EU96-conference abstracts

A major element of surprise for the foreign manufacturer tends to arise upon a dispute with a Lebanese importer who might have represented him over a period of years in a "sole/exclusive agency" contract which, for one reason or the other, the manufacturer/ exporter would like to discontinue. For the European trader who is used to the protection of Articles 85 and 86 regulating competition, the snare of the Middle Eastern agency/ distributorship is the more surprising in view of the compensation owed by the foreign principal to the agent/ distributor under Decree-Law 34 of 1967 (amended 1975): "The trader who sells on his own behalf what he purchases in accordance with a contract which grants him the capacity of representative or exclusive distributor, shall be deemed to be the same as a commercial representative ... The agent (i.e the commercial representative) shall, notwithstanding any agreement to the contrary, be entitled to claim compensation equivalent to any damage he may have sustained or to any profits he may have lost ..."

The Comparative Setting

The paper will examine the "sole agency" phenomenon and the assimilation of the trader/importer to this category in a comparative perspective, notably with regard to the possible justification for this type of "conventions in restraint of trade" in the European Union and in the United States. It will note, in particular, the problem arising from the various legal categories and regimes which regulate "distribution networks" in Europe and in the Arab Middle East. This section concludes with some results surrounding the confusion of legal terms of reference in a way which may call into question the demands for hasty legislative abolition of "the hurdle of sole agency".

Reform

Some further avenues are finally examined with regard to reform, notably other dimensions of trade which relate to freedom of movement and establishment.

Lebanon and the Euro-Mediterranean Initiative A Geo-Strategic View

Elie Assaf

The paper addresses the following questions:

Is there a comprehensive European strategy behind the Euro-Mediterranean initiative? If yes, is there a role for Lebanon within this strategy?. The analysis presented in this paper explores the regional economic and political dimensions of this initiative.

The Socio-Economic Dimension of EU-Mediterranean Partnership

Kamal Hamdan

The Paper deals with the main features of the socio-economic dimension of the Euro-Mediterranean partnership, with a focus on the Lebanese case. The paper begins by exploring the impact of globalization and the associated structural adjustment and economic liberalization on the economies of the Southern Mediterranean regions. It then moves on to look at the similarities and differences between the Northern and Southern Mediterranean countries concerning social indicators and policies, especially those dealing with demographics, unemployment, poverty, and social cohesion. It also deals with the possible impacts of a Euro-Mediterranean partnership in those fields.

In the second part, the paper tries to answer the following question: to what extent, can Lebanon negotiate a partnership agreement with Europe which support and develop the basic structure of social policies, and help in the process of development and reconstruction.

Foreign Direct Investment and the Dynamic Analysis of Trade

L.A. Winters

This presentation examines the effects of tariff preferences on the prices of Lebanese exports and imports. Exports to EU are small ($0.1 billion) and face low tariffs (average 3.9% ), while imports from the EU are higher ($2.7 billion) and face higher tariffs (approx. 15% average). Thus mutual preferences will worsen Lebanon's terms of trade and reduce government revenue.

Dynamic Aspects of a Euro-Med Agreement

This presentation summarizes the experience of Spain, Portugal and Greece in acceding to the EU. It then explores the routes through which dynamic benefits might derive from integration agreements--especially technological spill-over and factor accumulation--and asks how strong they might be in a Lebanon-EU agreement. It concludes that an agreement would be beneficial relative to the status quo, but that it would not offer much advantage over a regime of sound macro-policy and liberal trade with all partners.

Impact of Euro-Mediterranean Partnership on Lebanon's Manufacturing Sector

Iskandar Moukarbel

The purpose of the paper is to evaluate the effects on the Lebanese economy of the Free Trade Area restricted to industrial products which is to be established with the European Union Countries. The approach adopted is a standard partial equelibrium analysis of trade liberalization. But it departs from it by the relaxing two underlying assumptions in order to make the analysis accord with the reality in Lebanon. The paper provides estimates of the losses and gains to Lebanon from the contemplated Free Trade Area. It shows that the outcome is likely to be a net heavy loss to the Lebanese economy, unless Lebanon succeeds in restructuring its industrial sector to make it more competitive and export-oriented. In addition, the paper gives an estimate of the increase needed in Lebanese manufactured exports as well as of the additional investments that this increase requires to balance the losses with the gains.

However, the increase in Lebanese exports will be hampered by the rules of origin as proposed by the European Union which need to be modified. The paper concludes with some trade negotiating position recommendations.

