Lebanon's Foreign Trade Relations in the Postwar

This article was downloaded by: [Lebanese American University Libraries] On: 08 November 2011, At: 22:34 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK

Middle Eastern Studies Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/fmes20

Lebanon's Foreign Trade Relations in the Postwar Era: Scenarios for Integration (1990–Present) Sami E Baroudi Available online: 24 Jan 2007

To cite this article: Sami E Baroudi (2005): Lebanon's Foreign Trade Relations in the Postwar Era: Scenarios for Integration (1990–Present), Middle Eastern Studies, 41:2, 201-225 To link to this article: http://dx.doi.org/10.1080/00263200500035165

PLEASE SCROLL DOWN FOR ARTICLE Full terms and conditions of use: http://www.tandfonline.com/page/terms-andconditions This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. The publisher does not give any warranty express or implied or make any representation that the contents will be complete or accurate or up to date. The accuracy of any instructions, formulae, and drug doses should be independently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings, demand, or costs or damages whatsoever or howsoever caused arising directly or indirectly in connection with or arising out of the use of this material.

Downloaded by [Lebanese American University Libraries] at 22:34 08 November 2011

Middle Eastern Studies, Vol. 41, No. 2, 201 – 225, March 2005

Lebanon’s Foreign Trade Relations in the Postwar Era: Scenarios for Integration (1990–Present) SAMI E. BAROUDI As a small country with limited cultivated land and very few natural resources, Lebanon has always exhibited far greater dependence on the international economy than other countries in its region. Successive Lebanese governments have taken this dependence on the global economy as a given, trying to make it work to the advantage of the national economy.1 In the postwar period (1990–present) Lebanese governments have striven to overcome the devastation caused by the war (which also severed many of Lebanon’s links to the outside world) and restore growth to the national economy, largely by seeking closer ties with the Arab and European economies and greater integration into the global economy. As a prelude to the discussion of the three integration scenarios, the first part of the article provides some background information on the balance of trade and the composition and geographical distribution of Lebanon’s foreign trade. The second , third and fourth parts discuss the three main integration scenarios, whilst the conclusion focuses on some of the problems involved in the simultaneous pursuit of all three projects, and speculates on whether or not Lebanon’s policy-making elite possesses the will and the resources to overcome the challenges involved in transforming the local economy into a competitive one that is closely integrated with the Arab and European economies and immersed in the global economy.

Following the end of the civil war (1975–89), Lebanon’s imports witnessed a dramatic growth necessitated in part by reconstruction needs and greatly facilitated by major inflows of foreign capital. Exports, however, grew far more moderately, leading to persistent trade deficits. For any year since 1990, exports never covered more than 15 per cent of imports. Table 1 provides figures on Lebanon’s exports, imports, trade deficit and the ratio of exports to imports since 1992, the first year for which reliable statistics are available. Table 1 clearly shows the low percentage of exports that are covered by imports, which is among the lowest in the world,2 and the large size of the annual trade deficit both in absolute terms and as a percentage of GDP. Financing these recurrent trade deficits required large infusions of predominantly private foreign capital.3 Lebanon imports a wide variety of industrial and agricultural products. In 1999, the most important categories of imports included electrical equipment (14.7 per ISSN 0026-3206 Print/1743-7881 Online/05/020201-25 # 2005 Taylor & Francis Group Ltd DOI: 10.1080/00263200500035165

202

S. E. Baroudi

Table 1. Basic Figures on Lebanese Trade: 1992–2000 (US$ million except percentages)


Year

1992

1993

1994

1995

1996

1997

1998

1999

2000

Exports 564 482 743 950 783 649 668 695 714 Imports 3,546 4,544 5,541 6,760 6,992 6,897 6,531 5,741 6,228 Trade Def 72982 74,062 74,79875810 76,209 76,248 75,864 75,046 75,514 Exp/Imp% 15.90 10.60 13.40 14.05 11.19 9.40 10.22 12.10 11.46 GDP 5,546 7,535 9,110 11,122 12,996 14,957 16,200 17,200 17,200 Def/GDP% 53.77 53.91 52.66 52.24 47.78 41.77 36.20 29.33 32.06 Source: Banque du Liban, Al-Taqrir al-Sanawi (Annual Report), (Beirut, Banque du Liban), selected years Table 2. Imports of capital goods for industry: 1992–1999 (US$ million except percentages) Year

1992

1993

1994

1995

1996

1997

1998

1999

Imports of Industrial 67.0 115.0 117.2 115.5 313.4 148.9 171.7 170.87 machinery Total Imports, % 1.51% 2.53% 2.11% 1.71% 4.48% 2.26% 2.63% 2.98% Source: Banque du Liban, Al-Taqrir al-Sanawi, selected years

cent), vehicles (9.9 per cent), ferrous metals (9.9 per cent), chemical products (9.3 per cent) processed foods (7.5 per cent), and precious metals and stones (7.5 per cent).4 Whereas manufactured goods dominate imports, most of these imports are destined for consumption and not for investment. To clarify this important point, Table 2 looks at the value of imports of capital goods for industrial use, and their share in total imports. Table 2 provides striking evidence of the weakness of Lebanon’s industrial sector, whose imports of capital goods never exceeded 3 per cent of total imports in the postwar era. There are other signs of weak industrial performance: for the entire 1994–99 period, new investments in industry amounted to a mere US$463 million, while the number of new jobs created in industry was only 22,219.5 As for the geographical distribution of Lebanon’s foreign trade, Lebanon conducts the largest portion of its international trade with the countries of the European Union (EU). In 1999, 46.35 per cent of Lebanese imports came from the EU, and the EU received 26.0 per cent of Lebanese exports.6 Valuewise, Lebanon imported in 1999 merchandise worth US$2,877 million from the EU, while exporting to it merchandise worth US$ 176 million only; this means that exports to the EU covered only 6.12 per cent of imports from it.7 The Arab world accounts for most of Lebanon’s exports, with Saudi Arabia, the Gulf States and Iraq absorbing the lion’s share of these exports.8 While statistics for the pre-war and war years are not quite reliable (and different figures are available), they clearly point to the preponderance of exports to Arab markets, particularly in the Gulf. For any year between 1967 and 1974, Saudi Arabia and Kuwait took at least half of Lebanese exports to the Arab markets (60 per cent in 1973).9 In 1978, exports to Saudi Arabia represented at least 47 per cent of exports to Arab markets.10 Exports of finished and semi-finished products accounted for the bulk of exports to


Foreign Trade Relations in Postwar Lebanon

203

the Arab World. The expansion of Lebanese industry from the mid 1960s till the mid 1970s permitted a significant growth in industrial exports. In turn, the expansion of the local industrial sector in the prewar era was greatly aided by the efforts of Lebanese entrepreneurs to open the Gulf markets (as well as other Arab markets) to Lebanese industrial products. However, the Lebanese war (1975–90) stemmed the growth of industrial exports to the Arab world. In the postwar period, the geographic distribution of Lebanese exports became more diversified. Nevertheless, the Arab bloc continues to receive the largest share of Lebanese exports. In 1998, for example, the share of Arab countries in Lebanese exports (52.1 per cent) was more than 50 per cent higher than the share of all of Europe (22.3 per cent). Nevertheless, statistics show the growing importance of exports to the EU, other European markets, and North America in the postwar era. Between 1993 and 1999, for instance, the share of the EU in Lebanese exports grew from 17.0 per cent to 26.0 per cent, whilst the share of exports to North America grew from 4.0 per cent to 7.2 per cent.11 While the value of exports to these non-Arab countries remains small, Lebanon has the potential of raising exports to these markets. Since 1998, the EU has absorbed about a quarter of Lebanese exports, and Lebanese authorities are pinning high hopes on raising this share, now that Lebanon has signed a partnership agreement with the EU.

Within the Arab World, the Gulf States are the principal consumers of Lebanese products, owing to their relatively high income levels (compared with other Arab states), their hosting of large Lebanese expatriate communities, and the success of Lebanese entrepreneurs in establishing footholds in these countries since at least the 1960s. A Gulf State has always topped the list of principal importing countries from Lebanon. It must be noted, nevertheless, that Lebanese exports to the Arab markets have failed to register significant growth in the 1990s. In 1999, exports to Arab markets were valued at US$297 million, only US$62 million higher than what they were in 1993. While the annual value of exports fluctuated, it is very difficult to speak of any long-term trend, whether in the direction of growth or decline. By contrast, in the period between the mid 1960s and late 1970s, Jean Piere Bertran et. al. were able to identify significant growth in industrial exports to Gulf markets.12 The dominance of exports to the Arab World justifies the efforts of Lebanese governments to foster closer trade ties with the Arab countries. Below, I discuss the basic steps undertaken by Lebanese postwar governments in the direction of freeing trade with neighbouring Arab countries, starting with Syria. Economic relations with Syria are perhaps the most controversial and internally divisive aspect of Lebanon’s foreign economic relations. This is despite the fact that Syria is not Lebanon’s leading international trading partner.13 The controversy over trade and other economic ties with Syria cannot be separated from the broader political controversy over Syria’s military presence in and political influence over Lebanon. The trade balance with Syria is heavily tilted in Syria’s favour. According to the general secretariat of the Lebanese–Syrian High Council, Lebanese exports to Syria in 2000 totalled US$26 million, while imports from Syria totalled US$309 million.14 Exports to Syria thus covered less than 9 per cent of imports from it. There is little doubt that the economic relationship with Syria is


