By: Meir Javedanfar - meepas.com
25/04/2005
The six member of the Gulf Co-operation Council (GCC) which are Saudi Arabia, Kuwait, Bahrain, Qatar, UAE and Oman have been discussing the formation of a Free Trade Agreement (FTA) with the European Union for a number of years. The negotiations made significant progress recently after the GCC states met a crucial requirement set by the EU for the start of the FTA talks. The requirement called for the formation of a Customs Union agreement between GCC member states. As a result of this agreement all imports into the GCC face a uniform rate of 5%, thus enabling the GCC to negotiate as a single block with the EU. Meanwhile GCC members have more economic integration plans in the pipeline. These include the establishment of monetary union in 2005, followed by a common market in 2007 and a single currency by the start of 2010.
According to reports both parties aim to conclude the FTA talks by the end of 2005. Some of the current stumbling blocks are over a number of economic matters whilst political differences exist over issues such as human rights.
The crucial question is: how will the FTA benefit Qatar and the EU? This analysis by meepas© will answer that question by first examining the background of existing relations between Qatar and the EU. The analysis will then move on to outline the status of the Qatari economy. The concluding part of this piece will address areas of mutual benefit as a result of the FTA.
Existing relations
Individual State Level
Germany
In terms of trade Germany is Qatar's largest single trading partner in the EU. According to the German government in 2003 German exports to Qatar amounted to EUR 426.1 million whilst imports from Qatar were valued at EUR 23.6 million. As in previous years, the leading German exports in value terms in 2003 were motor vehicles and plant and machinery.
UK
Politically the UK is Qatar's strongest partner in the EU. Qatar's former British colonial past, large number of Qatari students studying in the UK, close relations between the two countries Armed forces and large presence of British companies in Qatar's petroleum and financial sector all serve to strengthen relations between the two countries.
EU entity level
According to the EU in 1989 the EC and the GCC (which Qatar is a member) concluded a Cooperation Agreement under which the EU and GCC Foreign ministers meet once a year at a Joint Council/Ministerial Meeting. The objective of this agreement is to facilitate trade relations, as well as more generally to contribute to strengthening stability in the Middle East. Working groups have been established in the fields of industrial cooperation, energy and environment. In 1996, decentralised cooperation (university cooperation, business cooperation and media cooperation) was added to the agenda.
The 1989 Cooperation Agreement also contains a commitment from both sides to enter into negotiations on a Free Trade Agreement between the EC and the GCC. The negotiating mandate from the Council of the EU adopted in 2001 stated as condition for signature of such an agreement the constitution of a GCC Customs Union. Since then the Qatari government alongside other GCC countries have established the GCC Customs Union thus paving the way for negotiations with the EU for the establishment of the FTA.
The GCC is currently the EU's fifth largest export market. EU exports to the oil-rich Gulf monarchies were around 36 billion euros (46 billion dollars) in 2002, while imports amounted to around 18 billion euros (23 billion dollars).
Qatar - An economic profile
With a GDP per capita of $22,000, per head Qatar is one of the wealthiest countries in the world. The small kingdom has been relying heavily on the export of hydrocarbons for its income. However over the last number of years the Qatari government has been making a focused effort to move the economy away from its current public sector oil driven character. This is being done through privatisation of parts of the economy such as the telecommunication, power and water sector whilst there is now also talk of privatising the education sector. At the same time the Qatari government is focusing on the expansion of non oil areas of the economy such as tourism, trade and the real estate sector. The Qatari gas sector has also been the focus of government diversification plans and as a result has attracted substantial amount of government investment. (For further information on the most promising sectors of the Qatari economy, visit part one and two of the opportunities section in the meepas© Qatar country profile ).
The Qatari economy has been making solid progress recently. This is confirmed with the IMF forecast of 5.1% real GDP growth for the year 2005 and 5.6% for the year 2006. Furthermore the World Economic Forum recently recognised Qatar as t he most competitive economy in the Arab World. This recognition is a significant vote of confidence in Qatar's business infrastructure and environment. As a result the Qatari economy is increasingly found on the map of international investors.
The FTA agreement between Qatar and the EU is forecasted to benefit both parties in the following areas:
Increase in Trade
The biggest winner in this category will be the EU as a large slice of its exports to the Qatar consists of large machinery such as power generation plants, aircraft (Qatar Airways was one of the first airlines to order the new Airbus A380), electrical machinery items, mechanical appliances and medical equipment. As the FTA will allow tariff free import into the Qatari market, it is forecasted that import and demand of the aforementioned products from EU will increase as their prices will be more competitive in the Qatari market.
The FTA will also boost Qatari non oil exports to the EU however the increase in impact and size will not be on the same level as the EU. This is due to the fact that Qatari non oil exports to the EU (textiles, agriculture products and handicraft) have a lower monetary value
Investment in Qatar's non oil sector
The Qatari government has been actively encouraging foreign investment in a number of non oil key sectors such as power, telecommunication and parts of the real estate sector. The FTA will make investment in such sectors a more attractive process as it will remove existing barriers. As a result it is expected that EU investment in the aforementioned Qatari economy will increase significantly. However the biggest source of attraction for foreign investors will be the Qatari gas sector. With world's third largest gas resources the Qatari government has been spending heavily on the development of this sector and has invited the participation of foreign companies in joint ventures. Current participants include TotalFinaElf of France. However the number of European investors and suppliers to the Qatari gas sector is expected to increase after the implementation of the FTA. The Qatari power sector is also likely to attract the attention of EU investors due to increasing demand for power in Qatar.
Qatari investments in the EU
The FTA would also benefit EU companies as it will encourage Qatari investment in EU companies. The probabilities for such eventuality are very high indeed as upon recent observation of the gains made on the Doha securities market it can be forecasted that the Qatari investors will be looking for new investment opportunities for their newly found wealth.
In conclusion it is forecasted by meepas© that the biggest EU winners of the FTA will be EU manufacturing companies, especially those specialising in the transport and power sector. At the same time the biggest Qatari winners as a result of the FTA will be Qatar's non oil sectors (especially gas) which the government has been encouraging foreign investment in. It must be noted that the FTA will not be a competition free arena for EU companies as Qatar is also negotiating an FTA with the US. Therefore with the predicted competition between US and EU companies for a slice of the Qatari market, perhaps the biggest winner is the Qatari consumer.
End of Analysis Subscribe to the meepas Middle East Analysis Review subscribe@meepas.com Logon to meepas.com for access to detailed background and current political and economic analysis of 16 Middle Eastern countries.
www.meepas.com All rights reserved - Disclaimer
|
