT FOR SYRIA?


Classified By: CDA Stephen Seche for reasons 1.4 b/d

C O N F I D E N T I A L SECTION 01 OF 03 DAMASCUS 002633

SIPDIS

SIPDIS

NEA/ELA
NSC FOR ABRAMS/SINGH
TREASURY FOR GLASER/LOEFLER

E.O. 12958: DECL: 06/01/2016
TAGS: ECON ETRD EINV SY
SUBJECT: GAFTA: MORE BURDEN THAN BENEFIT FOR SYRIA?


Classified By: CDA Stephen Seche for reasons 1.4 b/d


1. (C) Summary: Although the Greater Arab Free Trade
Agreement (GAFTA) was fully implemented on January 1, 2005,
the benefits to Syria's economy have been limited. While
trade exchange between Syria and the Gulf countries may have
increased marginally, most Syrian business contacts and
economists believe that GAFTA has thus far negatively
impacted Syria on balance. Though there is potential for
Syria to take advantage of expanded inter-Arab trade to help
attain higher economic growth rates, the SARG's limited
ability to promote increased Syrian trade or enforce GAFTA
regulations will likely continue to limit Syria's economic
gains. End summary.


2. (C) Though the January 1, 2005 elimination of customs
duties on inter-Arab trade under the Greater Arab Free Trade
Agreement (GAFTA) was heralded as a means of encouraging free
trade, increasing economic growth, and achieving regional
competitiveness in the global economy, our Syrian contacts,
reactions to GAFTA have been lukewarm, with most suggesting
that while GAFTA has potential to increase Syria,s
inter-Arab trade, the tangible benefits of the agreement thus
far have been limited.

-------------- ---
Shortcomings of GAFTA to Syria...
-------------- ---


3. (C) One of the potentialities for GAFTA trumpeted by the
SARG is the creation of increased trade among signatory
countries. Though Syrian economist Nabil Sukkar told us that
the SARG has not conducted studies on the economic effects of
GAFTA, based on his own research, he believes that Syria has
not witnessed significant increases in inter-Arab trade since
January 2005. Fellow Syrian economists Samir Seifan and
Ayman Midani offered similar assessments, with Seifan stating
that Syrians are generally not benefiting from GAFTA and
that, if anything, GAFTA has helped cause a trade deficit and
trade imbalance since its initial implementation in 1998.
Official SARG statistics lend some credence to these
arguments. SARG statistics indicate that Syrian imports

increased steadily between 2004 and August 2005 - from $6.72
billion to $6.84 billion. Comparatively, exports during the
same time period decreased from $6.5 billion to $5.1 billion.
This trade balance has been attributed in part to the
elimination of customs duties as a result of GAFTA. Seifan
expressed concern that under GAFTA, Syria imports more goods
in which it has a comparative advantage - textiles,
furniture, and agricultural products - than it exports
because the imports are either less expensive or considered
to be of better quality. Additionally, other contacts with
whom we spoke stated that the soon-to-be released GAFTA
"negative list," a safeguard provision that allows Syria to
exclude certain products from tariff elimination, could
potentially undermine the SARG's expressed goals of trade
liberalization and private sector development.


4. (C) Though Seifan claims that no Syrian industries have
been dislocated as a result of GAFTA, he believes those that
will ultimately be most negatively impacted under the
agreement include textiles, foodstuffs, and personal care
products. Roula Zelhouf, who started her children,s
clothing company in 1988 and exports to Jordan and most
countries in the Gulf, says that she believes GAFTA has
neither helped nor hindered her business. Though she admits
that she faces competition from third-country goods illegally
imported duty-free into Syria under GAFTA, she claims that
her established clientele in the Gulf and her brand,s
reputation will allow her to compete effectively with what
she perceives to be lower quality Asian imports. She
contends that more than GAFTA, the SARG,s decision in the
past month to monitor and control the retail price of
children,s clothing in Syria has significantly impacted her
ability to market her products locally.


5. (C) One of the biggest short-term challenges that Syria is
facing as a result of GAFTA is the duty-free import of goods
from Asia (namely China and Korea) through Dubai and Jordan.
Business contacts contend that companies in neighboring
countries simply create a certificate of origin that attests

DAMASCUS 00002633 002 OF 003


that Asian goods were produced in Arab countries, and are
therefore eligible for duty-free treatment. According to
GAFTA regulations, a signatory country must add 40 percent
value to the finished good before exporting it to another
Arab country. Though specific calculations to determine the
origin of the good are laid out in the GAFTA agreement, they
are rarely enforced. Sukkar contends that Syrian customs
officers are unfamiliar with the specifications under GAFTA,
and can easily be bribed at the border to authenticate a
product's certificate of origin. Attorney Rabie Khushana
from the Syrian Intellectual Property Association claims that
GAFTA's weak enforcement, arbitration, and penalty measures
are contributing to the already significant IPR loss in
Syria.


