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28 March 2024

High oil prices to spur GCC customs union

Published
By Nadim Kawach

High oil prices could prompt Gulf hydrocarbon exporters to push ahead with plan to create landmark customs union as they will clear a major obstacle involving distribution of tariff revenue, according to a semi official study.

A full enforcement of the customs union by the six Gulf Cooperation Council (GCC) countries, which control over 40 per cent of the world’s recoverable crude deposits, will sharply expand trade among them following a surge in such exchange over the past decade, the government-controlled Emirates Industrial Bank (EIB).said in its July economic bulletin.

Its figures showed an initial accord to unify GCC customs tariffs has already given rise to trade among member states, surging from around 6.5 per cent of their total trade in 2001 to 11.5 per cent in 2005 and 15 per cent in 2010.

The report expected a full implementation of the customs union to further push up inter-GCC trade to around 20 per cent in 2015 and 25 per cent in 2020.

Despite the sharp rise over the past years, inter-GCC trade remains very low compared with commercial exchange within the European Union, standing at nearly 70-76 per cent in 2010, EIB said.

The report noted that GCC states—UAE, Saudi Arabia, Kuwait, Qatar, Bahrain and Oman—have delayed the full enforcement of the customs union six times since they signed an initial pact in 2001 because of many obstacles.

While most of the disputes have been tackled one major obstacle is still blocking the full accord—the distribution of customs tariff revenue among members.

“The surge in oil prices will contribute to removing this hurdle as it means much higher revenue for the GCC countries and consequently less reliance on tax revenue in most members,” the study said.

“As oil prices are projected to remain high in the next few years, GCC governments are expected to become more flexible in dealing with the customs revenue distribution and this will allow them to reach a final agreement.”
In statements this week, the Riyadh-based GCC secretariat denied press reports that the customs union would again be delayed because of persistent rifts.

Assistant Secretary-General for Economic Affairs Abdullah Bin Juma Al-Shibli said that any multilateral economic action is supposed to progress at a steady and deliberate pace, adding that work is currently underway to complete the most important requirements of the customs union.

 “We are pursing efforts to form a single customs territory with the outside world while member states will soon agree on some of the relevant requirements of the movement of goods between them,” he said.

GCC countries, which pump more than 17 per cent of the world’s oil supplies, agreed to unify their customs tariffs at five per cent in line with an historic economic pact they signed a year after they created their loose political, defence and economic alliance in Abu Dhabi in 1981. The pact also calls for establishing a common Gulf market and a currency union.

EIB said a full implementation of the customs union would expand inter-GCC investment and boost the industrials sector, adding that this would support members’ economic diversification programmes.

“At the same time, a customs union means a single GCC bloc, which in turn will strengthen the bargaining position of member states in their negotiations for a free trade agreement with other blocs, mainly the EU,” it said.

“In other words, a single GCC economic entity will bring about massive trade and economic benefits to members, attract foreign investment into the region and open up new markets for their exports.”