The Key International Trading Factors - Research Paper Example

?The key international trading factors between the European Union and the Middle-Eastern countries European Union (EU) is one of the prominent organizations or the regional blocs in the world at present. Even though the European culture has more differences than similarities, majority of the European countries were organized under the label of EU for the integration of the European region. “According to a recent Euro barometer poll, only one third of people in the UK feel both British and European, while two thirds think of themselves as being just British” (Figel, p.3). Moreover, Dudt (2009) has quoted the opinions of one of the founding fathers of the EU, Jean Monnet: “If I could seize a fresh opportunity for the political integration of Europe, I would start from culture and not from the economy” (Dudt, p.3). The European countries consists of religions like Roman Catholicism, Orthodox Christianity, Protestantism, Sunni Islam, Shia Islam, Judaism and Buddhism. All these religions entities are different in their traditions, beliefs and ideologies. Catholic Christians are concentrated mainly in countries like, Italy, Vatican, France, Hungary, Poland etc. Turkey, Syria, Algeria like countries have Islam as the major religion Orthodox Christians are heavily populated in countries like, Russia, Ukraine, Rumania, Bulgaria, Greece whereas Protestant Christians are staying in mainly in countries like Denmark, Germany, Finland, Sweden etc. Even amidst these extremely diverse cultural diversities, most of the European countries were able to assemble under the flag of EU for improving their bargaining power in the global trade activities. Common currency Euro is introduced in order to improve the integration process further. Middle East, especially the gulf countries are traditionally goof trading partners of Europe. In fact most of the gulf countries are engaged in more trade activities with the Europe than with any other region in the world. Majority of the gulf countries are Muslim countries and even then they have less political problems with the European world. On the other hand, America’s foreign policies and activities were watched suspiciously by the Gulf countries because of America’s unholy tie up with Israel. Thus most of the Middle Eastern countries took the EU as their best friend in trade activities. However, the trade activities between the gulf countries and the EU have witnessed lot of ups and downs in the recent times because of various reasons. This paper analyses the success and failures of EU’s trade tie ups with Middle East over the years. Relations between the European Union and the GCC date back to the mid-1980s. In 1989, the two organizations signed a cooperation agreement, which included a wide range of sectors: agriculture, fisheries, industry, energy, sciences, technology, investment, environment, and trade. Over the years, dialogue between the EU and GCC has been characterized by ups and downs and has mainly focused on trade cooperation. During the 1990s, trade flows between the two blocks were actually very low, and only since 2001 they have began to intensify, thanks to the increase in oil prices rather than to the intensification of trade volumes. Negotiations on a Free Trade Agreement (FTA) have been part of EU-GCC cooperation, but after 20 years, this goal is still elusive (Talbot, p.13) Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates are the major GCC countries which have strong trade tie ups with the Europe. These six countries formed a regional organization; The Cooperation Council for the Arab States of the Gulf (GCC) in May 1981. “The major objectives of this cooperation are to enhance coordination, integration and inter-connection among its Member States in different spheres”(The EU & the Gulf Cooperation Council (GCC)). “All these six GCC countries currently benefit from preferential access to the EU market under the EU's Generalized System of Preferences (GSP)”(Gulf region 2010). Even before the formulation of European Union, many of the European countries engaged in mutual trade activities with the Gulf region. Europe mainly exported machinery and transport materials like power generation plants, railway locomotives, aircraft, electrical machinery and mechanical appliances to Gulf countries and imported mainly fuels from the Gulf countries. Europe is importing around 73.4% of their fuels and derivatives from gulf region as per the statistics available in 2009. Since 2003, EU policymakers have been sharing their experience of economic unification with policymakers from the Gulf; topics that have included were common trade policy, fiscal aspects of a single currency and moving from customs union to a single market. EU exports of goods to the Gulf region in 2009 was €57,8 billion whereas EU imports of goods from the Gulf region in 2009was €21,8 billion. Moreover EU trade with the Gulf Cooperation Council (GCC) has been increasing since the 1980s and in 2009 it amounts to €79.7 billion (Gulf region 2010) EU has realized the importance strategic cooperation with the gulf region for the economic progress of Europe. They have realized that none of the EU member countries have enough oil resources to cater their future energy needs whereas the gulf region is still blessed with immense stock of oil resources. Even though, development of alternate energy sources is still going on everywhere, no country has succeeded in completely avoiding the petroleum products for their energy needs. In short, still oil seems to be the most feasible energy source and it is difficult for Europe to think in terms of avoiding relationships with the gulf region. On the other hand, GCC countries also cannot neglect the importance of their