WORLD TRADE
ORGANIZATIONWT/L/283
5 November 1998
(98-4313)
Original:  English
LEBANON – REQUEST FOR OBSERVER STATUS
Communication from Lebanon
The following communication has been received from the Minister of Economy and Trade of
Lebanon.
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On behalf of the Government of Lebanon, I have the honour to submit the application of the
Government of Lebanon for observer status in th e General Council of the World Trade Organization
(WTO) and its subsidiary bodies.
In this connection, I would like to state that it is the intention of the Government of the
Republic of Lebanon to apply for accession to the WTO agreements in the near future.  In the
meantime the observer status would help the Government of Lebanon familiarize itself with the WTOand its rules and procedures.
In accordance with the rules of procedure of the General Council, I am enclosing herewith
memorandum on the foreign trade regime of  Lebanon.
I should like to request you to place this application and the accompanying documents before
the General Council at its meeting.WT/L/283
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AN OVERVIEW OF LEBANON'S ECONOMIC POLICY AND
FOREIGN TRADE REGIME
I. INTRODUCTION
A. THE COUNTRY
1. The Republic of Lebanon covers an approximate area of 10,452 sq. km2 and is bordered to
the North and East by Syria, to the South by Is rael (with Israel still occupying 10% of Lebanon's
southern territory) and to the West by 225 km of Mediterranean coastline.  The country's main cities
are Beirut (the capital), Tripoli, Sidon, Tyre and Zahle.  The population is estimated at 3.62 million,
excluding some 200,000 – 240,000 Palestinian refugees;  the population growth rate is estimated at3.2%.  The literacy rate is of 86.4%, among the highest in the Arab world, and while Arabic is
Lebanon's official language, French and English are widely spoken.
2. The country has only 13% of its land covered by forest and woodland and compared to other
countries, Lebanon's arable land is relatively small, extending over around 26% of the territory.  There
are around 10,000 hectares of permanent pastures.  Lebanon's agricultural sector accounts for only 8%to 10% of GDP.  Although agriculture employs ar ound a fifth of the country's population, it no longer
provides sufficient income for many of Lebanon's farmers.
3. Accounting for 17% of GDP, the country's industries are concentrated in and around central
Lebanon, 44% being in the Beirut area and Mount Lebanon, and 19% in the North.  The coastal cities,
Beirut, Tripoli and Sidon have large ports and are mainly engaged in commerce and other services.
B. T
HE ECONOMY
4. Eight years after the end of the civil war, Lebanon is re-emerging as a vibrant center of
regional economic activity and now appears to be well on the way to recovery from wartime ravages.
An ambitious reconstruction programme is well underway to endow the country with a modern
infrastructure and improve its productivity.
5. However, the most serious problem on the economic front today is the Government's need to
control the budget deficit, and in 1997, the net domestic debt to annual GDP ratio stood at around
67%.
6. After weeks of intense debate during October 1997, the cabinet approved an "austerity"
budget for 1998 designed to reduce the budget deficit from an estimated equivalent of around 18% of
GDP in 1997 to near 12% in 1998 (see Annex 5)1.  In absolute terms, the Government is trying to
keep expenditure for 1998 at roughly the same as the $5.16 billion estimated for 1997.  A little over40% of this has been allocated for debt-service obligations.
7. Banque du Liban forecasts predict that real GDP growth will slightly rise to 4% in 1998
(compared to 3.8% in 1997).   However, consumer price inflation will suffer a 1% rise, reaching 7%
in 1998.
8. In order to increase revenue, the Government has moved to introduce a number of
improvements in its administrative and financial structure.  Consequently, tax collection procedures
have been modernized, a new system for customs duties has been adopted, property tax collection
                                                     
1 Annexes 1-6 are available in the Secretariat (Council Division, Room 2025) for consultation.WT/L/283
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procedures have been reviewed, and income tax collections have been re-examined with the help of
the Canadian Government.
9. The Government hopes the measures will help lift revenue for 1998 to nearly L£5 trillion
from 1997's L£4 trillion revenue.  It has envisaged an increase of some 10% in customs duties - its
largest single source of revenue at nearly 60% of the total.
