Gulf News | 2 October 2004
Benefits of signing free trade accords
The GCC states are seeking, both individually and collectively, to rapidly develop their foreign trade and economic relations. They do realise their future need for such development as the GCC states’ industrial output, especially in the petroleum and petrochemical sectors, is growing steadily and requires the opening up of more international markets for such products.
This trend coincides with the current changes in international trade, the last of which was the agricultural policy agreement within the framework of the World Trade Organisation and the start of a special round for liberalisation of the service sector.
The GCC Customs Tariff Agreement has opened up broader horizons for the six member states to conclude joint agreements for the establishment of free trade zones with many other countries and economic blocs in the world.
The GCC states signed a free trade agreement with Lebanon. In addition, talks are under way for signing similar agreements with Jordan and China as the latter is considered at present the first trade partner of the GCC states.
Meanwhile, Bahrain signed a free trade agreement with the US in mid-September following the endorsement of this pact by the US Congress. Moreover, the UAE, Qatar and Kuwait are engaged in similar talks with the US.
Perhaps some people may not fully realise the implications of this significant transformation in trade relations and the extent of its economic effects. In simple terms, the signing of a free trade agreement, or FTA, means the scrapping of customs duties on national goods manufactured and produced in the two countries or economic blocs concerned.
For example, in the case of the EU countries that impose 6 per cent customs tariffs on GCC exports of aluminium and petrochemicals, even though they reduced the competitiveness of Gulf products in the European markets for many years, these customs fees would be cancelled if a free trade agreement between the two sides is signed. Likewise, European products would enjoy tariff exemption upon entering the Gulf markets.
This applies to the other free trade agreements with the US, China, Lebanon, and other countries and economic alliances in the world.
Meanwhile, this new trend requires preparing and adapting the Gulf economies for these changes. Competition will become stronger between the local and imported products within the Gulf markets. In addition, the government revenues will certainly lose part of the earnings from customs duties. However, the overall result is set to be positive if the necessary preparations and precautions are taken.
The process of economic restructuring will be part of such preparations. High cost products as compared with their foreign counterparts will not be able to continue for long with the competition and will experience many difficulties. Such products include ready-made garments.
At the same time, the manufacturing industries that produce goods and products with better production privileges and are produced at a lower cost in the GCC states such as petrochemicals will witness remarkable growth.
Such Gulf products will be able to compete in the foreign markets, especially in the markets that will enjoy the tariff exemptions under the free trade agreements.
It should be noted that such industries have all the chances for success in the GCC states and are also considered an ideal solution for the problems relevant to manpower and diversification of sources of national income.
Such capital and high technology-intensive industries will provide tens of thousands of jobs to the Gulf citizens. Here the wages are considered high compared with the industries that do not enjoy such privileges as in the case of the textile industry. Moreover, the development of such industries will contribute to make up for the decline in revenues from customs duties and will provide the state budgets in such countries with additional and secure resources.
We do not claim that the restructuring process will be a simple exercise that can be carried out overnight, but it is indeed a complex issue that requires a long-term strategy.
However, it has become an inevitable issue that must be dealt with in view of the current trends in the GCC states to achieve the optimum benefits from the free trade agreements signed between the GCC states and other economic groupings in the world.
The writer is a UAE economic expert
© Gulf News