Despite talks between the United States and the UAE coming to a standstill, free trade agreements are still at the top of the region’s agenda and are a key step in integrating the UAE more fully into the global economy.
According to the UAE’s Ministry of Economy, talks between the GCC and the European Union – the most important FTA for the region – have been concluded and a decision is expected within a month about a finalisation of the agreement.
“The negotiations have been subject to different circumstances that have led to the length of the negotiations,” the ministry’s Dr Yahya Al Dabbagh said while speaking at a trade seminar this month.
Rounds of talks between the EU and the GCC have been ongoing for more than 16 years, making it the longest-drawn out trade deal ever recorded.
The GCC and the EU signed a framework economic co-operation agreement in 1988, but have been unable to agree the free trade deal due to issues such as market access, government procurement rules and intellectual property rights.
“[The FTA] is pretty close now and that is the one that is most likely to be implemented first,” Eckart Woertz, programme manager economics at Gulf Research Centre in Dubai, told Emirates Business.
“Especially now that France will have presidency of the EU, I think there’s a very good chance that they’ll push for it,” he added.
FTAs between the GCC and India, Japan and China – among others – are still under negotiation, while agreements with Korea, Malaysia and Canada are under way in preparation studies, according to the Ministry of Economy.
“Together these will create a large market for us,” Dr Al Dabbagh said.
WIDER TRADE AGREEMENTS
Earlier FTAs such as the Great Arab Free Trade Area (Gafta) focused only on market access for goods, Al Dabbagh said: “The new FTAs will cover wider and more extended areas such as services, investment, bilateral Gulf ties, and e-commerce.” The EU’s 27 countries with about a population of 495 million make it an important market for the UAE, especially for the Emirates’ major strengths like aluminium and jewellery which are its top non-oil exports.
“From a geographical point of view we might be in a much better competitive situation compared to the other countries,” Khalid Al Kassim, chairman of the Dubai Export Development Corporation (DEDC), told Emirates Business.
Switzerland, Belgium and the Netherlands were in the UAE’s top 10 major exports markets between 2002 and 2006, according to Dubai Chamber of Commerce and Industry (DCCI) data.
The UAE is currently part of Gafta and is negotiating bilateral deals with Australia and Singapore.
The United States and the UAE will be initiating a TIFA-Plus council in a bid to continue to make progress on trade and investment issues in the face of free trade negotiation set backs following expiration of the Trade Promotion Authority (TPA).
Negotiations between the two countries have petered out without the TPA or its renewal, which lets the US Administration negotiate timely trade agreements.
According to reports, the FTA, with the UAE, also stalled because of issues such as US demands for UAE labour market reforms, opening of the services sector, and allowing 100 per cent foreign ownership across the country.
“Those issues will develop in the direction that was sought in the FTA negotiations, eventually, with or without an FTA, because they are elements of an open, competitive and globally integrated economy and that is pretty clearly the direction of the leadership of the UAE,” Chuck Dittrich, vice-president of regional trade initiatives at Washington’s National Foreign Trade Council, told Emirates Business.
“The FTA is not an end in itself. The objective we share is to strengthen the commercial relationship.”
Dittrich said an open market would allow more participation from American companies, benefiting all parties.
The first round of official UAE-US free trade negotiations took place in March 2005 but was followed by a lagging period. An issue with DP World’s purchase of certain US port operations, following P&O buyout, in early 2006 also reportedly caused talks to fall back.
Since the DP World case, US Congress has passed legislation that refines the process for US Government consideration and approval on foreign investments affecting national security, which should give all concerns ample consideration, according to the NFTC.
“It’s also likely that more preparation and early discussion with key political stakeholders will occur in future investments that may be controversial,” said Dittrich.
MIDDLE EAST FREE TRADE AREA
Despite suspended talks with the UAE, the United States still has plans to establish the Middle East Free Trade Area by 2013, as part of the Administration’s stated goals.
The initiative was created in 2003 when the only Middle Eastern countries the United States held FTAs with were Jordan and Israel. Since then it has added bilateral FTAs with Morocco, Bahrain and soon, Oman.
Saudi Arabia has joined the World Trade Organisation, and along with Egypt, has put efforts in motion for trade and economic reforms.
However, a hurdle facing the establishment of the Middle East Free Trade Area is how to maintain momentum for trade reform across the region, Dittrich said.
“There is also a challenge to develop leadership of Middle Eastern countries themselves to create the conditions for a broad regional free trade area and make the sometimes difficult choices to open their economies to global competition,” he added. Dittrich argued that the focus of US efforts depends on the readiness of each country in the region to accomplish free trade.
“For some, such as Yemen, Lebanon and Libya, WTO accession is the goal, [while] for others the goal is to focus Trade and Investment Framework Agreement negotiations on the checklist of issues a particular country must address in order to meet FTA standards.”
The UAE boasts a sizable annual trade surplus and trade has remained at a constant of about 22 per cent of Dubai’s GDP, which reached Dh168.7bn in 2006.
Despite Dubai’s history in the export business and its well-established position as an import and export hub, there are still challenges facing the trade industry as it competes for a slice of the market share.
Economist at Gulf Research Centre Eckart Woertz added that there may be concerns in the insurance and banking industries here, which are not very competitive internationally.
DUBAI EXPORTS RISING
Exports from Dubai were valued at Dh18.26bn in 2006, a 63.4 per cent increase from the year before, according to Dubai non-oil foreign trade figures supplied by DEDC.
Earlier this month the UAE Minister of Economy Sheikha Lubna Al Qassimi (pictured above) said the country’s GDP is expected to reach $190.3bn (Dh698bn) this year, up 16.5 per cent from 2006.