The Euro-Mediterranean Partnership Agreement and Technology Transfer to Lebanon

Ghassan Dibeh

The Euro-Mediterranean Partnership agreements stipulate articles for the promotion of technology transfer, technical assistance, and industrial restructuring. This paper argues that such stipulations are not sufficient to promote efficient technology transfer to Lebanon given the negative impact of both tariff reductions and the increased competition from European MNC-affiliated companies on some sectors of the Lebanese industry. The paper argues for a Technology Addendum to the agreement that would create a Transfer Technology Board financed and provided with technical assistance by the EU. The functions of this board will be to: (1) form an information office for local small and medium enterprises (SMEs) on alternative technologies available in the EU countries; (2) participate in the negotiations of technology agreements between local SMEs and European companies; (3) evaluate technologies to be transferred on their contribution to local technology assimilation, employment, and local skills development; (4) participate in industrial programming for the regional area covered by the agreements; (5) formulate a national technology and industrial policy that would target specific sectors and areas for growth benefiting from the EU experiences in technology initiatives and technological and industrial agglomerations such as the L'ille de France and the Third Italy.

Assessing Lebanonís Competitive Position

Ghassan Barrage

With the prospects for peace in the region and the development of free trade, Lebanon will need to focus its investment on areas where it has clear and sustainable competitive advantages. The article evaluates the competitive position of Lebanon in the region and concludes that priority attention should be given to investments by both the Government and the Private Sector in manpower development, as manpower is Lebanon's most important asset. Lebanon will also need to develop a modern regulatory framework to attract local and international investors.

Industrial Norms & Standards

Raffy Semerdjian

International, European, and Arab standards constitute technical barriers to Lebanese industrial exports. Standards and norms of goods and services are pre-requisites for commercial partnership especially with the perspective of the Free Trade Area between Lebanon and Europe in the context of a Euro-Mediterranean partnership.

Lebanese industry is a still frail union. Due to political instability, local culture is not favorable for long term investments in industry and prefers short term business in trade and services. Local industry struggled throughout the entire civil war, and its infrastructure was destroyed, as were its international marketing capabilities and staffing potential. Lebanese firms end up being bypassed in regional markets. Besides, Lebanese industry is facing the initial obstacle of the high cost of industrial energy in general, and electrical energy in particular.

This paper discusses the quality and standard problems of Lebanese industrial products in foreign markets. In the first part, it will expose the standardization objectives, the International Standard Organization-ISO principles, the European Committee for Standardization-CEN, and the European policies in the fields of standardization with some case studies. In the second part, it will present the standards, laws, and regulations in the Lebanese industrial sector, their applicability in Lebanon, and the barriers to trade with the European Economic Area. Finally it provides recommendations in order to prepare Lebanese Industry meet these challenges.

It is hoped that this study will help disseminate information on subjects of utmost importance to the Lebanese economy, namely, standardization and technical harmonization- in order to define appropriate adjustment policies.

Agricultural Exports of Lebanon: Comparative Advantage, Prospects, and Strategic Options to Promote Export Development

Toufic S. Jaber

The paper asses the competitiveness of Lebanese agricultural exports. The approach for the analysis is Porter's model of comparative advantage. Results from the analysis showed the existence of market imperfections that are constraining the competitiveness of agricultural exports. Factors which caused this inefficient functioning include, inter alia, inadequate legal and institutional framework, lack of research and development activities, lack of extension services, fragmented exports which carried out on an individual basis, lack of organisation and coordination in export marketing, variation in the quality of agricultural exports reaching export markets, and dearth of credit facilities.

The main conclusion of the paper study is that there is ample opportunity to improve the competitiveness and efficiency of export marketing. This requires a market strategy which capitalizes on market opportunities, whilst at the same time mitigating its weaknesses, including, inter alia, modernizing production and marketing practices providing credit facilities, and developing a uniform national grading system. In an increasingly competitive market environment, private marketing participants and key government agencies must undertake their respective functions in a much better coordinated manner than they have heretofore, if Lebanon should hold a premium position in agricultural exports in the future.

The Competitiveness of the Lebanese Banking Sector

Nicolas Photiades

Lebanese banks came out of the civil war in a general state of undercapitalisation, limited funding, poor asset quality, and severe underperformance. With the improvement of the political and economic situation, particularly since the end of 1992, banks have improved their general financial situation quite dramatically. Within a well regulated and conservative regulatory environment monitored by the Central Bank, Lebanese banks saw a dramatic improvement in their profitability (especially since 1994 due to the decrease in corporate taxes), liquidity and funding, asset quality and capitalization. Some banks were even able to tap international capital markets for equity and debt funding.