204

S. E. Baroudi

unbalanced (how unbalanced is a subject for debate). From the onset of the Lebanese war in 1975, Syria had striven to exert its hegemony over Lebanon for a mixture of economic and political reasons. Like all hegemonic powers, Syria sought to codify its unequal and multifaceted relationship with Lebanon, through a nexus of rules, procedures and institutions, or what international relations scholars call an international regime.15 In all fairness it must be stated, though, that most members of the Lebanese political elite, and a significant portion of the economic elite, embrace (at least in public) the unequal relationship with Syria, defending it against local and external critics. The first and most comprehensive (in terms of the scope of issues it covered) of the Syrian–Lebanese agreements was the Brotherhood Treaty signed in Damascus on 22 May 1991 and later ratified by the legislative bodies of the two countries.16 Article 1 of the Brotherhood Treaty states: ‘The two states shall work to achieve the highest levels of cooperation and coordination between them in all political, economic, security, cultural and scientific fields . . .’; while article 2 identifies the main areas of economic cooperation and coordination, specifically listing the following domains: ‘agriculture, industry, commerce, transportation, communication, customs, [as well as] the establishment of joint ventures and the coordination of development plans’. The Brotherhood Treaty also set up six joint bodies to institutionalize cooperation and coordination between the two sides: (1) (2) (3) (4) (5) (6)

a high council that includes the presidents, prime ministers, speakers of the house and the deputy prime ministers and deputy speakers; a follow-up and coordination committee comprising the two prime ministers and relevant ministers; a foreign affairs committee that is made up of the two foreign ministers; an economic and social committee that includes the ministers with economic and social portfolios; a defence and security committee that brings together the defence and interior ministers; and a general secretariat, headed by a general secretary who is appointed by the high council.17

On the heels of the Brotherhood Treaty came 22 agreements, 26 protocols and 11 memorandums of understanding; of those there were 12 agreements, 18 protocols and 7 memoranda that focused on economic matters.18 Undoubtedly, the most important economic agreements concerned the liberalization of the cross-border movement of goods and people – the first of which date back to 1993. Signed in Beirut, on 16 September 1993, the ‘agreement on economic and social cooperation’ called for freeing the cross-border movement of individuals, goods and capital, and for coordinating policies in agriculture, industry and services with the aim of achieving a common market. Under the 1993 agreement, tariff and other barriers to trade were to be lifted gradually, while all restrictions on cross-border labour movement were to be immediately removed. While implementing the labour aspects of the 1993 agreement was immediate, executing its trade component had to wait until the beginning of 1999. In early 1998, Prime Minister Hariri and his Syrian counterpart, the late Mahmoud Ze’bi, signed



205

an agreement to phase out tariffs on industrial products over a four-year period, commencing at the beginning of 1999.19 The first 25 per cent cut took effect on 1 January 1999. On 11 October 1999 (under the Hoss Government) an agreement was reached on a schedule to remove by November 2004 all tariffs on agricultural products. An initial tariff cut of 50 per cent was to enter into effect the day following the signing of the agreement, with further 10 per cent reductions every subsequent year.20 But given the great ease with which products are smuggled across the border (mainly in Lebanon’s direction) the maintenance of some tariffs till 2004 does not offer Lebanese farmers much protection. No doubt, the Lebanese economy has become closely integrated with the Syrian one, although official trade statistics do not fully reveal this fact. This is partly due to smuggling and partly because integration has proceeded in other ways, mainly through the presence of large number of Syrian workers in Lebanon. One indicator of this close integration was the speed with which Syrian authorities cut custom duties on raw material imports for industry in response to an earlier and similar decision by the Lebanese government.21 The decision by the Hariri Government, in November 2000, to eliminate duties on raw material imports for industry (and to lower duties on other imports) caused considerable nervousness and unease within official and business circles in Syria due to the fear that it would give Lebanese industrialists a competitive edge over their Syrian counterparts.22 While this close level of integration might have been inevitable given the global trend towards the formation of regional economic blocs and Syria’s economic, political and security interests in Lebanon, many Lebanese view the relationship with Syria as a flawed one, imposed rather than freely negotiated, and more advantageous to Syria than to Lebanon. In addition to the special relationship with Syria, Lebanese governments in the postwar era sought to strengthen Lebanon’s trade and economic ties with the Arab region for a mixture of economic, political and ideological reasons. Economically speaking, it made sense to re-establish trade ties with the Arab countries, particularly the Gulf economies, which in the prewar era constituted the principal markets for Lebanese exports. Politically, the Lebanese governments saw in trade and other economic agreements a mechanism to strengthen bilateral relations with powerful regional players, such as Egypt and Saudi Arabia. Almost every single Lebanese delegation that visited an Arab capital in the 1990s felt the importance of signing some economic (primarily trade) agreements with the host country, partly to reaffirm the closeness of the relationship with that country. At the level of ideology, Lebanese officials saw in bolstering trade and economic ties with the Arab region an act of confirmation of Lebanon’s Arab identity that was emphasized in the Ta’if constitution of 1989. This eastward orientation in Lebanon’s foreign trade relations manifested itself in Lebanon’s support for the creation of GAFTA. Lebanon was a signatory to the 1953 ‘Agreement to Facilitate Trade Exchange and Transit Trade among Arab League States’.23 Probably, the most important aspect of the 1953 Agreement was the granting of a 25 per cent preferential treatment (on the existing tariff rate) to products emanating from the Arab region. Most Arab countries, however, substantially raised their tariffs in the 1950s and 1960s in efforts to boost their infant industries, rendering the 25 per cent tariff reduction largely inconsequential. Lebanon, however, did not profess any intentions to join the Arab


206

S. E. Baroudi

Common market, an integration scheme that gained some popularity in the 1960s, but which produced no concrete results.24 After several amendments, the 1953 Agreement was finally superseded by the 1981 ‘Agreement to Facilitate and Develop Trade Exchanges among Arab Countries’.25 The 1981 Agreement called for the gradual lifting of trade barriers among Arab countries with the ultimate aim of creating a customs union among them. Implementing the provisions of the 1981 agreement, however, proved quite problematic, as most Arab countries drew ‘lists of exclusion’, placing many products outside the trade liberalization schedules. Another deficiency of the 1981 agreement was its failure to address the issue of non-tariff barriers to trade. Nevertheless, the 1981 Agreement served as the basis for a 1995 Egyptian proposal to create a Great Arab Free Trade Area; a proposal that received the backing of Syria and Saudi Arabia. A year later, at the June 1996 Cairo Summit of the Arab Heads of State a decision was made to ‘call on the Economic and Social Council of the Arab League to adopt measures necessary to expedite the establishment of the Great Arab Free Trade Area, in accordance with an action programme and a timetable to be agreed upon’.26 The Arab League Economic and Social Council established a working group that included government officials and private sector representatives to draw up a plan of action (barnamej tangizi) for implementing the 1981 Agreement. The Economic and Social Council approved the plan of action in February 1997, paving the way for Arab countries to commence bilateral and multilateral negotiations on the lists of products that would benefit from the 10 per cent annual tariff cuts (commencing 1 January 1998) called for in the plan of action.27 Pursuant to the adoption of the plan of action, Lebanese officials entered into negotiations with several Arab countries to draw up lists of products that would be subjected to the 10 per cent annual tariff cuts, or in certain cases to sharper cuts, or even admitted duty free. For limitations of space, I shall focus below on only one agreement; namely the one with Egypt.28 In Pursuit of GAFTA, the Trade Agreement with Egypt was concluded in Cairo on 10 September 1998, by Hariri and his Egyptian counterpart, Kamal al-Janzouri. The agreement with Egypt sought reciprocity by completely lifting duties on two specified lists of agricultural products (one list for Lebanese exports and the second list for Egyptian exports) provided that these products are admitted during periods of low production in the other country.29 As for industrial products they were divided into three categories: (1) (2) (3)

products (mainly processed foods) that would be subjected to 25 per cent annual tariff reductions commencing on 1 January 1999; products that would be subjected to lower annual cuts in tariffs; Products that Egypt would agree not to export to Lebanon or would export only upon the issuance of import licenses from Lebanon.30

A little more than a year prior to their 1998 agreement, Lebanon and Egypt had almost come to blows over trade when the Lebanese agriculture minister restricted imports of Egyptian potatoes under pressure from Lebanese growers; the Egyptian government retaliated by denying entry to 27 containers carrying Lebanese apples, and temporarily recalling its ambassador from Beirut. Somewhat embarrassed by the



207

whole episode, Hariri flew to Cairo where, in talks with President Moubarak and other Egyptian officials, he managed to diffuse the crisis.31 The 1998 agreement with Egypt smoothed economic relations between the two sides. During a June 2001 visit to Cairo, Hariri told his Egyptian hosts that: ‘inter-Arab trade should operate as smoothly as between provinces of the same country’.32 In a similar vein, President Lahoud observed that: ‘Arab countries need to create an Arab common market that eliminates all barriers and economic constraints and facilitates the implementation of new strategies to revitalize our economies and enable us to enter the international market from a position of strength.’ He went on to state: ‘I see no alternative to open borders and economic integration based on mutual trust.’33 The implementation of trade liberalization, even if at this stage on a regional basis, was bound to raise objections from sectors that felt threatened by cheaper imports. The strongest opposition to the trade liberalization agreements negotiated with the Arab region came from the farming community. This should come as no surprise given the underdeveloped and uncompetitive (even by regional standards) nature of the Lebanese agricultural sector. Farmers’ groups, especially the Agricultural Coordination Committee, have come out strongly against the trade agreements signed with Syria, Jordan and Egypt, calling for amending those agreements and even for suspending Lebanon’s membership in the 1981 ‘Agreement to Facilitate and Develop Trade Exchange among Arab Countries’ that provided the basis for GAFTA34 In a statement issued on 18 July 2001, the Agricultural Coordination Committee noted that ‘freedom of trade between Lebanon and Syria or between Lebanon and the Arab countries . . . harms Lebanon’s interests, because our higher production costs . . . result in unfair competition, leading to heavy losses for farmers and the bankruptcy of agricultural firms’.35 Lebanese farmers resorted to tactics like blocking roads in agricultural areas and dumping crates of local vegetables and fruit on the sides of roads, or giving them free to passing cars. In January 2001, farmers’ protests in the Hermel region (to the North of Lebanon close to the border with Syria) turned violent when farmers cut the road to Tripoli (the main city in North Lebanon) with burning tires and attacked trucks loaded with agricultural produce (mainly from Jordan and Syria), prompting Lebanese security forces to intervene. The swift reaction of the security forces was probably triggered by the anti-Syrian tone that the protest took.36 One should not exaggerate, however, the ability of the agriculturalist lobby to mobilize farmers, or broad sections of public opinion, behind its demands for revising the trade agreements with Arab countries. The number of protesters represented a small fraction of the percentage of the population (estimated at 50 per cent by some sources) that derives its main livelihood from farming. This does not mean that most farmers support the government’s efforts to liberalize trade in agricultural commodities; farmers’ apathy (rather than contentment with their lot) is what lies behind the passivity of most members of the farming community. While Lebanese officials were unwilling to renege on their commitments to freeing agricultural trade (particularly with Syria, Egypt and Jordan), they did introduce a few concrete measures in an attempt to reverse the deterioration in agricultural conditions. Maintaining the commitment to freeing agricultural trade with the Arab region, government efforts have focused on trying to boost agricultural exports,


