Report on Trade Policies In GCC countries


Zaki Alsawaf (132410003)
Saeed Salem Al-Hassani (122420001)
Humaid Almansoori (122420016)
Amnah Mohammed Alhantoobi (132420020)

List of Figures and Tables 2
Introduction 2
History of Trade in the GCC Countries 3
Current Scenario of Trade in GCC Countries 4
SWOT Analysis 9
Global Trade and Trade Institutions 10
NAFTA (North American Free Trade Agreement) 10
European Union (EU) 11
EFTA (European Free Trade Association) 11
AFTA (ASEAN Free Trade Area) 12
Observations on the SWOT Analysis 13
Comparisons 14
Findings 16
Suggestions 17
Conclusions 18
Bibliography 19

List of Figures and Tables
Figure 1 Expenditure of GCC Countries (International Monetary Fund, 2012) 5
Figure 2 FDI Investments in GCC Countries. (International Monetary Fund, 2012) 6
Figure 3 SWOT Analysis of Trade Policies in GCC Countries 9
Figure 4 GDP Growth of NAFTA (Glassman, 2013) 10
Figure 5 GDP Growth in European Union (Spring Forecast : towards a slow recovery, n.d.) 11
Figure 6 GDP Comparisons of Different Countries (This is Efta, n.d.) 14

Table 1 Commodities traded in by GCC Countries (Boughanmi, 2008) 7
Table 2 GCC Direction of Trade (Boughanmi, 2008) 8

In this paper, we shall discuss at length the GCC (Gulf Cooperation Council) countries, Trade policies in the GCC countries and their outcomes. We shall also analyze the effect of the current market scenario on the GCC countries. Furthermore we shall analyze in detail, the trade policies accepted and implied by the GCC countries as well as the countries around the world. We shall also take an in depth look at the current situation in the GCC countries due to the trade policies formulated by them and whether the policies have been beneficial for them or not. We shall understand the trade policies of GCC countries in a detailed way with descriptions about products and recent trends. We shall also understand the Strengths, Weaknesses, Opportunities and Threats pertaining to the global and GCC trade policies. We shall then take a brief look at the other trade related institutions and agreements globally and try to compare it with the economy in the GCC Countries. Lastly we shall also discuss our Findings and provide suggestions as to what GCC could apply to attain more profits.

History of Trade in the GCC Countries
Trade policies are the basic regulations and rules that are related to trade. Every country around the world has certain trade policies that are formulated and controlled by the public executives having expertise about it. (McMahon, 2014) These public officials formulate these policies keeping in mind their country’s welfare. Usually a nation’s trade policy consists of elements like the taxes, exports and imports, quotas, tariffs and inspection regulations. The unbound or unrestricted trade between different countries without having to worry about the quotas, taxes or tariffs is called Free Trade. (Free Trade, n.d.) This kind of a free way to purchase and sell goods, enables the country to focus on their efforts regarding the manufacture of products and provision of services, which gives them an edge of advantage. (Ricardo, n.d.) For many years now, economists have been promoting Free Trade by calling it the best trade policy. At the same time, it has faced a lot of skepticism too. Some people believe that differences in wages between two countries are sometimes so different that Free Trade doesn’t do justice to the hard work done by the workers with more wages. (Blinder, 2008) Currently over 35 countries have applied the Free Trade policies in their countries. Some of them are Ukraine, Egypt, Singapore, Morocco, Serbia, Peru, Israel, Canada, Lebanon, Hong Kong, Chile, Turkey, GCC Countries, Jordan and Albania. There are many more countries too and some of the countries that do not follow the policy yet are looking forward to adapt to it. (Kaufmann, 2014)
Gulf Cooperation Council consists of 6 countries: Kuwait, Bahrain, UAE, Qatar, Oman and Saudi Arabia. It was founded in 1981, with the thoughts of having a common political systems based on Islam, a destiny that is unified and common set of objectives. Their common favorable geographic locations and general free trade policies among them made this decision easier. (Gulf Cooperation Council, n.d.) These countries have ample oil and gas reserves and have developed and invested wisely on the same. Gulf Cooperation Council now has one of the highest stakes in foreign direct investment and is expected to have FDI holdings of US $3.5 trillion. (Gulf Cooperation Council (GCC), 2013) These countries are affected most by the financial trends in the current market scenario. GCC has successfully established free trade agreements with various countries around the world namely Canada, Singapore, Australia and some of the European countries.

