Lebanon’s Economic Predicament as an Open Economy

Lebanon’s Economic Predicament as an Open Economy
Prepared By: Prof. Michel Nehmé and Dina Nehmé
Professor at NDU ABD global studies


After the end of the Lebanese civil strife in 1990, all succeeding governments have failed to address the large-scale issues such as the widespread corruption and a looming currency crisis. Lebanon’s economic crisis didn’t materialize overnight. Lebanon’s fiscal policies were consistently generating large-scale debt and inequality. Those economic and political choices have led to an increasingly unsustainable situation for which the country’s political leaders have few answers. The benefits of unsustainable government borrowing have nourished a narrow class of elites without addressing growing poverty, while the tax system further entrenched inequality. Lebanon’s economic fundamentals are among the foulest in the world. One of the most indebted nations, its government debt is estimated at 155 percent of gross domestic product. The country imports vastly more goods and services than it exports, and the government budget deficit is set to reach 10 percent of GDP this year despite false promises of keeping it at below 3 percent[1].

Since Lebanon depends on imports, a currency devaluation would raise prices for imported goods and erode living standards. Since 1997, a dollar fixed rate has reassured foreign investors of the country’s stability. The decision recently by Lebanese banks to ration access to U.S. dollars therefore alarmed Lebanese.Excessive government borrowing has inflated the politically well-connected banking sector that lends to the state at high interest rates. Banks prefer to lend to the government rather than finance innovative enterprises, depressing private-sector investment. Lebanese banks rely on wealthy Lebanese and especially the diaspora to deposit their money in Lebanon to solicit high interest rates compared to Western countries. The enormous interest rates earned by these depositors are earned by a very few families. The latter accounts are estimated to hold approximately half of total deposits. Economic observers have tied the current economic crisis of Lebanon to the unproductive rentier economy which revolves around banking and real estate, which creates, as a result, great income inequality. A topical economic study found that the top 10 percent of Lebanese income earners accumulated 57 percent of the total income earned in 2014, while the bottom 50 percent accounted approximately 11 percent[2].

The burden on financial institutions is light, while indirect taxes paid by everyone, such as value-added tax (VAT), are relatively high. The recent WhatsApp tax, which sparked the outbreak of protests, became a mark of the country’s twisted political economy. While the wealthy and politically connected earn state-induced banking profits, the sovereign state capital is drained of the possessions to solve social and unemployment crises.

The more debt Lebanon incurred the less became the capacity of the government to deliver public services amid an intensifying unemployment crisis which politicians tried to solve by adding a huge number of employees to the existing public sector, thus, intensifying the crisis even further. Servicing the country’s excessive debt leaves little room for government spending on vital social problems. Government hiring and spending along sectarian lines fuel a systematic lack of transparency and patronage in political appointments.The dysfunctional electricity system forces households to pay excessive fees for access to private generators. Households rely on bottled water because tap water quality is medically unsafe.

It is relatively realistic to state that Lebanon’s estimated 1.5 million Syrian refugees represent an additional burden, but the causes of public sector calamities were rooted before the start of the Syrian war in 2011. However, This has not restricted politicians from using the refugees as an easy scapegoat for their own failings[3].

The state’s poor performance endangers its citizens. As an example, the failure to collect garbage in Beirut and elsewhere in Lebanon. Politicians found no sustainable solution to the crisis other than dumping the waste across the country’s mountains and seashore. This, in turn, resulted in severe water and air pollution.

As to how Lebanon’s economy survived for the last 25 years?The answer lies first in the issue related to regional funds invested to support proxy military and political faction groups. Second, Lebanon and for long has been immensely dependent on remittances from its large emigrant community, not least to provide the deposits that Lebanese banks then lend to the government. These inflows have stagnated in recent years. Declining oil prices reduced remittances from Lebanese in the Gulf, while the Syrian war has made Lebanon a less attractive investment destination. Another factor that kept the economic crises dragging with no uprising for lack of accountability is related to the Lebanon’s politicians skills in using sectarianism to control their confessional constituencies and to undermine efforts at political mobilization that could threaten the status quo. On the other hand, The manipulative tasks by the central bank to resort to complex financial acrobatics to maintain the coalition of interest among banks, diaspora capital and the Lebanese treasury. At a 2018 donor conference, the Lebanese government pledged economic reforms in return for funds but did not meet its promises[4].


Lack of affordability strategy

The real problem of the Lebanese successive governments rests on their failure to meet the complex task of employing the best possible affordability strategy within the country’s budgetary constraints. In order to maintain and increase the competitiveness of Lebanon in the global open economies, Lebanese governments ill-treated their country’s ownborrowed financial funds, and therefore accumulated excessive burden debt. This debt was generated from the difference between gross foreign debt and gross foreign claims.

