57517 WORLD BANK MIDDL E EAST AN D N ORTH AF RI CA REGI O N ECONOMIC INTEGRATION IN THE GCC WORLD BANK MIDDLE EAST AND NORTH AFRICA REGION OCTOBER 2010 Economic Integration in the GCC Office of the Chief Economist Middle East and North Africa Region The World Bank ©2010 The International bank of Reconstruction and Development/The World Bank 1818H Street, NW Washington DC 20433 Telephone: 202 473 1000 Internet www.worldbank.org E-mail feedback@worldbank.org All rights reserved. This volume is a product of the Social and Economic Development Group of the Middle East and North Africa Region of the World Bank. The findings, interpretations, and conclusions expressed herein are those of the author (s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the govern- ments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818H Street, NW, Washington, DC 20433, USA, fax 202­522­2422, e-mail pubrights@ worldbank.org. Cover photograph: © World Bank/Dominic Sansoni. A FREE PUBLICATION Acknowledgements iv Contents Foreword v AcronymsandAbbreviations vii ExecutiveSummary 1 1. Introduction 2 Main Characteristics of the Gulf Economies 2 The Gulf Cooperation Council 4 2. IntegrationthroughCommodityandServicesTrade 8 Commodity Trade 8 Services Trade 9 3. FinancialandMonetaryIntegration 12 4. IntegrationthroughInfrastructure 15 5. GlobalIntegrationTrends 17 External Trade Policies 17 Collective Trade Agreements 18 Integration with the Arab World 19 Membership in WTO 19 Relations with the European Union 20 6. IssuesandChallengestoFurtherIntegration 21 Conclusion 24 References 26 Tables Table 1 Trade Indicators in GCC Countries 3 Table 2 Logistics Performance Index, 2010 4 Table 3 GCC Tariff Rates and Exemptions, 2010 (%) 7 Table 4 Trade Policy Ranking, 2005 10 Table 5 Status of GCC Regional Trade Agreements 19 CONTE NTS Figures Figure 1 Rankings on the Ease of Doing Business 3 Figure 2 Logistics Performance Index 3 Figure 3 Concentration and Diversification Indices of Export Products in MENA 5 Figure 4 Growth of GCC Intraregional Trade 9 Figure 5 Destination of GCC Non-oil Trade 9 Figure 6 Services Trade Restrictiveness Indices (STRI) 11 Figure 7 Trade Tariff Restrictiveness Index (average MFN applied tariff) 18 Figure 8 Applied Tariff Rates for GCC Countries 18 Annexes Annex 1 Trade Agreements in the MENA Region 27 Annex 2 Statistical Tables 28 Acknowledgements This report was prepared by a team consisting of Mustapha Rouis (TaskTeam Leader), Ali Al-Abdulrazzaq and Kevin Carey under the guidance of Farrukh Iqbal, Acting Chief Economist, and Shamshad Akhtar, Vice President, Middle East and North Af- rica Region. The authors are grateful to Jean-Pierre Chauffour and Bernard M. Hoek- man from the World Bank for their comments on earlier versions. Isabelle Chaal Dabi and Liliane Vert (World Bank) provided valuable administrative assistance and iv Amanda Green (Consultant) edited the report. Though the Middle East and North Africa (MENA) region has weath- Foreword ered the recent global financial and economic crisis relatively well, it still faces daunting medium-term challenges. These include high unemployment (especially among young people), vulnerability to oil and food price shocks and water scarcity and inefficiencies of public sectors. Integration of the region into the global economy has been slow. Of particular concern is the stagnation in the region's share of global non-oil exports, an indication of missed opportunities for di- versification and growth. Integration within the region, while rising, is also on the low side when compared with other middle- and high- income regional blocs. Over the last year or so, there has been and the adoption of low common tariffs an increasing momentum on the part of by the Gulf Cooperation Council (GCC) the region and the World Bank Group to which coupled with improvements in focus on a set of initiatives to promote infrastructure, especially roads and tele- more cooperation within the region. communications is generating benefits. These initiatives include a host of analyt- But much remains to be done, espe- ical pieces to examine the current state cially in reducing nontariff barriers to of regional collaborative arrangements trade, harmonizing policies and proce- with emphasis on assessing and explor- dures, and facilitating cross-border trade ing ways of fostering greater trade inte- through development of infrastructure gration, labor mobility and migration links and trade facilitation. Fortunately, prospects, prospects for energy integra- trade in services has recently emerged tion and resource sharing and infrastruc- on the agenda of national and regional ture development to reduce nontariff authorities--this is an area of substantial barriers. potential welfare gain for the region. The region has been able to make some Recognizing the problems, the World inroads, albeit at different degrees in Bank has been working closely with the each of the geographical groupings, to MENA region to develop and imple- support the integration of the Arab world ment regional activities--investment into the global economy. To start off the projects, institution-building, harmoni- removal of intra-regional tariffs under zation of policies and procedures--that the Pan-Arab Free Trade Area (PAFTA) are likely to enhance economic growth v FOREWORD and address common challenges across the re- Kuwait, Oman, Qatar, Saudi Arabia, and the gion. As part of this endeavor, the Office of United Arab Emirates), the Maghreb (Algeria, the Chief Economist, MENA Region, has pre- Libya, Mauritania, Morocco, and Tunisia), pared a series of reports to assess the achieve- and the Mashreq (Iraq, Jordan, Lebanon, Syria, ments of the region with respect to integration. and West Bank and Gaza). Egypt is sometimes The first report, "2008 Economic Developments classified in the literature as a Mashreq coun- and Prospects," looks at the role of integration try though with ties with North Africa given its in global competitiveness for the region as location. a whole and special reports have been pre- pared to take stock of the regional cooperative Shamshad Akhtar frameworks, their issues and prospects. These Vice President reports examine economic integration among Middle East and North Africa Region three sub-regions: the Gulf countries (Bahrain, The World Bank vi ASEAN Association of Southeast Asian Nations Acronyms and AWI Arab World Initiative CU EMU Customs Union European Monetary Union Abbreviations EU European Union FATS Foreign Affiliates Trade in Services FDI Foreign direct investment FTA Free Trade Agreement GATS General Agreement on Trade in Services GAFTA Greater Arab Free Trade Area GCAC GCC Commercial Arbitration Centre GCC Gulf Cooperation Council GDP Gross domestic product GIC Gulf Investment Corporation IMF International Monetary Fund LPI Logistic Performance Index MENA Middle East and North Africa MERCOSUR Mercado Común Sur (Argentina, Brazil, and Uruguay) MFN Most Favored Nation NAFTA North American Free Trade Agreement NTBs Non-Trade Barriers PAFTA Pan-Arab Free Trade Area RTA Regional Trade Agreement SEA Single European Act TIFA Trade and Investment Framework Agreement TTRI Tariff-only Trade Restrictiveness Index UAE United Arab Emirates UEA United Economic Agreement UNCTAD United Nations Conference on Trade and Development VAT Value-Added Tax WB World Bank WTO World Trade Organization vii This study discusses the status of economic integration of the six Gulf Executive Cooperation Council (GCC) countries among themselves, with the larg- er Middle East and North Africa (MENA) region and globally. It also as- Summary sesses the main challenges to further integration. The GCC is the most advanced example of subregional integration in the MENA region, and its objectives are among the most ambitious in the developing world. It has evolved well beyond a focus on free trade in goods to embrace high levels of cross-national labor and capital mobility, and the progressive opening of many sectors within each economy to all member states. The GCC is much more integrated with the wealth among nationals. This complicates rest of the world than with MENA because the political economy of economic reform of the role of oil and gas in trade patterns. strategies such as privatization and subsidy But integration via labor markets is sig- reduction, which in turn limits the scope nificant in MENA, especially for Mashreq for regional integration in areas where the countries and Egypt. Foreign direct invest- public sector is dominant. Fourth, GCC ment (FDI) linkages from the GCC to the countries compete with each other in sec- rest of MENA are also important. Never- tors that might otherwise offer scope for theless, because GCC integration occurs regional initiatives, such as finance, trans- against the backdrop of fairly similar cir- port, and downstream energy. cumstances in the member countries, the mechanisms and drivers of integration are Besides ongoing integration mechanisms, somewhat different than in other regional particularly in infrastructure, addressing blocs, where membership is more varied. common challenges should impart fur- ther momentum to the GCC. These in- The following are among key characteris- clude: labor market strategy, where there tics of integration among the GCC states. is scope to revisit the open immigration First, GCC countries are all highly depen- policy at the regional level; the financial dent on hydrocarbons, which remain a sector, given the regional spillovers from core prerogative of national--not regional-- country-level debt distress episodes; fiscal policy. Second, sovereignty is still shared policy, given the countries' objective of cautiously, so supranational institutions diversifying revenue sources; and service are being built up slowly; key decisions sector liberalization, which would expand emerge from opaque intergovernmental the size of markets and promote the effi- processes rather than from empowered cient allocation of resources for the GCC regional institutions. Third, public sec- as a whole. However, a more empowered tors in each country are closely linked to the sharing of benefits from hydrocarbon regional secretariat will be necessary to push this agenda forward. 