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THE signing of a Free Trade Agreement (FTA) between the GCC and the European Union, which could happen by the end of this month, is expected to bring in more foreign direct investment to the region and strengthen the service sector, besides serving as a deterrent to the US bilateral push.
The EU can extend its assistance to support GCC integration efforts such as in the implementation of the GCC common market planned for the end of the year.
Regionally, the EU and GCC could focus on development projects in both Yemen and the wider Mediterranean region as a contribution to stability and economic advancement.
These are areas of vital concern for both sides and the combination of financial assistance and practical expertise from the EU and the GCC can go a long way to add to regional security. But benefits are more likely come in the medium and long term rather than the short term.
Despite the agreement taking so long to be concluded, the EU-GCC FTA would be the first free trade agreement negotiated between two multilateral groups. The numerous rounds of negotiations indicate that both sides did not want a treaty that simply looks good on paper but an agreement that actually works.
At the 17th GCC-EU meeting held in Riyadh recently, the two parties were keen to put an end to all outstanding issues.
Austrian Foreign Minister Ursula Plassnik says she is sure that before the end of Germany’s Presidency of the EU, the GCC-EU free trade agreement will be signed as all outstanding issues pertain to this agreement will be solved by experts before that date.
The GCC and the 25-member EU signed an Economic Co-operation Agreement in 1988 which laid the framework for the elaboration of a bilateral free trade agreement between the two regional blocs.
Formal negotiations began in 1990 and have been off and on for the last 17 years. However, the talks got bogged down when the EU brought up new issues that really shouldn’t have been a part of an FTA agreement: human rights, political reform and anti-terrorism strategies.
Market access, government procurement and application of the investment protection and guarantees criteria, are some of the key issues on which negotiations came to a stalemate.
For instance, the EU asked to invest in the Gulf energy industry, heavily protected by local governments, while Gulf countries asked to ease up conditions attached to rules of origin for qualifying GCC products.
The GCC is currently the EU’s sixth largest export market and the EU is GCC’s first trading partner.
The EU’s exports to the GCC cover a wide range of products, the largest part of which is machinery and transport materials such as aircraft, electrical machinery and mechanical appliances.
EU imports from the GCC are largely confined to fuels and derivatives. GCC countries currently benefit from preferential access to the EU market under the EU’s Generalised System of Preferences.
The stalled trade talks, which got revived last year, made headway early this year when negotiators from the GCC and the EU completed “a constructive round of negotiations” on the creation of a free trade area between the two regional groups.
The talks held in Brussels touched on all key areas including movement of goods and services, investment and public procurement.
Recently, the UAE has started attracting a lot of foreign direct investment but most of it is in the free zones.
Driving the new policy could be the proposed free trade agreement between the EU and the GCC.
A key component of these discussions has been the issue of restrictions on foreign direct investment.
One hundred per cent foreign equity participation could be allowed in the services sector and some partial equity in the financial services, the UAE government has said.
Mike Moore, a former director-general of the World Trade Organisation (WTO), says the FTA would only “lock in and secure their interests”.
The signing of FTAs across the MENA region, and the world, has become commonplace. But none of them involves agriculture and there are thousands of exemptions, says Moore.
FTAs, which are really Preferential FTAs, do little more than lock-in existing conditions between trading partners.
Moore believes that the number of FTAs will expand “in direct relation to the lack of activity in the multilateral system. So there is even more reason to cut the deal.”
Inevitably, preferential FTAs provide privileges. They create a moral hazard, which businesspeople and bureaucrats use.
They create distortion and diversion of trade and this is very dangerous now and in the long run.
The GCC-EU FTA would counter the momentum of the US bilateral push. It would also put in place a mechanism to reinvigorate the multilateral approach to regional relations.
As far as the GCC is concerned, such an agreement would strengthen the institution at a time in which it is coming under increased scrutiny in terms of its achievements and relevance. The FTA would send a powerful message about the regional integration process with the GCC serving as a catalyst for the continued development and cooperation of the region.
But opening the door to trade is one thing, but the real challenge is to help countries go through it. Without efforts to build decent roads, efficient ports and to produce goods of sufficient quality, new trading opportunities are meaningless.
Talking Business
K S Sreekumar
sreekumar@tradearabia.net