208

S. E. Baroudi

through addressing the high costs of production and transportation problems. In 2001, the budget of the Ministry of Agriculture was raised to better equip it to deal with agricultural problems. Farmers were provided with access to subsidized loans, although the number of beneficiaries remains quite small. But the most ambitious plan to support agricultural exports has been developed by the Investment Development Authority of Lebanon (IDAL). The project, dubbed Export Plus, entails the allocation of up to 50 billion Lebanese pounds (around US$ 33 million) for assisting exporters in quality control, packaging, labelling, and transporting vegetables and fruits to Arab markets.37 The most controversial aspect of Export Plus entails providing cash payments for exporters on each ton they export to help defray transportation costs. Whilst it is still too early to gauge the projects’ effectiveness,38 it is doubtful whether Lebanon’s Arab trading partners would be willing to accept significant increases in the volume of Lebanese agricultural exports to their markets. The provision of cash payments for Lebanese exporters will most probably provide importing countries with strong legal basis to impose countervailing duties on Lebanese exports. It seems clear that the Lebanese government is seeking close trade and economic ties with the Arab countries, especially Syria. Agriculture is not going to be immune from the drive to free trade. All tariff and non-tariff barriers will be eventually lifted; while imports will be restricted only during periods of high production that are defined by properly advertised agricultural calendars. In the meantime, the government, within the constraints imposed by its meagre resources, will work to improve agricultural competitiveness and boost exports. Freeing trade in agricultural products will not be contingent, however, on the success of the efforts to enhance agricultural performance. While individual industrialists criticized various aspects of the trade liberalization agreements with Syria and other Arab countries, the Association of Lebanese Industrialists (ALI) – the main body representing Lebanese industrialists – was quite moderate in its criticisms of these agreements, mainly because it shared Hariri’s optimism about the likely effects of freeing trade on Lebanese exports to the Arab world. Nevertheless, ALI did criticize on a few occasions Lebanese authorities for the manner in which they handled trade negotiations with the Arab countries. In a statement issued on 15 September 2000, ALI faulted the government for not taking into account the views of concerned economic sectors before concluding trade liberalization agreements, calling on it to insist on full reciprocity in trade concessions in the future, and more importantly not to conclude any new agreements with any country until agreement is reached on product specifications.39 On the whole, however, industrialists were quite reluctant to openly defy the government in its efforts to join GAFTA; or to question close trade ties with Syria. To a small measure, this more positive approach by industrialists can be explained in terms of good personal relations between leading industrialists (particularly ALI’s president and members of its board of directors) and Prime Minister Hariri and his economic team. Far more important, however, is the government’s apparent success in coopting the industrial lobby via such measures as: (1)

freezing the minimum wage since 1996 and ending the automatic wage increments to reflect high cost of living;40

Foreign Trade Relations in Postwar Lebanon (2) (3)


(4)

209

reducing industrialists’ mandatory contributions to the National Social Security Fund (NSSF);41 providing industrialists with access to concessionary loans subsidized by the government; and completely eliminating all custom duties on raw material imports for industrial use in late 2000 (see below).

Finally, industrialists have shown greater confidence than farmers in their ability to develop exports to Lebanon’s traditional markets in the Gulf and to open new markets.

One market on which Lebanese industrialists have been pinning high hopes is the Iraqi market. Since the mid 1990s, Lebanese entrepreneurs have intensified their efforts to find a niche in the Iraqi market. Several delegations of industrialists and merchants have visited the Iraqi capital since 199742 where they held talks to expand Lebanese exports to Iraq under the UN sponsored ‘food for oil programme’, participated in trade fairs held by the Iraqi authorities, and organized their own fairs to promote Lebanese agricultural and industrial products.43 Exports to the Iraqi market rose from very low levels to around US$70 million annually in 1998 and 1999;44 ALI’s president, Jack Sarraf, observed in July 2001 that the total value of exports to Iraq since 1997 had exceeded US$4,000 million.45 For its part, the Iraqi government has sent a number of trade delegations to Lebanon and has organized, with the help of ALI, two trade fairs in Beirut to display Iraqi products.46 Since 1997, Iraqi officials have been prodding the Lebanese government to upgrade trade and economic ties with Baghdad, perhaps more for political than for economic reasons (i.e. to help end Iraq’s isolation in the Arab region).47 Baghdad scored a diplomatic victory when in March 2001 Lebanon restored full diplomatic ties with Baghdad after they were severed in 1994, following the assassination of an Iraqi dissident in Beirut at the hands of Iraqi embassy ‘staff’.48 One concrete proposal put by Iraqi officials in March 2000 (and again in April 2001) entailed the sale of Iraqi oil to Lebanon for three years at 20 per cent discount of the international price: Lebanon would pay for 50 per cent of the value of the imported oil via exports of goods and services to Iraq, whereas the remaining half would be deposited for three years in an interest-free Iraqi account with the Lebanese Central Bank.49 The Lebanese government did not accept the Iraqi offer, partly because it did not want to terminate the contracts of companies already exporting oil to Lebanon, and partly out of fear of the implications of such a step on Lebanon’s relations with Saudi Arabia, Kuwait, the EU, the USA and even the UN. Ever since 1997, Lebanese industrialists have been pressuring the government to upgrade its trade and economic ties with Baghdad, even if that meant breaking the UN sanctions. After several leaks to the press on the issue, Basil Fuleihan, Minister for Economy and Trade, stated on 17 July 2001, at the opening of the second fair for Iraqi products in Lebanon, that the government was about ready to conclude a farreaching trade deal with Baghdad, with the aim of creating a free trade area between Iraq and Lebanon.50 But no such agreement has been concluded so far. When it comes to Iraq, the Lebanese government seems to be pulled by contradictory forces: on the

210

S. E. Baroudi


one hand, it is lured by the prospects of expanded exports and is under pressure from industrialists and segments of public opinion to disregard the sanctions; but on the other hand it is concerned about the implications of breaking the UN sanctions on Lebanon’s regional and international relations. The establishment of a free trade area between Lebanon and Iraq is not a purely economic issue, for it has implications for Lebanon’s foreign policy and its regional and international alignments.

Lebanon has a long history of significant trade ties with Europe, dating back to at least the nineteenth century. The imposition of the French mandate on Lebanon in 1920 consolidated these ties, reaffirming Lebanon’s dependence on Europe for a wide range of products and services. In the nineteenth and twentieth centuries, the development of the Lebanese economy was closely tied to trends in Europe – note the rise in silk production (sericulture) in the nineteenth century its subsequent decline in the early years of the twentieth century; and the appearance of import substituting industries in Lebanon during the first and second World Wars due to the disruption of trade with Europe, and their dissolution once ‘normal’ trade ties were restored.51 In the immediate post-independence years, Lebanese policymakers had to choose between maintaining existing ties with Europe and restricting such ties to promote local import-substituting industries. As Carolyn Gates aptly demonstrates, the first option prevailed, leading to the rise of an ‘open economy’ in Lebanon dominated by merchants and financiers.52 The Lebanese economy registered impressive rates of growth in the 1950s, but this growth was highly uneven: Beirut and Mount Lebanon developed at the expense of the peripheral areas, while the services sector flourished but not industry and agriculture. Recurrent trade deficits were the norm as far as Lebanon’s trade balance with Europe; but exports to the Arab World (including re-exports of imported European items) and foreign capital inflows were more than sufficient to cover the deficits, leading to current account surpluses. As long as the current account was in surplus, there was little pressure to redress the trade deficit with Europe and the rest of the world. The dominant view among policy-makers in the 1950s was that Lebanon was best equipped to serve as the region’s services center; a balanced trade account was not a prerequisite for playing this role. While President Fouad Chehab (1958–64) sought to redress some of the inherent injustices in Lebanon’s economic and social system (which he felt were partly responsible for the 1958 Crisis) by promoting development in the peripheral view, he did not work to change Lebanon’s role as a regional services centre. In the few years after Chehab’s presidency Lebanon’s export economy picked up (and not necessarily due to the policies pursued by Chehab); it was Gulf markets, however, rather than European ones that absorbed most of the new exports.53 When, in the early 1970s, Gulf demand for Lebanese products slackened, due to competition from East Asia and newly established import-substituting industries, Lebanese industrialists responded not by reaching out to European markets but by seeking a larger share of the domestic market through lobbying the government to increase tariffs on imports.54 Thus, even in the heydays of Lebanon’s export economy (1965–75), Lebanese entrepreneurs were reluctant to target European markets (and they continue to be so). A strong currency, designed to ensure monetary stability and



211

draw in foreign capital, very low rates of effective protection for local industry and a basic lack of interest to develop export markets beyond the Gulf ones all acted as major obstacles to the development of manufactured exports to Europe and the rest of the world. As for agricultural exports, their growth was hindered by the low quality, at least by EU standards, of a large portion of Lebanese agricultural produce; the difficulty of transporting perishable vegetables and fruits (Lebanon’s leading agricultural exports) over large distances, particularly given the absence of land transport to Europe; and Europe’s Common Agricultural Policy (CAP), which restricted the volumes of agricultural imports to Europe and imposed a number of sanitary and other quality requirements on imports that Lebanon, and most Third World countries, found difficult to meet. A quarter of a century or so later, these same impediments continue to obstruct the growth of Lebanese agricultural and industrial exports to the EU and other world markets. In May 1997 – two years into its civil war – Lebanon signed its first cooperation agreement with the EU (then European Economic Community – EEC) with the agreement entering into effect in September 1978.55 While one section of the agreement (title I, articles 1–7) focused on ‘Economic, Technical and Financial Cooperation’, most of its provisions (title II, articles 9–34) dealt with trade issues. The 1977 agreement eliminated customs on Lebanon’s industrial exports other than processed foods, which continued to be subject to customs duties albeit at a lower rate.56 Quantitative ceilings were, however, introduced, on a number of industrial exports, mainly fertilizers and ‘woven fabrics of cotton’. Given that Lebanon’s textile industry was coming of age in the early 1970s, the 200 tons annual ceiling (to be raised by 5 per cent per year) was clearly a strong measure, aimed at curtailing Lebanon’s textiles exports to the EEC.57 Custom duties on agricultural exports, while lowered to between 40 per cent and 80 per cent,58 were not eliminated in order to protect agricultural producers in the EEC. Further protection to EEC farmers was offered through: (1) (2)

the use of agricultural calendars (i.e. raising custom duties during periods of peak production in the EEC) and the imposition of floor prices on a number of agricultural exports that Lebanon had a comparative advantage in (particularly olive oil and citrus fruits.)

