Earlier this week, the US Ambassador to Lebanon gave a speech at Beirut’s Lebanese American University in which she made an explicit appeal to the government to make a move towards accession to the World Trade Organization (WTO). “I understand that Lebanese politicians have a lot on their plate these days,” Maura Connelly said, “but this, the WTO competition law, is a law that has already been prepared and sent to the parliament. All it needs is its day on the floor so that it can be debated and passed.”
But while Connelly may still publicly harbor hopes of Lebanon joining the 158-country club, behind the scenes, American organizations are abandoning theirs. This became most evident when Executive sat earlier this year with representatives from the United States Agency for International Development (USAID). After 12 years of assistance and roughly $12 million of financial support, USAID appears to be calling it quits on Lebanon’s accession to the WTO. The latest assistance program of $3 million ended in October 2012, now they are pulling the plug.
“Basically, we got to the point where we had done everything we could, and it was up to the government of Lebanon to take it to the next level,” says Heath Cosgrove, Director of Economic Growth, Water and Environment of USAID in Lebanon. Cosgrove attributes stalled progress to a political stalemate regarding accession plans, and the inability of the government to implement the necessary legislation the WTO requires.
While the funding is rather insignificant in financial terms, the end of the program could be seen as the final nail in the coffin for Lebanon’s bid.
Flaying in the backseat
Officially, Lebanon has been vying for WTO membership — which would entail eliminating or significantly lowering trade barriers as well as complying with WTO standards of trade — since 1998. At the body’s 2003 conference in Cancun, Lebanon had ‘observer’ status. At the time, many expected the country would accede by 2005. Yet a decade on it remains an observer state because it has failed to pass and enforce all WTO agreements.
There has been some progress toward joining in the last 15 years — 11 out of the 19 laws the WTO and Lebanon agreed upon have been enacted — but since the 2006 war with Israel, Lebanon’s bid has stalled.
Jad Chaaban, an economist at the American University of Beirut, said WTO legislation had been put on hold because there are more immediate matters to deal with. “The government has put everything on the backseat. The only pressing problem now is how to deal with the security and political crisis from Syria and minimize those repercussions on Lebanon,” he said.
He added that while the WTO may still be somewhere on the agenda, other matters, such as the electricity and housing crises, have bumped it well down the ‘to-do’ list. Minister of Economy and Trade Nicholas Nahas told Executive in November that some of the laws demanded for WTO membership (see chart) were considered unconstitutional on the basis that he considers the government under which they were drafted, that of former Prime Minister Fouad Siniora, to have been illegitimate.
“Anything that came out of that government is in limbo,” Nahas remarked. The competition law, for instance, was sent to Parliament in October 2009 and was intended to eliminate monopolies and curb abusive oligopolies, but its passage seems highly unlikely in the near term.
Opposition to the law is hardly surprising, as the operators of the existing monopolies and oligopolies that pervade the economy normally have strong political ties — or are in the government themselves. “Of course you wouldn’t want to hurt yourself and the money you’re getting to distribute back on your supporters,” Chaaban says.
There is also little hope for the new and improved draft of the intellectual property law, which is required for WTO accession. Lebanon is notorious for its lack of commitment to curbing piracy and flagrant breaches of intellectual property rights (IPR) and copyright laws. Nassib Ghobril, head of research at Byblos Bank, says that Lebanon’s approach to IPR is “embarrassing”, and that he views it as one of the main barriers to Lebanon’s accession. However, AUB’s Chaaban seems to disagree on the importance of IPR, arguing that many countries that are already WTO members are still struggling with the concept, including China and even some US states.
When Executive sat down with Minister of Industry Vrej Sbounjian in October and inquired about Lebanon’s accession, he said, “We have to take into consideration the size of the country and the size of the population. I don’t know all of the details of the WTO but I think that those two issues must be taken into consideration.”
As many of Lebanon’s productive sectors could become more vulnerable under WTO accession, it was perhaps surprising that the Minister of Industry did not provide a more nuanced answer, raising the question of how seriously the government is taking this issue.
USAID’s Cosgrove explained that after seeing no progress on the part of the government in the first two years of their three-year project, they switched their attention (and funding) to working with the private sector, with workshops promoting proper economic analysis skills and creating an ‘Enquiry Point’, a hub to provide information on Lebanon’s trade regulations and policies to both domestic and foreign traders. Cosgrove said it was hoped that by working with members of the private sector that they would in turn be empowered to begin pressuring the government to act.
Lack of public awareness and subsequently a lack of public engagement have also delayed the process, according to Chaaban. “People are not feeling that consumer prices are increasing because of monopolies, they just blame it on inefficient management or the government, there is a kind of ignorance… they just have pressing things to take care of but in the long run they are hurt,” he said. “The fact that the public is not campaigning against these [issues] tells you a lot about how detached the society has become from its problems.”
