TALKS: THE ONLY WAY OUT

AFTER A SIX-YEAR STALE­MATE OVER THE SUS­PENDED NE­GO­TI­A­TIONS FOR AN EU-GCC FREE TRADE AGREE­MENT (FTA) AND A RE­CENT MEET­ING BE­TWEEN THE TWO BLOCS CAN­CELLED, THE EURO­PEAN UNION (EU) AND THE GULF CO­OP­ER­A­TION COUN­CIL (GCC) SHOULD BE­GIN FO­CUS­ING ON A MEAN­ING­FUL

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The six-year-old stale­mate over the sus­pended ne­go­ti­a­tions for na EU-GCC Free Trade Agree­ment needs to be given a thought by the Euro­pean Union and the Gulf Co­op­er­a­tion Coun­cil by hav­ing a mean­ing­ful di­a­logue to clear snags and mis­un­der­stand­ings.

Com­bin­ing few ab­so­lute and com­par­a­tive ad­van­tages with vi­sion­ary fore­sight, in­te­grat­ing with one another and recog­nis­ing cur­rent eco­nomic and geopo­lit­i­cal re­align­ments, the role and strength of mod­er­ate, pros­per­ous and out­ward-look­ing sheikhdoms like Bahrain, Kuwait, Oman, Qatar, Saudi Ara­bia and the UAE in the global po­lit­i­cal econ­omy should not be un­der­es­ti­mated.

Vested in­ter­ests in se­cur­ing a steady, un­in­ter­rupted sup­ply of oil and nat­u­ral gas at af­ford­able prices, cou­pled with ex­pan­sion of trade and the GCC hav­ing adopted some con­cepts from the Euro­pean in­te­gra­tion process, led to closer co­op­er­a­tion be­tween the two blocs, though ne­go­ti­a­tions for an FTA, a bal­anced and ca­pa­ble means to im­prove and lib­er­alise bi­lat­eral trade, failed yet to ma­te­ri­alise to ben­e­fit the two blocs.

Cre­at­ing bet­ter eco­nomic con­di­tions, en­hanc­ing com­pe­ti­tion and fa­cil­i­tat­ing the move­ment of goods, ser­vices and in­vest­ments, the en­vis­aged EU- GCC trade deal is ex­pected to de­liver vi­able com­mer­cial op­por­tu­ni­ties. But what about the ac­tual bal­ance of ben­e­fits?

Re­al­is­tic con­ces­sions

With cus­toms du­ties at an av­er­age of about 4%-5% for the EU and the GCC, re­spec­tively, and the highly trade-de­pen­dent GCC states only hav­ing few goods to be ex­ported in sig­nif­i­cant quan­ti­ties, im­port tar­iffs need to be slashed to zero lev­els and non-tar­iff bar­ri­ers to trade will have to be re­duced or elim­i­nated. Oth­er­wise GCC prod­ucts such as fu­els, hy­dro­car­bons and goods with, so far, low and medium-range tech­nol­ogy will not ben­e­fit much from en­hanced mar­ket ac­cess to the EU.

Ex­port of value-added, high-tech in­ten­sive goods, like heavy ma­chin­ery, air­craft, med­i­cal equip­ment etc, is al­ready sig­nif­i­cant for the EU, and is ex­pected to rise across var­i­ous sec­tors, pro­vided the GCC states scrap rules on for­eign own­er­ship out­side the des­ig­nated free zones and let their en­ergy, ser­vices, labour and in­vest­ment mar­kets be­come fully un­re­stricted.

Thus, for the long-awaited EU- GCC trade deal to be suc­cess­ful, con­ces­sions need to be re­al­is­tic com­men­su­rate to un­der­ly­ing in­ter­ests, op­por­tu­ni­ties and lim­i­ta­tions to both sides, and take into ac­count that non-tar­iff bar­ri­ers to trade ap­pear to be more trade re­stric­tive than im­port tar­iffs.

Clas­si­cal im­port tar­iff is­sues and a se­ries of tech­ni­cal, mar­ket ac­cess-re­lated fac­tors such as dual pric­ing, rules on ori­gin, pub­lic pro­cure­ment etc, have been sub­ject to a ne­go­ti­a­tion process even­tu­ally sus­pended by the GCC for rea­sons of scant re­sults, and the EU con­stantly bring­ing up new de­mands is in­ter­preted as in­ter­fer­ence in do­mes­tic sovereignty/in­di­rect crit­i­cism of GCC regimes.

In an at­tempt to throw mo­men­tum be­hind the stalled trade talks, the EU de­cided to lift pref­er­en­tial mar­ket ac­cess as­signed to GCC states for rea­sons of pro­mot­ing the sus­tain­able de­vel­op­ment of their in­fant economies.

With the EU im­port tar­iff for GCC avi­a­tion fuel set at zero level in­stead of the late 2013 have now an­nounced 4.7%, the two blocs to find common ground for a de­ci­sive decision on ex­port du­ties, re­port­edly the last re­main­ing is­sue for a deal to pass.

Miles to go

In line with its trade pol­icy to­wards its trad­ing part­ners, the EU is against im­po­si­tion of ex­port du­ties, mak­ing the con­tentious, un­re­solved is­sue a ques­tion of how far the en­vis­aged trade deal with the GCC will be able to re­strict the free­dom to use trade mea­sures in the fu­ture.

The EU seems to have soft­ened its ini­tial po­si­tion, al­low­ing ex­port du­ties to be used up to a cer­tain pro­por­tion of prod­ucts. Some GCC states ap­pear to be in­flex­i­ble though, keen on the right to main­tain the pos­si­bil­ity to levy ex­port du­ties to guar­an­tee their ex­pand­ing and fu­ture down­stream in­dus­tries whose re­sources are pos­si­bly prone to price fluc­tu­a­tions on the ex­port mar­ket, or scarcity on the home mar­ket.

Although en­gage­ment for an EU- GCC trade deal took place at a time when do­mes­tic mar­ket lib­er­al­i­sa­tion and re­gional in­te­gra­tion of the Gulf was in the early stages, eco­nomic per­for­mance and fi­nan­cial strength have gone up con­sid­er­ably, mak­ing the lat­ter more as­sertive and as­sign­ing them sta­tus and in­flu­ence.

Air­lines in the EU face in­creased com­pe­ti­tion and fi­nan­cial prob­lems, of­fer­ing op­por­tu­ni­ties for the cash-rich Gulf car­ri­ers to ex­pand their reach in the EU. Sub­ject to

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