Clearly, the 1977 agreement did not aim at freeing trade between Lebanon and the EEC. It had far less ambitious goals: improving the system for managing trade between the two sides, and extending to Lebanon most of the benefits that the EEC had decided to grant to the African, Caribbean and Pacific nations (ACP) as part of the Lome´ agreement of 1975.59 Despite its restrictions on Lebanon’s agricultural and industrial exports to the EEC, the 1977 agreement included certain benefits that Lebanon could have capitalized on. To start with, the Agreement stressed the need for promoting the economic development of Lebanon. Article 1 stated that: ‘The object of this Agreement . . . is to promote the overall cooperation between the Contracting Parties with a view to contributing to the economic and social development of Lebanon . . .’, while article 4 emphasized ‘participation by the Community in the efforts made by Lebanon to develop its production and economic infrastructure in order to diversify its economic structure. Such participation should be connected, in particular, to the industrialization of Lebanon and the


212

S. E. Baroudi

modernization of its agriculture.’ The clear references under title 1 and in protocol 1 ‘on technical and financial cooperation’ (attached to the agreement) to the importance of developing industry and modernizing agriculture are indicative of more multidimensional thinking on the part of Lebanese (and EEC) policymakers with regard to Lebanon’s economic role. The agreement supplanted the traditional stress on Lebanon’s tertiary sector with an emphasis on developing industry and agriculture as means for ensuring Lebanon’s long-term economic viability. In addition to improving Lebanon’s access to EEC markets, the 1977 Agreement committed the EEC to the provision of technical and modest amounts of financial assistance. The 1977 Agreement provided the legal framework for all the developmental assistance provided by the EEC (and its successors: the European Community – EC and the EU) to Lebanon since 1978.60 Finally, the 1977 Agreement did not require Lebanon to reduce its tariff and non-tariff barriers to imports from the EEC; neither did it prohibit Lebanon from joining regional free trade areas, even if that entailed raising tariffs on imports from the EEC.61 Nevertheless, the trade benefits accruing to Lebanon from the 1977 Agreement were quite modest for at least three main reasons. First, the trade concessions extended to Lebanon were also offered to many Third World countries, under the Lome´ conventions, creating strong competition for Lebanese exports such as citrus fruits, olive oil, and textiles.62 Second, the EEC/EC/EU utilized a battery of measures (floor prices, quantitative ceilings, sanitary and quality controls; as well as custom duties) to limit imports from the Third World (including Lebanon); these measures were incorporated into the Lome´ conventions.63 Finally, and perhaps most importantly, Lebanon’s export potential was greatly undermined as a result of the heavy damage that was inflicted on the nation’s infrastructure, particularly its industrial base, during the 15 years of violence and turmoil (1975 and 1990). In 1995, membership of the European Community (renamed the European Union in November 1993) involved 15 states. The expanded community was showing signs of greater assertiveness on the international scene; one such sign came with the adoption of the Barcelona Declaration on 26 November 1995.64 The Barcelona declaration gave a major boost to EU efforts, already under way, to conclude association agreements with Middle Eastern and North African states that would create a fee trade area across the Mediterranean by 2010 or shortly afterwards. In the spirit of Barcelona, the second half of the 1990s saw an intensive dialogue between Lebanon and the EU on a range of trade, investment and finance issues; these talks sought to produce a partnership agreement that would replace the 1977 agreement. Seven rounds of negotiations between the two sides (held between 1996 and the Summer of 2001) resolved most of the issues standing in the way of an agreement. In the summer of 2001, Lebanese officials indicated that the signing of the EU partnership agreement was imminent,65 but as of the date of writing this article no agreement has been signed. The two main stumbling blocks concern certificates of origin for Lebanese industrial exports and annual ceilings for Lebanese agricultural exports. From what Lebanese officials are saying in public and behind closed doors one gets the sense that Lebanon is withholding its signature on the partnership agreement until the EU comes with a better deal with regard to the rules of origin for Lebanese industrial exports, and the annual volumes of agricultural exports, and exports of agro-industry, that would be admitted to the EU. A working paper by the


213

Lebanese Ministry of Economy and Trade also highlights the role played by internal obstacles in delaying the conclusion of the Agreement, namely: (1)


(2)

(3)

the weak administrative structure in Lebanon that is in charge of studying the agreement and preparing for the rounds of negotiations with the EU; the lack of sufficient and detailed knowledge within the Lebanese government and bureaucracy about the topics that are covered by Euro–Med dialogue, and how the EU – and its main bodies – operate; and the absence of proper coordination among the different government agencies in charge of the EU partnership file and between the government and the private sector.66

While Lebanese and EU officials have revealed considerable information about the provisions of the proposed partnership agreement, neither side has been willing to disclose its entire text until the Lebanese cabinet approves it. Clearly, the partnership agreement is going to be broader in scope than the 1977 agreement, which was restricted to trade and aid issues. The partnership agreement would cover political, economic, social and cultural domains. The aforementioned paper prepared by the Lebanese Ministry of Economy and Trade identifies the following headings for the partnership agreement: . . . . . . . . .

Promoting respect for Human rights and democratic principles. Enhancing political dialogue between the two sides with the aim of promoting security and stability in the Middle East region and across the Mediterranean. Freeing trade in industrial products through gradual reductions of custom duties over a twelve-year period. Gradual lifting of agricultural trade barriers. Liberalizing the services sector in accordance with the rules of the General Agreement on Trade in Services (GATS). Enhancing economic cooperation between the two sides in support of economic and social development, regional integration, and technological advancement. Strengthening competition and freeing the flow of capital. Enhancing financial cooperation in order to support economic reform and reconstruction processes in Lebanon and to help Lebanon adjust to the consequences of liberalizing trade. Strengthening cooperation in the social, cultural, scientific and technological domains.67

Lebanese officials are keen to note that while the partnership agreement with the EU would be similar to the partnership agreements the EU signed with other Arab countries (Tunisia, Morocco, and particularly Egypt), it would take into account Lebanon’s special problems, namely, large budgetary and trade deficits; massive public debt, narrow export base; and heavy reliance on custom duties for state revenues.68 Lebanese officials point to the following positive aspects of the partnership agreement with the EU.69 First, the agreement grants Lebanon an extended grace period (five years instead of the usual three from the date the agreement enters into effect) before Lebanon will have to start lowering its tariffs.


214

S. E. Baroudi

Second, it calls for the gradual reduction of tariffs on imports from the EU over a seven-year period, giving Lebanese industry some time to adjust to the loss of effective protection. Third, it eases restrictions on Lebanese agricultural exports to the EU. Fourth, it provides Lebanon with enhanced access to EU developmental assistance on a bilateral basis as well as through the Mediterranean Developmental Assistance (MEDA) budget. Fifth, it leaves the door open for receiving financial compensation from the EU for the loss of custom duties (although the EU would not pledge any specific amounts for compensation). Finally, Lebanese officials feel that it is not in Lebanon’s interest to indefinitely delay the signing of the partnership agreement with the EU since doing so would put Lebanon at a comparative disadvantage vis-a`-vis all other East Mediterranean countries that have signed accession agreements. Undoubtedly, though, the partnership agreement with the EU is problematic since it will force Lebanon to eliminate barriers on industrial imports from the EU, a move that will have negative repercussions in the fiscal, industrial and trade diversion domains.70 In the fiscal domain, the agreement will significantly reduce the government’s tax base, unless its implementation is accompanied, or better preceded, by the development of alternative sources of revenue to custom duties. In the second half of the 1990s, imports from the EU averaged 50 per cent of total imports, while custom receipts represented at least 40 per cent of government revenues. This means that the eventual elimination of tariffs on EU imports will cost the treasury around 20 per cent of its revenue.71 No government can afford such a loss of revenue, particularly the Lebanese government that has been running large budgetary deficits throughout the postwar era and is under tremendous pressure to reduce the budget deficit (estimated at 51 per cent for 2001) and public debt. But there are alternatives to custom duties. Analysts recommend that the Lebanese government improve its tax collection system and introduce a value added tax (VAT) in anticipation of the dropping of trade barriers with the EU and eventual accession to the WTO. After some procrastination, the Lebanese government committed itself to the introduction of 10 per cent VAT by the beginning of 2002.72 Whilst VAT is likely to contribute to inflationary pressures and hinder government efforts to stimulate economic growth, its introduction is essential if the government is to make a dent in the budget deficit and signal its seriousness about free trade, at least with the EU and the Arab region. It remains to be seen whether or not the government will be able to weather the opposition to VAT from powerful economic interests and perhaps more importantly (given the current economic slump) whether or not receipts from VAT will be large enough to embolden the government in its efforts to shift away from custom duties to other indirect taxes and direct taxes. In the industrial domain, cheaper imports from the EU would force several Lebanese industries either to close down or to cut down substantially on production. In its present shape, Lebanese industry is not ready for free trade with the EU, and industrialists are the first people to admit it. In what was perhaps the first empirical study on the impact of an association agreement with the EU on Lebanon’s productive sectors, Iskandar Mokarbel observes: ‘It is therefore expected that the proposed free-trade area with the European Union would inflict a heavy loss on the Lebanese industrial sector unless the latter is able to attract adequate investments



