Challenging Goliath


Economic News

22 Jul 2010
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The UAE's trade with Europe came under the spotlight this week, with rising volumes expected to accelerate soon, if a long awaited free trade agreement is finally signed.

A recent study produced by Dubai Chamber of Commerce and Industry (DCCI) showed that the UAE made significant growth in its non-oil exports and imports to the EU this year.

Looking at the first seven months of 2005 on a country-by-country basis, the Netherlands posted the biggest increases in imports from the UAE when compared to the same period of 2004, rising 534% to 1.4bn euros. Meanwhile, the UK showed the largest growth on the exports to the Emirates, posting 87% to reach 3.7bn euros, Gulf News reported on November 9.

This upward movement of EU-UAE trade is good news, and may give some impetus to the long delayed free trade agreement between Europe and the Gulf Cooperation Council (GCC) countries.

Indeed, an October 26 meeting in Abu Dhabi left both parties hopeful that the elusive trade deal could be in place shortly, according to WAM, the Emirates News Agency.

But any optimism at this point should be guarded at best, as problems still seem to plague the trade deal. The meeting held last month was the 21st in a series that stretches back to 1988, when the free trade framework was first signed by the two blocs.

Such lengthy discussions have also led many to question the overall effectiveness of the GCC itself. Forged as a defensive alliance to the Iran-Iraq war in the early 1980s, many say that minimal inter-GCC trade and a lack of willingness to give up local control over policy to any supranational body will keep the GCC from becoming an effective political and economic bloc.

Others see the collection of six countries as being only able to march as fast as their slowest member on the path to market liberalisation. The country lagging behind in this respect is Saudi Arabia, the largest, most powerful and wealthiest of all of the countries. Saudi Arabia has struggled to liberalise its economy and continues to be criticised widely for its human rights record.

Its inability to move towards the liberal market kept it from being invited to join the World Trade Organisation (WTO) until this year, while all five of the other GCC countries have long been members.

Trying not be slowed down by the Saudis' economic inertia, many of the upstart Gulf countries have therefore quietly moved away from GCC-wide deals, content to deal with other trading partners on a bilateral level.

Back in September 2004, Bahrain became the first GCC state to sign a Free Trade Agreement (FTA) with the US. The speed at which the FTA was finalised - after only four months of negotiations - only encouraged other Gulf countries to follow suit.

Soon after, both Oman and the UAE had opened up preliminary FTA talks and followed these quickly with the signing of Trade and Investment Framework Agreements (TIFAs). Since then, Oman has been offered an FTA and the UAE is hoping to finalise one soon.

Saudi Arabia has long protested against bilateral free trade agreements between GCC states and other countries, claiming that they weaken the union and are illegal under the charter of the GCC - a point with some justification until a recent provision was agreed to allow bilateral FTAs with the US.

Yet the EU also protests bilateral agreements, arguing that these hamper the pace of economic integration between GCC states and make the signing of regional trade deals even more challenging.

Thus there is a bit of a heavyweight battle going on for the hearts and economies of the Gulf countries - on the one hand, the US is offering bilateral agreements to any willing country, while the EU is trying to push through region-wide deals.

At the moment the US seems to be winning the battle, with a string of FTA successes in Bahrain, Oman and the UAE. Washington is arming the smaller countries with the financial incentives - and the implicit military backing - that these smaller Gulf countries need to weigh in against regional historical Goliaths like Saudi Arabia, Iran and Iraq.

Dubai in particular has already carved out its economic niche in the region - striving to be the biggest, brightest and boldest city. This is particularly true in the maritime trade sector, where Dubai dominates the entire region. Any free trade deal for any GCC country will most likely see most of the goods calling at Dubai's ports first. Dubai has thrived on being let loose to steam ahead of its competition, and any calls for it to be reigned in to a GCC-wide economy will be a tough sell.

Qatar also is blazing ahead, using a lot of Dubai's economic formulas - stressing transport and financial development. Bolstered by its massive gas reserves, the country has begun to make bolder decisions that have ruffled powerful feathers. For example, Doha-based media channel al-Jazeera is a major thorn in both Riyadh's and Washington's sides.

With most of the Gulf countries pushing for more individuality, rather than less, it seems unlikely that the GCC will become a stronger union any time soon. That's not to say that the EU-GCC trade agreement is off the agenda, but the greater test for the GCC will be in dealing with its self-imposed deadlines on creating a common market by 2007 and a single currency by 2010.

To achieve these goals, tricky compromises will have to be reached - ones that could be much harder than ironing out free trade regulations with the EU or US.

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