[pic] | COMMISSION OF THE EUROPEAN COMMUNITIES |

Brussels, 2.3.2005

SEC(2005) 289

COMMISSION STAFF WORKING PAPER

Annex to : ”European Neighbourhood Policy” Country Report Lebanon {COM(2005) 72 final}

TABLE OF CONTENT

1. INTRODUCTION 3

1.1. Relations between the European Union and Lebanon 3

1.2. Community and macroeconomic assistance 4

2. POLITICAL ISSUES 5

2.1. Democracy and the rule of law 5

2.2. Human rights and fundamental freedoms 8

2.3. Foreign relations – general 11

2.4. Territorial and other conflicts/disputes 12

2.5. Justice and Home Affairs 13

3. ECONOMIC AND SOCIAL SITUATION 15

3.1. Macro-economic and social outlook 15

3.1.1. Recent economic developments and outlook 15

3.1.2. Fiscal management, monetary and exchange policy 15

3.1.3. External situation 16

3.1.4. Social situation and Human Development Policies 17

3.1.5. Sustainable development 18

3.2. Structural reforms and progress towards a functioning and competitive market economy 18

3.2.1. State involvement in the economy and privatisation 18

3.2.2. Regulatory framework and private sector development 18

3.2.3. Financial sector 19

3.2.4. Relations with the IFIs and other donors 20

3.3. Trade-related issues, market and regulatory reform 21

3.4. Transport, energy, information society, environment, research and innovation, people-to-people issues 26

INTRODUCTION

On 1 May 2004, the enlargement of the European Union took place with the accession of ten new Member States. It has brought changes to the EU’s political geography offering new opportunities to deepen existing relations between the Union and its neighbours to the East and to the South. The Union is determined to further develop partnerships with its neighbours to mutual benefit, promoting security as well as stability and prosperity. The EU’s external borders will not become new dividing lines but the focus of enhanced co-operation.

The European Neighbourhood Policy (ENP) sets ambitious objectives for partnership with neighbouring countries based on commitments to shared values and political, economic and institutional reforms. Partner countries are invited to enter into closer political, economic and cultural relations with the EU, to enhance cross border co-operation and to share responsibility in conflict prevention and resolution. The Union offers the prospect of a stake in its Internal Market and of further economic integration. The speed and intensity of this process will depend on the will and capability of each partner country to engage in this broad agenda. The policy builds upon the existing framework of co-operation.

In this report[1], the Commission provides an assessment of bilateral relations between the Union and Lebanon. The report reflects progress under the Cooperation and Interim Agreements, and describes the current situation in selected areas of particular interest for this partnership: the development of political institutions based on the values – democracy, the rule of law, human rights – enshrined in the Agreement, regional stability and co-operation in justice and home affairs, and economic and social reforms that will create new opportunities for development and modernisation, for further liberalisation of trade and for gradual participation in the Internal Market. The report provides guidance for the preparation of a joint action plan and serves as a basis for assessing future progress in the Union’s relations with Lebanon.

Relations between the European Union and Lebanon

Lebanon and the European Community first established contractual relations in 1977 by signing a Co-operation Agreement , which entered into force in November 1978. The Euro-Mediterranean Partnership inaugurated at the 1995 Barcelona Conference established a policy with ambitious long-term objectives. The three main fields of activity are (a) political and security partnership, (b) economic and financial partnership, and (c) partnership in social, cultural and human affairs. The 2002 Association Agreement sets out in more detail the specific areas in which these objectives can be developed bilaterally.

Based on respect of democratic principles and fundamental human rights, the Association Agreement (AA) provides a framework for political dialogue, co-operation in economic policy, including approximation of laws and application of Community standards to support Lebanon’s efforts to achieve sustainable economic and social development and the gradual establishment of a free trade area, as well as close co-operation in the social field particularly promoting the role of women and a better understanding amongst cultures. Co-operation to counter terrorism is covered in a separate exchange of letters between Lebanon and the EU. The AA commits both parties to further liberalisation of bilateral trade in various sectors. An Interim Agreement allowed the trade and trade-related contents of the Association Agreement to enter into force in March 2003. Under the current contractual relationship a Co-operation Council and a Co-operation Committee were established. The Co-operation Council met for the third time in February 2004 in Brussels, while the Co-operation Committee has not yet been convened. A new institutional structure will be established under the Association Agreement - an Association Council, an Association Committee and sub-committees.

Since 1999 Lebanon has been an observer to the WTO . In June 2001 it presented its Trade Policy Memorandum for accession. Lebanon has started consultations to become a member of the Agadir Free Trade Agreement with Egypt, Jordan, Morocco and Tunisia .

Bilateral relations between the EU and Lebanon have been intensified with the entry into force of the Interim Agreement on trade and trade related matters in March 2003. The entry into force of the Association Agreement is imminent. EU-Lebanon relations should enter into a renewed and more intense phase with the inclusion of Lebanon in the European Neighbourhood Policy, covering a much wider spectrum of fields of cooperation.

In its Decree of 27 January 2005, the Lebanese Government welcomed the European Neighbourhood Policy initiative.

Community and macroeconomic assistance

Lebanon is one of the Mediterranean beneficiaries of community assistance through the MEDA programme (bilateral and regional programmes). The EU (Community, Member States, EIB) is Lebanon’s leading donor.

The total amount of funds committed under MEDA I (1995-1999) bilateral assistance was €182 million while under MEDA II (2000-2006) the total amount allocated is €74 million.

Total commitments / payments (MEDA I and MEDA II) in million €

MEDA I (5 years) | First 5 years of MEDA II (2000-2006) | Total MEDA II |

Source: IMF, World Bank, various national sources. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Social situation and Human Development Policies

Since the early 1990s, following the end of the civil unrest, social indicators have gradually improved. Overall, male illiteracy fell from 12 to 8%, while female illiteracy declined from 27 to 19% by the early 2000s. Literacy indicators among young people are even more promising, also as a far as gender equality is concerned. In the last decade, life expectancy increased from 68 to 71 years, while the number of children dying before age one fell from 36 to 28 (per 1,000 live births), and infant immunization increased from 61 to 94%.