215

(possibly in cooperation and association with the EU business community) in order to rehabilitate itself and establish new industries.’73 What the government, industrialists, and to a certain extent the EU itself, are counting on is the rapid modernization of Lebanese industry, and the development (over the next five years or so from the date of signing an association agreement) of at least a few industries that can withstand competition from EU firms. While the challenge is daunting, Lebanese officials – and many industrialists – are hopeful that the combination of the carrot (EU and World Bank financial and technical assistance to a number of promising industries) and the stick (the certainty that tariffs on imports from the EU will start coming down in the sixth year after the entry into effect of the association agreement) will produce a number of industrial firms that can compete with EU firms in the Lebanese market, regional markets and in the EU market itself. Until these hopes are backed by concrete steps aimed at identifying promising industries and at helping those industries reduce production costs and upgrade product quality to EU standards, these hopes will remain just that – hopes. One sign of EU support for the modernization of Lebanese industry came with the establishment in Beirut in early 2000, with EU funding, of the Euro– Lebanese Centre for Industrial Modernization (ELCIM). As its name suggests, ELCIM’s mission is to provide technical and legal advise for Lebanese ‘small and medium-sized enterprises in the food processing, printing and packaging industries’ to help them modernize their operations, reduce production costs, and upgrade their products’ quality to bring them up to par with EU (and international) standards.74 Here it must be noted that the association agreement with the EU will not have a negative impact on Lebanon’s agricultural sector. EU officials have made it abundantly clear that the EU is not interested in exporting vegetables and fruit to the Lebanese market, and will not pose an additional threat to this vulnerable sector that is already suffering from cheap imports from Syria and the Arab region.75 The effects of the association agreement on agriculture will thus vary from null to quite positive if agricultural producers can increase exports to the EU, thus benefiting from the higher ceilings for agricultural exports wrestled from the EU by Lebanese negotiators. As for trade diversion, the elimination of tariffs on imports from the EU – when not pursued simultaneously with the dropping of tariff barriers with the rest of the world – is likely to encourage imports from the EU at the expense of imports from the ROW, thus creating trade distortions. Less efficient EU producers would have an advantage over more efficient producers from the ROW, causing welfare loss to Lebanese consumers.76 In conclusion, it may be said that while consumers are the usual beneficiaries from trade liberalization (because of cheaper prices),77 the benefits to Lebanese consumers from free trade with the EU are likely to be offset by VAT, and by higher prices for services (such as electricity and water) that would result from governmental efforts to narrow the budget deficit. The government would lose desperately needed revenue that it would have to make up for via VAT, other indirect and direct taxes (such as raising fuel tax) reducing the number of public sector employees, and terminating subsidies to losing public sector enterprises, particularly Electricite´ du Liban. The industrial sector would lose in the short term, but may reap enormous benefits in the long term as a result of access to the large EU markets if it learns (perhaps with EU


216

S. E. Baroudi

help) to absorb new technologies, lower production cost and upgrade product quality. The agricultural sector will not be adversely affected by cheaper EU imports, and like the industrial sector, it has the potential of substantially expanding exports to the EU before reaching the limits set by EU quotas. Dominated by small and inefficient produce, Lebanon’s agricultural sector is in even greater need of modernization. Only a thoroughly modernized agricultural sector that specializes in high quality production can compete effectively with less expensive Arab producers on the local market and contribute to exports. The arduous process of reforming and modernizing Lebanon’s agricultural and industrial sectors to prepare them for free trade with the EU and the Arab World has barely begun and is likely to face numerous obstacles. But unless these obstacles are overcome, it is doubtful that the benefits from free trade (even if on a limited basis) will outweigh the costs.

Lebanon’s most ambitious integration scenario involves full membership in the WTO. Whilst no date has been set for Lebanon’s accession to the Organization, Lebanese officials note that the decision to join the WTO has been taken, and that it is only a matter of time before this happens. Since 1994 (the year Lebanon indicated its interest in joining the WTO) Lebanon has had two prime ministers and three ministers for Economy and Trade (The Economy and Trade Ministry is in charge of coordinating Lebanon’s efforts for joining the WTO).78 All five officials were staunch supporters of WTO membership. Lebanon was one of the original 22 members of the General Agreement on Tariffs and Trade (GATT).79 But in December 1950, Lebanon’s Foreign Minister, Philip Takla, notified GATT that his country was withdrawing from the organization without explaining the reasons behind this decision.80 These reasons probably had to do with Israel’s impending accession to the GATT (the Arab league had already decided to boycott Israel)81 and the desire of Lebanese officials to maintain the existing tariff structure (more for fiscal reasons that for protecting industry). In the early seventies, Lebanon expressed some interest in rejoining GATT, but the eruption of the civil war in 1975 halted any further consideration of the matter. While not a GATT member, Lebanon maintained a liberal trade regime, at least by Third World standards, and its tariff rates were moderate ones, rarely if ever exceeding 100 per cent (most tariffs were under 70 per cent). Nevertheless, the prewar tariff structure offered a measure of effective protection for local industry, by keeping custom duties on raw materials, spare parts and capital goods at significantly lower levels than custom duties on manufactured goods that had local substitutes. This protection was eroded, however, during the latter half of the 1980s when – at the height of Lebanon’s civil war – the government lost control over its borders and ports, enabling traders to flood the local market with merchandise without clearing customs.82 With the re-establishment of state authority in the early 1990s, the government was able once more to collect customs duties, thus enhancing its revenue and restoring a measure of protection for local industry.83 The 1990s saw reductions in customs duties, bringing down the average tariff rate to around 15 per cent.84 Tariff rates were cut again by Hariri’s fourth government in October 2000 and April 2001, reducing the average tariff rate even further. Thus while Lebanon was not a



217

member of GATT, its trade regime did not deviate considerably from GATT provisions. The Marakesh declaration of 1994 provided the legal framework for the transition from GATT to the WTO.85 Many Third World countries (including Lebanon and most Arab countries) that were not part of GATT felt that their economic and trade interests would be threatened if they stayed out of the new international trade organization. Shortly after Marakesh, Lebanese authorities expressed their intent to join WTO. Actual preparations for WTO membership began in 1996 with a series of conferences and workshops intended to explain to the private and public sectors the provisions of the WTO and the main modifications that Lebanon must introduce to its tariff, taxation and legal systems to qualify for WTO membership. Dominated by WTO proponents, these conferences and workshops did not provide an opportunity for critics of WTO (and globalization in general) to express their opinions. The change of government in late November 1998 did not derail preparations for WTO membership.86 In February 1999, the Hoss Government submitted a written request for accession to the WTO. Shortly afterwards, in April 1999, the WTO General Council granted Lebanon observer status with WTO, establishing a working party (under French presidency) to work out with the Lebanese Government the terms of accession.87 Several legal and procedural steps have been adopted since 1999 to prepare for WTO membership. The most important of these steps included: (1)

(2)

(3)

(4)

the formation of the National Committee to prepare for Lebanon’s WTO membership under the chairmanship of the Minister for Economy and Trade and with representatives from the Ministry of Foreign Affairs, economic ministries, other government agencies, and the private sector; the introduction of a new tariffs schedule in April 2001 that according to Customs officials is in harmony with WTO requirements and the simplification of the procedure for clearing goods from customs;88 the submission in May 2001 of a 300 page ‘Memorandum on Lebanon’s Foreign Trade Regime’ (the Memorandum) to serve as the basis for subsequent discussions with the Working Party on Lebanon’s accession to the WTO;89 and the adoption of a copyright law in April 1999 and a patents law in 2000 that sought to establish legal safeguards for protecting intellectual property in accordance with the requirements of the ‘Agreement on Trade Related Aspects of Intellectual Property (TRIPS Agreement).90

Whilst the two laws went a long way towards meeting the requirement se by the TRIPS Agreement, according to one analyst they did not fully satisfy the TRIPS requirements. Polly Maier, an intellectual property attorney with the ‘USAID Technical Assistance Project for Lebanon on WTO Membership’ identifies a number of shortcomings in the copyright law. For example, she notes: ‘Under Article 25 of the Copyright Law, educational institutions, universities and libraries may copy computer programs and loan the copies for the express purpose of copying by unlicensed third parties. Even though such loans are apparently not intended to be commercial, the scheme violates both the Berne Convention and the TRIPS Agreement, which requires members to protect computer programs. . .’91


218

S. E. Baroudi

Advertising the benefits of WTO membership, a pamphlet prepared by the USAID ‘Technical Assistance Project for Lebanon on WTO Membership’ notes: ‘Most countries with which Lebanon trades are – or will soon be – members of the WTO. To remain isolated from the activities of the WTO and to trade under different rules and principles from those applied by WTO member countries are likely to have serious negative economic consequences on Lebanon’s economy.’92 Undoubtedly, Lebanese officials think that they have little choice in terms of whether or not to join the WTO. As the aforementioned USAID pamphlet points out, 24 out of Lebanon’s 25 main trading partners are (or will be) WTO members.93 Lebanon’s access to its main export markets may be jeopardized by staying outside WTO. As is the case with free trade with the EU, the effects of Lebanon’s accession to the WTO can be classified into fiscal effects, effects on industry and the services sector, and implications for trade diversion. The reduction of tariffs on imports from the ROW is likely to have a negative consequence on state revenues; but this effect can be limited via the introduction of VAT. Here it must be noted that WTO membership will not force Lebanon to eliminate its tariffs on industrial imports, but simply to bind tariff levels (not to exceed the tariff levels submitted by Lebanon to the WTO secretariat as part of the accession process.) This means that custom receipts will not drop to zero even after full WTO accession. The industrial sector is likely to bear the brunt of greater competition from external producers. Industrial employment and industrial output are likely to suffer at least in the short term. Whether or not the industrial sector will be able to adjust to the requirements of a more liberal trading regime will largely depend on the type of government policies towards industry in the coming five to six years, and the availability of external technical and financial assistance via such sources as the EU, other western countries, the World Bank, and the United Nations Industrial Development Organization (UNIDO). The effects on the services sector are likely to be less negative, since WTO provisions provide some protection for the services sectors in developing countries, and since the services sector in Lebanon (particularly banking and insurance) is in better shape than the industrial sector. Finally WTO membership will mitigate the trade diversion effects that will result from free trade with the EU.94

The second half of the 1990s saw feverish activity on the part of Lebanese officials to negotiate free trade deals on bilateral (with Syria), regional (with the Arab countries), cross-Mediterranean (with the EU), and global (WTO) bases. These negotiations were guided by a neoliberal belief in the benefits of free trade and by practical economic and political considerations, but they were not embedded in an over-arching strategy that sought to define a role for Lebanon within a rapidly changing regional and international environment. Postwar governments have also given far more attention to Lebanon’s foreign economic relations (negotiating free trade and other economic cooperation agreements, attracting foreign direct investment, and soliciting developmental aid) than to the domestic aspects of economic policy (balancing the budget, cutting down the size and improving the efficiency of the public sector, and providing the proper incentives for the agricultural and industrial sectors to modernize themselves and become more efficient.)