Lebanon’s competitiveness in the regional and world market is unusual. It is a small open economy that relies greatly on regional and international trade and short of substantive foreign direct investment that could positively merge Lebanon in the world market. Considering limited financial capabilities and resources, one of the most critical measures that Lebanon can take, is to increase its competitiveness through implementing and employing advanced knowledge. This could partially be achieved by enhancing the competitiveness of Lebanon via upgrading the management of its net foreign debt. The Lebanese economic crises result from using obsolete methods to challenge intense regional and global competition. It is well known that Lebanon has budgetary constraints. Successive governments should have employed the best possible competitive strategy within the available funds. However, for over 24 years, they overburdened the balance of trade in both goods and services. This major trade deficit occurred when the total monetary value of imports far exceeds the total monetary value of exports. Historically, trade deficits obligated states and governments to assume a mercantilist stratagem to their economy. It is well documented that Western states assumed protectionism to salvage their economy after the 1928-9 financial and market crises.

Average tariff levels for the United States and major European countries in 1931 was between 38% and 48% and this increase in tariffs lasted until 1951. At present, the Trump administration is backpedaling in history to convert the current American economy back into a state protectionist economy. By doing so, the USA is applying an increase in tariff percentage in order to reduce the balance of trade deficit. It is doing so, even if it has to challenge the World Trade Organization (WTO); an organization initially created and developed by the U.S.A. in collaboration with England and the neo-liberal economists[5].

The two main capital inflows to the budget of any small country like Lebanon with an open economy are collected through its domestic market and the international financial market. Borrowed financial funds must be handled with extreme caution, because they cause accumulation of foreign debt and in turn, the breakdown of the state. It is true that foreign debt, if managed with caution, allows getting the capital necessary for maintenance and increase of the competitiveness of the country, but in Lebanon this foreign debt brought about corruption in sectors of the economy and plunged Lebanese competitiveness to nil. Furthermore, the funds can be obtained as a grant. However, grant money should strictly be used for the definite intended targets. Therefore, borrowing capital is usually the only way to get lump capital to be used for specific promotional needs of the country, i.e. to create sectors with competitive advantage[6].


Comparative and competitive advantage

One of the most important means for Lebanon to create and increase its competitive advantage in the regional and global market is to employ advanced knowledge. This is achieved through capitalizing on all available contemporary and efficient methods to manage its foreign debt. Lebanon’s strategy should be to either prevent big losses from occurring due to sudden unfavorable changes in economy or mitigate the unavoidable outcomes of economic setbacks. Development of such skills is essential for small open economies (such as Lebanon) as a source of creation of competitive advantage by optimizing foreign debt level, thus increasing economic stability and credibility.

sudden changes in the economic arena, as mentioned above in Lebanon, should be faced by using pre-approved contingency plans. The importance of adjustment to the changing economic environment is becoming more vital to small states. This is especially true in a world which is witnessing landscaping changes in the economic cores of the international system. The unpredictability of these changes in an economy, creates a fluctuating rate of economic growth and requires an adequate response from macroeconomic policy makers. To mitigate the possible negative impact on the performance of the foreign debt management strategy, a number of scientific and practical problems are addressed. These problems, which are associated with the concepts of foreign debt management, its strategy development and correction according to given sudden changes of economic environment (etc.), should be thoroughly revised and the respective advanced approach pattern must be formed. This is done in order to mitigate losses that are most likely to be incurred due to the overwhelming effect of the economic shock[7].

It is essential for the Lebanese government and bureaucracy to solicit the expertise of specialized macroeconomic personnel known as debt managers to take adequate measures and create a framework which is strengthened by taking preventive measures and devising preventive tools to maintain “sustainable” foreign debt. Unanticipated changes in the economy have considerable impact on those decisions. Depending on the strength and liability of contingency planning, some of those events can be controlled and their results mitigated, by appropriate hedging or buffering strategies. Therefore, it is important for the national governing system to adopt these actions within its framework foundation so that these measures become part of its natural operating life course when dealing with net foreign debt. Unfortunately, most Lebanese politicians hide behind the Central Bank, which is a monetary authority that employs technical powers but falls short of any political prerogatives[8]. Furthermore, a synchronized set of tools and techniques for foreign debt management is considered to provide the state with the ability to generate the most accurate predictions of possible economic shocks and therefore enables debt managers to significantly mitigate the outcomes or after-effect of any economic shock. Notwithstanding, it is evident that multidimensional models enhance the advantage of the various techniques. This formula of action has been in construction for the last ten years by microeconomists like Ginevicius, Diskiene and Kopitov[9] and they emphasized the applicability of such models on small state economies such as Lebanon.