The scope and characteristics of the labour market as well as poverty in Lebanon remain difficult to analyse due to statistical weaknesses. The government is currently undertaking a household income and expenditure survey. Reconstruction investments and the rapid growth of the economy have increased employment opportunities, to a certain extent, but unemployment is still estimated to be between 15-20% (the last population survey of 2001 reported an unemployment rate of 11.5% of the active population, which represents around 35% of the total Lebanese population). First-time job seekers seem to experience unemployment rates twice the national average.

The law requiring employers to provide medical care and social security rights is rarely respected. The UNDP 2002 report on Arab Human Development estimates that 40% of the population do not benefit from social coverage. State hospital services are unsatisfactory and under-funded. Those who can afford subscribe to relatively expensive private social and health programmes. Migrant workers, particularly domestic workers, do not fully benefit from protection under the labour code.

Education reform is another major challenge, especially in terms of training graduates with those skills currently demanded by the labour market. Lebanon’s public and private education institutions have deteriorated and are struggling to maintain basic standards. No policy framework or national strategy exists for many parts of the educational systems. Initial steps have been undertaken to prepare a strategic plan for the primary and secondary sectors, as well as for VET.. Institutional capacity to support policy development, engage in strategic or operational planning or to provide effective administration is inadequate at all levels of the education system.

Lebanon’s total health care expenditure amounts to about 12% of GDP, with expenditure by the Ministry of Public Health accounting for about 1.1% of GDP. About 3% of the Government budget is allotted to public health.

Sustainable development

As regards sustainable development , the Ministry of Environment has initiated a Capacity 21 programme since 1994. An Inter-Ministerial Committee for Sustainable Development began work in 1998 to take stock of related issues but Lebanon has not yet adopted a strategy on sustainable development. A national Action Programme is however under preparation.

Structural reforms and progress towards a functioning and competitive market economy

State involvement in the economy and privatisation

Despite some progress since the beginning of the 1990s, state involvement in the economy remains rather significant and constrains private sector development. Government expenditures as a share of GDP amounted on average to 36% in the past three years, by a wide margin above the average for upper middle income countries. The outgoing government’s structural reform priority was raising € 5 billion in 2003 and 2004 by privatising (and securitising) a number of utility companies, including telecoms, electricity, water and transport. The 2000 Privatization law sets the framework for the privatization of state-owned enterprises, establishing a Higher Council and providing the proceeds from privatization to be applied towards debt repayment.

In 2004, progress in privatisation has been slow and the government fell short of its Paris II commitments. Controversies occurred between proponents and opponents of privatisation within the Council of Ministers and, as a consequence, the agreed 2004 budget excluded returns from privatisation and securitization. As well as the stalled telecom privatisation, the sale of the Water Company, Electricité du Liban and Ports have been put on hold. Potential privatisations are further complicated by the low degree of interest from foreign investors, for reasons including the controversial cancellation of the Libancell and Cellis contracts by the government three years prior to their end, the deduction of 40% from the telecom revenues of any new owner, a high degree of corruption and shortcomings in infrastructure and political stability.

Regulatory framework and private sector development

The government continues to influence a broad range of prices, either directly or through its state-owned enterprises. The legal basis for controlling prices is the law on the sale of goods and services which allows the Ministry of Economy to influence the price-setting process through various channels. Key relevant institutions are the Consumer Protection Department as well as the Technical Centre for Price Control, which are both within the Ministry of Economy and Trade. In addition to that, other State organisations (the Ministries of Energy, Tourism, Telecommunications) play a role in the fixing of prices of certain products and services falling under areas of their responsibility and are also, in theory, charged with the control of conformity. Therefore, in practice, an effective price control mechanism is in place for the majority of important goods and services.

There is no specific competition law in Lebanon, although the government is currently preparing a competition law aiming at regulating anti-competitive business practices and the establishment of a domestic regulatory body. Certain elements of competition policy are regulated by Decree Laws from 1943 and 1983 which prohibit and set sanctions for any conglomeration or collusion limiting competition and leading to an artificial increase in prices.

Monopolies exist in the fields of casino gambling, passenger air transport, trade in tobacco and tobacco products, basic telecommunications, and regular postal services. Lebanon does not have a specific law on natural monopolies.

In the field of state aid , a number of different laws and decrees create a legal framework for the granting of various types of investment incentives, aimed at developing certain geographical areas (mainly rural), new products, and SMEs. These measures include tax exemptions, interest rate subsidies and loan guarantees. Two authorities are in charge of granting state aids to SMEs, the Central Bank and Kafalat , a body which guarantees bank loans to SMEs. The Commission for the Control of Banks is responsible for the monitoring of execution of decrees concerning interest rate subsidies. There does not, however, appear to be a uniform state aid surveillance or control regime comparable with that of the EU.

Recent assessments of the local business environment by the World Bank and the European Commission (MED BEST initiative) points out some areas which compare favourably with regional peers, but also identifies specific regulations and policies that discourage entrepreneurial activity. On the positive side, it appears relatively smooth for businesses to secure property rights and to access short-term credit, though at high interest rates, both in a regional and OECD context. However, indicators for 2004 show shortcomings with regard to the excessive costs of starting a business, time-consuming procedures to enforce commercial contracts and a low degree of investor protection as a consequence of non-transparent disclosure of ownership and information. Regarding labour market regulation, Lebanon’s flexible working-hour arrangements stand out positively in the region, although high dismissal costs still burden businesses. Corruption is also an obstacle for doing business.

