Do you, per chance, remember what the next big things in 1990 were? The World Wide Web had just been born and the internet was still more of an academic playground than a ubiquitous communications universe. The European Community was a club of 12 nations and the euro was a concept waiting to be discussed in the 1991 negotiations of Maastricht. Introduction of the world’s first commercial GSM 900 mobile phone network was two years away.
It also was the time when Europe and the six member countries of the Gulf Cooperation Council started talking about a free trade agreement (FTA). Seventeen dusty years after the beginning of negotiations in 1990, talks between the European Union and the Gulf Cooperation Council in the past few weeks seem to have regained momentum toward finally signing the long-awaited FTA this year.
Touring the region at the end of February in support of finalizing the agreement, EU Trade Commissioner Peter Mandelson told the Jeddah Economic Forum that a completed FTA would make an important contribution to the greater diversification of Gulf economies by encouraging inward investment and boosting the competitiveness of Gulf exporters to Europe.
‘Very close to an agreement’
Mandelson said: “We are now very close to an agreement that will not only be the first ever region-to-region FTA in the global trading system, but which has the potential to open doors for new investment and new trade beyond what we offer each other through the WTO.”
A treaty between the two regional organizations would be the first of its kind, Mandelson enthused. But of course there are quite a range of reasons why European-Gulf negotiations have taken a modern eternity and were disrupted twice for long intervals, before the two sides last month publicly voiced confidence that signing ceremonies could be on the books sometime this year.
Rewards of a successful treaty would be substantial by helping both communities strengthen their positions in the globalization game and, from the European perspective, by increasing stability in what the EU sees as a region of immense strategic importance but vulnerable to political and security risks.
Obstacles
The business concepts and legal frameworks of the two blocks are far apart in many respects, but the points of real obstruction in past talks were European calls for liberalization of GCC economies and Gulf wishes to gain more direct access to European energy markets. Early in the negotiations (1990 and again in 1992), the European Parliament criticized the FTA talks for alleged repercussions on the European petrochemicals and fertilizer industries and employment in these sectors.
The considerable power of the US in the Gulf and the EU’s corresponding lack of power is one of the main structural features hindering real progress or even real interest in moving EU-GCC relations forward. The US is currently viewed as the only credible security guarantor by the Gulf monarchies, while the EU mainly is seen as a civilian and economic player.
Assessing the potential influence of the EU in the region, a Danish research institute wrote in late 2006 that “the Gulf monarchies are blessed with oil and natural gas resources, and equally cursed with domestic instability, war and foreign intervention. In this strategically important corner of the Middle East, bilateralism and hard security issues still dominate the agenda, and here the EU has only limited capacities.”
The report added that the EU also faces both barriers and divergences in term of assisting reform processes in the Gulf, and the European analysts saw it as open question if first steps towards political and social reforms were genuine or mere cosmetic changes. Post-Christian civil liberties concepts made in Europe have not found a large fan base in many Middle Eastern societies and when, for example, the European Parliament lambasted Bahrain in 1997 for its practices on human rights, the GCC rejected this as meddling.
Limitations on foreign ownership of companies and restrictions on access to domestic markets, including equity markets, in several GCC countries are barriers that could also easily block European acceptance of the FTA this year. But on the other hand, the Europeans have to think about the heightened importance of Gulf oil producers in the globally growing demand scenario for black gold. The EU policy makers also have to grapple with the fact that today, beyond the US’s Middle Eastern goals and strategic interests, which have long caused headaches in many EU capitals, China is also flexing its increasingly toned geopolitical muscles in the region, with aspirations of securing supplies of oil and generating new economic partnership opportunities for its vast industry.
EU a model of integration
While the EU playes a minor fiddle in the Middle East military and security realities to the US, and enjoys less shared affinity with the region’s cultural conservatism than the East Asian nations, Europe has one strong thing going for itself through the EU’s model function of regional economic integration. The GCC adopted many ideas from the processes of Maastricht and Europe’s Monetary and Economic Union building in its project to forge a similar cohesion among the six GCC member countries, including plans for a joint central bank and single currency for the realm.
As a matter of fact, the GCC governments’ 1999 decision to work towards an EU-like economic integration sparked new life into the FTA negotiations between the two regions, even though the verve was short lived. It is moreover also doubtful (to be friendly) that the GCC monetary union plans will be implemented in full by their 2010 target or even in a five-sixths solution of adopting a joint currency without Oman. Nonetheless, interaction between EU and GCC institutions in the context of the project has a relationship-building capacity for years of interaction, whether an FTA sees the light of the desert this year or not.
For the business communities of both regions, any strengthening of information and cultural ties would nonetheless be poor replacements for an agreement that opens Gulf markets wider to European investors and European markets to Gulf petrochemicals and energy players.
The EU still is the Gulf’s biggest market and incurred a $22.4 billion trade deficit with the GCC in 2006, fundamentally because of Europe’s thirst for oil. In the other direction, the GCC is currently the sixth-largest export market for the EU, with machinery and transport materials accounting for over half of sales to the region. Beyond further growth in trade, direct investments in the GCC by European companies could see a sharp increase if an FTA comes into force.
Picking up the pace of talks
For the past few years, negotiations between EU and GCC moved at a rather leisurely pace of one round of talks per annum. However, following the discussions of the two sides in February, the EU emphasized that it will eliminate its 6% import tariffs on aluminum and also abolish tariffs on basic petrochemicals after the two regions reach an FTA. What the EU seeks in return, is an end to ceilings on foreign ownership of GCC companies. A new Gulf-EU meeting at the ministerial level is scheduled for May.
