GCC-UK FTA: A new era in GCC-UK trade relations?
“We are looking to do a really comprehensive, ambitious and modern, forward-thinking FTA (free trade agreement).”
Anne-Marie Trevelyan, UK’s International Trade Secretary, sounded positive and determined to strengthen trade relations between Arabian Gulf countries and the United Kingdom, the sixth-largest economy in the world. She made this statement prior to her visit to Riyadh on 22 June 2022 where she met with counterparts from all six GCC countries. The purpose of her visit was to launch talks for a much-awaited free trade agreement with the GCC, expected to be concluded in the next 12-18 months. Her statement made headlines across the region and the world over, raising hopes about the future of trade between Great Britain and its GCC allies. It came amid sky-high energy bills in Europe, a 10.1% inflation in the Kingdom and the UK government’s promise to diversify its energy sources into the country.
The UK accounts for 5% of all imports into the GCC. According to the UK Office for National Statistics, in 2020, the GCC exported £9.66 billion worth of goods and services to the UK and imported £29.63 billion worth of goods and services. UK firms have £13.4 billion invested in GCC economies and GCC firms have £15.7 billion invested in the UK, as of 2020. In 2019, over 25,000 jobs were supported by approximately 600 GCC-owned businesses in the UK – already a three-fold increase over the previous decade.
As the UK emerges from Brexit, it is keen to build its own trade relations with key partners. The importance of a trade relationship between the UK and the GCC was underlined by the recent visit of UK Prime Minister Boris Johnson to Saudi Arabia and the UAE. The deal is expected to increase trade between the GCC and UK by at least 16%, further increase foreign direct investments between the two regions and remove several tariff and non-tariff barriers. The biggest benefits of the trade agreements will be felt by the food and agriculture sector where the majority of GCC import tariffs, currently ranging between 5% and 25%, are expected to be reduced or removed. This will allow the GCC states, which are highly dependent on imported food, to support their food security objectives and ensure demand for food is met at a competitive price.
An FTA: now is the time
With global inflation touching new heights and post-pandemic economic recovery still a slow rate, the cost of international trade has increased significantly in recent years. Removing trade barriers, under the umbrella of a free trade agreement, can help both economies lower their costs, boost capital and trade flows, enhance decarbonization efforts, improve innovation output, and create jobs. In particular, such trade agreements can help support the GCC chemical industry, which exports close to 85% of its production.
Based on the UN Comtrade statistics, chemical and petrochemical imports from the GCC to the UK amounted to 4% (£0.21 billion) of total imports from the Arabian Gulf region in 2021.
Plastics and plastic products, and miscellaneous chemical products were among the top 10 commodities imported by the UK in 2021. These experienced an increase of 6.6% and 63.4%, respectively, compared with 20201. Under these two categories, the share of GCC imports was ranging between 0.03% – 1.1%. Still relatively small, there is scope to increase the size of imports from the region with improved, tariff-free access to the UK market.
A trade agreement will provide opportunities for GCC chemical companies to gain early access to the UK market at favorable terms. It would also provide an opportunity to design simple and flexible rules of origin to ensure that tariff benefits are maximized. Furthermore, the agreement could focus on sector-specific provisions addressing non-tariff barriers, especially for export-oriented sectors, such as chemicals. The UK has included sector-specific annexes on non-tariff barriers addressing trade in chemicals in the UK-EU Trade and Cooperation Agreement (Annex TBT-3). These provisions seek to facilitate trade in chemicals, providing for a regulatory cooperation and convergence.
Cooperation on sustainability and IP
Alignment on sustainability standards can boost trade in sustainable goods between the GCC and the UK, spur innovation and support the establishment of joint research and development programs. These can be further enhanced with robust intellectual property rights protection protocols that potentially go beyond the standard of protection in the WTO TRIPS Agreement.
A competitive trade agreement between the United Kingdom and the six GCC states will yield in significant benefits for all sides and build on decades of strong economic cooperation and mutual investments. The two regions can grow their cooperation in the areas of chemicals and petrochemicals, energy, food security, sustainability standards and intellectual property. As Britain’s leadership demonstrates willingness to forge new partnerships with the region, it signals a new era in GCC-UK trade relations. Only time will tell how this translates into results and concrete actions.