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DUBAI, May 25 (Reuters) – The United Arab Emirates is increasingly seeking to strike bilateral trade deals outside the Saudi Arabia-based regional Gulf Cooperation Council (GCC), as the oil-rich region with Riyadh Competition for economic dominance has intensified.
Since 2021, the UAE has initiated a series of trade, investment and cooperation deals – known as the Comprehensive Economic Partnership Agreement (CEPA) – on its own, bypassing the GCC, customs union, common market and negotiating bloc.
Both Abu Dhabi and Riyadh are accelerating plans for a post-oil economy to reduce their reliance on fossil fuels, but the UAE, as the Middle East’s existing business and tourism hub, has a first-mover advantage over its larger neighbour. Building on its existing trade infrastructure, it now hopes to become a global supply chain leader.
The GCC meanwhile has stepped up competition, holding a new round of free trade agreement (FTA) talks with major trading partners including China, South Korea and the post-Brexit UK. The GCC secretariat has also appointed a chief trade negotiator in 2022.
Abdullah Baabood, an expert on Gulf affairs at Waseda University, said the UAE’s unilateral trade push showed that some member states were not necessarily happy with the way the GCC had handled free trade agreement negotiations.
“Right now there is more and more competition between Saudi Arabia and the UAE, especially on the economic front. The UAE … wants to be freer in negotiating free trade agreements, it wants to be ahead of everyone,” Baabood said.
Officials from the Saudi government, the UAE foreign ministry and the Gulf Cooperation Council did not respond to requests for comment.
Asked about competition with the UAE, Saudi Investment Minister Khalid al-Falih told a conference on Tuesday: “Within the GCC, we see ourselves as a common market … but the combination of size, vision and quality is very difficult. important, and Riyadh has all of that and more.”
priorities
Through bilateral negotiations, the UAE can more quickly advance its economic and political priorities.
From former political rivals Israel and Turkey, to Asian giants India and Indonesia, the UAE has so far signed four CEPAs and says it takes an average of six months to negotiate traditionally laborious trade deals.
Few GCC free trade agreements have been signed, and negotiations (such as those with China that began in 2004) could stall for years as the bloc grapples with competing internal priorities and brewing political disputes.
Some of Saudi Arabia’s previous initiatives are also seen as direct challenges to the UAE, such as requiring foreign companies to set up regional headquarters in Saudi Arabia in 2021, otherwise they risk losing government contracts.
2021, Riyadh unilateral import rules changed Goods from GCC countries exclude goods produced in the free zone or use preferential tariff concessions imported from Israel, despite the customs union.
For the UAE, which has major security ties with the West, Asia is a particular focus of the CEPA strategy. Talks with Malaysia and Thailand were announced this month.
The UAE’s non-oil foreign trade will reach AED2.2 trillion ($599 billion) in 2022, up 17% year-on-year, with re-exports up 21% from 2021 and exports more than 50% higher than in 2019 before the pandemic, government data showed.
CEPA with India, one of the UAE’s largest trading partners, has reduced or eliminated tariffs on more than 80 percent of products, with trade expected to reach $100 billion within five years.
In the 11 months since the implementation of CEPA in May 2022, the bilateral non-oil trade volume was US$45.5 billion, a year-on-year increase of 6.9%, according to Sani Zeyoudi, UAE Minister of Foreign Trade.
The UAE and India are very close to agreeing to settle some non-oil commodity trades in rupees, two sources told Reuters.
Dubai-based economist Nasser Saidi said CEPA could be a “stepping stone” into financial markets, facilitating cross-listing of companies and cooperation in new areas such as clean energy. “They signaled a decision to engage on a broader diplomatic front.”
UAE restrictions
More than 10 CEPAs are in the works in the UAE, but some major partners such as China, the UK and South Korea prefer to negotiate free trade agreements with the six-member Gulf Cooperation Council, which has a population of 56 million and a combined GDP of $1.6 trillion in 2021 .
“Negotiating a GCC-wide free trade agreement could make it easier … to operate between jurisdictions within the GCC and could facilitate broader geopolitical objectives to encourage greater economic integration,” said Freddie Neve of Asia House.
Relations between Saudi Arabia and Crown Prince Mohammed bin Salman China In recent years, China-GCC FTA negotiations and bilateral investment have continued to strengthen, injecting new momentum into China-GCC FTA negotiations and bilateral investment.
Some analysts expect the GCC-China free trade agreement to be finalized in 2024.
South Korea was one of the first countries to initiate CEPA negotiations. However, three months later, it restarted dormant GCC free trade agreement negotiations.
“We are asking countries to choose the track they are willing to negotiate,” UAE Minister Zeyoudi told Reuters.
There is regional precedent: Bahrain and Oman signed bilateral free trade agreements with the US in 2006 and 2009.
However, the British embassy in Dubai said the UK was committed to a GCC free trade agreement of “maximum economic and strategic value to both parties”.
Zeyoudi said that while the CEPA agreement should be aligned with the GCC customs union, individual countries could be bilateral if the terms were not as favorable as the GCC bloc.
The GCC declined to comment.
Reporting by Rachna Uppal and Lisa Barrington; Additional reporting by Aziz El Yaakoubi in Riyadh; Editing by Elaine Hardcastle
Our standards: Thomson Reuters Trust Principles.
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