219

This preference for seeking external solutions to internal problems is partly attributed to the aforementioned neoliberal belief in the benign nature of the global economy; a belief that is reinforced by a naive view that the World is interested in helping Lebanon for political, economic (and even humanitarian) reasons. This preference can also be attributed to the conviction of Lebanese officials that it is easier to achieve tangible results in the foreign economic domain than in the domestic one, given the many economic and political obstacles that stand in the way of domestic economic reform. In brief, Lebanese officials have not yet begun to grapple with those aspects of domestic economic policy that have a direct bearing on the success of any integration strategy. The type of domestic policy questions that have not yet been addressed include: . .

.

.

Is Lebanon to resurrect its prewar role as a regional services centre, or is it to concentrate on the development of its agricultural and industrial exports and for what markets (Arab markets, European markets, or both)? What sort of industrial strategy (if any) should Lebanon pursue? Should it concentrate on revamping and strengthening existing industries or building new ones? Should Lebanon focus on labour-intensive industries targeting European markets, or on information-intensive industries, mainly targeting Arab markets? What would be the fate of Lebanon’s agricultural sector in the era of free trade? Would it be allowed to simply weather away in the face of tough competition from less expensive Arab producers? Or should it receive some protection, even if this entails a partial deviation from the norms of free trade? Is there a case for modernizing Lebanon’s agricultural sector and encouraging it to specialize in high quality products for export and local consumption (for high-end restaurants and households with more discriminating tastes)? More generally, what would happen to the losers from free trade (i.e., to those factors of production that would be rendered idle)? Would they be compensated for their losses and if so how? Are they to be encouraged to move to more competitive lines of production, and if so via what incentives? Or are their problems simply to be ignored?

The implicit assumption that Lebanese officials seem to be operating under is that the process of integration into the regional and international markets will itself provide the answers to the above, and similar, questions. But does not this orientation reduce integration into aimlessly riding the wave of globalization and running the risk of sinking into the bottom of the wave? One must also point to certain contradictions between the different integration scenarios that the government is pursuing. The imposition of VAT, for example, is absolutely necessary to prepare Lebanon for free trade with the EU; but the proposed VAT, given free and unregulated trade with Syria, would tilt the already tilted bilateral trade balance even further in Syria’s favour. The proposed VAT would raise consumer prices in Lebanon, encouraging more Lebanese consumers to buy Syrian products either from Syria or from Syrian vendors in Lebanon. Furthermore the close trade and economic relationship with Syria would complicate the process of admission of Lebanese products to the EU, given the intent of the EU


220

S. E. Baroudi

to apply rules of origin to Lebanese imports; imports that the EU suspects to be Syrian, rather than Lebanese, made may be denied admission to the EU, especially that Syria (unlike Lebanon) heavily subsidizes its industrial production. Lebanon’s quest for expanded trade ties with Iraq may also endanger Lebanon’s close economic relations with Saudi Arabia, the west and naturally Kuwait, especially if the Iraqi regime resorts to a more bellicose course of action towards its small and rich neighbour. Lebanon’s access to the Iraqi market will always be contingent on t they, he type of political relationship prevailing between Damascus and Baghdad, a matter over which Lebanon has no influence. In conclusion, the biggest challenge facing the success of Lebanon’s efforts at integration lies in the mismatch between the fast pace at which Lebanon is proceeding with free trade arrangements and the far slower pace at which it is implementing much needed domestic economic reforms. The worst-case scenario for Lebanon is to end up in a situation where – having dismantled most of its trade barriers – it is trapped with an uncompetitive private sector, and a bloated and unproductive public sector that drains the treasury without making any significant contribution to the local economy. In this author’s view, the solution to the problem does not lie in slowing the pace of integration into the regional and global economies (although some of the trade agreements with Syria and other Arab countries need to be re-negotiated), but in accelerating the pace of domestic economic reform. Lebanon must press head on with privatization and implement other reforms aiming at trimming the budget deficit largely via reducing the number of public sector employees, improving the investment climate for local and foreign firms, and working with businesses in the agricultural, industrial and tertiary sectors to raise their competitiveness. Failure to do so would result in the eventual collapse of the Lebanese economy in the face of heightened competition. Needless to say the success of the aforementioned reform package also hinges, in no small measure, on the cooling down of the situation in the South of Lebanon and starting a political dialogue between the regime and its critics – particularly the Druze leader Walid Joumblatt, the Maronite Church, and leading Christian figures – over a range of issues not the least of which being the relationship with Syria.95 For the sake of creating the political climate necessary for the success of domestic economic reform – as well as in order to fulfil the political provisions of the proposed partnership agreement with the EU – the Lebanese regime must also show greater respect for democracy and human rights at home and take its international obligations as far as safeguarding its international borders more seriously96 Notes 1. For the emergence of an open economy in Lebanon in the post-independence years (mainly 1943–58) see C. Gates, The Merchant Republic of Lebanon, Rise of an Open Economy (London: Centre for Lebanese Studies in association with I.B Tauris, 1998), especially pp.1–34. 2. In 1996, international financial institutions ranked Lebanon no. 151 out of 152 states in terms of its export/import ratio. See A. Dagher, Al-Tahadiyyat al-Iqtisadiyyah wa al-Tanmawiyyah allati Tuwajijih Lubnan wa Suriya (Economic and Developmental Challenges Facing Lebanon and Syria), Majalat alDifa’ al-Watani (National Defence Magazine) Beirut, No. 33, July 2000; reprinted in Albert Dagher, Lubnan wa Suriya: Al-Tahadiyyat al-Iqtisadiyyah wa al-Siyasaat al-Matlubah (Lebanon and Syria: Economic Challenges and Required Polices), (Beirut: Al-Nahar Press, 2001), p.75.



221

3. It is estimated that Lebanese commercial banks attracted between 1993 and 1998 an estimated US$25 billion in local and foreign deposits that were largely used to finance the trade and budgetary deficits, enabling an expansion of imports and public spending. During the same period, the government borrowed a further US$5.5 billion in foreign currency from external sources. Ibid., p.78. Likewise, Makram Sader, general secretary of the Association of Lebanese banks, puts the amount of foreign capital inflows from 1992 to 1999 at US$30 billion, Al-Safir, 25 April 2000, p.6. Most of these inflows took the form of deposits in Lebanese liras to benefit from high interest rates. 4. Al-Taqrir al-Sanawi (Annual Report), Banque du Liban (Lebanese Central Bank, 1999), p.58. 5. Figures derived from Banque du Liban, Al-Taqrir al-Sanawi, selected years. The 22,219 number does not represent a net addition to the labor force in industry; it reflects the number of jobs created by new industrial establishments, but as new establishments were hiring workers, others were closing down or cutting down on employment. In brief, the net addition to the industrial labour force is probably smaller than the above figure. For a discussion of the problems of Lebanon’s industrial sector see S.E. Baroudi, ‘Business associations and the representation of business interests in post-war Lebanon: the case of the Association of Lebanese Industrialists’, Middle Eastern Studies, Vol.36, No.3 (2000), pp.22–51. 6. Al-Taqrir al-Sanawi, Banque du Liban, selected years, p.60. 7. Ibid., p.60. 8. J.P. Bertrand, A. Boudjikian & N. Picaudou, L’industrie Libanaise et les Marches Arabes du Golfe (Beirut: Centre D’etudes et de Recherches sur le Moyen-Orient Contemporain [CERMOC], 1979), pp.11–12. 9. Ibid., p.12. 10. Ibid., p.13. 11. Banque Du Liban, Al-Taqrir al-Sanawi, selected years. 12. The index of industrial exports to Gulf markets rose in current prices from 100 in 1967 to 595 in 1973; it rose again from 100 in 1973 to 268 in 1978. J.P. Bertran, et. al., p.13. 13. Between 1993 and 1999, Syria ranked between number 3 and number 6 in terms of Lebanese exports to it; and between number 5 and number 11 in terms of Lebanese imports from it. Banque Du Liban, Al-Taqrir al-Sanawi, selected years. 14. Published in Al-Mustaqbal, 2 June 2001, p.10. In the first half of 2001, the statistics of the general secretariat of the Lebanese–Syrian high council show that Syria exported (to Lebanon) merchandise worth US$175 million, while importing from it merchandise worth only US$16 million. Lebanon’s trade deficit with Syria (for the first six months of 2001) thus stood at US$159 million. Al-Mustaqbal, 8 Sept. 2001, p.10. 15. For a definition of hegemony see R. Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton, NJ: Princeton University Press, 1984), p.33. John Ruggie defines an international regime as ‘a set of mutual expectations, rules and regulations, plans, organizing energies and financial commitments, which have been accepted by a group of states.’ J.G. Ruggie, ‘International responses to technology: concepts and trends’, International Organization, Vol.29, No.3 (1975), p.570. For further discussion of international regimes see inter alia Keohane, After Hegemony, esp. pp.57–64, 85–109 and 182–240; and A. Hasenclever, P. Mayer & V. Rittberger, Theories of International Regimes (Cambridge: Cambridge University Press, 1997) pp.8–22. 16. The texts of the Brotherhood Treaty and the agreements, protocols, and memorandums of understanding between Lebanon and Syria can be found in the appendix of Al-‘Alaqat al-Lubnaiyyah al-Suriyyah: Muhawalt taqwimiyyah (Lebanese-Syrian Relations: An Attempt at Appraisal) pp.335– 587 (Antilyas: Lebanon, 2000). 17. The first general secretary has been a Lebanese Maronine, Nasser-Khouri (still serving). 18. For the text of the agreement see the appendix to Al-’Alaqat al-Lubnaiyyah al-Suriyyah: Muhawalt taqwimiyyah. 19. Ibid., pp.433–4. 20. Ibid., pp.445–6. 21. Al-Mustaqbal, 11 May 2001, p.6. 22. Ministerial decree 3477, lowering duties on practically all imports and eliminating them on raw materials that enter into industrial use, was adopted by the cabinet on 29 Oct. 2000, and signed by President Lahoud the same day. For the text of the decree see Al-Safir, 30 Oct. 2000, p.3; see also AlNahar, 30 Oct. 2000, pp.2 and 3. In subsequent modification to the decree a list of industrial components was also exempted from all customs duties. See Al-Safir, 25 April 2001, p.6


