Wednesday, 13 June 2007

The Truth about the American FTA agreements

Beneath the warm sands and sea-beds of the Arabian Gulf waters are vast deposits of rich black gold attracting people from afar with the promises of wealth beyond their imaginations. And just like this back gold gushes out once released from beneath the soil to adorn our cities with its splendor so the truth, in turn, longs to be set free in order to benefit the people of these lands.

Regardless of whether you are in favor of breaking down trade barriers or against them; something about the current US Free Trade Agreements (FTA) with the Gulf Cooperation Council (GCC) stinks. Because our regional governments don’t disclose the details of what they are negotiating with the US, it will be difficult to fully understand the situation until it is too late; and as usual, we have to rely on foreign sources for information.

The fact is the GCC countries are all members of the World Trade Organisation (WTO). Therefore, they have all gone through years of negotiations with more established and sophisticated trading countries who command a larger pool of resources at their disposal. These countries include the US, Japan and those of the European Union (EU). They have all ratified the entry of the GCC countries into the WTO (most recently Saudi Arabia in December 2005) and have not raised the issues that have come up during the FTA; such as the so called slave labor issue. There is no doubt that the GCC has to improve the lot of foreign labor but to refer to it as forced[1] is offensive to them and unjust to their host nations.

Is it not interesting to contemplate the reason behind the US’s insistence on negotiating the FTA with the GCC members on a country by country basis rather than as a unified bloc as in the case of the GCC negotiations with Japan and the EU? Simple reason - negotiating with members separately ensures that the US has more bargaining power over smaller countries rather than over a bloc that controls 45% of proven world oil reserves. According to the foreign minister of the Kingdom of Saudi Arabia, Prince Saud Al–Faisal, such an approach to negotiations "weakens the Gulf solidarity"[2].

I also wonder how many of you are aware of the “import relief” clause that can go up to ten years that the USA has included in the so called free trade agreement with Oman in case the latter’s exports are a “cause of injury or serious injury or threat of serious injury to the domestic (US) industry”[3]. I wonder what Omani export has the power to do all that.

So far the casualties of these FTA agreements have been relatively unknown, but even in the secretive world of GCC commerce every once in a while the truth finds its way to the warm sunlight. In this case, the first direct victim was the Kingdom of Bahrain, the very first nation who apparently angered Saudi Arabia so much so that the latter suspended over 143,000 barrels per day that were subsidised to the tiny kingdom by the oil giant[4]. This translates into many billions of dollars that by far outstrip any benefits that the FTA was hoped to provide to Bahrain especially if one takes into consideration the exponential increase in oil prices from a $25 average per barrel to $70 witnessed in the past few years. The US negotiations, which included 110 of the biggest American companies, made sure that the resulting 400 page agreement with Bahrain was indeed in their very best favor; thereby guaranteeing that these giant multi-national corporations enjoyed immediate 100% duty and barrier free access to the small Kingdom. The FTA clauses serve to substantially increase the $500m worth of annual exports versus $330m worth of mostly oil related imports from the 666 square kilometers Kingdom[5]. On the Bahraini side, the Kingdom exports less than 3% of its mostly refined petroleum production to the USA and imports 32% from KSA, hence it becomes tricky when Saudi suspends oil subsidies to Bahrain. The logic here is, if you generate 30% [6]of your GDP from a specific export (refined oil products) and you sign an agreement with the world’s super power to increase this export, it doesn’t bode well for you when you don’t have any more of that product to refine and sell, therefore rendering the agreement void.

We haven’t succeeded with the European Union’s FTA agreement which actually makes more sense even though it looks like it will take another 18 years to conclude mostly due to the bureaucratic EU procedures and systems. The EU constitutes the GCC’s top trading partner and according to the chief GCC negotiator it exported in 2005 $64 billion worth of goods and services to the GCC; while imports from the oil-rich bloc stood at $43 billion[7] which, although a deficit in our disadvantage is far less threatening than the ever increasing GCC-US deficit which turned into an arm twisting exercise by the world’s last superpower.

Keep in mind that the GCC-EU deficit is worsened by our stagnant monetary policy of artificially pegging our currencies with the perpetually declining US dollar when we can clearly free float them or alternatively, link them to a basket of currencies made of our biggest trading partners; thereby including the Yen, Euro, Pound and even the Dollar to minimise the “sick greenback[8]”effect.

Incidentally, our deficit with the US reached $15.5b in 2005 an increase of 15% every year; US exports to the GCC were $34.5b and imports from the oil-bloc were $19b the vast majority of that is oil, a product upon which the US is attempting to rely less and less on us as a source[9]. Hence, their objective is, rightly so, to find other sources to replace the only product we actually export to them and make sure we adopt an import 100% no questions asked policy concerning their competitive products.

And unlike the USA which freely invited dozens of its biggest industrial powers to the table, I have yet to read of any GCC FTA team that actually consulted their own industrial base let alone its public who will ultimately bare the brunt of the US flooding our local markets with everything from genetically modified foodstuff to gas guzzling automobiles.

Now to the UAE, I fail to understand the reason behind our obsession with signing this agreement. According to a study released by the Dubai Chamber of Commerce last May, the UAE’s trade deficit with the US has increased from $3b in 2004 to $7b in 2005, representing a 138% increase to their advantage which will only be exacerbated by the much sought after FTA, in their favour of course[10].

In the end, we do have the EU to thank for actually forcing the six members of the GCC to negotiate as a team and therefore is directly responsible for the existence of our customs union, however flawed it is. Nothing I write or you do will make a difference but sometimes, just sometimes in the GCC the truth can find its way to the surface to bask in the rays of our warm sunlight and be highlighted but for a few minutes to linger in the thoughts of a member of the FTA negotiating team.

[4] Gulf States Newsletter (GSN 737/11).
[7] 11-Jun-06 “EU - GCC on the edge of Free Trade Agreement deal”
[9] Global Trade Atlas

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