American goods likely to become cheaper as Oman proposes FTA

Times of Oman

American goods likely to become cheaper as Oman proposes FTA

By Palazhi Ashok Kumar

Our Special Correspondent

18 March 2005

MUSCAT - Building on a spree of free-trade deals across the region, Oman is in the process of signing a free-trade agreement with the United States by the end of 2005 or early 2006.

The Oman-US negotiations on free trade, which begun on March 12, 2005, entails enormous scope for consumers and the domestic economy to witness dramatic changes in trade.

The proposed Free-Trade Agreement (FTA) will strip away most barriers to bilateral trade between the two countries.

A cross section of public and experts whom Times Business spoke to opined: “Though we prefer not to speculate on the proposed Oman-US FTA, it makes sense for us as free-trade agreements play a key role in raising living standards, promote economic activity, investment opportunities, development, prosperity, job opportunities, etc.

“Oman is essentially a consumer market. Prices for all US goods and services in Oman won’t come down immediately. But gradually, it must happen because the essence of FTA is trade liberalisation and duty-free. More precisely, FTA will wipe out export-import tariffs. Two-way goods and services trade between Oman and the US already stands at over $1 billion, and once, the FTA comes into force, this would certainly test new highs.

“It’s fundamentally expansion of trade between Oman and the US. American goods, including vehicles, machinery, toys, pharmaceutical products, games and sports equipment and agricultural commodities like cereals, dairy produce, fruits and vegetables and meats would enjoy good demand in Oman as traders and consumers will enjoy more choice, and more significantly, affordable prices.

In the Gulf, significant progress towards regional integration has already been achieved. Barriers to free movement of goods, services, capital and national labour have been largely eliminated and a common external tariff is now in place. AGCC countries have sound financial systems and prudential regulations and supervision of the banking sector are being gradually harmonised.

AGCC Customs Union, based on a single entry point customs duty collection mechanism, which came into existence on January 1, 2003 had made customs duty on majority of imported goods for the six-member Arab states five per cent.

In real terms, a free-trade agreement with the US will demand more transparency and accountability. Omani products will enjoy national treatment in the US. The FTA may bring in more flexibility in financial services, telecommunications, e-commerce, intellectual property rights, labour norms, etc.

“The dollar meltdown will not affect negatively as the Omani rial is pegged to the dollar. I think, gradually, the whole six-member Arab Gulf states, the AGCC, will become a duty-free zone, as it may sign FTAs with Europe and a few other Asian countries such as India,” traders said. Possibilities of more companies from Asia setting up industries in Oman cannot be ruled out as Omani products will get easy access to the US.

Majority of bilateral trade in consumer and industrial products may become duty-free immediately upon signing the FTA between the US and Oman.

All remaining tariffs may be eliminated gradually within an agreed timeframe, providing the consumers in Oman with more choices to buy American goods cheaper.

Major US export sectors like information technologies, machinery, construction equipment, medicine, automobiles, etc. are expected to gain immediate duty-free access to Oman. This will help consumers enjoy greater choices and reduced prices for globally competitive American goods and services. The FTA is expected to provide national treatment for Omani products in the US.

GDP in the Middle East and North Africa (MENA) increased by 4.7 per cent in 2004, easing from a near-record 5.7 per cent advance during 2003. GDP growth among oil exporters eased from 6.6 per cent in 2003 to a still-high five per cent in 2004. Buoyant oil revenues have pushed the region’s overall current account balance to a surplus of $92 billion or 14.4 per cent of GDP. If high-income countries such as the UAE and Kuwait are included as part of the broader geographic region, the surplus rises to $120 billion or 15.5 per cent of GDP - unprecedented since the first shock of the early 1970s.

“The conflict in Iraq has influenced economic activity across the region. Perceived increases in risk have reduced FDI inflows and disadvantaged regional investment projects, while heightened security concerns in the developed world have boosted transport costs for regional exports,” experts added.

According to the Word Bank, regional growth may remain strong in 2005 before easing to 4.5 per cent in 2006. Economic growth in oil exporting countries is projected to moderate to 4.1 per cent by 2006.

The current account surplus for MENA is projected to ease from $120 billion in 2004 to $100 billion in 2005, before dropping more substantially to $60 billion or 6.5 per cent of GDP by 2006.

“Though certain free trade agreements are already in place in the MENA, they have not been sufficient to overcome the effects of high border trade barriers and restrictions on services. Technically, over the longer-term, a return to lower oil prices and the need for enhanced reforms across the region will present substantial challenges,” economic gurus added.