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Negotiate, negotiate and negotiate

Gulf News (UAE) - 08/16/2006

Negotiate, negotiate and negotiate

By Gaurav Ghose, Staff Reporter

It all starts with uplifting statements from the political and economic leaders on both sides of how a free trade agreement (FTA) will have a profound impact on the relations between the countries and/or blocs.

Believing in the benefits of economic growth accruing from trade liberalisation, the two parties start negotiating. In many cases, it turns out to be a long, arduous and frustrating process, as one side or both hardens its position and a final agreement remains elusive for years.

During what’s deemed to be the final stages of an agreement, the trade representatives and their spokespersons keep issuing the standard statement along the lines of: there are some technical issues which need to be sorted out, but there is a political willingness on both sides to resolve those and we remain convinced that there will be an agreement by the year end.

Last week, when asked about the pending EU-GCC FTA, the statement of EU spokesman Stephen Adams was no different. He declined to elaborate on how far the representatives and their specialists are from sorting out the technical issues which have narrowed down to include differences on market access, rule of origin, government procurement and services but said that the Commission hopes to have an agreement by the end of 2006.

Of all the FTAs in the GCC’s pipeline (including with India, Turkey, Japan, Pakistan and EFTA, the ones with EU and China are in a more advanced stage, says Abdullah Bin Ahmad Al Saleh, under-secretary in the UAE’s Ministry of Economy. "There has been good progress on both," he says, "but the negotiations are still going on."

Dragged out

It’s a familiar refrain, bearing in mind that GCC-EU cooperation agreement was signed way back in 1988. In the last couple of years, says the director of international studies at Gulf Research Centre, Christian Koch, there have been repeated public relations efforts uttering the general mantra. The fact is that it has simply dragged out for too long.

The EU, he says, has brought up new subjects that "hasn’t really made the GCC side too happy" in terms of delaying the negotiations. "You saw the negotiations being filled with all kinds of issues that really shouldn’t have been a part of an FTA agreement: human rights, political reform and (anti-) terrorism strategies."

But he also points out that another reason for the delay is that the two negotiating partners are very different in terms of their institutional make-up and how they conduct negotiations.

"The Commission is much more advanced in that it can negotiate on behalf of member states and help the [designated] authority come to an agreement," Koch says. "In the GCC, agreements still have to be made by the national governments themselves. If formal proposals are put forward by the Commission, it’s usually the case that the negotiating committee on the GCC side will look at it but they have to return to their respective capitals to get guidance and instruction."

According to Hugo Toledo, associate professor of economics at American University of Sharjah, the obstacle that some GCC countries face is the result of their own domestic policies. He points to labour mobility, one of the benefits of an FTA, yet some GCC countries, including the UAE, do not allow certain categories of workers to change jobs freely.

"How are these industries expected to benefit from an FTA without labour mobility? In my view it is impossible. Labour laws should allow for the free mobility of labour for all employees and in all economic sectors if any benefit from an FTA is to be expected."

However, with the US entering into FTAs with individual GCC countries namely Bahrain and Oman, and discussions going on also with UAE and Qatar there’s a renewed impetus on the part of EU to have an FTA with the GCC, some experts believe. "Aware of the American onslaught, the EU has changed and is now pressing GCC for FTA by year-end," says Jasim Ali, an economist at Bahrain University.

But if the individual FTAs with the US are bringing in a sense of urgency in the EU, they are also, feels Ali, undermining the economic integration of GCC economies.

The integration manifests itself in the 2003 customs union that calls for unified external trade policy with non-member states. "However, nations are often selfish, as Bahrain and Oman like to use the FTA with the US to help address their economic challenges such as jobs."

No-one, among experts and stakeholders alike, disagrees that negotiation as a bloc has the advantage of bargaining power. However, the problem, as Toledo opines, is that in order to negotiate as a bloc, countries must move towards the modernisation of their economies. "The more homogeneous their economies are, the better."

Studies suggest that so-called ’traditional’ economies, such as Saudi Arabia and Kuwait have lagged behind ’modern’ ones such as Bahrain and UAE in terms of economic modernisation. "Thus modern economies cannot remain idle waiting for these [other] economies to modernise ... and as time is not a luxury they have to get these agreements in place [for the sake] of economic diversification," Toledo argues.

