Workshop on socio-economic impact of trade liberalization on Lebanon
Arab NGO Network for Development | Friday, 20th of April 2007
Workshop on Socio-Economic Impact of Trade Liberalization on Lebanon
BACKGROUND Brief:
Lebanon is considered one of the more liberalized economies in the Arab region; trade liberalization is considered one of the key elements in the government’s economic strategy. Along with a privatization program and modernization and rationalization of the legislative and regulatory framework, the strategy for trade liberalization and openness in the economy was one of the major pillars of the governmental reform agenda and economic strategy in the post-civil war period, which ended in 1990. The economic reform policy targeted integrating Lebanon in the global economy and attracting foreign investments to achieve economic growth.
This policy has been manifested in the signing of various free trade agreements with major trading partners, namely the European Union (EU), the EFTA States (Switzerland, Lichtenstein, Norway, and Iceland) which enters into force in January 2007, and the Gulf Cooperation Countries (GCC). Additionally, Lebanon took part in the ratification of the Greater Arab Free Trade Area (GAFTA) which was achieved in January 2005. Currently, Lebanon is actively negotiating its accession into the World Trade Organization (WTO) and is expecting to become a full member by the end of 2007. Moreover, Lebanon has been developing its trade relations with the US, whereby it adopted the Trade and Investment Framework Agreement (TIFA) during January 2007.
On the 1st of April 2006, the EU-Lebanon Association Agreement entered into force. The transition period granted to the Lebanese government for 12 years to move to free trade started in March 2003. Moreover, Lebanon presented its action-plan in the framework of the newly established European Neighborhood Policy (ENP) during the summer of 2005. The ENP marks a shift from multilateralism, under the Barcelona Process, to bilateralism in the EU’s relations with its neighbours. One of the key concepts of the ENP is differentiation. Each Action Plan will be developed separately, taking into account the particularities of each country and its relationship with the supranational body. It is yet unclear what procedures have been set in place for protecting local sectors and supporting and promoting its development and what new implications are there from this new policy.
Lebanon has been a participant of the GAFTA since its establishment in 1997. The agreement calls for the gradual reduction of tariff and non-tariff trade barriers, the set-up of a body for dispute settlement, and an Agricultural Calendar between signatory Arab countries. The Agricultural Calendar is a roadmap that lists ten agricultural products per country that can enter a country’s borders freely for a period of up to seven months each. The government failed to get an exemption of its agricultural sector from the agreement. Lebanese farmers fear that opening up of Lebanon’s highly protected market to agricultural products will be the deathblow to the country’s struggling farming sector, especially that this sector have been already weakened by civil war and government inattention. Farmers make up more than 40 percent of the population in several of Lebanon’s regions and around 30 percent of the Lebanese population depends on agriculture wither directly or indirectly. Yet, the government only devotes less than 4 percent of its annual budget to agriculture; this budget is currently undergoing additional cuts.
Lebanon signed the Trade and Investment Framework Agreement (TIFA) with the United States on the 30th of November 2006. The TIFA is a general framework that encourages further liberalization of trade and investment between the two countries. Among the Arab countries, each of Yemen, United Arab Emirates, Saudi Arabia, Qatar, Kuwait, Bahrain, and Algeria already have a TIFA with the USA. TIFAs are seen as precursors or stepping stones to FTAs and/or bilateral investment agreements. Historically, TIFAs pave the way to full-fledged bilateral agreements on trade and investment at a later date. They establish a political and legal commitment between the United States and the signing country to enhance bilateral trade and investment through increased liberalization. TIFAs normally involve the setting up of a joint council to plan, monitor, and review action. (bilaterals.org) In this context, it is important to start an open public dialogue on what a bilateral free trade agreement could mean to Lebanon; the challenges and future implications on policy making that it imposes; and if it would serve any of the needs of various Lebanese stakeholders and sectors.
Moreover, Lebanon is currently in the process of negotiating its accession into the WTO. In April 1999, the working party for the accession of Lebanon to the WTO was created, thus granting it observer status three months after the application for accession was presented. Lebanon submitted the foreign trade memorandum in May 2001 and since then has had several working parties while moving towards eliminating all measures incompatible with the WTO rules and bringing its trade regime into full conformity with the WTO.