Is it W.T.O.rth it?
Even if WTO legislation were to come back to the forefront of political discourse, it is not clear that membership would be beneficial to Lebanon.
A December 2011 analysis report commissioned by USAID found that if the competition law that currently sits idle in Parliament was to be passed, Lebanon could expect to see a 10.7 percent growth annually in gross domestic product (GDP) over the next 10 years (the report forecasted figures from 2012 to 2021). The report based this on price decreases and increased access to capital for small and middle-sized enterprises that currently make up about 95 percent of all businesses in Lebanon. Implementing the competition law, the report argued, would be enough of a policy commitment to demonstrate improved political stability, which would attract more foreign direct investment (FDI).
Indeed, with seemingly no end to political instability, both at home and next door in Syria, investors have been shy. According to Ernst & Young’s 2012 Middle East Attractiveness survey, Lebanon accrued $609 million in FDI in 2011, yet in the first half of 2012 received only $96.5 million.
However, the USAID report also compared the difference in several countries’ net FDI from one year prior to accession to 10 years afterwards. While some countries, such as Mongolia, experienced impressive growth of upwards of 2,000 percent, other countries had a net decrease, such as Estonia, which saw FDI drop 42 percent. In other words, the direct correlation between accession to the WTO and FDI is weak.
Some Lebanese economists, like Ghobril, feel that Lebanon is ready to join the WTO, as some of the framework is already in place. “Lebanon has a free-market economy, based on trade; our imports are higher than our exports, so with the WTO membership, that would eventually help Lebanese companies access other markets,” he said, adding that Lebanon’s tariffs are already low (roughly 5 percent on general products), so further eliminating these trade barriers would have a minimal effect.
Trouble on the farm
Yet there are higher tariffs protecting certain sectors, especially agriculture. Agricultural products, particularly fruits and vegetables, enjoy the protection of a 70 percent tariff on imported goods. According to interviews the USAID report writers conducted with non-governmental organizations working with Lebanese farmers, accession would severely hurt the sector. Lebanon’s agricultural production is largely based on small-scale farms, resulting in enormous competition and low-profit margins. This doesn’t leave much room to sustain additional competition, especially from foreign production where subsidies are available to undercut local production costs.
The organizations that were interviewed for the USAID report also suggested that farmers would need to invest in newer and more efficient forms of productions — machinery, irrigation and specializing in growing certain products — in order to stay in business if Lebanon’s agricultural trade barriers were reduced.
Yet farmers are reluctant, and oftentimes unable, to invest in new production methods, due to recurrent political instability and a government that sets aside less than one percent of its budget for the sector.
Agricultural trade has been one of the main issues that the WTO itself has been struggling to deal with. The organization, by its own definition, attempts to level the global playing field in establishing and monitoring free trade. Yet since 2001 it has failed to conclude negotiations on the Doha Development Round (DDR), which focuses on establishing trade agreements on agriculture. Developed countries, such as the US and European Union members, provide enormous subsidies to their agriculture sectors, effectively reducing the production costs of local farmers, which in turn often enables them to undercut their competitors in developing countries. “It’s hard to escape from the argument, ‘How do you want us to open up our borders when yours are not really open?’” said Chaaban.
On free trade, Alexander Bryan, first secretary at the US embassy in Lebanon, remarked: “There are going to be winners and losers, and sometimes in the short term the losers are going to be more than the winners, and that’s something you find everywhere… but in the long term, the productivity gains that are accrued to a country in lowering its trade barriers are stimulative to growth.”
The end of the WTO itself?
The WTO has been waiting for a long time for Lebanon to pass just a few of the laws needed to show the organization that it is serious about its accession, according to USAID’s Cosgrove. “But as of right now,” he says, “[the] WTO doesn’t have much of an interest to restart the talks because there is no action, ownership or a sense of responsibility on behalf of the government of Lebanon.”
But while it has been waiting, the bigger issue that has emerged is whether the WTO itself has become redundant. At the end of December, Peter Sutherland, former Director General of the trade body, penned an op-ed arguing that the WTO has been “marginalized” by its inability to resolve the DDR talks. Member countries, perturbed by the stalemate, seem to be implementing bilateral or regional agreements with their trading partners that are not overseen by the WTO, essentially overlooking their WTO commitments.
Pascal Lamy, the current director general of the WTO, even conceded that the discussions at the DDR were still in a “deadlock” in an interview on BBC’s Hardtalk. “There is nothing much you can do. These two elephants [the US and China] so far haven’t agreed, and the rest of the world hasn’t had the force, or the power, to knock these two heads together.”
One must wonder then, if the world’s leading economies are bypassing this so-called global trading pact to make their own trade rules, why would Lebanon even want to join the WTO?