Leading financial and customs experts in the Gulf region are to discuss the mechanism for sharing customs duties among GCC member countries at a key summit which opens in Riyadh on Sunday.

The 'GCC Finance and Economic Committee Summit' will be largely devoted to the implementation of the GCC Supreme Council decision taken last December on the completion of the GCC Customs Union.

Currently the common rate applied by the GCC Customs Union on imports from outside the GCC is typically five per cent (among the exceptions, duties on tobacco are 50 per cent, on alcoholic drinks are 100 per cent while foodstuff and pharmaceuticals are exempted), according to a DIFC economic note.

The DIFC note prepared by experts Dr Nasser Saidi, Dr Fabio Scacciavillani and Fahad Ali stated that three policy options for revenues sharing were on the table.

The first was to make permanent the current mechanism (which was agreed in 2003 to last only for three years and periodically extended), by which the custom duties are retained by the country where imported goods are consumed.

This “final destination” criterion is supported by Saudi Arabia, the largest economy (and consumer) of the GCC, they pointed out.

The second was to allocate the revenues according to a proportion (to be specified) between the country where the first port of entry is located and the country where it is consumed.

'This would allay some of the costs of customs clearance at the ports of entry, and avoid the more efficient ports with good logistics and customs clearance being burdened by other countries’ imports. This is the criterion endorsed by the GCC Secretariat,' the experts said.

The third option was to adopt a rule whereby the country where the port of entry is located keeps a fraction (to be decided) of the duties, transfers a second fraction to a common GCC fund and distributes the rest to member countries in proportion to their final consumption expenditure (private and government).

The idea is for the common fund to be available for the financing of GCC wide activities, administration, and projects, including infrastructure, they explained.

The first option, the DIFC experts said, favours countries with a large import share passing through points of entry in other GCC states. 'Based on re-export values (at free on board (fob) prices) by country of destination in 2007, it emerges that the UAE will be the largest beneficiary of option 1,' they pointed out.
 
'As to the second option, we consider the value of re-exports at fob prices by country of origin and consider three hypotheses on the revenue split: a 25-75 per cent between country of entry and country of destination, an equal 50:50 proportion and a 75-25 per cent between country of entry and country of destination,' they noted.

'Due to its trade hub advantages, the UAE will be the largest beneficiary of option 2, to an even larger extent than under option 1.  Interestingly, the changing the split would not matter much in term of total revenues for the UAE or Saudi,' the DIFC experts said.

The effects of the third option are more difficult to estimate given that it involves a three-way split, they pointed out.

According to them, the average growth rate of re-exports between the GCC countries (since the inception of GCC Custom Union five years ago) was 36 per cent. 'If this trend were to continue, the projected value of custom duties revenues after five years will be $2.16 billion, a substantial sum,' they said.

'If the GCC countries adopted the EU mechanism in revenue collection and distribution from the payment of customs duties, the GCC Secretariat General would gain $1.62 billion by 2012 to finance common GCC interest programmes, they pointed out.

'We believe the most likely scenario to win is the second option discussed above, especially in the absence of VAT or a General Sales Tax in the GCC which would have allowed for revenues to be raised as an alternative to customs,' the DIFC experts said.

The expected revenues in 2012 would be Bahrain (($117 million), Kuwait $130 million, Oman ($214 million) Qatar ($137 million) Saudi Arabia ($360 million) and UAE ($663 million), they explained.-TradeArabia News Service