x Abu Dhabi, UAEWednesday 17 January 2018

GCC's free trade deal with EU sticks over Saudi export tariff

After 20 years, negotiations between the EU and the GCC have stalled because of Saudi Arabia's plastics subsidies and alleged 'name-calling' by West

BRUSSELS // After two decades, the gap between the GCC and the EU on a free-trade agreement has been narrowed down to "two to three paragraphs" of a 2,000-page document, trade negotiators say. The main sticking point is over export duties, according to EU and GCC officials.

Negotiators say one Gulf country wants to impose duties on some of its exports. EU and GCC diplomats say that country is Saudi Arabia which, they say, wants to impose tariffs on its petrochemical exports. Marcus Noland, the deputy director and senior fellow at the Peterson Institute for International Economics in Washington, explained that tariffs could be used as a way to influence global prices for petrochemical products.

Saudi Arabia provides cheap raw materials for its petrochemical industry, allowing its plastic and other products to be sold at lower prices than those made elsewhere. However, exporting them would in effect transfer those subsidies abroad. Tariffs would be a way for the Saudi government to claw back the subsidies. Saudi Arabia "needs a policy to restrain its domestic producers so that they don't overproduce, and drive down prices sub-optimally", Mr Noland said.

"In the petrochemicals case, it wants to apply an export tariff to retain some of the [subsidies] that otherwise would [be conveyed] to consumers abroad. My impression is that the issue is essentially the same sticking point that came up between the EU and Saudi Arabia in regards to Saudi's [World Trade Organisation] application, deriving from its position as a dominant producer of oil whose policies affect world prices.

"From the EU standpoint, Saudi Arabia is subsidising the development of its local [petrochemical] firms, making them into formidable competitors ... while, at the same time, applying an optimal export tax to retain the rents generated by its dominant position in oil production," he said. However, Mr Noland believed some compromise would eventually emerge. "Since the EU has both producer and consumer interests which are opposed in this case, I assume that the final result will be some sort of compromise balancing these interests."

Indeed, an EU negotiator said the bloc had suggested Saudi Arabia could impose duties on a percentage of export products, but the GCC insisted on imposing them across the board. "The EU suggested a percentage of exports" to be subject to tariffs, the official said. "We didn't discuss the exact percentage because the GCC is adamant that all products are subject to export duties." Even if an agreement were concluded now, it would take more than a year to go into effect, according to officials on both sides.

First, it would have to be approved by the European Parliament. EU trade officials are concerned members of European body may raise issues such as labour rights and environmental policies in the GCC, threatening decades of negotiations. One EU negotiator who has been directly involved in talks for three years said all issues other than the export duties and labour rights were resolved in 2007. "The pity is that between 2004 and 2007 we agreed on 98 per cent of the agreement. But since 2007, some of the issues were opened," the official said.

"The GCC wants to impose duties on certain products for exports. Today you don't impose duties," she said. For its part, the GCC believes the problem is on the EU side. Nabeela Abdulla al Mulla, Kuwait's ambassador to Brussels, said earlier this month that the EU does not take the GCC seriously enough. Although as a bloc the GCC is the EU's fifth-largest trade partner, she said, the figure is never shown in EU statistics, which instead list individual states.

She voiced irritation over "name-calling" directed at Saudi Arabia. "Our principal position is that we negotiate with the Europeans as a bloc," she said. The GCC officially suspended negotiations in April 2009 after a meeting between the two blocs in Muscat. The sides have since met several times, though only informally. Last week, Abdul Rahman al Attiya, the GCC secretary general, said that after an annual meeting between GCC and European foreign ministers in Luxembourg, the two sides had agreed to continue "consultations".

Officials on both sides have privately expressed frustration over the stalemate in relations between the two blocs, adding that the chances of an agreement this year or next were slim. mhabboush@thenational.ae