Wayzata World Factbook 1996

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U.S. DEPARTMENT OF STATE SYRIA: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES BUREAU OF ECONOMIC AND BUSINESS AFFAIRS SYRIA Key Economic Indicators 1/ 1992 1993 1994 (est.) (est.) Income Production and Employment: 2/ Real GDP (1985 prices) 9,778 10,560 10,982 Real GDP Growth (pct.) 10 8 4 GDP (at current prices) 33,124 35,774 37,205 By Sector: Agriculture 1,870 2,020 2,100 Energy/Water 2,500 2,700 2,808 Manufacturing 3,015 3,256 3,386 Construction 240 259 270 Rents N/A N/A N/A Financial Services 407 440 458 Other Services 143 155 161 Government/Health/Education 1,351 1,459 1,518 Net Exports of Goods & Services 3,100 N/A N/A Real Per Capita GDP (1985 base) 752 782 784 Labor Force (000s) 3,600 3,900 4,300 Unemployment Rate (est./pct.) 7 7 7 Income Production and Employment: 3/ Real GDP (1985 prices) 2,607 2,816 2,929 Real GDP Growth (pct.) 10 8 4 GDP (at current prices) 8,833 9,540 9,921 By Sector: Agriculture 499 539 560 Energy/Water 667 720 749 Manufacturing 804 868 903 Construction 64 69 72 Rents N/A N/A N/A Financial Services 108 117 122 Other Services 38 41 43 Government/Health/Education 360 389 405 Net Exports of Goods & Services 3,100 N/A N/A Real Per Capita GDP (1985 base) 201 208 209 Labor Force (000s) 3,600 3,900 4,300 Unemployment Rate (est.) 7 7 7 Money and Prices: Money supply (M2) (million SP) 182,125 191,322 191,322 Base Interest Rate 4/ 9 9 9 Personal Saving Rate 4.8 4.8 4.8 Retail Inflation 12.5 16.0 8.0 Wholesale Inflation 9.6 12.0 6.0 Consumer Price Index 486 564 609 Exchange Rate (USD/SP) Official 11.20 11.20 11.20 Blended 26.60 26.60 26.60 "Neighboring Country Rate" 42 42 42 Offshore market 46-52 47-52 49-52 Balance of Payments and Trade: (USD millions) Total Exports (FOB) 3,100 3,400 3,600 Exports to U.S. 45.8 144.7 120.0 Total Imports (CIF) 3,498 4,100 4,000 Imports from U.S. 214.0 267.2 300.0 Aid from U.S. 0 0 0 Aid from Other Countries 1,753.0 1,358.0 701.9 External Public Debt 18,000 19,400 N/A Debt Service Payments (paid) 1,399 N/A N/A Foreign Exchange Reserves N/A N/A N/A Gold Holding (millions of troy ounces) 0.833 0.833 0.833 Trade Balance -398.0 -700.0 -400.0 Trade Balance with U.S. -168.2 -122.5 -180.0 N/A--Not available. 1/ The Syrian Government has not published its 1993 statistics as of the completion of this report. Further, the government's 1992 economic statistics remain estimates. All figures in the preceding tables are estimates based on the government's 1992 estimates, other sources in the public domain, and the U.S. Embassy's own calculations. 2/ Millions of U.S. dollars converted at the official rate of 11.2 Syrian pounds/ 1 U.S. dollar. 3/ Millions of U.S. dollars converted at the "Neighboring Country" rate of 42 Syrian pounds /1 U.S. dollar. 4/ All banks in Syria are nationalized and interest rates are set by law, ranging from two percent for financing of the export and storage of barley to nine percent for certain private sector loans. Savings rates range from two percent on public sector "current accounts and sight deposits" to nine percent on "other investment bonds". Most rates have not changed in 10 years. 1. General Policy Framework In the past year, the Syrian government, except for tightening exchange rate controls, has acted to reduce administrative barriers to U.S. exports. The private sector, responding to these and other reforms, has increased its imports beyond those of the public sector; however, increases of U.S. exports to Syria have lagged behind those of other countries, probably due to continued U.S. Government foreign policy sanctions and remaining Syria administrative and legal barriers to trade. As a reward for participation in the Gulf War, Arab Gulf states have contributed large, but declining amounts of aid, to Syria over the past three years. These allocations, over USD 1.7 billion in 1992, and USD 1.3 billion in 1993, have gone to rehabilitate Syria's telecommunications and electrical power generation sectors. Prospects for Syrian private sector investment and imports continue to improve, spurred by economic reforms, including an investment encouragement law. Recent liberalization actions of the Syrian government permit private exporters to retain some foreign exchange export earnings to finance permitted imports for manufacturing inputs, as well as other listed products. The rate of retention depends on the type of products exported: 75 percent of industrial export earnings, 100 percent of agricultural sales. Although retaining a monopoly on "strategic" imports, such as wheat and flour, the Government continued to expand the list of permitted imports during 1994, including items, such as sugar and rice, formerly reserved for public sector importing agencies. During 1993 the government attempted to interdict many of the goods imported for the "unofficial market" and succeeded briefly in reducing supplies. Ultimately it discontinued the activity because of inadequate resources to enforce the interdict and the strong public demand for such goods. Responding to the demand, the government began expanding the list of importable goods. The United States imposed trade controls in 1979 as a response to Syria's involvement with terrorism. The U.S. Government expanded sanctions against Syria in 1986, following Syria's implication in the attempted bombing of an Israeli airliner