GCC citizens will benefit from free trade agreements

The first video recorder my family bought cost £400 (Dh2,908), which converted into today's money would be enough to buy a small country. The successor to the VCR, the DVD, is now so cheap that players cost less than the discs put inside them.

We have free trade to thank for that, although the anti-globalisation protestors would probably disagree (while wearing their Indonesian-made Nikes). Free trade has made families across the world better off and fears of jobs being lost to developing countries and hand wringing over the dominance of multinationals is a small price to pay.

So, it is greatly encouraging that the Gulf Co-operation Council (GCC) is pursuing a raft of bilateral free trade agreements with everyone from India, to the European Union and even tiny New Zealand. These deals will make the citizens of GCC countries better off for two reasons.

The first is that removing import tariffs and quotas reduces prices, typically by between a couple of per cent and 10 per cent. The booming economies of the Gulf face enormous inflationary pressures and removing these tariffs will help control the price of imported goods. Also, increasing oil revenue means that GCC governments are not exactly short of cash and can, therefore, do without income raised from raiding imported goods.

The second benefit to the Gulf is that non-oil businesses will get better access to export markets – an important consideration for nations that want to diversify their resource-dependent economies. Dubai started this process decades ago and it has used free zones to encourage businesses to set up locally and then export to the world. It is a strategy that has worked well for the city.

I bumped into Peter Mandelson, the European Union's trade commissioner, at the World Economic Forum in Sharm El Sheikh last week and it appears the free-trade agreement between the EU and GCC is progressing at last.

Mandelson had just held meetings with GCC trade ministers and he told me that there were now only two or three sticking points and that a deal could be completed by the year-end. This comes after, literally, decades of negotiating between the two blocs – so this is real progress.

For European companies, the GCC free trade agreement will make it much easier to trade with a part of the world that is growing rapidly and enjoying a windfall from rising oil prices. The biggest gain will be in accessing markets such as Saudi Arabia, which has not been known for making business easy in the past.

I understand the sticking points revolve around subsidies given by the GCC states to companies in the region as well as European demands for protection of intellectual property rights and the removal of barriers to entry in some Gulf countries. These are all manageable issues and the GCC states must concede and make the changes required as their economies will be strengthened by doing so. Only good things will come from protecting IP, eliminating market restrictions and ending subsidies. Look at the economic success of the European Union, which has managed the first two of these if not the third.

However, there are other conditions that European politicians want to attach to this agreement such as stipulations on human rights and migrant worker clauses. These make European politicians sound good back home but do nothing to improve relations with the Middle East.

There is a place for these discussions, and with some GCC states it needs to be an urgent discussion, but the forum to do so is not a free trade agreement. If the EU persists with these conditions Mandelson's estimate that a deal could be done by the year-end may prove to be off by about two decades.

These difficulties should not put the GCC off pushing ahead with agreements with other trading partners, particularly India. A deal with India makes a great deal of sense because it will make cheap imported goods even cheaper while giving the higher-value industries and services found in the Gulf access to the second-largest market in the world – a market that just happens to be only a few hours away. The more insular members of the GCC need to be persuaded to open their economies because the whole region will benefit from greater international trade. A small minority of companies may lose out, particularly those that benefit from closed markets, but they cannot be allowed to derail the free-trade movement. These agreements will make the citizens of the Gulf better off, particularly if they need to buy a new DVD player.

  - David Robertson is Business Correspondent, The Times of London

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