10. The most significant element of the Government's budget plan is the cabinet's agreeing to
finance, and for the first time, most of the shortfa ll by overseas borrowing, raising some $2 billion to
be repaid over 30 years, $106 million in Eurobonds and $400 million in foreign currency from local
banks.
11. Imports have mushroomed since the return of political and economic stability, and have
grown from $2,578 million in 1990 to $7,456 million in 1997.  The nature of imports reflects the
needs of a country in the middle of reconstruction.  Major imports include machinery and electricalequipment, vehicles and mineral products.
II. GLOBAL DEVELOPMENT STRATEGY
12. Emerging from 15 years of civil war, Lebanon today is embarking upon a major programme
of reconstruction and development to take it into the 21
st century.  With this in mind, Lebanon now
faces the challenge of expanding and diversifying its economic activity.
Free Zones
13. As part of this effort, the Lebanese Government is establishing areas of free trade status.
These zones will help Lebanon become an all important center for international trade and industry.
The Free Zones are being handled by the Investment Development Authority of Lebanon (IDAL) to
attract private investment into Lebanon.  These free zones are intended to facilitate and increase tradeflows throughout the region and provide an ideal ma nufacturing base for export-oriented industries
and services;  the Free Zones will launch a new era of commercial exchange into a region of growing
markets and exciting business prospects.
14. Lebanon's Free Zones include:
(i) The Airport Free Zone, which will provide international and local businessmen with a
high quality, facility for warehousing, trade and light industry.  The free zone is
located at the entrance of the airport which is only 4 km away from Beirut and
benefits from 150,000 km2 of built up area av ailable within the perimeter of Beirut
International Airport;  excellent road access airside/landslide;
(ii) the Quleaat Free Zone, located at 25 km North of the city of Tripoli, covering an area
of 450,000 km2;
(iii) the Riyak Free Zone, covering an area of  360,000 km2, located North-East of Riyak
Airport, 8 km East of Zahle, with access to an international highway system linking it
to Beirut and Damascus.
15. Lebanon's current existing Free Zones are:
(i) The enterprising port of Beirut Free Zone, which was successfully reopened after the
war;
(ii) the Salaata Free Zone;WT/L/283
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(iii) the Port of Tripoli Free Zone.
16. The benefits of the new Free Zones projects are:  first class infrastructure, utilities and
telecommunications; ready to use warehouses, factories and offices for long or short term leases at
reasonable prices;  light manufacturing and industrial parcels;  easy and rapid distribution network to
the Middle East and Europe;  "One-stop-shop" to process government formalities, recruitment and
training of staff, information and advice;  minimal regulations;  100% foreign ownership permitted;
exemption from corporate and personal income taxes, simplified government procedures, no
restriction on the transfer of capital and profits, commitment to banking secrecy, commercial
regulations which do not discriminate between foreign and Lebanese investors.
Agriculture
17. To alleviate years of neglect in the agricultural sector due to the war, several programmes are
currently under way, such as the important Agricultural Infrastructure Development Project (AIDP).Furthermore, in response to agriculture's need for rehabilitation, government policy has been a
mixture of mainly short term interventions, short term protection of certain products (see Annex 2)
and attempts to open up export markets.  The Government's long term policies in the sector are
focused on the Green Plan (established in 1963), a government agency initially intended to encourage
land reclamation, develop agricultural infrastructure and fight the cultivation of illegal crops.  Overthe years, it has developed into a semi-autonomous body, and with funding for the majority of new
agricultural projects channelled through it, the Plan also provides assistance in cash and kind.
Manufacturing Industry
18. Lebanon's manufacturing sector has always lived in the shadow of other, better known local
industries, such as tourism and financial services.  The vast majority of industrial units are small-scalebusinesses that are often closer to workshops than industrial ventures, and firms with fewer than 10
employees accounted for around 90% of the total in 1995.  At the top end of the market, a small
number of larger firms are active in cement and other building materials, food and beverage
production, clothing and paper.  With the exceptio n of the petroleum industry and the state tobacco
firm, all of Lebanon's industrial sector is in the hands of private firms.  With alternative indicatorssuch as exports, imports of industrial machiner y and company formation taken into account, the
manufacturing sector shows signs of recovery from the war;  furthermore, recent capital increases by
some of Lebanon's major firms have shown that investors are still willing to commit funds to
manufacturing industry.  Another asset for the future  growth of the country's manufacturing sector is
the existence of an educated and qualified workforce.
