Legal Briefing – April 2016

Welcome to our latest legal briefing covering the news of the past month- here is a taste of what is in store: The next Parliament will see the Baath Party and its allies take up 80% of the seats in addition to a number of leading businessmen and drama personalities. The Syrian delegation in Geneva recognizes the mandate of the peace talks as solely working towards the formation of an expanded national unity government and not discussing constitutional change, which will be the responsibility of the expanded government in Damascus. Merchants have resorted to using Lebanon to import their goods into Syria in an attempt to lessen the burden of the Import Deposit Rules, which are restricting their cash flow. Iran has reduced customs duties on Syrian goods to four percent in accordance with the Syrian-Iranian Free Trade Agreement. The Prime Minister has announced that the aim of the recently-enacted Public-Private Partnership Law is for the public sector to cooperate with the private sector to stimulate production in loss-making and stalled projects.

Parliament

  • Syria held its parliamentary elections on April 13th to pick 250 MPs from a pool of more than 3,500 candidates. Originally, 11,341 individuals registered to run for seats in the national legislature- the People’s Assembly. As has been the case for more than 40 years, half of the seats are reserved for workers and labourers and the electoral constituencies are comprised of the 14 original provinces in addition to the electoral district of Rural Aleppo. Candidates were required to cease campaigning 24 hours before the election in accordance with Article 58 of the Electoral Law. More than 7,300 polling stations were set up throughout Syria in areas under government control. Voters from conflict zones were permitted to vote in government-controlled areas. Polls originally opened for 12 hours but were extended for an additional five hours. Soldiers were allowed to vote for the first time in the elections. Votes cast in four polling stations in Aleppo and Rural Aleppo electoral districts were nullified due to certain violations and a new round of voting took place the following day at those four polling stations. The newly-elected People’s Assembly is the second wartime Parliament, with the first being elected back in May 2012.
  • On April 16th, the Supreme Judicial Committee for Elections announced the official results of the parliamentary elections and declared the participation rate to be 57.56%. Out of 8,834,994 eligible voters, 5,085,444 cast their ballots in the elections. 180 new members were elected while the total number of women in the new Parliament will be 30. The National Unity Coalition, which is comprised of the ruling Baath Party, the other leftist political parties in the National Progressive Front, and their remaining allies, won 200 of the 250 seats. The Syrian Social Nationalist Party joined the National Unity Coalition’s ticket and won six seats. Businessmen such as Samer Debs and Muhammad Hamsho were re-elected while others including Fares Chehabi and Khalil Tohmeh won seats for the first time. The well-known director Najdat Anzour was elected in addition to other drama and media figures, as was the sister of a fallen soldier. One surprising news item was the defeat of Maria Saadeh who lost her seat despite allying with leading Damascene businessmen on a promising electoral ticket.

Government

  • According to the Minister of Information, the political process to resolve the conflict in Syria is separate from the parliamentary elections that recently took place, which were deemed a constitutional matter. He emphasized that the Constitution will remain in effect until it is replaced by a new one. Moreover, the political transition involves changing the Constitution, which requires an expanded national unity government to make amendments and subsequently hold a referendum.
  • The Syrian Ambassador to the United Nations, who is also serving as the government’s chief negotiator at the Geneva talks, has referred to United Nations Security Council Resolution 2254 as simply a roadmap to resolving the conflict in Syria. According to its terms, the Syrian government and opposition elements are to initiate talks on a political transition towards a new government composed of new ministers by mid-2016 and elections to be held by mid-2017. He emphasized that the mandate of the Geneva talks is to form an expanded national unity government and not to discuss constitutional change, which will be the responsibility of that expanded government in Damascus. Accordingly, the national unity government will include current ministers, opposition elements, independent figures and others. In essence, it will be a government of technocrats. He clarified that opposition groups that want to be part of the national unity government must not have foreign sponsorship.
  • The United Nations Security Council (UNSC) shared the Syrian government’s concern over the recent Israeli cabinet meeting held on the occupied Syrian Golan Heights. The UNSC reaffirmed Resolution 497, which rejects Israel’s illegal annexation of the Golan Heights in 1981 following its occupation during the Six-Day War of 1967. Therefore, any laws it passes seeking to govern the Golan Heights are deemed null and void and are not recognized internationally. The UNSC was further frustrated by Israeli statements to never relinquish the occupied territory.

