Saudi Arabia's opposition to free trade agreements between GCC states and the United States is unlikely to derail the GCC integration process, government officials and economists said.

"Saudi Arabia's stance will not have any negative impact on the GCC. We are all cousins and relatives, we are close to one another and we will always be close to each other," Mohammad Ali Al Abbar, Director-General of the Dubai Department of Economic Development, told Gulf News yesterday.

Saudi Arabia has threatened legal action, reinstating customs tariffs and other measures against any GCC state entering into free trade agreements (FTAs) with other countries, in a clear reference to Bahrain. Bahrain recently signed one with the United States.

"The Saudi reaction is too sharp, and won't help in solving the problem," said Dr. Mohammad Asoumi, a Dubai-based economist.

"Since the FTA between Bahrain and the United States has already been signed, the best thing for Saudi Arabia to do now is to impose a five per cent duty on US goods re-exported from Bahrain. In future, the GCC must negotiate as a group, rather than on a bilateral basis," he said.

Asoumi said Bahrain began FTA negotiations with the US before the GCC Customs Union came into force in 2003. "Since the agreement is finalised, the GCC should now collectively negotiate FTAs with the United States, as is being done with the European Union, China and some other countries such as Jordan and Lebanon. This may be difficult," he said.

The UAE and Oman are in FTA talks with the United States. "These deals may take time [and once they are completed] the GCC will have reached a collective agreement," he added.

As the FTA takes effect, all US products listed in the tariffs schedule will receive duty-free treatment from Bahrain, with a ten year phase-out period for additional tariffs on products not in the schedule. Bahrain's products will gain immediate access to the US market.

"FTAs have a beneficial impact on export performance, as demonstrated by Jordan and some countries recently," said Daniel Hanna, international economist, Standard Chartered Bank.

"Unilateral FTAs obviously raise questions about the GCC Customs Union and attention will now shift to the negotiations between the UAE and Oman with the United States."