1 Chapter 1 Introduction Main Characteristics of the Gulf Economies The Gulf Cooperation Council consists of the following six Arab countries: Kuwait, Bahrain, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE). These countries share historical and cultural ties and aspire to develop a more diversified economic bloc over time. In 2007, they had a population of about 36 million (10 percent of MENA) and a GDP of about US$ 826 billion (half that of all MENA). The GCC countries are high-income, hydrocarbon-based economies. Per-capita GDP in 2007 ranged from about US$ 15,000 in Oman to US$ 62,000 in Qatar. The total nominal GDP of the GCC economies has more than doubled since 2001, adding the equivalent of an economy the size of Sweden. The GCC countries have accumulated large fiscal and current account surpluses in recent years. Public expenditure, derived primarily from oil revenue, has increased significantly, with a focus on developing the physical and social infrastructure required for private sector development. Other common structural features of the GCC economies include a heavy reliance on foreign labor, a young and rapidly growing labor force, and a large public sector. The social and political backgrounds of GCC countries exhibit many similarities. All GCC countries are traditional monarchies, with the state playing a visible role in economic activity. Kuwait and Bahrain have relatively open political systems, including a writ- ten constitution, a parliamentary electoral system, and a free press. Though the for- mal structures of the other four members are less well developed, these countries have made progress in strengthening political pluralism and participation in recent years. One unusual aspect of the Gulf is the dichotomy between political develop- ment, where institutions remain quite traditional, and economic ambitions, which can be benchmarked against the most sophisticated economies in the world. Increased political participation in some of the Gulf states has led to a balancing act between the customary consensus-building approach to decision making and a desire for more vigorous policy debates on key issues. Similar economic policies among GCC countries largely reflect their common circumstances. These commonalities include open economies with free trade and capital movements and an exchange rate pegged to the US dollar, either directly or indirectly. The de- gree of trade openness varies, as indicated by the ratio of total exports and imports to GDP, which ranges from 73 percent in Kuwait to 158 percent in the UAE (Table 1). In each of these economies, the state maintains an important role in economic activities. 2 The increased global focus on business environment indicators has successfully promoted re- form and helped economic integration in a number of areas. On ease of doing business I NTRODUCTION CHAPTE R1 TAblE1 TradeIndicatorsinGCCCountries Openness(TotalTrade/GDP) HydrocarbonExports Country (%) (as%ofGDP) Bahrain 136 72 Kuwait 73 93 Oman 98 65 Qatar 90 90 Saudi Arabia 85 85 UAE 158 35 Source: World Bank, World Development Indicators (2007­09) and logistics performance, GCC countries FIGURE2 logisticsPerformanceIndex* compare well against global leaders (Figures 4.5 1 and 2, Table 2). In particular, Saudi Arabia 4.0 and Bahrain perform well on the business- 3.5 enabling environment and the UAE excels in 3.0 logistics. The overall trend toward improving 2.5 2.0 Doing Business indicators partly reflects the fact 1.5 that GCC countries compete with each other 1.0 in this respect. Deeper economic integration 0.5 0 Singapore UAE High Income Bahrain Kuwait Saudi Arabia Qatar Oman MNA FIGURE1 RankingsforEaseofDoingbusiness* Source: Global Development Finance and World Development Indicators data, 70 World Bank, April 2010. 60 * The Logistics Performance Index is the weighted average of a country's scores on six dimensions: customs, infrastructure, international shipments, 50 logistics competence, tracking and tracing, and timeliness. Scores range 40 from one to five, with one indicating the lowest performance. Indices are not 30 available for Mauritania and Morocco. 20 10 will require strong political commitment and 0 institutional changes. Oman Kuwait Qatar Bahrain S. Arabia UAE GCC av. EU15 NAFTA GCC countries have a common structural depen- Source: Doing Business 2010, World Bank and International Finance dence on expatriate labor, which poses a long-term Corporation. * Doing Business 2010 ranks 183 countries on ease of doing business, challenge. The share of expatriates in the popu- taking the simple average of percentile rankings for each of ten topics: lation runs as high as 80­90 percent for Qatar starting a business, dealing with construction permits, employing workers, and the UAE, with somewhat lower shares in registering property, getting credit, protecting investors, paying taxes, trading 3 across borders, enforcing contracts, and closing a business. No score is the other countries. All GCC countries have available for Libya. open immigration policies for temporary work. CHAPTE R1 I NTRODUCTION TAblE2 logisticsPerformanceIndex,2010 International logistics Tracking& lPI GlobalRank Customs Infrastructure Shipments Competence Tracing Timeliness Bahrain 3.37 32 3.05 3.36 3.05 3.36 3.63 3.85 Kuwait 3.28 36 3.03 3.33 3.12 3.11 3.44 3.7 Oman 2.84 59 2.36 2.25 3.24 2.68 2.9 3.45 Qatar 2.95 55 2.25 2.75 2.92 2.57 3.09 4.09 Saudi Arabia 3.22 40 2.91 3.27 2.8 3.33 3.32 3.78 UAE 3.63 24 3.49 3.81 3.48 3.53 3.58 3.94 Source: Arvis et. al. 2010; http://info.worldbank.org/etools/tradesurvey/mode1b.asp#ranking. This openness to foreign labor co-exists uneas- eration and integration as an integral part of ily with high levels of unemployment among its agenda.1 The Unified Economic Agreement nationals in several GCC states. (UEA), ratified in November of the same year, foresaw a gradual convergence toward an in- Diversification away from the hydrocarbon sector tegrated economic bloc marked by harmo- remains a common objective for all GCC members. nized legal, social, and economic systems and Overall exports from GCC countries remain coordinated external commercial policies and concentrated in a few commodities, largely oil trade relations. It also called for coordinating and gas, though there has been some diversifi- industrial policies and promoting joint projects cation in recent years. GCC countries, like oth- to coordinate value chains of production and er MENA countries, showed improvement on link transportation networks.2 the concentration and diversification of exports between 1995 and 2007 (Figure 3). Manufac- The GCC's organizational structure emphasizes tured goods in the UAE (22.5 percent of total national governments (as opposed to supranational exports) represent more than twice the shares bodies) as the primary actors in the integration pro- in each of the other countries Kuwait has the cess. According to its Articles of Establishment,3 lowest share, at 5 percent (Annex Table A1.5). the GCC encompasses three main bodies: The Supreme Council, which comprises the The Gulf Cooperation Council heads of the Gulf States, meets twice an- nually to provide policy directions and ap- The GCC was founded in May 1981, primarily mo- points the Secretary General of the GCC tivated by the desire to enhance external security. In Secretariat. Resolutions in the Council are addition, the GCC identified economic coop- passed with a unanimous vote for substan- 1 For further historical background see Al-Abdulrazzaq and Srinivasan (2007) and Dar et al. (2001) 2 Although commonly compared to the European Union, the respective starting dates of the two institutions--1957 versus 1981-- 4 should be borne in mind in assessing the progress of integrating mechanisms. 3 See Article 6. I NTRODUCTION CHAPTE R1 FIGURE3 ConcentrationandDiversificationIndicesofExportProductsinMENA Libya Kuwait Bahrain Bahrain Yemen Qatar Saudi Arabia Algeria Iran Libya Kuwait Yemen Algeria Saudi Arabia Oman Iran Qatar Morocco UAE Oman Lebanon Egypt Syria UAE Egypt Jordan Tunisia Syria Jordan Tunisia Morocco Lebanon 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1995 2007 Source: Table A1.6. tial matters and a majority vote for proce- The GCC Secretariat is the administrative dural issues. Agreements signed between and executive body, which is responsible the member states are classified as manda- for preparing the meetings of the Supreme tory or non-mandatory. and Ministerial Councils, as well as back- The Ministerial Council of the Foreign Min- ground materials and requested studies. It isters of the Gulf States (or other delegat- also prepares studies and reports and mon- ed Ministers) holds quarterly meetings to itors implementation of past decisions. propose policies and prepare recommen- According to its establishment law, the dations. At the ministerial level, a number Secretariat is an independent body with of committees (Financial and Economic a budget shared equally among member Cooperation, Education, Health, and La- states. In this sense, the Secretariat's role bor and Social Affairs councils) have been is parallel to that of the European Com- established, with the duty of preparing mission within the European Union (EU) studies and submitting recommendations Structure (which also includes the Coun- to the Supreme Council. cil of Ministers, the European Parliament, and the European Court of Justice).4 4 Compared to the European Commission, and reflecting its capacity and financial autonomy limitations, the GCC Secretariat has maintained a low-key role in furthering the integration agenda. The Secretariat, with a staff of about 500, often relies on external technical support from the EU. 5 CHAPTE R1 I NTRODUCTION The GCC also has a number of specialized threats, the worldwide proliferation of regional agencies in charge of designing and imple- trading agreements, and the rising forces of glo- menting technical standards, undertaking com- balization have contributed to the momentum mercial arbitration, and registering patents. behind integration efforts in recent years. These agencies are headed by representatives of the member states, and have their own per- A Customs Union Agreement was signed in 2003. manent technical staff. Among these agencies The agreement aimed to remove restrictions are the Standardization and Metrology Or- on internal trade and establish common (and ganization for GCC in Riyadh, the Technical low) external tariffs. For goods of GCC origin, Telecommunications Bureau in Bahrain, and defined as having a minimum of 40 percent the Regional Committee for Electrical Energy local value added and 51 percent local invest- Systems registered in