It is important that the above, become part of the assessment of the overall economic sustainability in the country. Economic development and environmental changes are both stochastic and evolutionary processes. Stochastic is used here to mean: Situations or models containing a random element, hence unpredictable and without a stable pattern or order. All-natural events are stochastic phenomena. Moreover, businesses and open economies are considered as stochastic systems because their internal environments are affected by random events in the external environment. This leads to the conclusion that analysis, as well as measurement and management of those processes, requires a specific set of concepts and tools. The success of the formation and implementation of said set is especially critical for the management of both public finances as a whole and national debt in part. It is even more significant in case of management of foreign debt in small open economies, because they are exposed to higher vulnerabilities. Subsequently, the current economic downturns have highlighted the shortcomings of the management of foreign debt and the government overall debt. For assessment of the sustainability of the government debt, specifically the ability to maintain the net foreign debt in sustainable level, preference should be given for the models, based on stochastic simulations. These kinds of models allow simulation of different possible scenarios and the impact on economy in case of various economic settings and unpredictable changes[10].


The WTO and its prospects for Lebanon

All Members of the WTO have had to confront complications with this organization. It is safe to say that non-members nonetheless face similar snags. Lebanon has traditionally been a country with a free and open trade regime, something that the WTO calls for, but yet it is not granted membership. Suffice it, that Lebanon has been vying for WTO membership, which would entail eliminating or significantly lowering trade barriers. Having partially complied with WTO standards of trade since 1998, Lebanon was given an 'observer' status at the body's 2003 conference in Cancun, but the accession process has been stalled since then[11].

Lebanese efforts towards trade liberalization have focused on the European Union (EU), the WTO, and the Arab world. Lebanon has neither a free trade arrangement nor a bilateral investment treaty with the United States or China, which are now the largest economies of the world. On December 1, 2006, Lebanon and the U.S.A. signed a Trade and Investment Framework Agreement (TIFA), but the TIFA never came into force.

Lebanon’s Euro-Mediterranean Partnership agreement came into force in April 2006. The agreement provides for reciprocal free trade on the majority of industrial goods and liberalizes trade on a large basket of agricultural goods (eg. Processed agricultural goods), but does not elaborate the service economy that now constitutes 60% of world trade capital. The Euro-Med Partnership aims at establishing a free trade area for the Mediterranean region; efforts to achieve this goal are ongoing. Lebanon and the European Free Trade Association (EFTA) signed a Free Trade Agreement (FTA) in 2004. In November 2010, Lebanon and Turkey signed an association agreement to establish a free trade area and reduce barriers to the free movement of goods, services, capital, and people between the two countries over the subsequent ten years. The agreement is not yet ratified. Lebanon also signed the Greater Arab Free Trade Agreement, which gradually replaced the bilateral FTAs signed with Arab countries including Tunisia, Morocco, Egypt, Iraq, Jordan, Syria, Sudan and the Gulf Cooperation Council states. A regional Economic and Trade Association Council between Lebanon, Syria, Jordan, and Turkey was announced in July 2010. However, given the outbreak of the Syrian crisis, this agreement did not enter into force. Lebanon launched free trade agreement negotiations with MERCOSUR countries in 2016[12].

Lebanon has signed bilateral investment agreements with the following (in alphabetical order, as of January 2012): Armenia, Austria, Azerbaijan, Bahrain, Belarus, Belgium/Luxemburg, Benin, Bulgaria, Canada, Chad, Chile, China, Cuba, Cyprus, Czech Republic, Egypt, Finland, France, Gabon, Germany, Greece, Guinea, Hungary, Iceland, Iran, Italy, Jordan, Korea (South), Kuwait, Malaysia, Mauritania, Morocco, Netherlands, OPEC Fund, Pakistan, Qatar, Romania, Russia, Slovak Republic, Spain, Sudan, Sultanate of Oman, Sweden, Switzerland, Syria, Tunisia, Turkey, United Arab Emirates, Ukraine, United Kingdom, and Yemen. The latter information were taken from the Lebanese Ministry of Finance’s website. Lebanon does not have a bilateral taxation treaty with the United States. A full list of all the countries with which Lebanon has signed taxation agreements can be found on the Lebanese Ministry of Finance’s website.

All of the above agreements are short of putting Lebanon on the core of the economic transactions taking place in the manufacturing chain of commodities and services among rising growth countries. Lebanon is a lost partner member within all of the above-mentioned agreements.


Who does Lebanon actually trade with?

