One Step Closer
Oxford Business Reports
Oman, Volume 52
Oman came to the closing stages of its Free Trade Agreement (FTA) negotiations with the US on October 3, after talks on the final details closed successfully. Omani and US officials say the final signing should now take place early in 2006.
As soon as Bahrain signed its historic FTA with the US last year, other Gulf states began to lobby for similar agreements. However, in Oman’s case, the negotiations have been concluded in record time, less than seven months since they started.
The FTA is seen as being of vital importance for Oman’s future economic stability and its need to encourage foreign trade in the face of dwindling oil reserves. As Minister for Commerce and Industry Maqbool bin Ali Sultan recently summarised, "We need more jobs for our people and we need more non-oil exports. Oil will not last forever."
Oman’s business with the US during 2004 fell just short of $750m, with the US running a deficit of $88m. This is clearly a small sum in comparison to the $70bn relationship between the US and the region as a whole. Nonetheless, it is important to the sultanate and will be further aided by the duty free status an FTA would bring.
The pact builds on other regional agreements between the US and Bahrain, Jordan, Morocco and Israel and is just part of the Bush administration’s broader policy to create what it has termed the Middle East Free Trade Area (MEFTA) by 2013.
This is an initiative which recognises the differing levels of economic development in the region and therefore operates via a series of phased agreement types. The FTA level is preceded by a Trade and Investment Framework Agreement (TIFA) - such as the one Oman has been working with for some time.
Strategically, such agreements are important for the US not only in economic terms, but as part of Washington’s constant image battle in the region. Indeed, the 9/11 Commission encouraged such pacts as a way of building up ties with the Arab world.
Yet whilst the vast majority of countries are keenly in favour of such agreements, Saudi Arabia is less supportive, arguing that such bilateral pacts weaken the collective strength of the Gulf Cooperation Council (GCC). In a move widely seen as a snub to Bahrain after the signing of its FTA, the Saudi representation at last December’s GCC summit was reduced.
Indeed, the summit concluded without consensus on trade agreements per se, and interestingly with no mention of the GCC’s previous plans for a common market or single currency.
Despite Saudi objections, talks are also ongoing between Washington and other GCC states, most of which have higher value trading relationships with the US than Oman but appear to be progressing far slower than Muscat.
Meanwhile, as regional analysts have for some time suggested that the GCC countries appear to be pitted more against each other than co-operating together, so it is perhaps inevitable that states are looking further afield to secure their trading relationships.
Whilst a trade pact between the US and the GCC does in fact exist in what has been termed a "framework for trade and investment", individual FTAs are preferred. In any case, getting consensus between all members of the council could take years.
The Omani minister for commerce and industry has made plain the motivation for a bilateral FTA. Firstly, that the US prefers not to deal with unwieldy economic "blocs", and secondly that the FTA will cover areas where individual GCC states have divergent law.
For Oman, which in terms of oil revenues is the poorest GCC member, the importance of the FTA cannot be underestimated. With the government trying to switch emphasis towards gas and industry away from oil, the US presents a massive trading potential.
The move to liberalise trade and internationalise fiscal policy began with Oman’s accession to the World Trade Organisation (WTO) in 2000.
This broke down some of the hurdles presented to foreign trade and investment, but not all. In areas such as foreign equity trading, restrictions still exist. However, the economic reform and standardisation which has been a priority of the government and a pre-requisite of WTO membership is well underway, in many cases exceeding that found elsewhere in the region. This is one of the reasons that the FTA negotiations here have been concluded so speedily.
As US Ambassador to Oman Richard Baltimore III said after the negotiations, "The high standards that are the hallmark of our FTAs will... send a clear signal to investors from all over the world that Oman is a prized partner in which to invest and with whom to do business. I believe that Oman has joined a special group of nations who have decisively taken steps to join the US in reducing trade barriers to ultimately strengthen the regional and global economy."
The FTA will cover virtually every sector, wholeheartedly opening Oman to US trade and investment. The commerce and industry minister, in a recent release to the Oman News Agency, outlined the wide areas of co-operation covered by the proposed treaty, which add to the benefits already gained from WTO status.
He said that there was no contradiction between the two trade pacts, as some have claimed, and that the only difference was in terms of customs duties and investment. The FTA banishes such duties on most commodities and services.
Ambassador Baltimore summed up the benefits by saying, "100% of bilateral trade in consumer and industrial products will become duty free, as will a broad array of agricultural goods. We will also see new opportunities in areas such as banking, insurance, telecommunications, express delivery and construction."
Now, Oman will have to wait for the FTA to make its final journey through the US political machine. The Bush administration must give Congress a 90-day warning of its intent to sign the accord, during which time further negotiating may take place on Capitol Hill.