Qatar. ment, tariffs are waived.5,6 Goods that do not meet the rules of origin criteria continue to During the first 20 years of its establishment, the face tariffs similar to those applied to goods GCC focused on coordinating policies in specified from outside the subregion. The member spheres. Throughout this time, the institutional states have agreed to eliminate the use of tar- mechanisms remained fairly stable, albeit with iff escalation for industry protection, switching a growing amount of technical work underly- instead to exemptions for imports of interme- ing the activities of the major bodies. By 1983, diate inputs and equipment for domestic pro- the countries had implemented the exemption duction and export industries (Table 3). of most domestic products from customs du- ties and simplified customs procedures and The GCC declared common market status in 2008. travel among GCC states. Retail and whole- The GCC Common Market aims to create a sale trade were opened up to any GCC na- single environment where citizens of member tional by 1990. The agreement through which countries enjoy equal rights and privileges, in- the GCC was founded had also aimed for the cluding the rights to move, settle, work, receive free movement of labor and capital along with social protection, retirement, health, education full national treatment in any GCC country and social services, and engage in various eco- regarding ownership and economic activity. nomic activities and services. It also calls for However, with some exceptions (such as do- unrestricted rights of ownership of property mestic trade), progress has been slow due to and equity, movement of capital, and similar the scale of technical work required to opera- tax treatment. tionalize these commitments. The planned establishment of the GCC single cur- GCC integration efforts picked up in the early 2000s rency in 2010 has been postponed. Initiated at the after a slow start. The member states signed an GCC Economic Summit in 2001, plans for a Economic Agreement in December 2001, which common currency were put on hold pending brought a renewed focus on trade, investment, further studies and harmonization measures. and other economic issues. Regional security This delay followed the decision of two mem- 5 Under typical customs unions, the rules of origin are abolished due to the adoption of common external tariffs. In the case of 6 GCC, this procedure still is followed pending more complete harmonization of external tariffs. 6 Currently, goods produced in the region's Free Trade Zones do not meet these criteria. I NTRODUCTION CHAPTE R1 TAblE3 GCCTariffRatesandExemptions,2010(%) bahrain Kuwait Oman Qatar SaudiArabia UAE Average MFN Rate 5.3 4.9 5.6 5.3 5.0 5.1 Special items Tobacco 120 100 100 100 100 100 Alcohol 125 Banned 100 100 Banned 50 Pork n.a. Banned n.a. Banned Banned n.a. Cars 20 5 10 5 12 5 Exemptions Food & medicine Yes Yes Yes Yes Yes Yes Industry inputs Yes Yes Yes Yes Yes Yes Source: World Bank Staff calculations. bers (Oman and the UAE) to opt out, and, Nevertheless, the four remaining member more recently, concerns about other members' countries have established a GCC Monetary readiness in the wake of the financial crisis in Council in Riyadh to continue the technical Europe and mounting pressures on the euro. steps toward establishing a monetary union. 7 Chapter 2 Integration through Commodity and Services Trade Commodity Trade Intraregional GCC trade flows remain relatively small despite strong growth in recent years. The average nominal value of intraregional trade increased by about 30 percent per annum during the period 2004­2008, as compared to 6 percent during 2000­2003 (Figure 4). However, the share of intraregional trade in non-oil trade remained rela- tively unchanged at less than 10 percent, with the UAE taking the lead as a source of regional trade (Figure 5). This figure compares unfavorably with other trading blocs such as ASEAN (23 percent), NAFTA (41 percent), and EU-15 (57 percent)7, reflect- ing weak complementarities among GCC member states and the relatively liberal trade regimes that had historically characterized the GCC economies. Intraregional nontariff barriers are low. The GCC countries have progressively lowered nontariff barriers, both as part of integration efforts and in response to commitments under the World Trade Organization (WTO). Significant progress has been made in es- tablishing unified GCC technical standards (currently covering some 3,000 products) and harmonizing and reducing customs administrative procedures and clearance re- quirements.8 Some of the remaining nontariff barriers include preferential policies and practices related to public procurement requirements and subsidies to manufacturing industries, as well as continued customs border controls, which could result in tangible costs related to road transportation regulations and other ad hoc requirements. Intraregional trade among GCC countries could benefit from further enhancements in regional infrastructure and reduced border controls. The establishment of dedicated trade corridors and regional railway links, among other activities, would support trade facilitation. Reaching an agreement on the removal of border controls would, together with the ratification of a tariff revenue-sharing mechanism among member states (as discussed in Section 2D), contribute to further trade facilitation. Larger gains in GCC intraregional trade would require enhanced complementarities driven by deep- er economic reforms. Further elimination of trade barriers and the subsequent enlargement of markets would help to attract investment and promote growth in the tradable sector, 7 These figures are for 2006. See COMTRADE, World Integrated Trade Solution, 2008. The figure for China, Japan and the Republic of Korea is 21 percent. 8 While the customs union stipulated for the removal of tariff and nontariff barriers, it allowed for a transition period to phase out protectionist policies such as tariff protection on industrial products, protection of local 8 agents, and excise taxes for some goods. Some of these measures continue today, including border controls and agency laws. I N T E G R AT I O N T H R O U G H C O M M O D I T y A N D S E R v I C E S T R A D E C H A P T E R 2 broader economic and export base and expand- FIGURE4 GrowthofGCCIntraregionalTrade ing complementarities among GCC countries 60 will require structural reforms such as privatiza- 50 tion of public enterprises, improved government 40 30 regulatory capacity, liberalization of service sec- 20 tors and of FDI (particularly in backbone servic- 10 es), relaxation of rules governing labor mobility, 0 and enhanced access to credit. ­10 ­20 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Services Trade9 Total Imports ­ Imports Exports Total Inter-regional World from GCC to GCC Trade The GCC has made progress in easing intrare- Source: Comtrade gional restrictions in service sectors. The Common Market Agreement has been implemented in thereby contributing directly to growing com- a gradual manner. Currently, GCC nationals plementarities over time. However, achieving a can move freely among member countries. FIGURE5 DestinationofGCCNon-oilTrade 2001 2007 10% 9% 2% 1% 0% 0% 88% 90% Mashreq Maghreb GCC Rest of the world Mashreq Maghreb GCC Rest of the world Source: Comtrade 9 Data on trade flows in services in the GCC are scarce. In general, measuring trade in services is more problematic than trade in goods, largely because of the diverse nature of the activities covered. Under the General Agreement on Trade in Services (GATS), traded services comprise four modes of delivery: (1) cross-border, (2) consumption abroad, (3) supply via commercial presence, and (4) supply via presence of natural persons. Data corresponding to these modes could be found in the Balance of Payments and Foreign Affiliates Trade in Services statistics. In GCC countries, however, the quality of trade statistics remains inadequate both in the extent of coverage and in the distinction between flows to the region and to the rest of the world. One use- ful source of data on the magnitude of trade in services is System of National Accounts data on selected sectors such as finance, hotels, and retail sales, but these figures remain highly indicative. 9 C H A P T E R 2 I N T E G R AT I O N T H R O U G H C O M M O D I T y A N D S E R v I C E S T R A D E TAblE4 TradePolicyRanking,2005 NTbCoverage AverageTime AverageTime EnhancedTrade Average TariffIndex (%ofindex NTb forExports forImports PolicyIndex, Country Tariff (1­100) tarifflines) (1­100) (days) (days) 2005(1­100) Bahrain 5 89 0.5 40 14 15 91 Kuwait 4.6 91 2.1 26 20 20 79 Oman 5.5 73 0 88 22 26 61 Qatar 4.9 89 1 32 21 20 76 Saudi Arabia 5 89 1.2 30 17 18 85 UAE 5 89 9 9 94 MENA 13.4 47 1.1 48 23 26 58 World 10.1 50 2.7 50 25 27 50 Source: World Bank (2006) GCC members recently approved a waiver cantly reduced during the last two years, lead- of visa requirements for expatriates with val- ing to a surge in intraregional capital flows. id professional visas in other Gulf countries. Member states have progressively expanded Despite the potential gains, service sector liberaliza- the list of direct investment activities in which tion involves a number of technical and political GCC nationals can participate; current areas challenges. Though eased in recent years, restric- include retail and wholesale trade, recruitment tions on non-GCC foreign ownership and pur- offices, car rental, and most cultural activities. chase of financial and physical assets continue, Furthermore, the specification of liberalized with rules varying from one country to another. sectors has shifted from permitted sectors to The UAE and Bahrain have adopted the most those not permitted. This negative list includes liberal regimes with regard to foreign entry. A religious services, foreign manpower supply, recent report by the World Bank, which exam- certain commercial agencies, and certain social ined five major service sectors, found the over- services (specifically elderly and handicapped all restrictiveness of services trade policies for care)10. Nevertheless, the specific regulatory the GCC countries to be high by regional and measures needed for active cross-border par- international standards (Figure 6).11 ticipation in all other sectors are still being es- tablished on a case-by-case basis. In 2005, the Services are diverse in their mode of entry, level