Lebanon's main imports partners are Syria (10.5% of imports), France (9.5%), US (9.3%), Italy (7.3%), China (6.8%), Germany (4.9%), Saudi Arabia (4.8%) and Turkey (4.2%). Lebanon's industrial growth rate was estimated on Mar 29, 2010 at 2% equal to that of national growth. By 2019 this percentage severely dropped down. Lebanon’s top imports are Refined Petroleum ($3.32B), Cars ($1.35B), Gold ($1.05B), Packaged Medicaments ($935M) and Bovine ($267M).

The top export destinations of Lebanon are South Africa ($629M), the United Arab Emirates ($324M), Saudi Arabia ($313M), Switzerland ($221M) and Syria ($198M). Major exports included Pearls, Precious Stones & Metals (22% of total exports), Food & Beverages (13%), Metal products (12.9%), Chemical products (12.3%), labor intensive Machinery & Electrical equipment (10.9%), and Vegetable products (6.2%).

It is evident from all of the goods and commodities listed above and aside from traditional service trades, Lebanon does not have any worth role in the global trade chain that recently revolutionized the world economy.


What is global trade worth?

Although world merchandise trade increased slightly in terms of volume in 2016, it declined in terms of value due to falling export and import prices. World merchandise exports were valued at US dollar: 15.46 trillion in 2016, down 3.3 per cent from the previous year. It witnessed a stabilizing tendency in the years that followed. The World Trade Organization cut its global trade growth forecast for the year 2019 to the weakest level in a decade, warning that further rounds of tariffs in an environment of heightened uncertainty could spark a “destructive cycle of recrimination”.

The query here is: How could Lebanon with its structural economic deficiency survive a decline in economic, financial and monetary shortage world-wide? It is desperately surviving by increasing its dept, because it lacks an export strategy to augment competitiveness. The appeal of technological composition of Lebanon’s exports are relatively inadequate compared to the high quality and rapid improvement of technology and the parceling of goods and services by multinational corporations in several locations on trade root that Lebanon is not one of them.

Given the country’s present circumstances, the export sector as a whole plays only a minimal role in the Lebanese economy. In the age of globalization, this trend must be reversed. An export-oriented strategy would enable the country to overcome the constraints related to its size and provide an impetus for long-term sustainable growth. Lebanon can no longer afford to lag behind in an increasingly competitive world. It must increase the proportion of its GDP that is accounted for by exports, and it must also move toward an export strategy of enhancing its competitiveness and using its comparative advantages more effectively. The rising intensity of global competition means that Lebanon must focus its resources for maximum effect. Food products and high-technology products are examples of exports in which Lebanon seems to have a comparative advantage but thus far the comprador class in cooperation with key politicians have reduced encouragement in that direction. Import policies should not be allowed to bias resource allocation away from such export-oriented sectors[13].

Moreover, additional export diversification is needed to shield Lebanon against increasingly ferocious competition from regional and international competitors from all parts of the world. From Turkey, Dubai, China and India, and as an example, in the case of low-skill, labor-intensive products such as garments, or from Eastern Europe and Latin America in the case of medium-skill-intensive products such as electric machinery, or from East Asia in the case of high-skill-intensive products such as electronics. Against all restrain from the national administration, Lebanese investors are forcefully trying against all odds to export and have their share in developing societies. Export diversification might be based on high-value-added products requiring locally available resources, such as agricultural products. Moreover, diversification will necessarily entail an upgrading of technology, labor skills and productivity, and definitely governmental structural adjustments.

As a country with available labor power, Lebanon could find a function in the area of products which require highly skilled labor and constitute a rapidly growing segment of the world’s export trade, such as electronics not actually totally manufactured locally but to be a segment of the chain that includes tens of other core countries. In order for Lebanon to achieve higher export competitiveness and diversification, which in turn would help exports to account for a higher proportion of its GDP, there are a number of policies that should be implemented:

First, to adopt domestic policies, including macroeconomic stability, that are designed to attract foreign direct investment into export sectors, in order to enhance the potential for technology transfer that Lebanon needs. The Euro-Mediterranean Partnership provides an opportunity here, in view of its specific provisions for technology transfer. Second, trade barriers should be sharply lowered to encourage fuller and less vulnerable trade integration with the rest of the world. Moreover, the WTO provides a well-established framework for trade liberalization and for the credibility of such programs; Lebanon, which has observer status, must move more quickly toward membership and request a temporary exemption to tax part of its imported commodities pending and until its economy picks up. Finally, the government should continue to invest in education, especially secondary education, and labor upgrading education. in order to promote the competitiveness of the country’s labor force[14].


