Partial trade deal on the table with China
Gulf News
Partial trade deal on the table with China
By Jasim Ali, Special to Gulf News
12 August 2006
The GCC and China seem more determined than ever to pursue the goal of attaining a free trade agreement (FTA) in the not-too-distant future.
FTA negotiations between the GCC and China started in July 2004. Last July the two sides completed their third round of talks in the eastern Chinese province of Zhejiang. Ever since, China has spoken of some sort of agreement by year-end.
However, the Chinese wish to limit the planned accord to commodities excluding services. This partly is explained by the fact that China has a competitive advantage in goods rather than services.
According to Chinese customs data, the country exported goods worth $763 billion in 2005, whereas China is not a noted exporter of services. At $385 billion, the US is the largest exporter of services in the world. Other leading service exporters are countries within the European Union plus Japan.
Undoubtedly, China is known for exporting, and most countries have a trade deficit with China. In 2005, China had an overall trade surplus of $103 billion. It also enjoyed a trade account surplus of $115 billion.
Economic benefits
For the GCC an accord with China should prove useful. It would mean getting access to one of the fastest-growing economies in the world. Numerous studies expect the Chinese economy to post real gross domestic product (GDP) growth of more than 10 per cent in 2006. These studies suggest the Chinese economy would increasingly generate GDP growth based on local consumption and less so from exporting. Certainly, stronger reliance on local consumption implies that China would mostly likely be further opening up its market to a diversity of imports. At the moment, China is noted for importing raw materials, including minerals. However, this is likely to change with the new emphasis, a matter of benefit to many countries including the GCC.
Press reports estimate bilateral trade between China and GCC at $21.1 billion in the first half of 2006. That figure represents a hefty 34 per cent rise versus the corresponding period in 2005. Saudi Arabia and the UAE are China’s main trading partners within the GCC.
Vying rivals
For the Chinese, an accord with the GCC is partly meant to satisfy its need for oil. Currently, China imports more than 40 per cent of its oil requirement from the GCC. China certainly needs to secure sustainable long-term supplies to meet its growing need. In fact, China is ranked second only to the United States in terms of oil consumption.
Clearly, China cannot sit idly by while others countries seek accords with the GCC states. Thus far the US has signed separate FTAs with Bahrain and Oman. The US-Bahrain FTA went into effect at the start of August, and the US Congress endorsed the deal with Oman in July. Additionally, the 25-nation EU has been eagerly seeking for ways to conclude a comprehensive FTA with the GCC at the earliest possible date.
Unlike the separate FTA with the US, the GCC countries are united in pursing an accord with China. The GCC is currently a customs union, in turn requiring unified external trade policy towards non-members. The trend towards FTAs is testimony of the troubles facing the multilateral negotiations of the Doha round.
The round all but collapsed in July, as leading countries failed to solve the problem associated with agriculture policy.
– The writer is head of economics, University of Bahrain.