of number of business licenses granted to citizens tradability, and market contestability. Furthering of other GCC countries reached 13,356--near- GCC trade in services would require enhanc- ly double the number in 1998. Furthermore, ing competition and ensuring efficient markets. restrictions on stock ownership and property In addition, there would need to be agreement possession by GCC citizens have been signifi- on an amended definition of the rule of origin 10 10 11 Variations among the member states continue to exist, but there is little transparency on the negative list. The UAE was not included in this study. I N T E G R AT I O N T H R O U G H C O M M O D I T y A N D S E R v I C E S T R A D E C H A P T E R 2 where necessary. Creating a competitive in- FIGURE6* ServicesTradeRestrictivenessIndices(STRI) vestment climate takes time, as it requires the Qatar 62 development of human capital and technol- Kuwait 53 ogy, and reforms to enable the development Bahrain 47 of strong backbone services. This was true in Oman 45 the case of global service sector liberalization, Saudi Arabia 42 where the introduction of common external Egypt 42 Tunisia 41 trade policies was not matched by similar Lebanon 39 trends in FDI rules and access to service sec- Jordan 37 tors. This was largely a result of the heteroge- Yemen 29 neity of the service sectors and varying needs Morocco 22 for maintaining standards and regulations. W P Some regulatory and structural changes, such as privatization, antimonopoly practices, and Source: Borchert et al. (2010). Note: W = world average of 102 countries; P = PAFTA average. assurances for equitable service access, involve * Figure 6 is based on preliminary survey data collected as part of an lengthy and complicated processes. ongoing World Bank research project. Data cover 102 countries, 11 of which are part of PAFTA. The survey addresses five key sectors: financial Continued public ownership in some service sec- services (banking and insurance), telecommunications, retail distribution, transportation, and professional services. Specifically, the survey covers tors represents a hurdle for increased trade po- cross-border trade in services (mode 1 in WTO parlance) in financial, tential. Privatization in the Gulf has moved transportation, and professional services sectors; commercial presence or cautiously, reflecting in part the lack of bud- FDI (mode 3) in each service sector; and the presence of service supplying individuals (mode 4) in professional services. getary constraints and concerns over possible implications such as downsizing national la- bor, continued government subsidies, and for the service sector, particularly given the weaknesses in capacity to regulate the quality presence of a large expatriate labor force in and behavior of privatized firms. As a result, most productive sectors. Relevant reform mea- much of the privatization in the Gulf has re- sures could fall under four broad categories: sulted in the government retaining a share of ownership, imposing stringent rules for na- Easing entry and licensing restrictions for tional labor quotas, and/or restricting private both domestic and foreign firms; access to the service sector concerned. For Promoting competition to allow increased example, rather than opening its telecommu- efficiency; nications market to big foreign operators, the Harmonizing and strengthening regula- UAE decided in 2005 to curb the thirty-year tory practices and standards; and monopoly of the Emirates Telecommunica- Lowering restrictions on mobility of for- tions Corporation by establishing the Emirates eign workers that reside in the Gulf. Company for Integrated Telecommunications, effectively creating a duopoly structure. In the Stronger competition laws and regulations will be past, most privatization efforts in the Gulf fo- essential for successful liberalization. Before liber- cused on manufacturing, finance, and mobile alization can be achieved, it will be necessary phone services. More recently, some countries to create a competitive private presence, where absent, and to improve regulatory capacity have expanded privatization efforts to include air and land transport and power generation. 11 Chapter 3 Financial and Monetary Integration The GCC's financial sector is dominated by banking, with relatively high concentration among domestic players. In all six countries, the largest five banks are domestic and account for 50 to 80 percent of total bank- ing sector assets. Islamic banks have become an important source of intermediation, controlling on average 24 percent of the region's banking system assets. Nonbank financial institutions have limited presence in the GCC, though they have witnessed rapid growth in recent years. Most mutual investment funds are bank-owned.12 Debt securities markets are overshadowed by bank credit and, to a lesser extent, equities. Bond markets remain shallow, and investment in secondary bond markets has not de- veloped, particularly as governments have drawn down outstanding debt in recent years. GCC markets generally lack institutional investors whose long-term horizons would provide a natural base for domestic debt market development. With the ad- vent of Islamic financing, however, GCC banks have boosted the use of sukuk (Is- lamic bonds). Stock market capitalization ranges from 12 percent of GDP in Oman to 106 percent in Kuwait and averages between 40 and 80 percent in other countries. Across the GCC, bank assets (which amount to more than 100 percent of GDP in all GCC countries) exceed stock market capitalization. The same applies to the capital of nonbank financial institutions--insurance, capital markets, pension funds, and finance companies--which are also limited in size and inflexible. GCC financial markets vary in regulatory regimes and in the level of openness to foreign par- ticipation. Rules and regulations differ with regard to reserve requirements, open for- eign exchange positions, payment of dividends and remittance of profits, controls on lending to nonresidents, and foreign borrowing by individual banks. Although some restrictions were relaxed within the GCC, many apply regardless of the source of the inflows, thereby hampering regional as well as global integration. There is evidence, however, of increased financial sector integration in the GCC. Motivated by the need to improve efficiency, GCC countries have taken important steps to- 12 12 See Al-Hassan, Khamis, and Oulidi (2010). F I N A N C I A l A N D M O N E TA R y I N T E G R AT I O N C H A P T E R 3 ward implementing best practices in financial have been agreed in principle, although they regulation and corporate governance, which have not been set as preconditions for en- have in turn helped to strengthen convergence try.15 In pursuit of monetary union, the GCC across GCC financial systems. These efforts is expected to continue to harmonize taxation include moves by the central banks to imple- and spending practices and policies as well as ment Basel II standards13 and establish sepa- payment systems. In general, GCC harmoni- rate regulatory authorities for capital market zation measures are likely to be less challeng- regulation. Five of the stock exchanges in the ing than those adopted by the EU given that Gulf (Bahrain, Kuwait, Qatar, Dubai, and Abu the planned single currency will continue to Dhabi) are currently cross-listing some of their be pegged to the US dollar, as is currently the stocks on other exchanges. A recent Interna- case with the national currencies. tional Monetary Fund (IMF) study examined the extent of financial integration in the Gulf There is little impetus at the GCC level for coordi- using capital flow data, interest rates, and equi- nation of financial sector strategies. The financial ty prices.14 The study concluded that the avail- sector is viewed instead as a potential source able evidence, while limited, pointed to some of competitive advantage, and several countries improvement in regional financial integration. have sought to develop themselves as regional In particular, Bahrain and Kuwait were found financial centers. Bahrain had a head start as to direct a large share of their investments to- a financial center, especially after the flight ward the GCC. of offshore banking from Beirut in the 1970s. Since then, Dubai and Doha have successfully The establishment of a monetary union has been an attracted regional operations of international important objective since 2003. GCC countries al- banks and financial institutions, albeit to en- ready possessed many of the necessary criteria clave regulatory structures with little spillover for currency union--namely similarities in size, to the domestic financial sector. Saudi Arabia sources of foreign exchange and trade struc- is creating the King Abdullah Financial City in ture, and inflation performance. In addition, Riyadh, and will have an advantage as the head- their national currencies were de facto pegged quarters of the Gulf Monetary Council. While to the US dollar. The adoption of a single cur- rising competition in this field has helped to lib- rency--set originally for 2010, but now post- eralize and promote growth, it might also have poned to an unspecified date--was expected to hindered efforts to harmonize and coordinate reinforce the positive effects of the common policies in certain areas, including standards for market by lowering foreign exchange transac- Islamic finance and payment systems. tion costs and increasing pricing transparency, competition, and trade. A set of five conver- Some financial sector weaknesses have been revealed gence criteria (inflation, interest rates, reserves, in the last two years in the aftermath of the global fiscal balance, and public debt) similar to those financial crisis. Notably, these include the debt established for the European Monetary Union distress in some Saudi holding companies, 13 The second phase of the Basel Accords, initially published in 2004, attempts to create an international standard for regulations on the amount of capital that banks need to set aside to guard against financial and operational risks. 14 Espinoza (2009). 15 Khan (2008). 