Financial sector

The financial sector is bank-focused and generally acknowledged to be exceptionally large and relatively stable. As of February 2004, the sector consisted of 53 active commercial banks and 10 specialized medium and long-term credit banks, 28 financial institutions, eight financial intermediaries and three leasing companies. Foreign banks were also well represented. The financial intermediation level equivalent to around 240-250% of GDP reflects the large size of the banking sector. Reliance on a large deposit base to finance these deficits has contributed to financial stability but has also exposed the country’s risks due to the short maturity of bank deposits. However, the development of capital markets on the basis of appropriate legal and institutional structures and sound macroeconomic situation may open access to additional resources of longer-term financing.

In 2002, bank profitability fell with the reduction of banks’ holdings of T-bills and, in early 2003, in the context of Paris II and government debt restructuring, commercial banks had to subscribe to 0% government papers but were able to partly compensate these operations also by increasing margins. Non-performing loans are a concern, also in light of relatively low provisioning level. In Q2 2004, they stood at around 16% of total loans, while reserve coverage stood at 53% of doubtful loans in 2003. Previously identified weaknesses in banking prudential supervision have been remedied through an overhaul of prudential regulation. Tighter controls on money laundering were implemented and, in mid-2002, Lebanon was removed from the Financial Action Task Force (FATF) list of non-cooperating countries.

The Central Bank supervises and regulates the banking system. From March 1995, commercial banks were required to meet a minimum capital adequacy ratio of 8% in line with the Basle Accord. During the past three years, banks' capital has increased substantially and by the end of 2001, the average capital adequacy ratio of commercial banks was approximately 16.18%. Banks are obliged to draw up financial statements and auditors must publish a consolidated and checked annual state of the bank accounts. The Banking Control Commission (BCC) performs its supervisory functions as an independent body, with a separate budget. It verifies and evaluates financial statements submitted by banks and financial institutions, and monitors the implementation by these institutions of the provisions of the Code of Money and Credit and Central Bank regulations. It carries out its examination procedures both on and off-site. The Higher Banking Council (HBC) assumes the role of a supreme banking court whose decisions and rulings are final, including the imposition of sanctions on banks and financial institutions that violate banking regulations.

The insurance market is regulated by the 1968 Insurance Law, which set up a specialised Insurance Department with supervisory responsibilities at the Ministry of Economy. Amendments to this law, in 1999, include an increase in the minimum capital requirement, the introduction of a solvency margin of 10% of gross premiums and an increase in the minimum technical provisions required per line of business. Newly licensed companies must specialize in either life or general insurance. Directors and general managers of an insurance company must be "fit and proper" and have proven record of professional knowledge.

As regards Securities Markets, the Beirut Stock Exchange was created in 1920 by the French mandate authorities in order to privatize public utilities, railways, telecommunications and the post office. It is regulated by the 1983 Regulations of the Beirut Stock Exchange, as amended in 1985 and 1995. In August 1994, the Government set up the Beirut Stock Exchange Committee to supervise and manage the reopening of the Exchange. The Committee runs the Stock Exchange’s affairs, protects the interest of investors, monitors the activities of the issuing companies and oversees the proper functioning of its operations.

Relations with the IFIs and other donors

Lebanon has no formal arrangement with the IMF , although Fund surveillance has continued in the context of regular Article IV consultations and the Paris II donors’ conference. The IMF is actively engaged with the Lebanese authorities, to provide advice on dealing with fiscal and other issues. Technical assistance has also been provided in the financial sector and statistical areas. In addition, the IMF established its Middle East Regional Technical Assistance Center (METAC) in Beirut in October 2004, to provide targeted capacity-building, including technical assistance, advice and training, to countries in the region with a view to assist macroeconomic stability and to advancing policy-making institutions. The Government of Lebanon will provide significant support for the Center's activities.

The World Bank is currently updating its 1997 Country Assistance Strategy (CAS), its key document for analytical work, lending operations and technical assistance. The current World Bank strategy is aimed at improving growth performance and the fiscal situation and, more recently, at enhancing poverty focus. The portfolio includes around US$350 million in commitments, consisting of projects in the areas, inter alia , of municipal development, education, infrastructure and revenue enhancement.

Trade-related issues, market and regulatory reform

Lebanon is a predominantly importing country characterized by substantial trade deficits, which are largely offset by net foreign income earnings, including capital inflows, remittances from the diaspora and service earnings from tourism, banking and insurance. Deficits in the trade balance neared an average of €5 billion during 2001-2003. Bilateral trade with the enlarged EU, mostly industrial, neared €4 billion in 2003, overwhelmingly accounted for by EU exports of machinery and transport equipment, chemicals, manufactured products and foodstuffs. The EU is Lebanon’s principal trading partner (50% of overall trade), followed by the Syria, US and China.

Lebanon is one of the founding members of the GATT in 1945, but withdrew in 1949. It is in the process of accession to the WTO , where it has had observer status since it applied in 1999. Lebanon submitted a foreign trade memorandum in May 2001, accompanied by a series of internal regulatory reform measures, such as the new customs law which reduces tariff rates and establishes automated customs clearing procedures. Lebanon submitted a market access offer in June 2004. A third Working Party meeting on accession took place in July 2004, at which Lebanon restated its commitment to eliminate all measures incompatible with WTO rules and to bring its trade regime into full conformity with the WTO upon accession. The next Working Party meeting is likely to take place during the first half of 2005. In preparation, Lebanon is working on the necessary documentation, including an updated Legislative Action Plan and revising its market access offer.

Lebanon has signed several bilateral liberalisation agreements, which partly contain general provisions on services. The service sector is key to the economy, accounting for nearly 70% of GDP. Major sub-sectors are commerce, tourism and financial services.

