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FTA delay ’not an option’

Gulf Daily News, Bahrain

FTA delay ’not an option’

25 July 2008

Businessmen on both sides are pushing the GCC and the European Union towards a free trade agreement - or the next best thing, according to Bahrain-based weekly business intelligence magazine The Gulf.

Politicians from the GCC and the European Union (EU) have been talking about signing a free trade agreement for almost two decades now.

Official negotiations have been going on for six years. While a draft compromise is expected soon, businesses based in the GCC are tired of waiting for a solution.

So much so, in fact, that they have decided to increase pressure on the politicians by pushing ahead with joint ventures.

Most trade issues have now been resolved, but the wording over political ones has delayed a final deal.

The biggest impasse is over a suspension clause included by the EU that would mandate respect for human rights and democratic principles.

GCC countries, especially Saudi Arabia, object to the clause, though they are willing to accept a commitment to the principles enshrined in them.

Gulf countries say politics should be excluded from business and they have a point: the EU is already the GCC’s biggest single trading partner.

Trade volumes have doubled in the past five years, even without a foreign trade agreement, to more than $140 billion, about two-thirds of which are goods and services imported by the GCC.

Negotiators from both sides are due to meet again in Brussels shortly to hammer out their differences in the hope of meeting a July-end deadline for "a mutually agreed text" that would then be signed by the end of the year.

While both sides are optimistic about the outcome of the technical meeting, Gulf countries are hedging their bets by fostering bilateral ties through a co-operation agreement signed in 1988.

The latest and most patent example of their strategy came earlier this month in the form of the first GCC-EU Industrial Forum in Barcelona, organised by the Gulf Organisation for Industrial Consulting (GOIC).

While the gathering served mostly to launch bilateral business relations, the organisers and delegates from the GCC agreed that it sent a strong message to negotiators to get their act together and sign an FTA without further delay.

While top policy-makers from both sides are stalling on signing what would be the first such agreement covering two regions, as opposed to specific countries, GCC businesses are eager to attract technology and expertise from the EU through joint ventures. So they are increasing pressure on their governments to sign a deal.

GOIC industrial promotion head Ismail Elshafei says both sides got the message.

"Since the FTA is having problems, other initiatives can be worked out. If business moves forward, we’ll put pressure on politicians to agree on the political side. Our meetings will do that and I think there will be agreement on the FTA this year."

In the forthcoming meeting, negotiators must also agree on export duties, though both sides say this is not a contentious issue.

A top EU official familiar with the negotiations said there was no stalemate and blamed rhetoric from some GCC officials for the rift.

"It is nothing new and nothing that comes as a big surprise. This stuff is not reflected in the next round of negotiations, which we hope will be the concluding one. We are trying our best to produce a text towards the end of the year," said the official.

Do not underestimate the GCC’s resolve, says Gulf Research Centre international studies director Christian Koch.

"The GCC secretariat was quite upset with the draft. Yes, the GCC has to understand that the human rights clause is part of the FTA and that it has to be included. But the EU needs to be more flexible in its negotiating strategy and they need to agree on wording on human rights because the GCC will not go for the suspension clause."

Increasing business in the meantime will "certainly send a message to politicians that relations will continue and that the GCC will have tremendous impact in years to come," says Mr Koch.

"It’s a good strategy. I think all sectors, business and government, need to pursue this relationship."

Qatar had the biggest delegation in the forum, led by Energy and Industry Minister Mohammed bin Saleh Al Sada.

The UAE also had a significant presence. For two days, EU delegates were told of the benefits of creating joint ventures in GCC countries.

The negotiations over an FTA came up on several occasions, notably when an EU negotiator explained the EU’s position.

GCC officials baulked at Europe’s insistence that there should be political conditions to the deal. Perhaps reflecting the tension, Saudi Arabia and Kuwait sent small delegations.

Yet on the sidelines of the conference, delegates eagerly exchanged business cards and talked about the possibility of opening shop in GCC countries.

"There is a degree of disappointment from the GCC. It’s taken too long and we are bogged down with issues. One could come to the conclusion that both parties are losing opportunities and we would hope the EU would move faster," said Mr Al Sada.

"We had hoped the FTA would be signed yesterday. It would definitely add value, but (the lack of one) doesn’t stop individual countries and companies from moving forward."

Mr Al Sada also underlined the GCC’s interest in joint ventures, rather than just an exchange of goods and services, which dominates most bilateral trade, especially energy-related ones.

"The area that can develop furthest is the transfer of know-how and technology, plus the transfer of experience from the EU to the GCC through partnerships and joint ventures. Let’s be partners rather than just buyers," he said.

Mr Al Sada pointed in particular to petrochemicals, pharmaceuticals and metallurgy as sectors which needed the most attention.

Hi-tech industries using little manpower were most in demand.

Trade would be enhanced if the agreement were signed, but business goes on, said Qatar Holding chief executive Mohammed Khalifa Turki Al Sobai.

Qatar Holding a sovereign wealth fund worth $60 billion.

Not just commerce is at stake, says Mr Koch.

"The FTA is important if we are to strengthen the integration of the GCC because Europe still serves as a model for Gulf states."

The FTA could send important signals on the question of integration that could be lost without it. The FTA had gone beyond being just a trade agreement. It was a symbol of how to bring about peace and security in the region, he said.

Abdulla Al Abduljabbar, of Qatar Chemical, echoed the same message.

"This is a better approach than the FTA. We would prefer an FTA, of course, but it’s about the timing. It’s easier to start this way now."

He criticised the lack of organisation within the GCC on the question of bilateral relations, particularly on regulation.

At the moment a European company that wants to do business in a GCC country, must register not just where it sets up shop, but in every country within the grouping.

"We need more unity and investment by region, not by country," said Mr Al Abduljabbar.

Government officials may say there is little red tape involved, but most businessmen know better.