Tariff and Exchange Rate Policies

Although the Middle East as a whole maintains a large payments surplus with the rest of the world, there is a maze of controls over trade and currency contractions. It is ironic that controls are so widespread, while at the same time there is much debate about the capacity of the leading Middle East trading nations to absorb imports; and the issue of petro-currency recycling still figures prominently in the financial news. Even the richest oil-producing states, such as Kuwait, have general import licensing systems which apply to all goods apart from foodstuffs.1 Admittedly these licences are at present easy to obtain for most manufactured goods, but as Kuwait starts diversifying its economy and establishing new industry, the range of prohibited imports is becoming greater. Clearly, even where Middle Eastern countries have huge foreign exchange reserves, and large balance of payments surpluses, quotas and tariffs may still be adopted as a means of protecting infant industries. Indeed, in so far as the existence of payments surpluses enables countries to industrialise rapidly, those countries in the most favourable foreign exchange position may be the ones which introduce the greatest range of import restrictions during the next few years.