UK manufacturers see non-tariff barriers as key to GCC trade

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Make UK CEO Stephen Phipson advises the British government on behalf of 20,000 UK manufacturers. He talks to AGBI about trade with the GCC

As negotiators begin to thrash out a UK-GCC free trade deal, there’s one thing above all else dominating the minds of British manufacturers as they seek growth opportunities in the region: non-tariff barriers.

The removal or reduction of these barriers – any obstacle to international trade that is not an import or export duty – is key to further opening up the Gulf for UK-based manufacturers.

That’s according to Stephen Phipson, the chief executive of Make UK, formerly the Engineering Employers’ Federation, which represents more than 20,000 manufacturers across the country.

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“The headline the government would like to talk about is the reduction of tariffs but that is just one element of what is important for manufacturers,” Phipson said.

“Arguably the most important element is the reduction of non-tariff barriers. 

“This is about regulatory alignment, it’s about the fact that each country, particularly in the Gulf, has a whole set of requirements for importing materials that have nothing to do with the tariff.

“They’re to do with standards and other issues and it’s those that often put off UK people importing to the region.

“So while the government will say ‘it’s great to have a deal with a tariff of zero’, it depends on those non-tariff barriers. 

“That’s the most important thing, that’s where the focus will be for UK manufacturers in the negotiations.”

From the first industrial revolution to the fourth, manufacturing has been the UK’s economic engine and world’s workshop. 

Make UK is part of the official group of stakeholders advising the British Government in the trade talks with the GCC.

With the right deal in place Phipson said he can see the day when larger UK manufacturers who have invested in developing facilities in the Gulf will then use them to import back to the UK to meet demand in their home market. 

He said he was “encouraged” by the start of trade talks with the GCC – which is made up of the UAE, Saudi Arabia, Bahrain, Kuwait, Qatar and Oman – but added that negotiations were likely to be “challenging”.

“The ideal result of negotiations is a deal with non-tariff barriers common across the GCC, but that’s difficult,” Phipson said.

“There are different requirements for exporting to Qatar than there are exporting to Saudi and the UAE. 

“There are all kinds of local regulations and the question is how are we going to deal with that?”.

UK Trade Secretary Anne-Marie Trevelyan launched free trade negotiations with the GCC last month.

Equivalent to the UK’s seventh largest export market, the GCC bloc’s demand for international products and services is expected to grow to £800 billion ($976 billion) by 2035, a 35 percent increase – opening huge new opportunities for UK businesses.

According to the UK a free trade deal would also open the door to increased investment from the Gulf, supporting and creating jobs across the country.

The talks are expected to culminate in a trade deal worth £1.6 billion more a year to the UK economy, an increase of 16 percent, government analysis shows.

Around 10,700 small- and medium-sized businesses from every UK nation and region exported goods to the GCC in 2020, with SMEs accounting for more than 85 percent of total UK goods exported to Qatar, Saudi Arabia and the UAE.

UK manufacturers contribute about half of the country’s total exports and the sector’s output is worth £183 billion a year, providing jobs for about 2.5 million people.

Phipson hopes the GCC deal can be fast-tracked in a year or two but admitted that non-tariff barriers take time to complete, with some deals taking seven to eight years to come to fruition.

“I believe the government is intent on getting as many of these trade deals done as quickly as possible, but I honestly don’t know how long it will take in this case because you’ve got a lot of interests and stakeholders,” he said.

While the GCC will never be able to offer opportunities like Europe, the dominant market according to Phipson, the region is “important” especially as countries like the UAE and Saudi Arabia are in the process of building indigenous manufacturing sectors.

UK role in GCC industrialisation

The UAE is currently promoting its Make It in the Emirates initiative, part of Operation 300bn which aims to develop the UAE’s industrial sector and enhance its role in stimulating the national economy. 

It aims to raise the sector’s contribution to the GDP from AED133 billion to AED300 billion by 2031.

Last week the Abu Dhabi government said it will invest AED10 billion across six programmes to more than double the size of the emirate’s manufacturing sector to AED172 billion by 2031.

It will increase access to financing, enhancing ease of doing business, and attracting foreign direct investment.

The strategy will also create 13,600 skilled jobs, with a focus on Emirati talent, and boost Abu Dhabi’s trade with international markets, with a goal to increase Abu Dhabi’s non-oil exports by 143 per cent to AED178.8 billion by 2031.

Saudi Arabia is also investing heavily in its industrial sector as part of its Vision 2030 policy.

But rather than creating barriers to entry for UK manufacturers, Phipson says these programmes offer significant opportunities to companies to supply consultancy services.

“We have a big role to play in helping countries build up their industrial processes because you end up with a well-known British brand having a division in that country, helping them with their technology which in turn helps scale up British business,” Phipson said.

“It’s a huge opportunity for innovative British businesses. You have to think more broadly than the traditional exporting of goods, there’s a bigger point about exporting knowledge, expertise and value. We don’t see it as competition.”

He cited Turkey as an example. When it launched its industrialisation programme, UK firms were offered incentives from the local government to invest, creating a “fantastic opportunity”.

Fast forward to 2022 and Phipson said manufacturing business between the UK and Turkey has never been stronger.

Traditionally, UK firms have exported lots of mechanical equipment to the region to support its power generation and defence needs. 

Phipson, who trained as an apprentice engineer and was formerly a director at FTSE 100 firm Smith’s Group, said larger UK companies are “very open” to investing in the Gulf.

Green technology is also set to be a major driver of UK manufacturing ambitions in the region, according to Phipson.

“There’s an enormous appetite in the UK for the development of net zero and hydrogen technologies,” he said. “This is just what’s needed in the Gulf and a strong trend. 

“We’ve learnt lessons from having one of the world’s largest offshore wind deployments. It’s about investing and building up those facilities in the GCC. 

“We’ve had a number of the smaller emirates asking us for help to find manufacturing partners so I see a real push in using UK expertise.”

Make UK also sees a role for the Gulf in the trend of “friend-shoring”, part of the wider conversation being had by manufacturing firms around globalisation and supply chains in a post-pandemic world.

Phipson says larger UK companies are looking at the process of using closer allies on supply chains to reduce the risk.

“I think the Gulf could play a part in that,” he said. “I’ve already seen some interest in increasing supply chains coming from Asia back into Turkey.

“There’s no reason why a lot of that can’t be done in the Gulf because we have a strong relationship. That’s another interesting opportunity.”