Current Scenario of Trade in GCC Countries
GCC Countries have established themselves as international traders not only in terms of exporting oil but also have been the hub for safe investments on the tourism as well as the financial sector. This has made the GCC countries get a lot of attention worldwide lately. All the GCC countries have been progressing and developing in various aspects in the recent past few years. The trade policies that have been adapted by the GCC Countries have put them on the global map and have made them become an insufferable part of global economy. The current total population of these countries was estimated at 39m at the end of 2008. The GDP in 1998 in these countries have increased by a booming 65% and has been experiencing gradual increase of 5.2% every year. (Economic Intelligence Unit, 2009)

Figure 1 Expenditure of GCC Countries (International Monetary Fund, 2012)
As observed in the Figure 1, the country having the highest rate of increase in current expenditure is UAE, followed by Kuwait. The country not only invests on the General Trade but also on Infrastructural developments and tourism sector. UAE is the highly visited place among the GCC Countries and thus makes sure that the facilities and environment is such that people love to visit the country. (International Monetary Fund, 2012)

Figure 2 FDI Investments in GCC Countries. (International Monetary Fund, 2012)

The Figure 2 describes the latest statistics of FDI investments in the GCC Countries. It can be observed that Bahrain has the highest influence in GDP due to the Foreign Direct Investments (FDI). It is closely followed by Saudi Arabia, which has second highest FDI influence on GDP. (International Monetary Fund, 2012)
The GCC (Gulf Cooperation Council), has seen quite a lot of development in terms of trade policies in the recent years. A recent customs union was launched, with the sole purpose of increasing intra-trade in the region and also ensures better economic integration of the same in the global trade market. In addition to this aspect, most of the countries that come under the GCC have signed petitions to become Free Trade Areas. They have also been in discussions with several external economies, such as the United States and the United Kingdom, to share the status of Free Trade Areas. The basic assessment and analysis of this paper includes the investigation of the trade policies of the GCC, and its effects on intra-trade as well as potential (relationships being discussed or negotiated) and already existing tie-ups with external economies as trade partners.
In prior studies, it has been seen that both intra-trade as well as external trade relations of the GCC region are at quite low levels. This gives the room for the Arab world to considerably enhance their regional economic integration and also strive to become integrated in the multilateral international trade market, especially by setting up trade relations with European countries.
The countries encompassed in the GCC are major players in the trading game. The economy of these countries is heavily fuelled by trade relations, accounting for an export to GDP ratio of about 40% in Saudi Arabia and 74% in Bahrain. The total annual exports of the region entail about $155 billion worth of commodities, the major being oil, which accounts for almost 83% of this value. The biggest name in oil export is Saudi Arabia, having around 37% of the import potential and approximately 47% of the export potential of the region. It is in turn followed by UAE, which has approximately 22% of the export potential and 34 % of the import potential in regards to the oil commodity. The most important imports to the region include food, accounting for around 11% of the import; manufacturing, which accounts for approximately 17% and lastly, equipment and machinery, accounting for about 39% of the total import potential. (Boughanmi, 2008)
The table below enumerates the major commodities which the GCC countries trade in, both in terms of import and export.
Commodity Exports 33669 11365 6632 16164 73403 13383 154615 100
Food & live animals 606 300 43 44 393 15 1401 0.9
Beverages and tobacco 536 229 20 10 20 1 815 0.5
Crude materials 189 51 260 45 175 17 737 0.5
Mineral fuels 22152 9050 4681 14930 65208 12180 128201 82.9
Chemicals 600 123 198 803 5203 620 7546 4.9
Manufactured goods 3061 343 1028 118 1163 291 6004 3.9
Machinery & transport eq. 4346 934 156 134 955 149 6674 4.3
Others 2180 335 245 81 284 110 3236 2.1
Export share (%) 22 7 4 10 47 9 100
Commodity Imports 30544 6572 4425 7869 31223 4897 85531 100
Food & live animals 2681 749 442 1103 4226 413 9615 11.2
Beverages and tobacco 224 306 442 64 334 45 1417 1.7
Crude materials 399 292 442 164 630 151 2079 2.4
Mineral fuels 218 216 442 38 67 28 1010 1.2
Chemicals 2177 459 442 598 3070 312 7059 8.3
Manufactured goods 6091 1015 442 1363 5192 1041 15144 17.7
Machinery & transport equip. 11391 2827 442 2888 13111 2322 32982 38.6
Others 7362 708 1326 1649 4594 585 16225 19.0
Import share (%) 36 8 5 9 37 6 100

