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ANALYSIS

Will GCC, EU ever find the way to go bilateral?

Dubai, October 30, 2013

By Johann Weick

The six countries of the Gulf Cooperation Council (GCC) and the 28 member states of the European Union (EU) have been talking for over two decades, and in the current trend of globalization or increased economic and political interdependence between states and countries, it is remarkable that they have still not developed the EU-GCC Co-operation Agreement of the late 1980s.

The mutually welcomed idea to sign an EU-GCC Free-Trade Agreement, providing progressive and reciprocal liberalization of trade between the EU and the GCC, has become suspended by the GCC since late 2008 for reasons of feelings that trade talks held so far had delivered only scant results.

Besides disagreements over trade issues, e.g. import tariffs, local sponsorship, export duties, rules on origin, subsidies on energy, government procurement, investment protection etc., other factors, like institutional mismatches, persistent realities, divergent interests, different perceptions and other values/norms, are also responsible for both regional blocs growing apart instead of coming together on a more institutionalized basis.

The adoption of the EU-GCC Joint Action Program in 2010 has been useful in order to establish some sort of a fresh impetus between the parties, but contributed only little in meaningful results so far.

The sheikhdoms on the Arabian-side of the Gulf have to be seen as much more than merely economies under construction financed via oil and natural-gas wealth. Their ascent in an ever more interdependent, global economy should, like a rising geopolitical influence of GCC states in a series of regional and wider Middle-East issues, also not be underestimated.

The GCC and the EU should break the current impasse and explore ways to re-engage.

It is important to take into account though that the balance of power between the two regional-blocs has changed: the ever more rising status of the GCC in the Gulf and the wider Middle-East, and the bail-out role of their Sovereign Wealth Funds in economies affected by the repercussions of the global financial breakdown, has led to GCC states becoming more assertive in their relation with the EU.

The imposition of energy-taxes by the EU on fossil fuels should not be seen as protectionism, for this is the result of international commitments, or the attainment of agreed reductions in carbon-dioxide emissions for environmental reasons proper.

International competitiveness of GCC companies in petro-chemicals and aluminium is, on the other hand, the result of fair and lower production costs, or strategically combining the limited absolute and comparative advantages of economies under economic development as such.  Taking into account the different levels of economic advancement between the two blocs remains therefore important.

One of the interesting questions on the stalled negotiations for a bilateral EU-GCC Free Trade Agreement is who will benefit most: the EU, the GCC or both …? It is possible to say that intra-GCC trade is still rather small, leaving the GCC heavily dependent on external sources for import/export, or extra-GCC trade as such.

Securing unrestricted access to the largest regional bloc in the world will benefit the GCC, while free access to the most advanced and resourceful sub-region of the Arab-world will further enhance business opportunities for the EU.

Both sides have clearly an interest in deeper, institutionalized relations, and both regional blocs should therefore decide to serve these mutual interests. The EU will have to understand though that opportunities in the economic domain will remain subject to limitations in the political and hard, military security domain.

Insisting on trade concessions to be reciprocal is not realistic, for GCC states have, apart from oil and natural-gas, only few products which can be exported in significant quantities to the EU in comparison with the ship-loads of finished and semi-finished EU products that the envisaged EU-GCC Free Trade Agreement is likely to make more competitive within GCC markets.

Finding ways to re-engage means adoption of a more realistic/flexible game of give and take, for the conclusion of a sound, mutually beneficial trade agreement requires a workable consensus.

The EU should realize that the GCC states have come of age, and that they accordingly deserve priority and importance.

Establishing and fostering deeper economic and political relations with the GCC via a bilateral free-trade agreement has proven to be different from the trade agreements with other commercial partners around the world: GCC states cannot be pulled-into by the prospect of EU-accession, for none of them belongs geographically to Europe nor can they become tempted by financial-aid, for all of them are wealthy.

In terms of pushing for democratization and respect for human rights, has it become clear that the EU has no leverage over the GCC as an organization neither over GCC states individually.

Both counterparts should be explained that treating them differently would lead to Brussels, the capital of Europe, becoming accused of double standards, risking credibility and causing resentment elsewhere, e.g. Africa, for all trade agreements with third parties nowadays include, via the concept of conditionality, acceptance and improvements to democratic principles.

It is expected that the EU will not change its position on democratic principles, good governance and human rights, for the reason that it cannot make an exception to what it internationally stands for.

It has been possible to say that with both the US and Asia willing to do business in the Gulf, the GCC has enjoyed a somewhat stronger bargaining position, but with the EU and the US since recently having decided to engage in free trade talks, the advantage previously held might be lost.

Thus: six Gulf states, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, with shared security-interests and like-minded liberal economic outlooks have embarked upon a journey of domestic market liberalization, attracting investments from both within and outside the GCC, making them ever more a well-connected, globally recognized commercial crossroads for many businesses and company headquarters: a balanced EU-GCC Free-Trade Agreement is therefore likely to enhance economic and financial opportunities for both parties.

It remains unclear though when the GCC and the EU will be able and willing to display the required political will and the necessary strategic vision to realize the benefits of upgrading their mutual relations. – TradeArabia News Service

* Johann Weick is an independent expert on EU-GCC relations and international trade policy in Brussels, Belgium, and teaches EU-policy in Dubai Knowledge Village, UAE. He can be reached at johann.weick@gmail.com




Tags: | GCC | European Union | Free Trade Agreement |

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