13 C H A P T E R 3 F I N A N C I A l A N D M O N E TA R y I N T E G R AT I O N the Dubai World debt restructuring, and the of these negotiations may impede regional fi- strains on Kuwaiti investment companies. So nancial market development. In principle, the far, GCC countries have approached these GCC could provide the regional institutions to situations on a case-by-case basis. Criteria for help coordinate and share information in these treatment of local and foreign creditors and respects, but there is little evidence that this approaches to secured and unsecured credi- is happening. Furthermore, the Gulf Monetary tors have not been well specified. This lack of Council has only just been set up and the UAE clarity is perhaps inevitable in the negotiation is not a member, so its immediate potential for of debt restructuring, but the protracted nature this role is limited. 14 Integration through Chapter 4 Infrastructure Developing integrated intraregional infrastructure will help to increase trade volumes. Among various categories of physical infrastructure, the most relevant to regional integration are those needed to facilitate the move- ment of goods and individuals (such as roads, railways, and ports). Oth- er important, but specialized, infrastructure categories include those for easing the exchange of natural gas, water, electricity, and telecommuni- cations (such as pipelines, power grids, and fiber optic lines). Overall, transport systems are well developed in the GCC countries, with good road networks and modern facilities for air, sea, and land transport. Occasional strains in relations be- tween the member countries have caused interruptions in land-based transport. Cur- rent efforts to coordinate infrastructure development are taking place in the power, gas, and railway sectors. However, border disputes have arisen in the planning of bilateral infrastructure projects (bridges and pipelines) in the coastal waters between Bahrain, Qatar, Saudi Arabia, and the UAE. This illustrates the continuing presence of national political prerogatives in the GCC integration process. An extensive road network links most GCC countries to their neighbors and to neighboring Arab countries. No dedicated travel corridors exist yet, however, and there are some varia- tions in national specifications for freight-moving vehicles. Some progress has been made in unifying fees, traffic controls, highway safety rules, and vehicle specifications. Rail is not currently a major mode of transport in the GCC. Railway lines exist in Saudi Arabia, predominantly for freight, and several lines are not interconnected. Indi- vidual GCC countries are considering urban light rail or subway systems. A planned GCC rail network is undergoing a feasibility study, and various country initiatives are underway to expand national rail networks. Saudi Arabia is proceeding with in- tegration of its own rail network--the critical ingredient being the new "Landbridge" between Jeddah and Riyadh, with interconnection to existing lines between Riyadh and the Gulf coast. The air transport industry in the GCC region has experienced unprecedented growth during the 15 past eight years. Arab carriers based in GCC countries have become major players in long-haul aviation, with a particular focus on capturing a larger share of the air transport C H A P T E R 4 I N T E G R AT I O N T H R O U G H I N F R A S T R U C T U R E market between Europe and the United States strategies focus on energy-intensive industry and the on the one hand and Asia on the other. This has desire to switch to gas-powered electricity generation provided an important new source of connectiv- in order to free up oil for export. Qatar has the ity to the region, which previously relied on Eu- richest natural gas reserves in the region, with ropean hubs for most intercontinental service. 25,513 bcm of ready-to-export gas. Although All GCC members except Saudi Arabia have most of Qatar's gas is currently exported by signed some form of open skies agreement. liquefaction, the Dolphin pipeline is used to move gas to the UAE and Oman. This has GCC countries have nearly completed the intercon- proven important to both countries, as their nection of electricity grids, which will allow electric- own gas resources are complex and expen- ity exchange among all six member states. The goal sive to exploit. There has been some thought of this interconnection is to share the reserve of constructing a larger pipeline system that capacity of member countries, improve the re- would include Bahrain and Kuwait, but the liability of electricity supply, and reduce the countries have proven cautious in promoting need for investment in new generation capac- a regional market for gas, as East Asia and Eu- ity. Feasibility studies have been undertaken to rope have been seen as offering better prices assess the feasibility of interconnecting Yemen and greater diversification. Still, the develop- with Saudi Arabia. ment of sale gas in Europe and North Amer- ica, and its consequent effects on demand The GCC has significant potential for cross-border from these regions, could increase interest in a gas pipelines given that the countries' industrial GCC-level gas market. 16 Global Integration Trends Chapter 5 External Trade Policies The GCC's external tariffs are low. Historically, GCC economies have maintained low external tariff barriers as a result of their narrow production base and sizable oil wealth. The signing of the Customs Union Agreement in 2003 helped to further re- duce overall external tariffs, as the agreement called for establishing a common exter- nal tariff of 5 percent on most imported merchandise and 0 percent on essential goods (estimated to represent about one-fifth of total imports). As a result, the average Most Favored Nation (MFN) applied tariff rate dropped from 8.2 percent in 2000­2004 to 5.9 percent in 2006­2009 (Figure 7). With the steady erosion of customs revenue due to external free trade agreements, GCC countries are planning to shift to a value- added tax to replace customs revenue, diversify tax bases, and ensure harmonization of trade in the common market. There are variations in the external trade regimes of GCC member states. The applied tariff rates of GCC countries vary according to differences in protective and preferential tariffs (Figure 8). In general, trade regimes with third countries could fall under three categories: (i) free trade, (ii) MFN status, or (iii) tariff preferences. As all the GCC countries are members of the WTO, MFN treatment is provided on a multilateral basis and is thus outside the scope of the organization. There are some differences in tariff preferences offered to other countries (or to certain country products), though data on these arrangements and the magnitude of preferences given under the bilti- lateral deals are not well documented. Little is known about the GCC's current efforts to compile such information and unify preferences16. The Gulf countries have adopted two broad strategies for liberalizing FDI. One approach is to initiate broad reforms of national rules and bureaucracies, and the other is to cre- ate discrete enclaves--or zones--with independent, liberalized regulations and well- established infrastructure. The second approach has seen its fullest application in the UAE, where it is an important element of the diversification strategies of emirates other than Abu Dhabi. However, significant FDI flows to the GCC are driven by en- ergy sector investments and are better seen as reflecting bilateral and project-specific arrangements between a foreign investor and a domestic partner (such as the national oil company). Oman is the best example of a country where broad reforms were combined with the promotion of downstream energy sector FDI. 16Details on trade policy variations among GCC countries are given in Office of the US Trade Representative. 2009. 17 C H A P T E R 5 G l O b A l I N T E G R AT I O N T R E N D S Collective Trade Agreements FIGURE7 TradeTariffRestrictivenessIndex(average MFNappliedtariff) The GCC's efforts to conduct collective trade ne- 19.1 gotiations remain constrained (Table 5). Until recently, most member countries engaged in external trade negotiations on a unilateral 11.9 11.1 11.5 basis through, for instance, Free Trade Agree- 8.2 ments (FTA) and Trade and Investment 5.9 3.9 4.1 Framework Agreements (TIFA). In 2005, following the signing of a free trade agree- ment between the United States and Bahrain, GCC EU15 MENA Low Income GCC member states agreed to coordinate all 2000­2004 2006­2009 future external trade negotiations through the Source: World Trade Indicators, World Bank (2006­2009). Secretariat. The GCC is currently engaged in Note: The TTRI reflects the equivalent uniform tariff schedule that would free trade negotiations with the United States, keep domestic import levels constant. European Union, Australia, New Zealand, India, Korea, and Japan, among others (An- nex 1).17 FIGURE8 AppliedTariffRatesforGCCCountries 14 The pace of advance in collective trade agreements 12 reflects limited progress on broader institutional ar- 10 rangements. GCC negotiations are currently 8 led by senior bureaucrats from GCC mem- 6 ber countries, which can make it difficult 4 to bundle common interests and positions. 