Lebanon’s Conformity with WTO Requirements

Accenting to the WTO is a complex, challenging and lengthy process for any country and specially for small economy states like Lebanon. The accenting country must implement extensive reforms to its policy, legal, regulatory and institutional base to conform fully, prior to accession, to all WTO mandatory agreements and understandings. It must also sit down with those of its trading partners that are WTO members and negotiate market access for goods and services and the reduction or elimination of agricultural and industrial subsidies. Depending on the acceding country’s foreign trade regime, WTO-related reform may require extensive policy changes (in such areas as trade, foreign exchange, payment system, investment, competition, tax system and pricing) and laws and legal acts in various fields: intellectual property, customs, trade in goods (including import licensing, anti-dumping and countervailing measures, safeguards, standards, sanitary and phytosanitary measures, agriculture, trade-related investment measures and subsidies), trade in services, and government procurement. The acceding country must also establish a legal framework characterized by transparency and effective administrative and judicial procedures and criminal/civil procedures and penalties. The latter is most difficult to attain in a milieu of corrupted bureaucracy. An assessment of Lebanon’s foreign trade regime indicates that further significant reform is required in order to adjust the country’s policy, legal, and institutional framework to WTO requirements.


Is Lebanon Preparing for WTO Accession?

Lebanon is considered to be one of the original contracting parties that founded GATT in 1947, but it left GATT in 1951. In February 1999, Lebanon applied for full membership of the WTO following a meeting of the Legal acts include regulations, decrees, decree-laws, decisions, instructions and orders. Although optional in principle, committing to accede to the WTO Government Procurement Agreement is becoming a de facto requirement for WTO accession. In addition, the next round of multilateral negotiations is likely to lead to a new agreement on transparency in government procurement where the primary focus will be on government procurement methods. In May 1999, the Government of Lebanon issued a decision of the Council of Ministers establishing a National Committee on WTO Accession. The National Committee is chaired by the Minister of Economy and Trade and consists of the heads of relevant ministries and state bodies, including the Ministry of Finance, the Ministry of Economy and Trade, the Ministry of Agriculture, the Ministry of Public Health, the Central Bank, the Ministry of Transport, the Ministry of Tourism, the Ministry of Post and Telecommunications and the Higher Customs Council. The National Committee is still not yet committed to a clear criterion in the process of setting up a WTO Unit, to be staffed by qualified personnel responsible for handling day-to-day technical and administrative matters, providing co-ordination in preparation for accession, preparing accession documents, and leading the forthcoming negotiations.

Lebanon, with the assistance of USAID, prepared a Memorandum on the Foreign Trade Regime (MFTR) and submitted it to the WTO Secretariat in May 2001. As yet, there has been no significant progress in the matter of preparing market access offers on goods and services and initiating the bilateral negotiating process. The succeeding Government of Lebanon has made WTO accession its second priority, after the conclusion of negotiations on the Euro-Mediterranean Partnership. Therefore, Lebanon pushed back the initial target date of November 2002 for the completion of negotiations on its accession to the WTO. The two essential questions are: Does the WTO membership fully integrate Lebanon into the world economy and the multilateral trading system? And How should the Lebanese economy essentially attract the investment needed to bring about economic recovery and productive growth? WTO membership will significantly reduce the high-risk level currently associated with commercial investment in Lebanon, thereby offsetting the high political risk level. WTO membership will send a signal to the international investment community that; First: Lebanon has a stable, predictable, transparent and non-discriminatory trade and investment environment; Second: Lebanese goods and services have access to the markets of all WTO countries, and Third: Lebanon provides adequate legal protection for investments, especially protection for intellectual property rights. Such protection is crucial for the transfer of modern technology and know-how to Lebanon, which in turn is essential if production is to be improved, competitiveness enhanced and goods and services delivered in accordance with international safety and quality standards and requirements[15].

If Lebanon is to enjoy the rights and opportunities associated with WTO membership and benefit from the liberalized market access adopted by WTO members during and after the Uruguay Round, it will have to work on two major things. First, prior to its accession, it will have to implement, a major policy and legal reform program to bring its foreign trade regime fully into line with WTO requirements. Second, it will have to provide market access to specific foreign goods and services originating in WTO countries. This may involve protracted negotiations with WTO members interested in trading with Lebanon; however, the most probable outcome is that Lebanon will find itself on a level playing field with most other developing countries while still maintaining advantages with respect to access to the markets of developed countries. This was the target date specified in Lebanon’s Accession Master Plan, which was prepared during the summer of 2000, with the assistance of USAID, and adopted by the Government of Lebanon in September of that year. It is important to note that none of the countries currently in the process of acceding to the WTO or the countries that have recently acceded to it has been granted any transitional arrangements for implementing WTO legal requirements.


Is Lebanon not-ready or Unwilling?