222

S. E. Baroudi

23. For a brief discussion of the 1953 Agreement see T. A. Kannan, Arab Economic Integration Efforts: A Critical Assessment. Unpublished study prepared for the Economic and Social Committee for Western Asia (ESCWA) (Beirut: ESCWA, 1999). 24. The four Arab countries that declared their intentions of creating an Arab Common Market were Egypt, Syria, Jordan and Iraq, joined by Libya in 1975. 25. Quoted in Abd al-Rahman al-Suhaybani, Al-Takamul al-Iqtisadi al-Arabi: Mintaqah al-tijarah al’Arabiyyah al-Kubra (Arab Economic Integration: the Great Arab Free Trade Area), unpublished paper submitted to 4th Meeting of the Arab Business Society, Kuwait, 4–6 May 2000, p.15. Text of Suhaybani’s paper provided courtesy of ESCWA. 26. Decision No. 1997 (23 June 1997) of the Arab League of States. Quoted in Abd al-Rahman alSuhaybani, p.15. 27. Ibid. 28. The Action Programme was ratified by the Lebanese parliament and signed by President Emile Lahoud and Prime Minister Salim Hoss in February 1999. For the text of the programme see AlJareedah al-Rasmiyyah (Lebanese Official Gazette) No. 10, 1 March 1999, pp.641–6. 29. Each country would draw its own agricultural calendar, identifying the months during which imports of particular agricultural commodities (such as potatoes) would not be allowed in order to protect local growers. 30. In return for this concession it was agreed not to export any textile items to Egypt until after 1 Jan. 2002. 31. For a discussion of this episode, see Kalawoun, The Struggle for Lebanon, pp.172–3. 32. The Prime Minister made his remarks in Arabic; the English translation is from The Daily Star, 27 June 2001, p.4. 33. Lahoud’s remarks were made during an interview with the official Tunisian Press Agency; the English text of his statement is from The Daily Star, 11 July 2001, p.2. 34. Al-Mustaqbal, 6 July 2001, p.9; Al-Nahar, 19 July 2001, p.6; Another group that spoke strongly in favour of revising the trade agreements with the Arab countries, especially Syria, was the Assembly of Southern Farmers, headed by Waddah Fakhri. In a statement issued on 18 October 2000, the Assembly called for revising the agricultural sections of trade agreements with Arab countries, and for ending smuggling from Syria by placing Lebanese army checkpoints on the Syrian border to assist the customs authorities in preventing smuggling. Al-Nahar, 19 Oct. 2000, p.6. In an earlier statement, Fakhri blamed the Lebanese government for entering into trade agreements with Syria that were detrimental to the interests of Lebanese farmers. He went on to ask ironically whether ending smuggling from Syria posed a threat to the unity of the Syrian–Lebanese track of negotiations with Israel. Al-Nahar, 1 Aug. 2000, p.6. 35. Al-Nahar, 19 July 2001, p.6. 36. Al-Mustaqbal, 16 Jan. 2001, p.8. 37. Export plus specified the following schedule of payments: Exports to Syria, Jordan and Iraq: LL 50,000 per ton with the possibility of raising the amount to 75,000 per ton at a later date; Exports to other Arab countries, Iran and Turkey: LL 75,000 per ton, with the possibility of raising the amount to LL 120,000; Exports to new markets (outside the Arab region): LL 150,000 per ton of vegetables; LL 200,000 per ton of fruit). Al-Nahar, 25 April 2001, p.13. 38. While Export Plus was officially inaugurated in April 20001, its implementation began on 13 Aug. 2001. Al-Mustaqbal, 14 Aug. 2001, p.10. Al-Safir, 14 Aug. 2001, p.8 39. Al-Nahar, 16 Sept. 2000, p.8. 40. S. E. Baroudi, ‘Economic conflict in postwar Lebanon: State–Labour Relations between 1992 and 1997’, Middle East Journal, Vol.52, No.4 (1998), pp.531–50. 41. In March 2001, the Hariri Government lowered mandatory contributions by employers to the NSF from around 38.4 per cent of an employee’s salary to 23.5 per cent. See Al-Safir, 13 March 2001, p.8; The Daily Star, 23 March 2001, p.7; and Al-Anwar, 23 March 2001, p.8. 42. Lebanese trade delegations to Iraq have been amongst the largest trade delegations sent by Lebanon to a foreign country. For example, the delegation that went in early December 1999 was led by Nageeb Mikati, Transportation Minister, and Nasser Sa’idi, Minister for the Economy and Trade and for



43. 44. 45. 46.

47.

48. 49. 50. 51. 52. 53. 54. 55.

56. 57. 58. 59. 60.

61. 62. 63.

64.

223

Industry and included 80 businessmen who represented all major economic sectors. See Al-Safir, 6 Dec. 1999, p.7; Al-Mustaqbal (Beirut) 4 Dec. 1999, p.11; Al-Mustaqbal, 6 Dec. 1999, p.11; Al-Anwar, (Beirut) 8 Dec. 1999, p.9; and Al-Diyar, 8 Dec. 2000, p.17. Minister Saidi was again in Baghdad in February 2000, at the head of another large delegation to inaugurate the 3rd Lebanese Expo for Industrial and Agricultural Technologies. See Al-Mustaqbal, 23 Feb. 2000, p.9. The delegation that went in February 2001 included some 123 companies and 260 businessmen (mainly industrialists). See Al-Safir, 20 March 2001, p.9. Between 1997 and February 2001, Lebanese businessmen (mainly industrialists) organized 8 trade fairs in the Iraqi capital. See Al-Safir, 21 March 2001, p. 9. The Daily Star, 27 Jan. 2000, p.7. Al-Safir, 18 July 2001, p.6. The first fair was held in September 2000 and the second in July 2001. See Al-Nahar, 15 Sept. 2000, p.8; Al-Safir, 15 Sept. 2000; Al-Mustaqbal, 16 Sept. 2000, p.8; Al-Mustaqbal, 20 Sept. 2000, p.8; AlMustaqbal, 25 Sept. 2000, p.9; Al-Diyar, 18 July 2001, p.11; Al-Mustaqbal, 18 July 2001, p.9; The Daily Star, 18 July 2001, p.7. In an address to Lebanese industrialists participating in the Made in Lebanon expo in Baghdad in February 2001, the Iraqi Trade Minister, Mohammad Mahdi Salih, called on Lebanon to overcome its reluctance to expand trade and economic ties with Iraq; the Minister advised Lebanese officials to stop listening to what the Saudis and Kuwaitis tell them, reminding his Lebanese guests that Saudi exports to Iraq over the previous three years (estimated by the Minister at US$562 million) exceeded Lebanese exports for the same period. Al-Safir, 20 March 2001, p.9. Despite the re-establishment of full diplomatic ties, Lebanon is yet to send an ambassador to Baghdad. Al-Nahar, 12 March 2001, p.3; Al-Nahar, 14 March 2001. Al-Anwar, 5 March 2000, p.8; Al-Nahar, 18 April 2001, p.9. Al-Safir, 18 July 2001, p.6; Al-Mustaqbal, 18 July 2001, Al-Diyar, 18 July 2001, p.11. Gates, C. Lebanon’s Merchant Republic, pp.13–15, 25–9, 38–60. Ibid. Ibid., pp.114, 129. S.E. Baroudi, ‘Conflict and cooperation within Lebanon’s business community: relations between merchants’ and industrialists’ associations’, Middle Eastern Studies, Vol.37, No.4 (2001), pp.71–100. Text of the 1977 Cooperation Agreement between the European Economic Community and the Lebanese Republic was provided to author courtesy of the Beirut Office of the Delegation of the Commission of the European Communities (Beirut, Dec. 1980). For example, the duty on ‘dried, dehydrated or evaporated vegetables. . .’ was lowered to 15 per cent. Article 13, para. 1 of the Agreement. Article 16 of the Agreement. For the 1975 Lome´ Agreement see I.V. Gruhn, The Lome´ Convention: Inching Toward Interdependence, International Organization, 30, Spring (1976), pp.240–62. Interview with Ms. Bouchra Shaheen at the Beirut Office of the Delegation of the Commission of the European Communities, 9 July 2001. Between 1996 and 2000 alone, the EU Commission provided Lebanon with a total of 200 million Euros in grants and a further 200 million Euros in loans for infrastructure projects. These figures do not include individual contributions by EU countries. See the remarks of Dimitris Kourkoulas, head of the Delegation of the European Commission to Lebanon, in an interview granted to Lebanon Opportunities (Beirut), Sept. 2001, p.7. Article 22, para. 3 and article 23, para. 2. The 1975 Lome´ Convention was renewed and revised in 1979 and 1984. See J. Spero & J. Hart, The Politics of International Economic Relations. 5th Edition (New York: St. Martin’s Press, 1997), p.246. Writing about the trade arrangements provided for by the Lome´ Conventions, Robert Gilpin observes: ‘Without exception, however, these arrangements are interlaced with restrictions on both agricultural and industrial exports from the LDCs. In particular, they restrict exports that compete against EEC products, thereby limiting this type of regionalism as a vehicle of industrialization and a means of escaping the dependency relationship.’ The Political Economy of International Relations (Princeton: Princeton University Press, 1987), p.296. The Barcelona Declaration was adopted by the 15 EU states and 11 states from the Eastern Mediterranean: Algeria, Cyprus, Egypt, Israel, Jordan, Lebanon, Malta, Morocco, Syria, Tunisia, and Turkey.


