The Big Broadband Joke

Why Lebanon’s Internet sprints at a snail’s pace

by Sami Halabi

The long hours Lebanon’s Internet users spend sitting in front of their computers waiting for content to download is not the fault of some computer conspiracy. The decrepit state of the Internet is the result of poor governance, suffocating bureaucracy, illegal internet providers and sectarian politics.

lebanon slow internet connection

Illegal Internet networks made headlines last month when a microwave transmission connection installed on top of the Barouk Mountain in the Chouf region of Lebanon was alleged to have been taking bandwidth from Israel.
The incident set off a wave of accusations from Member of Parliament Ahmad Houry, part of the March 14 parliamentary bloc that won last June’s elections, against the present care-taker telecom Minister Gebran Bassil, who is part of the Free Patriotic Movement (FPM) opposition party. Houry claimed Minister Bassil was somehow involved in facilitating the illegal connection.

Hezbollah, allies of the FPM, said that the connection was discovered in April but “a large political party” had prevented the station from being raided earlier. The minister, who did not respond to requests for an interview, has denied the allegations. The station was installed in 2006, however, when Marwan Hamade — a March 14 ally — was telecommunications minister.

Sources in the telecommunications industry, who asked not to be identified in order to speak freely, told Executive that the station owner has not been arrested, which is “very weird,” said Habib Torbey, head of the Lebanese Telecommunications Association (LTA).
Mohamad Safa, an adviser to Bassil — who stressed that he speaks for himself and not the minister — said there were “many partners involved” in the Barouk business, which he claims is now being made an issue in order to maintain the “oligopoly” of Lebanon’s legal Internet providers, who are losing market share to unlicensed providers.
“Some of them [the partners] have been arrested and some have not, but there are no real details because these are security-related matters,” he added. “No one will be able to tell you who the ‘godfather’ is, and if they do they are lying.”
Ironically, the Barouk incident has also cast light upon how technically uncomplicated it would be to increase bandwidth in the country.
“The official sector has [a bandwidth of] only 1 gigabit per second (Gbps). The Israeli antenna of Barouk alone had 10 Gbps,” said Riad Bahsoun, telecom expert at the International Telecommunications Union (ITU), a UN agency for information and communications technology; Bahsoun also advises the Lebanese government on telecom issues. Telecom Minister Bassil recently contradicted this statement though, saying the station was only transmitting 300 megabits per second (Mbps).

Does Lebanon have broadband?
Illegal Internet providers in Lebanon service more than half the market, and for good reason —  Lebanon’s legal internet is slow.  Even with these illegal suppliers, however, Lebanon’s market is grossly undersupplied.
Many Internet service providers, like Cyberia and IDM, as well as state provider Ogero, claim they provide broadband internet service.  That assertion is debatable.
“Nothing [in the market] is really broadband,” said the LTA’s Torbey when asked why his company, GlobalCom Data Services, which owns Inconet Data Management (IDM), one of Lebanon’s largest Internet Service Providers, advertises their Internet service as broadband.

The definition of broadband is foggy. The International Telecommunication Union (ITU) defines broadband as a transmission capacity that is 1.5 to 2 megabits per second (Mbps). In the United States, the Federal Communication Commission is currently seeking public comment on what should constitute broadband, with the goal being to help consumers. The current minimum bandwidth to qualify as broadband in the US is 0.75 Mbps. The Organization for Economic Co-operation and Development defines broadband as 0.25 Mbps in at least one direction. This rate is the most common baseline that is marketed as “broadband” around the world.
Salam Yamout, co-founding member of the Lebanese Broadband Stakeholders Group, a local lobby group that pushes for broadband in Lebanon, defines broadband as 100 Mbps “at the access point for businesses and people who require it.”

