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U.S. Department of State

Diplomacy in Action

2011 Investment Climate Statement - Syria


2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011
Report
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Openness to Foreign Investment

Designated by the U.S. government as a state sponsor of terrorism, Syria has been subject to the U.S. Department of Commerce’s Export Administration Regulations (EAR) for over thirty years. All dual-use goods and advanced technology items have been controlled and/or restricted from the Syrian market since 1979. These restrictions were enhanced through the implementation of economic sanctions under the Syria Accountability Act (SAA) of May 11, 2004. As currently implemented, the SAA does not ban U.S. investments. However, the current ban on the export of almost all products of the United States has made investments by U.S. businesses more difficult to carry out, and the President has the authority to extend implementation of the SAA to ban all U.S. business and investment activity in Syria at any time.

SAA sanctions are in addition to restrictions under the Grassley Amendment that prevents U.S. corporations from taking advantage of foreign tax credits for taxes paid in Syria. Furthermore, the President has designated more sanctions under the International Emergency Economic Powers Act (IEEPA) and Section 311 of the USAPATRIOT Act regarding financial transactions with the Commercial Bank of Syria. As a result, the transfer of U.S. dollars to and from Syria has become more difficult, making investments that much more challenging to execute. Therefore, since the end of 2006, a number of U.S. corporations, notably in the oil and gas sector, made the decision to divest and cease their activities in Syria.

Syrian officials and ministers routinely stress publicly the need for economic reform in order to attract foreign direct investment and thus stimulate economic growth and increase employment. Announced liberalizations are often rescinded or contradicted by other government officials, however, sometimes at the expense of private companies that have made business decisions based on government commitments subsequently annulled. Although a bloated bureaucracy, rampant corruption, and the lack of a truly independent judiciary are still significant impediments to business, in 2010 the Syrian Arab Republic Government (SARG) did issue new laws in the fields of investment, tourism, shipping, arbitration, intellectual property rights (IPR), banking and finance, real estate, agriculture, transport, irrigation, industry, electricity, labor, and trade that continue its effort to reform the country’s economy. Continued political instability in Syria's neighboring countries, as well as the international financial crisis, has discouraged significant foreign investment.

Investment Law No. 10 (1991) and its amending Decree No. 7 (2000) were the SARG's initial attempts to stimulate foreign direct investment in Syria; unfortunately, the Higher Council for Investment's (HCI) lack of definitive criteria for adjudicating foreign applications left the process open to political pressures, lobbying, and corruption. This first attempt at reform suffered long delays and was seriously lacking in many areas. Consequently, due to poor implementation, Investment Law No. 10 fell short of its goal of making Syria a more attractive investment venue.

To address the shortcomings of Investment Law No. 10 and its amending Decree No. 7, the SARG announced Decrees Nos. 8 and 9 in January 2007, which resulted in a dramatic year-on-year increase in the number of HCI-approved projects. Decree 8 allows preexisting investment licenses (under Law 10 and Decree 7) to continue unchanged.

Decree No. 8 is designed to enable investors, whether Syrians, Arabs, or non-Arab foreigners, to own or lease the land required for their projects, and provides for free repatriation of profits, dividends and invested capital on condition that all tax liabilities have been met. If a foreign investor encounters obstacles in setting up a project, and decides to withdraw within six months of receiving a license, all capital invested up to that point may be freely repatriated. Foreign staff will be entitled to repatriate up to 50 percent of their net income and 100 percent of any end-of-service benefits. Additionally, Decree 8 exempts investors from paying customs duties on equipment imported to set up their projects, but they are liable to standard corporation taxes which fall under the jurisdiction of the 2006 Tax Law. However, investors are eligible for tax deductions if they choose to establish their projects in one of Syria’s industrial zones. Decree No. 8 offers additional tax deductions for projects that create a high number of new jobs, as well as for projects with many shareholders.

To encourage investments in the underdeveloped eastern region of the country, namely in al-Hasakeh, Dayr az-Zawr and al-Raqqa, the SARG passed a law in September 2009 exempting investment projects located in those regions from taxes and fees for a period of ten years, provided the projects were licensed before December 31, 2012.

To attract investments into regions other than Damascus and Aleppo, the Syrian Investment Agency (SIA) in August 2010 divided the country into four main development zones and established different minimum investment capital requirements for each region. The minimum investment capital for projects established in greater Damascus and Aleppo remained USD 1,000,000, the minimum investment capital for projects established in Homs, Hama, Tartous and Latakia was reduced from USD 1,000,000 to USD 600,000, the minimum investment capital for projects established in Dar’a, Sweida, Quneitra, and Idleb was reduced from USD 600,000 to USD 400,000, and the minimum capital requirement for projects established in the eastern region, namely Dayr az-Zawr, al-Hasakeh and al-Raqqa, was reduced from USD 600,000 to USD 200,000.

Most sectors are open for private investment under Investment Law 10, Decree 7, and Decree 8 except for cotton ginning, water bottling, and cigarette production. All investment laws and decrees cover projects in the fields of manufacturing, land and air transportation, water, sanitation, agriculture, solid waste, telecommunications, airports, electricity generation, health and services. Tourism and real estate investments are covered by separate legal and tax frameworks and governed by the Ministry of Tourism. Oil and gas projects and salt mining must be coordinated directly through the Ministry of Petroleum. The Ministry of Finance governs the establishment of private banks and insurance companies and the Ministries of Education and Higher Education govern the establishment of private schools and universities.

As a corollary to Decree 8, the SARG also passed Decree 9 of 2007 forming the Damascus-based Syrian Investment Agency (SIA). The Higher Council for Investment (HCI) meets twice per year to review general investment policies and has delegated operational decision-making to the SIA. The SIA, under the auspices of the Prime Minister's office, has overall responsibility for supervising national investment policies, developing and enhancing the investment environment in Syria, providing data and statistics to investors, approving projects, and annulling licenses for those projects not implemented within the required timeframe. To facilitate investment and overcome bureaucracy, the SIA opened branches in several major Syrian cities and plans to open additional branches to cover the whole country by the end of 2011.

In accordance with Article 16 of Decree 8, the SIA has formally stopped Law 10 and its amendments in May 2010. Expansions of projects established under Law 10 will be subject to Decree 8 of 2007.

Decree 9 also charged SIA with providing one-stop-shopping to potential investors in order to speed processing of investment applications and help reduce bureaucratic hurdles. The SIA officially inaugurated its One-Stop-Shop in early December 2008, offering an "Investment Map" of Syria produced with assistance from the United Nations Development Program (UNDP). The map is designed to provide detailed information pertaining to laws and regulations governing investment in Syria, as well as a list of established investment projects and continuing investment opportunities. The map was launched online and is available in thirteen languages including Arabic, English, French, Chinese, Japanese, Spanish, Turkish, German, Korean, Farsi, Russian, Portuguese, and Italian. Furthermore, SIA representatives have been appointed in every Syrian embassy abroad to showcase Syria to potential investors.

The SIA is supposed to meet at least bi-weekly to reduce the review process time to two weeks from application to decision. The SIA board members are appointed by the Prime Minister and include a Chairman, Director General, Deputy Director General, Deputy Ministers of Finance, Local Administration and Environment, Economy and Trade, Agriculture, Transport, Industry, Tourism, Social Affairs and Labor, Housing and Construction, and the State Planning Commission as well as a representative from each of the Federation of the Syrian Chambers of Industry, the Federation of the Syrian Chambers of Commerce, the Federation of the Syrian Chambers of Agriculture, and the Federation of the Syrian Chamber of Shipping, the SIA’s Director of Legal Affairs, the Director of the One-Stop-Shop, and SIA's Director of Marketing.

According to Decree 9, HCI members include the Prime Minister, Deputy Prime Minister for Economic Affairs, Ministers of Finance, Local Administration and Environment, Tourism, Agriculture, Social Affairs and Labor, Economy and Trade, Housing and Construction, Transport, and Industry, the Head of the State Planning Commission, as well as the Chairman of the SIA and its Director General.

Despite the government's recognition of the need to change Syria's investment climate, both foreign and local business leaders continue to cite three main obstacles to growth in investment. First, the private banking sector, while growing, remains immature and would struggle to finance simultaneous multiple large-scale projects. Second, the inconsistent application of the rule of law makes contractual obligations inherently uncertain and potentially impossible to enforce. Finally, the lack of regulatory transparency and specificity, particularly when dealing with government-affiliated entities, leads to a climate of bureaucracy, confusion, intimidation, and corruption.

