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Sun 4 Mar 2007 12:00 AM

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EU pushing for GCC FTA breakthrough

A free trade agreement could be signed by June 2007 if the Gulf States "make a determined effort".

A free trade agreement (FTA) between the European Union (EU) and the GCC could be signed by June 2007, but only if the Gulf States “make a determined effort to go the final mile in the negotiations”, the Rt Hon. Peter Mandelson, EU Trade Commissioner, has told Arabian Business.

The FTA talks that began in 1990 will be resumed in the region in March following technical discussions in Brussels. And, according to Mandelson, the key to a resolution is for the GCC to remove limitations against European businesses in the region.

“We’re willing to offer 100% liberalisation for goods over four years, we’re offering very good access to Europe’s key services markets, and we offer excellent investment conditions in Europe for Gulf investors to take advantage of,” he said.

“In a trade agreement of this kind however, these offers have to be matched and that means removing some of the restrictions and limitations that operate in the Gulf more quickly than is currently envisaged,” he added.

One of the main restrictions to European businesses in the region is the ownership cap that limits the control that foreign companies can have over their Gulf-based operations. By lessening ownership regulations however, Mandelson insists that the Gulf could take advantage of an influx of European investment.

“At the moment we feel that the emphasis being placed on local ownership is too great and certainly greater than Gulf economic interests would suggest,” he said.

“We still have problems with services trade and investment caps in some Gulf states and in some sectors, for example banking, telecoms and maritime in the Emirates, in transport and environment services in Qatar and in legal services in all six Gulf markets,” he added.

Mandelson played down claims that a softening of foreign ownership rules would have an adverse affect on the region’s large family businesses that often act as the local partners for multinational franchises.

“I’m not talking about all caps being removed in all sectors simultaneously and immediately,” he said. “I’m talking about necessary changes in key sectors that will enable European businesses to invest but also to exercise control over their businesses as they’re entitled to expect and this would go either side by side or in partnership with the local business community.”

The EU trade commissioner also denied that the liberalisation of ownership laws across the GCC would threaten the future of the region’s free zones, that exist to create a restriction-free climate for foreign businesses.

“Free zones are only a partial way of doing what the economy as a whole should do or would benefit from and I regard them as a stepping stone and not the answer.

“[They] can just as easily be closed down and their terms changed as they were created in the first place and therefore they don’t give the certainty that foreign investors desire.” Mandelson added that the FTA would look to alleviate the region’s impending job shortfall, by helping to expand the GCC’s private sector.

According to an EU analysis, an FTA between the GCC and the EU would increase trade between the two parties by US$5bn in its first year.

On Monday, Mandelson said that the EU was showing more flexibility on rules of origin, and looked forward to speeding up the discussions. He added that Europe wants closer partnerships with its friends in the Gulf to promote economic diversification.

At the moment, the majority (56%) of EU exports to the GCC are made up of machinery and transport materials while 70% of EU imports from the GCC are fuels and derivatives. Mandelson has spent recent weeks visiting the UAE, Saudi Arabia and Qatar prior to the FTA negotiations.

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