Just how damaging has three years of American sanctions been to Syria? Andrew Tabler reports.
Syria Today May 2007
Nancy Pelosi’s surprise visit to Syria last month may have been ridiculed among Syria’s chattering classes for her jaunt down Souk al-Hamidiye to haggle for freshwater pearls, but alongside this carefully planned shopping excursion came whispers of a far more tantalising offer.
At the reception in the vacant American Ambassador’s residence in Damascus to welcome the US House Speaker, guests, who included prominent Syrian businessmen and opposition figures, were amazed to hear American Democrats raise the possibility of lifting sanctions on Syria. Effected in May 2004 following Damascus’ opposition to the US invasion of Iraq, Syrians were resigned a future of extended US restrictions.
The 2004 sanctions regime was created by the Bush administration to isolate Syria and bring it in line with US policy. Having failed in its goal and following the battering the Republicans took in last year’s Congressional elections, the Democrat’s latest proposal has been met with intrigue in Damascus.
Critics say whispers of dropping the sanctions are just political posturing by Democrats desperately trying to embarrass the Bush administration. A closer look at the effects of sanctions on Syria, however, shows that three years after Washington turned the screws on Damascus, results have been mixed at best. This raises the question, is there any point in Washington renewing sanctions for a fourth successive year later this month?
History of US sanctions
America first placed Syria under sanctions in 1979 after naming Damascus as a leading sponsor of international terrorism. Exports of “dual-use” items, such as electrical components and software, were prohibited and US aid to Syria - active in the 1970s - was cut.
After Syria supported the US-led coalition to oust Saddam Hussein’s forces from Kuwait in 1991, and Damascus used its influence to end the Lebanese civil war in 1990, US oil giant ConocoPhillips invested USD 500 million in a joint gas and oil project. This allowed Syria to switch its electricity generation plants from oil to gas, so it could export more of its declining oil production.
This limited cooperation came to an end in December 2003, however, after Syrian opposition for the US-led invasion of Iraq spurred Bush to sign the Syrian Accountability and Lebanese Sovereignty Restoration Act (SALSA).
Originally drafted by members of Congress, the act outlined five broad penalties against Syria, of which the Bush administration had to choose a minimum of two within six months. These included a ban on all US exports to Syria except food and medicine, a ban on US investment in Syria, a ban on Syrian flights to America, a restriction on the travel of Syrian diplomats beyond a 25-mile radius of Washington DC and New York, and downgrading US relations with Syria.
When the restrictions were implemented in May 2004, the Bush administration chose the export and flight ban, although certain exemptions would be considered. Washington, firstly, announced that sanctions waivers could be granted on application for commercial aircraft parts and computer components to allow Syrians to remain connected to the wider world via the Internet.
The US also unexpectedly rolled out two further penalties. Last year, under Section 311 of the 2001 US Patriot Act, the president instructed the Treasury Department to allow US financial institutions “to sever correspondent accounts with the state-owned Commercial Bank of Syria (CBS) based on money-laundering concerns.” The CBS and its Lebanese affiliate were charged with allegedly funding terrorism and laundering the proceeds from illicit Iraqi oil sales.
Similarly, in 2004 Bush issued executive orders under the International Emergency Economic Powers Act (IEEPA), which instructed the Treasury to seize the US assets of certain members of the Syrian government, who were accused of sponsoring of terrorism and aiding the pursuit of weapons of mass destruction.
Have sanctions had the desired effect?
Three years after sanctions were enforced, the Syrian business community says they have had a limited result. “The biggest effect has been a psychological one,” says Rateb Shallah, President of the Federation of Syrian Chambers of Commerce. “I think they were meant to send a political message, not to hurt Syria.”
A look at the statistics shows that Shallah may be right. While US exports to Syria fell by USD 13 million a month after sanctions began in June 2004, and decreased by a further 27 percent (to USD 155 million) in 2005, by the end of last year the export figures have levelled out, topping USD 224 million.