Foreign investors are often hampered by a lack of awareness throughout the tendering process and complain that winning bids are often based more on contacts and relationships than the actual merits of a proposal. Certain ministers in the government have acknowledged this problem within the last few years and have tried with relatively little success to address it. Similarly, in the judicial system, judgments are subject to external pressures that make it difficult for businesses to ensure that contracts are binding.

Government officials stated that no privatization of state enterprises would take place during the tenth Five-Year Plan, which ran through 2010, or the coming eleventh Five-Year Plan, which runs from January 2011 through December 2015. However, the SARG has approved private sector management of state enterprises in an effort to improve efficiency and productivity. In 2007 the SARG awarded a contract to a Philippines-based company to develop and run the containerized cargo terminal in the Port of Tartous. Similarly, in 2008, the SARG awarded a contract to a French-Syrian consortium to operate the containerized cargo terminal at the Port of Latakia. The tendering process was typically opaque and the winning French company may have benefited from an improving political relationship between Syria and France as well as from having an influential Syrian partner.

Despite recent legislative attempts at reform, the economy remains largely centrally planned, and uncompetitive public sector companies continue to drain government finances. While government officials publicly reject the notion of privatizing state enterprises on ideological grounds, such positions likely reflect their unstated pragmatic fears of a dramatic increase in unemployment.

However, realizing the need for foreign investment in large infrastructure projects, the Deputy Prime Minister for Economic Affairs, Abdullah al-Dardari, in cooperation with The British Syrian Society, organized a two-day conference in late 2009 to promote Public-Private Partnership (PPP). The concerned authorities prepared a draft law to pave the way for such projects, especially in the electricity, transport and petroleum and gas sectors. The PPP law, originally expected in early 2010, is now expected to be issued in early 2011.

In a bid to meet growing demand for electricity, the SARG passed Law 32 in November 2010 allowing private sector investment in the generation and distribution of electricity in both traditional and renewable energy fields. Public-private partnerships are also permitted under Law 32. Accordingly, the Ministry of Electricity issued a tender for Syria’s first Independent Power Plant (IPP) plant that attracted 18 international companies. The winner is expected to be announced in early 2011. In addition, Marafeq, a Syrian-Kuwaiti consortium, signed an accord in May 2010 with Denmark’s Vestas to establish a 100 MW wind farm in Syria.

In October 2010, the President signed Decree 81 establishing the “Syria for Investment” holding company, with initial funding of USD 110 million. The holding company was to develop investment projects and establish joint partnerships between Syrian and foreign companies. Decree 81 permits “Syria for Investment” to establish offices inside and outside Syria.

In addition to the challenges mentioned above, business contacts highlighted the following specific difficulties of doing business in Syria:

- The SARG requires import licenses for every item imported, except for raw materials and items imported from Turkey, Iran and the GAFTA (Greater Arab Free Trade Agreement) countries. Likewise, foreign companies must acquire permits for each item of equipment intended for temporary use and subsequent re-export (i.e. drilling rigs) to avoid paying import duties. The validity of these permits can be difficult to extend if the company’s service contract expires and the company wishes to keep the equipment in the country for stand-by usage. Delays in the re-export of equipment after a temporary permit expires have resulted in heavy fines.

- Syrian corporate, income, and wage tax liabilities for foreign contractors are unclear and continue to complicate the operations of many companies.

- The awarding of contracts is often delayed by the lobbying efforts of influential local business interests and groups. Even in cases devoid of external influence, bureaucrats fear accusations of corruption and abuse, and therefore often require additional reviews not mandated by law of investment proposals and these can cause inordinate delays. The SARG has reiterated its commitment to increasing the degree of transparency in the process, but foreign and Syrian firms continue to cite problems.

- Public sector employees may demand bribes for required routine services. The average public sector employee earns wages estimated at USD 230 per month. Public sector wages have not kept up with rising inflation and many public employees justify petty corruption by a need to make ends meet. In addition, labor laws are complex and significantly limit an employer's flexibility to hire and fire employees.

In April 2010, the SARG enacted Law 17, a new, modern, and business-friendly labor law that eases constraints on employers but also provides clearer guidelines on the rights of employees. Law 17 provides guidelines and rules on labor relations for the private, public-private and cooperative sectors. Law 17 gives the right for employers to fire their employees without lengthy justification and with limited compensation.

- Syrian property law – at least since the Ba’athists took power in the early 1960s - has been tenant-friendly, which made it difficult for landlords to lease residential properties, negotiate rent rates, and evict problem tenants. In addition, at the end of 2004, the government implemented an 18 percent tax on any real estate leased for use by foreign persons or entities. In 2005, however, the SARG began implementing a residential rent law passed in 2000 that affords landlords greater rights and protections.

In 2006, the SARG issued a law permitting commercial real estate owners to lease their properties according to contract terms. The law allows real estate owners to reclaim their properties after the contract’s term of validity has expired. In addition, foreign investors in real estate and the tourism sector have been able to take advantage of decisions of the Higher Council of Tourism that provide foreign landlords with exemptions from labor and tenant laws.

In June 2008, the SARG issued Law 11 regulating property ownership by non-Syrians. The law's objective is to facilitate foreign ownership of residential property as a means of stimulating greater overall foreign investment. However, restrictions made it a difficult process as non-Syrians must obtain government approval before buying property. In addition, Law 11 limits what types of properties can be bought or resold by non-Syrians, and if a foreign owner dies the heirs must sell the property within one year. Law 15 of July 2008 established a Real Estate Development and Investment Authority specifically empowered to encourage investment in the real estate sector. Despite these steps, foreign individuals and companies are only allowed to rent offices and residences for a non-renewable maximum period of 15 years.

In June 2010, the SARG issued Decree 26 organizing land-use planning, protecting environmentally-sensitive and cultural areas, and putting a limit on informal settlements around the country’s major cities.

In late December 2010, the SARG approved a draft law changing some articles of Law 11 that removed many of the restrictions imposed by Law 11. The amended law aims to boosting international interest in the Syrian property market.

In September 2008, the SARG passed Decree 9 in an attempt to curb illegal housing. The Decree applied to any new construction of illegal housing (but not existing housing) and listed a set of penalties that included prison terms from three months to ten years as well as fines of USD 4,000 to USD 87,000.

In December 2008, the SARG passed Law No. 33 authorizing the granting of title/deeds to owners of existing illegal housing units. The registration process took place at special councils established by the law that were entrusted with the task of confirming the property deeds. Beneficiaries had to pay 10 percent of the unit’s estimated value to the Treasury as property tax.

To better regulate the real estate sector, the SARG passed Law No. 39 in late December 2009 establishing a Mortgage Finance Supervisory Authority (MFSA). Starting in 2010, the MFSA was responsible for issuing all mortgage finance related legislations and regulations including standard contracts, licensing instructions to mortgage companies and funds, as well as the set-up of a national mortgage entity. Law 39 imposes penalties on mortgage firms that violate the existing regulations.

In October 2010, the SARG passed Decree 82 that established a number of new rules on the real estate sectors in a bid to increase the supply of real estate properties in Syria’s main cities by forcing land owners to build.

In April 2010, the Prime Minister issued Decision 2139 requiring real estate brokerage companies to formalize their operations within a period of six months. The decision, effective October 29, 2010, aims to regulate the management of real estate brokerage companies.

The SARG passed Law 88 in October 2010 permitting the establishment of financial leasing companies in Syria. The law covers the establishment of both conventional leasing companies at a minimum capital of USD 10.5 million and Shari'a-compliant firms, known as Ijara, at a minimum capital of USD 16 million. Law 88 permits foreign leasing companies to set up wholly owned branches in Syria after obtaining a license from the Central Bank of Syria but does not allow non-Syrians to own more than 60 percent of the equity. Under the law, Leasing companies work under the supervision of the Central Bank of Syria and real estate leasing companies are supervised by the Mortgage Finance Supervisory Authority which was established at the end of 2009.

Syria has no mortgage law. Many private banks, however, do offer housing loans but mortgage lending is still not a major income stream for banks.

Enforcement of the Arab League Boycott of Israel (dating from 1967) may lead to difficulties in the importation of needed products or in registering trademarks because the government requires additional paperwork certifying compliance with the boycott. U.S. law prohibits companies from providing this paperwork. Anecdotal reports indicate the SARG has occasionally waived its requirement for boycott compliance certification in order to facilitate business with large U.S. companies. As of September 2009, the Syrian Trademark Office is no longer asking foreign companies to fill out an application declaring their compliance with the Arab League Boycott of Israel.