The Internet speeds available to the Lebanese public today vary from 0.125 Mbps to 2.3 Mbps.  Lebanon’s Internet download speed averages 0.59 Mbps, according to Ookla Net Metrics, an Internet diagnostic company. Ookla says the world average is about 10 times that, at 5.5 Mbps.
It’s astonishing to think that these speeds represent major  progress since Digital Subscriber Line (DSL) technology became available in the summer of 2007.
“The introduction of DSL was a very good step although it was long, long, long overdue,” said Leila Serhan, country director at Microsoft Lebanon. “It is still a very shy step and [the slow speed] is definitely hindering the introduction of a lot of the services you can get on the Internet.”
That hindrance has led to a low penetration rate for Internet service, resulting in a vast untapped market for broadband Internet. With ADSL penetration, a precursor to broadband Internet, at less than 10 percent of the population and consumers willing to adopt new technologies, there is ample room for the market to grow, yet it has not.
“There is no network and there is no infrastructure,” said a multinational telecommunications executive who asked to remain anonymous in order to speak freely.
The lack of decent Internet has also hindered Lebanon’s business world. Khalil Letayf, deputy general manager of Société Générale de Banque au Liban and a member of the Lebanese Broadband Stakeholders Group, explained that because of the lack of broadband, his bank has to incur extra costs to make physical backups instead of transferring data over the Internet, due to of the lack of reliable infrastructure. He said that, as a result of operating in such an environment, the risk factors associated with all the banks have increased.

Why so slow?
Lebanon’s Internet market does not run on a network made for data, but rather one made for voice. The current network was built by Siemens, Ericsson and Nokia in the early 1990s with $1.3 billion of funding from the World Bank. There has been no comprehensive plan for improving the infrastructure since then.

Lebanon’s telecommunications market
“What Lebanon has done since 1994 is build [its telecom infrastructure] in blocks,” said the ITU’s Bahsoun. Bahsoun explains that in the 1990s telecom operations like Internet and mobile were separate, and “back then they didn’t know that all these [Internet and communications technology] services, were going to converge.”
Since then, there has been little restructuring and Lebanon’s telecom ministry today is a fragmented body with two general directorates, a separate office that deals with mobile communications and miles of red tape holding it all together.
Meanwhile, regional telecoms have stayed on the cutting edge of Internet technology and service. Telecom services have been combined and broadband with hassle-free, high-speed upload and download is a reality across the region — but not in Lebanon. Transfering data is a costly and cumbersome process that involves the converting the data into a format suitable for transmission over Lebanon’s archaic network. The result for consumers is low quality and speed in tandem with high costs. The economy surely suffers, as broadband penetration has become a key economic indicator. The World Bank estimates that every 10 percent increase in broadband penetration accelerates economic growth by 1.3 percent.

Where’s the problem?
Because the government only allows Internet service providers (ISPs) a miniscule amount of bandwidth — the measure of available data communication resources — there is no variety in the market. The packages offered by the county’s ISPs are identical in terms of speed, meaning all the options available are relatively similar. What makes matters worse is that the ISPs impose download ceilings or charge for additional downloads above a certain level. This has resulted in a situation where the typical Internet user in Lebanon pays eight times more than a typical user in similar countries like Jordan and Egypt.

Internet cost of download
Unlike the rest of the telecom sector in Lebanon, which is owned by the government, the retail Internet market does operate under conditions of limited competition. That fact has spurred the growth of several ISPs and Data Service Providers (DSPs). Both are licensed by the Telecom Regulatory Authority (TRA), Lebanon’s telecom regulator — the only difference being that DSPs are assigned a certain frequency they can use to provide services. At present, there are around 20 ISPs and 6 DSPs and many are owned by the same people who typically have connections to politicians. One example is the CableOne DSP, which also owns the Lynx ISP, and is partly owned by Karim Hamade, the son of Lebanon’s previous telecom minister Marwan Hamade. One of the largest DSPs, Sodetel, is half owned by the Ministry of Telecommunications itself and Solidere, the large real estate developer which was founded by the late Prime Minister Rafiq Hariri.  The Hariri family also hold a major stake in the Cyberia ISP.
No matter how many connections exist or how much competition there is, without adequate infrastructure and capacity the market cannot grow. The problem is rooted in the amount of available bandwidth in the country and who controls it. Officially, the total amount of bandwidth in the country last january did not exceed 260 Mbps, according to the Telecom Regulatory Authority (TRA), but most observers put the figure today at around one Gbps. This, however, does not take into account the illegal market which controls “40 to 60 percent of the market,” according to Torbey. The Ministry of Telecommunications distributes all the bandwidth in the country and does not release detailed information, even to the TRA.

How to make it better?
In order to legally increase the level of bandwidth however, sizeable investments have to be made to create a “national backbone” in Lebanon. The national backbone will be like an information superhighway that connects the major cities of Lebanon.

