The Gulf region suffered consecutive waves of price hikes in the second half of the past decade, as inflation rates reached unprecedented levels, of up to 15 per cent in some GCC countries.
The GCC countries tried to curb prices and inflation — including both salary increases and price controls — without much success.
It is true that price hikes are a global phenomenon, but in the GCC they are particularly concerned with two factors; high oil prices and, more importantly, monopolies over trade in commodities and services through the Commercial Agencies Law, the basic provisions of which have not changed for more than 50 years. There are approximately 120,000 commercial agencies in the GCC.
This comes despite the fact that most countries in the region are members of the World Trade Organisation (WTO), which bans all forms of monopolies due to their harmful impact on trade and consumers.
In light of this, the changes to the Commercial Agencies Law adopted by the UAE last week is a milestone. The move will have a positive effect not only on prices, but on the restructuring of domestic trade, which will be able to compete internationally. UAE markets will now get preferences in trade in liberalised goods.
The decision is intended to curb unjustified rising prices of certain commodities, boost the principle of competition in the UAE markets and combat all types of monopoly and exploitation. But it was received cautiously by owners of trade agencies. This caution is unjustified — Oman and Bahrain have already liberalised trade and yielded positive results on both commodity prices and domestic trade.
In both countries, prices have become more acceptable, while former trade agents have not been negatively affected despite the fact that they too expressed fears in the aftermath of the decision.
Even more importantly, the liberalisation of trade led agents to improve their service and gain new marketing experiences that helped them increase their sales. This in turn encouraged them to accept better prices, especially after their profits increased due to higher sales revenue.
Indeed, when new distributors began to compete, their market share remained modest, with the original agent taking the lion's share of the business, due to the incumbent's efforts to maintain his position. The new distributors have, however, created a balance between the quality of products and prices in both GCC markets.
And it is not only in the Gulf. The distributors system followed by most countries, including the European Union and the United States, serves as an ideal alternative to the agent system. Under this system more than one distributor can import the same product as per the prescribed specifications, thus encouraging him to offer the best possible services and prices.
Although it would not be possible to initiate the trade liberalisation of all goods at once, the gradual process adopted by the Cabinet will give way to liberalisation of trade in other basic goods for consumers. It will also push for the introduction of the distributor system, which is of great importance to modern economies.
More generally, they highlight that many economic and commercial regulations and laws in the GCC are no longer appropriate in light of the economic changes of the past few years. This is especially pronounced when you can consider the remarkable growth attained by the local economy and other GCC economies, and the establishment of the Gulf common market.
Old fashioned trade laws have become an obstacle in the face of GCC econ-omic integration, completely aside from prices.
The Cabinet's decision on liberalisation of trade in foodstuffs will have positive repercussions that will in turn lead to reducing prices and inflation rates. It is now vital for supermarkets, cooperative societies and mega shopping malls to respond positively to the decision and embark immediately on the direct import of commodities when prices rise above normal levels. This move would eventually be to the benefit of the local economy, and in the interests of consumers who will receive goods and services of the best quality and at affordable prices.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.