Reconstruction
19. In the light of several damage assessment surveys and after consultation with the World Bank,
an extensive $2.9 billion National Emergency R econstruction Programme (NERP) was established.
Furthermore, government planning activities culminated in 1994 with the production of the
Horizon  2000 development programme.  The Horizon 2000 programme was revised in 1995,
forecasting total public investments of $17.7 billion (in 1995 prices) between 1995 and 2007.  The
basic aim of Horizon 2000 is to supplement the initial emergency works of the NERP with therehabilitation and expansion of infrastructure and public facilities that would lay the foundations for
future economic growth.  The rehabilitation and expa nsion of the electricity network is one of the
largest components of Lebanon's reconstruction programme.  By Spring 1997, the rehabilitation of
Lebanon's existing power plants, stations transmission lines and distribution networks was virtually
complete and works were moving on to the expansion phase.  Among the host of schemes presentlyunder way, one project does, however, stand out clearly from the rest: the redevelopment of Beirut's
city center, undertaken by the private Lebanese Company for the Development and Reconstruction ofWT/L/283
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Beirut Central District (Solidere).  Often taken as a symbol of the country's re-emergence, it is one of
the largest real estate developments in the world.
The road network
20. A $1.25 billion Road Rehabilitation Plan is concerned with the rehabilitation and maintenance
of Lebanon's international, primary, secondary and local road network.  The Arab Highway project isdesigned to connect Lebanon to its neighbouring count ries and will run from Beirut to the Syrian
border at Masnaa.  The main economic purpose of the project, beyond its obvious political
importance, is to facilitate the fast and efficient movement of goods to and from Beirut's port.  The
Beirut Peripherique Boulevard (BPB) is designed to connect the northern and southern coastal
expressways, to improve the traffic flow into Beirut  and to connect the Beirut road system with the
Arab highway.
Banking
21. Lebanon's banks have modernized and re-capitalised.  Legislation liberalizing all capital
movements and exchange transactions introduced in 1948, and the passing of a strict banking secrecy
law in 1956 were two milestones in the history and evolution of the sector.  Since the end of the war,
the Lebanese banking sector has been undergoing a comprehensive process of restructuring and
modernization. Though the effects of the conflict were substantial, general economic developmentshave worked in favour of the banks, which are still practically the only vehicles for channelling
investments into the country.  By all standards, Lebanon is well banked with a ratio of one branch per
5,600 population (compared to an average of one per 20,000 population in the region).  Today, the
challenge that this sector has to face is to become more actively involved in reconstruction.
The Central Bank's Prerogative (see Annex 6)
22. The Bank essentially plays a supervisory role regarding banking operations.  New legislation
grants the Central Bank certain prerogatives such as:
- An auto-liquidation procedure enabling the Central Bank to purchase the assets of a
bank in difficulty and indemnify the depositors up to the capital limit acquired by the Central
Bank.
- Fiduciary agreements are governed by a new law (No. 520/96) granting the Central
Bank supervision of financial companies and institutions established in order to carry out
fiduciary activities.  These companies need special authorisation from the Central Bank.
Foreign fiduciary companies will be able to operate in Lebanon under the same conditions
applied to Lebanese companies.
- Another law (No. 521/96) allows Lebanese banks to issue 30% of their shares to the
public to be freely traded in the financial markets (on condition that at least 30% of sharesremain Lebanese owned).  This law also allows banks or financial institutions to issue
obligations in any currency;  the maximum amount is to be determined by the Central Bank of
Lebanon.