Internet prices in Lebanon
“Instead of a superhighway, what you have are small, small roads,” said Kamal Shehadi, chairman of the TRA. “The connectivity between these places is not what it should be.”
Bassil has announced several projects in order to upgrade the current infrastructure, including an upgrade of the existing system like the backbone project.
One development expected to take place is a pilot project in the Hamra and Ashrafieh districts of Beirut that will, in theory, lay down fiber cables. The $14 million project aims to supply better connectivity to residents as well as provide a reference for a previously announced project to build a national backbone that the ministry estimates will cost around $64 million. But even the pilot project has yet to commence and the budget has not been approved by the Council of Ministers.
“They need decisions and they have not got all the decisions,” said the ITU’s Bahsoun.
The decisions in question must be made by the telecom ministry. The telecom ministry today consists of two general directorates, the Directorate of Operations and Maintenance and the Directorate of Construction and Equipment. Moreover, the Directorate of Operations and Maintenance, headed by Abdulmenaim Youssef, also controls the government-owned company that runs the current Internet infrastructure holder, Ogero.

A mess of a ministry
“It is one of the most embarrassing aspects [of Lebanese telecoms] that the person implementing and supervising [the implementation] is the same person,” said Safa, the telecom minister’s advisor.

Youssef did not respond to repeated requests for comment. He was appointed to both posts by Lebanon’s former telecom minister Marwan Hamade in 2005. Beyond being a gross contravention of efficient corporate governance, the position that Youssef maintains has made it almost impossible to ascertain who is in charge of what at the ministry. When Executive called Naji Andraous, the director general of construction and maintenance, to acquire information about the status of the pilot project’s progress, Andaous’ office said that Youssef was in charge.

Kamal Shehadi, chairman of Lebanon’s TRA
Kamal Shehadi is the head of Lebanon's telecomminications regulator

“Abdulmenaim Youssef is reluctant to progress in Lebanon [sic],” claimed Bahsoun.
Youssef held the position of general director of the Directorate of Operations and Maintenance from 1995 to 1999, when he was imprisoned and later released in an extremely politicized struggle for control over the telecom industry. He is widely seen as the representative of current caretaker Prime Minister Fouad Siniora and his political coalition’s interests.
“[Youssef’s] appointments were made at the behest of the previous governments and Prime Minister [Siniora],” says Safa.
It is worth noting that Safa is an advisor to telecom minister Bassil, who is part of the opposition to Siniora’s ruling March 14 coalition. The minister has become the focal point of Lebanon’s most recent political debacle between Michel Aoun, Bassil’s father in-law, and Saad Hariri, the prime minister-designate. Aoun is insisting that Bassil maintain his position at the helm of the telecom ministry.
But the fight over control of the sector seems to run much deeper than the ordinary squabbling between Lebanon’s politicians. Lebanon’s telecom law, Law 431, outlines the legal procedures that should be followed in order to reform the sector. The trouble is that the law has been implemented in pieces, and as such, its interpretation has been a contested topic between the TRA, the telecom ministry and all the political and commercial interests pegged to both bodies.
“If you implement [the law] in parts, especially when politics are involved, you take the parts that you like and the spirit of the law is lost,” said Safa.
The law calls for the creation of a joint stock company called Liban Telecom that will be granted a license to operate for 20 years and provide all other telephony services to the public. Liban Telecom will also acquire the assets of the current operator, Ogero, which includes the current Internet and phone network and any upgrades made to it.

Internet speed in Beirut lebanon
The latest point of contention between the ministry and the TRA is how to increase the bandwidth in the country. Having already announced the expansion projects, the ministry’s current direction is to start by increasing the bandwidth themselves. Critics say the process is hampered by the inner workings of the ministry, especially Youssef’s offices.

Evasive and unaccountable
“The minister asked in a letter about how the E1s are being distributed and the Abdulmenaim Youssef says ‘don’t respond,’” said Bahsoun. (An E1 is a measure of bandwidth equal to 2 Mbps). “When the minister calls [to follow up], he says ‘I don’t know, the letter went missing.’”
Even the Telecom Regulatory Authority’s annual report criticizes the telecom ministry because it will “only release limited information” about the current DSL market, “and as a result, it has been difficult to analyze the root causes of this slow development.” The report goes on to state that “it can be concluded that while some of the problems stem from anti-competitive behavior, others relate to the lack of appropriate investments.”