trade tie up with the EU. In fact the gulf countries have nothing apart from some oil resources. No major industries other than oil or petroleum industry are operating in the gulf region because of the non availability of natural resources other than oil. They have to import the equipments, raw materials and technology from overseas countries. Their strained relationships with America, forced them to depend EU for everything. In fact it is almost impossible for the gulf countries drill out the oil from the oil wells without seeking the assistance of European technology. In most of the oil companies operating in the gulf region, Europeans are working at the top level because of their expertise and technological superiority in the drilling and refining of oil. In short, both EU and gulf countries are equally benefitted from their mutual trade relationships. The EU established bilateral relations with the GCC countries through a Cooperation Agreement signed in 1988. Its objective is to contribute to strengthening stability in a region of strategic importance and to facilitate political and economic relations. It therefore aims at broadening economic and technical cooperation and also cooperation in energy, industry, trade and services, agriculture, fisheries, investment, science, technology and environment. It foresees the establishment of an annual Joint Council/Ministerial Meeting between the EU and the GCC foreign ministers as well as between senior officials at a Joint Cooperation Committee Free Trade Agreement Negotiations between EU and GCC were initiated in 1990 but soon reached a standstill. In 1999, the negotiations regained momentum after the GCC’s declaration to create a customs union (entry into force: January 2003). Negotiations resumed in March 2002. They have taken place at an accelerated rate during 2007 (The EU & the Gulf Cooperation Council (GCC)) Many ups and downs were witnessed in the relationship between GCC and EU. GCC countries were failed to take a common stand while the Gulf war was happened in the 1990’s. Majority of the EU countries have good relationships with America and they supported the Gulf war even though many of the GCC countries had other opinions. The difference in stands with respect to Gulf war has created lot of problems in the trade developments between EU and GCC countries. However after the war, EU and GCC were able to settle their issues and disputes in an amicable manner so that the mutual trade activities have been strengthened. A Cooperation Agreement, however, has been in place since 1988, between EU and GCC, and is aimed at strengthening relations and preparing the free trade negotiations. Since then, the Gulf War and the GCC's reservations on the text have blocked the conclusion of the free trade agreement. The Cooperation Agreement, for its part, has yielded only limited tangible results.Given their interdependence, strengthening the framework of energy and economic interests can benefit both regions, since more GCC investment in EU refining and downstream activities would go hand in hand with EU countries' investment in GCC upstream and downstream energy and energy-related activities. Obtaining a preferential trade agreement benefiting both sides and diversifying its industrial base to prepare for the post-oil age are still major concerns for the GCC. A free trade agreement would enable economic operators on both sides to develop cross-investments, pursue vertical integration and conclude industrial alliances (Improving relations between the EU and the countries of the Gulf Cooperation Council, 2007) Globalization has opened the door for many areas of cooperation between EU and GCC countries. Free trade between these two prominent regions in the world will be mutually beneficial. EU is one of the major markets for the exports of refined petroleum products, petrochemical products and aluminum products from the gulf region. Moreover, many of the European companies invested heavily in the gulf region. Foreign direct investment is essential for the economic development of regions or countries and it is almost impossible for the gulf region to develop properly without the investments from the European countries. Many of the European banks are also operating in the gulf region which shows the strength of trade relations between EU and GCC. Apart from the political differences, other issues which strained the trade relationships between EU and GCC in the past were with respect to; Market access for goods, services and public procurement; Common rules and disciplines for intellectual property rights; Competition; Human rights; Illegal immigration; Terrorism etc (Gulf region 2010). Most of the gulf countries are ruled by the Islamic dictators. Democracy and human rights are strange topics in GCC countries. Religion is the most influential entity in this part of the world and most of the Islamic rulers exploit religion for their political gains. It is impossible for a lay man to question any of the policies of the government in the gulf countries because of the dictatorship. Anything happened inside the country against the will of the Islamic rulers will be dealt with iron fist in this region. On the other hand, most of the EU countries are ruled by democratic administrations. Human right protection is one of the most important functions of democratic governments. The contrasting ideologies with respect to human right issues caused lot of problems in the trade ties between EU and GCC. Gulf countries are generally fertile soil for the terrorists. In fact, hard core terrorist Bin Laden was born in Saudi Arabia. Moreover, many people believe that GCC countries like UAE, Saudi Arabia etc are some of the prominent shelter places for terrorists because of the administration’s soft