Insurance
23. Over the last three to four years, both the number of available insurance policies and the
amount of premium income have grown steadily.  Deve lopments in products offered have been fastest
in the health insurance and life markets.  Motor insurance has also performed well and in the credit
insurance sectors, policies have been issued for the first time.WT/L/283
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Telecommunications
24. Today, Lebanon's telecommunications system is on the verge of providing customers with a
modern and reliable service for the first time in  twenty years.  With the Government awarding
contracts worth millions of dollars to rebuild and upgrade the network, the private sector successfully
introduced two GSM networks through Build Oper ate Transfer contracts, with two companies
operating the mobile telephone system, Cellis and Libancell.  Forecasts predict that, by the end of
1998, current works are scheduled to have been completed, placing Lebanon's network on par with the
best systems elsewhere in the Middle East.  In 1994, a major contract for the rehabilitation and
extension of the rest of Lebanon's Public Swit ched Telephone Network (PSTN) was awarded to
Alcatel, Ericsson and Siemens.  Since, substantial improvements in end-user connections have been
felt.  Furthermore, Lebanon's Internet community has been booming at an ever growing speed with
already more than 16 Internet Service Providers (ISPs).
Tourism
25. In 1974, just before the outbreak of the war, the tourism industry accounted for nearly 20% of
GDP.  Then came the conflict and more than any other sector of the economy, this sector was
devastated.  Today, encouraging signs of renewed foreign investment, mostly from Arab investors,
leads many to be optimistic about the future of the sector.  In the last five years, visits by Lebaneseexpatriates, tourists from the Gulf and other international travellers have grown rapidly.
III. FOREIGN TRADE REGIME
26. Lebanon enjoys a very open trade regime where the role of the Government is limited to the
prevention of abuse.  This liberal business enviro nment allows local and foreign businesses to invest
freely in the country's many economic sectors.  There are no restrictions on foreign exchange,repatriation of funds and capital transfers and virtually no discriminatory barriers against foreign
imports.  The general trend in local trade regulations is towards easier rules and internationally
accepted standards.  Therefore, major changes are expected to occur as Lebanon integrates the EU's
Mediterranean Free Trade Area.  (see Annex 4, Lebanon's Trade Partners 1997;  Lebanon's Trade
Statistics by Sections of the Harmonised Commodity Coding System (HS codes) for 1997).
27. To ensure a suitable climate for free enterprise or foreign direct investment,  the Government
is reactivating its range of commercial policies and plans of action, along with efficient legislative
commercial measures, knowing that Lebanon's economic structure is particularly favourable to the
private sector when compared to other countries in the region.
Rehabilitation of the Customs System
28. The Government is currently undertaking a programme of rehabilitation and upgrading of the
Lebanese customs system, which started with a large scale tariff reform in 1995.  In January 1997,Lebanon introduced a new Customs Declaration form, which conforms to the international Single
Administrative Document (SAD).  This was a cruc ial step in the envisaged automation of Lebanon's
customs system.  It replaced the 23 different fo rms previously used.  In 1994, the Government of
Lebanon adopted the United Nations Conference on Trade and Development's Automated System of
Customs Data Entry Plus Plus (ASYCUDA++), the second version of the system.  The ASYCUDA++is the system used for the computerisation of the Custom's revenue collection and for the gathering of
statistics.  The ASYCUDA++, applied in the port of Beirut since September 1997, has substantially
simplified Lebanon's previous time-consuming customs clearance procedures.  This system will also
be introduced in the Beirut International Airport in June-July 1998, and will progressively expand to
the other eight customs offices in the near future.
29. Some of the advantages of the ASYCUDA++ are:WT/L/283
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(i) Simplification of the procedures (2 to 4 steps, instead of the previous 10 – 12);
(ii) standardisation of the declaration forms (1 instead of 23);
(iii) normalisation of the information and codes;
(iv) reduction of the number of required signatures;
(v) improvement in the transparency of the customs system;
(vi) acceleration of the process of data collection.
Tariff classification
30. Since January 1996, Lebanon has adopted the revised Harmonized Commodity Description
and Coding System, in accordance with the World Customs Organization in Brussels.
Customs Duties
31. Lebanon's tariffs system is characterised by low average rates.  Since the tariff system was
simplified in 1995, Lebanon has among the lowest ad valorem  taxes in the region.  High tariffs are
predominantly applied to luxury goods (see Annex 1).  To support the country's reconstruction effort,
duties on most types of capital equipment are set at a minimal tariff rate of 6%.  Goods used for the
development of Free Zones are exempt from customs duties.
Labelling
32. Lebanese customs regulations require that some imported products, particularly
pharmaceutical and foodstuffs, bear specific labels containing information such as (for example for
foodstuffs):
(i) The manufacturing and expiry date of the product;
(ii) the product's country of origin;
(iii) net weight;
(iv) ingredients;
(v) whether it contains added colouring or preservatives.