Proposed Telecom Regulatory Authority liberalization scheme
Factor in the political rivalries in Lebanon and the prospect of broadband becomes even less probable.
“If your objective is to make the minister fail then, you move like a tortoise and tell people that the minister does not act,” said Safa. [As stated above, calls to Youssef’s office to respond to these, and other statements, were not returned].
The other option on the table would be to allow the private sector to install, operate and provision broadband services. However, this too has become a point of contention between Lebanon’s ministry and its regulator.
The TRA wants to offer three “National Broadband Carrier Licenses” to the private sector which would allow them to install the fiber optic cables needed to facilitate broadband Internet and sell the services to end users. One of these licenses would legally have to go to Liban Telecom and other two would be offered in an open international auction. The proposal has been opposed by the minister who has issued his own policy paper stating that he would offer the already existing DSPs (data service providers) one of the two remaining licenses.

TRA vs the telecom minister
The ministry’s position has in part been facilitated by the fact that the law has not been fully implemented and Liban Telecom, the body that the TRA is mandated to regulate, does not exist.

Telecommunications Minister Gebran Bassil
Bassil was telecom minisiter until late 2009

“The [ministry’s policy paper] has a schizophrenic nature,” said Shehadi. “On the one hand it said the TRA is not respecting the law and it is being autonomous. On the other hand it said clearly ‘I want to change the law to make the TRA depend on and report to the minister.’”
Law 431 does say the minister is granted the authority to “establish the general rules for the regulation of telecommunications services in Lebanon” but it also says the TRA has the authority to “organize the bidding process, and issue, execute, oversee, amend, enforce, suspend and revoke licenses.” The minister’s policy paper also criticizes the TRA for not issuing licenses.
“That is bull,” said Shehadi angrily. “The TRA prepared the tender for the mobile licenses and this process was suspended by political decision, not by the TRA. The TRA has [also] issued licenses to about 6 DSPs and about 20 ISPs.”
Shehadi also criticized the minister for not forwarding the TRA’s draft licensing regulation to the Shura council, Lebanon’s highest court, in order to begin the bidding process. Safa defended the minister’s right to amend the legislation if he sees fit.
As far as the DSPs are concerned, they are happy to go along with the minister’s policy because it serves their purposes by protecting them from large international players.
Shehadi, on the other hand, says this policy and the position of the DSPs are putting Lebanon’s economic future at risk by erecting barriers to trade and going against the government’s stated liberalization policy.
“The four wireless service providers who claim, pretend or call for protection from foreign investors are jeopardizing Lebanon’s accession to the World Trade Organization, and Lebanon’s trade commitments to the European Union and to all of our trading partners, for very specific, vary narrow private interests,” Shehadi said, adding that any international player in his right mind “will ally with one of the incumbents,” so they should not fear international entrants.
“We are not trying to recreate a new monopoly or oligopoly,” protests the LTA’s Torbey. “We do believe in competition and free markets. He said that the TRA “cannot start with a clean slate as if nothing has happened in the past,” referring to their presence in the market and the preferential treatment they seek to gain.
Law 431, however, does state that “no discrimination or restrictions shall be imposed on providing the services, as no such restrictions shall be imposed on owning or operating the necessary infrastructure to provide these services.”
But it seems politics have once again stunted the implementation of the law. “In principle the TRA is right, but the minister is the political representative and implements the politics of the government,” said Safa.

Liban Telecom and sectarian politics
When it comes to political appointments in Lebanon, horse trading is commonplace and as such the country’s politicians have yet to come to a consensus over the chairman and board of directors of Liban Telecom. Each delay makes the situation in the telecom industry worse and facilitates the wrangling for power over the sector. So why hasn’t Lebanon Telecom been established?
If it is ever created, Liban Telecom will be regulated by the TRA, thus releasing the control the ministry currently wields over the network as well as dissolving the current operator of the network, Ogero. This will mean that Youssef and the interests that he represents will also have less control over the sector.