6. (C) A constant refrain among Syrian producers is that
while importers in Syria are undoubtedly benefiting from
GAFTA, little is being done to market Syrian products in the
region. One contact expressed frustration that consumers can
find French fruits and Italian olive oils in Dubai, but not
their less expensive Syrian counterparts. Several contacts
have also expressed concern that neither Syrian producers nor
the SARG have proactively familiarized themselves with Gulf
markets or consumer needs, but rather are waiting for Gulf
vendors to come to them. One Syrian source also told us that
about three years ago the Chambers of Commerce and Industry
called on the SARG to appoint Syrian commercial attaches in
the region to promote Syrian products, an idea which was
dismissed without consideration by the regime. Additionally,
diplomatic contacts from GAFTA signatory countries claim that
Syrian businessmen are not actively seeking new markets, such
as those in the Maghreb countries. Brahim Rezgui, Economic
Counselor for the Tunisian Embassy says that since January
2005, there has been no change in the $50 million/year
bilateral trade, and that irrespective of GAFTA, both Syria
and Tunisia will likely continue to focus more attention on
trade ties with Europe than with each other.

-------------- --------------
...Are They Outweighed by Potential Benefits?
-------------- --------------


7. (C) Nonetheless, both Sukkar and Seifan argue that GAFTA
represents an opportunity for growth and reform in the Syrian
economy, suggesting that the trade agreement may push the
SARG to reduce the economic role of its inefficient
state-owned enterprises and focus its attention on export-led
industrialization strategies. Seifan believes that GAFTA
will encourage Syrian industrialists to shift to less
labor-intensive products and more fully automate their
production lines. Other business contacts believe that GAFTA
will make Syrian products more competitive regionally by
forcing Syrian industries to contend with their more
efficient private sector counterparts in neighboring
countries. Contacts also claim that GAFTA will allow Syrian
industrialists to "test the waters" before ratification of
other pending free trade agreements - with Turkey and the
European Union. However, opponents maintain that other free
trade agreements, specifically the Syria-European Association
Agreement, will create bilateral trade patterns that
discourage inter-Arab regional economic ties.


8. (C) Contacts have indicated that one of the biggest
"winners" under GAFTA will be Syria,s pharmaceutical
industry. Dr. Fouad Mujallid, resident WHO representative,
believes that there is strong potential under GAFTA for
private pharmaceutical companies in Syria to increase their
exports throughout the region because they are more cost
competitive than their European counterparts. However,
Mujallid claims that in the Gulf, Syrian pharmaceuticals are
often viewed as cheap, unregulated products that fall short
of European or American standards. Mujallid told us that he
believes that Syrian pharmaceutical companies are either
unfamiliar or unconcerned with how to market their products
in the Gulf region, stating that even reputable
pharmaceutical companies such as Attar or Nahas are not the
primary profit-making foci of the family-owned business
groups.


9. (C) We have also heard anecdotal evidence that GAFTA has
more easily facilitated a trade exchange between Syria and

DAMASCUS 00002633 003 OF 003


the Gulf countries. For example, several exhibitors at
Syria,s largest industrial exhibition, Buildex, spoke
positively of GAFTA, saying that the low customs fees and
transportations costs between the Levant and the Gulf have
encouraged the establishment of new painting and construction
companies in both regions. Additionally, businessmen like
Saud Safadi have attracted new foreign direct investment, in
part because of Syria's preferential access to the Gulf
market under GAFTA. Safadi,s production facility, a
joint-venture with Japanese company Otsuka, is expected to
begin bottling a sports drink within the next six months.
Safadi contends that his company represents the only Japanese
FDI in Syria, and that he was able to attract investors
partially because of the expanded regional market under
GAFTA. Finally, GAFTA has offered Syrian consumers greater
choice through a broader range of goods - including
Coca-Cola, and Proctor and Gamble products manufactured and
exported from the Gulf - which were previously prohibited in
the Syrian market.


10. (C) Comment: The Asad regime continues to point to GAFTA
as a success in its effort to encourage economic reform and
growth, as well as a step on the path of continued
international economic integration that will be fulfilled by
the European Union Association Agreement and ultimately
Syria's accession to the WTO. However, despite a year and a
half of full implementation of GAFTA, the trade agreement has
fallen short of the SARG's hype and has not yet delivered
significant, tangible economic benefits for Syria's business
community. Although increased trade under GAFTA has the
potential to contribute to economic growth for Syria, the
SARG's and Syrian businesses' failure to research or target
the markets available under GAFTA, as well as the regime's
unwillingness or inability to enforce GAFTA regulations will
continue to stymie Syria's ability to fully benefit from
inter-Arab trade.
SECHE