33. Foodstuffs that are two months away from their date of expiry are prohibited from import.
Violation of the labelling requirements are sanctioned under Article 358 of the Lebanese Customs
Code and can lead to the re-exportation of infringing products.
Monopolies
34. The only state trading enterprise with exclusive rights in any sector is the official tobacco
importer, the Regie des Tabacs, which benefits from monopoly rights on the import and export of
tobacco and tobacco products.  However, it works with an open system, with no discrimination based
on origin.WT/L/283
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Export Subsidies
35. Lebanon does not apply any export subsidies;  how ever, some sectors of domestic production,
such as raw tobacco and sugar beet (destined for the production of sugar) benefit from some
government subsidies.
Anti-Dumping Measures
36. Anti-dumping measures and the application of countervailing duties are regulated by
Legislative Decree No. 31 of August 1967.  The Ministry of Economy and Trade initiates
investigations into illegal export subsidies or dumping at the request of the Customs Administration or
any other interested party.
Restrictions
37. Although Lebanon does not impose any import quotas, the country currently maintains a
system of import (and very few export) licenses (see Annex 3).   Goods affected by the trade licensing
system are usually determined by the relevant ministry, such as the Ministry of Economy and Trade,
Agriculture, Health, Internal Affairs and Environment.  Under Articles 42/3 of the Customs code,
import and export licenses are granted by the relevant ministry.  Except for the Israeli boycott, the
licensing regime is non-discriminatory.
Prohibited Goods
38. Only a small number of products are prohibited.  Lebanon specifically prohibits the import of:
narcotics;  arms and military equipment;  cars older than eight years;  products that are deemed to
threaten public morals;  products deemed to threaten public health;  certain agricultural products.
Temporary restrictions/prohibitions
39. In order to remedy the poor state of agriculture after years of war ravage, the Government put
forward measures to help in the rehabilitation of the sector.  These measures consisted in the
introduction of an agricultural calendar (see Annex 2), in addition to limited import prohibitions (see
Annex 3).  First imposed in March 1995, the agricultural calendar aims to prevent the import of
foreign produce at the time of the year when the Lebanese equivalent crops are in season.  In
February 1997, new import regulations were introduced, which propose a wholesale ban, as ofOctober 1997, on the import of agricultural products that can be grown in Lebanon.  Consequently,
the import of a number of agricultural products today is officially prohibited or restricted according to
the agricultural calendar.  Depending on the product, licenses are available from the Ministry of
Agriculture.  However, many agricultural restrictions, particularly the seasonal ones, rely on the
annual harvests and are subject to constant change.
Trade Agreements
40. Lebanon is a member of the Arab League and has signed a number of bilateral trade
agreements with some Arab states, Eastern European countries, Turkey and the European
Community.  Lebanon has signed the Arab Free Trade Agreement (AFTA) which came into effect in
January 1998.  This agreement implies a gradual 10% per year decrease in tariff rates, on import
duties, taxes on agricultural and animal products, raw materials and other finished products of Arab
origin.   Other important trade agreements signed since the end of the civil war have been with Syria.For example, the Social and Economic Co-operation Agreement signed between the two countries
provides for the abolition of customs duties on trade between them, free circulation of individuals,
labour, goods and capital within their borders, as well as the co-ordination of labour and social
security legislation and industrial policy.  Thanks to latest agreements signed this year, which willWT/L/283
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reduce the tariffs at the rate of 25% per year, starting 1999,  Lebanon and Syria will enjoy a zero level
tariff regime between them by the year 2003.  Leba non is currently preparing itself to join the Euro-
Mediterranean  Agreement.  Preparations to sign the Euro-Mediterranean partnership agreement
include provisions for a gradual reduction of tariffs, as well as simplified licensing procedures and the
virtual abolition of trade restrictions.  Lebanon had already obtained, and since May 1977, some tariffreductions on the export of certain goods to Member States of the European Community.
41. Nevertheless, the effects on foreign trade of these agreements will be substantial.  As regional
trade becomes more liberal, Lebanon will be forced to restructure its production base and export
orientations.
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