Index/Ranking

2010

Transparency International Corruption Index

127

Heritage Economic Freedom Index

145

World Bank Doing Business Index

144

Conversion and Transfer Policies

Under the guidelines of the USAPATRIOT Act, the President designated the Commercial Bank of Syria (CBS) as an institution of primary money-laundering concern. Consequently, the Secretary of the Treasury issued a decision on March 9, 2006 banning correspondent relations between the Commercial Bank of Syria and U.S. financial institutions. Although the U.S. Treasury sanction only targets CBS, many U.S. and European banks subsequently cut off correspondent banking relationships with all Syria-based financial institutions.

In March 2001, the SARG passed Law No. 28, which authorized the establishment of private and joint-venture banks. The law made general provisions for the operation of private banks and set a minimum Syrian ownership requirement of 51 percent. At the same time, a banking secrecy law was also issued that authorizes numbered accounts and restricts asset seizures. To date, eleven private traditional banks are operating in the country and are generally able to carry out the same banking operations that are permissible to the Commercial Bank of Syria. In May 2005, a Presidential decree (Decree 35) allowed the establishment of Islamic banks in the country with a minimum of 51 percent Syrian ownership. At present, three Islamic banks are operating in the country.

In May 2009, the SARG allowed foreign banks to open representative office in Syria. However, no banking or profit-generating activities are allowed as the scope of activities of these offices is limited to providing advisory services as well as representing the interests of the parent banks in Syria.

In early January 2010, the SARG passed Law No. 3 amending some articles of Law No. 28 of 2001 and Decree 35 of 2005. Law 3 stipulates an increase in the capital of private banks from USD 60 million to USD 200 million and of Islamic banks from USD 100 million to USD 300 million. Law 3 also increased allowable foreign ownership of private banks from 49 percent to 60 percent. Law 3 gives licensed banks operating in Syria a period of three years to increase their capital to the required minimum.

In July 2010, the President passed Legislative Decree 56 allowing investment banks with a minimum capital requirement of USD 425 million to enter the market.

Under current Syrian laws, investors are permitted to open foreign exchange accounts with CBS, the Real Estate Bank and the eleven existing private banks, and may retain 100 percent of their export revenues. Decree 8 allows the repatriation only through Syrian banks of foreign currency profits generated from the import of capital into the country.

Newly opened private banks can provide the same level of banking services as CBS and Real Estate Bank, including opening saving/checking accounts and issuing Letters of Credit (L/Cs), provided the money originates from outside the country. In some limited instances, private banks are allowed to issue U.S. dollar-denominated L/Cs backed by Syrian pounds.

In 2006, the government allowed private investors to have access to foreign currency through CBS to finance the import of raw materials. In 2007, the SARG authorized foreign investors to receive loans and other credit instruments from foreign banks, and to repay them as well as any accrued interest from the proceeds of their projects using local banks. In February 2008, the SARG permitted investors to receive loans in foreign currencies from local private banks provided that the loans were used to finance capital investment, particularly the import of machinery and production equipment. Debtors are free to repay their loans from their foreign currency accounts in Syria or abroad or by purchasing foreign currency from the lending bank.

To boost investment in the tourism sector, the SARG allowed local banks to provide financing to hospitality projects developed on the Build-Operate-Transfer (BOT) model. Local banks can now fund up to 50 percent of the cost of the project and repayment will begin after the project enters into operation.

Aside from the loosening of controls under the previous Investment Law No. 10, Decree No. 7, and Decree 8, strict foreign exchange restrictions were enforced until mid-2003. Even though recent legal changes permit the possession of foreign currency, overseas borrowing and the export of capital still require the approval of the Central Bank. These restrictions, however, are often disregarded. Foreign companies operating under the provisions of other laws may transfer capital inside Syria only in accordance with special agreements, usually in the form of a Presidential decree. The SARG passed Law 24 in April 2006 which permits the operation of private money exchange companies, provided such operations are licensed. To date, there are 13 currency exchange companies and 28 currency exchange bureaus operating across the country. Four additional companies and 18 bureaus have obtained licenses to operate, but have not started yet. Many more, however, continue to operate illegally on Syria's vast informal market.

Outward capital and profit transfers are permitted to companies licensed under Decree 8. Otherwise, they are prohibited unless approved by the Prime Minister or arranged separately, as in the case of production-sharing agreements with oil exploration companies. Decree 8 allows free repatriation of profits, dividends and invested capital, on condition that all tax liabilities have been met. In addition, if a foreign investor encounters obstacles in setting up a project, and decides to withdraw within six months of receiving a license, all capital invested up to that point can be freely repatriated. Foreign staff will be entitled to repatriate up to 50 percent of their net salaries, and 100 percent of any end-of-service benefits.

In a bid to liberalize the Syrian Pound and to loosen restrictions on hard currency outflows, in 2008 the SARG permitted Syrians travelling abroad to purchase the equivalent of USD 10,000 for use during their trips. In July 2009, the SARG permitted local banks to open accounts for clients to use for their international debit cards. These accounts may hold a maximum of USD 10,000 or its equivalent in Syrian Pounds or any other foreign currency. The holders of these accounts will be able to withdraw up to USD 10,000 per month while travelling abroad.

The SARG issued two decisions in November 2010 that ease restrictions on hard currency dealings. The first decision allowed local banks and foreign exchange companies to sell the equivalent of USD 10,000 per month to customers without justification. The second decision permitted banks to sell investors the hard currency they need to repatriate their profits.

In the case of foreign oil companies, "cost recovery" of exploration and development expenditure is governed by formulas specifically negotiated in the applicable production sharing agreement. Foreign oil partners in production-sharing joint ventures with the state oil company report delays in the recognition of "cost recovery" claims, although payments are eventually approved.

In February 2007, the President issued Decree 15 permitting the establishment of financial, banking and social institutions that provide micro-financing and insurance to small investment projects. These institutions target clients in the suburbs and rural areas, and are expected to provide loans as small as $100. Anyone with the required minimum capital of $5 million may open such an institution, though foreigners must first obtain approval from the Prime Minister.

The First MicroFinance Institution (FMFI), as the bank is named, started operations in November 2008. FMFI currently operates branches in most Syrian cities and plans to expand its network to 23 branches throughout the country. Bab Rizq Jameel, a Saudi-based microfinance institution, was licensed in March 2010 as Syria’s second micro-finance institution. A special Presidential Decree issued in February 2010 established the USD seven million Ibdaa Small and Micro Finance Bank, Syria’s first bank for the poor. Ibdaa Small and Micro Finance Bank, headquartered in Damascus, started operations in August 2010 and plans to operate 40 branches throughout the country within the next three years.

Expropriation and Compensation

The main period of the expropriation of private property occurred from 1964 to 1966, after the Ba’ath Party seized power on March 8, 1963. During this period, as well as in the late 1950s after Syria’s brief union with Egypt, the government nationalized many private farms and factories without paying any compensation. To the best of the Embassy’s knowledge, no one has been compensated for the material losses that occurred as a result of nationalization, although we have heard anecdotal accounts that there were some offers of derisory sums for compensation that landowners rejected out of hand. Between 1967 and 1986 there were fewer cases of expropriation because the government had already seized the most valuable properties. The Embassy does not have any knowledge of private property nationalized after 1986.

Investment laws enacted in 1985-86 for specific sectors, i.e. tourism and agriculture, included clauses that protected against expropriation and nationalization. Decree 7 of 2000 explicitly stated that projects licensed under Investment Law No. 10 could not be nationalized or expropriated. Likewise, Decree 8 of 2007 explicitly states that projects could not be nationalized or expropriated. Decree 8 opened many sectors to private investment including petroleum refining, electricity generation, cement production, sugar refining, infrastructure, air transportation, environment, and services. Projects in the fields of oil and gas production, private schools and universities, banking and insurance, and tourism and real estate continue to be regulated under separate, specific laws.

In late 2008, the SARG authorized the private sector to invest in salt extraction and mining projects subject to licensing by the Ministry of Petroleum and Mineral Resources. In late 2009, the SARG issued legislation governing the private extraction and investment of quarries. The law allows companies which obtain the required licenses to invest in a quarry for a period of three years, extendable. The law also permits the formation of partnerships between the private and the public sectors to operate in areas that were previously restricted to the public sector.

Despite these protections, the rule of law is weak in Syria and the SARG does occasionally seize the property and business interests of political opponents and officials who have fallen out of favor. In early 2006, alleging corrupt practices, the SARG confiscated all residential, commercial and business assets of former Vice President Abdul Halim Khaddam, his wife, and all other members of his family, including his children, their spouses and their children. In early 2008, the Ministry of Finance seized the assets of the board members of al-Nama' Company due to corruption and for providing misleading information. In April 2008, the Minister of Finance issued a decision seizing all properties owned by Noura Sharabati, Lebanese MP Walid Junblat’s wife.

