With a write-down of Greek debt seemingly inevitable, the European country has gained pariah status among international investors. Yet in October Greece celebrated a major investment by Qatar, the natural gas-rich Gulf country. Recently named the wealthiest nation in the world by the International Monetary Fund, Qatar committed US$1 billion to one of the biggest gold-mining projects in Greece. In August, Qatar provided US$670 million for a majority stake in the merger of two of Greece's largest banks. The deals constitute a portion of US$5 billion in planned Qatari investments there. After signing the mining deal, Greece's Prime Minister George Papandreou told reporters that Qatari investment was a vote of trust in the Greek economy.
Qatar's spending extended to Belgium and Luxembourg this week, aquiring private banking units from troubled banks. Other ailing European economies would welcome similar financial injections from wealthy Gulf nations. In September, rumors that Saudi Arabia would buy eurozone debt became loud enough that its central bank governor Muhammad Al Jasser had to publicly deny it himself. Kuwaiti officials promptly announced they would be open to acquiring European assets. Even private companies are looking to the Gulf to cover European funding shortfalls: The same month, Boeing sought Middle East investors for funding, as European banks were unable to finance airline orders for planes.
Whatever deals may be in the offing, an obstacle to economic relations between the European Union (EU) and the Gulf Cooperation Council (GCC) stubbornly remains: The lack of a free trade agreement, despite nearly two decades worth of negotiation attempts. The current eurozone crisis — many Gulf banking institutions have publicly stressed their lack of exposure to European debt in recent weeks — will only further delay any agreement.
When asked by reporters in October about a conclusion for a free trade agreement between the GCC with the EU in light of its debt issues, Younis Al-Khoury, the under-secretary of the United Arab Emirates' Finance Ministry, offered little other than to suggest discussions were ongoing. "We are aiming to work towards enhancing GCC economies in light of recent global events, which requires further integration between our countries to allow us a stronger negotiation position and a higher competitive capacity in international markets," he said.
The first cooperation agreement between the EU and the GCC was reached in 1988, and a free trade agreement was envisaged at that time. The goal was to eliminate tariffs and quotas on goods and services, with a focus on oil exports from the Gulf and for the petrochemical industry in Europe. Also at that time, the EU-GCC Joint Ministerial Council was formed. Scheduled as an annual meeting, it was intended to be a place for Gulf and European officials to discuss economics and politics.
But while talks occurred, little headway was made on a free trade agreement. "The two sides were simply not ready — institutionally or politically — to engage in such a complicated matter," says Christian Koch, director of the Geneva-based Gulf Research Center Foundation. "The agreement was not even ambitious in scope and not pursued with urgency." With time, frustration grew. EU and GCC representatives became impatient, both sides perceiving unwillingness to strike a deal.
One issue was the EU's desire for a regional framework to deal with the GCC, rather than having to interact with each country in the Gulf on a separate basis. However, decision-making in the GCC has long been held at the member state level rather than within a regional or global framework. "The GCC is heterogeneous, and has a lot of internal divisions which are problematic and decrease the credibility of a union," says Cinzia Alcidi, research fellow at the Centre for European Policy Studies in Brussels.
Another obstacle arose from EU requirements, such as respect for democracy or human rights, which are obligatory in all its comprehensive agreements with third parties. The European Parliament, since the ratification of the Lisbon Treaty, is allowed to disapprove an agreement if a treaty partner doesn't respect those clauses.
GCC representatives had their own complaints, chiefly concerning a perception that their EU counterparts weren't treating them as real partners. The EU constantly delayed negotiations or set forth new conditions that were interpreted as interference in the domestic sovereignty of GCC members. The delays took greater insult as the EU arranged cooperative arrangements with Arab countries in North Africa, chiefly the Euro-Mediterranean Partnership in 1995. "This is [the result of] security and immigration politics," says Abdullah Baabood, director of the Gulf Research Center at the University of Cambridge. "The south of the EU doesn't want to see waves of [North African] immigrants come into their countries."
These issues are still outstanding, but Koch explains both sides began to make serious ground towards a free trade agreement when the GCC began implementing a customs union in 2003. "It became a real negotiation between the two regions, and important progress was made," he says. Under the GCC customs union, Gulf imports would be subject to a 5% tariff. The union would also establish a common customs law. GCC officials expect the union to be finalized by 2015.
