Tariff rift, delays block GCC customs union

A festering rift over the distribution of tariff revenue along with persistent delays at border points are blocking the implementation of a landmark customs union launched by Gulf countries seven years ago.

Public and private sector representatives in the six-nation Gulf Co-operation Council (GCC) acknowledged that the customs union they created at the start of 2003 has not yet been fully enforced because of differences on the distribution of tax revenue and barriers facing local exporters at border customs points in the region.

The tariff revenue issue has already forced the six members to extend the transitional period for the customs union by two years until 2008 although income from such duties account for only around 10 per cent of the total government revenues in the six member states.

Meeting in Kuwait last week to discuss such problems, officials and businessmen sounded the alarm that the customs union could collapse unless the tax and border issues are resolved. Private sector representatives also demanded participation in the government committee that oversees the implementation of the customs union.

"The customs revenue and other problems should not constitute an obstacle for the implementation of the customs union and other integration moves among the GCC countries," said Abdul Rahim Naqi, Secretary- General of the Dammam-based Federation of the GCC Chambers of Commerce and Industry (FGCCI).

"The customs revenues account for only around 10 per cent of the total government revenues in the GCC. Yet it has blocked the enforcement of the customs union for more than five years. I wonder what would happen if customs revenues have the lion's share of total government revenues," Naqi said in a statement sent to Emirates Business yesterday.

Special fund

Naqi proposed the creation of a special fund, in which each part of the customs revenues collected by each member is deposited.

"This fund will help any country which suffers from a decline in its customs earnings because of joining the customs union. I think this fund provides the minimum solution to the tax revenue problem that is hindering the implementation of this vital and strategic project."

GCC finance ministers and other officials have met several times over the past two years to try and iron differences over customs revenue distribution, border barriers and other problems. While they have made headway in some fields, they have failed to reach an agreement on the import tax revenue and persistent border barriers, which are reported to be causing heavy losses to businessmen and other GCC trading firms.

The GCC states – 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 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 Gulf market.

Customs flaws

"The seminar we held in Kuwait has exposed the flaws in the GCC customs union. These flaws and obstacles are not compatible with the aspirations of our leaders and people," said Naqi.

"We call on the GCC authorities to tackle those problems and to hasten measures to unify all regulations governing trade among member states. They should move now to bridge all technical gaps and also to unify standards and specifications in the region. We also call for the creation of a new GCC customs committee which must include representatives from both the public and private sectors."

According to Naqi, the recent rise in inter-GCC trade was not a result of the customs union but due to the global economic downturn and a "determination by the private sector to expand regional co-operation".

Naqi made nine proposals to resolve the border problem and urged authorities to consider them to end what he described as the daily agony of businessmen and truck drivers in the GCC.

The proposals include accelerating procedures at border customs points, allowing empty trucks to move freely, expanding roads at those points, issuing multi-purpose visa for truck drivers and upgrading the GCC electronic customs system.

Complaints

Naqi accused the GCC nations, which control more than 40 per cent of the world's proven oil wealth, of putting many obstacles to the movement of goods among them, adding that such measures and long routine border procedures are inflicting heavy losses on traders.

"We have received many reports from the private sector complaining that some GCC countries are still demanding local exporters to produce certificates of origin for their products while others are asking for national quality certificates, which require payment of high fees, thus largely increasing the costs of those products," he said.

"Some members are also still imposing additional fees on imported products although these products are taxed only at the first entry point in line with the customs union agreement. In other cases, traders are subject to the payment of fees or charges under different names while routine examination of products is taking a long time, which causes damage to products and inflict losses on traders. Many GCC products are subject to exaggerated check-up measures."

In statements this year, another FGCCI official urged GCC governments to act swiftly to resolve border delays, adding that such problems inflict daily losses on regional traders.

"GCC exporters and transport companies are suffering heavy losses because of the long delay in the procedures at border points," said Abdul Karim Al Shammari, Head of the FGCCI Transport Committee.

Shammari said the GCC measures should include easing curbs on the entry of trucks, tackling routine and long procedures, and opening their borders for the laden and empty trucks round the clock.

"This will largely ease the suffering of truck drivers and the Gulf transport companies, which are reeling under the repercussions of the global economic downturn. Saudi Arabia, in particular, can play a vital role in providing such facilities by opening its crossing points to GCC trucks round the clock," he said.

Trade volume

Inter-GCC trade was estimated at around $35 billion (Dh128.45bn) in 2007, only around 4.2 per cent of the group's total commercial exchange of nearly $824bn. In 2008, it is estimated to have grown to $38bn but remained a fraction of the total trade of nearly $888bn, including around $510bn worth of oil and other exports.

The creation of the GCC customs union and common market has given birth to the world's largest oil bloc and one of the biggest consumer regions. Their combined GDP accounts for more than half the total Arab economy and it has sharply fluctuated over the past years given its heavy reliance on volatile oil exports.

In 2008, then oil prices climbed to their highest average of nearly $95 a barrel, the GCC's nominal GDP peaked at around $1,037bn before plunging to nearly $887bn in 2009 because of a sharp fall in crude prices to around $60 a barrel and a cut of more than 1.5 million bpd in the region's oil output.

The decline depressed the GCC's combined GDP per capita income from a record high of around $28,424 in 2008 to nearly $22,878 in 2009. But it is expected to rebound to about $26,229 this year on the back of higher oil prices which could expand the region's GDP to around $1,044bn, according to the Kuwait-based Inter-Arab Investment Guarantee Corp (IAIGC), a key Arab League institution.

Proportionate distribution

Early this year, the GCC finance ministries were reported to have charged a consultancy firm with preparing a study on the best way for customs revenue distribution among members.

The study recommends that the revenues raised from duties on foreign imports should be distributed proportionately among members, considering their population, economy and 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 second largest Arab economy.

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 rift, GCC states are still haggling on how to tackle delays at border points. In recent comments, Abdul Rahim Naqi, Secretary General of the Dammam-based Federation of the GCC Chambers of Commerce and Industry, 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," said Naqi.

Besides the customs union and common market, four GCC countries have plans to create the Middle East's first currency union. Two months ago, Saudi Arabia, Bahrain, Qatar and Kuwait created a common monetary authority, a precursor to the planned GCC Central Bank, an indication they are pursuing the project.

FGCCI proposals on border barriers

- Allowing empty trucks to move freely within the GCC since at least 70 per cent of the outgoing trucks are unloaded

- Permitting GCC trucks to load their shipment in any member state regardless of the driver's nationality

- Expediting customs procedures for laden transit trucks at all border customs points around the clock

- Designating four outgoing and four incoming lanes at border points to accommodate all trucks and ease congestion

- Developing and upgrading services at border customs points

- Improving medical services by posting a mobile clinic and an ambulance at each point to serve drivers

- Developing and updating the GCC electronic customs system to cope with the ongoing advancement in information technology

- Authorising border points in Saudi Arabia to permit foreign truck drivers to leave the kingdom if they stay over 72 hours in some cases

- Issuing multi-purpose visas for truck drivers to allow them to move freely within the GCC

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