approaches towards terrorism. All these fundamental differences in issues like terrorism, politics, culture etc often cause problems in the trade relationships between EU and GCC countries. The GCC side, feeling that they have gone a long way in offering concessions, considered that the EU was still dragging its feet on the FTA negotiations. With no clear end in sight, the GCC decided in the latter part of 2008 to suspend the trade talks and the FTA negotiations are now halted. The failure in reaching an FTA, which became accepted as a prelude to cooperation in other areas under the 1988 agreement, has, in fact, precluded the establishment of a vigorous GCC-EU relationship commensurate with the strategic importance of both regions (Gulf research meeting, 2010). Free Trade Agreement (FTA) between GCC and EU would have strengthened the trade between these two regions. However, both the parties failed to settle some of the important issues and failed to reach an FTA agreement so far. GCC believes that they have already done everything possible to settle the issues and in their opinion, the adamant stand of EU is the major barrier in reaching FTA agreement between them. The failure of the free trade negotiations affected other areas of cooperation also between these two regions. Oil prices are fluctuating drastically for the last few years because of the fluctuations in global economy and the subsequent differences in demand for the oil. Oil price fluctuations are affecting the EU more than any other regions in the world because of their dependence on OPEC countries for oil or energy resources. GCC countries are prominent members of OPEC and they have important roles in the policy making of OPEC. Free Trade Agreement between EU and GCC would have made the EU capable of interfering more strongly in the policy matters of OPEC. Abdul Rahim Hassan Naqi, Secretary-General of the Dammam-based Federation of GCC Chambers of Commerce and Industry (FGCCI), said the planned FTA would be among the topics to be discussed when he heads a GCC chambers delegation during visits to several EU members in the first week of October. Naqi said the absence of a free trade deal has largely upset the trade and investment balance in favour of Europe, adding that the GCC countries have invested nearly $542 billion (Dh1.98 trillion) in the EU during 2002-2006, while the EU’s investments in the Gulf are estimated at only $13bn (Kawach) Lot of discrepancies are there in between the trade activities of EU and GCC. In fact the investments of EU in GCC are negligible compared to the investments of GCC in EU. The absence of Free Trade agreement is the major reason for these trade imbalances. GCC countries believe that only EU can do something for reaching FTA between these two regions. It is impossible for the GCC countries to continue their heavy investments in EU countries in the absence of any substantial investments by EU in GCC countries. GCC countries believe that EU should withdraw their political demands in order to prepare favourable climate for reaching FTA. “One of the main obstacles that faced the FTA negotiations is that the EU has not been interested in tackling this massive trade imbalance with the GCC because it is shifting its interest to East Europe” (Kawach) The administrations in GCC countries are weaker than that in other parts of the world. Most of the Islamic rulers in this region are interested in securing their power rather than the interests of the country. These rulers don’t have proper vision in developing the economy of their countries. Most of their decisions are controlled by emotions rather than wisdom. They will oppose anything which they may perceive against their religion. Over involvement of religion in politics made the GCC rulers to protect the interests of the religion first and then that of the country. Iran’s nuclear program is another major obstacle in developing trade activities between GCC and EU. EU’s soft approach towards Iran is causing big headaches to the GCC countries. Iran is a major security concern of the Gulf States.GCC countries has a shared interest in preventing Iran from becoming a nuclear power. With only one atomic bomb in its arsenal, Iran would become an insurmountable regional power, a fact that would not contribute to the stability and security of GCC region. In June 2010, EU leaders, agreed to impose stronger sanctions against Iran, including measures to block oil and gas investment. Undoubtedly, such a confrontational approach may leave dire consequences in the relations between the Islamic Republic of Iran and the European Union. There is no doubt that this measure against the Iranian nation will be recorded as a dark spot in the history of the bilateral relations (Gulf States Concerned About Iran's Nuclear Program, 2010) Even though Iran is an Islamic state, most of the Islamic countries in the Middle Eastern region are watching Iran’s nuclear experiments with suspicious eyes. Middle East is just escaped from the threats of Iraq dictator Saddam and Iran became the major military power in this region at present. If Iran becomes a nuclear power, the security of its neighboring gulf countries could be in danger. Motivated by the above awareness, GCC countries forced EU to interfere in this matter for preventing Iran from acquiring nuclear power. On the other hand, most of the EU countries are in good relationships with Iran and they are relying Iran heavily for the oil and natural gas products. It is difficult for the EU to come strongly against Iran as a result of that. However, GCC countries think that EU’s soft approach towards Iran’s ambitions to become a nuclear power will destroy the power equations in this region. More over GCC countries are thinking that their sovereignty will