As the GCC closes on an FTA, the UAE and US keep on talking

If the GCC and the EU can seal the deal then it would represent the first ever region-to-region free trade agreement and, according to Mandelson, it could be worth around $5 billion in extra trade in the first year of its implementation. But while the two parties are looking to bring matters to a positive resolution, the UAE's own attempts to cement a similar tie-up with the US still have a way to go.

So near, yet so far?

Mandelson's trip to the UAE, Qatar and Saudi Arabia is a pre-cursor to technical discussions scheduled for Brussels in upcoming weeks but the commissioner is under no illusions that, while an agreement is in sight, there are issues to resolve. One key problem faced right across the region is the cap on foreign equity ownership where overseas businesses have to cede 51 per cent of their company to local operators or sponsors. There seemed to be encouraging noises coming out of Qatar regarding this with the Finance Minister, Yousef Hussein Kamal, supposedly open to relaxing foreign ownership legislation there, but Mandelson has denied this is the case at present.

If the GCC truly wants to see widespread foreign direct investment and business growth in its economies then long-established criteria like this will surely have to go, or at least be substantially amended. The 100 per cent foreign ownership available in the UAE's free zones is clearly an inducement, on a local level, but better ratios need to be offered right across the GCC.

By comparison, the EU is certainly open to compromise on its part and it has made significant concessions on rules of origin with import tariffs imposed on aluminium, a booming sector in the Gulf, and petrochemicals set to be scrapped. The EU is looking to provide total liberalisation of GCC goods over the first few years of any trade agreement.

Slow progress

The seeming reticence of GCC states to open up their economies and change key fundamentals is largely behind the unsuccessful attempts by the US and the UAE to broker an FTA of their own. The US has managed to conclude FTAs with both Bahrain and Oman recently, and the former saw bilateral trade reach $1.1 billion last year, helped in part by the agreement which came into effect in August. Jordan, whose FTA with the US was implemented in 2001, has watched its exports to America increase by nearly 500 per cent in the subsequent five years.

A trade deal with the US would be a major fillip to the UAE's already healthy economy but negotiations have seemingly been treading water for some time. One apparent stumbling block concerns the fact that the UAE has been resistant to undertaking certain socio-political changes demanded by the US negotiators, namely an improvement to labourers' working conditions as well as the country's overall human rights record. Discussions are set to drag on for some little while yet and no substantial breakthrough is likely until that same old thorny issue of foreign equity ownership, a fly in the ointment to the GCC-EU deal, is also adequately addressed.

No necessity to compromise

But with the Gulf nations still enjoying buoyant oil prices and, for the most part, very sturdy economic growth, there is no real compulsion for these nations to strip away fundamental and familiar parts of their economic framework in order to facilitate these deals. But, if they want to drive their growth forward and continue with the wider diversification of their economies, then FTAs with the likes of the US and the EU would take them much further down the road.