The Interim Agreement with the EU on trade and trade-related provisions establishes conditions for progressive and reciprocal liberalisation of trade in goods with a view to establishing a bilateral FTA, and includes relevant provisions on customs cooperation, competition and protection of intellectual, industrial and commercial property. As a result, since 1 March 2003, Lebanese industrial and most agricultural products (within the limits of tariff quotas) enjoy free access to the EU market. The progressive elimination of tariffs on imports to Lebanon will occur between 2008 and 2015.

Lebanon is party to a number of trade agreements with neighbouring countries. It is a signatory to the Greater Arab FTA, under the Arab League, launched in 1997 and due to abolish tariffs and reduce non-tariff barriers in intra-Arab trade over a transitional period of 7 years. Lebanon is consistently abiding by its tariff dismantling obligations under this regional liberalization endeavour. Lebanon also signed bilateral free trade agreements with Syria (in force since 1999), Egypt (since 1999), Kuwait (since 2000) and the United Arab Emirates (since 2001). Negotiations started to conclude similar agreements with Bahrain, Jordan and Saudi Arabia and are still ongoing. Trade cooperation agreements containing some preferential provisions exist between Lebanon and certain Arab countries, such as Iraq, Jordan, Saudi Arabia and Sudan,.

Laws governing veterinary and phytosanitary issues are, generally, in place but require updating. Further challenges include the need to ensure monitoring throughout the entire food chain; introduction of the risk assessment concept and better handling of emergencies; to enhance registration and approval of establishments; to establish an independence food authority; to improve enforcement. Food inspection services and laboratories (partially equipped) should be strengthened. Enhancing coordination among actors and avoiding overlapping would benefit food safety in the country. Lebanese legislation and standards on food safety, veterinary and plant health are converging towards international standards including those of Codex Alimentarius and the International Office for Epizooties (IOE). A general food safety law is in preparation. Lebanon is a member of the Food and Agriculture Organisation (FAO), the World Health Organisation (WHO), Codex Alimentarius Commission, International Office for Epizooties (IOE) and a signatory to the International Plant Protection Convention (IPPC).

The Lebanese Higher Council of Customs and the Directorate General of Customs are part of the Ministry of Finance. A complete modernisation plan of the Customs Administration was launched in 1993. Since 1996 Lebanon applies the Harmonised System for the classification of goods. Since 1997, a Single Customs Declaration form, based on the Single Administrative Document (SAD), is used for all customs procedures. The 1954 Customs Code was repealed by a new code in force since December 2000 which adopted new customs procedures, and introduced the concepts of trade facilitation and the automation and simplification of customs procedures, as well as WTO compatible customs valuation methods. It also allowed for the simplification of means of payment of the customs duties via banking guarantees and fiduciary accounts and included incentives to create free zones and customs warehouses. Moreover, it gave competence to the High Council of the customs to enact new standards as regards customs and new customs tariffs and set up a Special Arbitration Commission, which is in charge of dispute settlement between the operators and the customs administration.

The automation process of customs procedures was done via the NAJIM and NOOR projects. NAJIM is a computerised customs declaration processing system based on UNCTAD’s ASYCUDA system. Agreed users can lodge their declaration into the NAJIM system via the computerised NOOR system. These projects facilitate and simplify customs operations; the duration required for customs clearance was lowered by ten days to approximately three days. Currently, 75% and rising of customs operations go through the green channel, with clearance within a few hours.. Lebanese Customs are working on the upgrading of the NAJIM system via the completion of the implementation of ASYCUDA ++ functions. Further activities concern the development of risk analysis and Customs Intelligence tools, as well as the rolling-out of the existing systems to the whole customs territory. Through the LITE project (Lebanon International Trade Exchange) the Customs administration provides customs and trade-related information in Arabic, French and English, including the national tariff to the public via internet. Concerning customs fees, a stamp duty is applicable to all customs declaration except for export. In July 2003, Lebanon, as a partner to the Barcelona Process, endorsed the new Protocol on rules of origin allowing the extension of the Pan-European system of cumulation of origin to the Barcelona Partners. The next stage aims at amending the origin protocol in the relevant Euro-Mediterranean Agreement in order to insert the changes necessary for the application of diagonal cumulation. This could help foster economic integration and allow for a better use of complementarities and economics of scale in the Euro-Mediterranean area.

The Director General of Finance, under the Ministry of Finance, is in charge of taxation in Lebanon. The MoF adopted a comprehensive and integrated reform programme covering taxation with the aim to increase revenue, modernize the tax administration, improve services for the taxpayers and prepare for the General Income Tax. Currently, Lebanon has no unified and complete taxation laws which reflect the government's tax policy. The tax system is based on direct and indirect taxes fixed by a number of laws, Orders in Council and other application decrees. The annual budget law can modify tax rates.

The general principles which govern income tax are fixed in a 1959 Order in Council, since modified several times. Natural or legal persons are subject to income tax. The law lays down three imposition arrangements, i.e. on the basis of real profits, on the basis of flat-rate profits ("fixed amount") and on the basis of expected profits. Each taxpayer has the right to ask for imposition on the basis of real profits.

Companies are subject to a 15% tax rate on profits. All interests, dividends and arrears are subject to a 10% rate. Special provision and exemption apply to holding companies and offshore companies. The 2001 new Investment Development Law, which divides the country’s territory in three investment zones, also provides for tax exemptions. A system of excise duties is applied.

VAT was introduced from 1 February 2002, replacing several existing taxes. It applies to both national and imported products, at a a single rate of 10%. The law foresees exemptions for several categories of goods, and set up several refund schemes including for tourists and foreign businesses. A VAT Directorate was created within the Directorate General of Finance. A large taxpayer office, including insurance companies and financial institutions has been set up in the framework of the tax reform. Since 1997, a new integrated automated system was created to provide for a taxpayer identification database and a unique personal identification number. A new tax roll unit in charge of registration for tax purposes was set up in 2003. Concerning administrative capacity, the Institute of Finance, within the MoF, is responsible for training, human resources development and improvement of communication with the public. Lebanon has signed double taxation treaties with five Member States, only three of which have already entered into force.