Internet service providers (ISPs) in Lebanon

Law 431 also states that the government “may, within a period of two years of the establishment of the company [Liban Telecom], sell a portion not exceeding 40 percent” to a strategic partner. That strategic partner could be anyone from the operators who are present on the market, such as Zain and Orascom, or those allied with political parties in Lebanon that have a stake in the telecom industry.
Whether or not there is a setup in the works may be one thing, but the creation of Liban Telecom also seems to hinge upon another of Lebanon’s more unpleasant sectarian realities.
“The [future] board of Liban Telecom will need to split according to the confessions of the members and a lot of power has been given to the chairman. The chairman will have to be decided on the basis of confession,” said Safa.
Here again there seems to be some horse trading at play because to appoint a member of one confession to a major post means there has to be a balance somewhere else. Sometimes that balance is not maintained and institutions function (or malfunction) without the presence of supervisors, or the intended accountability structures. The Lebanese government to date has failed to even appoint all of its mayors — the very officials who are responsible for providing basic services to the country’s population — let alone appointing the board of a nonexistent entity like Liban Telecom.
“You are in a country where there are sectarian issues,” said the ITU’s Bahsoun. “You have ministers who don’t know why they are ministers; it’s a system.”

Supposing Lebanon’s bickering politicians do eventually work out their differences over the telecom ministry, Liban Telecom, privatization, the national licenses, international commercial interests and the implementation of Law 431, serious work will have to be done to implement a national backbone. This would seem to be a tall order for Lebanon’s politicians who still cannot agree over the formation of a cabinet, let alone implement a progressive economic policy. One can’t forget that the same politicians who are hampering the advancement of an essential economic development tool were also elected last June by the people who still pay exorbitant fees for archaic Internet access.

But, as the ITU’s Bahsoun said: “If the people are happy, what can you do?”

First published in Executive Magazine’s September 2009 issue

The (Useless) Arab Boycott of Israel

Is the Arab League Boycott of Israel insignificant?
by Sami Halabi

The Arab League boycott of Israel began in 1951 with the goal of supporting the Palestinians by prohibiting trade and economic relations with the Jewish state, and to penalize countries and companies that do business with Israel.

The Arab boycott of israel

Although the boycott was enforced for several decades, it has unraveled in recent years due in part to the normalization of relations between Israel, Jordan and Egypt, and the establishment of trade offices in Morocco and Qatar (which were closed during the Gaza conflict of January 2009). The realities of globalization and international trade, and the inability of Arab countries to produce some products like microprocessors and military equipment, have also weakened the Arabs only economic weapon against Israel. As a result, Arab markets are penetrated daily by Israeli products and investments in a variety of legal and illegal ways.

Jordanian protesters burn an Israeli flag and US products

“Obviously we are suffering from the leaking of Israeli products to the Arab world,” said Haisam Bawab, head of Lebanon’s Israeli boycott office at the Ministry of Economics and Trade. “We know it happens and this is why we are trying to increase the supervision [of] such [products].”

How much is unsure
The estimated amount of direct illegal trade in products between Israel and its Arab neighbors is uncertain and varies. Forbes magazine put the figure at $500 million in 1984, equal to $1.3 billion in today’s dollars. In 2004, the Manufacturers Association of Israel estimated Israeli exports to Arab nations and entities amounted to around $192 million. A year later, Infoprod, an Israeli research firm that specializes in regional trade, estimated that the figure amounted to $400 million, around two and a half times Israel’s trade with its official Arab trading partners that year.