Lebanon has been amending several of its laws to conform to WTO regulations as well as ratifying new laws that would set the standards for practices relating to trade, which would also conform to WTO regulations (these include customs law, law on international trade and licensing, law to regulate the issuance of standards and technical regulations for products, plant and animal quarantine laws, in addition to “TRIPS Plus” laws and conventions).
However, concern is mounting regarding what came to be known as WTO plus and WTO minus measures, through which newly acceding countries are loosing a lot of the flexibilities that old WTO members had. Example of WTO plus measures faced by acceding countries include the binding of all tariffs, lowering tariffs on agriculture, extra commitments on trade related investment measures, additional protection in trade related intellectual property rights, and more commitments on services. WTO minus measures include erosion of special and differential (S&D) treatment and transition periods, as well as discrimination measures used through the antidumping clause. Jordan and Oman, which had late accessions in 2001 and 2003, both had to give concessions beyond the WTO rules. Today, a country is asked to offer national treatment to firms even if they are not based in that country, which goes beyond the original national-treatment measures within the multilateral system. It is of high concern that Lebanon will end up with a very tight deal in joining the WTO, especially that it is starting negotiations from a very weak position where tariffs rates are already very low and the services sector relatively open but still very weak. (A survey of Association des Banque du Liban (1999) indicated that the main services sectors such as banks, insurance companies, law and engineering are not ready and will not be ready in the near future to compete in non-Arab markets)
Is the Lebanese Economy ready?
Everyone agrees that the Lebanese economy have been hardly hit by the two years of instability since the assassination of Prime Minister Rafic Hariri on 14th of February 2005, followed by the Israeli war waged on Lebanon in July 2006. The national institutions are not performing well and efficiently and the burden on the government is very high. Accordingly, it is important to consider the level to which Lebanon is ready to negotiate and implement the various agreements, how much Lebanon is clear on the costs and benefits of the agreements it is negotiating, and the restrictions of policy space that is imposed through these agreements.
With the liberalization of trade and the removal of trade barriers, the productive sectors would be exposed to foreign competition like never before. This means that they either evolve to effectively compete or disappear. Some analysts believe that Lebanon’s competitive edge lie in high value-added products, since labour and infrastructure costs are high compared to other emerging countries.
In agriculture, this would mean specializing in medicinal plants, exotic fruits and distinctive food stuffs such as olive oil. Yet, the agricultural sector in Lebanon suffers from high labour costs and from the state of the infrastructure (transport, irrigation) which raises costs even higher. These factors make trade liberalization a threat on the sector, rather than an opportunity, especially when facing lower cost products from Arab countries and heavily subsidized exports from the EU and the US. Moreover, the shift away from traditional agricultural practices towards value-added production remains highly complicated given it is very much a political issue in Lebanon today.
In industry, the transformation industries already present in Lebanon would have to raise their standards to acquire a niche in the international market. Lebanon could also benefit from investing in technological industries.
The private sector has traditionally been a major partner in the development of the country, also with a dominance of micro and small enterprises (MSE) that constitute the bulk of the private sector activity. The role of MSEs in the economy of Lebanon and the challenges they face in light of the changing environment with trade liberalization and globalization processes should be addressed. Most of these enterprises are concentrated in the services, industry, and agricultural sectors, followed by the leisure and construction sectors. The services sector encompasses the highest percentage of workers.
Thus, the MSE sector has the potential to provide substantive support to the development of the country in the medium and long terms. This is especially true as a large proportion of newly generated jobs are in the informal sector. Yet, this sector is still characterized by low productivity, poor working conditions, and high vulnerability to shocks (Hamdan, Kamal- Small and Micro Enterprises in Lebanon- ERF paper).
Accordingly, any negative implication on the sector due to uncalculated risks from trade and investment liberalization policies will have serious impacts on the levels of employment in the country. Thus there is a necessity to address the needs for providing and supporting an enabling policy environment for MSEs and the establishment of purposeful enterprise development strategies, guided by an overall vision for national development.
In this context, trade policy should take place within the framework of an overall development strategy that is not purely economic in nature, but one which considers social, environmental, health and cultural factors as well. Various stakeholders in Lebanon, including the private sector and civil society organizations, should have an active role in advising the policy-making process on trade and investment.
Objectives of the meeting:
– Addressing the major implications of Lebanon’s trade liberalization policies on various national productive sectors
– Shedding light on the priorities of major stakeholders regarding trade policy in Lebanon; including the private sector as well as civil society
– Presenting an open space for dialogue on the trade liberalization policies between private sector, civil society, and government