Dispute Settlement

On June 8, 2005, Syria signed the Washington International Convention on Investment Dispute Settlement. In addition, as a party to the New York Convention on Arbitration, the SARG accepts binding international arbitration of disputes between foreign investors and the state in cases where the investment agreement or contract includes such a clause. Otherwise, local courts have jurisdiction. Arbitration cases involving the public sector must be tried by the State Council, which attempts to ensure the integrity of the process; however, they have no authority to enforce their decisions.

In March 2008, the SARG issued the country’s first arbitration law. Law 4 authorized the establishment of an official arbitration center in Syria, which was registered with the Ministry of Justice and included a registry of accredited arbitrators. According to the law, public sector entities were permitted to resolve disputes through arbitration. In December 2009, Syria launched its first economic arbitration center the “Hammurabi Arbitration and Reconciliation Center,” for the protection of local, Arab and foreign investments in the country. According to official sources, there are at present 20 arbitration centers operating in the country.

A number of U.S. suppliers and companies have asserted claims against state enterprises for non-payment of goods and services delivered. The government has made an effort since 1996 to settle some of these cases on a case-by-case basis and one American supplier finally received payment in 2002 for goods delivered in 1982. Long delays are common in settling disputes through negotiation and arbitration. In the past several years, fewer investment disputes have been filed or brought to the Embassy’s attention as U.S. business activity in Syria has decreased steadily over that period.

While property and contractual rights are protected on paper, the government regularly interferes in the judicial process. Judgments by foreign courts are generally accepted only if the verdict favors the Syrian government. Although an official bankruptcy law exists, it is not applied fairly because a creditor's ability to salvage any investment is contingent on the amount of influence he can exert and not on the letter of the law. Monetary judgments, if granted, are made in local currency and cannot be converted to hard currency.

Performance Requirements and Incentives

Investment Law No. 10 and its amendment, Decree No. 7, did not stipulate formal performance requirements as a condition for establishing, maintaining, or expanding an investment or for determining eligibility for tax and other incentives. Decree No. 8, however, raised the minimum investment capital from USD 200,000 to USD 1,000,000 if the investment projects are located in greater Damascus, Aleppo, Homs, Latakia, Tartous or Hama and to USD 600,000 if the projects are located in the rural areas of Dayr az-Zawr, al-Hasakeh, al-Raqqa, Dar'a, Quneitra, Idleb, or Sweida. Furthermore, Decree 8 offered tax deductions if investors chose to locate their projects in one of Syria’s industrial zones, for high job-creation projects, and for share-holding projects.

To attract investments into regions other than Damascus and Aleppo, in August 2010 the SIA divided the country into four main development zones and established different minimum investment capital requirements for each region. The minimum investment capital for projects established in greater Damascus and Aleppo remained USD 1,000,000, the minimum investment capital for projects established in Homs, Hama, Tartous and Latakia was reduced from USD 1,000,000 to USD 600,000, the minimum investment capital for projects established in Dar’a, Sweida, Quneitra, and Idleb was reduced from USD 600,000 to USD 400,000, and the minimum capital requirement for projects established in the eastern region, namely Dayr az-Zawr, al-Hasakeh and al-Raqqa, was reduced from USD 600,000 to USD 200,000.

To encourage investments in the eastern region of the country, namely in al-Hasakeh, Dayr az-Zawr, and al-Raqqa the SARG passed a law in September 2009 exempting investment projects located in those regions from taxes and fees for a period of ten years, provided the projects were licensed before December 31, 2012. Projects licensed after this date would not benefit from the tax exemption.

All three investment decrees do mandate that investors must begin implementing projects within a period of three years or risk losing their investment license. According to official sources, 40 percent of all licensed investment projects are never completed due to financing and other technical problems. More than 241 licenses were revoked in 2010 for projects that were either not executed during the required timeframe or because the investors had requested revocation. Since 2004, the HCI began to review annually the status of licenses granted and automatically annul those which were not implemented. The new SIA has assumed this license review function.

While investors are not required to hire a fixed number of local employees, the SARG looks more favorably on proposals that include a large element of local labor, that use local raw materials, and that are designed for undeveloped rural areas. As a result, informal guidelines on labor and materials are usually negotiated on a case-by-case basis during the approval and licensing process. Syria’s labor laws are generally considered an impediment to foreign investment, although some recent investments in the tourism sector were exempted from the SARG Labor Law.

In April 2010, the SARG enacted Law 17, a new, modern and business-friendly labor law that eases constraints on employers but also provides clearer guidelines on the rights of employees. Law 17 provides guidelines and rules on labor relations for the private, public-private and cooperative sectors. Law 17 gives the right for employers to fire their employees without any justification and with a limited compensation.

Foreign investors are not required to partner with a Syrian citizen. However, successful foreign investments usually involve a well-connected local partner who can overcome bureaucratic hurdles, frequently by bribing the appropriate official.

The SARG requires a bid bond for all public tenders, usually five percent of the value of the tender. If selected, a bidder must put up a performance bond, which is usually ten percent of the value of the contract. Even though these monies are held in CBS on behalf of the foreign investor, most companies now incorporate the amounts into their overall bid because the monies are rarely, if ever, returned after completion of the contract. In addition to these bonds, the government may also require disclosure of proprietary information before approving a project.

While the Ministry of Economy and Trade has the authority to set prices and/or profit margins on products imported for the local market, it has not usually done so for products brought in through foreign investments. Similar types of incentives, outlined in various pieces of legislation, include increased flexibility on hard currency, reduced income taxes for share-holding companies, and incentives to promote investments in underdeveloped regions and sectors.

Right to Private Ownership and Establishment

Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity after completing sometimes extensive licensing requirements. Moreover, private entities have the right to freely acquire and dispose of interests in business enterprises. All private investment projects must be licensed. Over the past few years, the SARG has opened most sectors formerly reserved for government monopolies to private-sector investment. Key sectors opened since 1994 include flour milling, sugar refining, cotton ginning and spinning (if the project is completely integrated to include manufacturing and finishing), banking, insurance, electricity generation, petroleum refining, aviation, cement production, airports and roads construction, telecommunications and salt and phosphate mining. Nevertheless, state enterprises have a comparative advantage in winning bids due to their connections in the HCI and the new SIA. Several projects that have been approved have not reached implementation because investors have failed to produce the necessary resources and/or found the final conditions of the project unsuitable. The HCI and now the SIA revoke licenses if the project is not implemented within three years of receiving a license.

Protection of Property Rights

Violations of intellectual property rights (IPR) are rampant in Syria. Patent, trademark, and copyright laws are all inadequate. As a result, Syria provides minimal protection for local producers and almost no protection for foreign producers. The Syrian judicial system is notoriously corrupt and has no experience in prosecuting IPR violations.

In July 2002, Syria officially joined the 1967 Stockholm Convention on Intellectual Property Rights. Subsequently, the authorities began to enforce the protection of IPR through raids and confiscations of pirated goods from a number of local vendors and producers. However, direct government action to punish IPR violators ceased by the end of 2003 and the senior official at the Ministry of Culture who was spearheading this effort resigned. In May 2004, Syria became a member of the World Intellectual Property Organization (WIPO). Syria is a party to eleven of 24 conventions within WIPO including Berne, Paris, Hague, Madrid, Nairobi, Nice, PCT and Rome. In March 2007, the SARG passed Law No. 8 regulating trademarks, geographical indications, industrial models and designs, unfair competition and IPR protection. In a bid to encourage investment, the Ministry of Economy established a verification system in 2007, whereby the IPR Department assumed the responsibility for identifying any violation and was entitled to terminate any “suspicious” trademark registration within 30 days, even if a court case was pending.

Syria officially joined the Geneva Act of the Hague Agreement pertaining to the protection of international designs in May of 2008.

In August 2009, the SARG passed Decree 47 amending two Articles of the 2007 Trademarks Law No. 8. The new decree allows owners of “well-known and distinctive” trademarks in Syria, even if they are not registered, to submit a request to the Ministry of Economy and Trade to prevent others from registering or using an identical or similar mark. The Ministry of Economy will form an ad-hoc committee to look into such requests.

Furthermore, as of September 2009, the Syrian Trademark Office is no longer asking foreign companies to fill out an application declaring their compliance with the Arab League Boycott of Israel. Previously, all applications were referred to the Boycott Office for clearance.

