Post-Brexit political momentum sees Europe look to the Gulf

Post-Brexit political momentum sees Europe look to the Gulf
7 min read
30 March, 2017
Analysis: The EU wants to restart free trade negotiations with the GCC - has the time finally come to close the deal?
European and Gulf leaders are likely to work ever closer [Anadolu]

Launched in 1990, free trade agreement negotiations between the EU and Gulf nations dragged on for twenty years before they were suspended in 2010 by the Gulf Cooperation Council.

Although human rights and democracy dominated the headlines as, ostensibly, the main obstacle - with the GCC seeing the imposition of European standards as interference in their domestic sovereignty - the issue of export duties has always been the real sticking point.

The EU wanted to maintain high taxation on the import of petroleum products. At the time, the GCC quite justifiably felt it was the one being asked to make all the concessions.

Non-economic motives

For the EU, it wasn't hard to play hardball, as the numbers were all on the Union's side. Furhermore, all studies concluded that the EU's motives were mostly non-economic - expanding geopolitical influence, human rights issues, and ensuring regional security.

Professors M Anaam Hashmi, Fahad al-Eatani, and Fareed Shaikh in their paper, Is There A Need For A Free Trade Agreement Between The European Union And Gulf Cooperation Council? focused on the economic benefit of an EU-GCC free trade agreement and concluded that the GCC would benefit more, economically, than their European counterparts.

"The EU-GCC free trade agreement has great potential to stimulate GCC economies with some industries enjoying increased export demand in the European countries, while it will have an insignificant effect on trade creation for the EU, and the EU has no economic gain in concluding the deal," they argued.

The EU remains the most important trading partner for the GCC, accounting for 14.7 percent of its total trade in 2015, with 27.4 percent of Gulf imports coming from EU countries and 7.6 percent of its exports going to EU countries.

Meanwhile, the GCC is a less important partner for the EU, with EU countries' import share from the GCC at around 2.5 percent and the Gulf accounting for 6.2 percent of exports.

However, according to the European Commission, EU-GCC total trade in goods in 2015 amounted to €155.5 billion ($167bn), which ranks the GCC as the fifth top trading partner of the EU.

The numbers themselves are not yet very impressive... But the geopolitical and economic situation has changed, and for both parties

The GCC also became the EU's fourth most important export market, with goods exports of €111.6 billion ($120bn), and imports of €44 billion ($47bn).

EU-GCC trade has been steadily growing between 2008 and 2015 by around 6.5 percent per year. Bilateral trade in services has also been increasing, amounting to €47.8 billion ($51bn) in 2014, compared with €36.5 billion ($39bn) in 2010.

The numbers themselves are not yet very impressive, and haven't changed that much in absolute terms. But the geopolitical and economic situation has changed, and for both parties.

Search for new alliances

The unexpected election of Donald Trump in the US left the EU on the brink of losing its foremost political and trade partner - or at least seriously disrupting the status quo everybody was more or less comfortable with.

As one of his first moves, Trump pulled out of the long-planned Transatlantic Trade and Investment Partnership (TTIP) and put in motion protectionist policies, which, in the OECD's assessment, threaten to dent global growth, stoke inflation and hurt living standards.

In response, Jean-Claude Juncker, head of the European Commission, already warned of a potential trade war between the US and the EU. He said that the US could impose punitive tariffs on European products, provoking the EU to impose its own punitive tariffs on US goods.

Another important boost of momentum comes from the uncertainty surrounding the planned exit of the UK from the European Union and the resulting post-Brexit tariff costs.

Civita's analysis shows EU exporters will face €14.9 billion in tariffs on goods coming to the UK. All this pushes international trade deals up the EU's priority list, and the Union has already stepped up its efforts in concluding as many as possible.

It has closed or nearly closed trade talks with Vietnam, Singapore and Canada, will soon open talks with Argentina, Paraguay, Brazil and Uruguay - and is re-negotiating its deal with Mexico.