Commerce

  • Merchants have resorted to using Lebanon to import their goods into Syria in an attempt to lessen the burden of the Import Deposit Rules. Accordingly, different deposit requirements apply to imports depending on their importance and they include 50%, 100% and 0% of the value of the imports. The percentages correspond to three categories of imports respectively- A, B and C. ‘Category A’ imports for example are those that include basic goods and food items and incur a 50% deposit for their import. Importers have to deposit the relevant amounts in Syrian Pounds with the Central Bank after they receive preliminary approval from the Ministry of Economy and Foreign Trade to import the goods and before the issuance of the actual license. By having to pay deposits to the Central Bank, importers are facing a cash flow problem because of this additional obligation, which in reality is making merchants pay twice for their goods. The need to pay suppliers in the first place and additionally storing deposits with the Central Bank for up to three months in many cases is leading to numerous complaints from merchants who regard this measure as contrary to their interests and their liquidity. Moreover, restricted cash flow causes losses to producers and exporters as well, which results in inflation.
  • By using Lebanon as a base to import their goods, merchants avoid freezing their deposits at the Central Bank for so long as they should be refunded to them within one week or 10 days at most. In practice, Lebanon would essentially become the new source of the goods as opposed to their actual origin, whether it is China or India for example. If it were the latter two, the deposits would usually be frozen for three months if not more since it takes that long for the goods to reach Syria. Therefore, Lebanon is more advantageous as an import route to get deposits refunded quicker from the Central Bank.
  • The latest measures for granting import licenses aim to reduce the current pressures on the Syrian Pound, which has depreciated significantly during the ongoing conflict. The intention behind the Import Deposit Rules is to make importers pay their deposits in Syrian Pounds to the Central Bank in order to create demand for the local currency and lower its supply by withdrawing it from the currency markets. By doing so, it would be expected to appreciate in value. While the aim of the Import Deposit Rules was to raise demand for Syrian Pounds to increase its value, this objective has not been realized since inflation has increased instead.
  • The Central Bank has issued Regulation 2045/2016, which regulates the sale and purchase of foreign currencies to the banks in Syria. The passage of Regulation 2045/2016 is linked to the issuance of the Import Deposit Rules.
  • The Central Bank has allowed foreign exchange companies to finance imports categorized as ‘B’ and ‘C’ in the Import Deposit Rules. Importers of goods classified under these two categories either pay deposits of 100% or 0% of the value of the goods respectively to the Central Bank.
  • Merchants are claiming that the Central Bank has reduced its financing of imports by 50%. The Import Deposit Rules recognize the right of importers to obtain financing in foreign currencies regardless of the deposit requirements. The merchants are complaining that the Central Bank is only providing 50% of import finance requirements to cover ‘Category A’ imports- basic goods and food items. Along with pricing restrictions and the compulsory sale of 15% of rice and sugar, this latest measure is also taking its toll on merchants. As a result, they are being forced to resort to the black market to finance the remaining 50% of their ‘Category A’ imports. Nevertheless, the Ministry of Economy and Foreign Trade has denied that the Central Bank has instituted such a measure to reduce import financing by 50%.
  • The Damascus Chamber of Commerce has called for subjecting Central Bank decisions to direct governmental control.
  • The Damascus Provincial Council has unanimously proposed a SYP 25,000 fee for every import license application submitted to the Ministry of Economy and Foreign Trade. The proposal would require the fee to be paid by the importer when the latter submits his application to the Directorate of Economy and Foreign Trade in Damascus. The proposal envisions the fee being applied to import license applications in all the Syrian provinces. The objective is to relieve pressure on the authorities by filtering the serious applications from the others due to the high number of import requests. More than 300 import applications per day are submitted in the provinces of Damascus and Rural Damascus. It is predicted that applications would drop to a quarter of what they are now if the proposed fee is adopted.
  • According to the Damascus Chamber of Industry, Arab importers of Syrian goods are re-exporting them as their own products to bypass restrictions caused by the international sanctions imposed on Syria.
  • The Ministry of Internal Trade and Consumer Protection is seeking to ensure that imported goods are checked appropriately and their countries of origin confirmed.
  • With the aim of lowering prices in the markets and countering inflation, the Ministry of Internal Trade and Consumer Protection has issued new regulations concerning basic food items imported by the private sector. The aim of the regulations is to make sure that the prices of basic food items do not conflict with the purchasing power of limited-income Syrians. As part of the new measures, the profit margins of importers, producers and businessmen will be revised and extra costs will be reduced. The Ministry intervenes in the markets to price goods deemed essential for consumers.
  • In coordination with the Ministry of Internal Trade and Consumer Protection, the Central Bank has announced new measures to adjust the prices of imported goods. Merchants have to abide by rules that certain imported goods have to be priced in accordance with the exchange rate published in the Central Bank bulletin.
  • The Ministry of Internal Trade and Consumer Protection is seeking to implement a pricing strategy on essential goods starting at the beginning of May.
  • The Ministry of Internal Trade and Consumer Protection is requiring merchants to sell 15% of their sugar and rice to publicly-owned outlets at wholesale prices.
  • The Damascus Chamber of Commerce has admitted that pricing regulations adopted by the government under the current conditions turn the majority of merchants into violators. Instead, it would like to see the prices of goods determined according to the law of supply and demand.
  • 109 merchants allegedly violate the law every day in Syria by breaching the provisions of the Consumer Protection Law. Despite this, between 2,500 and 3,000 merchants have remedied their wrongdoings in Damascus since the beginning of this year in accordance with the Consumer Protection Law. As a result, the Public Treasury received SYP 66.6 million in fines from merchants in Damascus during a three-month period.
  • The Competition Protection and Anti-Monopoly Commission (CPAMC) has acknowledged that rising prices are not necessarily a result of monopolistic practices in the markets. Instead, they may also be due to increased production and transport costs, greater demand for goods by consumers, and volatility in the foreign exchange markets. The CPAMC believes that the government has many tools to deal with rising inflation such as facilitating the entry and expansion of competitors in various markets. At the same time, it has advised that the government must remove costly legal and procedural restrictions to encourage competition, which would lead to an increase in supply, lower prices, better quality of goods and more options for consumers.
  • The CPAMC has held that some members of the government facilitate the work of businessmen in violation of the Competition Law.
  • The Minister of Internal Trade and Consumer Protection has issued Regulation 758/2016, which addresses manufacturing violations related to food items and other goods and the required means to control them.
  • The Minister of Internal Trade and Consumer Protection has also issued Regulation 759/2016, which deals with laboratory testing for possible contamination of food and other manufactured goods.