224

S. E. Baroudi

65. See, for example, the interview by Bassel Fleihan, Minister for Economy and Trade, in Lebanon Opportunities (Beirut), Aug. 2001, p.51. 66. Lebanese Republic: Ministry of Economy and Trade, Lubnan wa-Mufawadat al-sharakah alAuropiyyah-al-Mutawasitiyyah: Barnamaj ‘Amal bi-Hadaf Inkhirat Lubnan fi al-Sharakah alAuropiyyah–al-Mutawaitiyyah (Lebanon and Euro–Med partnership Negotiations: A plan of Action for Lebanon’s integration into the Euro–Med Partnership. (Beirut: Unpublished study provided to author courtesy of Ministry of Economy and Trade, October 2000), p.25. 67. Ibid., pp.8–9 68. Author’s interview with a ranking official at the Ministry of Economy and Trade, Beirut, 18 July 2001. 69. Nasser Saidi, first Vice-President of BDL and former Minister for Industry and for Economy and Trade lists the following five benefits from the EU association agreement: 1) technical assistance via such EU sponsored projects as Med-Urbs, med-Media, Med-Campus and Med-Invest; 2) technology transfer; 3) foreign direct investment, particularly by EU firms that wish to capitalize on Lebanon open economy and its geographic proximity to other Mashriq countries; 4) financial assistance; and 5) the establishment of EU firms in Lebanon to service the Middle East region. N. Saidi, ‘Lebanon and the European Union at the Cross Roads: An Interim Assessment of the Partnership Agreement’, in W. Shahin & K. Shehadi (eds.), Pathways to Integration: Lebanon and the Euro–Mediterranean Partnership (Beirut: The Lebanese Centre for Policy Studies, 1997), pp.17–31. 70. This distinction between fiscal repercussions, repercussions on industry and repercussions on trade largely follows Iskandar Mokarbel, The Proposed Free Trade Agreement between Lebanon and the European Union Countries: Evaluation and Recommendations. (Beirut: Association of Lebanese Banks, Feb. 1996), pp.5–34. 71. Other estimates put the loss to the treasury at higher levels. According to Ishac Diwan, state revenues would drop by 30 per cent as a result of free trade with the EU. I. Diwan, ‘How Can Lebanon Benefit from the Euro-Mediterranean Initiative’, in W. Shahin and K. Shehadi (eds.), Pathways to Integration (Beirut: Lebanese Center For Policy Studies, 1997), pp.55–73. Will Martin’s calculations show a 57 per cent loss of tariff revenues (as a result of free trade with the EU) leading to 22.8 per cent loss in state revenue (assuming that customs represent 40 per cent of state revenue). Will Martin, Assessing the Implications for Lebanon of Free Trade with the EU, in B.M. Hoekman & J. Zarrouk (eds.), Catching Up With The Competition: Trade Opportunities and Challenges for Arab Countries (Ann Arbor: University of Michigan Press, 2000), p.125. 72. In June 2001, the Hariri Government approved the VAT bill; parliament is expected to vote on the VAT before the end of 2001, so that the tax can be introduced at the beginning of 2002. Al-Safir, 9 June 2001, p.6; Al-Safir, 2 July 2001, p.6; The Daily Star, 5 July 2001, p.2; Al-Nahar, 5 July 2001, p.6; Al-Nahar, 1 Aug. 2001, p.6. 73. Iskandar Mokarbel, (note 71) ‘The Proposed Free Trade Agreement between Lebanon and the European Union Countries’, p.15. 74. The centre was established in 2000 with an initial EU grant of 11 million Euros. Annual Report: Delegation of the European Commission to the Republic of Lebanon (Beirut, 1999), p.18. See also the interview of Dimitris Kourkoulas with Lebanon Opportunities, Sept. 2001, p.7. 75. See the remarks of Bassel Fuleihan, Minister for Economy and Trade in Lebanon Opportunities 76. For a detailed discussion of this point see W. Martin, ‘Assessing the Implications for Lebanon of Free Trade with the European Union’, in B. Hoekman and J. Zarrouk (eds.), Catching up with the Competetion: Trade Opportunities and Challenges for Arab Countries (Ann Arbor: University of Michigan Press, 2000), pp.103–44 77. Ibid. 78. The two prime ministers are Rafik Hariri (1992–98 and 2000–present) and Salim Hjoss (1998–2000); the three ministers are Yasseen Jaber (1994–98); Nasser Saidi and Bassel Fleihan. 79. See Fadi Makki. 80. Lebanon’s withdrawal from GATT became effective in February 1951. See ‘Abd al-Hadi Yamout, AlIqtisad al-Lubnanai Amam Tahadiyyat al-GATT [The Lebanese Economy and the Challenges of the GATT] (Beirut: Al-Markarz al-Istishari lil-Dirasat Wa al-Tawtheeq, 1997). 81. Syria, the only other Arab country that was a member of GATT, withdrew six months after Lebanon. 82. S.E. Baroudi, ‘Business Groups and the Representation of Business Interests: The case of the Association of Lebanese Industrialists’, p.26.



225

83. S.E. Baroudi, ‘Conflict and Cooperation within Lebanon’s Business Community: Relations between Merchants’ and Industrialists’ Associations’, Middle Eastern Studies, Vol.37, No.4 (2001), pp.71–100. 84. Ibid. 85. For the text of the Marakesh Declaration formally known as the ‘Agreement Establishing the World Trade Organization’ see: http://www.wto.org/english/docs_e/legal_e/04-wto.wpf 86. As a result of a disagreement between Hariri and newly elected President Emile Lahoud over the manner in which the President conducted the consultations with the deputies about naming a new Prime Minister, Hariri stepped down from the premiership and was replaced by Salim Hoss, whose Government received the parliament’s vote of confidence on 14 Dec. 1998. 87. Fadi Makki, Ma Bayan al-Gatt wa Munazamah al-Tijarah al-’Alamiyyah: Lubnan Amama al-Istihqaq [Between GATT and the WTO: Lebanon Faces the Challenge] (Beirut: Lebanese Centre for Policy Studies, 2000). 88. The new tariffs structure and procedure for clearing goods from customs was approved by the Council of Ministers (Cabinet) at its 6 Dec. 2000 meeting and came into effect on 23 April 2001. See Al-Nahar, 4 Jan. 2001, p.8; Al-Nahar, 24 April 2001, p.6; and Al-Safir, 4 May 2001, p.6. 89. The Memorandum provided detailed information on Lebanon’s legal and economics systems, including its labour laws, commercial laws, and tax laws; as well as information about the tariffs system, international economic agreements and statistics about foreign trade. The submission of the memorandum represented a crucial step in the accession, setting the stage for the first meeting between Lebanon and the Working party (set for late 2001). Al-Nahar, 19 May 2001, p.6; and information supplied to the author by sources at Ministry of Economy and Trade and USAID Project on WTO Membership. The memorandum was based on a classified study prepared by USAID Technical Assistance project for Lebanon on WTO Membership entitled WTO Master Accession Plan for the Republic of Lebanon (Beirut, 2000). The Arab Translation of the Plan was provided to the author courtesy of the Ministry of Economy and Trade. 90. For the Arabic texts of the 1999 Copyright and Artistic Property Act and the 2000 patents law see: The Lebanese Republic, Al-Jareedah al-Rasmiyyah (Official Gazette) year 139, No. 18, pp.1104–20; and year 140, No. 35, pp.3183–94 respectively. English translation of Patents law provided to author courtesy of USAID Technical Assistance Project for Lebanon on WTO Accession. 91. P. Maier, Analysis of Lebanon’s Existing and Draft Intellectual Property Laws and Legal Acts (Beirut: July 2000), p.5. A copy of Ms. Maier’s report was provided to author courtesy of USAID Technical Assistance project for Lebanon on WTO Membership. 92. USAID Technical Assistance Project for Lebanon on WTO Accession, Why Should Lebanon Accede to the WTO (Beirut: Unpublished pamphlet provided to author courtesy of USAID Technical Assistance project, Dec. 2000), p.1. 93. Ibid. 94. Will Martin, ‘Assessing the Implications for Lebanon of Free Trade with the EU’, especially pp.104–5. 95. Other issues to be covered in the proposed dialogue include; the fate of the banned Lebanese Forces and its jailed leader, Samir Ja’jaja’, the return of the exiled former Commander of the Army General Michael ‘Aoun, a new electoral law, the status of Lebanese villagers from the South who fled to Israel in May 2000; and a timetable for the abolition of political confessionalism. 96. The refusal to deploy the army on the border with Israel, constant squabbles with the United Nations over whether Israel has fully implemented UN Security Council Resolution 425 and over the ‘blue line’ demarcating the border between Israel and Lebanon, arrests of political opponents, and beating of young protestors all indicate that the Lebanese regime is not particularly sensitive to EU and western notions of democracy, human rights, and a state’s international obligations. It remains to be seen how this rigid attitude on political issues will affect the partnership agreement with the EU. For the friction with the UN over Resolution 425 and the ‘blue line’ see inter alia: Al-Nahar, 13 Oct. 2001, p.3; AlNahar, 7 Nov. 2001, p.2; Fawwaz Girgis editorial in Al-Safir, 19 Nov. 2000, p.19; Al-Nahar, 12 Jan. 2001, p.3; Al-Nahar, 4 May 2001, p.4; Al-Safir, 5 May 2001, p.2; Al-Safir, 11 May 2001, p.2; Al-Nahar, 22 May 2001, p.3; Al-Safir, 22 May 2001, p.2; Al-Nahar, 24 May 2001, p.2; Al-Mustaqbal, 24 May 2001, p.6; and Al-Nahar, 13 July 2001, p.24. For the arrests of opponents and the beatings of protestors see inter alia: Al-Nahar, 8 Aug. 2001, pp.1, 2, 10, 16; Al-Nahar, 9 Aug. 2001, pp. 1, 2, 6, 21; Al-Mustaqbal, 9 Aug. 2001, pp.1–5; Al-Nahar, 12 Aug. 2001, pp.5–8; Al-Nahar, 13 Aug. 2001, pp.1, 4; and Al-Safir, 13 Aug. 2001, pp.1, 5.