The Lebanese system of technical regulations, standards and conformity assessment procedures concerning the movement of goods is based on 1962 legislation governing standard-making in the voluntary and mandatory sphere. Technical regulations on products are issued by a number of regulatory Ministries (Industry, Agriculture, Telecommunications, Transport, Health, Environment, Economy and Trade - the latter with a co-ordinating role) through decisions and decrees adopted by the Council of Ministers. Ministries are involved in enforcement, market surveillance and inspections. The current approach is that of product-specific standards, usually in line with international standards. They can be voluntary or made mandatory by regulatory ministries, thus converted into technical regulations by decree. Some of these could be stricter than international standards. As a rule, mandatory standards equally apply to domestic and imported products, while the latter are subject to a visa delivery attesting their conformity with technical regulations for the sake of import clearance.

The Lebanese Standards Institution (LIBNOR) is the body in charge of standard-making and acts as enquiry point for measurements, standards and technical regulations. In 2004 a law was adopted establishing the Lebanese Accreditation Council (COLIBAC), a financially and administratively independent body directly supervised by the Ministry of Industry. Legal metrology is covered by the Department of weights and measures in the Ministry of Economy and Trade, while industrial metrology is covered by the Industrial Research Institute, which also provides quality or conformity certificates.

The main legal instrument for the protection of intellectual and industrial property rights in Lebanon is the 1924 Laws and Systems of Commercial and Industrial Property which covers patents, industrial designs, trademarks, copyrights, and unfair competition. The Government has recently undertaken a broad reform program to comply with the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS) and extend protection to newer kinds of intellectual property, such as semiconductors and plant varieties. Specific laws on intellectual property have been enacted, including new copyright and patent laws that replaced the relevant provisions of the 1924 Law. The new patent law deals with patents, layout designs, plant varieties. Trademarks are protected under the 1924 Law, as well as the Paris Convention and the Madrid Agreement, and other related laws such as the Customs Law, the Criminal Law and the Law on Fraud Control, which included provisions on the enforcement of trademark rights. Some concerns remain regarding the level of protection of patents and data protection, as well as enforcement on piracy and counterfeiting.

The Ministry of Economy and Trade is responsible for overseeing the revision of existing laws as well as the development of new intellectual property laws. The Intellectual Property Protection Office, under the Ministry of Economy and Trade, is responsible for the protection of rights of literary, artistic, and industrial property. Customs are responsible for enforcement of intellectual property rights at the border. The IPPO and the police are empowered to act ex officio in cases related to infringement. Civil remedies for infringement intellectual property include fines, seizure, destruction of infringing materials, and publication of rulings. A new law consolidating existing legislation on trademarks and geographical indications into one specific law and modernizing the provisions of the 1924 Law is expected to be adopted by the Council of Ministers in the near future.

The Central Administration of Statistics (ACS), with only 90 employees, under the direct control of the Council of Ministers, is officially in charge of the collection and of the coordination of statistics. In practice the ACS faces serious difficulties in coordinating statistical production within the Lebanese Statistical System. This results mainly from its current weak capacity in terms of technical and human resources, specially a lack of qualified statisticians. Statistical production is very limited, with severe gaps e.g. the notable absence of national accounts in conformity with international standards and the latest population census dates from 1932.

The Central Bank’s department for statistics and economic research produces its own statistics, including on balance of payments, notwithstanding its limitations in terms of information sources. It also compiles macro-economic estimates for monetary policy and, more in general, for economic policy purposes.

Due to the reform and computerisation of the customs administration, with the introduction of a customs declaration processing system based on ASYCUDA in 1998, foreign trade statistics are of a good quality and based on international requirements. The Customs Calculation Centre (CID) compiles and circulates statistics. The Bank of Lebanon and the ACS also use the customs data for their publications.

While ACS does not have a unit in charge of environmental statistics, there are several institutions involved in this area, such as the Ministries of Environment, Health and Agriculture, the National Centre for Remote Sensing, the National Centre for Scientific Research and the National Centre of Marine Research.

The Court of Audit (CoA) is the institution in charge of supervising public expenditure. The Court is an independent body attached to the Office of the Prime Minister. It carries out both administrative pre-audit and post-audit controls, and jurisdictional controls over the activities of civil servants and can provide its opinion on financial issues to the Ministry of Finance upon request. The CoA is a member of the International Organisation of Supreme Audit Institutions (INTOSAI).

As regards public procurement , Government procurement practices are regulated by a 1959 Decree, amended in 1962 and 1963, which governs procurement by all State entities, including Municipalities, public institutions, and independent utilities, with the exception of the Ministry of National Defence, the Internal Security Forces, and the General Security Body. In addition, a 1963 General Accountancy Law outlined government procurement methods; another 1959 Decree established the Administration of Tenders and the Criminal Code also set out penalties for violations of procurement legislation. In addition to these general provisions, a number of State entities have specific legislation and rules governing their procurement activities. The Administration of Tenders consists of a Tendering Bureau and Tendering Committees, established to conduct and monitor specific procurement operations. A firm suspecting a lack of transparency in the award of a contract has a right to judicial recourse. Public tendering is open to all candidates and advertised in the Official Gazette and three local daily newspapers. Restricted tendering is limited to a certain category of candidates depending on the nature of the work, services or products required. A new Public Procurement law is expected to be prepared in the coming months.

Foreign bidders are not prohibited from participating in government procurement and benefit from equal treatment as national bidders but invitations to tender can include specific clauses restricting foreign employment for the execution of the project or participation to Lebanese nationals, or requiring the existence of a contract between the foreign firm and a Lebanese participant.

