Non-Tariff Barriers in Intra-GCC Trade
Economic integration refers to a continuous process where economic frontiers are gradually eliminated. During the last two decades, the GCC countries have been developing economic relations with a long-term goal of economic integration and unity. At the Riyadh Summit in 1999 the second stage of economic integration was approved – the establishment of a CU, to be effective from March 2005. The main features of CU were the unification of customs laws and procedures, a single point-of-entry with internally free movement of goods, and treatment of all goods as national within the GCC. At the December 2001 Summit, GCC Heads of State formally adopted an across-the-board external tariff of 5% for most products effective from January 2003.
At the end of 2007, shortly before the commencement of the GCC Common Market (CM), the Dubai Chamber conducted a survey to assess the state of the CU from the perspective of Dubai businesses. Given that economic integration is a process and a CU is a prerequisite for a CM, it is useful to acknowledge the success and failures of the CU before embarking on the succeeding stages. Results indicate that the CU has facilitated greater intra-GCC trade, but that some non-tariff barriers (NTBs) still exist.
Survey results indicate that whilst the majority of Dubai’s traders have seen improvements in overall procedures under the CU, with 71% claiming the CU has made trade with GCC countries easier and 59% finding GCC markets more accessible, around half have incurred problems with double tariff charges on more than one occasion. Similarly, nearly a third of respondents have been required to produce unnecessary Certificates of Origin (COO) on entry into a GCC country and nearly two thirds have experienced differences in the product standards between GCC member countries (see Figure 1).
Figure 1 Impact of Custom Union Procedures
Source: DUBAI CHAMBER survey on GCC CU, September 2007
Other NTB to trade between GCC members come in the form of delays in clearance at borders, differentiation in transport fees and differences in product specification.
In all cases Saudi Arabia was found to be the most problematic country in the GCC, with 71% of Dubai companies surveyed reporting to have experienced some difficulty in Saudi’s custom procedures, 60% of having incurred delays in clearance in trade to or from Saudi, 45% having experienced differentiation in Saudi’s fee structures and 28% having experienced variances in product specifications.
Almost 65% of the Dubai companies surveyed reported differences in product specification as a hindrance to intra-GCC trade. Trade in machinery and equipment was found to have the largest variances in product specification, followed by the trade of food and then chemical products. Bahrain was found to be the least problematic in terms of quality specification and the value estimation of products (see Table 1).
Bahrain was found, by Dubai based companies, to also be the least problematic country with regards to customs checkpoints, with only 12% of respondents having incurred any difficulties, compared with 64% in Saudi Arabia and 34% in Kuwait. The ease with which goods pass through custom checkpoints was found to have the largest variation between countries in the GCC.
Bahrain was also found to be the least problematic for Dubai traders with respect to double taxation, availability of trade and investment information, and differences in accounting standards, whilst Oman was cited as the easiest country to find trade partners with. Conversely, Saudi Arabia was reported to be the most problematic on each of these indicators.
However, on a more positive note, whilst it is clear from the survey that there are still some NTB for the GCC to overcome in order to achieve a fully functional CU, it is evident that considerable improvements and efforts have been made. Even though Saudi Arabia is continually ranked as the most difficult GCC country to trade with, 56% of respondents have experienced no problems with double taxation or difficulty in finding partners there, 61% have found trade and investment information readily available, and 75% have incurred no problems with differences in accounting standards. These results indicate that for the majority of Dubai based traders intra-GCC trade is unproblematic, indicating that a market where goods move freely and seamlessly throughout the GCC is achievable and is already the status quo for many.
