By Oliver Cornock

ALMOST 30 years after talks on a free trade agreement (FTA) between the European Union (EU) and the Gulf Cooperation Council (GCC) opened, momentum is growing to finalize a deal that could bring substantial benefits to both blocs.

Collectively, the GCC is the EU’s fourth-largest export market. The EU’s market of 508m people is a major trade and investment partner for the GCC, and as the Gulf economies look to diversify their exports, attract new investments, and broaden their own investment portfolios, the rationale for a wide-ranging FTA has never been stronger.

MAJOR PARTNERS: Bilateral trade between the EU and GCC totalled €138.58bn in 2016, according to the European Commission, the EU’s executive arm. Of this, exports from the GCC to the EU totalled €37.78bn, while imports reached €100.8bn. Trade figures are strongly affected by the prices of oil and gas, which make up a large share of the GCC’s exports. In 2016 primary products accounted for 70.7% of the EU’s imports from the Gulf bloc by value; and mineral products (dominated by oil and gas), 66.1%.

The lower oil price has pushed down overall trade values between the EU and the GCC: between 2012 and 2016, GCC exports to the EU fell by an annual average of 11.4%, though at the same time imports rose by an average of 4.8%. In 2013 mineral products exports totalled €43.41bn, which fell to €24.96bn by 2016. Meanwhile, exports of manufactured goods have not grown as quickly as hoped — indeed, exports of plastic and rubber articles fell from €3.46bn in 2013 to €2.97bn in 2016, while chemical and related industry exports dropped from €2.31bn to €1.78bn, though these declines are partly due to the falling costs of commodity imports.

In the other direction, the GCC’s leading import category from the EU is machinery and appliances, totalling €29.09bn in 2016, followed by transport equipment (€20.64bn), and chemical and allied industry products (€10.37bn).

TALKS FOR TRADE: The framework for economic and political cooperation between the EU and the GCC was established by the 1988 EU-GCC cooperation agreement, with the aim of improving trade relations between the blocs and underpinning the Gulf region’s stability as a strategic part of the EU’s “neighborhood”. The agreement established a Joint Council and a Joint Cooperation Committee, which have annual meetings to discuss trade and other issues.

The two blocs started negotiations for an FTA in 1990, with the agreement expected to enshrine “progressive and reciprocal liberalisation of trade in goods and services”, potentially providing a significant fillip to bilateral trade by easing tariff and non-tariff barriers, opening markets and making it cheaper for consumers to acquire goods and services provided by the other grouping’s member states. However, talks were halted in 2008 after the GCC member states withdrew over disagreements regarding export tariffs and associated political demands being made by Brussels.

NEW MOMENTUM: However, the increasingly clear economic logic behind an FTA, as well as shifting political realities, has led to growing calls for negotiations to be restarted. Practical steps taken suggest that relations between the two organisations are strengthening again. In April 2016, the Joint Cooperation Committee agreed to set up “a more structured informal dialogue” on trade and investment, providing a framework of issues of common interest.

“The GCC and EU already spent 20 years in negotiations towards an FTA,” Samantha Seewoosurrun, managing director at Acuitas Communications, a Brussels-based consultancy, told OBG. “Since talks ended the context has changed dramatically, and countries like the UAE can actually show the EU the way when it comes to innovation and growth, with Dubai’s role as a global aviation hub far eclipsing that of Europe, for example. There is fresh momentum this year towards a new round of talks led by the business community, with BusinessEurope [the confederation of European businesses] and the GCC having signed an agreement in January 2017 which is intended to pave the way to a new FTA.”

In January 2017, European Commission Vice-President Jyrki Katainen told news agency AFP that the EU hoped to restart talks on the FTA with the GCC, and that there was mounting “political momentum” behind a deal. Katainen, who is commissioner for jobs, growth, investment and competitiveness, said that pressure to restart talks was partly a response to rising protectionist sentiment globally, and a “worrisome” political climate. An FTA between the EU and GCC “would be a strong signal” affirming both blocs’ commitment to freer trade, Katainen said, following meetings with Saudi officials.

In April, Qatar Chamber Vice-Chairman Mohammed Bin Ahmed Bin Towar Al Kuwari added his voice to those calling for a resumption of FTA talks, telling an EU trade delegation and a group of Qatari businesspeople that Doha and the GCC leadership as a whole was keen to restart negotiations. Al Kuwari noted that trade between the EU and Qatar alone totaled $18.1bn, and that opportunities for EU investors are increasing through a wide range of infrastructure projects under Qatar’s National Vision 2030 and its preparations to host the 2022 FIFA World Cup. He underlined the potential for EU investors to form partnerships with Qatari businesses, boosting knowledge and technology transfer on one hand, and local expertise on the other.

Seewoosurrun says that the UK’s impending departure from the EU has had an unexpectedly positive effect on momentum behind a deal, with a race between London and Brussels to cement a new partnership. The UK has a long history of trade and investment with the Gulf, and in December 2016 Prime Minister Theresa May announced a new “strategic partnership” between Britain and the GCC during a visit to Bahrain. But it may be that the EU has more capacity to seal a long-awaited FTA before May’s ministers and diplomats secure a deal for the UK.

— Oliver Cornock is the Editor in Chief of Oxford Business Group