Business | Analysis

UAE needs to expand free trade pacts

UAE needs to speed up signing of free trade agreements with emerging countries

  • By Mohammad Al Asoomi, Special to Gulf News
  • Published: 21:00 July 28, 2012
  • Gulf News

UAE needs to expand free trade pacts
  • Image Credit: Dana A. Shams/©Gulf News

International relations are at the crossroads with recent global events leading to a shift in balance of power between nations. Just as the Cold War led to a new alliance of political and strategic forces, the global financial crisis has led to restructuring economic relations and redrawing of the global economic map.

These changes include China’s rise to the position of the world’s second-largest economy last year from the fifth spot within a few years, with the removal of Japan, Germany and Britain from the centre of activity.

In turn, other countries resorted to reshape their economic and strategic relations in a manner that reflects the new balance of power. The UAE is one the first countries that seek to make the most of these changes in the balance of power at the global level.

The visits by General Shaikh Mohammad Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, to South Korea and China in March, reflect the UAE’s approach on this issue.

This approach is embraced by the UAE not because it is an oil producer and exporter only, but as an emerging economic power that plays an influential role in many economic spheres, such as energy, trade, transportation, and international communications.

The visits have formed a quantum leap in the UAE’s relations with South Korea and China, thanks to several agreements signed with the two emerging countries.

Two years ago, South Korea won contracts to set up four nuclear power plants in the UAE, after fierce competition with reputed Western and Asian companies. This indicates the importance the UAE pins on future relations with emerging countries, particularly South Korea, China and India.

In this regard, dozens of Emiratis were sent to South Korea to gain experience in the field of nuclear energy, in order to acquire the necessary knowledge to be able to manage UAE nuclear facilities when operation of these stations begin operational, expected in 2017.

China and India managed four years ago to move the countries of the European Union and Japan away from the list of top trade partners of the UAE. Now, India occupies the first place, followed by China, as the largest trade partners of the UAE in the past four years.

Although the relations with other emerging countries, like Russia, Brazil and South Africa seem less important than the growing relations with emerging countries in Asia, there is a growing interest from both sides to strengthen these relations, especially in the areas of banking, financial and defence industries, trade and tourism.

In addition to the strategic goals behind the UAE’s approach to strengthen cooperation with emerging countries, which reflects, as noted previously, the change in the structure of international relations, there is economic feasibility of such an approach.

The UAE can benefit from technical expertise of the emerging countries in many areas, especially in the fields of energy, infrastructure and agriculture, particularly since the costs of setting up projects offered by the emerging countries are lower than those offered by Western countries and Japan.

South Korea’s move to set up four nuclear power plants in the UAE is an example, noting that South Korea acquires very sophisticated technologies, as many other emerging countries, including Russia, are trying to take advantage of the country’s expertise in more than one field.

Stemming from this, the emerging countries have significant competitive capabilities that allow for wider cooperation and provide huge funds to countries benefiting from the technology of emerging countries, as is the case with the UAE’s cooperation with these countries.

In the meantime, the population of the five emerging countries, namely China, India, Brazil, Russia and South Africa, which are now under the name Brics, comprises 43 per cent of the world’s population — five times the population of the European Union (EU), thus representing a huge human capacity as the largest market in the world.

Since the UAE other Gulf Cooperation Council (GCC) countries are making rapid strides in the development of their national industries, especially in the field of oil products and petrochemical industries, they need huge markets to absorb their products. Therefore, the markets of emerging countries represent one of the main important regions to absorb UAE products, which will contribute to the development of local industries, and eventually to diversify sources of income to preparation for the post-oil era.

This approach gains exceptional importance due to restrictions imposed by EU countries on their imports of petrochemicals and aluminium products from the UAE and other GCC countries.

It is imperative for the UAE to speed up the signing of free trade agreements (FTAs) with emerging countries, notably China and India, especially since the FTA with the EU is at a standstill for more than 20 years because of involvement of non-commercial issues in the negotiations.

Therefore, the UAE and other GCC nations are required to enhance economic cooperation with emerging countries, simply because it a bet on the future.

In 2040, China is expected to surpass the United States as the world’s top economic power, while India will be ranked third and Brazil fourth.

The GCC countries are expected to become the sixth economic power in the world, which means a radical change in international relations, which is expected to happen in the next 25 years.

Currently, the approaches embraced by the UAE and other Gulf states are in preparation for these changes, which can be utilised to create local economy that is more diversified and less dependent on oil.

 

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.

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