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MENA Watch: All eyes on GCC as United Kingdom begins talks for new free trade agreement

According to the United Kingdom government, a thorough FTA would eventually boost the UK economy by 1.6 billion pounds annually

The United Kingdom government has stated that talks on a new free trade agreement (FTA) have begun with the Gulf Cooperation Council (GCC). The GCC includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, six high-income countries with a combined population of 54 million and a USD 16 trillion economy.

The six GCC nations are worth more than 33 billion pounds in commerce to the European country each year, making the group the country’s fourth-largest market for exports outside of the European Union.

According to the United Kingdom government, a thorough FTA would eventually boost the UK economy by 1.6 billion pounds annually. So what do we hope to accomplish in a successful negotiation?

Large Export Destination With Opportunities

An FTA with the GCC might reduce exporting costs while enhancing domestic choice and competitiveness. Many United Kingdom products entering the European Union are subject to import duty, albeit rates are typically low, at around 5.5% on average.

However, several Gulf nations have major exclusions, especially regarding food products. For instance, some GCC nations have tariffs of up to 25% on cereals, 15% on chocolate, and 10% on biscuits. GCC nations are an important export market for British farmers because they rely on imported food.

Additionally, we believe FTA will support increased industrial exports, notably in the machinery and automotive industries.

The GCC governments’ transition from oil to renewable sources presents a sizable opportunity for the United Kingdom’s green energy sector to expand its presence there.

For instance, by reducing or eliminating the 15% tariffs that are now imposed on parts for wind turbines.

Other benefits for goods dealers include making use of clear and transparent customs procedures, simplified rules of origin, and perhaps the elimination of differences in duty rates for the same product across the GCC.

Additionally, producers must adhere to a broad range of intricate product requirements that may be streamlined and made more visible through an FTA with greater coordination between authorities in each nation.

Small and medium-sized enterprises, which export over 85% of all United Kingdom goods to Qatar, Saudi Arabia, and the UAE, would benefit most from these enhanced conditions.

Difficult Path

The development of an integrated services market will be difficult to achieve.

The United Kingdom, the second-largest services exporter in the world, could greatly profit from a significant easing of the limitations on the export of services currently in place in the Gulf states, where foreign equity caps, residency requirements, and joint-venture restrictions are prevalent.

This will be a difficult component of the negotiations because there is no integrated services market in the GCC and each country has its separate regulatory environment and legal system. However, given that the United Kingdom already exports more than 12 billion pounds worth of services annually, even a small improvement, such as increased transparency and cooperation among the GCC countries themselves, would be beneficial.

An FTA may secure new pledges to assist professionals in joining each market for both short- and long-term visits, which would promote deeper trade in services. Improved terms for business travel might also help generate deeper trade in services.

Commitments to streamline procedures and improve transparency might go a long way, especially in assisting small and medium-sized exporters. Visa arrangements in Gulf states are frequently seen as difficult, time-consuming, and expensive.

Legal Clarity Around The FTA

Already worth 30 billion pounds, the bilateral investment partnership between the United Kingdom and the GCC countries spans a wide range of industries, from construction to the medical sciences.

In addition to removing several restrictions that may be preventing investment, including equity ceilings, licensing restrictions, and restrictions on business structure, an FTA also contributes to legal certainty.

Additionally, it could liberalize market segments that are now unable to gain from foreign investment. For instance, Kuwait practically prohibits foreign investors from entering the country’s oil and gas sector.

The GCC states have several regulations in place that make it difficult for United Kingdom suppliers to participate in government procurement opportunities because none of the GCC states are signatories to the WTO government procurement agreement.

For instance, Saudi Arabia mandates that 30% of the value of procurement contracts be subcontracted to businesses run by Saudi nationals. In Qatar, a comparable setup is in place.

Foreign businesses working in the UAE frequently lament the opaque procurement procedures and sluggish payments in Bahrain, where tendering procedures are exceedingly complicated and time-consuming.

By reducing some of these obstacles, offering suppliers enforceable guarantees, and contributing to increased openness of procurement opportunities and procedures, an FTA could increase market access.

Securing A Digital Chapter

An ambitious digital chapter might serve to open up prospects for priority industries while boosting efficiency in the bilateral trade corridor since over 56% of the UK’s services exports to GCC states are now provided digitally.

A successful solution would be a modern digital chapter that incorporates some CPTPP and UK-Singapore DEA e-commerce rules. Negotiators will put pressure on GCC partners to drop regional data localization rules, offer guarantees regarding the secrecy of source codes and algorithms, and advance the adoption of paperless trading.

A thorough FTA will also include provisions in a variety of other sectors, such as labour standards, agriculture, intellectual property, innovation, and competitiveness. The first round of talks has not yet been scheduled, although it is anticipated that it will happen in the summer of 2022, concurrent with the UK’s other trade talks, including those with Canada, Mexico, and India.

However, negotiations with the six Gulf countries could be more logistically difficult and end up taking a lot longer than some of the other negotiations. The government has stated that it hopes to have the negotiations wrapped up in two years, with implementation taking at least another three.

The Final Verdict

No matter how this agreement turns out, the economic route between the United Kingdom and the Gulf will expand over the coming years.

In fact, it is anticipated that by 2035, the GCC’s demand for imported products and services will increase by 35%, or 800 billion pounds.

British enterprises will be able to gain an even higher part of the commercial opportunities this rapid development offers if the FTA negotiations are successful.

Although the execution of a potential agreement may seem far off, the time has come to estimate the possibilities for your company.

Whether you operate a large or small business or provide goods or services, you should review your operations, supply chain, and investment choices to position your company to benefit from these growing relationships.

The experts at Deloitte are available to assist you in determining your priorities.

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