at London Heathrow Airport. Among the affected items are aircraft, aircraft parts, and computers of U.S. origin or containing U.S. origin components and technologies. The Syrians have sought alternate suppliers of these products. Under the 1986 sanctions, Syria is ineligible for the Export Enhancement Program (EEP) and the Commodity Credit Corporation (CCC) Program in all agricultural products, rendering U.S. wheat uncompetitive in the Syrian market. The Syrian-U.S. Bilateral Aviation Agreement expired in 1987 and has not been renewed. Finally, the EXIM Bank and OPIC suspended their programs in Syria, further disadvantaging U.S. exporters in meeting competition from other suppliers. The Syrian government uses its annual budget as its principle tool for managing the economy. Through 1992, the Syrian government's ability to raise official prices on many consumer items (effectively reducing subsidies), improve tax collections, and increase transfers from state enterprises, while reducing commitments of Syrian resources to capital expenditures, enabled it to reduce budget deficits, leading to a balanced budget in 1992. However, the last two annual budgets have been in deficit, due the cost of maintaining Syria's large military establishment (both domestically and in Lebanon) and its recently reduced, but still heavy, subsidization of basic commodities and social services. Given Syria's anachronistic and nationalized financial system and its inability to access international capital markets, monetary policy remains a passive tool used almost exclusively to cover fiscal deficits. All four of the country's commercial banks are nationalized. Interest rates are fixed by law. Most rates have not changed in the last several years, even though current real interest rates are negative, which exerts additional inflationary pressures in the economy. 2. Exchange Rate Policies The Syrian government continues to maintain a multiple exchange rate system. The official exchange rate remains fixed at Syrian pounds 11.20 to USD 1 for the government, certain public sector transactions and valuations for some customs tariff rates. A second exchange rate, called the "Blended Rate", SP 26.6 to USD 1, can be used by the U.N. and diplomatic missions. A third rate, the "Neighboring Country" rate, SP 42 to USD 1, applies to most state enterprise imports except certain basic commodities and military/security items. Recently, a foreign oil company signed an exploration contract allowing it to transact contract-related business at the "Neighboring Country" rate, a first for the oil sector. Outside Syria, a thriving offshore market for Syrian pounds operates in Lebanon, Jordan, and the Arab Gulf countries. During 1994, the value of the Syrian pound fluctuated between SP 49 and 51 to the dollar in these locations. Exchange controls are strict. Syrian currency may not be exported, although it may be imported physically. Almost all exchange transfers must be by letter of credit opened at the Commercial Bank of Syria. Outward private capital transfers are prohibited, unless approved by the Prime Minister or transacted under the new investment law noted below. Prior to 1987, Syrian law required private exporters to surrender 100 percent of foreign exchange earnings to the Central Bank at the official rate. Now, private exporters may retain 75 to 100 percent of their export earnings in foreign exchange to finance imports of inputs and other items designated on a short list of basic commodities, surrendering the balance to the Commercial Bank of Syria, generally, at the "Neighboring Country" rate. Since 1991, the Commercial Bank of Syria may convert cash, travellers checks and personal remittances at the "Neighboring Country" rate. 3. Structural Policies By law, the Ministry of Supply controls prices on virtually all products imported or locally produced, although enforcement in most sectors is spotty. The ministry also sets profit margin ceilings, generally up to 20 percent, on private sector imports. Local currency prices are computed at the SP 42 to USD 1 rate. In the agricultural sector, production of strategic crops (cotton, wheat) is controlled through a system of procurement prices and subsidies for many inputs, including seeds, fuel, and fertilizers. Farmers may retain a portion of production, but the balance must be sold to the Government at official procurement prices. Since 1989, the Government has increased farm gate prices to encourage production and to enable state marketing boards to purchase larger quantities of locally produced commodities. In 1994, the local price of wheat was 25 percent above the world price computed at the free market rate. With the surge of private industrial investment, especially in textile and clothing manufacturing, private sector capital goods imports exceeded the public sector's in 1993. However, public sector demand remains significant. Contracts are awarded through the official tender system. These are open to international competition with no restrictions, other than language pertaining to the Arab League boycott of Israel and the requirement to post a bid bond. Syrian public sector entities will accept positive statements of origin to deal with the boycott issue. Syria's tariff system is highly escalated, reaching 200 percent for passenger cars. Income taxes are highly progressive. Marginal rates in upper brackets are 64 percent. Salaried employees also pay a graduated wage tax, reaching 17 percent. Tax evasion is widespread. 