Companies

  • The Chairman of the Damascus Chamber of Commerce expects more joint stock companies to be formed to contribute to the reconstruction needs in Syria.
  • The Damascus Securities Exchange is looking to speed up the overall process concerning the sale and purchase of shares on the stock market.
  • The Council of Ministers has approved a bill to extend the deadline for companies to fully comply with the provisions of the Companies Law by six months.

Taxation

  • Iran has reduced customs duties on Syrian goods to four percent. The Damascus Chamber of Industry had earlier announced that the Free Trade Agreement with Iran was ready and that both countries were exchanging lists of goods to be imported and exported.
  • According to the Damascus Chamber of Industry, Russia is facilitating the import of Syrian goods, especially since customs duties no longer exceed four percent.
  • The Damascus Chamber of Commerce hosted a seminar to evaluate fixed lump-sum income taxes and the impact of new legislation on taxpayers. In accordance with the provisions of the Income Tax Law, small businesses are usually entitled to pay a fixed lump-sum amount as opposed to complying with the relevant progressive tax brackets. It has been recognized that merchants are unhappy with the application of these taxes since some traders unfairly pay less than others. The objective now appears to be abolishing these taxes on profits and salaries in favour of unified tax legislation.
  • According to the Deputy Minister of Finance, there will be no increase in payroll taxes for public sector employees. The payroll taxation regime is contained in the Income Tax Law.
  • The Deputy Minister of Finance has also confirmed that an inter-ministerial committee is currently studying the tax exemptions provided for in various sectors. The committee appears to have formulated a proposal that meets expectations under the current circumstances.
  • There have been calls to amend the Customs Law to correspond to the needs of the current exceptional circumstances facing the country so that penalties are fair and at the same time deter wrongdoing. The complaints at the moment are that the Law is contradictory and radical in some areas while legislative reform should focus on combating smuggling. One of the objectives of the new Law may be to grant customs courts criminal as well as civil jurisdiction in order to ease the burdens on the judicial system.

