The Key International Trading Factors Between the European Union and the Middle East - Essay Example

?The Key International Trading Factors Between The European Union And The Middle East Today, the European Union (EU) is the world’s biggest trader and one of the most significant organizations on the global economic stage. Each year the EU concludes a number of bilateral and multilateral agreements with several countries and regions around the world, spending approximately a billion Euros a month in assistance projects in all five continents. While the majority of the European countries were organized under the label of EU for the integration of the European region, there are significant cultural differences between European countries, which makes political integration a more difficult and complicated process. “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). Jean Monnet, one of the main founders of the European Union, agrees that the cultural differences impede the EU integration; “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). There are many several different religions in European countries, including Roman Catholicism, Orthodox Christianity, Protestantism, Sunni Islam, Shia Islam, Judaism and Buddhism. All of these religious entities are different in terms of their traditions, beliefs and ideologies, which has a great influence on the cultures and lifestyles of their followers. Roman Catholicism is the largest religion in Europe, with followers mostly in the countries of Latin Europe and Eastern Europe. Orthodox Christians are heavily populated in Rumania, Bulgaria, and Greece whereas Protestant Christians are found mainly in countries of Western Europe, including Denmark, Germany, Finland, Sweden etc. Despite these extreme cultural diversities, most of the European countries were able to assemble under the flag of EU, what enabled them to increase both the national economic growth and their bargaining power in the global trade activities. The countries of the Middle East, especially the Arab States of the Persian Gulf (Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Bahrain and Oman), are traditionally goof trading partners of Europe. The Gulf Cooperation Council, a political and economic union which involves all the Gulf countries, is the EU’s fifth largest export market and the European Union is for the Gulf region the second most important trading partner (Gulf region, 2010). The statistics from 2009 reveal that the total EU trade with the Gulf cooperation council amounts to 79.7 billion euro. The EU’s Generalized System of Preferences (GSP), which provides developing countries with reduced tariffs for their goods when entering the European market, enables all six Gulf countries to benefit from preferential access to the EU market (Gulf region, 2010). With the EU exports of goods to the Gulf region estimated at 57,8 billion euro, and EU import of goods estimated at 21.8 billion euro, both regions have developed an important economic partnership. Figure 1: GCC, Trade with the European Union Source: GCC, EU Bilateral Trade and Trade with the World, 2011. Figure 2: EU Trade with the World and EU Trade with the GCC (2009) Source: Source: GCC, EU Bilateral Trade and Trade with the World, 2011. Trade relations between the European Union and the Middle East, mostly Gulf countries, are affected by several economic, political, and cultural factors. This paper analyses the success and failures of EU’s trade tie ups with Middle East over the years. The trade relations between the European Union and the GCC date back to the mid-1980s. In1988, the two organizations signed the EU-GCC Cooperation Agreement, which aimed “ to strengthen relations between the European Economic Community and the Gulf Countries, to broaden and consolidate their economic and technical cooperation relations, and to help strengthen the process of economic development and diversification of the Gulf countries “ (EU-GCC Cooperation Agreement, 1988). The agreement also covered the cooperation of both organizations in such fields as energy, industry, trade and services, agriculture, fisheries, environment, investment, science and technology. One of the main objectives of the Cooperation Agreement was the establishment of an annual Joint Council/Ministerial Meeting, which involved the EU and the GCC foreign ministers as well as senior officials at a Joint Cooperation Committee. Under the agreement, both sides were committed to enter into negotiations on a Free Trade Agreement. The negotiations were started in1990, but shortly afterwards were paused. Among several differences between the business concepts and legal frameworks of both parts, the most significant obstacles concerned the European calls for the liberalization of GCC economies and Gulf demands to obtain more direct access to European energy markets (Executive, 2007). The FTA talks were criticized by the European Parliament due to alleged repercussions on the European petrochemicals and fertilizer industries, which also influenced employment in these sectors. The FTA negotiations between the two regions were renewed in 1999 when the GCC declared to create a customs union and, thus, work towards en EU-like economic integration. The customs union entered into force in 