4. Debt Management Policies Syrian authorities have been unwilling to provide data on non-civilian debt, as well as accumulated obligations under bilateral clearing arrangements. Guaranteed civilian debt is officially estimated at approximately USD 3.4 billion. The diplomatic community estimates Syria's total external public debt at about USD 18 billion dollars. Very little Syrian commercial debt is held by U.S. companies, but sovereign debt is about USD 250 million. In 1992, the government established various committees to negotiate settlements of supplier credit claims against public sector importing agencies. However, progress has been slow. Debt to the former Soviet Union and Iran (both clearing account arrangements) is estimated to be more than USD 12 billion. The government has had some recent success in settling with bilateral creditors, while refusing to deal with the Paris Club as a group. Syria suspended payments to the Russian Republic in 1992, but is negotiating a settlement. The government remains badly in arrears on payments to official export credit agencies and bilateral donors, including the U.S. Agency for International Development. Syria has been in violation of the Brooke Amendment since 1985. Syria resumed payments to the World Bank in 1992, and, except for a brief interval in 1993, has been making payments to the World Bank sufficient to prevent increases in its arrears. 5. Significant Barriers to U.S. Exports Any product legally imported into Syria requires an import license, which is issued by the Ministry of Economy and Foreign Trade according to a policy aimed at conserving foreign exchange and promoting local production. Strict standards on labeling and product specifications are non-discriminatory and fairly enforced. Customs procedures are cumbersome and tedious because of complex regulations. In addition, duty rates are extremely high. Tariff exchange rates depend on the type of good. Government procurement procedures pose special problems. Although foreign exchange constraints have eased, many public sector companies continue to favor barter arrangements which can be unattractive to US suppliers. In addition, problems remain in the prompt return of performance bonds. Current bid bond forms stipulate that the guarantee becomes null and void if the tender is not awarded upon its expiry date, without need for any other procedure. Some government tenders include a clause allowing the bidder to cancel his bid at six-month intervals, provided a written notice is received within a stipulated time frame. If such a clause is not included in the tender, it can often be negotiated. Tenders for wheat and flour stipulate that bids are invalidated after one month, if no contract is signed. Syria participates in the Arab League boycott of Israel. Many Syrian government tenders contain language unacceptable under U.S. anti-boycott laws. Public sector agencies reportedly accept positive certification from U.S. companies in response to tender application questions. Once interested parties obtain tender documents, they would be well advised to obtain competent advice regarding the anti-boycott regulations before proceeding. One source of such advice is the U.S. Department of Commerce Office of Anti-boycott Compliance (telephone advice line (202) 482-2381). Given the centralized structure of the economy, specific "buy national" laws do not exist. Strategic goods, military equipment, wheat, sugar, and items not produced locally or in sufficient quantities are procured by public sector importing agencies from the international market, provided foreign exchange is allocated by the Supreme Economic Council. The government requires its approval for all foreign investments and theoretically encourages joint-ventures with itself. Concessions and services must be explicitly negotiated. The number and position of foreign employees in a company are usually negotiated when the contract or agreement is signed. Land ownership laws are complex. In principle, only Syrians may own land. The right to repatriation of capital is legally recognized. The new investment law provides for tax holidays and exemptions on duties, as well as guarantees for the remission of profits. However, the law requires that repatriated foreign exchange be generated from export company operations. Despite the new legislation, poor infrastructure, lack of financial services, and complex foreign exchange regulations, including Law No. 24, which makes it a criminal act to conduct unauthorized foreign exchange transactions, continue to pose serious barriers. Government monopolies in banking, insurance, telecommunications, and other public sector service industries preclude foreign investment. Motion pictures are distributed by a government agency and subject to censorship. Petroleum exploration and oil service companies operating in Syria are required to convert their local currency expenditures at the over-valued official exchange rate with the exception noted in Paragraph 6. (See below.) Despite cost recovery schemes, this requirement has inflated company operating costs, exposing them to greater risk and contributed to the departure of two more foreign petroleum exploration companies in 1994. 