US exports to Syria in 2003 may have totaled a meager $214 million, but they were vital in maintaining and developing Syria’s energy, telecom, IT and health sectors. The May 2004 sanctions have come at a particularly bad time for a Syria as it struggles down the path of economic reform and as it hopes to attractopening up to outside investors, . Adding to their frustrations, Syrian businessmen and American businesses complain that the laws surrounding sanctions are unclear, the process of obtaining export licenses is at a standstill and a breakdown in trust threatens future investments.
Mand have forced both Syrian businessmen and American businesses in Syria to do what they can to get by in a murky legal environment, where laws surrounding sanctions are unclear, the process of obtaining export licenses has come to a standstill, and a breakdown in trust threatens future investments. While many local businessmen are making do by finding alternatives to US-made products from European or Asian trading partners, . Others are working around the system, procuring US parts from neighboring countries like Jordan and Lebanon. Mothers are reportedly working around the system. Without any formal US monitoring system in place, some businesses are securing US parts from neighbouring countries like Jordan and Lebanon. Legal or otherwise, many US products are still openly available on the Syrian market. But Syrian businesses fear that the long-term consequences of sanctions on Syria, especially if prolonged or extended, may produce some hazardous long-term effects, hampering technological development in key sectors and making the reform process in Syria all the more difficult.
Last year, UK-based Petrofac, PetroCanada and US-based Occidental petroleum won a $750 million gas exploration bid in Palmyra. While sanctions have yet to touch US investments, oil and gas companies must now deal with basic logistical questions, such as how to repair valves and pumps involving US drilling and oil field equipment, the exports of which totaled $20 million in 2003.
According to Samir Seifan, the Syrian representative for Petrofac, much of the equipment can be sourced from other countries, such as Japan, Germany or the UK. While Syria has the option to look elsewhere for future investments in the case of further sanctions, the Syrians may soon face the problem of acquiring crucial technology. Oil and gas companies fear that sanctions might present them with technological problems, as special software for seismic surveys is manufactured solely by US companies.
“Some companies are not inclined to spend a lot of money until they know what will happen in Syria,” said Seifan. “But Iran has been under US sanctions for 25 years and the oil and gas industry there is working very well.” Petrofac, PetroCanada and Occidental Petroleum are in the final stages of the negotiating process with the Syrian government, which is expected to be finalized by the end of the year.
US telecommunications exports, which totaled $3.8 million last year, may face similar problems in acquiring and servicing technology, despite special clauses in the sanctions to exempt certain key areas. Under sanctions, “information and information materials, as well as telecommunications equipment and associated items to promote the free flow of information.” are all supposed to be waived. While the full extent of the impact of the sanctions on the IT field is unclear, difficulties in obtaining export licenses remain a major obstacle.
“Washington used to mainly be concerned with encryption and other high tech products,” said Abdel Ghani Attar, the Syrian representative for IBM in Syria and other major IT and Telecom US companies. Attar just received his first export license under the new sanctions exemptions. “Now they look at everything. Even special delegations come from Washington for PLCs [Pre License Checks] and PSVs [Post Shipment Verifications] that used to be handled exclusively by the US embassy.”
The threat of US sanctions has long hung over Syria’s efforts to upgrade its Internet backbone – given the sector’s dominance by US manufacturers – as Syrian authorities are reportedly concerned that US servers and equipment might not be serviceable under a stricter sanctions regime. However, depsite despite sanctions exemptions concerning telecommunications equipment or the availability of equipment from other countries, work is reportedly progressing. Firas Bakour, CEO of Syrian IT player INANA Group and one of the founding fathers of the Syrian Computer Society’s (SCS) internet service, says Syria’s internet backbone should be up and running by the end of the year.
Sanctions have even touched the health sector, which is supposed to be protected from sanctions. Nagy Saba, an American-educated physician and head of Biocenter Medical Laboratory, one of a few privately owned labs in Syria, says that getting parts and supplies for much of his US-made equipment has become virtually impossible because of the difficulty of attaining export licenses.
In the health sector, oneAnother businessman, who imports sterilization equipment products from a major US company, says that manufacturers are now hesitant to even get involved in Syria at all.
“We worked hard to introduce US machines to Syrian hospitals on the basis that its consumables would be available,” said the businessman, who asked not to be named. “Our supplier has been reluctant to even apply for an export license to allow for the product’s export.”
Other sectors dominated by US producers have also been affected. Local agents for US irrigation equipment manufactures, for example, are at a loss over what to do. While other importers can find alternatives made elsewhere, cutting-edge replacements are limited to Australian companies, given Syria’s trade ban on Israeli products.
Stigmas and standardsA climate of fear
Perhaps the biggest concern of Syrian businesses is that investors will be scared away because of the stigma associated with the sanctions. A director of a yearly trade fair in Damascus that normally includes about a dozen US businesses expects no US companies to participate this year.
“The standard of companies willing to do business in Syria is going down,” he said, asking not to be named. “It was always hard to attract companies to deal with Syria, because of sanctions. Now it’s even harder. Even middle-sized companies are not coming. Larger companies are not willing to take the risk. In the end, Syrian businessmen will find a way to service their customer’s needs. But all these sanctions hurt our reputation abroad.”
The majority of Syrian businessmen with historical ties to US companies say they have declined to skirt the US law and are looking to the day when they can resume their work with US companies. But in a country struggling to undergo economic and political reform, many fear that sanctions will put Syria back by scaring off outside investors, already rare in Syria due to financial and government contracting restrictions , and that such a setback will also hinder future technological development.
