The European Union is moving aggressively to lock down southern Mediterranean markets by establishing bilateral free trade agreements with littoral states. Bringing Levantine giant Syria on board, though, will be a challenge. Syria's economy remains under government control, and a variety of political considerations will limit Damascus' willingness or ability to liberalize for the foreseeable future.
European Union Trade Commissioner Pascal Lamy visited Damascus Feb. 6-8 to establish a negotiation framework for free trade agreements between the EU and Syria. Lamy met with Syrian President Bashar Assad and other senior government officials before traveling on to Jordan and Lebanon.
The EU has worked frantically during the past few years to lock down southern Mediterranean markets, and Syria desperately needs foreign investment. But at the same time, the country's economy remains tightly controlled by the government and is a key source of power for the Assad regime. Changes in the national economic system would threaten both the regime and the country's stability overall. As a result, Syria will move with extreme caution in its relations with the EU, and a free trade agreement will not emerge in the near future.
Europe needs an open Syria in order to realize its dream of free access to all Mediterranean markets. This is vital to the future growth of European economies, which will need markets abroad in order to ensure competitiveness at home. Syria, on the other hand, wants to open its economy to counter a bulging population and dwindling oil reserves, but political realities limit its ability to do so.
Brussels in 1995 spearheaded the establishment of a Euro-Mediterranean Partnership to expand bilateral ties. The plan has begun to get results. For instance, the EU recently inked initial association agreements with Algeria and Lebanon that establish a framework for expanded trade, including the reduction or elimination of tariffs on European goods. But the EU also hopes to gain Syrian participation and thus to secure Damascus' vested interest in the future of EU-Med trade ties. A trade agreement with Syria also would expand European access to the Levantine market and provide a transit route for goods to other Middle Eastern countries, including Iraq and Iran.
Such an agreement would also balance trade between the EU and Syria. Currently, European countries import more Syrian goods than vice versa. Germany, France and Italy together buy some 43 percent of Syria's exports, according to the CIA World Factbook. These exports are largely agricultural, and Syria is one of the few Middle Eastern states that have a trade surplus with Europe.
But getting Syria to implement European-style economic policies won't be easy. Ten years after the end of the Cold War, its economy — including strategic sectors like banking, energy and transportation — remains under state control. The government maintains a variety of controls over exchange rates, prices, agricultural subsidies and foreign and domestic investment.
In Syria, as in much of the developing world, economic liberalization is a politically volatile issue. Reform would require the government to relinquish control over state-owned enterprises and allow competitors into the marketplace. This could endanger the government's relationship with Syrian business leaders and trigger power-struggles between competing ethnic groups.
Other considerations that Damascus must make include the impact that open markets would have on state security. For instance, in 2000, the government allowed Germany's Siemens, Sweden's Ericsson and Lebanon's Investcom to launch pilot mobile-phone projects in Syria. But the companies had to work through the state-owned telecommunications company, which received all profits for the first year. Even getting the go-ahead took years due to Syrian concerns over the establishment of a communications system that would be difficult to monitor, according to The Middle East magazine, a London-based monthly.
It is true that Assad's government has taken baby steps toward reform. More small and medium-size enterprises have popped up in recent years, and the government has passed a pack of legislation to revamp investment laws.
These reforms have been prompted by a number of factors pressuring for economic growth. For example, more than 60 percent of Syria's 16 million people are younger than 25, and the population bulge will leave a highly volatile age group with few economic choices. Dwindling oil reserves have limited future revenue projections, and the country's infrastructure — including roads, communications systems and its manufacturing sector — all need modernizing.
However, moving too swiftly on reforms could destabilize the Assad regime and Syria itself. Given the limitations, Damascus and the EU will likely spend the next year or two just hammering out the most basic agreements to work together. Europe will likely concede much to the politically motivated restrictions Syria will place on economic cooperation — setting a precedent for EU relations with other opening economies, such as Libya. Although political statements on both sides of the negotiation will sound good, the economic situation on the ground in Syria will not be transformed in the short- to mid-term.