In late 2005, the Syrian Association for Intellectual Property (SIPA), an NGO, was established with a USD 50,000 grant from the UNDP. In November 2006, the NGO became an observer in the WIPO. SIPA's main objectives include increasing public awareness about IPR issues and supporting the execution of IPR laws and regulations. Among their activities are a quarterly newsletter; issuance of a geographical indicator list to protect national industries (e.g. Ifrin oils, Aleppo soap); evaluating protection rights in public and private companies (with Ministry of Industry assistance); issuing certificates regarding compliance with non-pirating/counterfeiting laws; and maintaining their website at www.sipa-sy.org.

The Syrian regulatory system is not sufficient to provide the necessary legal framework to actively protect and enforce IPR. The Ministry of Economy and Trade traditionally processes the registration of patents and trademarks, while the Ministry of Culture is responsible for copyrights. Books in English are frequently translated into Arabic and published without any royalties paid to the copyright holder. In addition, music, software, and video CDs, CD-ROMs and DVDs are copied and sold ubiquitously. Film industry contacts estimate that the home video market alone is 80 percent pirated, although the amount of revenue lost to U.S. IPR holders is unknown and very difficult to measure.

To enhance Syria’s IPR efforts, WIPO agreed in late 2009 to modernize the Patent Office in Syria and proposed setting up a technology innovation center as well as entrusting it to translate WIPO documents and publications into Arabic. In addition, WIPO gave Syria permission to make 2000 copies of a CD for small and medium-sized businesses of a guideline program on intellectual property issues offered by the Patent Office in North Korea. Syria earlier completed the translation of the WIPO book entitled “Learn from the Past, Create the Future.”

While IPR protection is almost non-existent, the protection of real property rights is much more developed, and therefore legally and socially accepted. Since bank financing and mortgage lending does not exist, real estate is bought through cash payments in full or through installments. Property ownership is not transferred until it is paid in full.

Transparency of The Regulatory System

The Syrian regulatory system is not transparent on any level. As described by local private business leaders, corruption is endemic at nearly all levels of government. Decisions are made without consulting consumers, producers, or suppliers. Government regulations do not promote competition, either among private firms or between private firms and state enterprises.

In April 2008, the SARG issued Law 7, the first Syrian legislation addressing Competition and Anti-Trust. The law established a Competition Authority, managed by a Competition Council, empowered to ban or permit mergers and to impose fines. Law 7 states that prices will be defined by free competition, cartels are prohibited, and economic entities will be prevented from abusing their dominant positions in the market. The Competition Council has been ineffective in its enforcement of Law 7, as enforcement is financially detrimental to many senior regime officials and prominent business elites.

To foster competition, the government has informed public sector enterprises that they will no longer be permitted to operate as a monopoly, particularly if private capital, foreign or domestic, can be obtained to finance projects. However, there are no regulatory processes managed by non-governmental organizations or private-sector institutions to provide a system of checks and balances on government directives. As a result, legal, regulatory, and accounting systems are incompatible with international standards. Local businesses do not comply with what are perceived to be arbitrary regulations. They also avoid paying taxes because they consider payment as a means of official confiscation of their profits.

In May 2010, the SARG established a National Competitiveness Observatory to monitor the competitiveness of Syrian business and industry.

Efficient Capital Markets and Portfolio Investment

Syrian government policy reforms to facilitate the free flow of financial resources remain extremely limited. The lack of a fully convertible currency and the still-inadequate capital market continue to impede both domestic and foreign investment. However, to attract investment and to ease access to credit, the SARG issued Decree 4 in 2007 allowing investors to receive loans and other credit instruments from foreign banks, and to repay the loans and any accrued interests through local banks using project proceeds. Furthermore, in February 2008, the SARG allowed investors to receive loans in foreign currencies from local private banks to finance capital investment and, in particular, the import of machinery and production needs. Debtors are free to repay their loans from their foreign currency accounts in Syria or abroad or through the purchasing of foreign currency from the lending bank.

In October 2006, President Asad issued Decree 55 formally establishing the Damascus Stock Exchange (DSE), and has since named a governing board. DSE started official operations in March 2009. In late December 2010, the SARG issued a decision permitting Syrian, Arab and foreign investors to invest in the Syrian stock market.

The government has loosened its strict foreign exchange controls on currency outflows for private-sector operations that are not under the legal umbrella of Investment Law No. 10, Decree No. 7 and Decree No. 8. Foreign capital can be brought into the country and can be exchanged for commercial purposes at the daily rate established by the Central Bank of Syria. One-way, non-commercial foreign exchange transactions are currently available at branches of CBS and the Real Estate Bank at a set rate, which is close to the real or market rate.

In a bid to liberalize the Syrian Pound and to loosen restrictions on hard currency outflows, in 2008 the SARG permitted Syrians travelling abroad to purchase the equivalent of USD 10,000 for use during their trips. In July 2009, the SARG permitted local banks to open accounts for clients to use for their international debit cards. These accounts may hold a maximum of USD 10,000 or its equivalent in Syrian Pounds or any other foreign currency. The holders of these accounts will be able to withdraw up to USD 10,000 per month while travelling abroad.

The SARG issued two decisions in November 2010 that ease restrictions on hard currency dealings. The first decision allowed local banks and foreign exchange companies to sell the equivalent of USD 10,000 per month to customers without justification. The second decision permitted banks to sell investors the hard currency they need to repatriate their profits.

The assets of the Syrian banking sector as a whole increased from USD 37 billion in 2008 to USD 42.8 billion in 2009, a 15.7 percent increase. Total assets of Syrian banks stood at USD 44.1 billion at the end of July 2010. The deposits of these banks increased from USD 23.1 billion in 2008 to USD 26.4 billion in 2009. Total deposits stood at USD 28.4 billion at the end of July 2010. Syrian banks are playing an increasing role in providing the business sector with foreign currency to finance imports and as a source of credit for business and individuals. However, the sector’s development is hampered by the continuing lack of human expertise in finance, insufficient automation and communication infrastructure, regulations that limit Syrian banks’ ability to make money on their liquidity, and restrictions on foreign currency transactions.

In July 2010, the President passed Legislative Decree 56 allowing investment banks with a minimum capital requirement of USD 425 million to enter the market.

Competition from State Owned Enterprises

Government regulations do not promote competition, either among private firms or between private firms and state enterprises.

The standard of competitive equality is not applied to private enterprises competing with state enterprises in a number of important areas. For example, although a number of state banks such as the Real Estate Bank and the Industrial Bank are authorized to lend local currency to help finance private-sector projects, state enterprises continue to have privileged access to local credit and exclusive access to official loans from the Commercial Bank of Syria. In previous years, private companies had occasional access to offshore financing and, if they were located in Syria's "free zones," could access financing from the few local branches of private foreign banks operating in the free zones. However, in December 2007, the Central Bank of Syria gave the six Lebanese banks operating in "free zones" the option of either ceasing operations within six months or becoming branches of onshore banks. This action aimed to ensure that all banks in Syria operate under uniform regulations monitored by the Central Bank.

To foster competition, the government has informed public sector enterprises that they will no longer be permitted to operate as monopolies, particularly if private capital, foreign or domestic, can be obtained to finance projects. However, there are no regulatory processes managed by non-governmental organizations or private sector institutions to monitor government directives. As a result, legal, regulatory, and accounting systems are often incompatible with international standards.

Corporate Social Responsibility

Until recently, producers and consumers had not been active in corporate social responsibility. However, the SARG is currently more aware of the need to create necessary community projects and therefore has been adding clauses to that effect in its new contracts with foreign companies, especially in the petroleum and gas sector. In August 2010, the SIA, in cooperation with the Ministry of State for Environmental Affairs, held a workshop to emphasize environmental investments and a green economy aimed at preserving nature resources.

Syria Shell Petroleum Development (SSPD) has been very active in this field during the past few years and has targeted social investment in health, safety, environment and human capacity building. Among its key social investments projects during 2009/2010 were enhancing road safety and public awareness in cooperation with the Ministry of Transport, enhancing road safety awareness for elementary public school children in the Dayr az-Zawr, Palmyra and Damascus areas in cooperation with the Ministry of Education, awarding scholarships in cooperation with the British Council, developing entrepreneurs through SSPD’s "Intilaaqah" program in cooperation with the Ministry of Labor and Social Affairs, increasing development in Dayr az-Zawr through the Dayr az-Zawr Development Fund in cooperation with the Ministry of Petroleum, donating fully equipped ambulances to Palmyra National Hospital, and supporting NGOs by sponsoring a number of health and environment awareness public campaigns or through direct donations.