Former Israeli Prime Minister Ehud Olmert

Speaking to an American journalist in New York, Doron Peskin, head of research at Infoprod, estimated that total Arab-Israeli trade averaged $780 million per year in 2007 and 2008, including trade with Jordan and Egypt.
Ibrahim Saif, resident scholar and specialist on the political economy of the Middle East at the Carnegie Middle East Center said direct trade “is not that significant.” He estimates this kind of trade amounts to under $100 million a year.
No matter what the amount of illicit trade, not to mention investment from Israel to the Arab world, the fact is that this type of trade does exist and is funneled to the Arab world through a variety of methods. The main passageway for Israeli products to enter Arab markets is through front companies established in countries that have bilateral relations with both Arab nations and Israel, or through Jordan and Egypt which have signed peace deals with Israel. Israeli products are shipped to third parties in these countries, who then remove any markings which would identify the products as being made in Israel and forward the products onto Arab markets.
According to Bawab, the head of the Israeli boycott office, companies set up in Jordan, Egypt, Cyprus and even China are the main culprits of this sort of practice.
“Many Israeli companies have offices abroad and use them for trade with the Arab world,” said Peskin. “I remember, from earlier this year, the big news in Yemen [was] that its Liquid Natural Gas company [Yemen LNG] used software developed by an Israeli firm based in Tel Aviv. This company used its Hong Kong office for trade with Yemen and other Gulf countries.”
Many experts have also identified Turkey as another routing point for Israeli products entering Arab markets.
In order to curb this type of activity, Arab countries rely on “certificate of origin” documents presented to customs officials at trading ports. But, like any official document, these can be fabricated. The fact that international product sourcing regulations vary from country to country makes it difficult to identify component parts of finished products.
“In agricultural produce, for instance, Israel exports to Jordan and there the documents are changed and the products transported to the Gulf markets as Jordanian produce,” said Peskin. “What is the effect of the Arab boycott in this case?”
Last year, the Arabic language newspaper Al Quds Al Arabi reported that it had discovered Israeli investors using Palestinian agents in the occupied West Bank to repackage Israeli potatoes with false certificates of origin in order to sell them as Palestinian produce to Qatar via Jordan. The paper also claimed that a Palestinian investor, who the paper did not name but identified as a minister in a previous government, was offered 25 percent of the profits to re-export Israeli products as Palestinian to the Arab world.
Even with the increased costs of using third parties, the allure of penetrating Arab markets seems natural given the types of products Israel excels at manufacturing.
“From irrigation to security systems, Israel is very well suited to working in the Arab world,” said Hady Amr, director of the Brookings Doha Center, a regional think tank that specializes in socio-economic and geopolitical issues in the Middle East.
Due to the fact that the boycott has substantially weakened over the years, the need for Israel to covertly trade with its Arab neighbors, however, becomes less salient because in many instances Israel can already sell their products in Arab markets.

The levels of boycott
The original text of the Arab League boycott stipulates that member states adhere to a primary boycott (products that originate in Israel), secondary boycott (businesses that operate and manufacture in Israel) and tertiary boycott (a boycott of businesses that have relationships with other businesses trading in Israel). The tertiary boycott has been abandoned — that’s why Pepsi, Coke, Starbucks and other international brands can operate in both Israel and the Arab world — and today only Lebanon and Syria uphold some of the principles of the secondary boycott.
“If you want to impose all the principles of the boycott you wouldn’t have one American or European company in Lebanon or in the Arab countries,” said the Lebanon Boycott Office’s Bawab. “We adhere to the spirit and the principles of the boycott.”
When the secondary boycott is applied, there are still “strategic companies” that each country has the right to exempt if they are seen as necessary to their economies. A premier example is Intel, the global microprocessor manufacturer, who has maintained design and manufacturing plants in Israel since 1974. “All the most important Intel products have a bit of Israel inside,” said Ron Friedman, vice-president and general manager of Intel’s mobile microprocessors group at a press conference in Israel last February.
Intel currently employs more than 5,000 Israelis, and exports from Israel by the company peaked at $2 billion in 2000. Last year the company exported $1.39 billion, down 10 percent from the previous year as a result of the global downturn.
“What we do is we try to convince companies to close their factories in Israel and come to us in the Arab world and we support it,” said Bawab. “But this needs oversight and frankly there is no oversight… from the government[s].”
Many Israeli companies also sell their wares through distributors in the Middle East and simply re-route their products through another office setup in a third country. Orad, an Israeli-based company that manufactures newsroom and broadcasting products, blatantly lists its distributor in Abu Dhabi, Tek Signals, on the company’s website. When Executive called to enquire about the companies products, a Tek Signal’s company representative said: “Orad’s head office is in Israel but another main office is in the United Kingdom.” The representative confirmed that even though the products might be manufactured in Israel “all the shipments come from the UK.” As a result, they said, there wouldn’t be any problem with boycott issues.
Lebanon boycott office head Bawab lamented that there are many instances like this across the region. “There are things we can discover, and when we do we stop them,” Bawab said. “There are some things we cannot discover.”
In February, the US publication Defense News reported that Abu Dhabi is in talks with a company called ImageSat International, incorporated firm in the Dutch Antilles, to use the company’s EROS B satellite and its high-resolution imagery. According to the article, the emirate already receives images from the satellite’s precursor, EROS A, and both satellites were built by Israel Aerospace Industries (IAI), Israel’s largest defense firm with a controlling interest in Tel Aviv-based ImageSat.
“Of course, the products of Israel’s advanced hi-tech industry are targeting the Gulf markets,” said Peskin.
Regional mail forwarding services have also come under fire for facilitating the shipment of products through third countries. A 2006 article in the right-wing Israeli newspaper The Jerusalem Post claimed that Aramex, a regional delivery service, was facilitating this type of trade through their mail forwarding service.
An Aramex customer service representative said that there was “logically no handicap” to mail being forwarded from a third country but said she had never come across Israeli products being shipped in this manner. Asma Zein, Aramex’s country director in Lebanon, later contacted Executive to clarify that the service did not allow for products to be shipped from third countries, citing that it is against US law to change the labeling on packages. “We don’t have time… to change any labels in New York. We don’t even check what is written on the box,” said Zein. “As Aramex we [don’t] serve Israel and [Aramex] doesn’t get [products] from Israel, definitely not.” She added that Aramex intends to get the Israeli publication to retract its statement regarding the company’s shipping practices.