2 This weakness is reflected in the limited en- 0 forcement of collective decisions on external Oman Bahrain GCC Avg. Qatar S. Arabia UAE Kuwait trade relations, due either to a lack of politi- cal will or to weak administrative capacity. TTRI MFN applied tariff The implementation of multilateral policies is also constrained by continued asymmetries Source: World Trade Indicators, World Bank (2006­2009). Note: The MFN applied tariff is the simple average of the MFN applied tariff in the trade (and industrial) policies of GCC rates (ad valorem and ad valorem equivalents of specific tariffs). member states. In essence, the slow progress reflects variations in resources and develop- ment strategies among member states, as well eas like the environment, industry, and com- as difficulties in reaching compromises on petition, together with the absence of effective strategic economic issues. The slow progress enforcement mechanisms. Collective negotia- could also be viewed as a result of gaps in the tion of trade agreements, in addition to ensur- GCC structure and in collective policies in ar- ing consistency with the terms of the customs 17 In mid-2009, the GCC signed a free trade agreement with the European Free Trade Association (Iceland, Liechtenstein, 18 Norway, and Switzerland). In addition to multilateral trade negotiations, the GCC has taken an active role in some international conventions and agreements, particularly those related to environmental issues. G l O b A l I N T E G R AT I O N T R E N D S C H A P T E R 5 TAblE5 StatusofGCCRegionalTradeAgreements Country WTO UnitedStates EU Others Bahrain 1995 FTA signed in 2004; became EU and GCC signed an Qatar, UAE, Bahrain, and Kuwait have started effective in 2006 economic cooperation bilateral negotiations with Singapore Kuwait 1995 TIFA signed in 2004 agreement in 1988; Oman 2000 FTA signed in 2006 formal negotiations on GCC undertook multilateral trade negotiations FTA began in 1990 and with China, Australia, MERCOSUR, Japan, are continuing as of Jordan, Turkey, New Zealand, and India mid-2010 Qatar 1996 TIFA signed in 2004; negotiations on FTA suspended Saudi Arabia 2005 TIFA signed in 2003 UAE 1996 TIFA signed in 2004; All GCC countries are members of GAFTA negotiations on FTA suspended union, could help increase bargaining power stacles to greater trade integration between the and improve trade terms. Given the lack of a GCC and other members of PAFTA. clear and effective mechanism to reach inter- nal consensus, however, it could risk slowing Discussions continue regarding the full entry of Ye- down negotiations and watering down final men into the GCC. Yemen enjoys special privi- agreements. leges with the GCC and is a member of eight specialized GCC councils related to health, labor and social affairs, education, sports, stan- Integration with the Arab World dards, and industrialization. But Yemen is not yet a full member of the GCC, and no clear The GCC states are active members of PAFTA, or formal accession plans are in place. The which was established in 1997 under the auspices GCC's cautious approach toward integrating of the Arab League and went into effect in 2005. Yemen reflects disparities in political and eco- The current membership of PAFTA includes nomic backgrounds. Though Yemen shares 18 of 22 Arab countries. The main provisions similar cultural and religious systems with the are the progressive removal of tariff and non- GCC countries, it differs with regard to politi- tariff barriers on intra-PAFTA trade in manu- cal regime, resource endowments, institutional factured goods. Signatories of PAFTA have details, and regulatory environment. recently launched efforts to extend integration to encompass trade and investment in services, and to strengthen efforts to reduce nontariff Membership in WTO trade restrictions. PAFTA has removed tar- iffs among its members, and trade has conse- All GCC countries are members of the WTO. Saudi quently increased among GCC members and Arabia was the most recent GCC member to other members of PAFTA. However, nontariff barriers remain pervasive and form major ob- join the WTO in 2005. Because various GCC members joined the WTO at different times, 19 C H A P T E R 5 G l O b A l I N T E G R AT I O N T R E N D S trade reform commitments vary from one Relations with the European Union country to another. Saudi Arabia and Oman, both large net importers of services, have Efforts to integrate with the EU have moved slow- undertaken the most comprehensive commit- ly. The first major milestone of EU-GCC en- ments under the GATS, covering 37 and 31 gagement came under the 1989 Cooperation (out of 55) sectors, respectively. Bahrain is a Agreement, which set the stage for coopera- net service exporter and has undertaken mod- tion in various fields and for negotiations on est commitments under the GATS. a free trade agreement, which continues to be unrealized. In 2003/2004, the EU declared its GCC countries have made progress toward a unified intention to link EU-GCC cooperation with its anti-dumping policy. One of the main objectives broader (and more ambitiously pursued) Eu- of a customs union is to harmonize policies on ro-med dialogue, but this has not been imple- remedies, rules of origin, tariff and nontariff mented vigorously.19 barriers, customs valuation, and other issues that have generally been designed in accor- Slow progress on the EU-GCC free trade agreement dance with corresponding WTO standards. is caused by disagreement over political reforms and Until recently, member countries exhibited some of the industrial and sectoral policies in the variations in anti-dumping and anti-trust poli- Gulf. Political reforms at issue include human cies. In 2007, the GCC established a technical rights, foreign labor, and civil society partner- office to follow up on injurious trade practices, ships. Concerns over industrial and sector with the objective of unifying efforts and en- policy center on the provision of low-priced hancing the bloc's negotiating position. The domestic gas or refinery products to the pet- technical office ensures consistency with WTO rochemical industry. In recent years, progress agreements on anti-dumping, subsidies, and has been made in resolving contentious issues countervailing measures and safeguards.18 such as rules of origin, gas price subsidies in the GCC, and access for GCC petrochemicals Some important trading partners of the GCC are not and aluminum exports to the EU.20 Current WTO members. These include Yemen, Lebanon, negotiations are focused on access restrictions and Iran as well as Libya and Algeria. This dif- in a number of services sectors in some coun- ference in WTO status complicates trade ne- tries--notably banking, telecommunications, gotiations with these countries (for example, and ports, and on government procurement within the PAFTA framework), as the common policies. template and disciplines that would come from mutual WTO membership are not available. 18 In following up on the claims and investigations addressed to GCC states, the technical office found that ten anti-dumping protectionist duties and two protectionist duties against the increase of imports imposed on the exports of some GCC states. 19 Recent news reports have quoted GCC officials as saying that a free trade agreement with the EU could be reached before 20 the end of 2010. 20 Luciani and Neugart (2005) and Hertog (2007). Issues and Challenges to Further Chapter 6 Integration Despite progress in removing restrictions on trade and on the movement of factors of production, some issues remain unresolved.21 The implementa- tion of a standard customs union model has been undermined by the absence of an agreed mechanism to collect and distribute tariff revenues. GCC members continue to undertake border and customs inspections of other GCC members.22 Member states also continue to apply, though at a diminishing rate, some restrictive procedures and standards which hinder free trade. Trade restrictions vary from the requirement that national transportation carriers be used for some products to standard bureaucratic delays in customs clearance. The procedures and documentation requirements for customs clearance, valuation, and import licensing also vary. Although there has been significant progress in the harmonization of product standards and technical regulations, these remain incomplete. Given the prominent role of the state in all GCC countries, they have not yet established common procurement and competition policies that would allow the creation of a level playing field for economic competition and cor- rection of potential market failures. One reason for this is the link between industrial strategies and the state's role in service provision on the one hand and explicit or implicit subsidies on the other. Illus- trations include the proliferation of plans for aluminum smelters and continued large subsidies for electricity consumption. 21 There are several regional economic integration models, including, in order of depth, free trade areas, cus- toms unions, common markets, economic unions, and full political union. 22 The retention of border controls could be an important element of a planned GCC-wide value-added tax. 21 C H A P T E R 6 I S S U E S A N D C H A l l E N G E S T O F U R T H E R I N T E G R AT I O N Improvements in the organizational structure of the The GCC faces political hurdles to coordination and GCC could assist integration efforts. The GCC's cooperation. While similar cultures and security current structure is heavily biased toward the interests ease these obstacles, relinquishing sov- intergovernmental model that features com- ereignty remains a serious concern. Delays in monly in the integration arrangements of de- the proposed GCC monetary union and in mul- veloping countries. This model is reflected tilateral accords with the EU serve as two clear by the absence of a central executive body examples of this challenge. To start, harmoniza- with enforcement powers and by the pres- tion efforts could focus on areas that face the ence of a weak dispute settlement mechanism. least political resistance. Strong complementa- Policy decisions in the Supreme Coun- rities and common borders may facilitate the cil require unanimous approval. Although adoption of domestic regulatory reforms that unanimity alone is not a unique feature are important in promoting trade, including the of GCC decision making, it is important harmonization of customs procedures, sanitary to note that technical support to the GCC and technical standards, public procurement, decision-making process can be strained and investment rules. By deepening regional and, as a result, decisions are difficult to reach cooperation across a broad spectrum of issues, and follow-up is challenging. the GCC can help cement crucial political and security alliances, which can in turn strengthen Reflecting the aforementioned weaknesses, important incentives for liberalization. common policies, laws, and strategies are lacking. Missing elements are related to public goods A clear regional policy on reducing structural dispar- such the environment and clarity of social pro- ities and fostering balanced development is needed. In tection mechanisms (which are often provided the past, intraregional assistance was provided on an ad hoc basis by local charities), and poli- on a bilateral basis, most notably to Oman and cies related to competition, foreign investment, Bahrain. Adopting a regional policy, including and private sector development. To achieve the establishment of funds administered at the harmonization, member states have worked in- GCC level, will be an important step toward dividually to bring their policies and laws closer building consensus in other economic and to each other. In particular, the harmonization trade areas, and toward future enlargement