Opinion
Trade

GCC joint trade deals risk untenable delays

A deal between two countries is hard enough, but seven is a minefield

June 5, 2023, 3:03 PM

GCC trade may look to Brics nations in future — The UAE and Saudi Arabia were present at a meeting of Brics nations in South Africa

The prospect of a joint free trade agreement between the GCC states and China is certainly an enticing one for both sides.

China’s manufacturing heft, technological ambitions and thirst for energy provide a good fit with the Gulf states’ sovereign wealth funds and still abundant hydrocarbon reserves.

Both the UAE and Saudi Arabia now have observer status at the Shanghai Cooperation Organisation.

And at the weekend the two countries attended a conference of major emerging economies in Cape Town as “Friends of Brics”, the group that brings together Brazil, Russia, India, China and South Africa.

However, when it comes to trade, as Mahatma Gandhi once said: “All compromise is based on give and take, but there can be no give and take on fundamentals.”

All give and no take is not how the UAE has transformed from a remote desert outpost to a global economic player in the space of a few decades.

That is probably why it is in a rush to negotiate bilateral trade deals – 26 at the latest count – rather than sitting down with its neighbours to thrash out GCC-based agreements that have historically ended up gathering dust.

Take, for example, India. In the 12 months after the UAE signed a comprehensive economic partnership agreement (Cepa) with the country in February 2022 there was an immediate uplift in trade between the two countries.

According to the Indian Ministry of Commerce and Industry, trade increased to over $84 billion from April 2022 to March 2023, up 16 percent.

Meanwhile, free trade talks between the GCC bloc and India – first opened back in 2004 – remain stalled after two rounds of negotiations, the last in 2008.

Or look at Turkey. In March this year the UAE and Turkey signed a Cepa that is expected to boost the value of non-oil bilateral trade between the two countries to $40 billion in the next five years.

In contrast, despite initial talks held in 2005, a similar deal with the GCC remains unsigned.

Attempts to sign joint GCC-wide trade agreements with the EU have also largely stalled.

Compromise between two countries is one thing. But it is a different story when two becomes seven, as in the case of the GCC – made up of Saudi Arabia, Qatar, Bahrain, Kuwait and Oman alongside the UAE.

Not plain sailing

Certainly, the GCC has signed significant free trade agreements, notably with the European Free Trade Area (Efta), Singapore and New Zealand.

But there are complications. Saudi Arabia (GDP at current prices $1,060 billion) probably has greater ambitions in manufacturing and a need to employ its young people, while the UAE (GDP at current prices $499 billion) is committed to a services economy.

For example, the Saudi announcement in 2021 that foreign firms must establish regional headquarters in the kingdom or risk losing government contracts was seen by many as a direct challenge to the UAE.

As Freddie Neve, the senior Middle East associate at think tank Asia House, told me last month, there are several reasons why the GCC can struggle to negotiate trade deals.

“The Gulf states are not homogenous,” he pointed out. “They are at different stages in their economic diversification journeys, have different strategic and economic priorities, and different regulatory environments, which can hamper the GCC’s ability to negotiate from a united standpoint … and could prompt individual members to block certain provisions.”

In other words, it is a negotiator’s nightmare.

The GCC deal approach is probably most beneficial to smaller Gulf nations such as Oman and Bahrain. Individually, their negotiating power is limited but the size of the UAE and Saudi economies mean that counter-parties want to hear what they have to offer.

Bloc negotiations are being revived with China and South Korea, while joint trade talks between the GCC and post-Brexit UK are scheduled to enter their fourth round in London later this year. Interestingly, however, the latter include a clause allowing bilateral talks to take place at the same time.

Everything is still up for grabs but it will come down to how much the parties are willing to compromise, a word that evokes a variety of emotions.

As a noun it gets a relatively positive mention in the Collins Dictionary: “A compromise is a situation in which people accept something slightly different from what they really want, because of circumstances or because they are considering the wishes of other people.”

But as a verb, it is less palatable: “If someone compromises themselves or compromises their beliefs, they do something which damages their reputation for honesty, loyalty, or high moral principles.”

So the question is, will the noun or the verb dominate GCC trade negotiations in the future?

Andy Sambidge is international editor at AGBI