1993 Speech

Prince Saud's speech to 4th EU-GCC meeting in Brussels
Address by Minister of Foreign Affairs Prince Saud Al-Faisal to the Fourth EU-GCC Council Meeting in Brussels, Belgium, on May 11, 1993

Mr. Chairman, Excellencies, Ladies and Gentlemen:
We have listened carefully to the report just made on the conclusions of the second session of the Joint Cooperation Committee.  I would like to seize this opportunity to comment on the contents of this report in so far as the question of energy is concerned.

The great importance of energy in EC-GCC relations is certainly obvious.  It is important to our political, strategic, economic and trade relations.  For the GCC countries, energy is the most important and largest economic sector.  It represents over 90% of our current exports to the European Community.  According to the GATT international trade report, fuel is the second sector in international trade; its value was U.S. Dollars $369 billion in 1990, corresponding to 10.5% of the total value of world trade. GCC countries accounted for one-third of the total world exports of fuel, while the European Community accounted for one-third of its total imports.  Our cooperation in this sector may, therefore, go well beyond the Euro-Gulf dimension to represent a special importance to international relations as a whole.  Our success in developing relations based on a better understanding of each other's concerns and our common endeavor to serve our mutual interests shall be a major contribution to the development of healthier and more balanced international relations.

However, let me be very candid with you:  We experienced in the recent past contradictory signals which are hard to understand or to justify.  We have concluded a cooperation agreement. One of its objectives, as laid down in Article (1), is "to help strengthen the process of economic development and diversification of the GCC countries and so reinforce the role of the GCC in contributing to peace and stability in the region."  We have also embarked on trade negotiations, the objective of which, as laid down in Article (11), is "to promote the development and diversification of the reciprocal commercial exchanges between the Contracting Parties to the highest possible level, inter alia, by studying ways and means of overcoming trade barriers for the access of each Contracting Party's products to the other Contracting Party's market."  Despite these contractual commitments, we have noted a European trend of contemplating measures that will not only threaten to cause injury to the GCC economies, but, we believe, affect the European economies as well.
The question of uninterrupted oil supplies and moderate pricing policies was always the preoccupation of policy-makers in the Community and was also the subject of our full understanding and positive response.

We still vividly recall the arguments advanced for moderation in oil pricing policies and the preoccupation expressed by policy-makers for the security of supply and the desirability of avoiding pricing levels that are inconsistent with market stability and supply and demand requirements.  Your leading economists were unanimous on the need to avoid measures that are likely to distort markets and complicate investment decisions.  We firmly believe that these arguments and preoccupations are more valid today. Therefore, we find it difficult to understand or to justify the proposed energy/carbon tax. It is a proven fact that oil is certainly the most heavily taxed of all internationally traded commodities.  As of today, it suffices to examine the 1992 situation as a case in point.  For every United States dollar paid by the European consumer of oil, only 19 cents accrued to producing countries; shippers, refiners and distributors shared 21 cents and the consumer countries' governments received 60 cents in addition to corporate taxes on oil-related operations.

European taxes on products of a barrel of oil increased from U.S. $5.2 in 1973 to $57 in 1992, and in the case of Italy they reached $76.  As a result of these taxes, the share of oil in industrial countries' fossil fuel consumption fell from 59% in 1973 to 50% in 1990.  The share of coal, which is a greater contributor of CO2 emissions, increased from 20% to 25% in the same period.

Careful consideration of prices and taxation on various fuels would clearly establish a distortion inconsistent with the environmental arguments advanced for a new and additional tax on energy/carbon contents of fuels.  While oil is heavily taxed, coal is still heavily subsidized.  The International Energy Agency estimated that in 1991 the coal subsidy on an equivalent barrel of oil was U.S. $22.8 in Germany, $20 in Belgium and $11.3 in Spain.

These facts lead us to a clear conclusion.  A new and additional tax on oil will not serve a real environmental objective.  It will only increase the level of discrimination against oil in favor of other, more polluting and more hazardous fuels.  We also believe that such a tax will not serve the interests of either the producing or the consuming countries.  According to published studies, such a tax would likely cause a fall in world demand by the year 2000.  Consequently, OPEC producers would lose income estimated at U.S. $26.4 billion, most of which is likely to be borne by GCC member states.  In a report to the Commission of the European Communities, Data Resource Incorporated estimated that the effect of the said tax on oil demand in the EC would be a fall of 5.9% by the year 2000. OECD studies predict that such a tax would have a negative impact on world economic growth.  According to these studies, the Community's GDP will fall by 0.2% per year by the year 2000 and the world economy as a whole by 0.1% the same year.