efforts of the Gulf States need to continue in: initiatives. The GCC needs to adopt explicit policies that deal with: (i) strengthening weak- Labor and immigration laws; er members and compensating them for losses Taxes and public service charges in areas that may occur as a result of collective global where cross-border elasticities are signifi- integration efforts and enlarging membership, cant; and (ii) providing additional support to help Foreign investment laws and incentives poorer members improve living standards granted to foreign investors; in order to increase social cohesion between Commercial laws governing ownership of rich and poor member states. One channel companies and properties; for more balanced development, which has Shipping and movement of cargo; received little attention, is the coexistence of Aviation and air transport; and high unemployment among nationals with a 22 Banking and finance. high demand for expatriate labor. Unlike in I S S U E S A N D C H A l l E N G E S T O F U R T H E R I N T E G R AT I O N C H A P T E R 6 the EU, there is no sizable movement of na- changes in the political culture at the individ- tionals within the GCC to alleviate local job ual country level, greater transparency would market pressures. require improved technical capacity and stron- ger organizational structures. At the level of Increased transparency and public accountability GCC organization, improved effectiveness will help to accelerate integration. There is a con- will require greater financial and operational siderable lack of public awareness about the autonomy of the Secretariat supplemented nature of trade and integration barriers, and with effective governing system that includes about current efforts to address these hurdles. additional evaluation bodies and the channel- This weakens reform incentives in GCC mem- ing of resources to regional think-tanks and ber states and reduces pressures to enlarge chambers of commerce to participate in the membership. In addition to fundamental monitoring process. 23 Conclusion The GCC has made good progress on regional integration since its establish- ment in 1981. Integration efforts have gained considerable momen- tum following the ratification of the Unified Economic Agreement in 2001, the signing of the Customs Union Agreement in 2003, and the adoption of the Common Market Agreement in 2008. Under the Customs Union Agreement, member countries have eliminated intraregional tariffs, unified external tariffs, and eased trade restric- tions, bringing about a notable increase in the value of goods traded among member states. The GCC has eased intraregional restric- trade barriers--particularly border con- tions in the services sector. Progress in this trols and preferential procurement and area has been particularly strong since industrial policies--and streamlining the the establishment of the GCC Common cumbersome rules and regulations re- Market, which called for unrestricted lated to trade would boost the volume of rights of ownership of property and eq- trade between member states in the short uity, movement of capital, and similar run, and attract more investment and tax treatment. Cross-border investments promote further growth in the long run. and trade in services have increased, as evidenced by the rising level of cross- The lack of complementarities needs to be country property ownership, business li- addressed through deeper economic reforms censes, and stock ownership, along with to enhance economic competitiveness--econo- bottom-up integration mechanisms such my-wide and, in particular, in sectors that as ground and air travel. As this form of have trading potential. Relevant measures integration deepens, more single-market include privatizing public enterprises, enforcement issues will arise, placing improving the efficiency of government an increasing demand on the regional regulatory functions, removing restric- mechanisms of the GCC. tions on FDI (particularly in backbone services), and relaxing rules governing Despite important progress, the share of intra- labor mobility. The continuing lack of regional trade among member states remains harmonization in laws and regulations-- low compared to regional trade agreements particularly those related to public goods in the Western hemisphere and in Asia. The such as the environment, social protec- low share reflects the continued presence tion, competition, foreign investment, of trade barriers, weak complementari- and private sector development--adds to 24 ties, and the narrow economic bases of member states. Removing the remaining the cost burden and acts as a barrier to the entry of new capital. CONClUSION To move ahead with the integration agenda, the ing more flexibility in the decision-making GCC needs to strengthen the organizational struc- process and better enforcement of decisions, ture of the GCC Secretariat, and boost its autonomy together with stronger arbitration and moni- and resources. Reforms should focus on allow- toring mechanisms. 25 References Al-Hassan, Abdullah, May Khamis, and Nada Oulidi. 2010. "The GCC Banking Sec- tor: Topography and Analysis." IMF Working Paper WB/10/87 (April). Al-Abdulrazzaq, A., and T.G. Srinivasan. 2007. "Yemen Accession to the GCC: Chal- lenges and Opportunities," in E. Woertz (ed.) Gulf Geo-Economics. Dubai: Gulf Research Center. Borchert, Ingo, Samantha A. DeMartino, and Aaditya Mattoo. 2010. "Services Trade Policies in PAFTA." Mimeo, World Bank ( July). Espinoza, Raphael, Ananthakrishnan Prasad, and Oral Williams. 2010. "Regional Fi- nancial Integration in the GCC." IMF Working Paper WB/10/90 (April). Dadush, Uri, and Lauren Falcao. 2009."Regional Arrangements in the Arabian Gulf." Washington DC: Carnegie Endowment for International Peace. Dar, Humayon A., and John R. Presley. 2001."The Gulf Co-operation Council: A Slow Path to Integration?" The World Economy 24 (9): 1161­1178. Hertog, Steffen. 2007. "EU-GCC Relations in the Era of the Second Oil Boom." Cen- ter for Applied Policy Research Working Paper (December). Hoekman, B., and Khalid Sekkat. 2010. "Arab Economic Integration: Missing Links." Centre for Economic Policy Research Discussion Paper No. 7807 (May). Institute of International Finance. 2006. "Comparative Survey of Corporate Gover- nance in the Gulf Cooperation Council ­ An Investor Perspective." Jointly con- ducted and published by Hawkamah, the Institute for Corporate Governance, and the Institute of International Finance (November). Jadresic, Esteban. 2002."On a Common Currency for the GCC Countries." IMF Policy Paper EDP/02/12 (December). Khan, Mohsin S. 2008. "The GCC Monetary Union--Choice of Exchange Rate Re- gime." Middle East and Central Asia Department, IMF (August). Luciani, Giacomo, and Felix Neugart. 2005. "The EU and the GCC. A New Partner- ship." Bertelsmann Stiftung and Center for Applied Policy Research, in coopera- tion with the Robert Schuman Centre for Advanced Studies (February). Miller, Kaia. 2006. "Building National and Regional Competitiveness in the GCC and Ye- men: Opportunities for Partnership." Presented at the Yemen Consultative Group Meeting, London, November 2006. Aslan Global, Inc. Office of the United States Trade Representative. 2009. "2009 National Trade Esti- mate Report on Foreign Trade Barriers." Washington, DC World Bank, 2006. "MENA Economic Developments and Prospects ­ 2006." Washington, DC 26 Trade Agreements in Annex 1 the MENA Region United States EFTA European Union Turkey Afghanistan, Azerbaijan, Kazakhstan, Kyrgyz Republic, Pakistan, Tajikistan, Syria Iran Turkmenistan, WBG Uzbekistan Lebanon Iraq GCC ECO AMU Kuwait Tunisia Jordan Agadir Bahrain Sudan Egypt Qatar Morocco Saudi Arabia Algeria Oman Mauritania Libya Yemen Djibouti GAFTA MENA Burundi, Comoros, D. R. Congo, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritus, Rwanda, Seychelles, Sudan, Singapore Swaziland, Uganda, AMU: Arab Maghreb Union (5) Zambia, Zimbabwe COMESA GCC: Gulf Cooperation Council (6) GAFTA: Great Arab Free Trade Agreement (18) ECO: Economic Cooperation Organization (10) COMESA: Common Market for Eastern and Southern Africa (19) Regional Agreements EFTA: European Free Trade Association (4), includes Iceland, Switzerland, Norway, and Liechtenstein Bilateral Agreements Agadir: Agadir Agreement for the Establishment of a Free Trade Zone between Arabic Mediterranean Nations (4) Source: World Bank. 2008. MENA Economic Developments and Prospects. 27 Annex 2 Statistical Tables TAblEA2.1 MENATotalTrade,2007(US$millions) TOTAlTRADEWITHTHEWORlD TotalExports TotalImports (inUS$million) (inUS$million) TotalTrade MENARegion 752,054 482,435 1,234,489 By geographic sub-region GCCCountries 458,055 279,455 737,509 Bahrain 6,878 11,511 18,389 Kuwait 57,799 21,248 79,047 Oman 22,137 15,952 38,088 Qatar 40,586 23,388 63,974 Saudi Arabia 220,359 89,540 309,899 United Arab Emirats 110,296 117,816 228,112 Maghreb 132,697 78,324 211,020 Algeria 54,859 27,629 82,488 Libya 45,674 11,561 57,234 Morocco 17,188 31,624 48,812 Tunisia 14,976 19,071 34,046 (Mauritania)* 1,316 1,430 2,746 Mashreq 50,562 43,192 93,754 Iraq 36,302 10,437 46,739 Jordan 4,437 13,406 17,843 Lebanon 2,642 11,990 14,632 Occ.Pal.Terr 64 3,141 3,206 Syrian Arab Republic 7,117 14,655 21,772 Other 110,741 81,465 192,206 Egypt 24,344 26,927 51,271 Djibouti 202 2,051 2,253 Iran 79,407 43,985 123,392 28 Yemen 6,788 8,502 15,290 Source: World Trade Integrated Solution. *Mauritania is not part of the aggregates. S TAT I S T I C A l TA b l E S A N N E X 2 TOTAlTRADEWITHINREGIONS TOTAlTRADEWITHINSUb-REGIONS TotalTradewithin TotalExports TotalImports TotalExports TotalImports eachSub-Region (inUS$million) (inUS$million) TotalTrade (inUS$million) (inUS$million) (inUS$million) 65,314 57,107 122,421 49,015 26,076 75,091 26,559 19,516 46,076 1,465 1,106 2,571 1,189 1,012 2,201 1,811 3,150 4,961 1,186 2,244 3,430 3,989 5,020 9,009 3,341 4,748 8,089 2,247 3,682 5,929 2,015 3,283 5,298 21,245 6,889 28,134 13,046 3,786 16,832 18,259 6,228 24,487 5,783 4,443 10,225 3,981 7,644 11,626 2,808 3,142 5,950 1,239 927 2,166 709 280 988 744 749 1,494 744 749 1,494 568 4,328 4,896 198 1,091 1,288 1,431 1,639 3,070 1,157 1,022 2,179 4,444 14,531 18,975 1,380 1,380 2,760 288 1,976 2,264 233 233 1,285 4,708 5,993 276 510 787 1,197 1,731 2,928 274 281 556 40 2,386 2,427 31 45 76 1,635 3,729 5,364 565 543 1,109 7,873 8,857 16,730 194 162 356 4,671 4,752 9,423 135 49 183 148 715 863 7 28 35 2,807 1,236 4,042 29 9 39 247 2,154 2,401 23 77 99 29 A N N E X 2 S TAT I S T I C A l TA b l E S TAblEA2.2 MENATotalTrade,2007(%GDP) TOTAlTRADEWITHTHEWORlD TotalExports(%GDP) TotalImports(%GDP) TotalTrade(%GDP) MENARegion 46.5 29.8 76.3 By geographic sub-region GCCCountries 57.7 35.2 92.9 Bahrain 62.5 104.6 167.2 Kuwait 52.5 19.3 71.9 Oman 55.3 39.9 95.2 Qatar 57.2 32.9 90.1 Saudi Arabia 57.7 23.4 81.1 United Arab Emirats 61.3 65.5 126.7 Maghreb 42.3 24.9 67.2 Algeria 40.9 20.6 61.6 Libya 65.2 16.5 81.8 Morocco 22.9 42.2 65.1 Tunisia 42.8 54.5 97.3 (Mauritania)* 49.8 54.1 103.9 Mashreq 35.6 30.4 66.0 Iraq 58.6 16.8 75.4 Jordan 27.7 83.8 111.5 Lebanon 10.6 48.0 58.5 Occ.Pal.Terr -- -- -- Syrian Arab Republic 18.2 37.6 55.8 Other 30.1 22.1 52.3 Egypt 18.4 20.4 38.8 Djibouti 25.2 256.4 281.6 Iran, Islamic Republic of 36.8 20.4 57.1 Yemen 35.7 44.7 80.5 Source: Table A2.1. *Mauritania is not part of the aggregates. 