As regards provision of services and right of establishment , Lebanon's industrial policy is aimed at promoting investment and increasing competitiveness of industrial and agricultural products. A 2001 Law on Promotion of Investment was enacted to promote investment opportunities and encourage investments in the fields of industry, tourism, agriculture, agro-industries, marine resources, media technology, and information technology. It established a "One-Stop-Shop" service at the Investment Development Authority of Lebanon (IDAL) to facilitate procedures and better assist investors. However, these measures have had limited impact so far on competitiveness and administrative procedures for doing business are still too lengthy and burdensome. There are no special financial provisions for, or constraints on, foreign investors except that certain restrictions exist on foreign ownership of banks and companies involved in media activity, land ownership and the employment of foreign labour. Lebanon's membership in the Multilateral Investment Guarantee Agency is a means of reinforcing confidence among potential foreign investors. In addition, the National Institute for the Guarantee of Investment makes insurance coverage available to investors, in the form of compensation, for losses resulting from non-commercial risks. Commercial and Civil companies must register at the Civil Companies Register at the Court of First Instance. Foreign companies can operate in Lebanon either as a branch or as a representative office, both of which must register and obtain a license in order to operate.

In October 2004, Lebanon adopted the Euro-Mediterranean Charter for Enterprise, by which it committed to improving conditions for doing business on the basis of the Charter principles. The ambition of the Charter is to create an environment conducive to investment and enterprise development as well as to define common strategies and projects, both at national and regional level.

Services (including trade and construction) account for approximately 70% of GDP of the Lebanese economy. Around 76% of the total workforce is employed in the service sector according to 1997 statistics. Trade, construction, tourism, telecommunications, and financial services are the most prominent services.

With very few exceptions, Lebanon provides equal treatment to foreign and domestic service suppliers, once established in Lebanon. A limited number of existing measures are inconsistent with MFN treatment.

As for market access, there are limitations on the number of shares which foreigners can own in banks, brokerage firms, leasing companies, companies managing mutual funds, and financial institutions established as joint stock companies. Foreign participation is also limited in maritime agencies. In addition, many jobs and professions are reserved for Lebanese.

Many services are subject to licensing, registration, or declaration.

Transport, energy, information society, environment, research and innovation, people-to-people issues

The Ministry of Public Works and Transport is currently being reorganized with a view to strengthening policy development and sector oversight. A transport policy is in the process of being developed. There are plans to split the Ministry’s Directorate General for Land and Maritime Transport into two separate authorities. An autonomous Civil Aviation Authority will be established as a pure regulator replacing the Directorate-General of Civil Aviation.

In the road sector , the road freight and passenger operations are nearly completely deregulated with almost no oversight of operators’ activities. Traffic control is lacking and road safety is a serious issue of concern. Lebanon is party to a very limited number of international conventions in the sector. As there are no railways , road is the dominant mode of internal transport, both in passenger and freight operations. Inter-modal transport is hampered by missing port-hinterland connections and a lack of adequate facilities. Lebanon has implemented a series of plans for the rebuilding and significant infrastructure development.

Air transport falls currently within the competence of the Directorate-General for Civil Aviation (DGAC) attached to the Ministry of the Public Works and Transport. A Civil Aviation Bill passed in December 2002 has separated the regulatory authority from operations. An autonomous Civil Aviation Authority will be established as a pure regulator, replacing the Directorate-General of Civil Aviation. The recently refurbished Beirut International Airport is operated by the Directorate-General of Civil Aviation. A 2002 law foresees the creation of a government-owned Beirut International Airport Corporation responsible for airport operations and air traffic management services. Lebanon has announced an “open skies” policy including 5th freedom rights without reciprocity and has recently negotiated a horizontal aviation agreement with the Community, amending bilateral air services agreements between Lebanon and EU Member States. The country has recently also expressed interest to launch negotiations with the European Commission on a Euro-Mediterranean aviation agreement.

Maritime transport is the most important mode for external trade and most goods are traded via Beirut port. All four ports (Beirut, Saïda, Tripoli and Tyre) are managed by public entities. At present the Beirut Port Authority (GEPB) shares responsibilities inside the port with a number of other public entities, but ambiguities in the attributed tasks and duties lead to inefficiency. Plans for a major port reform process are currently under consideration in order to increase the efficiency of the ports. Lebanon has no maritime authority, and insufficient flag state control has resulted in the Lebanese fleet being classified in the “very high risk” category on the black list of the Paris Memorandum of Understanding. Port state control is also ineffective. In the field of maritime security, Lebanon is not yet compliant with the ISPS Code.

In satellite navigation , Lebanon participates in information exchanges on GALILEO and EGNOS, with a view to participating in a regional cooperation project.

Lebanon is almost fully dependent on external energy sources, in particular for oil products. However, research suggests sizeable offshore oil and gas reserves. The growing energy needs may impact increasingly on the high energy import bill of about US$1 billion per annum and thus on the country’s economy. Lebanon can develop towards a transit country, including for the EU. Lebanon’s energy sector orientations include diversification and development of own resources; enhancement of competition including progressive cost coverage of tariffs; more private participation; better efficiency and improvement of regional network interconnections. A long term energy strategy is under development.

The major decision to introduce natural gas in the economy will increase supply security, reduce the energy bill and improve the environment. A governmental document ‘The role of natural gas in Electricité de Liban (EdL) Power Plants’ sets out the strategic objectives to this effect and calls, inter alia , for competition and private participation. The “GASYLE I” pipeline should supply shortly certain power plants with Syrian gas. Development of GASYLE II, an offshore pipeline connecting coastal power plants, should be completed by the end of 2006. Lebanon is, with Egypt, Jordan and Syria, a partner of the Arab Natural Gas Pipeline which will bring Egyptian and Syrian gas to the region. In this context, the four countries signed in December 2003 a Euro-Med Declaration of Intent on Euro-Mashrek cooperation in the field of natural gas, which foresees the development of a regional Gas Master Plan. The Arab gas pipeline could, at a later stage, be connected to Cyprus and Turkey. Gas from Iraq, but also from other countries in the Middle East region, might also play a role in the Lebanese economy. These perspectives are essential for Lebanon’s and the EU’s security of supply.

