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29 March 2024

Gulf states seek to end customs union rifts

GCC states are looking to arrive at a joint customs union. (EB FILE)

Published
By Nadim Kawach

Gulf oil producers will hold fresh talks in Saudi Arabia next month in a bid to tackle rifts that have blocked the implementation of their historic customs union nearly seven years after it was launched as the Middle East’s first.

The Ministers of Foreign Affairs and the Finance and Economy in the six-nation Gulf Cooperation Council (GCC) will hold two days of emergency talks in the Red Sea port of Jeddah in a new attempt to reach a common ground for a mechanism to distribute revenue from customs tariffs on foreign imports and put an end to persistent delays at border customs points.

“The Ministers will meet in Jeddah in early September to discuss the future of the customs union and tackle differences on key issues,” said Mohammed al Haif, Director of the Customs Union Division at the Riyadh-based GCC Secretariat.

“The main issues of differences are the tax collection and distribution among member states, protection of local agents and protection of national products,” Haif told the Saudi Arabic language newspaper Alriyadh.

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.

In2009, 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.

“One of the solutions to be discussed in Jeddah is to annul protectionism implemented by some members gradually or totally while enforcing measures to protect GCC products against dumping….the discussions will also include a proposal to remove all forms of restrictions on local agencies and to treat GCC traders as local agents in all member countries,” Haif said.

“As for the rift on customs tariff collection, the talks will cover some suggestions, including one that stipulates around 95 per cent of the tariff revenue should be collected by the importing member while the rest will be saved in a joint GCC fund to be set up to finance common projects and customs development.”

Haif said the UAE and Saudi Arabia, the largest GCC members which account for nearly 72 per cent of the region’s customs revenues, had agreed to that suggestion while the remaining members favour that conducted by the consultancy firm last year. He noted that the GCC heads of state at their annual summit in Kuwait late last year gave the Ministers until the end of 2010 to patch up those differences to launch the customs union at the start of 2011.

Apart from the customs revenue and agencies rift, 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.

In recent comments to Emirates Business, GCC Chambers Federation Secretary General Abdul Rahman Naqi said such problems include a decision by GCC nations to prevent transport companies in some members from opening branches or to reject licences for some of those companies to set up new firms.

“Other obstacles include restrictions on the movement of a large number of trucks to the ports in some GCC members besides many other barriers which we are trying to discuss with the competent authorities to find solutions.”

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.