Ford Middle East provided USD 12,000 to the “Volunteers for the Environment” association in Dayr az-Zawr for its efforts in the restoration of the Environment Awareness Center at the Friends of the Environment Park. In addition, Ford Middle East provided USD 10,000 to a Syrian citizen working on a project to protect the Mediterranean Dolphin.

Total Exploration and Production Syria, an affiliate of the French petroleum company Total, also carried out community projects beyond its exploration and production activities, working with local communities, authorities, foreign and local NGOs especially in the Dayr az-Zawr region to support development projects in health, education, local economic development, environment, energy, heritage preservation and scholarship programs.
 

PetroCanada continued to play an active role as a good corporate citizen and neighbor in Syria by planting trees near Palmyra, hosting an entertainment event for orphans and poor, and sponsoring contemporary Syrian art and supporting creative activities to better promote Syria internationally.

Political Violence

Syria is an autocratic police state that severely restricts political dissent. Protests are rare and usually dispersed quickly. Syrian security services routinely jail protestors and outspoken political opponents for indefinite periods of time. Other examples of political violence include the assassinations of a senior Hezbollah operative by a car bomb in a residential neighborhood of Damascus in February 2008 and of a Syrian military officer by a sniper in the coastal city of Tartous in August 2008.

In September 2006, the U.S. Embassy was attacked without warning by a small group of terrorists using automatic gunfire and grenades. They attempted, unsuccessfully, to detonate a vehicle-borne improvised explosive device at the embassy's rear gate. One local guard was seriously injured. A Syrian bystander, one Syrian security officer, and all four attackers were killed in the ensuing gunfight. Government-orchestrated demonstrations involving thousands of Syrians damaged Embassy property in December 1998 and October 2000.

For American citizens travelling to Syria, the Embassy's American Citizen Services operation in Damascus is located in the Embassy's Consular Section in Abu Roumaneh, between Rawda Square and Malki Street. The telephone number is (011) 3391-4444. The mailing address is Abu Roumaneh, Al-Mansour Street No. 2, P.O. Box 29, Damascus, Syria. Services provided include passport applications and renewals, notary services, child custody assistance, victim assistance, federal benefits claims, affidavits of support, arrest assistance, death certificates and consular reports of birth abroad. In the event of an emergency, the Embassy telephone number (011) 3391-4444 is available. The Consular Section in Damascus covers all of Syria.

Corruption

Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law.

It is important for U.S. companies, irrespective of their size, to assess the business climate in the relevant market in which they will be operating or investing, and to have an effective compliance program or measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the relevant anticorruption laws of both the foreign country and the United States in order to properly comply with them, and where appropriate, they should seek the advice of legal counsel.

The U.S. Government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, by requiring them to uphold their obligations under relevant international conventions. A U. S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies, as noted below.

U.S. Foreign Corrupt Practices Act: In 1977, the United States enacted the Foreign Corrupt Practices Act (FCPA), which makes it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to foreign public officials for the purpose of obtaining or retaining business for or with, or directing business to, any person. The FCPA also applies to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States. For more detailed information on the FCPA, see the FCPA Lay-Person’s Guide at: http://www.justice.gov/criminal/fraud/docs/dojdocb.html.

Other Instruments: It is U.S. Government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Antibribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements. In December 2003, Syria signed (but has not yet ratified) the UN Anti-Corruption Convention.

OECD Antibribery Convention: The OECD Antibribery Convention entered into force in February 1999. As of December 2009, there are 38 parties to the Convention including the United States (see http://www.oecd.org/dataoecd/59/13/40272933.pdf). Major exporters China, India, and Russia are not parties, although the U.S. Government strongly endorses their eventual accession to the Convention. The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Antibribery Convention through the U.S. FCPA. Syria is not a party to the OECD Convention.

UN Convention: The UN Anticorruption Convention entered into force on December 14, 2005, and there are 143 parties to it as of December 2009 (see http://www.unodc.org/unodc/en/treaties/CAC/signatories.html). The UN Convention is the first global comprehensive international anticorruption agreement. The UN Convention requires countries to establish criminal and other offences to cover a wide range of acts of corruption. The UN Convention goes beyond previous anticorruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption. The Convention contains transnational business bribery provisions that are functionally similar to those in the OECD Antibribery Convention and contains provisions on private sector auditing and books and records requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery. In December 2003, Syria signed but has not yet ratified the UN Convention.

OAS Convention: In 1996, the Member States of the Organization of American States (OAS) adopted the first international anticorruption legal instrument, the Inter-American Convention against Corruption (OAS Convention), which entered into force in March 1997. The OAS Convention, among other things, establishes a set of preventive measures against corruption, provides for the criminalization of certain acts of corruption, including transnational bribery and illicit enrichment, and contains a series of provisions to strengthen the cooperation between its States Parties in areas such as mutual legal assistance and technical cooperation. As of December 2009, the OAS Convention has 33 parties (see http://www.oas.org/juridico/english/Sigs/b-58.html). Syria is not a party to the OAS Convention.

Council of Europe Criminal Law and Civil Law Conventions: Many European countries are parties to either the Council of Europe (CoE) Criminal Law Convention on Corruption, the Civil Law Convention, or both. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and account offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to corrupt acts, whistleblower protection, and validity of contracts, inter alia. The Group of States against Corruption (GRECO) was established in 1999 by the CoE to monitor compliance with these and related anti-corruption standards. Currently, GRECO comprises 46 member States (45 European countries and the United States). As of December 2009, the Criminal Law Convention has 42 parties and the Civil Law Convention has 34 (see www.coe.int/greco.) Syria is not a party to the Council of Europe Conventions.

Free Trade Agreements: While it is U.S. Government policy to include anticorruption provisions in free trade agreements (FTAs) that it negotiates with its trading partners, the anticorruption provisions have evolved over time. The most recent FTAs negotiated now require trading partners to criminalize “active bribery” of public officials (offering bribes to any public official must be made a criminal offense, both domestically and trans-nationally) as well as domestic “passive bribery” (solicitation of a bribe by a domestic official). All U.S. FTAs may be found at the U.S. Trade Representative Website: http://www.ustr.gov/trade-agreements/free-trade-agreements. Syria does not have a free trade agreement (FTA) in place with the United States.

Local Laws: U.S. firms should familiarize themselves with local anticorruption laws, and, where appropriate, seek legal counsel. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. and Foreign Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.

Assistance for U.S. Businesses: The U.S. Department of Commerce offers several services to aid U.S. businesses seeking to address business-related corruption issues. For example, the U.S. and Foreign Commercial Service can provide services that may assist U.S. companies in conducting their due diligence as part of the company’s overarching compliance program when choosing business partners or agents overseas. The U.S. Foreign and Commercial Service can be reached directly through its offices in every major U.S. and foreign city, or through its Website at www.trade.gov/cs.

The Departments of Commerce and State provide worldwide support for qualified U.S. companies bidding on foreign government contracts through the Commerce Department’s Advocacy Center and State’s Office of Commercial and Business Affairs. Problems, including alleged corruption by foreign governments or competitors, encountered by U.S. companies in seeking such foreign business opportunities can be brought to the attention of appropriate U.S. government officials, including local embassy personnel and through the Department of Commerce Trade Compliance Center “Report a Trade Barrier” Website at http://tcc.export.gov/Report_a_Barrier/index.asp.

Guidance on the U.S. FCPA: The Department of Justice’s (DOJ) FCPA Opinion Procedure enables U.S. firms and individuals to request a statement of the Justice Department’s present enforcement intentions under the antibribery provisions of the FCPA regarding any proposed business conduct. The details of the opinion procedure are available on DOJ’s Fraud Section Website at www.justice.gov/criminal/fraud/fcpa. Although the Department of Commerce has no enforcement role with respect to the FCPA, it supplies general guidance to U.S. exporters who have questions about the FCPA and about international developments concerning the FCPA. For further information, see the Office of the Chief Counsel for International Counsel, U.S. Department of Commerce, Website, at http://www.ogc.doc.gov/trans_anti_bribery.html. More general information on the FCPA is available at the Websites listed below.

Exporters and investors should be aware that generally all countries prohibit the bribery of their public officials, and prohibit their officials from soliciting bribes under domestic laws. Most countries are required to criminalize such bribery and other acts of corruption by virtue of being parties to various international conventions discussed above.
 

Syria was ranked 127 out of 178 countries in the London-based Transparency International’s 2010 corruption perception index. Of the Arab countries in 2010, Lebanon, Libya, Yemen, Sudan and Iraq had lower rankings. Syria ranked 70th worldwide in 2005, 93rd in 2006, 138th in 2007, 147th in 2008 and 126th in 2009.

