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FTAs: Much more than trade pacts

The Peninsula, Qatar

FTAs: Much more than trade pacts

By N Janardhan

29 June 2006

In keeping with the global trend, it is free trade agreement (FTA) talks galore in the Gulf. Apart from a deal with Lebanon, the Gulf Cooperation Council (GCC) countries are collectively and individually negotiating FTAs with the United States, European Union and India at present. Plans are also afoot for talks with China, Japan, Pakistan, Asean, Singapore, and South Korea among others. The talks and deals would have rolled out much faster than they have, had the deals been restricted to tackling economic issues alone. The fact that there are other dimensions to the FTAs has been the stumbling block, especially in the case of the US and EU.

Ostensibly, it was a pure economic deal when the US signed the FTA with Bahrain. But it kicked up enough political furore in the Gulf, with major objections from Saudi Arabia, which even resulted in King (the then Crown Prince) Abdullah of Saudi Arabia, boycotting the December 2004 GCC Summit in Manama.

Given the other factors influencing the FTA negotiations, the GCC countries have openly questioned the wisdom of the US mixing politics with economic reforms. In the past few months Qatar and the UAE have reacted strongly against the US imposing preconditions to further the trade negotiations. The two countries and Oman have faced US objections on social, specifically labour, issues acting as the main impediment. As a result, while Qatari envoy in Washington went as far as saying: “We do not need a free trade agreement with the US,” the UAE vice-president and prime minister and ruler of Dubai said that the country was not willing to make “political concessions” to secure a FTA with the US or any other country.

The UAE-US strain was evident after the Dubai Ports World debacle. This was heightened by US-based watchdog Human Rights Watch urging Washington not to sign a deal until the UAE ended its “mistreatment” of foreign workers.

The UAE-US FTA talks have also been hit by Abu Dhabi’s objections to a number of Washington’s demands that fell outside the economic realm - creation of trade unions, amending labour laws in compliance with international labour laws, revising investment and sponsorship rules, treating US citizens on par with UAE nationals in terms of ownership, as well as citizenship and voting rights for expatriates.

Critics like former UAE communications minister Ahmed Humaid Al Tayer have voiced their concern in the past - “What if China, Japan and the EU, which are more important partners to the UAE than the US, ask for change of laws too?”

The EU is not far behind either. In its FTA agenda with the GCC countries, which is under discussion for 18 years, the EU has included human rights, immigration policy, cooperation against terrorism and non-proliferation of weapons of mass destruction, among others.

So far Jordan, Morocco and Bahrain are the only countries in the Middle East to have signed FTAs with the US, with Oman close to formalising the deal. The US is in a hurry to get as many FTAs formalised as possible partly because President George W Bush’s prerogative to negotiate trade agreements expires in July 2007. Under the president’s “trade promotion authority”, Congress restricts itself only to approve or reject a negotiated trade agreement within strict time limits and without amendments.

Apart from using the FTA as a political and social reform tool, the US is also using it as an instrument to shape foreign policy issues, and as a weapon in the war against terror. Following the 11 September 2001 attacks, Washington proposed a Middle East Free Trade Area (Mefta), which would link 22 Arab countries, Israel and the US by 2013. The 9/11 Commission echoed its support for trade deals in its report to Congress. In the same vein, US deputy assistant secretary of defence Paul Wolfowitz argued in 2002, “if we are serious about terrorism, we must also be serious about helping a stable democracy and stable economy.”

Analysts, however, suggest that Mefta was an idea born on the politically-oriented basis of “those who trade together stay together” rather than from any US economic standpoint. This was partly evident in the September 2005 Washington-Riyadh trade deal, which helped Saudi Arabia join the World Trade Organisation (WTO). The deal mandates partially lifting the kingdom’s decades-long boycott of the Israeli economy. It requires Saudi Arabia to end a “secondary boycott” of businesses operating in Israel, and a “tertiary boycott” that shuns third-party businesses that have relationships with Israel-based companies. The FTA with Bahrain also became effective only after Manama assured Washington that it “no longer supports a boycott of Israeli goods”.

From the beginning, US trade representative Robert B Zoellick has hinted at the non-economic nature of the plan. “Piece by piece, the (US) administration is building a mosaic of modernisers with a plan that offers trade and openness as tools for Muslim leaders looking forward to the rebirth of an optimistic and tolerant Islam.Muslims are striving to reclaim a tolerant and renewed Islam, but religious extremism, militants and economic disorders are continuous leads to tolerance.”

Critics argue that for those who believe that international trade increases world economic welfare, the best negotiating forum for reaching trade deals has to be the global one - the WTO. According to Professor Sidney Weintraub of the Centre for Strategic and International Studies: “The sense that is now being conveyed around the world is that US policy is to sign FTAs with other countries only if they are prepared to adhere to US foreign policy positions. An FTA, in other words, is not necessarily an agreement in which all parties benefit from trade expansion, but rather a favor to be bestowed based on support of US foreign policy.”

Economists are still struggling to solve the chicken-and-egg problem of politics and growth - does economic openness lead to political freedom? Bahrain may have won an economic prize from the US for its political reform process, but the ground reality is that democracy is not a priority in the region because people don’t suffer severe economic problems. It is important to note that in the past, economic and political reforms did not make headway during the high oil price era. The same experience may repeat itself this time too, except that the process of economic diversification that began during the low oil price phase is now poised for momentum by utilising the windfall accrued from record prices.

Dr N Janardhan is a political analyst and the Editor of the Gulf in the Media at the Gulf Research Center in Dubai