Finance

  • According to the Deputy Minister of Finance, the amendments to the Billing Bill, the Real Estate Sales Bill and the Income Tax Law have been completed.
  • The Deputy Minister of Finance has explained that the current conditions in Syria require the application of the billing system. The Ministry’s plan in implementing this system extends over a three-year period and the Ministry initially aims to start imposing it on importers and industrialists.
  • The Council of Ministers initially approved the draft law pertaining to the billing system, which will have consequences for the tax system. The Draft Billing Law was submitted to the government for approval after amendments by the Ministry of Finance were included. The Ministry of Finance held discussions about the provisions of the Draft Law after receiving feedback from the Damascus Chamber of Commerce and other interested parties. Despite its initial approval, the Ministry of Finance has confirmed that the Draft Law was returned to it by the Council of Ministers so that it could work alongside the Ministry of Justice to develop the executive regulations, which will accompany the bill upon enactment. Once completed, the Draft Law will be sent back to the Council of Ministers for approval once again. If enacted, this piece of legislation will introduce the billing system into Syria, which is anticipated to have a positive effect on the economy and the operation of the tax system. It is also envisioned that the billing system will help curb any fraudulent activity and increase transparency especially when it concerns customs documents. There are hopes it will have an effect on limiting transactions in the informal economy. Additionally, the Ministry of Finance has stated that the Draft Billing Law will complement the provisions of the recently-enacted Consumer Protection Law.
  • The Loan Guarantee Establishment (LGE) sanctioned by Law 12/2016 will not be linked to the Central Bank even though the latter will work to set it up. Moreover, it is not possible at this point to classify the operations of the LGE as insurance activities.
  • The Central Bank is seeking information from public banks on the subject of defaulting loans, particularly the number of defaulting debtors and those seeking to settle their debts in line with the Public Banks Loan Repayments Law.
  • The Central Bank has stated that it is supporting exporters through preferential exchange rates to compensate them for increases in production costs.
  • The Central Bank has also informed Syrians to file complaints against foreign exchange companies the Central Bank sells foreign currencies to that refuse to serve them.
  • There is confusion within business circles as to why foreign exchange companies are conducting banking activities when the Foreign Exchange Law does not provide for this accordingly. Nevertheless, the Central Bank defended this decision in light of the international sanctions imposed on Syria that are affecting the banking sector.
  • The judiciary has been clamping down on illegal foreign exchange activities, especially since there has been a sudden increase lately. The Ministry of Justice had created the post of Financial Investigatory Judge in an attempt to combat the spread of such offences.
  • 80 cases have been brought before the Customs Court in Damascus in the first quarter of 2016 as the Customs Directorate’s mandate appears limited to combating the smuggling of goods into Syria.
  • The Central Financial Supervisory Agency has discovered embezzlements worth around SYP 7 billion from public bodies during 2015.
  • The Governor of Damascus has called for depositing municipal fees derived from publicly-administered auctions in the provincial authority’s Central Bank account.

Public Procurement

  • The Prime Minister has announced that the aim of the recently-enacted Public-Private Partnership (PPP) Law is for the public sector to cooperate with the private sector to stimulate production in loss-making and stalled projects. He reiterated that profitable public sector companies are not candidates for PPP projects.
  • The Ministry of Administrative Development hosted a workshop to discuss the implementation of the PPP Law while also bringing together the Minister of Electricity and the Minister of Public Works. According to the Minister of Administrative Development, the Law seeks to apportion project risks between the public and private sectors while drawing in the latter’s financing capabilities and expertise. He also reiterated that increasing private finance through PPPs means less reliance on foreign loans and more job opportunities for the local population. The Ministry of Electricity meanwhile announced that the electricity sector requires significant investment over the next 10 years, including through PPP projects. The Electricity Law already sanctions private sector investment in this sector. As for the Minister of Public Works, he explained that his Ministry is seeking to utilize PPP projects for the reconstruction phase to rehabilitate affected facilities.
  • The Ministry of Public Works is considering PPP models to rehabilitate damaged infrastructure, particularly in the housing sector due to the high costs associated with doing so.
  • The Minister of Public Works has stated that the legislative and engineering environment is ready for the reconstruction phase.
  • The Adra Cement Factory project outside Damascus is to be re-examined by the government according to the Build-Operate-Transfer system in line with the PPP Law.

