Syrian import bill shrinks; Merchants depend on smuggling
Enab Baladi – Jana al-Issa
At an official meeting with the General Directorate of Customs in Syria early this October, a number of merchants working in the capital Damascus made several demands regarding facilitating the import of materials, including the application of justice in the policy of rationalizing imports and in the fight against smuggling, warning in a tone that seemed closer to a threat that smuggling would continue as long as import prevention also persists.
During the said meeting, merchants spoke about the problems and obstacles they are facing in terms of import, notably import restrictions, customs duties, and high taxes that affected competition in foreign markets, as well as the slow completion of transactions and customs arbitration.
The Customs Directorate responded to each complaint individually, each with its own justification in a situation akin to “unwillingness” to change or improve what was being done. The Director General of Customs, Majed Omran, shortened his “public acknowledgment of customs’ inability to control borders,” justifying it with “security conditions.”
On the values of customs duties, Omran said that the fees on goods are “not high,” but with taxes and others, they become “high.”
Import decreased by 77%
Since 2013, the regime government’s Ministry of Economy has been working on its policy of rationalizing imports that it applies to “luxury” and “non-locally produced” goods, with a view to stabilizing the exchange rate of the dollar against the Syrian pound.
In February 2020, the Ministry began working on the Substitution of Imports program, which is based on the periodic inventory of large-digit imports and determining what can be manufactured locally to dispense with imports. This aims to “reduce the bill for importing goods that can be produced locally, and to achieve self-sufficiency in some materials in order to save foreign exchange.”
On several occasions, Ministry of Economy officials reiterated their denial of a monopoly on the import of essential items by certain merchants, which is not the case according to the meeting that gathered the Customs Directorate with Damascus traders early this month.
At the end of June, Economy and Foreign Trade Minister, Mohammad Samer al-Khalil, stated that through the policy of rationalizing imports, the ministry was able to reduce the import bill from 2011 to 2021 by 77%, while the value of the bill had decreased by 14% starting this year until the end of last May, in comparison to the same period last year.
The drop in the value of the import bill reflected negatively on merchants, on the one hand, who are now publicly introducing their products and raw materials through smuggling while demanding solutions, and on the citizens, on the other hand, in light of soaring prices of most basic consumer items as a result of short supply and high demand.
A “useless” policy in Syria
An expert on political economic affairs in Syria, Pr. Salam Saeed told Enab Baladi that import prevention is a trade policy used in many countries to protect domestic industry. But it is applied in Syria to foodstuffs, electrical equipment, and consumables that are not necessarily produced locally, leading to several negative effects.
Saeed added that Syria is not in the state of a normal economy but rather in the state of an economy freshly out of war, which makes the mechanisms of access and production of raw materials more difficult and at non-competitive prices.
At this level, Saeed believes that if the state wishes for this policy to be meaningful, it should support the local economy and local industrialists to help them produce at competitive prices by reducing or removing customs duties on imported raw or final materials. In fact, this was complained about by merchants, who called for a review of high tariffs at the last meeting.
The doctor in economics explained that a trade policy of import ban is usually accompanied by two support methods, either raising the customs duties on commodity prices to reach local markets and be able to compete in them because they will become more expensive or preventing the import of goods entirely.
Saeed indicated that the state does not benefit financially in case imports were entirely banned, as there is no tax resource. However, if it raises customs duties, the state would benefit from accompanying tax resources on the one hand and from the availability of raw materials and commodities.
Despite the Ministry of Economy’s repeated assertion that its decisions are not aimed at supporting the monopoly of traders at the expense of others, Damascus merchants complained that there is no justice in the fight against smuggling, as there are specific places within Syria where it is allowed to sell contraband, while it is prohibited in the rest of the places.
Merchants stressed that what the ministry classifies as luxury goods exist in every house today and is required, considering that the policy of rationalizing imports has frozen capital and even pushed it to flee outside Syria.
Professor in political economy Salam Saeed said that economic laws were not adopted prior to 2011 but are often planned and designed to unleash observers and state officials to blackmail traders.
