Al-Ahram Weekly   Al-Ahram Weekly
2 - 8 December 1999
Issue No. 458
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GCC customs union in 2005

By Sherine Bahaa

Leaders of the six Gulf Cooperation Council (GCC) countries concluded their 20th summit in the Saudi capital Riyadh on Monday with pledges to strengthen economic ties and to establish a customs union between their countries by the year 2005.

Since the establishment of the Council in 1984, the leaders of Saudi Arabia, Kuwait, Bahrain, Oman, the United Arab Emirates (UAE) and Qatar, have held that their main purpose is to protect their economic might, which comes from the oil and gas deposits that jointly comprise 45 per cent of the world's reserves. The six countries between them supply 20 per cent of the world's crude oil production.

This week's 20th GCC summit thus aimed at emphasising this traditional goal as a way of strengthening the countries' ability to meet the challenges of globalisation and to meet potential political challenges in the region that could be risky and costly to the GCC member states.

"The economy is the best way to reinforce links between peoples," said Bahrain's Emir Sheikh Hamad Bin Issa al-Khalifa, upon his arrival for his first summit since taking over from his father who died last March. King Fahd of Saudi Arabia, perhaps in response to the dangers of increasing globalisation to the Gulf economies, urged his fellow monarchs "to quicken the pace of economic integration".

summit Opening session of the GCC 20th summit held in Riyadh this week
(photo:AP)

King Fahd, whose poor health in recent months has given rise to speculation about his successor on the Saudi throne, expressed his aspirations for economic integration in the Gulf region in his opening speech at the summit, saying that "the world is made up of economic blocs, in Europe, in Asia and in America. We can only deal as equals with these giants through a single economic entity in the Gulf."

However, the establishment of a united customs system, a significant step on the road to planned economic integration, emerged as a thorny issue at the three-day summit.

The customs union, which is designed to boost the GCC's position in trade negotiations with other blocs, is now scheduled to come into effect on 1 March, 2005, four years later than originally planned, a delay suggested by the UAE.

The deal followed a clash between the commercial interests of Dubai, a liberal trading hub within the UAE federation, and the industrial muscle of Saudi Arabia. The UAE, which has a four per cent customs rate and imposes the lowest tariffs in the Gulf, had opposed a Saudi proposal that rates of five per cent for basic products and seven per cent for luxury goods be adopted.

The UAE feared that it could lose its advantage at a time of rising competition from Oman and Kuwait, which over the past two years have followed Dubai's example in opening free-trade zones.

Analysts, however, played down the significance of the delay, saying that measures to boost trade and liberalise mutual investments between the countries were nevertheless to be implemented "as soon as possible," according to one Gulf official, and a Qatari brokered compromise concerning the level of customs tariffs was successfully hammered out by the end of the summit .

The agreed rate will be 5.5 per cent for a list of 534 essential goods, notably foodstuffs, and 7.5 per cent for luxury products including electronics. Both are 0.5 per cent higher than the proposed levels. More than 50 products will have duty-free status, notably raw materials and products for industry and agriculture.

The Council has been trying since 1983 to agree on a customs union as a vital step towards a "Gulf Common Market" that would be worth $80 billion in imports. The establishment of such a union is also the condition laid down by the European Union for a free-trade agreement that would open up the EU market to Gulf petrochemical and aluminium industries.

In another development, an internal free-trade agreement will now be extended to cover all goods produced within the GCC, including those produced by companies that are not fully GCC-owned.

Saudi Arabia, the main power broker in the GCC, had apparently insisted that a deal on the proposed customs union be concluded at the present summit, a Gulf state official saying that "to help achieve this goal, Riyadh had wanted the GCC to take decisions by a majority vote and not [as is usual] by consensus."

On the political front, the Gulf leaders spared Iran for the first time from criticism, but condemned the Iraqi regime and said that it should apologise to Kuwait for invading the country in August 1990.

Contrary to the usual condemnation of Iran's occupation of three UAE islands in the Arab Gulf, the summit's final statement said that the GCC leaders, "reviewed the work of the tripartite committee charged with setting up direct negotiations between the two countries." The tripartite committee the statement referred to was established by the GCC leaders last year after UAE President Sheikh Zayed bin Sultan Al-Nahyan complained that his neighbours were doing not enough in support of his country's conflict with Iran. It is made up of Saudi Arabia, Qatar and Oman.

The GCC is "not taking the problem lightly," Saudi Foreign Minister Saud Al-Faisal told reporters. He acknowledged that the reference to Iran was brief but insisted "its content is stronger in that it aims to put a halt to the dispute and to strengthened relations," with Tehran.

Abu Dhabi's Crown Prince, Sheikh Khalifa bin Zayed Al-Nahyan, on Saturday called for a "firm stand" by the GCC to "reduce Iran's opposition to peaceful initiatives."

In contrast to the mild stand taken on Iran, the GCC leaders blamed Baghdad for the suffering of Iraqis and for spurning all initiatives to lift international sanctions. "The Iraqi regime continues to delay the implementation of international resolutions, nine years after it invaded Kuwait," they said.

Baghdad "persists in its refusal of international and particularly Arab initiatives intended to find a way out for Iraq and to lift the international economic embargo imposed on it."

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