Analysts say the surge in trade between the US and Syria in 2006 can be explained by the changing fortunes of agriculture in the two countries. Last year, Syria’s barley crop – the staple feed of the country’s livestock – was destroyed because of poor weather conditions. Syrian farmers turned to corn imports instead, most of which was sourced from the US. Because American corn is expensive, due to US efforts to promote the use of ethanol instead of gasoline - of which corn is a key component – this explains why the volume of trade in dollars appears high.
Then there is the unknown effect on Syrian and US trade through the Jordan-US Free Trade Agreement (FTA). Jordan enjoys duty free access to the US through the 2001 accord, but Shallah says it is not able to produce key raw materials for its domestic industries, so it imports these Syrian-made products and re-packages them as its own and exports the goods to the US.
Similarly, Syrian traders also say the real volume of US-Syrian trade is actually much higher than figures indicate due to the common practice of importing US goods via neighbouring states. Traders used to source American manufactured products from Lebanon, but with mounting political tensions between the two countries, they now prefer Dubai. “Syrian traders know how to make profits,” said one local trader who wished not to be identified. “In Dubai, the market is more competitive than Jordan and Lebanon. Syrians have set up companies specialising in re-exporting.”
Furthermore, the US no longer has a monopoly on the export market. Demand for US products is receding with the availability of similar products being manufactured more cheaply in the Far East. “Companies don’t care where the products are imported from,” the trader added. “The Japanese, Korean or American label means little – consumers just care that the product works.”
Mohamad Kanaan, director of the Foreign Trade Directorate at the Syrian Ministry of Economy, says Syria’s reliance on foreign exports – outside of America – has almost completely made up for the US export ban. While increased investment from the Gulf, Iran, and Europe has also helped.
Iran’s direct investment in Syria is at an all-time high, reaching USD 1.5 billion over the past year, according to Iran’s ambassador to Damascus, Mohammad Hassan Akhtari. That figure is expected to double in the coming year, as economic ties between the two countries strengthen. China and the Gulf states have helped fill the economic void created by American sanctions, especially in the electrical goods sector, tourism and in construction.
In 2004 US officials predicted that prohibitions on US technology key to oil and gas exploration would hit Syria hard. Three years later, Chinese, Indian, Croatian and Russian companies continue to operate in Syria’s oil fields. Gulf Sands, a UK-registered subsidiary of a US company, is currently drilling in North-east Syria. Similarly, Campbell Keir – the general manager of Shell’s Syrian operations – says they now buy their pipes and much of their oil drilling equipment from India and China, at a far cheaper cost to American tools.
Some aspects of sanctions, however, have produced mixed results. Developments in Syria’s gas reserves have reportedly slowed due to US pressures to dissuade international oil companies from operating in Syria. Also, when the US Treasury Department invoked Section 311 on the CBS for money laundering in March 2006, the CBS had already announced it would switch all foreign currency transactions from dollars to euros. Many US and European banks have been scared away from dealing with transactions to Syria at all – even the country’s growing number of private sector banks that fall outside of sanctions.
Sanctions have also taken their toll on Syria’s aircraft industry. Syrian Arab Airways, the national carrier, has an aging fleet of Boeing jets that badly need replacing. The last additions to the fleet were nearly a decade ago. In 1996 the US granted a special waiver for Syrian Air to purchase used Boeing jets from Kuwait and two Airbus A320s two years later. The US dominates the aircraft industry and because American companies are banned from selling products with more than a 10 percent US manufactured content to Syria, last year Damascus announced it was discussing purchasing aircrafts from Russian manufacturers Ilyushin and Tupolev. No decisions have yet been reached, but observers say the purchase of these Russian planes would be a step back.
Overall, Syria businessmen and women are positive about the changing political fortunes between Damascus and Washington spurred on by Pelosi’s visit. “Syrians are not barred from the US, and Americans are not barred from Syria,” says Shallah. “We have the same goals in the region. Syrians and Americans always separated politics from economics.”
Whether relations between Syria and the US thaw and sanctions are lifted - although this is unlikely this year – Syria has proved adept at side stepping the economic problems US restrictions were meant to achieve. In this case, Washington may have over estimated the power of the sanction.
Reporting by Obaida Hamad