Why bilateral free trade agreements make sense

Singapore and the UAE have just signed a framework agreement which should lead to a full free trade agreement with the two countries. Meantime, the US and UAE have announced their intention to wrap up a comprehensive Free Trade Agreement by the end of the year.

The benefits of such deals are very tangible. Open markets accelerate capital inflows, the transfer of technology and skills. The introduction of international best practice in business and finance that follows also has huge long-term benefits.

Opponents of free trade - a battle that is centuries old - tend to be conservatives with entrenched interests who do not want to see change.

Of course, lowering trade barriers is not without risks. Removing protectionist economic systems will hurt businesses that can not handle competition. But in such systems it is the consumer who ultimately pays a higher price for goods and services, and is thus the loser.

Indeed, the only real argument against free trade is if an economy is so weak that it will be unable to deal with foreign competition without collapsing. That can hardly be said of the UAE which arguably has the strongest economy in the world on many parameters.

Surely in the UAE the pressure of competition will act to rationalize and consolidate existing players in the business sector. Foreign companies will also increasingly seek to buy into local business, and enhance their competitive performance.

But should this all be negotiated on a pan-GCC level? Well, not unless you are prepared to wait 5-10 years for a watered-down free trade framework. The plain fact is that trade is always between two parties, and free trade agreements are best negotiated in the same way.

Besides the GCC is not a body with a clearly defined executive function, and there has been no delegation of sovereign power in the way that defined the European Economic Community from its early days.

So to call for free trade talks between the GCC and trading nations is actually just a way of blocking any deal - which might suit some interests, although is quite clearly not in the general interest of business, economic growth or the consumer.

The UAE stock market has soared by over 35% in value so far this year, after gaining more than 100% in 2004, and the likely conclusion of free trade agreements, alongside economic reforms in areas such as real estate ownership, is one factor justifying this considerable confidence in the local economy. It is unlikely to be misplaced.