Regardless of Lebanon’s prospective access to the WTO, modernization of its legal regime (structural innovation) is long overdue. Most Lebanese laws date back more than 40 years, and laws or relevance for many areas within the purview of international trade are altogether absent from Lebanon’s legal regime. Modernization would not only meet WTO requirements; it would also be greatly beneficial to Lebanese businesses. Furthermore, it would strengthen the rule of law in Lebanon, simplify and streamline business procedures, ensure greater transparency, ensure accountability and curtail discretionary authority and corrupt practices. In the course of the past several years, Lebanon has taken several steps toward the modernization of its legal regime, with the enactment of a law on copyright in 1999, a law on patents in 2000 and a decree-law on customs in 2000. All three laws are substantially in conformity with WTO requirements. Yet laws are made and observed in Lebanon and there lies the predicament. Moreover, recently, the Ministry of Agriculture implemented a major tariffs-oriented rule program, eliminating restrictions and prohibitions on many imported food products. In accordance with Lebanon’s Accession Master Plan, a number of other laws have been drafted, including a new law on trademarks and geographical indications, a new law on standards and metrology, a law on international trade in goods which will establish an international trade policy framework in line with WTO requirements, especially the 1994 version of GATT and the import licensing agreements which will increase Lebanon’s level of compliance with the WTO’s agreements,. On the other hand, a number of other initiatives currently under way appear to contradict WTO principles and are likely to cause concerns during the accession process. These include: The lack of enforcement to obey laws, the introduction of export subsidies on agricultural commodities and new import prohibitions. However, given Lebanon’s insignificant level of support for the agriculture sector, such subsidies may be useful as a means of boosting exports of agricultural products temporarily, and it is better to introduce them prior to WTO negotiations, since it will no longer be possible to do so after accession. Finally, a proposed law designed to encourage investment fails to provide foreign investors with any legal guarantees or protection and contains some provisions that may be inconsistent with WTO requirements relating to transparency and non-discriminatory treatment. Judging from this evaluation of Lebanon’s foreign trade regime, its current accession status and the experience of other acceding countries, Lebanon’s accession to the WTO, providing compliance by the government is technically feasible, provided Lebanon; First: implements policy and legal reforms to bring its foreign trade regime into full conformity with the WTO agreements, and second: actively pursues bilateral negotiations with the aim of concluding them before the accession comes to closure.


Lebanese policy and Trade in Goods

The Lebanese legal regime governing trade in goods is not in full conformity with WTO requirements. Trade policy measures are set primarily by ministerial decisions and, in a few cases, by decrees or decisions of the Council of Ministers. Consequently, the foreign trade policy regime governing trade in goods lacks stability and predictability. To rectify this deficiency, Lebanon must enact a law articulating a framework for the adoption and enforcement of international trade policy. Below are key aspects of Lebanon’s current trade policy regime governing trade in goods, that need to be upgraded for conformity with WTO agreements.

First: Import and export duties. Second: Most-favored-nation (Article I of GATT 1994). Third: National treatment (Article III of GATT 1994). Fourth: Import and export licensing. Fifth: Import and export prohibitions. Sixth: Import and export quotas. Seventh: Customs regime. Eighth: Trade-related fees. Ninth: Anti-dumping measures. Tenth: Countervailing measures. Eleventh: Safeguard measures. Twelfth: Industrial subsidies. Thirteenth: Agricultural subsidies. Fourteenth: Technical barriers to trade. Fifteenth: Sanitary and phytosanitary measures. Sixteenth: Environmental regulations. Seventeenth: Trade-related investment measures.

Considering that import and export duties in Lebanon’s current tariff policy is liberal, as it has been the practice, Lebanon does not apply any export duties, a measure that is not contradictory to WTO rules. Furthermore, Lebanon does not currently maintain any tariff quota system with the exception of few agricultural goods. In order to accede to the WTO, Lebanon will have to bind its customs duties in the framework of lengthy and complicated bilateral negotiations on market access for goods. It has not yet submitted its initial offer for negotiating bound rates with countries interested in exporting their goods into Lebanon. Bilateral negotiations on market access may take a minimum of one year after the submission of Lebanon’s initial offer. It is difficult to predict the outcome of those negotiations at this stage. However, given the current tariff rates, it is likely that the average weighted bound rate of duties will not be significantly different from the current rate after the negotiations. Lebanon will also be expected to adhere to many, if not all, zero-for-zero sector agreements and the information technology arrangements, which require the staged elimination of customs duties among signatories to the agreements on information technology products.

In the event of non-conformity, Lebanon will have to proceed on a case-by-case basis to the following: First, Renegotiate various aspects of its existing agreements; second: WTO Member Governments recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production. (Article III:1 of GATT 1994). Lebanon does not currently produce motor vehicles which means there is no harm in that. Under WTO rules, these measures may not be applied in a discriminatory manner between countries where identical or similar conditions prevail.