be questioned by Iran once Iran acquires nuclear power. Most of the GCC countries have frontier disputes with Iran at present and they do not like Iran acquiring more power in this region. “EU is the biggest trading partner and a major economic, scientific and research partner of Israel. The Union is also a major political and economic partner of Lebanon, Syria, Jordan and Egypt”(The EU and The Middle East). Trade activities between EU and Israel are conducted on the basis of the Euro-Mediterranean Agreement. Under this agreement, the EU and Israel have free trade in industrial products and both the sides are giving substantial trade concessions on certain products in the form of tariff reduction or elimination. Unlike the case of GCC, EU has no major obstacles in establishing free trade agreements with Israel because of Israel’s beliefs and respects for human rights and democratic principles. Historically, Israel and Middle Eastern Arab countries are enemies. Cultural differences, religious fundamentalism and the dispute over some of the places in Jerusalem are some of the major reasons for the conflicts between Arab countries and Israel. Arab world, generally witnesses the allies of Israel suspiciously. In other words, the increased cooperation between Israel and EU is one of the major trade barriers between EU and Middle East. Comprehensive peace in the Middle East is a strategic objective for the European Union. Only an independent, democratic and viable Palestinian state can be a reliable neighbor for Israel. The EU's commitment will therefore focus on assisting Palestinian state building efforts as well as providing support for the transition period (Solana & Ferrero-Waldner, p.2) EU has realized the importance of solving Israel-Palestine problem for the increasing and smooth trade activities between Middle East and EU. Israel-Palestine conflict is not only a political problem, but also an economical problem as far as the trade activities between EU and gulf countries are concerned. EU has already realized the importance of establishing an independent, democratic and viable Palestinian state in settling the Middle Eastern problems. However, they are not much interested in establishing a Palestine state in the form of other Arab countries. In other words, EU is not much interested in establishing an Islamic state in Palestine. EU advocates a secular democratic state in Palestine. Even though, EU and United States have almost similar opinion in the Middle East conflicts, EU always criticize Israel heavily while they criticize the Palestine in a more liberal manner. Even though, EU had no trade relations with Iraq during the tenure of Saddam Hussein, the fall of Saddam increased the trade ties between EU and Iraq. Currently EU is one of the prominent contributors for the reconstruction process of Iraq. Lebanon is another major country in the Middle Eastern region which has strong trade relation with European Union. However, EU faced several problems recently in improving the trade activities with Lebanon because of the stiff Lebanese laws with respect to free trades. Even though lot of negotiation processes was conducted between 1998 and 2000, none of the negotiation efforts succeeded because of the differences on fiscal matters- “high customs duties imposed by Lebanon as an important source of government revenue was the major obstacle” (Keet, p.3). However, EU succeeded in settling the issues with Lebanon with respect to tariff dismantlement and the introduction of Value Added Tax or VAT. Lebanon is currently charging both customs duties and VAT on import products. To conclude, the trade activities between EU and gulf countries have witnessed lot of ups and down in the recent times because of various issues. Gulf region and European Union are entirely different regions politically, socially, economically and culturally. However, there are many areas in which EU and gulf countries can co-operate each other for mutual economic growths. EU countries need the oil resources of gulf for their energy requirements whereas gulf countries need the technology, machinery and all other industrial equipments from EU to drill out their oil and to refine it. However, EU and GCC failed to sign the free trade agreement yet because of the political and legal problems between them. Israel is one of the biggest trade partners of EU which is indigestible to GCC countries. Moreover, GCC countries believe that EU’s investments in GCC are negligible compared to the investments of GCC countries in EU countries. The settlement of Israel-Palestine conflict is one a of the best ways of improving the trade ties between EU and Middle Eastern countries. Works Cited 1. Dudt, Simone, “Is there a European cultural policy?” 2009. Web. 18 January 2011. 2. Figel, Jan, “Is there a European culture?”. 2006. Web. 18 January 2011. 3. “Gulf region.” 2010. Web. 18 January 2011. 4. “Gulf Research Meeting.” 2010. Web. 18 January 2011. 5. “Gulf States Concerned About Iran's Nuclear Program.” 2010. Web. 18 January 2011. 6. “Improving relations between the EU and the countries of the Gulf Cooperation Council.”2007. Web. 18 January 2011. 7. Kawach, Nadim. “EU urged to sign free trade deal with Gulf states” 2009 Emirates Business (Tuesday, September 29, 2009). Web. 18 January 2011. 8. Keet, Marijke. “EU Policies Towards the Middle East”. Web. 18 January 201. 9. Solana Javier & Ferrero-Waldner Benita. “STATEBUILDING FOR PEACE IN THE MIDDLE EAST:AN EU ACTION STRATEGY” Web. 18 January 2011. 10. “The EU & the Gulf Cooperation Council (GCC)”. Web. 18 January 2011. 11. “The EU and The Middle East.” 2010. Web. 18 January 2011. 12. Talbot, Valeria. “GCC ECONOMIC PRESENCE IN THE MEDITERRANEAN AND THE OUTLOOK FOR EU-GCC COOPERATION”.2010. Web. 18 January 2011. Read More