Saeed confirmed the existence of a group of beneficiary smuggling networks that have good relations with customs officials, passing the goods it wanted and paying an informal tariff (bribe) to employees in exchange for allowing the passage of smuggled goods.
The researcher and lecturer in economic affairs, Khaled Turkawi, told Enab Baladi that the issue of the regime’s rationalization of imports was not about rationalizing foreign exchange, encouraging domestic production, increasing domestic exports, or so on. Rather, it is mainly related to the restriction of these imports to personalities close to the Syrian regime in order to finance the security and military operations that serve it.
Turkawi added that smuggling had long existed in the past at most Syrian border crossings. However, prior to 2011, it was limited to simple materials and quantities, which are smuggling operations that cannot be controlled.
Today, what he called the old “small-time smugglers” no longer exist, with the value of today’s smuggled materials estimated at hundreds of millions of dollars, excluding drug and arms smuggling, of course, according to Turkawi.
In the researcher’s opinion, raising tariffs on the import of raw materials and other decisions taken by the government can only be interpreted in one way, namely, increasing resources that can be collected from citizens, whether they are merchants or consumers.
Turkawi explained that the goal behind these decisions has always been to obtain the largest possible amount of resources without any concern for the impact of the decision on trade or the people, taking into account its impact on the army and security and whether this is in the interest of financing military operations or not, as he put it.
Continuing smuggling serves the regime
During the last meeting, the Director General of Customs, Majed Omran, said that much of today’s borders are not entirely controlled due to “security conditions,” adding that the most trafficked items are electrical tools, foodstuffs, cosmetics, etc.
Professor Salam Saeed considered that the government in Damascus was approaching the control of “chaos” with a double standards policy because it was able to control everything for political reasons while declaring that it was incapable of controlling borders.
Saeed attributed this to a single reason, the government’s unwillingness to control the crossings in order to allow the extortion of merchants by customs officials to collect additional income above their essentially insufficient monthly income in an old-fashioned government method.
Economic researcher Khaled Turkawi confirmed that the regime benefited greatly from continuing smuggling operations, as it had previously been established that its affiliates were directly involved in smuggling operations, most notably the Fourth Division of the regime’s forces.
Pushing for the worst
The expert on political, economic affairs in Syria, Pr. Salam Saeed explained that the issue of smuggling and importing finished products is a “dangerous indicator” of the Syrian economy because it indicates that the local industry is being stifled. She added that under these difficult production conditions, many industrialists and producers who were supporting the production sector in Syria turned to trade because it became less expensive than production, and this is in the event that they were not able to migrate and travel already, as is the case with many industrialists.
According to Saeed, Syria’s economy is currently moving from a productive economy to a more rentier, commercial economy in an unhelpful sense. This demonstrates that, in the future, Syria will be a consumer country without any real financial resources to qualify it for that.
The expert added that to resettle those industries that have migrated or stopped production, this will require the government to undertake greater efforts to support domestic industry by eliminating tariffs on most raw materials for essential products and preventing the import of finished materials, provided that support is the first step.
According to a study published by the Middle East Directions Program last April by researchers Joseph Daher, Nizar Ahmed, and Silwan Taha on smuggling between Syria and its neighboring countries, the most prevalent policies to combat the escalation of the activities of smuggling, legal and illegal goods to Syria from neighboring countries and vice versa were calls for additional security measures and strengthening border security. This is basically a route to failure if it is not accompanied by policies that promote social and economic development at the national level.
According to the study, to reduce these operations, it is necessary to provide alternative forms of employment and improve the living conditions of the local population in poor and neglected areas. Emphasis must also be placed on encouraging investment in the productive sectors of Syria’s economy and neighboring countries in order to reduce the population’s need and dependence on smuggled and exported goods.
This will create job opportunities for local communities or at least deter large sectors from participating directly and indirectly in smuggling activities.
The study considered that the vast majority of persons involved in smuggling activities or in the purchase of contraband goods did so out of necessity, particularly in light of the deepening economic crisis and the lack of other potential options. However, such expected solutions and improvements are only possible in a specific context, in which the country enters a form of political and economic stability, which is far-fetched in Syria for the time being, as the study noted.
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