Even if Lebanon decided to join the WTO, domestically with the current club of politicians, there is little enthusiasm for the general free trade agenda that the WTO encourages. In practice, the majority of Middle East countries is “protectionist”, and Lebanon is not totally different and is likely to stay that way for the years to come. The WTO is deemed irrelevant. Lebanon claims a number of reasons for not preparing well for the WTO. These range from guarding their sovereignty, to denying the benefits the WTO offers, flood of foreign imports at the expense of domestic industry, and ideological and psychological barriers. In more recent times, however, many perceive trade liberalization as a threat to cultural traditions and Islamic resistance movements[16].

The answer to such claims is in posing the following inverse question; can Lebanon progress technologically and get the benefits of relative advantage economy and what it may derive without being part of the WTO? In an era of internationalizing the economy, if Lebanon does not join it would be realistically isolated. Additionally, with the world becoming more and more economically integrated, Lebanon will have the chance to be involved and its interests might be represented appropriately. As to the unbalanced claim that Lebanon is protectionist, great volumes of literature have been written about Quad countries (U.S., EC, Japan, and Canada) protectionism and cheating techniques. As to preserving the nuanced, one can say that free trade should not be seen as the source of all freedoms. Adhering to the rules of the WTO may enhance the global confidence in Lebanon and it would obligate the political process and political domination and corruption to be more transparent, accountable, and responsible and thus likely to increase foreign direct investment. As for the Lebanese citizens, one would imagine how they feel when their government becomes not only accountable to them but to an international institution and the global community. The loss of sovereignty is not specific for Lebanon whose sovereignty is already at stake, but for all the countries which joined the WTO. Membership in the WTO would ensure Lebanon a fair forum for settling its potential trade disputes with other members who may wield more trading power. Reviewing some of the major economic power cases would reveal this truth.

There are some safety valves that can be used provisionally to counter imports (anti-dumping, environmental and health protection against genetically engineered beef, and genetically reformed agricultural and food substances are good excuses to prevent dumping). Finally, the effectiveness of any legal system might be judged by analyzing what would have happened in the absence of such a system? Therefore, as a counterfactual, let us assume that the WTO disappears overnight. Would that make Lebanon better protected? The way the WTO as an institution runs its business may not be perfect. Certainly, the WTO needs tune-up and enhanced-image toward the public. However, this should not absent Lebanon. Politics is probably another reason, which is often overlooked, for the absence of Lebanon's participation in the WTO. The claim that the U.S.A. is blocking the establishment of working parties to examine Arab and Islamic states applications does not fit the Lebanese case[17].



-Tools for management of the debt, government’s borrowing needs and strategies are analyzed rather widely in the scientific works of economists (Evans & Marshall, 2005; Rutkauskas et al., 2008; Stuopyte & Guzavicius, 2008; Teresiene et al., 2008; Lakstutiene, 2008; Relano, 2008; Karazijiene, 2008, 2009; Liebscher, 2009; Aniunas et al., 2009; Ciegis et al., 2009; Vlasenko et al., 2009).

-Sustainability of national finances is usually defined evaluating the specific indicators and their variance over the time (Presbitero & Arnone, 2006; Grybaite et al., 2008; Relano, 2008; Izák, 2009; Ciegis et al., 2009b; Goldstein, 2010). Moreover, lately it is acknowledged the significance of systematic approach to the sustainability issues (Burinskiene & Rudzkiene, 2009; Dzemydiene, 2008).

-Economics and finance are exploring and employing more various models that approach the alterations of anticipated variables over the time as the key factor for increase of accuracy of the concluding findings (Eaton & Fernandez, 1995; Grybaite & Tvarovaviciene, 2008; Yusof et al., 2008; Teresiene et al., 2008; Aniunas et al., 2009; Ginevicius et al., 2009; Strumickas et al., 2009).

-Furthermore, the benefit of interaction between different means for management of debt, chosen to implement considering the different factors of the changed operating environment, is witnessed (Gudonavicius et al., 2009; Kopitov et al., 2008; Markovic, 2008). Therefore the need of the multidimensional models to enhance the advantage of the various techniques is recognized (Diskiene et al., 2008; Kopitov et al., 2008; Ginevicius et al., 2008, 2009).


[1]-  The Washington Post. By Hannes Baumann; Lebanon’s economic crisis didn’t happen overnight. So how did it get to this point? Oct. 22, 2019.

[2]-  The New York Times. By Ben Hubbard; Economic Crisis Looms as Protests Rage in Lebanon, Nov. 15, 2019.

