Gulf, EU show flexibility in reaching a compromise

Gulf News - UAE - 06/17/2006

Gulf, EU show flexibility in reaching a compromise

By Jasim Ali, Special to Gulf News

A free trade agreement (FTA) between the six-nation Gulf Cooperation Council (GCC) and 25-member European Union (EU) could be clinched as early as year-end.

Such optimism marked the recent bilateral negotiations held in Abu Dhabi. The meeting brought together EU Trade Commissioner Peter Mandelson and GCC finance ministers for talks on outstanding issues.

Discussions focused on four areas, namely market access, rules of origin, government procurement and application of the investment protection and guarantees criteria.

The two sides remain apart on details relating to these matters, but the meeting was held in a spirit of overcoming the differences within the next few months.

Fortunately, GCC and EU negotiators indicated willingness to show flexibility towards reaching a compromise.

The European side wants unrestricted access to numerous investment opportunities including the crucial energy sector.

The oil and gas sector forms the cornerstone of GCC economies, but there is no agreement within the GCC with respect to foreign investment in energy projects.

Kuwait is yet to decide on allowing foreign participation in the development of its oilfields. An ambitious scheme known as Project Kuwait aims at generating an additional 450,000 barrels per day from four fields located in northern region of the country.

The development requires an investment of $7 billion over a 20-year period. Successive parliaments have blocked the proposal on the grounds that the Kuwaiti constitution that bars foreign ownership of the country’s hydrocarbon resources.

But Qatar has been welcoming oil majors through production and sharing agreements.

There seems to be a possibility that the two sides will relax rules related to investments and rules of origin.

The GCC would most likely agree on EU’s request with respect to European investments in the region.

The GCC members are increasingly liberalising laws aimed at attracting foreign investments.

For its part, the EU has indicated willingness to show flexibility with regards to conditions attached to rules of origin for qualifying GCC products.

The EU is the largest trading partner for the GCC. But the GCC represents the fifth largest export markets for EU products.

In 2005, the EU enjoyed a $21 billion trade surplus. The EU exported $64 billion worth of goods and services to the GCC. But its import bill from the GCC amounted to $43 billion.

However, the gap could be reduced once GCC products get more access to relatively fortified EU.

It seems that the EU feels the urge of signing an FTA with the GCC now that the US has moved to reach bilateral agreements with individual countries within the bloc.

The US has signed FTAs with Bahrain and Oman so far. The EU cannot overlook the ambitious American foreign policy goal of setting a US-Middle East free trade area by 2013.

Against this background, the EU is pushing for signing the FTA towards end of the year.

Technical experts of both sides are due to meet in Brussels in July to iron out remaining differences, which would be followed by a ministerial meeting.

The EU trade commissioner has said that he would be surprised if such a deal could not be signed later this year.

However, his GCC counterpart Hamad Al Baziy sounded less optimistic, suggesting that the deal could be clinched either by year-end or in the first half of next year.

Certainly, EU countries do not want to be left out in the cold. Time is ripe for Mandelson and his team to show flexibility in bringing to conclusion negotiations that started in 1998.

The writer is assistant professor, College of Business Administration, University of Bahrain.

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source: Gulf News