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Durham E-Theses Foreign direct investment in Syria an analysis of investment law no 10 Barkei, Christian L. How to cite: Barkei, Christian L. (2004) Foreign direct investment in Syria an analysis of investment law no 10, Durham theses, Durham University. Available at Durham E-Theses Online: http://etheses.dur.ac.uk/3165/ Use policy The full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that: • a full bibliographic reference is made to the original source • a link is made to the metadata record in Durham E-Theses • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders. Please consult the full Durham E-Theses policy for further details. Academic Support Oce, Durham University, University Oce, Old Elvet, Durham DH1 3HP e-mail: [email protected] Tel: +44 0191 334 6107 http://etheses.dur.ac.uk FOJRIEHGN ]I):[JRJEC1f ITNVIE§TMJEN1f RN §YJRIIA AN ANAJL Y§1f§ OJF KNVESTMEN'f LAW NO R([]) A copyright of this thesis rests witlll tllle aUltlhtor. No qunobntnm:n from it sll'nounRd be punlbnnslhtedl wntlhtount lhtis prnor wriUeJrn COI!llSeJrnt alllld n~rnformatfiont dle!dvedl. from fit slluounHd ll>e adrnowHedgedl. CJEIRlf§TilAN LL BARKJE][ GRAJI)1UA 1rE SOClfEl'Y THESIS SUBMITTED FOR THE DEGREE OF PHD CENTRE FOR MIDDLE EASTERN AND ISLAMIC STUDIES UNIVERSITY OF DURHAM JULY 2004 Abstract This thesis examines the economic situation in Syria during the 1980's and 1990's and assesses the reasoning behind the introduction of Investment Law No. 10. It discusses the validity of the general assumption that Investment Law No. I 0 marked the first step in the opening-up of the Syrian economy. It firstly examines the structure of the Syrian state to ascertain whether the regime would have any particular interest in promoting such legislation apart from a general wish to increase the economic well-being of its population, placing the discussion of investment vehicles within a more general economic framework. It then places the economic and political situation in Syria at the time of the introduction of the legislation within its particular political and economic historical context and then examines the legislation and its actual implementation and operation in detail to try to obtain an accurate picture of projects operating under Investment Law No 10. This is of particular relevance as prior to this study no overarching view of the actual implementation of Investment Law No 10 has been attempted. The wider economic picture in Syria is then scrutinized to evaluate the overall economic situation for investment projects operating under Investment Law No. 10. In conclusion, the links between economics and politics in Syria are examined in order to establish the actual motives and reasoning of the regime in introducing this particular piece of legislation. Acknowledgements My grateful thanks are due to all those individuals, in the Syrian Arab Republic and elsewhere, who gave so freely and willingly of their time during the period of research. Due to the nature of the research, it is impossible to single out anyone for individual mention, however rest assured that my sincere thanks and thoughts are with you. In the United Kingdom, my thanks must go to my supervisor Dr Emma Murphy who with patience and good humour criticised, encouraged and guided me through the minefield of PhD research. Additional thanks go to Professor Timothy Niblock and Dr Gareth Stansfield for unquestioning support and friendship. The research was made possible by a grant from the Economic and Social Research Council and I am particularly grateful to Ms Jill Maslem of that institution. Declaration I confirm that no part of the material offered has previously been submitted by me for a degree in this or any other university. If material has been generated though joint work, my independent contribution has been clearly indicated. In all other cases material from the work of others has been acknowledged and quotations and paraphrases suitably indicated. Contents Acknowledgements Contents p 1 List of Illustrations p3 Introduction p4 1. The Syrian State 1.1. Introduction p 24 1.2. Overview p 25 1.3. State Structure p 28 1.4. Class Structure and Power p 33 1.4.1. Working Class- Rural and Urban p 37 1.4.2. The Bourgeoisie p 39 1.5. Control and Participation p44 1.5.1. Parliament p 45 1.5.2. Progressive National Front p 47 1.5.3. Popular Organisations p 51 1.6. Conclusion p 55 2. Developments in Syria and the Ba'ath 2.1. Introduction p 57 2.2. Syrian Politics: Pre Ba'ath 1946-53 p 58 2.3. The Ba'ath in Politics 1954-63 and the UAR p 63 2.4. The Ba'ath in Power 1963-70 p 66 2.5. Policy and Performance under Assad 1970-80 p 74 2.6. The Years of Crisis and Survival: Syria from 1980-90 p 82 2.7. An Interlude: Syria in 1990-91 p 93 2.8. Ambition or Stagnation: Syria after 1991 p 95 2. 