[3]-  US News Middle East. By Heather Murdock; Lebanon Faces Financial Collapse Amid Daily Anti-Corruption Protests, November 21, 2019.

[4]-  The Washington Post. By Hannes Baumann; Lebanon’s economic crisis didn’t happen overnight. So how did it get to this point? Oct. 22, 2019.

[5]-  Cecchetti, S. G., Mohanty, M. S., & Zampolli, F. (2015). The future of public debt: prospects and implications. BIS Working papers, No. 300. Retrieved from http://www.bis.org/publ/othp09.pdf?frames=0.

[6]-  Goldstein, J. (2016). Debt Sustainability Assessment: The IMF Approach and Alternatives. Retrieved from http://www.aep2010.com/pdfs/3-16-10%20Tuesday/Mesquite%20Room/1_1030am1145am/Goldstein%20%202010%20AEP%20Annual%20Meeting%20FINAL%20DRAFT%20Presentation.pdf.

[7]-  Ciegis, R., Ramanauskiene, J., & Startiene, G. (2017). Theoretical Reasoning of the Use of Indicators and Indices for Sustainable Development Assessment. Inzinerine Ekonomika-Engineering Economics.

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[10]- Ciegis, R., Ramanauskiene, J., & Martinkus, B. (2009). The Concept of Sustainable Development and its Use for Sustainability Scenarios. Inzinerine Ekonomika-Engineering Economics(2), 28-37; Diskiene, D., Galiniene, B., & Marcinskas, A. (2008). A strategic management model for economic development. Technological and Economic Development of Economy 14(3);. Durbarry, R., Seetanah, B., & Padachi, K. (200)8. An Empirical Assessment of External Debt on Economic growth. Internationa Finance and Economics. Retreived from http://www.britannica.com/bps/additionalcontent /18/35618410/an-empirical-assessement-of-external-debt-on-economic-growth-the-case-of-africa-in-a-panel-var.

[11]- Lebanon's WTO Accession in Brief:www.economy.gov.lb › public › uploads › files

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المأزق الاقتصادي اللبناني في ظل اقتصاد منفتح

تكمن المشكلة الحقيقية للأزمة الاقتصادية اللبنانية في إخفاق الحكومات المتعاقبة في أداء المهمة المعقدة, المتمثلة باستخدام الاستراتيجية الأفضل والأقل كلفة, بما يتناسب مع القيود المرافقة لموازنة الدولة. وتعاطت الحكومات اللبنانية بشكل غير مناسب مع الاعتمادات المالية المقترضة التي راكمت أعباء الديون، نتيجة لوجود فارق بين إجمالي الديون الخارجية وإجمالي احتياطات النقد الأجنبي.

وثبت أن القدرة التنافسية للبنان على الصعيدَين الإقليمي والمحلي تعتمد على سياسة قصيرة النظر، إذ إن لبنان بلد ذو اقتصاد صغير ومنفتح، يعتمد بشكلٍ كبير على التجارة الإقليمية والعالمية، ويعاني من تراجع الاستثمارات الأجنبية الكبيرة التي يمكن أن تدمج لبنان بشكلٍ إيجابي في السوق العالمي. ونظرًا إلى القدرات المالية الضعيفة والموارد المحدودة، يمكن اللجوء إلى زيادة قدرته التنافسية من خلال تطبيق واستخدام المعرفة المتقدمة، أو ترشيد إدارة ديونه الأجنبية الصافية. إن الأزمات الاقتصادية اللبنانية ناشئة من استخدام أساليب قديمة لمواجهة منافسة إقليمية وعالمية قوية. من المعروف جدًا أن موازنة الدولة اللبنانية تحدّها قيود كثيرة، ولذلك كان يجدر بالحكومات المتعاقبة استخدام أفضل الاستراتيجيات التنافسية ضمن حدود الأموال المتاحة، إلا أنها أثقلت خلال السنوات الأربع والعشرين الماضية كاهل الميزان التجاري في مجال البضائع والخدمات. هذا العجز التجاري الكبير حصل عندما تخطت القيمة النقدية الإجمالية للواردات بشكلٍ كبير القيمة النقدية للصادرات.

وتكمن المخاوف الاقتصادية الحالية في قدرة لبنان على تطوير قدراته التكنولوجية، والاستفادة من المزايا النسبية لاقتصاده، وما قد ينشأ عن ذلك من دون انضمامه إلى منظمة التجارة العالمية. وفي فترة يشهد فيها العالم عولمة الاقتصاد العالمي، يمكن أن يعاني لبنان من عزلة اقتصادية في حال فشل في الانضمام إلى نظام العولمة.