The lists
In order to track companies that are subject to the boycott, the Arab League runs a list that identifies companies as being Israeli, manufacturing in Israel or having “Zionist funds.” One popular way around this is to list an Israeli company on an international stock exchange or to take control of public companies operating in the Arab world.
“If you are talking about public companies then you don’t know who the owners are. You cannot know,” said Bawab.

Trade agreement trouble
One of the biggest blows to the effectiveness of the boycott is the decision by many countries in the region to sign onto international trade agreements. Countries that join the World Trade Organization, for instance, are required to drop barriers to trade, as are those that sign free trade agreements with the US. Saudi Arabia, which joined the World Trade Organization in 2006, said it “would treat all member states equally.”
Even though Israel is a full member of the WTO, Saif explained that the Saudis “don’t have to implement [dropping the boycott] because they don’t have a peace treaty [with Israel].”
Asked whether Saudi Arabia still adheres to the boycott Bawab said they do not. Do they still show up to the meetings? “This question I am asking and I am not finding an answer to. It is something political and I don’t have anything to do with it.”
Saudi Arabia has also spearheaded the Arab Peace Plan in 2002 which offers to lift the Arab League boycott of Israel.
Upon signing a free trade agreement with the US, Bahrain also completely dropped the boycott and no longer attends the bi-annual meetings. Tunis and Qatar even allowed Israeli commercial interest offices to open in their countries, only to close them during second the intifada and the Gaza conflict, respectively.
Defense News reported the Israelis operated an “informal and extremely discreet interest office in Abu Dhabi for several years,” but the publication also reported the two countries “chances of developing more open relations are slim to nil.”
The Palestinian Authority ended the boyott after signing the Oslo accords. Mohamad Bbousalaa, director general of the  Central Boycott Office in Damascus, said that only “14 to 15 states” of the 22 member Arab League have attended the bi-annual meetings “for the past 4 years.”

Who cares enough to adhere?
When it comes to figuring out how much each country adheres to the boycott, one of the only ways to ascertain the seriousness of boycott adherence is to look at the correspondence between respective countries’ boycott offices. According to Bawab, each country is supposed to identify potential Israeli companies that apply for trade certificates or patents, as well as boats or planes (which have specific rules that apply to them) that land in the respective country’s ports. Each Arab nation will then cross-check the blacklist with the CBO to see if the company, boat or plane is present on the list and relay that information to all other boycott offices.