Al Saleh agrees, and also points out that some of the GCC members had already entered into negotiations with the US before signing the customs union in 2003, justifying UAE’s ongoing discussions with the US, which, he says, has made "good progress."

Despite scepticism, observers believe that the GCC-EU negotiations are in a fairly advanced stage. "It’s basically putting down in writing the precise mechanisms of such technical issues as rule of origin and government procurement," Koch says, and hopes all these will be sorted out at the next technical-level meeting in Brussels.

"If there is some push from the top the Finnish presidency and, also, if Peter Mandelson (EU trade commissioner) keeps on top of the status of negotiations, we can definitely see an agreement by the end of the year."

Other FTAs

Not all prospective FTAs are as slow and delayed, but negotiations are either continuing or are in their initial stages.

A free trade deal with China appears likely to be signed in a few months. Last week, the economic and commercial counsellor at the Embassy of China in Abu Dhabi told Gulf News he was optimistic about a limited FTA related to commodities. The representatives of the negotiating teams met in China last month.

"There has been considerable progress on the FTA. The services agreement is a little complex and some issues need to be resolved, and that would take time," he added.

India’s Commerce and Industry Minister Kamal Nath issued a statement in March on a visit to Abu Dhabi that an FTA with the GCC was likely to be signed by March 2007, and will cover the entire gamut of goods, services and investments. Earlier, there were statements from a senior government official of a partial FTA focusing on goods only.

The latest information emanating from the Government of India indicates that it’s not so sure about a possible timeline. "It’s the GCC’s turn to come to India for the next round of discussions," says R.M. Mishra, a director at the Ministry of Commerce and Industry.

The ministry, he says, is currently going through the substantial feedback it has received from various industry groups over the past few months. Sectors such as petrochemicals and plastics have asked the government to carefully consider the "sensitive" list (containing items that need to be protected against tariff cuts) as well as to take care of intellectual property rights (IPR) and standards of compliance. "It will take time to concretise our thoughts. But it’s an important engagement and we are onto it," Mishra adds.

The other free trade talks, such as with Pakistan, Turkey, EFTA and Japan, are all in their initial stages. The first round of talks with the EFTA members was held in Geneva in June and the next is scheduled for November in Riyadh. The GCC-Japan official negotiations are expected to be held in September, according to news reports, and the two sides hope to have an FTA within one year by limiting the scope of the talks to tariff cuts and liberalisation in services trade.

The GCC also signed an agreement with Turkey in May to start official negotiations.

The reality is that trade liberalisation has come a long way from its classical form of importing and exporting mainly goods. In consequence, an FTA now encompasses trading of services, investments and even e-commerce. Sure, some are limited deals, covering only goods or services. Each deal is different, with the countries or blocs concerned having their respective comparative advantages and disadvantages.

It’s a difficult process that requires time and patience. "We negotiate, negotiate and negotiate," says Al Saleh. "Each country (or bloc) negotiates a deal that is good for gain most for the country and to minimise the negative impact. At the end it’s a compromise."

Amidst the failure of the WTO talks last month, the prospect of the GCC as a bloc successfully signing free trade agreements on a bilateral basis might well provide much-needed solace.

GCC's relationships with trade partners

Cooperation agreement 1988; FTA expected end-2006. Total trade with GCC: $77.7 billion (2004).

Cooperation agreement July 2004; FTA expected on goods end-2006, FTA on services will take some more time. Total trade with GCC: $24.0 billion (2004).

Cooperation agreement August 2004; FTA expected March 2007. Total trade with GCC: $15.6 billion (2004).

Cooperation agreement signed August 2004; FTA expected end-2007. Total trade with GCC: $6.0 billion (2004).

Cooperation agreement signed May 2005; FTA possible 2007. Total trade with GCC: $3.6 billion (2004).

Cooperation agreement 2000, FTA possible 2007. Total trade with GCC: $3.0 billion (2004).

Met in early May 2006 to discuss the framework of negotiations; next round to be held September 2006. Total trade with GCC: $60.5 billion (2004).

Source: News reports and IMF

 source: Gulf News