In the past two years, Lebanon’s economic progress has been noticeably erratic, to say the least: after posting promising import and export figures in 2005 ($10 billion and $2 billion, respectively), the heavy burden caused by the recent Israeli conflict and the ongoing political deadlock has been a deadweight on Lebanon’s upward trajectory. However, a promising sign emerged in February 2007, when—in spite of the political turmoil—the Ministry of Economy and Trade and USAID signed a Memorandum of Understanding (MOU), bringing Lebanon one step closer to World Trade Organization (WTO) accession.
The MOU is not the first agreement of its kind for Lebanon. Free trade agreements have been signed by the Lebanese government with the EU, the EFTA States (Switzerland, Lichtenstein, Norway, Iceland) and the GCC; Lebanon is also a member of the GAFTA—the Greater Arab Free Trade Area. However, the country has yet to join the WTO. “The WTO accession would be a certificate of excellence,” affirms Fadi Makki, former director-manager at the Ministry of Economy.
An arduous journey
The journey towards the WTO has been arduous for Lebanon. In 1999, the country first applied for WTO accession. In 2001, it presented a Memorandum of Foreign Trade Regime (MFTR)—a snapshot of the country’s trade, institutional and legal regimes. Four Working Party meetings have since taken place in Geneva, where member states examined and discussed Lebanon’s responses to questions about the MFTR. This essential phase of the negotiation process will determine the long-term structure of Lebanese tariffs and quotas.
With the new MOU, the process’s natural extension, USAID will offer technical assistance to the government, with the support of global consulting firm Booz Allen Hamilton. “The [original] memorandum has been in place since 2000 and extended regularly ever since,” explains Lama Oueizan, project manager at the UNDP. “The memorandum ensures development of the technical capacity of Lebanon’s institutional base for negotiating and implementing the WTO agreements through training and support.”
The MOU’s main objectives are the evaluation of Lebanon’s policies, laws and institutions, problem identification and the introduction of necessary reforms to conform foreign trade regulations to WTO requirements. “In this respect, laws will be abolished and new ones will be drafted. Some will be enacted to fulfill WTO technical requirements. Such reforms are related to animal quarantine, fruit and plant safety, anti-dumping, standards and norms. Other laws will depend on the negotiation process as each country sets its own requirements according to its own trade priorities,” adds Makki. USAID will also provide Lebanon with assistance in preparing documents necessary for the negotiation process. “We will build awareness within the public and private sectors about the accession process as well as its impact on Lebanon’s economy,” says Raouf Youssef, mission director at USAID.
“Accession to the WTO will establish trust for Lebanese commodities, it will increase exports and open markets for local companies which will have to meet new quality standards,” notes Youssef. Companies will also likely focus on niche markets, such as olive oil production. Makki believes accession will help reduce prices, increasing competition and improving the quality of services rendered, and thus have a positive impact on the overall business environment. “Membership will contribute to the system’s transparency and openness, and provide access to dispute settlement mechanisms,” adds Makki. Countries operating outside the WTO may see their exports obstructed for any number of reasons by others: with WTO membership, countries are protected and have the possibility to sue other members for unlawful trade practices. Private and public monopolies are also put to an end.
Paying the price
“Like in any transaction, there is a price to pay,” Makki underscores. Tariff reduction will negatively affect sensitive sectors such as fruits and vegetables, cement, ceramics, cables and clothing, and the government will want to protect some segments. Reforms necessary for WTO accession, such as a restructure of subsidies in agriculture, especially tobacco, will be strongly resented by populations in certain areas. In addition, discretionary measures on trade policies will be removed and traditionally closed service sectors will be liberalized. Nonetheless, Youssef insists that, “If one looks at the overall picture and the country’s best interest, accession to WTO will definitely be supported by the population.”
According to Makki, one possible solution for sensitive sectors could be found by negotiating transitional tariffs, which reduce gradually over time. Trade experts also agree that awareness campaigns are essential to the accession process, in order to win over defiant stakeholders such as businesses and labor unions. “They need to understand that trade liberalization will not only mean increased competition, but also facilitate access to foreign markets,” says Makki.
In light of the recent Paris III conference, which drafted major reforms for Lebanon’s economic and institutional framework, the MOU can be seen as a natural continuation of structural amendments. “Some measures are common to both the Paris III conference and WTO accession. As an example, certain reforms envisioned by Paris III facilitate business ventures by introducing one-stop shops. Joining the WTO completes this endeavor by offering protection to investors through IPR-intellectual property rights and court litigations, hence improving business practices,” explains Youssef.
Of course, the big question still remains: How far is Lebanon from joining the WTO? “Minister Haddad wants to achieve accession in 2007,” states Youssef. Ironically, the Ministry of Economy’s website still schedules accession for … 2006.
Most experts believe, however, that the past year’s ongoing political instability has rendered efforts towards accession largely fruitless. Furthermore, as new laws require parliamentary vote, the institutional and legal standstill in Lebanon means that for the time being, accession to WTO in the near future may be little more than wishful thinking.