TURKISH-SYRIAN FTA: THE VIEW FROM DAMASCUS

1. (C) Summary. After over a year of no movement, Syrians
generally view Turkey,s recent announcement that the Free
Trade Agreement (FTA) between the two countries was ratified,
and will enter into effect on January 1, 2007 as a sign of
Turkish political support for the SARG as it works to emerge
from its international isolation. Turkish officials in
Damascus publicly lauded the November 6 go-ahead of the FTA
with Syria as a gateway to Gulf Area Free Trade Agreement
(GAFTA) markets. New Syrian-Turkish customs agreements and
infrastructure projects were also announced in the days
following the FTA announcement. Turkish investment in Syria
is expected to rise as a result of the agreement, although
the dimension of that increase remains unclear. End Summary.



2. (C) Since the assassination of former Lebanese PM Rafiq
Hariri, the SARG has courted the GOT in an effort to lessen
its resulting international isolation. The negotiated FTA
has been one of the bellwethers of the SARG efforts. In
October 2005, Deputy PM for Economic Affairs, Abdullah
Dardari, led a combined public and private sector delegation
to Turkey where it was announced that the FTA would
imminently be ratified by the Turkish parliament (ref A).
For 12 months no apparent action was taken. The recent
public announcement that Turkey had ratified the FTA, and
that it would go into effect January 1, 2007, came as a
welcome surprise to the private businessmen who had
accompanied Dardari to Turkey last year.



3. (C) Turkish Commercial Counselor in Damascus, Tayfun
Kilic, told Econoff on November 14 that Turkey,s
ratification of the FTA with Syria is a long-awaited move
that will open up the GAFTA region for Turkish trade. When
the FTA takes effect on January 01, 2007 the entire
&negative list8 of items prohibited from importation from
Turkey to Syria will be revoked. Customs duties will fall as
much as 50 percent on some items almost immediately, and
duties on all items will be gradually eliminated over the
next 12 years. Kilic also sees this agreement beginning to
open Syria to greater Turkish investment, with Turkish
investors taking advantage of Syria,s cheaper costs of
labor, fuel and other manufacturing inputs. These goods
could then be exported free to other GAFTA countries as they
would be considered of Syrian origin. (Note: Turkey is not a
GAFTA member. End Note.) Alternatively, export to the EU of
such Syrian-produced goods would be logistically simple and
inexpensive, so Turkish businessmen win either way. Bassel
Sannouofa, Syrian Director General of Customs, said the FTA
ratification is good news, and will allow the current
positive trend in bilateral relations to gain much needed
momentum.



4. (U) In the days leading up to the ratification of the
FTA, Turkey and Syria announced the activation of a completed
but dormant power project to connect the two national grids,
through which Turkey can supply Syria with electricity, and
also a new customs initiative to expedite cross-border
shipments. This is an area ripe for reform, as Econoff has
seen more than 10km of container trucks lined up for hours
waiting to cross into Turkey at the Bab al Hawa border.
Streamlining procedures would allow freer flow of goods in
both directions; Syria would benefit from being able to more
easily move products into Turkey. Smuggling of some items is
also likely to fall as restrictions are eased. Finally,
greater investment from Turkey, especially in construction
and housing development, has been a major focus in recent
remarks by SARG Minister of Housing and Constructing Hammoud
al-Hussein.



5. (C) Despite all of the above, Syrian businessmen
generally discount the prospect of immediate benefits coming
from the agreement. Textile manufacturers fear increased
competition from the more developed Turkish sector.
Wholesalers fear a flood of cheaper Turkish goods, a
development that will aggravate an already significant
imbalance in trade. Still, the SARG had been quick to
complete its side of the agreement despite Turkish
foot-dragging. Explaining his government,s apparent recent
change of heart, Kilic commented that Turkey decided to
ratify the agreement with Syria because his government felt,
&Our pact is about economy and trade, and that is all,8 he
said. Contrasting the FTA with the still-stalled EU
Association Agreement, Kilic asserted, &The EU (text) is
full of notions on democracy, and human freedoms, so it will
take forever.8



6. (C) Comment. Syria,s second city and industrial
capital, Aleppo (and surrounding areas), have business
relations with Turkey that the FTA is expected to strengthen.
Still, most of our Syrian business contacts expect only a
modest economic impact from the FTA but instead focus on the
positive signals of political stability (and erosion of
attempts to isolate Syria) implicit with the GOT,s
willingness to move forward with the FTA now. Some Syrian
contacts wonder, however, if Syria can be fully prepared by
January to implement the FTA, and speculate that the trade
balance will tilt even further in favor of Turkey. The only
real immediate gain for Syria seems to be political, as this
FTA supports the SARG,s ongoing efforts to end its
international isolation.
CORBIN