GCC urged to end customs rifts ahead of summit

Gulf oil producers should step up efforts to end rifts blocking the full implementation of their landmark customs union ahead of their annual summit in Abu Dhabi late this year, a semi-official study has said.

A surge in trade within the six Gulf Cooperation Council (GCC) nations by more than five times to a record high of $91 billion in 2009 should motivate them to iron out their differences and push ahead with the project on time, said the study by the government-controlled Emirates Industrial Bank (EIB).

Its figures showed inter-GCC trade recorded a staggering annual growth of around 72 per cent to leap from nearly $15 billion in 2002 to $91 billion in 2009.

The exchange more than doubled to $34 billion in 2005, just three years after the GCC countries launched their customs union, the first in the Middle East.
Despite the 2008 global fiscal crisis, which depressed trade worldwide, inter-GCC commercial exchange soared by nearly 40 per cent in 2009 from its 2008 level of about $65 billion, EIB’s figures showed.

It said the surge was a result of the partial implementation of the customs union, adding that it sharply boosted industrial investment, which is vital for economic diversification programmes in the 29-year-old alliance.

“Despite all these massive gains, GCC countries have decided to delay the full implementation of the customs union for another three years beyond its original deadline in 2011 due to differences on tariff revenue distribution,” it said.

EIB said it believed an increase in tariff revenue for any GCC members remains dwarfed by the “big benefits” that could be achieved for all member states through the full implementation of the customs union.

“For this reason, GCC finance and economy ministers are called upon to revise their decision to delay the full implementation of the customs union for three years…they should consider the massive gains for the private sector, for which wide horizons of growth have been opened by the customs union,” it said.

“The GCC countries need now to discuss this issue on the highest levels so they can overcome all those procedural and technical problems in order to support the common interests of the Council…in this respect, the GCC Secretariat should move to reach a compromise that will be endorsed by the GCC heads of state at their forthcoming summit in Abu Dhabi so member states can move ahead with the full enforcement of the customs union on time next year.”

After two days of talks in Saudi Arabia two months ago, the GCC ministers of finance and economy again failed to end a festering rift on the distribution of revenue from customs tariffs on foreign imports.

Their only agreement was to extend a deadline for a few more years for a final agreement on that issue before fully implementing the customs union.

The talks are the latest in a series of meetings by the six members seeking to put the customs union on track after launching a common market in early 2008 and to support plans by four GCC nations to launch a monetary union in 2010.

GCC states—the UAE, Kuwait, Saudi Arabia, Qatar, Bahrain and Oman—launched the long-awaited customs union at the start of 2003 and set a transitional period of three years for the full enforcement of the project.

But rifts over tax revenue, border delays and other issues have blocked the implementation of the customs union, forcing the six members to extend the transitional period until the start of 2008 to coincide with the common market.

In 2009, the GCC finance ministries said they had charged a consultancy firm with preparing a study on the best way for customs revenue distribution.

The study recommends that the revenues should be distributed proportionately among members, considering their population, economy and size of imports.
It proposes that Saudi Arabia, by far the largest economy in the region, should get 42.77 per cent of the customs earnings while 25.75 per cent should go to the UAE. The rest is to be shared by Kuwait 10.92 per cent, Oman 9.52 per cent, Qatar 7.9 per cent and Bahrain 3.15 per cent.

Apart from the customs revenue dispute, GCC countries are still haggling on how to tackle persistent delays at border points, which businessmen say have inflicted heavy losses on them over the past few years.

A single GCC market would give birth to the world’s largest oil bloc, with proven crude resources of more than 480 billion barrels, nearly 45 per cent of the global proven oil wealth. Their gas reserves of around 40 trillion cubic metres also account for more than a fifth of the world’s gas deposits.

In 2008, the GCC’s combined gross domestic product hit an all time high of around $1,033 billion in current prices, more than half the total Arab economy. But it plunged by at least $250 billion last year because of a sharp decline in oil prices and production.

One of the largest offences involved a sum of around Dh300 million as a result of financial malpractices by some senior civil servants, according to the Court, which said all the funds had been recovered.

In Saudi Arabia, the largest Arab economy and the world’s top oil exporter, anti-corruption actions have taken a new turn with heated debates by the Kingdom’s Shura council (appointed parliament) about the problem.

The Kingdom has already created a General Auditing Bureau (GAB) as a public funds watchdog but it has come under fire by Shura members over a recent scandal involving the alleged waste of nearly $29 billion in government funds.

The accusations traded between the Shura, the GAB and other government institutions coincided with moves by Saudi Arabia to promote itself as one of the world’s best and safest investment destinations within a long term diversification programme intended to reduce its reliance on unpredictable oil sales.

Other GCC members—Kuwait, Qatar, Bahrain and Oman—have also announced the creation of relevant bodies and legislation to eliminate corruption.
Until recently, publicised official enquiries about misappropriation of funds and corruption cases have been a taboo in most Arab countries.

The policy turnaround followed intensifying moves, mainly by Gulf nations, to open up their economies, attract foreign investment and remove red tape, corruption and other malpractices for a better standing in the mushrooming global indices that measure nations’ progress.

Such measures have allied with other procedures to tear down capital barriers to turn Saudi Arabia into the top destination of foreign direct investment in the Arab world, followed by the UAE.

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