The vertically-integrated and state-owned monopoly EdL owns and operates generation, transmission and distribution assets. Private generators and distributors supply 20% of electricity needs and Syrian imports 10%. The electricity sector, including EdL is, despite substantial government subsidies, in a very difficult financial situation as a result of low cash collection, high technical and non-technical (theft) network losses, organisational inefficiencies and infrastructure/network damage from the civil war. EdL’s privatisation remains on the agenda, but rather for the longer term due to its financial position. Power outages are recurring. Improving performance and further rehabilitation of infrastructure/networks require significant financial effort, but are crucial for the economy and for a successful introduction of natural gas (to be consumed by EdL). The 2002 Law of Electricity Sector Organisation sets a legal basis for restructuring and aims to establish a regulator. EdL sets electricity prices, after approval of the Ministry of Energy and Water. A joint electricity interconnection project is ongoing with Egypt, Iraq, Jordan, Syria, Turkey which, once realised, will contribute to the establishment of a Mediterranean electricity ring.

The Zahrani and Tripoli refineries were closed due to the civil war, but the sites are operational as import terminals and oil storage. Development of the oil sector is under study, including the viability for the operation of a refinery. Crude oil could be imported from Saudi-Arabia through the reopening of pipelines and from Iraq through Syria. The oil products sector could benefit from enhancement of competition. Lebanon aims at increasing the share of renewable energy sources (hydro, solar and wind) in the country’s energy balance to up to 10% by 2015. The Ministry of Energy and Mineral resources and the National Energy Research Centre are the key bodies in the area of energy efficiency and renewables . A comprehensive energy efficiency policy is lacking.

In the field of Information Society, the Ministry of Economy and Trade is responsible for e-commerce policy and strategy. The Ministry of Telecommunications is responsible for telecommunications policy. Although the establishment of the Telecommunications Regulatory Authority (TRA) is foreseen by the telecommunication law of July 2002, but its actual creation depends on two enabling decrees; only one of them has been adopted in December 2004.

In light of this law, the Government of Lebanon has adopted a telecommunications policy that aims at the liberalisation of the sector, the adoption of a comprehensive regulatory framework and the establishment of the new TRA. Lebanon intends to proceed with the partial privatization of the future fixed public telecommunications operator Liban Telecom (at present the state administration OGERO). Liban Telecom will keep the monopoly for up to five years from its creation.

In the market for mobile telephony, there are two GSM operators owned by the Government, whose assets have been transferred to two management companies. These management companies were awarded four-year contracts with the perspective of auctioning the two mobile networks.

Internet penetration rate is at about 11.7%, corresponding to 500,000 users (Sept. 2004). Of the nine licensed Internet Service Providers, three companies are planning to launch a mix of highspeed wireless/cable data services. However, high access fees discourage wider internet use .

Regarding the audiovisual sector , Lebanon has six television and 37 radio stations of which the Government owns one of each. Lebanon has a rich, diverse and longstanding cultural heritage from a variety of civilizations. Cultural assets are affected by the civil war but also by environmental pollution. Lebanon hosts a range of cultural events, festivals and exhibitions. A general cultural strategy, effective legislation, sufficient administrative capacity and resources to preserve and manage sites are lacking. Lebanon’s cultural heritage, which has a potential to contribute to economic growth including at local level, is a good basis for enhanced exchanges. Lebanon cooperates in the EuroMed Audiovisual and EuroMed Heritage programmes.

Lebanon has drawn up an overall environment strategy at the ministerial level, which has however not been adopted by the Government. It is based on the principles of balanced regional development, prevention of pollution, polluter pays and integration of environment considerations into other sectors. It aims at drawing up environment legislation as well as plans and programmes, strengthening and decentralising administrative capacities, establishing of partnerships, providing information as well as public awareness-raising. In addition, the Government has adopted a specific strategy for South Lebanon which aims at repairing war damage as well as protecting public health and promoting sustainable use of natural resources. A National Environmental Action Plan is under preparation.

The Ministry of Environment was established in 1993, and was supposed to have been reorganised on the basis of 1997 legislation. New legislation was again drafted in 1999 in order to review the role of the Ministry, but this has not yet been adopted either. An agreement was signed in 1997 to establish a National Council for Environment to prepare recommendations on environmental management, not yet established, to be chaired by the Minister of Environment, with participation by other Ministries and representatives of civil society. A number of other Ministries and organisations are involved in environment matters, such as the Ministries of Public Health, Energy and Water, Public Works and Transport, Agriculture, the Council for Development and Reconstruction, the Higher Council for Urban Planning and the National Council for Scientific Research.

In 1988 an environment protection law was adopted, followed in 2002 by a National Code of the environment which defines the basis and norms for environmental protection – notably for water, soil, use of chemicals and resource management – as well as institutional, administrative and technical aspects. However, implementation of the code requires additional legislation to be adopted. The Ministry of Environment has prepared a draft environmental impact assessment decree An environmental education and awareness plan has been established. A Life Third Countries programme provides for a project on strategic environmental assessment and land use planning in Lebanon.

Lebanon has adopted some sector-specific legislation on air quality, water quality, waste management, quarries, land and soil, forests, hunting and pesticides. Concerning industrial pollution, there are some national standards on environmental quality and for risk management.

A National Biodiversity Strategy and Action Plan is in place since 1998. Although there is no overall national strategy on waste management, municipal waste management in the Greater Beirut area is undertaken in accordance with the 1997 Emergency Plan for Waste Management. Some regional projects on municipal waste issues have been launched in recent years. The Ministry of Environment has drawn up specific decisions concerning certain companies dealing with hazardous industrial waste, which include guidelines on the treatment of this type of waste. There are no specific policies and programmes regarding access to drinking water. Waste water treatment is of great concern, and a number of waste water treatment plants have been built.

