(C) GCC CUSTOMS UNION HINDERS FTA IMPLEMENTATION

C O N F I D E N T I A L SECTION 01 OF 02 MUSCAT 000597 SIPDIS NEA/ARP PLEASE PASS TO DOC THOFFMAN AND USTR JBUNTIN E.O. 12958: DECL: 2019/06/08 TAGS: ETRD EINV ECIN MU SUBJECT: (C) GCC CUSTOMS UNION HINDERS FTA IMPLEMENTATION CLASSIFIED BY: L. Victor Hurtado, Charge d' Affaires, State, Embassy Muscat; REASON: 1.4(B),(D) ¶1. (C) Summary: In an effort to respond to both Oman and U.S. business concerns that tariffs are being charged on goods considered duty-free per the U.S.-Oman Free Trade Agreement (FTA), the Embassy contacted its Omani counterparts to clarify the terms of the agreement. While Oman's membership in the GCC Customs Union (CU) has influenced FTA compliance since the CU has implemented a common tariff, it is clear that Oman is working to address the issue and will continue to keep Embassy abreast of its actions. End Summary. ¶2. (C) Econoff met May 25 with Khalid al Shuaibi, Director General of Commercial Relations and Organizations from the Ministry of Commerce and Industry, regarding customs complaints the Embassy is receiving from Oman's business community. According to recent reports, businesses that are importing U.S. goods transiting through other GCC countries before arriving in Oman are paying duties to those countries and are unable to recoup them in Oman. Additionally, Senior Omani Customs Official Lieutenant Colonel Darwish Salim al Belushi announced at a MEPI-sponsored FTA Conference on May 12 that only goods shipped directly from the U.S. to Oman would receive duty free consideration. While Econoff noted to the audience that Col. Darwish's announcement does not reflect the U.S.'s interpretation of the Free Trade Agreement, she promised them that U.S. officials would work with their Omani counterparts to clarify the terms of the agreement. ¶3. (C) During the May 25 meeting, al Shuaibi called two Omani customs officials, including a personal friend assigned to one of Oman's northern border checkpoints and another senior Oman customs official, Abdullah al-Jarwani. Al Shuaibi asked both (in Arabic) to walk him through various shipment scenarios. At one point, he obviously noted his disagreement over the procedures. He proceeded to explain to Econoff that in fact, there is a problem with items that are transiting through GCC countries. UAE ports and other GCC states are requiring importers to pay the tariff at the port-of-entry and may be re-exporting the goods instead of transshipping them to Oman. Al Shuaibi explained that on-going implementation of the GCC Customs Union was interfering with the terms of the FTA because the mechanisms for collecting tariffs had changed. He admitted that this is a big problem and also noted that Oman and Bahrain could also benefit from re-exporting goods duty free to other GCC countries. ¶4. (C) Al Shuaibi requested that Econoff inform Washington that the problem will be resolved. When confronted with questions on how businesses would later be reimbursed - per a promise previously made by Oman to companies who improperly were charged customs - he said that unless the UAE reimbursed Oman, then the businesses would not be able to reclaim the duties paid in other GCC countries. Al Shuaibi wondered how other countries handle the customs union or transiting issue and requested feedback and ideas from U.S. counterparts. Al Shuaibi believes the GCC Customs Union is already aware of the problem, but he promised to call a meeting soon to bring it to their attention. ¶5. (C) Econoff followed up May 31 delivering CBP's clarification on regulations regarding transiting/transshipping of goods under the Free Trade Agreement per the US Trade Representative's (USTR) Regional Officer's request. Although press reports indicate that the GCC Customs Union recently hired Price Waterhouse Coopers to conduct a study on the collection and distribution of customs fees and discussed the issue in a GCC Meeting of Economic and Finance Ministers in Oman at the end of May, it is not clear if Bahrain's and Oman's FTAs would be included in the talks. ¶6. (C) Al Shuaibi didn't think the problem was properly addressed during the GCC May meeting, in part, due to his inability to gather key Omani officials ahead of the event. Al Shuaibi said that this is an issue for the GCC to resolve and Oman can only make recommendations. He told Econoff that UAE customs officials informed him the week of May 25 that duties are not being levied on goods held at port awaiting transshipment, but they are being applied to most goods leaving the port area, including those held in warehouses outside of the port but awaiting shipment to Oman and goods leaving port and being transported to Oman by truck. MUSCAT 00000597 002 OF 002 ¶7. (C) Al Shuaibi charted the next steps for Oman to resolve this matter. He noted that although it is difficult to get all the stakeholders in a room during the summer months, he will attempt to do that. He also said, implying that they may have some influence, that Oman's FTA Review Committee is taking shape. Once the officials come up with a proposal, he will call a meeting of the GCC Customs Union Officials. Al Shuaibi once again requested that Econoff let Washington know that Oman is actively pursuing a solution to the problem. ¶8. (C) Comment: Oman has consulted with its Bahraini counterparts on various FTA issues and will most likely follow their lead when it comes to addressing this specific problem. While Oman knew the FTA must be integrated within the GCC Customs Union Framework, it definitely took a wait and see approach and never actively brought it to the attention of Customs Union officials. The Omanis remain seized of the issue and Post will continue to work towards a resolution in line with the FTA. End Comment. HURTADO