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28 March 2024

Move to allow cross-border firms

Allowing national companies to open branches in any GCC state and treating them on part with local firms will also sharply increase inter-region trade and investment. (AFP)

Published
By Nadim Kawach

The heads of state of Gulf oil exporters meeting in Abu Dhabi on Tuesday will consider allowing local companies to operate in any member in a move that will clear a major obstacle for the enforcement of a landmark common market they launched at the start of 2008, according to officials.

If endorsed, the move is expected to give a strong push to efforts by the six Gulf Cooperation Council (GCC) countries to pursue historic plans to set up a customs union and a common market as part of long-term merger plans.

Allowing national companies to open branches in any GCC state and treating them on part with local firms will also sharply increase inter-region trade and investment, and this will contribute to cutting prices and boosting growth.

“A recommendation will be presented to the GCC heads of state at their upcoming summit in Abu Dhabi to allow local companies to open branches in all member countries on part of national firms in each member,” GCC Secretary General Abdul Rahman Al Atiyya said in statements last week.

“There is no doubt this will largely expand the GCC common market and facilitate the movement of goods and services among member states.”

At talks in Doha last year, GCC ministers of trade and industry endorsed a proposal to end corporate curbs in the 29-year-old Gulf alliance and presented the plan to the GCC summit in Kuwait later in the year. The summit then asked the ministers to hold more discussions on the project and present it in its final stages to the annual summit in Abu Dhabi.

Under the proposal, any company seeking to establish presence in another GCC country must be fully owned by nationals, registered in a member state, and its field of activities must be within those permitted by the host country.

The company must have been registered for at least three years but this period can be reduced by the host member. The firm must also be managed by nationals but such a term could be dropped by the host nation.

GCC countries, which sit atop more than 40 per cent of the world’s recoverable oil deposits, launched the customs union and the common market after years of tough negotiations. Early this year, four members - Saudi Arabia, Kuwait, Bahrain and Qatar - kicked off the long-awaited Gulf monetary union, which crowned their merger plan stipulated by an historic economic pact they signed nearly a year after they launched their alliance in 1981.

But such projects have faced problems, including corporate laws, customs revenues, border barriers, trade agencies and other obstacles.

Officials said member states are still haggling on whether to give access to all citizens to local trade agencies and enforce a common protectionism system.

A full GCC market will give birth to the world’s largest oil bloc, with proven crude resources of more than 480 billion barrels, just over 40 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.

Inter-GCC trade surged to a record high of around $76 billion in 2009 from nearly $65 billion in 2008 and only $six billion in 1983, according to Atiyya.

“Inter-GCC trade is set to steadily grow in the next period after the full enforcement of the customs union and common market,” he said.

In 2008, the GCC’s combined gross domestic product hit an all time high of around $1,076 billion in current prices, more than half the total Arab economy. But it dipped to nearly $877 billion in 2009 because of lower oil prices and is projected to rebound to about $1,010 billion this year, according to estimates by the Washington-based Institute for International Finance.

At the end of October, GCC countries had nearly 700 joint-stock firms including 646 listed companies with a combined paid-up capital of around $228 billion. More than 654,000 GCC citizens are subscribers to those firms.

In a study last month, the Emirates Industrial Bank (EIB) urged GCC heads of state to throw their weight behind the customs union and common market when they convene their two-day meeting in Abu Dhabi, their 31st summit.

It noted that despite the global fiscal crisis, which depressed trade worldwide, inter-GCC commercial exchange soared by nearly 40 per cent in 2009.

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 diversification programmes in the economic, defence and political 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.

 “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.”

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.