Lebanon benefits from Community support under MEDA, SMAP and LIFE-Third Countries programmes. It has ratified most of the relevant international and regional environment conventions to which it is party, with the exception of amendments to Barcelona Convention and its Land-Based Sources and Dumping Protocols. Lebanon has not signed the new Emergency Protocol or the Specially Protected Areas and Biodiversity Protocol. While Lebanon has signed the UN Framework Convention on Climate Change, it is not a signatory to the Kyoto Protocol.

Research and Innovation activities in Lebanon are modest. Lebanon has a small but diverse and multicultural science & technology community based on six universities (five of which have science and technology faculties pursuing research activities), five national research centres and an expanding number of research laboratories attached to government ministries. Research and innovation amongst private sector manufacturing companies remains limited although it is expected that developing technopoles and incubators encouraging joint industry-university research projects will increase private sector contribution and participation.

The National Council for Scientific Research (CNRS) promotes and oversees research and related activities in Lebanon. The CNRS maintains Research Centres, funds individual research projects, sponsors various task forces, and is engaged in continuous scientific programmes. In 2003, the CNRS funded 97 projects implemented by its own Research Centres, Lebanese academic and research institutions for an amount of LBP 782.7 million (€405,000). At regional and international level, Lebanon is fully involved in the activities of several organisations such as ALESCO (Arab League), the "Francophonie Association" and the Euro-Mediterranean Monitoring Committee for R&D Co-operation (MoCo).

Lebanon is an active player in the EU-Med partnership in science and technology: some 23 Lebanese entities were involved in 13 research contracts of the INCO-MED research programme under the 5th Framework Programme (1998-2002). In 2003 and 2004, Lebanese scientific teams participated in more than 60 proposals submitted to the FP6 first calls and 18 of these proposals were selected to be funded. These research projects mainly address priority issues set up for the Med Countries in the specific measures for international cooperation, such as integrated management of limited water resources, water technologies, renewable energies, cultural heritage and health.

Historically, Lebanon has a variety of public and private educational institutions with secular and religious systems including of Western origin. Education and training, particularly in the public area, suffered from the civil war including as a result of brain-drain, but is catching up to its previous high level. Schooling is compulsory at primary level and free for children aged up to 15 years (intermediate level). The higher education system is decentralised and gives great autonomy to the institutions. More than 140,000 students are enrolled in higher education institutions: half of them in the sole public university and the other half in over 42 private institutions. The higher education sector suffers from a lack of unified of graduation system, accreditation system and independent evaluation procedures for diplomas. There is a general need to further improve the sector by raising efficiency and quality, by addressing organisational weaknesses, by ensuring sufficient funds including for equipment and buildings and by better matching vocational training with labour market demands. The Ministry is currently engaged in establishing a reform process which is supposed to emphasize quality assurance and convergence of accreditation systems. These reforms are being prepared in line with the developments of the Bologna process. A vocational educational training strategic framework is being implemented and a Vocational Education Training development plan is under preparation. Further enhancing educational reform will be key to reducing poverty, increasing employment opportunities, raising enrolment rates at intermediate level and beyond, limiting drop-outs in particular at public schools, and enhancing literacy in certain regions. Lebanon participates in the Tempus programme the modernisation of higher education, through bottom-up exchange projects and structural measures that aim at reinforcing local reform capacities. Lebanon also participates in the Euro-Med Youth Programme which enhances cooperation in the field of non-formal education for young people through, in particular, multilateral youth exchanges, trans-national European voluntary service as well as training for youth workers and capacity building for youth NGO's. Current visa requirements and procedures create certain difficulties for youth mobility.

Lebanon’s public health situation has gradually recovered from the civil war and faces new challenges such as health risks resulting from urban air pollution and changing lifestyles. The Ministry for Public Health is charged with managing national health care, prevention and laboratory activities. It operates through headquarters in Beirut and four regional public health services (North Lebanon, South Lebanon, Mount Lebanon, and Bekaa). Of the roughly 150 hospitals spread around the country only a fraction are public institutions. The commercial orientation of healthcare institutions hails to the pre-war situation in Lebanon when the then-modern health-care system and medical institutions made Beirut the health care centre of the Middle East. During the post-war 1990s, the unregulated purchase of hospital care by the government and by public insurance schemes led to major inefficiencies and distortions in the healthcare system, resulting in growing pressure for reform.

Lebanon has a national medical insurance programme financed through contributions from employers, employees and the general budget. Patients top-up the difference in cash. With a culture of secondary care concentrated in often high-tech private healthcare institutions, the administration emphases Primary Health Care Programmes focusing on general practitioners reaching out to the public. 98% of the population (urban 99%, rural 97%) have access to primary health care and 94% have access to safe drinking water. Lebanon has a high rate of immunisation, but only about half of the vaccines are financed by the Government. An inter-ministerial working group is having incremental success in modernising the registration and distribution system of pharmaceuticals, with the aim of making medicines more affordable. Many drugs, including antibiotics, can be purchased at pharmacies without prescription.

Lebanon has launched an HIV/AIDS prevention programme against the background of a gradual spread of this disease to some hundred registered cases; data on risk groups is still incomplete. Lebanon benefits from health-care programmes funded by a number of EU Member States, the WHO and other donors. Numerous projects are implemented through NGOs, with the Palestinian population living in camps representing a special segment of their activity. Non-communicable modern-day diseases such as diabetes, hypertension, high cholesterol, obesity or cardiovascular problems prompted the authorities to launch a Non-Communicable Disease Programme in 1997. The authorities are currently establishing databases on these risk factors and conducting information campaigns to make the population aware of the dangers of smoking etc.

[1] For the most part, covering events and developments until 31 December 2004