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Rift over FTA could harm Gulf economic integration

Rift over FTA could harm Gulf economic integration


23 December 2004

KUWAIT CITY - The Saudi-Bahraini dispute over Manama’s free trade pact with Washington that overshadowed a summit of Gulf Arab states could derail their bid for economic integration, economists said yesterday.

Gulf Cooperation Council (GCC) leaders on Tuesday wound up their annual summit in the Bahraini capital Manama without settling the row, casting strong doubts on whether the six-member bloc will be able to implement economic pacts.

Contrary to previous summits, the final communique of the Manama meeting dropped any reference to GCC plans for a monetary union next year, a common market in 2007 and a single currency by the beginning of 2010.

It also failed to state an intention on the part of member states to clear obstacles hindering a smooth implementation of a Gulf customs union launched two years ago.

“I believe that many major economic decisions are in danger. Gulf economic unity is facing problems and the whole Gulf economic integration project is in jeopardy,” Kuwaiti economist Hajjaj Bukhdur said.

“The main problem here is that the GCC states are unwilling to relinquish even a part of their sovereignty which is essential for integration,” Bukhdur told AFP.

Most members of the GCC are negotiating free trade deals with the United States such as that inked by Manama in September and which has angered Riyadh.

Before launching the customs union on January 1, 2003, the GCC states agreed to delay the implementation of some parts for up to three years in a bid to find solutions to a number of political and logistical problems.

Under the union, member states are supposed to become a single customs zone in which the duty on foreign imports is five percent. All member states have fixed their customs tariffs at five per cent.

The GCC states however have been unable to find permanent solutions for the functioning of joint customs centers set up to facilitate the movement of goods.

They also failed to overcome problems created by applying customs protection to scores of national products, with each member state submitting a list of goods to be excluded from the union.

The GCC states have agreed to share customs revenues temporarily on the basis of the final destination of imports, but have so far failed to reach a permanent formula.

They have also prepared a draft law for anti-dumping but it has not been ratified. And they are seeking to resolve conflicting interests among agents of similar products in various member states.

“GCC economies are competing with, rather than complementing, each other. This has reduced inter-Gulf trade to less than 10 percent of the size of their combined trade,” Abdulwahab Al Harun, head of the Kuwaiti parliament’s finance panel, told a symposium early December.

To achieve a viable monetary union, the Gulf states must implement key criteria to bring their economic and fiscal policies closer.

They have approved in principle standard criteria like budget deficit, ratio of public debt to GDP, inflation and interest rates and others, but no permanent deals have been struck.

The precise parametres of the criteria have not been finalised although they agreed to set up a Gulf central bank.

The present ratios of public debt to GDP in GCC states range between 17 per cent and 80 per cent, while the maximum allowed percentage in the European Union, for example, is 60 per cent.

“The time for monetary union may come without achieving anything and the project may be delayed or canceled,” warned Al-Shall Economic Consultants, a Kuwaiti think-tank, in a recent report. “I think all major economic deals between GCC states will be shelved ... perhaps forever,” said Bukhdur.

 source: Khaleej Times