“It’s the indirect effects of sanctions that could hurt us most,” said INANA’s Bakour. “We need direct strategic alliances with global companies to keep our cutting edge. Many of these firms are afraid to get involved in Syria for fear of further sanctions.”
Many worry that the fear of investment has begun to spread to European companies. EuropeEurope is is Syria’s main trading partner, with a large portion of Syria’s trade going to Italy, France and Germany. , with TK of Syria’s trade going to Italy, France and Germany.Reports this month that the EU and Syria will soon sign the EU Association Agreement may help alleviate some concerns amongst Europeans. And wThile the US failed to gain EU backing for sanctions, but a negative environment for investing may still nonetheless ward off some European investors, businessmen said. Some European companies and others have taken advantage of the situation, filling in where US companies once operated.
According to IBM’s Attar, a French company has stepped in to handle some telecommunications projects that were formerly handled by the Americans.
“European, Chinese and Turkish companies are doing so much better these days – as are the Iranians,” said Attar. “The people most affected are the representatives for US companies – those that were the most loyal to the US.” Others are weary.
Bakour says that in a recent deal, a credit card company that is new to Syria needed to find alternative sources of technology normally provided by US companies. “A French supplier refused to send the equipment to Syria because the Commercial Bank of Syria was specifically mentioned by name,” said Bakour.
While the fact that the sanctions have not yet been implemented on CBS gives many Syrians hope a compromise can be reached, CBS transactions with US-based banks are reportedly blocked. Even credit card transactions to purchase items online involving US banks are prohibited, pending Washington’s ruling on CBS.
Searching for alternatives
Mark Antakli is a young US businessman who works for Intraco Trading Syria, the distributor for General Motors in Syria, selling Chevrolets, Cadillacs and Hummers on the Syrian market. Since the implementation of the sanctions last May, Antakli, whose father hails from Syria, said his primary struggle has been how to service GM cars for his customers.
“We don’t want to jeopardize our relationship with GM,” says Antakli. “Several people are buying parts from Lebanon and bringing it here. We can fix the vehicles, but we can not buy the parts.”
Last year, the ministry of health bought 39 ambulances from GM. Antakli said that although these vehicles are protected from sanctions because they are considered medical equipment, he still cannot get the parts to service them, echoing the concerns of Saba and other medical equipment suppliers. UN vehicles that have come out of Iraq also cannot be serviced.
To fill the gap, GM and other US companies are also changing their supply chains to comply with US sanctions against Syria and possible future measures in the Arab World by replacing US models normally sold in Syria with GM vehicles manufactured elsewhere. A new pick up truck currently manufactured in Brazil is expected to be sold in Syria in the near future, and GM-owned Daewoo plants in South Korea are now being sold under the Chevrolet label in Syria. GM is also working on building a Cadillac in China and is looking to build other car lines in Australia as well, including the Chevrolet Caprice and Lumina.
“We are seeing a general shift automotive products in the region,” Antakli said. “GM is taking another look at supplying US made vehicles to the Arab World.” According to Antakli, GM sells over 70,000 GM vehicles in the Middle East, but less than 30,000 will be built in North America. GM hopes to have 100,000 units, or 10 percent of the market share of the Middle East market by 2006, Antakli said. While the Middle East is not the world’s largest automotive market, major manufacturers cannot ignore an entire region’s annual automobile sales.
Building bridgesA growing rift
Local agents for US companies say that for now they hope to ride out the sanctions, keeping close ties with US businesses with which they have cultivated relationships for years. If things continue to be undefined, and responses to export license requests do not come soon, however, local agents will have to take a hard look at other options.
“The sanctions have hurt my enthusiasm to deal with US companies in the future because it is too much of a headache and because there are quite a lot of alternatives,” said Attar. Syrian businessmen have been watching closely as US-Syrian relations have come to heads in the last month over Lebanon, Iraq and the issue of Palestinian militant groups operating from Syrian soil. Even with a slight relaxing of tensions after last month’sthe visit of Undersecretary of State William Burns in September and an announcement that the US and Syria may begin to work together on Iraq, Syrians have become even more skeptical of US intensions. Many fear what a further deterioration in US-Syrian relations might mean for the country’s economic health.
“I suspect sanctions will go farther,” said Ghassan Habash, the deputy minister of economy and trade for Syria. “The impact of the sanctions may be indirect, if the US puts pressure on US companies in Europe not to deal with Syria. For that reason, we can only wait to see what will happen.”
Many of these US and Syrian businessmen remain perplexed at the decision to impose sanctions on Syria, especially at a time when the US is promoting democracy and free trade in the Middle East and North Africa.
has promoted its Broader Middle East and North Africa Initiative CHECK of bringing democracy and free trade to the region.
“They hurt American interests, not Syria interests,” said Antakli. “It hurts the people value American products and business principles. Through trade you can build dialogue and understanding between countries. That will benefit not only the US, but Syria and the entire region.”
Others hope a solution will come about quickly, before the risks to Syrian society become more apparent and businesses begin to really feel the financial burden, and opportunities for popular reconciliation are lost.
“It will affect my ability to keep up to date in the future,” said Saba, who speaks impeccable English and is furious about the sanctions and the message that Syrians are gleaning about the United States from this. “They are talking about building bridges in the Arab world. I lived in the United States and experienced American life first hand, and I can explain American values to Syrians in detail. But how can I dispel growing negative feelings about the United States throughout the region under the circumstances?”