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Riding the wave of sanctions on Syria.


RATCHETING UP THE US economic embargo against Syria has become a cornerstone of George Bush's Middle East policy. Yet despite an ever expanding raft of sanctions intended to put an economic sleeper hold on Damascus, trade between Syria and the US grew by more than 7% last year to hit $471.9m. American exports, targeted by a heavy sanctions regime, surged by a massive 61% to top $361.4 million last year, the US Census Bureau figures show.

Indeed, US exports to Syria have more than doubled since Bush came to power, rising from $226m in 2000 to $361.4m in 2007. Over the same period, US imports from Syria--not banned under any sanctions regime--have fallen from $158.7m in 2000 to $110.5m in 2007. Syrian-US trade is certain to be higher than official figures show, given that Syrian traders can easily source US goods through neighbouring countries including Lebanon and Dubai. Taking a walk through Syria's fashionable shopping districts, you would be hard pressed to know that the country is subject to a heavy US trade embargo, with American icons such as KFC, iPod, Ford and GAP increasingly available to a Syrian public hungry for foreign goods.

The US trade embargo becomes all the more questionable when US-Syrian trade volume is compared with that of Damascus' high profile ally Iran, a relationship that produces increasing angst among key regional and international players. For all the hype of the Syrian-Iranian economic relationship, trade volume between Damascus and Tehran stood at $200m last year, less than half the amount of US-Syrian trade. Even US-Iranian trade eclipsed Damascus-Tehran in volume, weighing in at $318.8m, with the US importing around $173.2m of goods from the Islamic Republic, only slightly less than Syria. All of which has many questioning the validity of the US economic embargo against Syria, especially given its failure to change Damascus' policy on key regional issues like Palestine, Lebanon and Iraq. "US trade sanctions have not decreased US exports to Syria, but have backfired in terms of public diplomacy and opened the door for Iran and other states to capitalise on Syria's growing economic opportunities," Andrew Tabler, a former fellow at the Washington-based Institute of Current World Affairs, said. "Recalibrating trade sanctions would be one of the first intelligent things the US has done on Syria in a long time. It would allow the US to use its private sector to engage Syrians and become involved and to learn a little bit from the process."


Syria has long operated under some form of American embargo. Syria became a founding member of the US State Department's 'State Sponsors of Terrorism' list in 1979 and remains its longest serving member. Exports of dual use items such as electrical components and software were banned and American aid to the country, active after the 1973 October War, was cut. The prohibition on economic assistance also extends to international organisations like the World Bank. Although the State Department acknowledges Syria has not been directly implicated in a terrorist act since 1986, the country's ongoing support for groups like Hizbullah, Hamas and Islamic Jihad has ensured its continued classification as a state sponsor of terror.

Relations thawed in the early 1990s when Damascus used her influence to end the civil war in neighbouring Lebanon and, more crucially, supported the US-led coalition to oust Saddam Hussein's forces from Kuwait. Trade and investment followed, with US oil giant ConocoPhilips investing $500m in a joint oil and gas project.

America's second war against Saddam brought such limited cooperation to a halt when Damascus refused to support the venture. Syrian opposition to the war resulted in Bush signing the Syrian Accountability and Lebanese Sovereignty Restoration Act (SALSA), passed to "address the Syrian government's support for terrorist groups, its continued military presence in Lebanon, its pursuit of weapons of mass destruction, and its actions to undermine US and international efforts with respect to the stabilisation and reconstruction of Iraq".

The act outlined six broad penalties against Syria and compelled the Bush administration to choose a minimum of two within six months. These included a ban on all US exports to Syria expect food and medicine (agricultural items presently account for around 90% of American exports to Syria), a ban on US investments in Syria, a ban on Syrian airplanes entering American airspace, restrictions on the travel of Syrian diplomats beyond a 25-mile radius of Washington DC and New York, downgrading US relations with Syria and prohibiting US citizens from engaging in property transactions with the Syrian government.


When the sanctions were implemented in May 2004, Bush supported a ban on exports and flights; the later redundant given Syria's only airline has never flown to the US. Washington also allowed for a range of exemptions, specifically for commercial aircraft parts and computer components that would assist in connecting Syria to the outside world via the Internet. Under the act, goods are classified American if more than 10% of their components are manufactured in the US; hence the presence of a Ford dealership in Damascus. Ford automobiles sold in Syria are not manufactured in the US and, as such, are American in reputation only.

The executive order implementing SALSA also unexpectedly contained two additional penalties. Under Section 311 of the 2001 Patriot Act, the president empowered the Treasury Department to sever correspondent accounts with the state-owned Commercial Bank of Syria (CBS) because of money-laundering concerns. Under the International Emergency Economic Powers Act (IEEPA) the Treasury was further instructed to freeze the assets and property of individuals held to be "directing or otherwise significantly contributing to" Syria's sponsorship of terrorist organisations, development of WMD, occupation of Lebanon, or efforts to undermine stability in Iraq.

The latest blow came in February when Bush issued an executive order blocking the assets of Syrian officials and individuals on charges of public corruption and misuse of public assets. Number one on the list was Makhlouf, owner of the country's largest mobile phone company Syriatel and a backer of the country's largest holding company, Cham Holding, which is spearheading a diverse array of tourism, commercial and residential developments.

Despite the growing trade volume between Syria and the US, along with an ever expanding array of American goods hitting Syrian shelves, US sanctions have not been without effect. The government admitted as much in August last year when--following a summer of constant power outages--the prime minister, Muhammad Naji A1 Otari, said US and French-led pressure had stopped companies like the American-based General Electric and French-owned Alstom from bidding on the construction contracts for two new power plants. Bids have been called for five times in the past two years, with no takers.

It's a similar story in the country's natural gas sector, with sanctions delaying the much needed development of Syria's natural gas resources at a time of declining oil production. The country's aircraft industry has also been hard hit. Syrian Arab Airways, the national carrier, has an ageing fleet of Boeing jets badly in need of replacement. As the US dominates the aircraft industry, upgrading the fleet has encountered major hurdles. The establishment of the Damascus Stock Exchange, the diamond in the crown of the country's economic reform programme, has also been delayed indefinitely in part due to difficulties in sourcing an IT platform to run the activities of the exchange. While the government recently signed a $10m contract with the Swiss firm OMX, a strong euro has forced it to pay much more than it originally budgeted.

And then there is the toll on the country's overall business reputation. Despite much protest to the contrary by Syrian authorities, sanctions have scared away many of the word's leading firms from doing business in Syria. The country's rapidly expanding private bank sector is a case in point. Regardless of private banks falling outside US Treasury Department measures against Syria, many large western financial institutions like Deutsche Bank are unwilling to deal with the country at all.

Syria's economic expansion continues, nonetheless--just like the range of economic measures against it. Despite the failure of sanctions to either dampen trade or change Syria's foreign policy, an easing of the embargo is not expected anytime soon. Indeed, the latest blow against Syria is seen by many as an attempt by the Bush administration to ensure its hardline remains long after No.43 leaves the White House. "The latest targeted sanctions are not going to change the course of the economy or the country as a whole," Joshua Landis, a former Fulbright scholar in Syria who teaches at the University of Oklahoma, said. "What it will do is complicate the relationship any future government can have with Syria. It limits their options for changing course."
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Comment:Riding the wave of sanctions on Syria.
Author:Dagge, John
Publication:The Middle East
Geographic Code:7SYRI
Date:May 1, 2008
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