While the Syrian government claims that it wants to encourage local industrialists, its recent decision to change the country’s customs system is endangering one of the country’s most important manufacturing sectors, the garments industry.
Starting at the beginning of next year, the country’s customs system will have only five different tax rates on imported products, instead of 13 currently: 1%, 5%, 10%, 20% and 30%.
In other words, the 0% rate – meaning a total exemption from customs tariffs – as well as the highest rates of 80% and 150%, which were applied on garments and passenger cars respectively, are cancelled.
Until now, Syria was one of the countries that applied the highest customs duties on cars in the world. Meanwhile, the 80% duties on garments helped protect this industry, which employs dozens of thousands of people.
Officially, the objective of the government is to reduce corruption and bureaucratic hurdles by simplifying the system. Also, by reducing the level of taxes on imported products, the government hopes that more importers will stop evading taxes because they will have less interest in smuggling and under-reporting.
One additional reason for these reductions is the need to reduce the price of imported products, which have increased following the decline in the value of the Syrian Pound relative to foreign currencies. For example, an imported product that cost $10 was worth 500 Syrian pounds before the uprising. Now it is worth 2,000 pounds, because the Syrian Pound has declined from 50 pounds per dollar to 200 today. This four-time increase in the cost of imported products occurred while salaries have almost not increased in the last three-and-a-half years.
However, manufacturers in the garments sector are very unhappy, because the decline in customs duty will create more competition for them.
In addition, in an interview with Al-Thawra, a local daily, Firas al-Jajeh, the secretary-general of the Damascus Chamber of Industry, said that the customs duty on the intrants used for the production of garments will actually increase. Yarns, which are taxed 1% currently, will be taxed 5%, while fabrics, which are taxed 5% will be taxed 10%. Therefore, at the same time local manufacturers will face more competition and will have higher production costs. According to Jajeh, many manufacturers will now stop production and prefer to become importers of garments.
Given the fact that this sector employs dozens of thousands of people and that the government claims that it wants to encourage local industry, the logic behind the decision to reduce customs duties on garments is difficult to understand.
The debate between the priority to be given to trade or to local manufacturing exists in many parts of the world. However, this type of debate generally takes place as part of a broader debate on long-term economic strategies, not on a short-term basis and in a situation of war.
In Syria, in the last three-and-a-half years, the government has increased oil subsidies and then reduced them; it decided to suspend free trade area agreements with Turkey and Arab countries and implement one with Iran; it says it wants to protect local manufacturing but reduces duties at the risk of endangering jobs.
We already knew the Syrian government had no strategy, and no desire, to solve the country’s severe political crisis; it doesn’t seem to have any economic strategy either.
Note: This article appeared first in December 2014 in The Syrian Observer