2003. Furthermore, GCC countries planned to set up a common market by 2007 and a single currency by 2010, which met with approval from the EU (Reuters, 2005). Another important step in the FTA negotiations was a new negotiating strategy adopted by the EU in 2001, which included the services sector in the FTA talks. This strategy was attractive for the Gulf countries, as their economies were largely based on the services sector. Since 2003, EU policymakers have discussed their vision of economic unification with Gulf policymakers, which included such topics trade policy, fiscal aspects of a single currency and moving from customs union to a single market. EU has realized the importance of strategic cooperation with the Gulf region for the economic progress of Europe. The immense stock of oil resources in Gulf countries is a very attractive feature for the EU member countries as none of them has enough oil resources to cater their needs. Due to the severe exploitation of the North Sea oil and gas fields, Europe is dependent on non-EU countries for future oil supply (Geopolitics of EU energy supply, 2007). It is estimated that by 2030, over 90% of EU oil consumption will have to be covered by imports. As 45% of EU oil imports originate from the GCC countries, the trade cooperation with the Gulf region is crucial for the economic progress of Europe. Therefore, in 2007, the negotiations took place at an accelerated rate. Furthermore, GCC countries are prominent members of OPEC, an intergovernmental organization of twelve oil-exporting developing nations, which coordinates and unifies the petroleum policies of its all Member Countries. Due to an important role of GCC countries in the policy making of OPEC, Free Trade Agreement between EU and GCC would enable the EU to interfere more strongly in the policy matters of this organization. On the other hand, GCC countries also cannot neglect the importance of their trade relations with the EU. Apart from the oil and petroleum industries, no major industries are operating in the gulf region due to the lack of natural resources. Therefore, gulf countries have to import such goods as equipments, raw materials and technology from overseas countries. Due to the importance of exports and imports for GCC countries, their share in the GDP is around 100 percent, except for Kuwait and Saudi Arabia. These impressive shares place the GCC countries among the leaders in contributing to the GDP. Figure 3: Exports and Imports of the GCC countries. Source: Insel and Tekce 2010, p.5. The European Union plays a very important role in the imports of the GCC countries as the EU countries provide the Gulf region with capital and technology intensive goods, machinery and transport equipment, and manufactured goods (Insel and Tekce, p. 5). Figure 4: European Union Exports to GCC, by product grouping Source: GCC, EU Bilateral Trade and Trade with the World, 2011. Furthermore, the assistance of European technology is essential in many fields of the oil industry. In most oil companies operating in the Gulf region, Due to their expertise and technological superiority in the drilling and refining of oil, Europeans are working at the top level in the majority of the oil companies operating in the Gulf region. Thus , both EU and Gulf countries are equally benefitted from their mutual trade relationships. Furthermore, strengthening the framework of energy and economic interests can benefit both regions, as more GCC investment in EU refining and downstream activities could benefit EU countries' investment in GCC upstream and downstream energy and energy-related activities.. A free trade agreement between the EU and GCC would allow economic operators from both organizations 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 enabled EU and GCC countries to enter many new areas of trade cooperation. The development of free trade between these two prominent regions in the world will be mutually beneficial for both of them. EU is one of the major markets for the exports of refined petroleum products, petrochemical products and aluminum products from the gulf region. Furthermore, many of the European companies invested heavily in the GCC countries. All countries of the Gulf region benefit from this investment, which is essential for their economic development. Moreover, many European banks are also operating in the gulf region, which shows the strength of trade relations between EU and GCC. However, the trade relationships between EU and GCC in the past were affected with several issues, such as market access for goods, services and public procurement, common rules and disciplines for intellectual property rights, competition, human rights; illegal immigration, and terrorism. (Gulf region 2010). Most of the Gulf countries are ruled by the Islamic dictators, and democracy and human rights are rarely discussed in this region. 