Almost every time the GCC makes the international headlines, attention focuses on two issues: the planned Gulf single currency and the seemingly endless wrangling with Brussels over the planned free trade accord with the EU. Progress has stalled on both.
However, while the GCC’s shortcomings attract plenty of media attention, there is a solid list of achievements that have not been widely publicised, such as progress on trade integration. Gradually, the conditions that govern trade between member states are being harmonised, making it easier for companies in the GCC to do business within the region.
Under the customs union programme launched by the GCC member states six and a half years ago, the bloc is being slowly transformed into a single market. The abolition of tariffs on trade between member states in 2003 is being followed by the removal of other barriers to cross-border business.
With the exception of Saudi Arabia, the GCC countries are small to medium-sized economies in global terms. But as companies in the GCC seek to expand and achieve economies of scale, an obvious step is to expand into neighbouring markets.
In the past, their ability to do this was hampered by bureaucracy, regulatory requirements and technical obstacles that amounted to a form of de facto protectionism.
However, today, as the process of regional integration and the lowering of trade barriers moves forward, cross-border trade within the region is becoming much easier and far less expensive.
It is still up to GCC firms to find business opportunities and outpace their competitors in other member states, but at least the official obstacles placed in their way are being gradually dismantled.
MEED speaks to Abdel Aziz Abu Hamad Aluwaisheg, director general for international economic relations at the GCC, about the progress that has been made so far, and the developments under way.
How much progress has been made on developing a customs union?
Tariffs were harmonised from the beginning of the customs union in January 2003. All tariffs between member states have been eliminated, but of course tariffs are in place for goods that are imported from the outside world.
There is a common external tariff in place for the all member states. In general, the tariff is 5 per cent for most [types of goods]. There are about 800 lines of goods that are set at zero [exempt from tariffs].
Special goods have higher tariffs – for example, 100 per cent for tobacco.
What about product standards and health regulations?
For standards, there are two procedures. For goods that have GCC standards – a few thousand [have been] issued by the GCC Standardisation Organisation, based in Riyadh – the GCC standard is applied. For goods that have only national standards, the principle of ‘mutual recognition’ is applied – goods must comply with the national standards [of the importing state].
For health regulations, at the beginning of the customs union, food and medicines were subject to special regulations when they moved from one GCC member to another. Recently, the GCC has adopted common food and medicine import standards, allowing those goods to be freely circulated.
In addition, member states are still allowed to take into consideration agricultural and veter-inarian quarantine laws, as well as rules regarding prohibited and restricted goods. There are common rules for both groups.
What progress has been made in harmonising business law and corporate regulations?
There are about 40 common trade laws, some of which are already binding – for example, the anti-dumping and trademarks laws – while others are still models. There is a directive from the GCC’s Supreme Council to harmonise all trade laws and transform those that are still models into binding laws. The process is moving forward – for example, work is under way on a competition law.
There is also a common trade policy that provides general guidelines for trade with the rest of the world.
In financial services, national licences are still required to operate within each member state, but cross-border transactions are permitted for nationally licensed firms. While financial service providers from all member states may operate in all GCC countries, they still have to have national licences. Once laws and regulations governing financial services are harmonised, it would be possible to operate with one licence.
What other steps are being taken to promote trade between member states?
The customs union has removed most tariff and non-tariff barriers to trade between member states, leading to a significant increase in intra-GCC trade over the past six years.
Fine-tuning is continuing to promote even greater trade growth. This includes completing the set of GCC standards. Currently, there are a few thousand goods with common GCC standards, but the goal is to have such standards for all traded goods. It also includes harmonising all trade laws and regulations, streamlining customs revenue collection and redistribution procedures, including moving towards automated settlement of tariff revenues, and relaxing the rules of importation of goods under exclusive, private agreements.
Has the GCC harmonised its approach to free trade agreements?
Agreements with the US are the sole exception. External trade relations with all other countries are harmonised. Common tariffs are applied on trade with any other country.
The GCC has concluded common free trade agreements with a number of countries, including Singapore, Switzerland, Norway, Iceland and Lebanon. In addition, negotiations are under way with other major trading partners, such as Japan, China, India, South Korea, Pakistan, Turkey, New Zealand and Australia.
What is happening with the free trade agreement with the EU?
The GCC and the EU reached agreement on most items in the draft free trade agreement, including all tariff schedules and service commitments. However, there is deadlock over a number of issues that have prevented the two sides from concluding the agreement.
As the impasse continued for some time, the GCC asked that the negotiations be suspended, which has been the case since December 2008. Nevertheless, consultations are continuing to find common ground on the outstanding issues. Once that happens, negotiations could be resumed.
How have the changes affected trade flows between GCC member states?
There was a marked shift in intra-GCC trade flows before and after the launch of the customs union in 2003. For the 1993-2002 period, intra-GCC trade grew at an average rate of about 7 per cent a year.
Since 2003, trade has been growing at an average rate of 20 per cent a year. In 2002, intra-GCC trade was about $20bn, but today it is more than $60bn.
Do you have any forecasts for the expected growth in trade between GCC member states?
It would be great if we could maintain the growth rates of intra-GCC trade, but there may be a cap in the near future due to the fact that oil dominates most member states’ exports, a common feature that could limit the size of intra-GCC trade.
However, since there has been brisk trade in non-oil items, both locally produced goods and imported goods, leading to greater distributional efficiency, we can anticipate that growth will continue – subject to business cycles, of course.
As GCC economies diversify more, there will be further prospects for trade growth. One especially ripe area for rapid growth is trade in services. The launch of the Common Market in January 2008 has caused a quantum leap in services trade. While precise figures are not as readily available as in merchandise trade, selected indicators prove this trend.
There is rapid growth in intra-GCC tourism, cross-border financial transactions, and the number of licences for GCC nationals establishing branches of their businesses in other GCC states.