Public sector corruption, including bribery of public officials, remains a major challenge for U.S. firms operating in Syria. Corruption cuts across most sectors of Syrian society and affects the legal system as well. Bureaucratic procedures for receiving required documents and for obtaining licenses can cause protracted delays and often involve official approval from many levels within the government. Under-the-table payments are commonplace, as corruption is endemic in nearly all levels of government.

After 1998, state-run newspapers began publishing articles about the misappropriation of public funds and the lack of probity among public officials. As a result, a number of officials were jailed for corruption after an investigation into their abuse of power. Even with these public cases, however, corruption is prevalent, and the SARG often uses its anti-corruption campaigns to target its critics or those who have fallen out of favor. Wages and benefits in the public sector are insufficient to meet the cost of living, thus fringe benefits and excessive "agency" fees are widely tolerated as a means of supplementing income, especially during the procurement, investment licensing, import licensing, and customs clearing processes.

In an effort to reduce public graft, President Asad issued Decree 22 in April 2008 placing embezzlement and corruption cases under the Economic Punishment Law and increasing the penalty from five to ten years of imprisonment.

In his statement addressing the 13th Arab Businessmen and Investors Conference held in Damascus in early March 2010, Sheikh Saleh Kamel, Chairman of the Federation of Chambers of Commerce in Saudi Arabia, sent a message to Syria’s President Asad addressing corruption and asking him for a “correction movement.. that promotes the Syrian economy in all its aspects ... demolishes its bureaucracy, and loosens its complexities.”

The most recent official government figures reported that USD 104 million was lost as a result of corruption over the past 19 months. However, analysts believe the true figure is substantially higher. In a bid to stop paperwork from becoming a means to extort bribes, the SARG recently opened a “Citizen Service Center” in Damascus with procedures designed to limit corruption.

In December 2003, Syria signed (but has not yet ratified) the UN Anti-Corruption Convention. The government-affiliated Central Commission for Inspection and Control is responsible for monitoring corruption in all government entities in Syria.

In February 2008, President Bush issued Executive Order (E.O.) 13460, which authorizes the U.S. Treasury Department to sanction individuals or entities found to be engaging in, facilitating, or profiting from official corruption with the government of Syria. Subsequently, the Treasury Department used this E.O. to designate Rami Makhlouf, Syria's most prominent businessman and President Asad's first cousin. The designation prohibited American individuals and companies from transacting business with Makhlouf. In July 2008, the Treasury Department listed two companies owned by Makhlouf, SyriaTel and RAMAK, as "blocked properties." SyriaTel is the largest mobile phone provider in Syria and RAMAK is a chain of duty-free shops located at Syria's land border terminals and airports.

Anti-Corruption Resources

Some useful resources for individuals and companies regarding combating corruption in global markets include the following:

· Information about the U.S. Foreign Corrupt Practices Act (FCPA), including a “Lay-Person’s Guide to the FCPA” is available at the U.S. Department of Justice’s Website at: http://www.justice.gov/criminal/fraud/fcpa.

· Information about the OECD Anti-bribery Convention including links to national implementing legislation and country monitoring reports is available at: http://www.oecd.org/department/0,3355,en_2649_34859_1_1_1_1_1,00.html. See also new Antibribery Recommendation and Good Practice Guidance Annex for companies: http://www.oecd.org/dataoecd/11/40/44176910.pdf

· General information about anticorruption initiatives, such as the OECD Convention and the FCPA, including translations of the statute into several languages, is available at the Department of Commerce Office of the Chief Counsel for International Commerce Website: http://www.ogc.doc.gov/trans_anti_bribery.html.

· Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public sector corruption in 180 countries and territories around the world. The CPI is available at: http://www.transparency.org/policy_research/surveys_indices/cpi/2009. TI also publishes an annual Global Corruption Report which provides a systematic evaluation of the state of corruption around the world. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents and an overview of the latest research findings on anti-corruption diagnostics and tools. See http://www.transparency.org/publications/gcr.

· The World Bank Institute publishes Worldwide Governance Indicators (WGI). These indicators assess six dimensions of governance in 212 countries, including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption. See http://info.worldbank.org/governance/wgi/sc_country.asp. The World Bank Business Environment and Enterprise Performance Surveys may also be of interest and are available at: http://go.worldbank.org/RQQXYJ6210.

· The World Economic Forum publishes the Global Enabling Trade Report, which presents the rankings of the Enabling Trade Index, and includes an assessment of the transparency of border administration (focused on bribe payments and corruption) and a separate segment on corruption and the regulatory environment. See http://www.weforum.org/en/initiatives/gcp/GlobalEnablingTradeReport/index.htm.

· Additional country information related to corruption can be found in the U.S. State Department’s annual Human Rights Report available at http://www.state.gov/j/drl/rls/hrrpt/.

· Global Integrity, a nonprofit organization, publishes its annual Global Integrity Report, which provides indicators for 92 countries with respect to governance and anti-corruption. The report highlights the strengths and weaknesses of national level anti-corruption systems. The report is available at: http://report.globalintegrity.org/.

Bilateral Investment Agreements

On August 9, 1976, Syria signed an investment guarantee agreement with the United States that protects investments from nationalization and confiscation. Similar agreements are also in force with Germany, France, Switzerland, Pakistan, China, Indonesia, Russia, Belarus, Iran, Italy, Bulgaria, Ukraine, Romania, Kuwait, the U.A.E, Morocco, Sudan, Yemen, Egypt, Lebanon, Jordan, Tunisia, Algeria, Bahrain, Turkey, Cyprus, Greece, Senegal, Tajikistan, India, Nigeria, North Korea, Serbia, Armenia, Austria, Azerbaijan, Slovakia, and Libya. In addition, a number of bi-national committees have been established with Arab, Asian, and European countries to explore private and mixed joint ventures and improve bilateral trade.

The U.S does not have a bilateral taxation treaty with Syria.

OPIC and Other Investment Insurance Programs

U.S. businesses are not allowed to utilize the Overseas Private Investment Corporation (OPIC) or other U.S. government investment insurance programs because Syria is on the State Department's List of State Sponsors of Terrorism. In addition, the Export-Import Bank, the Small Business Administration, the Commodity Credit Corporation, and the Trade Development Agency cannot extend financing for U.S. business activities. USAID terminated its assistance to Syria in 1983; subsequently, all funds appropriated through the annual foreign operations legislation are banned. While the Syria Accountability Act does not currently prohibit investments, the President can decide to ban U.S. investments at any future date. As a result, the U.S. Embassy does not actively promote U.S. investment in Syria.

Labor

The SARG reported an unemployment rate of 11 percent in 2010. However, independent sources estimated unemployment as high as 25 percent. It is worth noting that most public sector entities suffer from over-employment, resulting in high costs of production and low rates of efficiency. Close to one-half of the population lives on less than USD 185 per month per household. In May 2010, the UNDP announced that around 33 percent of the Syrian population lives below the general poverty line and 12.3 percent live below the subsistence level. The average public sector salary is USD 230 per month, and public sector employees constitute over one quarter of the total labor force. Many public sector employees resort to accepting bribes or taking a second job in order to afford basic commodities.

Compared to the public sector, the private sector offers higher wages and better benefits and has usually been able to recruit and hire more skilled labor. However, recent developments in information technology have outpaced the level of competency among Syrian engineers. Syrian universities continue to teach many technical courses in Arabic and use outdated Soviet-era curricula. In recent years, several private universities have opened and provide competition for public institutions. As a result of the deficiencies inherent in the Syrian education system, both private and public sector firms are looking abroad to find qualified technicians for their IT needs. While the public sector is not competitive, the private sector is struggling to compete in the international marketplace for qualified engineers. Syria is continuing to lose a large number of highly skilled workers who leave the country for higher wages abroad. The 11th Five-Year Plan includes a commitment to improve and expand Syrian education, in response to changing demands.

In April 2010, the SARG enacted Law 17, a new, modern and business-friendly labor law that eases constraints on employers but also provides clearer guidelines on the rights of employees. Law 17 provides guidelines and rules on labor relations for the private, public-private and cooperative sectors. Law 17 gives the right for employers to fire their employees without any justification and with a limited compensation.

Government officials acknowledge that the economy is not growing at a pace sufficient to create enough new jobs annually to match population growth. According to official Syrian statistics, the economy grew at about five percent in 2010. During the same time, population grew at 2.45 percent. Since 2001, the SARG has tried a number of initiatives to promote job growth without much success, including job fairs and loans for small and medium-sized investment projects.