The Arab boycott of israel

“I am not seeing anything [correspondence] from Libya, Morocco, Tunis, Algeria, Iraq [or] the Gulf. I get a few from Syria,” said Bawab.
However, Bbousalaa, disagrees. He said that boycott offices are only required to correspond with the central office, and only if it is a “big issue” does the central office forward the correspondence to other offices. Bbousalaa declined requests to provide a copy of any recent correspondences.
The adherence to the boycott is not binding for the members of the Arab League and enforcement is the onus of each member state.
The effectiveness of the boycott also received a battering from the policies of Israel’s, as well as many Arab states’, allies that do not allow their companies to adhere to it. In 1977, the US Congress and President Jimmy Carter, who today calls Israel an apartheid state, made it illegal for US companies to comply with the Arab League boycott of Israel. US companies are obliged to report any requests by Arab nations to adhere to the boycott of Israel to the US Department of Commerce’s Office of Anti-boycott Compliance. The penalties for a failure to do so range from a fine of up to $50,000 per violation or five times the value of the exports in question (whichever is greater), to imprisonment of up to five years, or both.
“The law, which is exceptionally complicated, is the product of strong US-Israeli relations,” said Farhad Alavi, a senior counsel at the Washington-based law offices of RA Kerr and specialist in international trade law. “The US does not want its residents, as well as US citizens outside the US, and companies… to be used as tools to further the anti-Israeli policies of certain countries.”

Boycott requests received by US companies in fiscal year 2007

What ultimately attracts Israeli companies to Arab markets does not seems to be actual trade in products with Arab nations but the investment potential of the Arab states, even despite the effects of the global downturn. “They [Israel] want to invest and they want to have presence,” said Carnegie’s Saif.
But if an Israeli company is not too ambitious, they can invest in Arab markets as long as they do not acquire a majority share. “We consider that if a company has 51 percent Israeli ownership of shares or Zionist funds, it is blacklisted,” said Bawab. He agreed that anything below was not covered by the boycott.
“The Arab Boycott’s practical outcome today is negligible,” claimed Peskin. “It is mainly effective in countries like Syria, Libya and Lebanon, while I think most of the Israeli exporters are targeting the markets of the oil-rich Gulf states.”
But even in countries where the boycott is applied, like Syria, measures have been adopted that remove some of the trade barriers that had been erected since the early 1950s. For instance in June, Syria scrapped the requirement for first-time patent applicants to submit a declaration of compliance with the boycott of Israel.

Instrument of peace
Now that there is a new push for peace in the region, the boycott is again being highlighted by none other than the proponents of this new peace initiative, as an instrument rather than a weapon.

Palestinian goods displayed in a supermarket

“What I’d like to see is indicators that they [Arab nations] are willing, if Israel makes tough commitments, to also make some hard choices that will allow for an opening of commerce [and] diplomatic exchanges between Israel and its neighbors,” said US President Barack Obama earlier this year. Last month, more than two-thirds of the US Senate signed a letter, endorsed by the American-Israeli Public Affairs Committee, the most powerful pro-Israeli lobbying group in the US, supporting “efforts to encourage Arab states to normalize relations with Israel.
Obama’s administration has also suggested that Arab states allow El Al, Israeli’s national carrier, to use Arab airspace.  Saudi Arabia, one of the US’s strongest allies in the region, has opposed such a plan until the Arab Peace Plan is adopted by Israel.
The concept of dismantling the boycott has also been proposed by Israel’s right-wing Prime Minister Benjamin Netanyahu. He supports the notion of an “economic peace” as a forbearer to political peace despite the fact that he has been reluctant to make “tough commitments,” like freezing settlements or accepting the concept of the Palestinian right of return.
It’s little wonder why Netanyahu, the former chief marketing officer of the Boston Consulting Group, wants to embrace “economic peace.” According to research conducted by the Strategic Foresight Group, a global research and policy advisory group, Israel would have almost doubled its per capita income ($23,000 to $44,000) from 1991 to 2010 and would not have lost $15 billion in tourism revenue from 2000 to 2006 if there had been a resolution to the conflict.

The onus is on Israel
For now the boycott stays in place, despite its numerous holes, and looks set to remain until there is a resolution to the Arab Israeli conflict, and more specifically, a just solution offered to the Palestinians both inside Palstine and in the region.
“If there is progress on the peace process, this is something that definitely will be dropped,” said Carnegie’s Saif. “It has not taken a front seat but if there is progress [on the peace process], you will see that this point will become very significant.”
For there to be any official changes made regarding the boycott, however, there will most likely need to be movement on the Israeli policy front, as opposed to an Arab decision.
“The easy thing for the Arab world to do will be to stay on the course that it has been on, which is to continue to relax the Arab boycott in practice while supporting it in name as long as certain countries can,” said Amr. “The question really is going to be whether Israel is willing to make the compromises it needs to make.”

First published as the cover story of Executive Magazine’s September 2009 issue