6. Export Subsidy Policies Export financing and subsidies are not available to either the public or the private sectors. In fact, some exports are subject to special taxes. Recent government decisions allowing private firms to transact exports and imports at the "Neighboring Country" rate, instead of the unfavorable official rate, have encouraged private trade through official channels. Similar concessions to public sector companies to complete export transactions have enhanced the foreign exchange position of these companies. 7. Protection of U.S. Intellectual Property Syria's legal system recognizes and facilitates the transfer of property rights, including intellectual property rights. There is, however, no copyright protection. Syria is a member of the Paris Union for the International Protection of Industrial Property. Prior registration of intellectual property is required to bring infringement suits. Due to the unsophisticated industrial structure and existing limits on private industry, there are few major infringement problems. Local courts would likely give plaintiffs fair hearings, but any financial awards would be in Syrian pounds. Requests for payment in foreign exchange would probably be delayed indefinitely. Most books printed in Syria are in Arabic and by Arab authors. The publishing industry is not well developed. Despite the lack of legal protection, major commercial infringements do not appear to be a problem. There are, however, individual entrepreneurs who copy records, cassettes, and videos, and sell them. In any event, enforcement and the associated litigation would be, if not impossible, extremely costly compared to any positive benefits which might result. The U.S. motion picture industry estimates the home video market in Syria is 100 percent pirated. The industry is also concerned with unauthorized hotel video performances, which are said to be common. However, only a few hotels have internal video systems. 8. Worker Rights a. The Right of Association The 1973 Constitution provides for the right of the "popular sectors" of society to form trade unions. Although the General Federation of Trade Unions (GFTU) is purportedly an independent popular organization, in practice the government uses it as a framework for controlling nearly all aspects of union activity. According to GFTU officials, the secretaries general of the eight professional unions, some of whom are not Ba'th Party members, are also each elected by their respective union's membership. The Syrian government contends that there is in practice trade union pluralism. However, workers are not free to form labor unions independent of the government-prescribed structure. Legislation is still pending which would grant the right of any trade union to be governed by its own by-laws without requiring that union rules correspond to those of the GFTU. Strikes are not prohibited (except in the agricultural sector), but in practice they are effectively discouraged. There were no reported strikes in 1994, as was also the case in 1993 and 1992. There is at least one person who has been in detention for 13 years for involvement in a strike in 1980. He was tried only at the end of 1992. Some members of the Syrian Engineers' Association who were arrested because of the strike action in 1980, along with Doctors' Association members arrested at the same time reportedly remain in detention. As with other organizations dominated by the Ba'th Party, the GFTU is charged with providing opinions on legislation, devising rules for workers, and organizing labor. The elected president of the GFTU is a senior member of the ruling Ba'th Party and a member of the party's highest body, its regional command. With his deputy, he participates in all meetings of the cabinet's ministerial committees on economic affairs. While the unions are used primarily to transmit instructions and information to the labor force from the Syrian leadership, elected union leaders also act as a conduit through which workers' dissatisfaction is transmitted to the leadership. The GFTU is affiliated with the International Confederation of Arab Trade Unions. In June 1992, the U.S. Trade Representative suspended Syria's duty-free privileges under the U.S. Generalized System of Preferences (GSP) due to its worker rights practices. The Syrian government has not made sufficient legislative and practical changes to prompt a reconsideration of the suspension. b. The Right to Organize and Bargain Collectively In the public sector, unions do not normally bargain collectively on wage issues, but union representatives participate with the representatives of the employers and the respective ministry to establish sectoral minimum wages according to legally prescribed cost-of-living levels. Workers serve on the board of directors of public enterprises, and union representation is always included on the boards. Unions also monitor and enforce compliance with the labor law. In the private sector, unions are active in monitoring compliance with the laws and ensuring workers' health and safety. Under the law, unions may engage in negotiations for collective contracts with employers. The International Labor Organization's Committee of Experts (COE) noted Syria's continuing resistance to revising a section of the labor code which allows the Minister of Labor and Social Affairs to refuse to approve a collective bargaining agreement and to annul any clause likely to