President Bush with Syrian Ambassador Imad Moustapha

DEVELOPMENTS

During and after his campaign, President-elect Barack Obama promised to engage early in the Israeli-Palestinian peace process.  If he keeps his word, one crucial piece in the puzzle will be Syria, which the Bush administration invited to the Annapolis conference–a Middle East peace conference held in November–much to the delight of certain senior foreign policy experts.  Any U.S. effort to broker a regional peace agreement will require the Obama administration to re-evaluate its trade relationship with Syria.  Though neither country is the other’s top trade partner, reconsideration of sanctions at a time when Syria is undergoing major market reforms may have a positive cascading effect that advances Washington’s regional interests.

Since September 11th, 2001, the Bush Administration has added to the list of sanctions against Syria.  The Syria Accountability Act of 2004 prohibits the export to Syria of most goods that are more than 10% composed of U.S.-component manufacturing parts.  Section 311 of the USA PATRIOT Act, which is used to “protect the U.S. financial system from corrupt financial institutions,” sanctions the Commercial Bank of Syria (CBS).  Finally, a series of presidential executive orders issued from 2003 to 2008 prevent certain Syrian individuals and entities from participating in the U.S. financial system.  The 20 Syrian individuals blocked from doing so include senior Syrian government officials.  The proposed 2007 Syria Accountability and Liberation Act would sanction countries and individuals who help Syria access Weapons of Mass Destruction (WMDs) or invest more than $5 million in the Syrian energy sector.
   
Yet despite these enacted and proposed constraints, the Syrian economy continues to reform and grow. Diminishing oil supply, employment-age population growth, rising foreign direct investment, and expanding trade volume have spurred President Bashar al-Asad to make a number of much needed changes.  The list of reforms include cutting lending interest rates, curbing black market currency trading, liberalizing customs duties, updating Syria’s 16-year foreign investment law to encourage foreign direct investment, consolidating exchange rates, creating the authority for his government to issue debt, and beginning national stock market operations in 2009. These reforms have benefited the U.S., which exported $361 million worth of goods to Syria in 2007, an increase of more than 50% from 2006.  Meanwhile, Syria is pursuing joint business ventures with Iran in the automobile and energy sectors.

Sanctions have complicated U.S. corporations’ efforts to enter the Syrian market. Syrian Prime Minister Muhammad Naji al-Otari has accused General Electric of declining to bid on Syrian government contracts to build two large power plants in the country that were posted for bidding on the international market five times from 2005 to 2007. Al-Otari further accused GE of influencing Japanese-owned Mitsubishi to abstain from the same bidding process. Still, Fords manufactured in Germany find their way to Damascus showrooms, as do American goods transshipped from Dubai or Lebanon.

BACKGROUND

Politically, the implications of a revamped U.S. policy on trade with Syria are unclear. The U.S. has sanctioned Syria since the 1970s. In 1978 the U.S. placed it on the U.S. terrorism sponsor list.  Three years later, the U.S. stopped providing foreign aid to Syria.  Most recently, the U.S. conducted a cross-border raid from Iraq into Syrian territory, yet the U.S. maintains formal diplomatic relations with the 20 million-strong republic led by President Asad and his authoritarian, military-dominated government. At different times Syria has played spoiler and facilitator in the Middle East peace process. Recently, Damascus’s alleged involvement in the 2005 assassination of Lebanese Prime Minister Rafik Hariri, its alleged pursuit of WMD, its permissive support of Hezbollah, and its 26-year alliance with Iran, have placed it in the former camp.

Economically, Syria is a middle-income developing country.  It imports raw materials for use in its dominant oil and agriculture sectors while exporting oil, refined products, cotton, clothing, fruits, and grains.  It joined the Greater Arab Free Trade Area (GAFTA) and signed a free trade agreement with Turkey. Syria began the World Trade Organization (WTO) accession process in 2001, but the United States opposes Syria’s proposed membership in the WTO.  Elsewhere, Syria is working with European Union and neighboring Mediterranean nations to create a Mediterranean free trade area by 2010. As of 2006, Syria’s top trade partners in descending order were China ($691 million worth of goods imported in 2006), Egypt, South Korea, Italy, and Turkey.  In recent years, the U.S. has been a net exporter of goods to Syria, selling more than $313 million in exports to Damascus in 2007.

ANALYSIS

Evaluations of sanctions against Syria have been mixed.  Proponents argue that smart sanctions rightly punish Syrians who support actors opposed to U.S. interests in the region, while broader legislative acts discourage U.S. business involvement in Syria’s energy sector.  Opponents argue that the sanctions are at best ineffective and at worst counter-productive: trade volume with Syria has increased since the latest round of sanctions were enacted and U.S. goods will always find a way into Syrian markets via transshipment.  Lifting sanctions would improve prospects for Syrian-Israeli cooperation, encourage Syrian support of U.S. military efforts in Iraq, lure Syria away from its collaboration with Iran and support of Hezbollah, and boost profits for American companies by allowing them to compete for contracts they could not previously enter into. 

In re-considering trade relations with Syria, the Obama administration will have three choices. First, it can continue the status quo, a likely option given that Syria’s lucrative non-U.S. business partnerships might undermine efforts to alter its political posture.  Second, the administration could remove sanctions that limit American business ventures with the Syrian government, preserve smart sanctions against Syrian individuals and entities, oppose Syria’s World Trade Organization  accession, and establish a timeline for the removal of each constraint, conditioned upon certain changes in Syrian government behavior.  Third, the administration could tighten the vice, enacting pending legislation before Congress that would add to the list of sanctions against the Asad regime.  

Of these three paths, if President-elect Obama intends to achieve a stable Middle East peace before his term ends, he will have to give serious consideration to option two. No other option persuades Syria as effectively to become the productive contributor to Middle East peace it has shown it can be in the past.
---

Marc Sorel is the Middle East Region Editor for Foreign Policy Digest.

---

Add this page to your favorite Social Bookmarking websites