However, the Lebanese economy remains grossly overbanked (83 banks) and most banks are characterized by limited funding and profitability. A group of larger banks is emerging as the most competitive and is gradually taking away market share from their smaller peers. Moreover, a large number of very small banks are increasingly showing signs of running out of breath and are doomed to disappear sooner or later.

Most Lebanese Banks are increasingly emulating large and successful European banks in terms of management techniques and banking products. Some Lebanese banks are showing a significant degree of competitiveness which is reflected in an increasing profitability. Returns on assets and equity are sometimes significantly higher than for a group of medium size European banks. Capitalization, as reflected by the BIS capital adequacy ratio, is also better than a large group of European banks.

However, it is worth noting that funding remains limited in comparison to European banks and balance sheet sizes cannot still be compared with even a small French or British bank. Moreover, Lebanese banks' profitability is still hampered by prudent lending policies. The prudent behavior of Lebanese bankers as well as outdated lending techniques have not encouraged lending.

Most Lebanese banks are faced with a significant challenge: that of modernizing their industry. Most banks need to develop lending techniques and choose specific niches which would be more suitable to their approach to banking. All Lebanese banks need to diversify their sources of funding and contribute significantly in the creation and development of a domestic capital market. European banking techniques and new products will necessarily have to be imported and cooperation with European banks, either through mergers or through selling strategic stakes, will have to be promoted. Some local banks who are not large enough to attract foreign investors will have at one point to consider mergers with other local banking groups. This will help significantly in the restructuring of the banking sector in Lebanon and in the development of the local economy.

Insurance and Reinsurance Services

Antoine Wakim

- Overview and Present Situation of the Insurance Industry

1. Present situation of the Lebanese market

2. Comparative figures; Lebanon and other countries in the area.

- Legal Aspect of the Market

1. Laws governing the insurance industry

2. Fiscal policy

- Steps to be taken in order to encourage this industry and consolidate its future

- Future of the Insurance Industry

1. Attitude and vision of the Government

2. Major needed changes

3. Regional role and cooperation scope

The Transport Sector

Fadi N. Saab

This presentation is in the format of a working paper (about 15 pages) analysing the options for Lebanon with respect to a potential accord with the EU, in seeking our role and optimal strategic positioning on a regional, as well as, international level.

The outlook will aim at determining the implications of such an accord for Lebanon, and the resulting future competitive advantages, with regard to the following components of the Transport sector: Air Transport; Marine Transport; and Land Transport.

The importance of this sector lies in the fact that it is the conduit through which the global objectives of the Agreement between Lebanon and the European Union can be achieved, in addition to it being the subject of a specific Article addressed in line with the Agreement's global directives.

Therefore, the task ahead for determining Lebanon's position is difficult since significant trade-offs are involved.

On the one hand, the best interests of the individuals and institutions working within this sector may require maintaining some protective measures until the Lebanese Transportation Sector attains a high level of competitiveness. On the other hand, however the general interests of the Lebanese economy may lead towards a progressive liberalisation of all barriers on trade including in land, sea, and air transportation.

Legal Obstacles to the Establishment of Lebanese Businesses in Europe

Henri Najjar

Every European country has particular national rules which govern the establishment of overseas companies. It is difficult within the scope of this paper, to do justice and cover all the legislation of the different EU member states. We will therefore concentrate on the problems of recognition and establishment of Lebanese businesses in France, the archetype of many of the other continental countries.

In view of the fact that recognition of the companies as legal entities is really a prerequisite of the problem of establishment, the first part of this paper will examine the present legal status for the recognition of Lebanese companies in France, whereas the second part will deal with the analysis of the procedure of establishment of these companies and the rights and obligations which derive from it, with a distinction as to whether the businesses to be set up are a transfer of the social seat, the establishment of subsidiaries or agencies, or the mere occasional financial operations, i.e. the issue of shares or securities.

Reference is made when necessary to the EU rules or directives, the multilateral or bilateral Conventions and to the peculiar features distinguishing the European countries.

EU-Mediterranean Partnership and the Challenges of Globalization

Ishac Diwan

Globalization is inevitably descending upon us. For Lebanon, this is party good news, because increased international trade will reward the skill of trading itself -- a seemingly abundant factor of production in Lebanon. But the increased mobility of capital globalization also brings in higher risks of a macro-economic nature.