harm the economic interests of the country. Unions have the right to litigate contracts with employers and the right to litigate in defense of their own interests or those of their members (individually or collectively) in cases involving labor relations. Union organizations may also claim a right to arbitration. In practice, due to the relatively small size of Syrian private sector enterprises, labor disputes are generally settled informally. Social pressure to be seen as fair and generous are powerful factors in determining owners' treatment of workers. Workers are protected by law from anti-union discrimination, and there were no reports that it was practiced. (See also Section 6.E). There is no union representation in Syria's seven free trade zones, and firms in the zones are exempt from Syrian laws and regulations governing the hiring and firing of workers, although some provisions concerning occupational health and safety, hours of work and sick and annual leave do apply. c. Prohibition of Forced or Compulsory Labor There is no Syrian law banning forced or compulsory labor; such practices may be imposed in punishment, usually in connection with prison sentences for criminal offences, under the Economic Penal Code, the Penal Code, the Agricultural Labor Code and the Press Act. There were no reports of forced or compulsory labor involving children or foreign or domestic workers. d. Minimum Age for Employment of Children The minimum age in the predominant public sector is fourteen, though it is higher in certain industries. The minimum age varies more widely in the private sector. The absolute minimum age is 12, with parental permission required for children under age 16 to work. Children are forbidden to work at night. The Ministry of Social Affairs and Labor is responsible for enforcing minimum age requirements, but the number of labor investigators is not adequate. e. Acceptable Conditions of Work As mandated in the constitution, the government legislatively establishes minimum and maximum wage limits in the public sector and sets limits on maximum allowable overtime for public sector employees. The minimum wage does not enable a worker and his family to survive, and, as a result, many workers take additional jobs, open businesses, or rely on extended families for support. There is no single minimum wage in the private sector for permanent employees. According to the 1959 Labor Law, minimum wage levels in the private sector are set by sector and are fixed by the Minister of Social Affairs and Labor. Recommendations are put to him by a committee, including representatives of both the Ministries of Industry and Economy, as well as representatives of the employers' association and the employees' unions. Following substantial cuts in government subsidies of foodstuffs in April, the government raised public sector minimum wages to $50 per month. Shortly thereafter, the Minister of Labor decreed an average private sector minimum wage of $44 per month. In practice, private sector monthly minimums are not less than that in the public sector. In both the public and private sector, the Ministry of Social Affairs and Labor is responsible for enforcing minimum wage levels. The Syrian labor law extensively regulates conditions of work. There are regulations that severely limit the ability of an employer to fire an employee without due cause, an issue that the employer may take to a labor committee. Labor committees are composed of representatives of the municipality, the Ministry of Social Affairs and Labor, and the union, as well as a judge and the employer. In the majority of cases, such labor committees have decided in favor of the employee. Workers, once hired, can not easily be fired. In practice, workers also have exercised their right to contest even planned dismissals in the labor committees. One exception in the heavily regulated labor field relates to day laborers. They are not subject to minimum wage regulations and receive compensation only for job-related injuries. Small private firms and businesses commonly employ day laborers in order to avoid the costs of permanent employees who are well protected even against firing. The statutory workweek consists of six 6-hour days, although in certain fields in which workers are not continuously busy, a 9-hour day is permitted. Labor laws also mandate a full 24-hour rest day per week. Public laws mandate safety standards in all sectors, and managers are expected to implement them fully. A draft legislative decree is pending with the president of the council of ministers to provide compensatory rest for those who have to work on the weekly rest day, thus bringing the law into conformity with the international labor code. The ILO has also noted that a provision of the labor code allowing workers to be kept at the workplace for up to 11 hours per day could lead to abuse. In practice, the public sector is in conformity with the schedule noted above. There were no reports of private sector employees having to work as many as 11 hours per day. A special department of the Social Security Establishment works at the provincial level with inspectors at the Ministries of Health and Labor to ensure compliance with safety standards. In practice, workers have occasionally taken employers to judicially-empowered labor committees to win improvements in working conditions that affect their health.