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FTAs ’threaten Gulf economic security’

Gulf News, Dubai

FTAs ’threaten Gulf economic security’

By Ahmed A. Elewa, Staff Reporter

7 March 2007

Abu Dhabi: The economic security of the Gulf could be threatened by signing free trade agreements (FTAs), some experts said yesterday.

Diminishing customs revenues and a widening non-oil trade deficit could harm regional economies, according to participants at the Emirates Center for Strategic Studies and Research’s Arabian Gulf Security conference.

Despite the economic need to sign FTAs - more than 40 per cent of the world’s trade is channelled through bilateral trade agreements - challenges remain for Gulf Co-operation Council (GCC) members, according to Jasem Hussain, head of economic research unit at University of Bahrain.

"The FTA between the United States and Bahrain has been effective since August 2006. Where 98 per cent of imports from the United States are exempted from customs duties ... such practice negatively affects public revenues," he said.

"Accordingly, Gulf countries should consider introducing taxes - not on income, but a sales tax can be considered in this context."

Saudi Arabia has discovered that reducing customs barriers resulted in an increase, not a decrease, in revenues, said Hamad Al Baz’ie, the GCC’s general coordinator for trade negotiations with the EU.

He recommended measures such as the value added tax (VAT) in GCC countries, as suggested by the International Monetary Fund last year.

With less than 1 per cent of world population and 1.5 per cent of the global gross domestic production (GDP), the Gulf countries’ strength still relies on producing 23 per cent of global crude oil and hosting 41 per cent of its reserves.

"The positive trend that is taking place is that the GCC countries are now utilising the growing oil revenues, that amounted to $325 billion in 2006, to diversify the economy away from oil," said Hussain, illustrating Saudi Arabia’s decrease in government debt from 39 per cent of GDP in 2005 to 28 per cent in 2006.