Investment

  • A project to develop a medical city in Damascus has been approved by the Syrian Investment Agency and will benefit from incentives laid down in the Investment Law.

Industry

  • The Ministry of Industry has extended the time frame for industrialists to provide legally-binding undertakings to comply with licensing and registration requirements, which have been affected by the exceptional circumstances facing the country.

Agriculture

  • The Council of Ministers has approved a bill amending the Agricultural Engineering Law 57/1980.

Transport

  • The Ministry of Transport has confirmed that the draft law regulating the transport of goods is currently in the works and should be pushed through soon.
  • The Ministry of Transport has issued new regulations concerning the issuance of driving licenses.

Telecommunications

  • The state-owned Syrian Telecommunications Establishment (STE) is being converted into a joint stock company in accordance with the Telecommunications Law 18/2010. Once that happens, it will become subject to the Companies Law and the Commercial Code, which will have consequences for the legal status of its employees. According to the Human Resources Department at the STE, the conversion does not constitute a privatization of the telecommunications sector as the joint stock company will be fully state-owned. What will be new is that the STE will become subject to the Companies Law. Consequently, STE employees will have the option to decide whether to remain under the umbrella of the Public Employment Law or shift to corporate employment.
  • Decree 114/2016 establishes a fund affiliated with the Telecommunications Regulatory Authority to provide services to Syrians.

Property

  • The General Housing Establishment has set the terms and conditions for the allocation of shares to the owners of expropriated properties.

Intellectual Property

  • 1,204 trademarks were registered in the first quarter of 2016 compared with 922 that were registered during the same period last year.
  • 845 trademarks were renewed in the first quarter of 2016 compared with 195 that were renewed during the same period last year.
  • Seven patents were awarded in the first quarter of 2016.

Employment

  • According to the Minister of Labour, the Public Employment Bill in its final form is on the government’s table. It was delayed because of the issue of public sector salaries, which required a redrafting of the bill.
  • Concerns have emerged about the revised legal provisions covering public sector salaries and the financial burden they may incur.
  • There is an ongoing debate about the benefits and drawbacks of raising the retirement age in the Public Employment Bill from 60 years to 65 years.
  • The security situation in Syria has revealed gaps in the Public Employment Law as employees anticipate amendments to address their concerns. Problems faced by public sector employees include kidnappings, lay-offs and interruptions to work caused by the ongoing conflict.
  • The Ministry of Labour has formed committees in the various branches of the General Establishment for Social Security located throughout the provinces in Syria. The task of these committees is to address the rights of workers when operations at their workplaces have unlawfully ceased, thus leaving them in a precarious position.
  • The Council of Ministers has discussed a bill that revokes the decision to dismiss public sector employees who join the mandatory or reserve military services.

Judicial Development

  • The Ministry of Justice has signed six contracts for the automation of judicial and administrative work.
  • Legislative Decree 9/2016 amends Article 15 of Law 23/2013 with the objective of increasing the number of highly-qualified applicants to the Supreme Judicial Institute, the body entrusted with training judges.

Culture

  • The Council of Ministers has approved a bill granting consent for Syria to join the 1995 UNIDROIT Convention on Stolen or Illegally Exported Cultural Objects. The UNIDROIT Convention complements the 1970 UNESCO Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property and further aims to strengthen the fight against the illegal trafficking of cultural property. Throughout the current conflict, Syria has been a victim of the illegal trafficking of cultural property, such as in Palmyra and many other places.

Water

  • The Ministry of Water Resources is seeking to combat the illegal use of pumps that unfairly deprive others of access to water.