Capital mobility increases both rewards for good policy and the economic cost bestowed upon society by policy failures. In the Lebanese context, capital needs to be attracted to rebuild the country, but this will only work to the extent it is perceived by markets to make good business sense. Risks are heightened by macro instability. There are high demands on the public purse -- from rebuilding infrastructure, to delivering social services -- but revenues have had a hard time keeping up. At the same time, public debt, and its servicing costs, has mushroomed. The economy is very leveraged on short term capital, making it vulnerable to (internal or external) shocks. The high degree of currency substitution increases the chances of self-fulfilling financial panics. Given fragile fundamentals, any path towards a soft landing requires a change in public sector financing -- better debt management and cheaper funds.

The liberalization of trade, including the proposed FTA with the EU, is less of a big issue in Lebanon than in any other of the Mediterranean countries, for Lebanon has the most open economy in the region to start with. So both the gains and losses related to trade liberalization are likely be small. The important challenge is not related to industrial destruction, as in Egypt or Syria for example, but rather to the negative effects the FTA will have on government revenues. Nevertheless, the challenge of changing tax instruments -- from external customs, to a VAT system for example -- is not the most difficult form of adjustment for the circumstances (less difficult socially than liberalizing protected state industries).

The new technologies transmitted through trade and capital flows must have been unequalizing as found in other countries. (Being more capital and skill intensive, new technologies increase the return to skills, especially to English, computers, or communication techniques literacy). This global phenomena adds to the inequality stemming from two dimensions of the existing economic structure, namely, the openness of the labor market to regional influences, and the high cost of capital (with the risk premium related itself to fear of social instability). In many ways, a social soft landing is also required to allow for a sustainable flow of capital to finance reconstruction.

How could the EU/MED Initiative help Lebanon? The analysis above suggests that five dimensions will be key factors:

1. Macro. The macroeconomic (and social) situation would be easier to stabilize if the public debt was refinanced over time with long maturity concessional finance (probably linked to projects).

2. Financial Center. Liberalization in services under the EU initiative could result a much stronger financial system. This could boost private sector development, including in the provision of infrastructure services. Dynamic gains could be large if Beirut emerges as a key regional center.

3. New entrepot. In the past, Lebanon's openness in a region of closed economies was a source of growth because if facilitated imports. In the future, developing good links to both the region and Europe can allow Lebanon to help the region increase its exports (by providing re-export and distribution value-added to regional products). This would be easier if the Initiative facilitates regional trade (this requires a generous system for the cumulation of rules of origin within the region for the purpose of exports to Europe).

4. Inequality. Education remains the only vehicle to reduce inequalities in a sustainable fashion. Europe can do much to help raise the Lebanese education system to the standards of the 21st century.

Credibility. Renewed growth is highly dependent on expectations and a long term vision. Much of Lebanese capital and skills remain outside the country, and their return is predicated on optimism. As such, a strong belief that Europe will make a difference can in itself make a difference.

Lebanese-European Cooperation: Towards Globalization and Economic Integration

Ahmad M. Jachi

This paper attempts to examine the benefits of Lebanese-European cooperation as a way of pursuing globalization and economic integration. It concentrates on the factors that can assist in fostering the growth of a more stable and trade-oriented economic environment in Lebanon. The hypothesis is advanced that through Lebanese-European cooperation, Lebanon can in the long run increase its welfare by developing appropriate infrastructure in areas such as tourism, transportation, communication and finance, which could foster the international scale. The execution of Lebanese objectives calls for a triangular cooperation - a shared cooperation form that seeks to promote the involvement of both the EU and the Middle Eastern countries.

Implications for Monetary Policy, Financial Markets, and Banking Control

Nasser H. Saidi

The European Union Partnership agreement represents a major policy initiative with potentially wide ranging economic, social, political and cultural consequences. Its effective implementation will imply major changes in commercial policy, fiscal and tax policies as well as induce structural economic changes affecting industry, agriculture and services. Lebanon as a small, open economy will become increasingly integrated with Europe and the world economy.

This paper focuses on the key issues relating to the role and conduct of monetary and financial policies, and the potential for increased monetary and financial integration between Lebanon and the European Union. Emphasis is put on the role of institutions including increased independence of the Central Bank and the development of financial markets, in improving the investment climate, attracting European Union direct investment and participation in Lebanon's reconstruction program and its financing.

Conference Program | Conferences index | Book Proceeding