9. Conclusion p 100 3. Investment Law No 10 3.1 Introduction p 101 3.2. Background and Introduction of the Law p 102 3.3. Specific Articles of Investment Law No 10 p 106 3.4. Application Procedure for a Project under Investment Law No 10 p 111 3.5. Achievements of Investment Law No 10 p 114 3.6. Implementation of Projects under Investment Law No 10 p 117 3.7. Problems within Investment Law No 10 p 123 3.7.1 Project differentiation p 125 3.7.2 Geographical differentiation p 128 3.7.3 Limited periods of tax exemption p 130 3.7.4 Lack of a 'One-Stop Shop' p 131 3.7.5 Unseen changes and conditionalities p 133 3.8. Conditionalities in Investment Law No 10 p 135 3.9. Conclusion p lM 4. Overall Factors for Investment in Syria 4.1. Introduction p 145 4.2. Political Risk p 146 4.2.1 Levels of corruption p 148 4.2.2 Levels of violence p 149 4.2.3 Interest Groups p 151 4.3 External Factors -Political and Economic p 154 4.4 Economic Risk p 158 4.4.1 Reform attempts p 162 4.4.2 Population Growth p 166 4.4.3 Capital p 169 4.5. Attitude of the Syrian State towards FDI p 172 4.6 Aim of Investment p 175 4.7 Conclusion p 177 5. Politics and the Economy in Syria 5.1 Introduction p 179 5.2 Economic and Political Background to the Law p 180 5.2.1 Capital Advantages p 183 5.2.2 The Economy of Emotions p 187 5.3 The short-term role of Investment Law No. 10 p 191 5.3.1 Ability for Criticism of the Economy p 192 5.3.2 Support for Investment Law No. 10 within the regime p 196 5.4 Conclusion p 200 Conclusion p 204 Appendix 1: The Syrian Cabinet in March 2000 p 217 Appendix 2: Investment Law No.1 0 of 1991 p 218 Appendix 3: Order No.7 and later amendments p 231 Appendix 4: Executive Instructions No. 6 p 254 Appendix 5: Free Trade Zones in the SAR p 262 Bibliography p 264 Interview Subjects p 272 2 Illustrations Figure 1: Pre-Reform Distribution of Land Ownership p 67 Figure 2: Post-Reform Distribution of Land Ownership p 69 Figure 3: Change in Agrarian Classes 1960-1970 p 70 Figure 4: Foreign Reserves of Syria 1983-1993 p 89 Figure 5: GDP in Syria 1983-1990 p 89 Figure 6: Crude Oil Production in Syria 1983-1991 p 90 Figure 7: Balance of Trade 1983-1993 p 92 Figure 8: Governmental Decision-making p 105 Figure 9: Approval Procedure for Investment Projects p 112 Figure 10: Project Data for Investment Law No 10 p 114 Figure 11: Legal Ownership of Investment Projects p 115 Figure 12: Projects operating under Investment Law No 10 p 117 Figure 13: Projects approved, but not operating under p 120 Investment Law No 10 3 Introduction 1. The Ontological Position 1.1 Economic Operational Reality of Investment Law No. 10 From the start of the operational work on the thesis it was clear that it was necessary to examine the operation of companies under Investment Law No. 10, the actual framework of legislation and the execution of legislation in the creation of companies operating under the framework of Investment Law No. 10, then to examine the opinions of the legislation, experiences of the legislation and the overall patterns and frameworks that emerge from the operation of the legislation 1.2 What Represents Evidence? Evidence for answering the research question was provided by interview data, by external and internal economic data, by primary sources inside the Syrian Arab Republic, and secondary academic sources. 1.3 With Which Topic is the Research Concerned? The research is concerned with the actual operation of Investment Law No. 10 in Syria and the reasoning behind its introduction. 1.4 Research Questions A series of questions were formulated to provide a framework for the development ofthe thesis. 4 1. What was the political-economic situation in Syria at the point of introduction of Investment Law No. 10? 2. Why did the regime introduce Investment Law No. 10 at that time and in that form? 3.