We are conscious that some environmental problems are of universal dimensions.  We are also convinced that such problems call for appropriate and balanced solutions.  However, we are convinced that additional taxation on oil is not the appropriate solution.  A recent study by the OECD reinforces our conviction.  According to the study, the implicit carbon taxes reached U.S. $351 per ton of carbon in France, $317 in Italy, $297 in the U.K. and Denmark, and $212 in Germany.  The carbon tax implicit in the Commission's proposal would add U.S. $80 per ton of carbon.  At the same time, the coal subsidy in Germany in 1991 was estimated at U.S. $152 per ton of carbon.  The conclusions of the OECD study indicate that, if the Community chooses to reform its energy taxes and transform them into explicit carbon taxes, CO2 emissions in the Community will fall by 12% without recourse to additional taxation.

Furthermore, the real action to reduce CO2 emission lies in other regions of the world, and action by the Community in this regard would tend to be characterized by very high cost to the consumer and very little effect on the protection of the environment.  The OECD has concluded in a study that its 24 industrialized member states would need to cut emissions by 44 per cent to stabilize their CO2 emissions at 1990 levels in the period to 2050.  But this effort, which inevitably would cost output, would reduce world emissions by only 11 per cent from what they would otherwise be due to the higher level of emission of CO2 in the former USSR, the Central and Eastern countries, China and India.  While carbon intensities in the OECD countries range from 0.2 to 0.3 tons of CO2 per unit of output, in those latter countries the level of emission per unit of output exceeds one ton and is, therefore, fivefold the level of the OECD countries.

In view of all these arguments, and at a time when we should be working together towards the development of privileged relations of cooperation, we fail to comprehend the measures contemplated by the Community in the context of energy/carbon taxes.  As a matter of fact, the analysis on the effect of the tax reinforces our conviction that taxes have never been, and will not be, a suitable mechanism to solve universal problems such as the environmental problem.

The world's progress and prosperity witnessed after the Second World War, especially by the industrial countries, are attributable to the capacity to overcome narrow economic interests and to embrace free and open economic and trade policies.  This undoubtedly is the only means to preserve the strength and solidity of our economies in a world of fierce competition.  We in the GCC have already expressed our readiness to shoulder the responsibility of contributing towards secured European oil supplies; we have also expressed our expectations that the European Community would accept the corresponding responsibility to open up its markets and to provide free access to gulf exports.  For, if we were to embark on substantial investments in new production capacities to meet forecasted demand, secured market access for our exports is essential to reduce financial risks and to enhance our ability to finance such investments.  This is, in fact, a sound basis for cooperation.

In conclusion, let me once again underline the special importance of the energy sector in the context of EC-GCC relations.  It is a sector that merits our special consideration and earnest endeavors to achieve a better understanding of each other's concerns so as to be able to render a better service to our mutual interests.  If we are to bear our historic responsibility today, we are called upon to continue our dialogue in an objective and positive manner.  To this end, we propose to ask the Joint Cooperation Committee to examine the inter-related issues of energy and environment from the perspective of our mutual and legitimate concerns with a view to rendering a better service to our mutual interests.  It is not appropriate to limit ourselves to a mere registration of opposing positions.  The environmental problems are universal in nature and their solution is not confined to additional taxation on energy/carbon contents.

We are also called upon to demonstrate the necessary political will with a view to enabling our respective negotiators to conclude a trade agreement that translates the special importance of energy to our bilateral trade into contractual commitments.  Such an agreement will help insure our mutual economic, trade, political and strategic interests against eventual threats caused by narrow and temporary considerations.  Energy trade between the Community and the GCC is best served if the agreement is based on a clear equation -- the European interest in a secure oil supply versus the GCC interest in free access to European markets. 
This is the sound way to develop our relations with a view to expanding our trade and enhancing our economic and investment cooperation.  This requires us to deal with the issue of non-discrimination against oil in a broader sense.  Non-discrimination should not be confined to sources of production but expanded to deal with non-discrimination among fuels as well.

I sincerely hope that our meeting today will create momentum for our common endeavors to lay down the foundations for cooperation commensurate with our privileged relations and consistent with the size of our political, strategic, economic and trade interests.

Thank you, Mr. Chairman.