30 S TAT I S T I C A l TA b l E S A N N E X 2 TOTAlTRADEWITHINREGIONS TOTAlTRADEWITHINSUb-REGIONS TotalExports TotalImports TotalTrade TotalExports TotalImports TotalTrade (%GDP) (%GDP) (%GDP) (%GDP) (%GDP) (%GDP) 4.0 3.5 7.6 6.2 3.3 9.5 3.3 2.5 5.8 13.3 10.1 23.4 10.8 9.2 20.0 1.6 2.9 4.5 1.1 2.0 3.1 10.0 12.6 22.5 8.4 11.9 20.2 3.2 5.2 8.4 2.8 4.6 7.5 5.6 1.8 7.4 3.4 1.0 4.4 10.1 3.5 13.6 3.2 2.5 5.7 1.3 2.4 3.7 0.9 1.0 1.9 0.9 0.7 1.6 0.5 0.2 0.7 1.1 1.1 2.1 1.1 -- -- 0.8 5.8 6.5 0.3 1.5 1.7 4.1 4.7 8.8 3.3 2.9 6.2 3.1 10.2 13.4 1.0 1.0 1.9 0.5 3.2 3.7 0.4 -- -- 8.0 29.4 37.5 1.7 3.2 4.9 4.8 6.9 11.7 1.1 1.1 2.2 -- -- -- -- -- -- 4.2 9.6 13.8 1.4 1.4 2.8 2.1 2.4 4.5 0.1 0.0 0.1 3.5 3.6 7.1 0.1 0.0 0.1 18.5 89.4 107.9 0.9 3.4 4.4 1.3 0.6 1.9 0.0 0.0 0.0 1.3 11.3 12.6 0.1 0.4 0.5 31 A N N E X 2 S TAT I S T I C A l TA b l E S TAblEA2.3 MENANon-OilTrade,2007(US$millions) TOTAlNON-FUElTRADEWITHTHEWORlD TotalNon-FuelExports TotalNon-FuelImports TotalNon-FuelTrade (inUS$million) (inUS$million) (inUS$million) MENARegion 142,436 453,725 596,161 By geographic sub-region GCCCountries 71,811 271,369 343,180 Bahrain 4,279 5,524 9,802 Kuwait 2,778 21,126 23,904 Oman 2,169 15,391 17,560 Qatar 3,993 23,263 27,255 Saudi Arabia 29,912 89,316 119,228 United Arab Emirats 28,680 116,750 145,429 Maghreb 33,422 69,211 102,633 Algeria 2,478 27,319 29,797 Libya 1,548 1,210 2,758 Morocco 16,736 25,274 42,009 Tunisia 12,661 16,618 29,279 (Mauritania)* 977 994 1,971 Mashreq 10,456 31,620 42,076 Iraq 664 215 879 Jordan 4,397 10,460 14,857 Lebanon 2,636 9,372 12,008 Occ.Pal.Terr 64 1,917 1,981 Syrian Arab Republic 2,695 9,870 12,565 Other 26,748 81,524 108,272 Egypt 14,339 22,953 37,292 Djibouti 175 782 957 Iran, Islamic Republic of 11,814 3,682 15,495 Yemen 420 6,678 7,098 Source: World Trade Integrated Solution. *Mauritania is not part of the aggregates. 32 S TAT I S T I C A l TA b l E S A N N E X 2 TOTAlNON-FUElTRADEWITHINREGIONS TOTAlNON-FUElTRADEWITHINSUb-REGIONS TotalNon-Fuel TotalNon-Fuel TotalNon-Fuel Exports Imports Trade TotalExports TotalImports TotalTrade (inUS$million) (inUS$million) (inUS$million) (inUS$million) (inUS$million) (inUS$million) 52,960 38,217 91,177 40,124 24,904 65,028 21,182 18,514 39,696 1,457 1,064 2,521 1,181 973 2,154 1,801 3,066 4,868 1,179 2,161 3,340 3,444 4,617 8,061 2,800 4,345 7,144 1,215 3,576 4,791 1,001 3,178 4,179 14,166 6,834 21,000 9,320 3,743 13,064 18,041 5,747 23,788 5,701 4,114 9,815 2,276 3,776 6,051 1,516 1,660 3,176 211 909 1,121 177 278 455 117 741 858 -- 830 -- 562 1,476 2,038 192 391 584 1,385 650 2,035 1,146 161 1,307 4,207 6,615 10,822 1,158 1,158 2,317 66 22 88 16 -- -- 1,284 2,003 3,286 276 500 776 1,191 1,251 2,442 274 279 553 40 1,167 1,207 30 44 75 1,627 2,172 3,799 562 335 896 6,352 2,923 9,276 162.15 74.59 237 4,164 1,210 5,374 135 -- 135 148 591 738 -- 27 27 1,841 237 2,078 28 -- 28 200 885 1,085 -- 47 47 33 A N N E X 2 S TAT I S T I C A l TA b l E S TAblEA2.4 MENANon-OilTrade,2007(%GDP) TOTAlNON-FUElTRADEWITHTHEWORlD TotalNon-FuelExports TotalNon-FuelImports TotalNon-FuelTrade (%GDP) (%GDP) (%GDP) MENARegion 8.81 28.06 36.87 By geographic sub-region GCCCountries 9.04 34.18 43.22 Bahrain 38.90 50.22 89.11 Kuwait 2.53 19.21 21.73 Oman 5.42 38.48 43.90 Qatar 5.62 32.76 38.39 Saudi Arabia 7.83 23.38 31.21 United Arab Emirats 15.93 64.86 80.79 Maghreb 10.64 22.04 32.69 Algeria 1.85 20.39 22.24 Libya 2.21 1.73 3.94 Morocco 22.31 33.70 56.01 Tunisia 36.17 47.48 83.65 (Mauritania)* 36.97 37.61 74.58 Mashreq 7.36 22.27 29.63 Iraq 1.07 0.35 1.42 Jordan 27.48 65.38 92.86 Lebanon 10.54 37.49 48.03 Occ.Pal.Terr -- -- -- Syrian Arab Republic 6.91 25.31 32.22 Other 7.27 22.17 29.44 Egypt 10.86 17.39 28.25 Djibouti 21.84 97.80 119.64 Iran, Islamic Republic of 5.47 1.70 7.17 Yemen 2.21 35.14 37.36 Source: Table A2.3. *Mauritania is not part of the aggregates. 34 S TAT I S T I C A l TA b l E S A N N E X 2 TOTAlNON-FUElTRADEWITHINREGIONS TOTAlTRADEWITHINSUb-REGIONS TotalNon-Fuel TotalNon-Fuel TotalNon-Fuel TotalNon-Fuel TotalNon-Fuel TotalNon-Fuel Exports(%GDP) Imports(%GDP) Trade(%GDP) Exports(%GDP) Imports(%GDP) Trade(%GDP) 3.28 2.36 5.64 -- -- -- 5.05 3.14 8.19 2.67 2.33 5.00 13.24 9.67 22.92 10.73 8.85 19.58 1.64 2.79 4.43 1.07 1.96 3.04 8.61 11.54 20.15 7.00 10.86 17.86 1.71 5.04 6.75 1.41 4.48 5.89 3.71 1.79 5.50 2.44 0.98 3.42 10.02 3.19 13.22 3.17 2.29 5.45 0.72 1.20 1.93 0.48 0.53 1.01 0.16 0.68 0.84 0.13 0.21 0.34 0.17 1.06 1.23 0.75 1.97 2.72 0.26 0.52 0.78 3.96 1.86 5.81 3.27 0.46 3.73 2.96 4.66 7.62 0.82 0.82 1.63 0.11 0.04 0.14 0.03 8.02 12.52 20.54 1.72 3.13 4.85 4.76 5.01 9.77 1.10 1.12 2.21 -- -- -- -- -- -- 4.17 5.57 9.74 1.44 0.86 2.30 1.73 0.79 2.52 0.04 0.02 0.06 3.15 0.92 4.07 0.10 -- 0.10 18.45 73.84 92.29 -- 3.42 3.42 0.85 0.11 0.96 0.01 -- 0.01 1.05 4.66 5.71 -- 0.25 0.25 35 A N N E X 2 S TAT I S T I C A l TA b l E S TAblEA2.5A MENAExportsbyProducts,as%oftotalExportsofProducts,2007 Primary Primary Food,basic commodities commodities, excludingtea, Table3as%of (SITC0+1+2 excludingfuels Allfooditems Food,basic coffee,cocoaand beverages totalexportsof +3+4+68+ (SITC0+1+2+4 (SITC0+1+ (SITC0+ spices(SITC0+ andtobacco products 667+971) +68+667+971) 22+4) 22+4) 22+4less07) (SITC1) MENA 86.3 5.5 2.4 2.3 2.1 0.2 GCC 87.4 4.5 1.1 1.0 0.9 0.1 Bahrain 90.2 11.1 0.5 0.4 0.4 0.1 Kuwait 94.9 0.5 0.2 0.2 0.2 0.0 Oman 90.4 3.6 2.4 2.2 2.2 0.2 Qatar 90.3 0.2 0.1 0.1 0.1 0.0 Saudi Arabia 89.4 1.3 0.9 0.8 0.8 0.1 UAE 77.5 13.7 2.2 1.9 1.7 0.3 Maghreb 81.9 5.7 3.6 3.5 3.5 0.1 Algeria 99.1 0.7 0.2 0.1 0.1 0.0 Libya 96.9 0.4 0.1 0.1 0.1 0.0 Morocco 34.9 31.0 19.1 18.9 18.6 0.1 Tunisia 28.3 11.7 9.8 9.2 8.9 0.6 Mauritania * 94.6 69.6 12.9 12.9 12.9 -- Mashreq 84.0 8.3 5.9 5.4 4.9 0.5 Iraq 99.7 0.1 0.1 0.1 0.1 Jordan 20.8 20.1 13.1 11.4 11.1 1.7 Lebanon 51.5 51.2 16.1 12.7 11.3 3.4 Syria 64.9 23.4 21.0 20.0 17.9 1.0 Other 87.5 9.0 5.8 5.6 5.2 0.2 Egypt 77.8 15.4 9.4 9.4 9.2 0.0 Djibouti 95.1 81.8 73.3 73.3 71.5 0.0 Iran 88.6 8.0 5.0 4.8 4.4 0.2 Yemen 96.7 6.2 5.3 4.8 4.5 0.4 Source: UNCTAD, Statistical Report 2009 *Mauritania is not part of the aggregates. 36 S TAT I S T I C A l TA b l E S A N N E X 2 Ores,metals, preciousstones Pearls,precious Agriculturalraw andnon- stonesandnon- materials(SITC monetarygold Oresandmetals Non-ferrous Otherores monetarygold 2less22,27 (SITC27+28+ (SITC27+ metals andmetals (SITC667+ and28) 68+667+971) 28+68) (SITC68) (SITC27+28) 971) Fuels(SITC3) 0.2 2.9 1.6 0.9 0.7 1.3 80.7 0.1 3.3 1.4 0.9 0.4 1.9 82.8 0.0 10.6 10.6 9.0 1.6 0.0 79.1 0.1 0.2 0.2 0.0 0.2 0.0 94.4 0.0 1.2 1.2 0.6 0.6 0.0 86.8 0.0 0.1 0.1 0.0 0.1 0.0 90.1 0.1 0.4 0.3 0.1 0.2 0.1 88.1 0.3 11.2 3.4 2.5 0.9 7.8 63.8 0.3 1.8 1.8 0.4 1.4 0.0 76.2 0.0 0.5 0.5 0.1 0.4 0.0 98.4 0.0 0.3 0.2 0.0 0.2 0.1 96.5 1.5 10.4 10.3 2.2 8.2 0.1 3.8 0.5 1.4 1.4 0.4 1.0 0.0 16.6 0.0 56.7 53.9 -- 53.9 2.8 25.0 0.3 2.1 1.4 0.3 1.1 0.7 75.7 0.0 0.0 0.0 0.0 99.6 0.3 6.7 5.9 0.9 5.0 0.8 0.7 1.0 34.1 17.2 3.2 14.0 16.9 0.3 1.2 1.2 1.2 0.7 0.5 41.5 0.6 2.6 2.5 1.5 1.0 0.1 78.5 1.9 4.0 3.3 1.7 1.6 0.7 62.4 2.8 5.7 2.1 0.3 1.8 3.6 13.2 0.4 2.5 2.5 1.6 0.9 0.0 80.6 0.2 0.8 0.3 0.1 0.2 0.5 90.5 37 A N N E X 2 S TAT I S T I C A l TA b l E S TAblEA2.5b MENAExportsbyProducts,as%oftotalExportsofProducts,2007 Table3as%of Manufactured Machinery Othermanufactured totalexportsof goods(SITC5to8 Chemicalproducts andtransport goods(SITC6+8 Ironandsteel products less667and68) (SITC5) equipment(SITC7) less667and68) (SITC67) MENA 13.7 4.3 4.0 5.5 0.7 GCC 12.6 4.6 4.5 3.6 0.5 Bahrain 9.8 4.5 1.9 3.4 0.1 Kuwait 5.1 2.6 1.7 0.7 0.0 Oman 9.6 3.3 3.5 2.8 0.6 Qatar 9.7 7.7 1.0 0.9 0.7 Saudi Arabia 10.6 6.1 2.4 2.1 0.5 UAE 22.5 2.0 11.4 9.0 0.5 Maghreb 18.1 3.7 4.5 9.9 0.8 Algeria 0.9 0.5 0.0 0.4 0.3 Libya 3.1 1.9 0.1 1.2 1.1 Morocco 65.1 14.8 16.7 33.7 1.4 Tunisia 71.7 9.7 19.7 42.3 1.4 Mauritania * 0.0 -- -- 0.0 -- Mashreq 16.0 4.0 2.9 9.1 0.2 Iraq 0.3 0.0 0.2 0.0 Jordan 79.2 26.4 17.7 35.1 1.2 Lebanon 48.5 13.1 4.7 30.7 1.1 Syria 35.1 5.4 5.0 24.8 0.3 Other 12.5 3.6 1.2 7.7 2.7 Egypt 22.2 5.5 0.4 16.3 5.5 Djibouti 4.9 1.0 1.2 2.8 0.0 Iran 11.4 3.6 1.2 6.6 2.4 Yemen 3.3 0.4 2.1 0.8 0.0 Source: UNCTAD, Statistical Report 2009 38 S TAT I S T I C A l TA b l E S A N N E X 2 TAblEA2.6 ConcentrationandDiversificationIndicesofExportProductsinMENA 1995 2007 Numberof Concentration Diversification Numberof Concentration Diversification Exporters products Index Index products Index Index MENA 152 0.51 0.71 196 0.49 0.69 GCC 174 0.69 0.78 214 0.62 0.76 Bahrain 138 0.48 0.77 150 0.78 0.82 Kuwait 135 0.94 0.83 187 0.66 0.82 Oman 189 0.77 0.71 210 0.58 0.68 Qatar 102 0.64 0.83 238 0.50 0.81 Saudi Arabia 220 0.74 0.86 242 0.76 0.78 UAE 258 0.56 0.69 258 0.42 0.64 Maghreb 123 0.42 0.69 165 0.44 0.71 Algeria 99 0.53 0.81 121 0.60 0.81 Libya 29 0.77 0.52 95 0.85 0.80 Morocco 169 0.18 0.75 203 0.15 0.68 Tunisia 193 0.22 0.66 240 0.18 0.56 Mashreq 177 0.28 0.64 203 0.29 0.57 Iraq Jordan 221 0.21 0.64 231 0.17 0.59 Lebanon 180 0.10 0.59 190 0.37 0.54 Syria 131 0.54 0.69 188 0.32 0.57 Other 136 0.66 0.75 202 0.62 0.74 Egypt 164 0.25 0.66 238 0.31 0.67 Djibouti Iran 175 0.83 0.82 238 0.75 0.75 Yemen 70 0.89 0.76 130 0.78 0.79 Sources: UN Comtrade statistics Concentration index reflects the Herfindahl-Hirschmann index of the export product concentration of a country or a group of countries. It ranges between 0 to 1 where 1 represents total concentration. Diversification index reveals the extent of the differences between the structure of trade of the country or group of countries and the world average. The index value ranges from 0 to 1. 39 WORLD BANK MIDDLE EAST AND NORTH AFRICA REGION Economic Integration in the GCC