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Nice in theory, harder in practice

Approximately ten months after it came into operation, is the GCC customs union working?

In January this year, the six co-untries of the GCC took the momentous step of implementing their long-awaited customs union. The union promised so much: a single tariff of 5% on more than 1500 items and free movement of goods throughout the GCC once that tariff has been paid at the point of entry.

Furthermore, goods made in the GCC would move duty free within the union if they met certain criteria related to content and local ownership of the company. All in all, the customs union aimed to encourage easier movement of goods throughout the GCC and greater pricing parity across its six member states.

A 2002 report by the World Economic Forum pointed out the low level of trade amongst Arab countries and interpreted the formation of a customs union as "a strong desire to boost intra-regional trade."

Plus, increasing intra-Arab trade, around 2% of the world's total, would give Arab countries greater negotiating power with trade blocks such as the European Union. With a uniform external tariff, the GCC can bargain for bilateral and multilateral trade concessions involving tariff reductions as a single block, instead of one medium sized and five small countries.

Of course, no-one expected this to be plain sailing. Immediately after the union came into force, there were reports of trucks being held up at the Saudi border despite having paid duty in Dubai. Then, reports emerged that duty dodgers were sending shipments by sea and air, rather than road, because checks on those types of shipments were less strict than on road traffic.

So, nine months after the implementation of the union, where do things now stand? Major players in the transport industry canvassed by Arabian Business and its sister publication, Logistics Middle East, paint a mixed picture.

Phil Couchman, regional director of DHL, says that teething problems are delaying the launch of its new 'Time Definite' service across the region. "Though the intention is noble, I must observe that the follow through has been somewhat erratic as regards unified customs documents, first points of entry clearances and duty exemptions. It appears it has largely been left to local interpretation," says Couchman.

"Decisions on what is and is not dutiable goods have come in fits and starts. Indeed, one country, which shall remain nameless, has only really just come to the table as regards implementation, ten months after the supposed introduction." For the time being, DHL is introducing Time Definite services in Bahrain, with introduction across the whole region once the customs union is working more effectively.

Another point raised by DHL is that whilst the union may help it get its goods through customs more quickly, time is still taken up at the border with security checks. "There will be an improvement in transit times, but the improvement will not be as drastic as first thought," says David Wild, UAE country manager. "Perhaps in two years time, Saudi Arabian customs will accept the security checks here [Dubai] and if the truck arrives at the Saudi Arabian border sealed, they might be satisfied with random checks," he adds.

DHL competitor, TNT Express, is a little happier with the way things are going, but still expects it to be another couple of years before everything is working smoothly. "I'd be lying if I said that we didn't have teething problems, but the way I look at it, in relative terms, is 'Has it worked?' Absolutely, it has," says Mark Pell, regional general manager. "If you compare it with the EU, when the simplified, borderless situation occurred in 1988, it was painful. By comparison, here in the GCC, it has been a lot smoother than I thought it would be."

Despite his favourable comparisons with the EU, he does agree that it was not an easy start. "Even different gateways within one country had different interpretations of what you could and couldn't do," he says. "But certainly, it has developed to a point now where we are experiencing virtually no problems. That's only taken nine months."

Pell, however, cannot be sure that it is the customs union alone that has led to a big increase in traffic this year. "There seems to be a significant movement of heavier weighted products around the region. What's driving that specifically?" he asks. "'I'm not quite sure' would be the truthful answer, but a standardised duty regime across the GCC has to be of benefit."

DHL's final word is that it would be delighted to offer its advice to the authorities responsible for making the union work smoothly. "Why should they listen to us?" asks Couchman.

"Because we are among the companies doing the cross border trade. Our teams suffer the setbacks of delayed implementation daily and see the future possibilities just as often. That's why they should listen to us."

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