Creating a win-win from GCC-EU free trade deal

The Gulf states have decided on regional integration based on common market, customs and monetary integration, or some sort of EU-styled union. GCC states’ status across the wider Middle East and the bailouts by their Sovereign Wealth Funds during the global financial breakdown since 2008 have been gamechangers.

That said, a EU-GCC Free Trade Agreement providing progressive and reciprocal liberalisation of trade is expected to offer opportunities in region-to-region cooperation. Disagreements over market access and a series of other factors — institutional mismatches, divergent interests, different perceptions and other values/norms — have been responsible for the two regional blocs having not moving ahead in the past.

The EU, which had placed its interests in securing access to a steady supply of oil and natural-gas at stable prices and improved market access, has been confronted with GCC states who want better concessions than those on offer and to be dealt with as full and equal partners.

Even then, trade between the two blocs fares well. European companies are selling a range of goods, while investors from the GCC are viewing the EU as a key market for their strategic, eggs-in-various-baskets investment strategies.

Why should the GCC and the EU then try to unlock the impasse caused by the GCC suspending free trade negotiations? Despite the GCC customs union, intra-GCC trade still remains small, leaving the GCC heavily depended on external sources.

Non-tariff barriers

The GCC constitutes the fifth largest export market for the EU. Unless they are lowered to zero, cuts in the already low import tariffs will not contribute much in enhancing market access.

Concessions on non-tariff barriers to trade, on the other hand, are likely to have an impact for the EU, not only in terms of full ownership of businesses outside of designated free zones, but also for trade in services.

The GCC and the EU have similarities in their projects of integration. The former has high levels of migrant workers, to the extent a significant part of the work is done by foreigners. GCC states are concerned over the employability of their ever more highly educated local populations, and are therefore not expected to fully liberalise their labor markets.

Membership of GCC states to the WTO means that it has become harder to subsidize economic sectors to the same extent as in the past.

Market liberalisation, economic reform and diversifying away from eventually depleting revenues derived from oil and natural gas exports is recognised as a necessity for turning markets under construction into sustainable economies.

A EU-GCC Free Trade Agreement is likely to assist Gulf states in economic diversification, international competitiveness and other reforms. The EU, because of its large single market and a series of successful processes of enlargement, holds a considerable, unmatched experience in building state institutions, managing regulatory reform in various systems and harmonising legal regulations/technical specifications across borders.

The sharing of EU expertise on customs unions, common markets and monetary integration may be seen as a plus, not only for individual GCC states individually, but also for the GCC as a grouping. Benefits might also include better mutual understanding brought on moderation, tolerance, co-existence and the protection of values and norms.

The EU holds advantages that no other single country can offer. If the EU is able to apply its unmatched regulatory reform tool-box in a flexible, non-confrontational and non-patronising manner, it might be able to enhance its current position in the Gulf.

The GCC and the EU both have an interest in deeper, institutionalized relations, and the two blocs should therefore decide to capitalize on these mutually beneficial interests.

— The writer is an analyst on GCC-EU relations based in Brussels.