For Mutual Benefit
Despite the lack of a free trade agreement, the EU and the GCC still economically benefit one another. According to Eurostat, the trade balance between regions hovers at US$40 billion, more than double in the last five years, and the EU remains the GCC's largest trading partner.
But while negotiations for a free trade agreement stalled, Asian countries moved quickly to sign agreements with the Gulf. Trade between the GCC and Asia has nearly tripled in the last five years, led by China, India, Malaysia, Japan and South Korea. For the Gulf, Asian investment and trade is attractive, since Asian countries are not interested in interfering in the domestic politics of their business partners.
Americaalso remains a good trade partner for the GCC thanks to its security approach to the region. "But Americans want to dominate negotiations," Baabood notes. "Europeans are easier, more open to discussion." The EU has never felt an urgency to secure its energy supply, except when Russia held up delivery of natural gas to Ukraine. "The willingness of Gulf suppliers to support stable markets, prices, and production, has — in many policy-makers' judgment in Europe — rendered unnecessary any more formalized or geopolitical approach to energy cooperation with the GCC," says Ana Echagüe, a researcher at FRIDE, a Madrid-based European think-tank.
A potential trade partnership with the EU prompted the GCC to begin considering the European model of a common currency and centralized political system. But the EU's debt problems have cooled the notion of a common GCC currency, and even though progress continues on the GCC customs union, the region lacks a Schengen-type agreement allowing for free travel of people and goods between its members.
A political union seems even more difficult to reach, as in the GCC, no state wants to lose its decision-making power to a supra-national organization. "The GCC is a cooperative, and the EU is a union," Koch notes. "It means the original goal is different. So maybe on many projects the EU can be a model. But its degree of union is not an objective for the GCC."
Still, Baabood from GRC at Cambridge in the U.K. argues there are other reasons to compel an EU-GCC free trade agreement. "I still believe in the strategic relation is with the EU," he says. "China has never considered the GCC as more than a business partner. Europe can offer experience, technology and know-how. The culture in Europe is also more similar to the Middle East than that of Asia."
Central Sticking Point
In 2008, a number of the concerns regarding a free trade agreement between the GCC and the EU were addressed. But the issue of export duties became a central sticking point. The GCC considered export duties as a part of its World Trade Organization committments. GCC officials didn't want to include export duties in a free trade agreement, considering it would only be applicable to 10% of their exports. Indeed, oil and gas exports from the Gulf are not subject to a free trade agreement, while European products exported to the GCC are.
The EU was inflexible, arguing to have the same conditions for goods offered by the GCC to the U.S. The GCC broke off the discussion, judging they were important enough in world trade to not be threatened and have rules imposed on them like any other small country. "This will be an asymmetric free trade if one part is allowed to give subsidies," notes Cinzia Alcidi, from CEPS in Brussels. "The free trade agreement is not so important," Baabood adds. "Both parties can work together in another framework. But they will reach an free trade agreement, because it has cost a lot of time and the permanent failure would be embarrassing."
Officials from both regions have come to realize they need better understanding of their counterparts. A European Commission office has existed in Riyadh since 2004, and it is considering opening additional offices in other GCC states. A GCC office has also opened in Brussels. To battle the lack of knowledge, in 2008 the European Commission launched a two-year project: Al-Jisr (the 'bridge' in Arabic) that attempted to explain to GCC institutions, citizens, and journalists, the EU institutions and framework. "To help the GCC to grow into regional cooperation, the EU needs to build up a cadre of regional experts, who must not try to simply export EU models," adds Echagüe, the researcher at FRIDE in Spain.
Although the discussion for a free trade agreement seems mired in deadlock, the EU-GCC Joint Ministerial Council adopted a joint action plan for the next three years to develop relations and reinforce cooperation with the GCC in 14 key strategic areas, from finance to telecommunications, culture and education. For example, the mobility of students and professors will be enhanced between the two regions, thanks to an expanded Erasmus Mundus program, originally an exchange between European universities. "Each field and level has concrete mechanisms, Koch notes. "It is actually moving forward. But the free trade agreement remains the bottom line, even if it isn't the top priority anymore."