Changed circumstances

Gulf economies too are being courted by many of the world's largest exporters, and the EU seems to be eyeing the region more seriously. Jyrki Katainen, the EU Commissioner in charge of jobs, growth, investment and competitiveness, has spoken of a need to restart negotiations on a deal with the GCC - statements which have been received by Gulf media as a sure sign the deal is about to happen.

Read more: Qatar to invest $6.23 billion in post-Brexit UK economy

But are we there just yet? The commissioner himself is cautiously optimistic:

"When I visited the region in January, I was encouraged by the high level of interest shown by GCC counterparts in the [Free Trade Agreement] negotiations. I see this as an important signal, and on our side the EU is also prepared to explore whether the negotiations can be resumed. I have invited HE Mr Al-Zayani, the Secretary-General, to come to Brussels so that we can continue this discussion," he told The New Arab

Does the election of Trump and the departure of Britain from the EU have anything to do with the timing?

"The earlier talks with the GCC stopped already, years ago, and much has happened since then: We went through a global economic crisis, significant shifts in energy prices and the launch of significant diversification strategies by GCC countries to reduce dependency on the energy sector. The GCC is also part of the global shift towards more sustainable patterns of economic activity. So all this creates a new context for our bilateral relations - but, indeed, the current geopolitical uncertainty is focusing minds."

Katainen added that, in the past, the two blocs had a significant difference of opinion on the use of export duties which was why talks stalled all those years ago.

The EU's concern was that allowing free rein over such measures would have put the potential economic value of the agreement at risk - so there remains a need to find "creative solutions".

But there are also sceptics. Dr Christian Koch, director of the Gulf Research Centre Foundation in Geneva, Switzerland, in an article for Gulf News expressed his opinion that a GCC-EU Free Trade Agreement would become one of the casualties of Brexit.

Brexit would, of course, be a good opportunity for the EU to show its readiness and willingness to continue global trade arrangements - but I am sceptical

He expects less multilateralism and higher bilateralism when it comes to EU-GCC relations, with the GCC states preferring to deal with EU members such as France, Germany and Italy directly.

"I doubt there is enough political will to make serious steps towards the deal," Koch told The New Arab. "For one, the EU is going to be consumed with many internal matters and it will be difficult to muster enough momentum inside the block to make a Free Trade Agreement with the GCC states a priority.

"In addition, the EU will need to make some concessions to the GCC on the issue of export duties... Brexit would, of course, be a good opportunity for the EU to show its readiness and willingness to continue global trade arrangements - but I am sceptical if we are able to see this will materialise."

But things have changed for the GCC as well.

The EU's revived interest comes at a moment when GCC states are undertaking the most drastic reforms in their histories to adjust to lower energy prices and try to deal with what increasingly looks like a post-oil era.

But Koch doesn't think the GCC states will make any fundamental concessions on issues of importance - no matter what their economic situation looks like.

"They simply feel that they have been asked to make concessions and have done so only to see the EU come back and ask for more. If one is to be serious on this issue, the ball is in the EU court rather than on the GCC side."

And Europe is playing ball. In January, the business organisation of the GCC and BusinessEurope, the leading advocate for all-sized enterprises across 34 European countries, signed an agreement which the organisation believes is a prelude to a full trade deal.

In February, an EU trade delegation to the GCC included Spain, Portugal, Romania, Germany, Bulgaria, the Netherlands, Belgium, France, Greece, Austria, Ireland, Italy, Poland, Sweden, the Czech Republic and the UK.

And in May, the two blocs will start a trade and investment dialogue on support for SMEs, cooperation on research and collaboration in sectors such as renewable energy, education and health.

Finally, it is not all about economics. The EU and Gulf nations share many common interests with regard to security, as well as political, environmental and cultural issues.

Some of these - especially security - have been gaining prominence in recent years. Also, the political power balance in the region has been changing, with Russia gaining the upper hand - something which cannot go unaddressed by the EU.

And as economy and politics always go hand in hand, this might be yet another incentive for bringing the two blocs closer together.

Stasa Salacanin is a freelance journalist who has written extensively on Middle Eastern affairs, trade and political relations, Syria and Yemen, terrorism and defence.