Rebooting Gulf-China Trade

Chinese Vice Premier Li Keqiang (R) shakes hands with Saudi Crown Prince Salman bin Abdulaziz (L) at the Ziguangge Pavilion in the Zhongnanhai leaders' compound in Beijing on March 14, 2014 in Beijing, China. (Lintao Zhang/Getty Images) Chinese Premier Li Keqiang (R) shakes hands with Saudi Crown Prince Salman bin Abdulaziz (L) at the Ziguangge Pavilion in the Zhongnanhai leaders' compound in Beijing on March 14, 2014 in Beijing, China. (Lintao Zhang/Getty Images)

Chinese Premier Li Keqiang (R) shakes hands with Saudi Crown Prince Salman bin Abdulaziz (L) at the Ziguangge Pavilion in the Zhongnanhai leaders' compound in Beijing on March 14, 2014 in Beijing, China. (Lintao Zhang/Getty Images)

Two of the most important blocs in the shifting global economy came together in March, when Chinese Premier Li Keqiang used the visit of Crown Prince Salman of Saudi Arabia to express his country’s interest in restarting stalled negotiations for a Free Trade Agreement (FTA) between China and the Gulf Cooperation Council (GCC). The visit came two months after the resumption of the GCC–China Strategic Dialogue in January 2014 following a hiatus of more than two years, caused in part by disagreements over the international response to the conflict in Syria. However, the GCC has struggled in the past to reach agreement on FTAs as a bloc, and significant issues remain unresolved in negotiations with a number of regional and international partners.

To date, the GCC has only signed FTAs with Syria, in 2005, and with Singapore, in 2008. Neither has been a resounding success. The Syria FTA has been overshadowed by the conflict engulfing the country, while the FTA with Singapore came into effect only in September 2013 despite having been agreed in 2008. It remains to be seen whether the FTA will reverse a slump in GCC–Singapore trade, which declined by a fifth in 2013, partly due to lower Saudi oil shipments. Elsewhere, the longstanding negotiations with the European Union remain in their post-2008 deep freeze, while intermittent discussions with Australia, India, Japan, Jordan, Korea, New Zealand, Southeast Asia’s ASEAN, and South America’s MERCOSUR have yet to yield any substantive results.

There are numerous reasons for this repeated lack of success. The two most high-profile sets of negotiations, with the European Union and with China, ran into major differences on key issues. On–off negotiations with the European Union commenced in 1990 and accelerated in 2003 when the launch of the GCC customs union enabled the organization to assume a unified external trade policy. Nevertheless, contentious issues quickly arose, with European concerns about subsidies to Gulf-based aluminium and petrochemical firms that export to EU economies and GCC displeasure with EU tariffs on aluminium and petrochemical products.

GCC negotiators also objected to EU reservations on GCC members’ stances on political reform, human rights and environmental protection, particularly when it appeared agreement was close. It was for this reason that talks collapsed in December 2008, owing to EU insistence on including human rights clauses in any final agreement. The then-deputy prime minister of Qatar criticized what he called the EU’s “hidden agenda,” which he said included “irrational issues,” and added that “Our experience with the discussions we’ve had with the EU has been that, on reaching the signing stage, the EU surprised us with issues that have nothing to do with free trade.”

Against this backdrop, the GCC made efforts to reach agreements with less politically constrained partners in Asia. The 2008 agreement with Singapore, which followed just two years of discussions, was a case in point. However, the stalled negotiations with China illustrate how even greater alignment in political positions does not by itself bridge serious gaps over economic positions. The talks were halted in 2009 over China’s protectionist policies and were later suspended by the GCC pending an overall re-evaluation. China had sought to limit the access of GCC petrochemical exporters to its markets, out of what Gulf negotiators suspected was a desire to shield domestic producers from competition.

Deeper structural weaknesses within the GCC also account for the slow progress in unifying external trade. Individual states have maintained stubbornly independent approaches to trade and investment, with a succession of bilateral trade deals undermining moves toward a collective, GCC-wide platform. Examples are the free trade agreements signed by the George W. Bush administration in the United States with Bahrain and Oman, which came into effect in 2006 and 2009 respectively. News of these bilateral FTAs caused considerable friction within the GCC and particularly angered Saudi officials, who said Saudi Arabia would reconsider its position on the jointly-managed Abu Saafa oilfield it shares with Bahrain.

The political row that followed the signing of the Bahrain–US and Oman–US FTAs is indicative of the tensions within the GCC that have hampered closer integration. From monetary integration to security coordination and political unification, the six GCC member states have consistently been unable to reach consensus on major ‘big-ticket’ items. Moreover, the GCC Secretariat has yet to develop any substantive mechanisms for the pooling of sovereignty, and it lacks a supra-national decision-making body akin to the European Commission. Moreover, the GCC has no explicit treaty-based foreign policymaking power, as its founding charter called only for “coordination” of foreign policy. Its member governments have retained responsibility for almost all aspects of political and economic policy and resisted any limitations on their sovereignty. Such internal weaknesses make it harder for the GCC to leverage influence as a bloc.

All views expressed in this blog post are those of the author and do not necessarily represent the views of, and should not be attributed to, The Majalla magazine.


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