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 the population of the Gulf countries to question any of the policies of the government in the gulf countries because of the dictatorship. Such politics were severely criticised by the European parliament (Gulf region 2010). On the other hand, most of the EU countries are ruled by democratic governments, in which the human right protection is one of the most important issues. The contrasting ideologies with respect to human right issues caused several problems in the trade ties between EU and GCC. Furthermore, the GCC countries were criticised by the EU due to their soft approach to the terrorism. Free Trade Agreement (FTA) between GCC and EU could have strengthened significantly the trade between these two regions. However, both the parties failed to settle some of the important issues and, thus, could not reach an FTA agreement so far. GCC believes that they have done everything possible to settle the issues and in their opinion, reaching FTA agreement is impossible due to the adamant stand of the EU. The failure of the free trade negotiations affected other areas of cooperation also between these two regions. Another problem affecting trade relations between both regions concerns several discrepancies between the trade activities of EU and GCC. First, 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. It is impossible for the GCC countries to continue their investments in EU countries if there are no significant investments by EU in GCC countries. GCC countries state that the EU should withdraw their political demands in order to prepare favourable climate for reaching FTA. According to Kawach (2009), “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”. The trade cooperation between the EU and the GCC countries are also affected by the EU relations with the Islamic Republic of Iran. Given Iran’s strategic geographical position and its large reserves of gas and oil, this country could play an important role in the economics of the Gulf region. Thus, the European Union is looking forward to developing closer ties with Iran (EU Relations with the Islamic Republic of Iran, 2001). However, Iran is a major security concern of the Gulf States. All the GCC countries try to prevent Iran from becoming a nuclear power. With only one atomic bomb in its arsenal, Iran could become an insurmountable regional power, which would put in danger the security of the neighbouring Gulf countries. The GCC countries severely criticised the EU’s soft approach to Iran. They stated that lack of measures to prevent Iran from becoming a nuclear power affected the security and stability of the whole region. Therefore, in June 2010 EU leaders, encouraged by the GCC countries, agreed to impose stronger sanctions against Iran, including measures to block oil and gas investment. Undoubtedly, such a confrontational approach may leave severe consequences in the relations between the Islamic Republic of Iran and the European Union. Thus, that this measure against the Iranian nation will be recorded as a dark spot in the history of the bilateral relations between the EU and the GCC countries. (Gulf States Concerned About Iran's Nuclear Program, 2010). Another trade barrier between the EU and GCC countries is due to the increased economic cooperation between the EU and Israel. “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 benefit from free trade and both 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 due to 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, which affects its relations with the European Union. The EU has also faced several problems in improving the trade activities with Lebanon due to the stiff Lebanese laws with respect to free trades. Even though many negotiation processes were conducted between 1998 and 2000, none of the negotiation efforts succeeded because of the differences concerning 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 such issues with Lebanon as tariff dismantlement and the introduction of Value Added Tax or VAT. Lebanon is currently charging both customs duties and VAT on import products. In conclusion, there are several economical, political and cultural factors that influence trade relations between the European Union and the Middle East. To start with, given the great dependence of the EU countries on external oil suppliers, the immense stock of oil resources makes the GCC countries crucial economic partners for the EU. The GCC countries benefit both from importing several goods from Europe and from the assistance of European technology in the oil industry. Furthermore, following the globalization process, many European countries are investing severely in the GCC countries, which increases their economic development. The discrepancies between both countries in such areas as internal politics, religion, human rights, and terrorism severely affect trade relations between both countries as the EU severely criticizes the GCC countries’ politics concerning these issues. Finally, the external relations of the EU with such countries as Iran or Israel do not meet with approval of the GCC countries, which prevents the successful trade relations. Due to all these factors, despite a significant progress in the trade cooperation between the EU and the GCC countries, there are still several issues that could be improved to increase successful cooperation between both countries. Works Cited 1. Can EU-GCC sign a Free Trade Agreement this year? (2007, April). The Executive. Web. 18 January 2011 < http://www.executive-magazine.com/getarticle.php?article=9302 2. Dudt, Simone, “Is there a European cultural policy?” 2009. Web. 18 January 2011. Read More