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Europe trumps US in Persian Gulf trade

Associated Press | 01.17.07

Europe Trumps U.S. in Persian Gulf Trade

While U.S. free trade initiatives in the Gulf appear to be faltering, Europe has stepped into the vacuum, launching a charm offensive that appeared to be on the brink of clinching a trade pact with a bloc of six energy-rich Arab states.

The European Union’s decision to negotiate with all six members of the Gulf Cooperation Council appears to have put them ahead of their American trade rivals, who have tried to negotiate individual pacts with each country.

After signing trade deals last year with Bahrain and Oman, American trade negotiators have failed to clinch a pact with the $130 billion-a-year economy of the United Arab Emirates. Observers here say the agreement has been hung up on several American demands, while incentives to sign have plummeted alongside the Bush administration’s popularity in the Gulf.

Meanwhile, the Europeans have stepped up their overtures.

Last week, Italian Foreign Minister Massimo D’Alema visited Saudi Arabia, the Emirates and Qatar, and this week Irish Prime Minister Bertie Ahern is leading a trade mission making stops in Saudi Arabia and the Emirates.

The Irish mission is evidence of the "enthusiasm of Irish companies for increased links between Ireland and the Kingdom," Ahern said Tuesday in Riyadh.

The visits come as the European Union has reached final stages of negotiations to complete a EU-GCC free trade agreement. EU Trade Commissioner Peter Mandelson said this week he expects the deal to be completed soon.

The six-member GCC is Europe’s sixth-largest export market, and the EU is the GCC’s largest trading partner.

The GCC is a trade bloc and customs union that unites Saudi Arabia, Kuwait, United Arab Emirates, Qatar, Bahrain and Oman. The bloc emulates the European Union in several aspects, including creating a currency union by 2010.

The European approach appeals to Gulf states because it strengthens the GCC framework, while the U.S. tactic of dealing with each country separately "contradicts the spirit of a customs union," said Eckart Woertz of the Dubai-based Gulf Research Center.

Japan, China, Australia and others have followed the EU lead in negotiating pacts with the Gulf countries as a bloc.

America’s approach has been lambasted for sparking trade disputes inside GCC countries that haven’t signed deals with Washington.

Saudi leaders have frequently spoken out against U.S. pacts with Bahrain and Oman which they say allow businesses in those countries to import duty-free goods from America and then sell throughout the GCC without incurring customs charges.

Those businesses are thus able to undercut prices in countries that still apply tariffs to U.S. goods.

On Tuesday, a U.S. official from the Office of the United States Trade Representative defended the American approach, saying it was easier to negotiate individual pacts.

U.S. trade pacts with Gulf countries are structured to encourage integration, the official said in an e-mail interview, requesting that her name not be used.

Dividing the GCC and negotiating with individuals gives Washington more leverage to drive tougher bargains, said Khalid Abdullah, with financial advisory firm Lingram Middle East.

"They have more leverage to negotiate," Abdullah said. "It’s easier to crack one person rather than 10 people together."

 source: Forbes