Independent labor unions do not exist in Syria. The General Federation of Trade Unions (GFTU) is government-controlled and oversees all aspects of union activity.

Foreign-Trade Zones/Free Ports

There are nine existing public free-trade zones throughout Syria. Through December 2010, the total capital invested in Syria’s free zones reached USD 833 million, with 74 foreign investment companies operating there at a total capital investment of USD 143 million.

The General Organization of Free Zones (GOFZ) plans to establish three additional public free zones in Damascus, Dayr az-Zawr, and Idleb. Al-Ya’rubiya free zone in al-Hasakeh was officially inaugurated in December 2007 and Homs Free Zone was officially inaugurated in November 2010. Moreover, GOFZ has licensed the first privately owned and managed free-trade zone in the Damascus suburbs for textile industries to produce exports for Europe and the U.S. In May 2000, a free-trade zone was inaugurated near the Syrian-Jordanian border as a joint venture between the two countries. The government plans to establish similar zones with Iraq, Lebanon and Turkey. Both major ports in Latakia and Tartous have free trade areas; however, there are no free trade ports in Syria.

Both China and Iran have announced plans to build free zones in Syria; Iran later dropped this idea in favor of pursuing a Free Trade Agreement with Syria. However, officials of both countries continue to call for the establishment of a free zone to boost trade relations. "China Town," designed to house roughly 200 Chinese companies and act as a gateway to Syria for Chinese goods, was officially inaugurated in the Adra free zone in July 2008; however, sources say that there are no companies currently operating there. Recently, a Syrian investor, in cooperation with Gulf partners, obtained preliminary approval for the establishment of a private free zone in the al-Tanf border area in Dayr az-Zawr region to promote trade with Iraq but this plan has not yet been finalized.

Syria, Lebanon, Jordan and Turkey announced in August 2010 the establishment of an economic council to follow up on the creation of a free trade zone between the four countries. Jordan held a meeting in October 2010 and Beirut hosted a follow-up meeting in early January 2011 to discuss technical details to be submitted during the next meeting scheduled for Damascus in 2011.

There are no free ports in Syria.

Foreign Direct Investment Statistics

A total of 396 local and foreign investment projects were licensed in 2010 at an estimated total capital of USD 1.6 billion and they are expected to create more than 22,106 new job opportunities. Of those 396 projects, 41 were foreign investments amounting to some USD 168 million that were expected to create 2,736 job opportunities. To accommodate these investments, eight new industrial zones have been approved with investment costs exceeding USD 40 million. The SIA, in cooperation with the State Planning Commission, the UNDP, and the Ministry of Local Administration, is launching an investment map specifically designed for the industrial zones. The HCI and SIA have adopted a policy of reviewing the status of projects on a yearly basis and annulling licenses of those projects which are not implemented within the required period of three years. Accordingly, 241 licenses were revoked in 2010 for projects licensed but not executed.

According to government statistics, a total of 3,469 local and foreign investment projects were licensed from 1991-2010 with an estimated total capital of about USD 33.5 billion and were expected to create more than 222,621 new job opportunities. From 1991-2010, 274 foreign investment projects valued at USD 7.9 billion were licensed, excluding joint ventures in the petroleum and real estate and tourism sectors. Major foreign investors include companies from Turkey, Germany, Russia, Iran, Switzerland, the U.K., the U.S., France, Cyprus, Spain, China, Canada, South Korea, Belgium, Pakistan, Brazil, Venezuela, the Netherlands, Malaysia, Italy, Austria, Sweden, India, Saudi Arabia, Kuwait, Jordan, Lebanon, Iraq, Egypt, the UAE, Algeria, Bahrain, Qatar, Libya, Denmark and Morocco.

In August 2009, the U.S. International Investment Group, a Syrian-registered company, announced plans for a series of industrial projects worth USD 35 million to be established in Dayr az-Zawr. The Group planned to build factories for the production of beverages, cosmetics, mineral oils, and feed. However, in March 2010, the Group announced its withdrawal from Syria because of a personal dispute between the Director of the SIA and the Regional Director of the U.S. International Investment Group.

In 2010, the Ministry of Tourism licensed several new tourism and real estate projects. In addition, work on several hospitality projects began in 2010 including the USD 190 million Yasmeen Rotana in Damascus, the USD 50 million Joul Jammal Resort in Latakia, the UAE-based Majid al-Futaim Properties’ USD one billion “Khams Shamat” tourism complex in Damascus, Rotana Gardenia in Homs, the Novotel and Ibis hotels in Taj Halab (Aleppo’s Crown) tourism complex, the USD 100 million Sama City in Aleppo and Souria Holding’s USD 319 million “Syria Towers” project. Several tourism projects began operations in 2010 including the Armitage Hotel in Damascus, the USD 19 million Aleppo Carlton Hotel, the USD 6.5 million Beit Salahiyeh boutique hotel in Aleppo, and Porto Village in Tartous and many boutique hotels and restaurants in Damascus, Aleppo and Homs. Moevenpick, Kempinski and the InterContinental hotels are set to open in 2011 and 2012 in Damascus.

To encourage the establishment of environment-friendly tourist resorts near forested areas, the SARG issued Decree 10 in February 2010 which reduced the setback from forests to a maximum of 15 meters, down from 500 meters. The Decree bans the ownership or lease of a forest land that has been burnt by forest fires.

To boost investment in the tourism sector, the SARG allowed local banks to provide financing to hospitality projects developed on the Build-Operate-Transfer (BOT) model. Local banks can now fund up to 50 percent of the cost of the project and repayment will begin after the project enters into operation.

The largest foreign investors are in the petroleum sector and include Shell (UK/Dutch), Total (France), INA Nafta (Croatia), Dublin (Canada), Dove Energy Ltd. (U.K.), PetroCanada, Gulfsands Petroleum (U.K.), Stroytransgas (Russia), Improved Petroleum Recovery (IPR) (U.S.), and China National Petroleum Company (CNPC) (China). The government began to actively court international energy companies in the late 1980s. By 1990 twelve foreign firms had production or exploration operations in Syria; however, most departed as a result of dry wells, rising costs, and major disagreements with the government over contractual terms and tax liabilities.

The government redoubled efforts to attract foreign energy companies by opening five blocks in 2001 and eleven blocs in 2002 for international tenders. In an effort to reverse the downward trend in production, the government opened additional blocs for international bids in January 2003. As a result, Dublin, IPR (U.S.), Devon Energy / Gulfsands Petroleum (U.K.), INA Nafta, Tanganyika Oil Company (Canada), the Chinese National Petroleum Corporation, and Zarubezhneft (Russia) have all been awarded exploration and/or production sharing contracts. In November 2005, nine additional blocs were opened for exploration resulting in signed contracts and/or production sharing agreements with Shell (UK/Dutch), Maurel & Prom (France), Hunt Middle East (U.S.), Loon (India), Unkranadra Oil (Ukraine) and Soyuznaft (Russia). In 2007, GroundStar (Australia) was awarded exploration rights to two additional blocks in southern Syria.

In April 2010, the Ministry of Petroleum and Mineral Resources invited international oil companies to bid on oil and gas drilling and exploration in eight new onshore blocs covering about 40 percent of Syria’s territory. In addition, the Ministry announced an international tender for developing seven old fields in an attempt to increase their production. Thirteen international oil companies, including seven already operating in Syria, have submitted offers to explore for oil in the eight blocs including Shell, Petro Canada (Suncor Energy), Dana Gas (the UAE), HBC (Tunisia), Kulczyk Oil, , China National Petroleum Company (CNPC), Total SA, BECO (Egypt), Loon Energy, Gulfsands, Improved Petroleum Recovery (IPR), and ENI S.P.A. The Minister of Petroleum and Mineral Resources announced in November 2010 that the Ministry plans to announce a bid round for offshore blocs in early 2011.

After the imposition of U.S. economic sanctions in May 2004, a number of major U.S. corporations made the decision to divest and pull out of Syria. These companies included ExxonMobil, Devon Energy, 3M (for household products), Conoco Philips, Marathon, and Veritas. In April 2008, the American oil field services firm Weatherford also ceased all its Syrian operations.

Web Resources

Transparency International Corruption Index: http://www.transparency.org/policy_research/surveys_indices/cpi/2010

Syrian Investment Agency: http://www.investinsyria.org/

Syrian Investment Map: http://www.syriainvestmentmap.org/

World Bank Doing Business Index: http://www.doingbusiness.org/EconomyRankings/

Heritage Foundation Economic Freedom Index: http://www.heritage.org/Index/Ranking.aspx

Consular Information: http://www.travel.state.gov



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