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UAE debate on benefits of FTA rekindled

UAE debate on benefits of FTA rekindled

Natasha Bukhari

Middle East Times

February 14, 2006

DUBAI, United Arab Emirates — After almost two years, negotiations between the United Arab Emirates (UAE) and the United States over a Free Trade Agreement (FTA) are nearing an end, with the two sides expected to close a deal within a few months. But the debate over the effect of the agreement on the UAE’s economy has recently been reignited.

The fourth round of high level talks between the two sides took place last month in London, where "remarkable progress" was made, according to UAE delegation chief Mohammed Khalfan Bin Kharbash, who is also minister of state for financial and industrial affairs.

Statements by the minister that "the negotiations have reached a very advanced stage" have again sparked the controversy over the pros and cons of such a pact.

The private sector in general and UAE nationals in particular fear that local industries and businesses cannot compete with those of the world’s largest economy; nationals have also voiced concerns about the removal of restrictions on foreign ownership, currently limited to 49 percent of local companies outside free trade zones.

A recent report by the Dubai Chamber of Commerce and Industry (DCCI), commissioned to assess the impact of the impending FTA on various businesses in the UAE, has found that certain sectors, such as banking, will benefit from it, while others, such as insurance, will suffer.

According to the report, the profitability of UAE banks has exceeded that of US banks in the last five years, and, as such, an FTA will make the banking sector here attractive to competition from the US.

The report also advises that "UAE banks ... benchmark themselves against the world’s best performers and adopt international banking practices" in order to attract investors.

A free trade agreement between the UAE and the US will bring more intensive competition among banks and improve the efficiency of the sector, it argues.

While the report states that "almost all local companies expect FTAs to be negative", observers and experts say that this does not have to be the case.

A report in the Gulf News daily, for example, argues that "without negating the perceptions expressed in the DCCI report, one cannot help feel that this is in discord with both market theory and practice and, as a result, any fear of overseas competition annihilating local companies is unfounded".

Addressing the impact of an FTA on the insurance sector, the paper says that if local insurance companies and authorities get their act together, this sector need not feel threatened by the competition:

"Insurance activity, its survival and growth, whether pre or post-FTA, will continue to be dominated by two factors, namely the availability and price of international reinsurance capacity and the proactiveness of insurance regulators in providing a clear, transparent and objective insurance legislation that instills confidence in investors and consumers."

As the debate continues, the government seems to be acting in the direction of preparing the local economy for the competition; a senior official announced last week that the UAE government is formulating basic guidelines on corporate governance for listed companies to increase confidence in the country’s capital market.

"Serious efforts to elevate the standards are currently underway, and a number of guidelines are being drafted for incorporation in a code of corporate governance that listed companies will eventually be expected to comply with," said minister of economy Sheikha Lubna Al Qasimi.

Other experts argue that such a move was overdue.

"The UAE has changed a lot during the last 30 years, however, our laws remain almost the same," Dubai International Financial Center (DIFC) director-general, Omar Bin Suleiman, said recently at a seminar on corporate governance in the UAE.

"Our financial laws need to be fine tuned and updated to match today’s needs. However, the process of reform is very slow, compared to the rapid growth witnessed by the country," he added.

Officials, pushing for consensus on the FTA, say that it is the perfect motive for local companies and businesses to better themselves.

They say that the FTA offers local industries the chance to enter the world’s biggest consumer market and benefit from its advanced technology and expertise.

The FTA is just another example of the UAE’s policy of "initiation and openness and embracing progression", in the words of Sheikha Lubna.

Other experts, however, argue that the UAE government needs to focus its energy on more urgent matters that affect the livelihood of people here.

They argue that the inflation has spiraled out of control and that lack of regulation to put a cap on the increasingly rising prices of goods and commodities is becoming a real threat to limited-income people.

"Life has become unbearable," says Mohammed Abdullah Al Mutawa, a professor of sociology at UAE University. "It can be said that the non-implementation of laws, or even their absence, has become a common issue, especially for people with limited incomes. This can be attributed to the hard life and continuous rise in prices. Rich people are becoming richer, and poor people are becoming poorer," he added.

He said that no official measures have been taken to stand against those who were increasing the prices rapidly.

"Worse, the increase was not restricted to commodity prices but also affected fees collected by government bodies, such as labor and school fees," he wrote in a daily paper.

Echoing many critics of the imminent FTA with the US, Mutawa questions:

"Do we need to be a party to the World Trade Organization and Free Trade Agreement in order to open up local markets to global markets, to be able to import the requirements of people from foreign companies and factories?"

Officials, however, maintain that the Emirates’ bold and liberal policies are behind its economic growth.

According to official figures, GDP has risen from $1.3 billion in 1972 to $76 billion in the year 2004, marking an average growth of 14 percent.

"It is clear that a liberal and open economic policy based on safeguarding higher national interests ... has a positive impact on our economy," Karbash has said of the FTA with the US. "Hence, the UAE is joining economic blocs to ensure further growth and [to] be an active economic player globally."

 source: Middle East Times