Table 1 Commodities traded in by GCC Countries (Boughanmi, 2008)
Due to extensive trading of oil and related resources, most trade partners of the GCC countries are external economies such as USA, Japan and some European countries. This is a direct correlation to the fact that intra-trade between concerned GCC countries, pertaining to the oil resource, is comparatively lower than the external market. This can be seen by analyzing intra-trade between the years of 1993 and 2004. During this time period, only 4.12% of exports out of the total 9.74% went to internal GCC markets, while the rest was used for export to external economies. Some of the main reasons behind the seemingly low levels of intra-trade between GCC countries can be attributed to the presence of a similar economic framework prevalent in all the countries. It is also because of the low level of industrial diversification in the internal GCC market. On the other hand, the exclusion of oil imports and export figures from the trade statistics opens up a completely different scenario. In terms of commodities other than oil, the intra-trade market is well-defined and intensive, making up almost 26% of the total GCC exports. (Boughanmi, 2008) Therefore, these points enumerate and support the intensive nature of intra-trade between GCC countries, from the viewpoint of commodities other than oil.
Period GCC Arab countries USA EU Asia Others
Total exports
93-04 4.12 1.46 9.38 8.74 20.73 55.56
93-96 4.32 1.38 11.66 12.30 14.51 55.84
97-00 4.12 1.43 6.22 5.71 23.83 58.69
01-04 3.91 1.58 10.26 8.22 23.86 52.16
Non-oil exports
93-04 26.62 8.09 6.21 7.32 18.16 33.60
93-96 30.65 8.26 6.12 8.10 27.17 19.69
97-00 27.69 9.35 7.25 8.17 15.00 32.54
01-04 21.52 6.68 5.24 5.69 12.31 48.57
Total imports
93-04 9.74 2.57 14.64 31.11 25.75 16.19
93-96 8.76 2.64 17.54 32.30 23.04 15.72
97-00 10.83 2.35 13.87 30.94 27.48 14.52
01-04 9.61 2.72 12.51 30.09 26.73 18.34
Non-oil imports
93-04 8.73 2.63 14.92 31.79 28.75 13.18
93-96 7.17 2.70 17.79 32.85 28.00 11.49
97-00 9.90 2.38 13.98 31.28 29.56 12.92
01-04 9.12 2.83 12.98 31.25 28.70 15.13

Table 2 GCC Direction of Trade (Boughanmi, 2008)

The table above depicts the GCC direction of trade during the time period of 1993-2004.Excluding the factor of oil as a commodity, 35% of the non-oil exports are directed towards the Arab countries, including the ones in GCC, while the rest are drawn up by Europe, Asia and USA (7%, 18% and 6% respectively). (Boughanmi, 2008)
As indicated by the table, there has been a visible decline in the intra-trade exports in the GCC region, especially in the non-oil commodity sector. This decline has been in lieu with the increase in the shares of all GCC countries and the shares of the external economies. This factor has also been accompanied by a decrease in shares of partners of partners related to exports.

SWOT Analysis
We shall now create a SWOT Analysis of the trade policies in the GCC Countries.

Figure 3 SWOT Analysis of Trade Policies in GCC Countries

Global Trade and Trade Institutions
Countries exchange various goods, products, services and raw materials in order to get foreign exchange that would improve the economy of their nation. Different countries have different policies which are regulated on the imports and exports dealing with other countries. Although international trade and agreements have existed globally since the beginning, its importance in the form of Gross Domestic Product (GDP) has increased considerably in the recent times. As the trade carried out among the GCC Countries is Free Trade Agreements, we take instances of the FTAs that exist in other countries around the world.
NAFTA (North American Free Trade Agreement)
NAFTA (North American Free Trade Agreement) was established in 1993 to establish trade between the three member nations which are Canada, US and Mexico. NAFTA superseded the free trade agreement that existed between US and Canada. The sectors that NAFTA focuses on majorly are General Trade, Environment in the form of NAAEC (North American Agreement for Environment Cooperation) and Labour in the form of NAALC (North American Agreement for Labour Cooperation). This has caused major development in all the three member nations. Canada is the country that has been in maximum profit. The total agricultural commodity trade in US has increased three fold since NAFTA came into effect. It was estimated at $18 billion in 1994 which rose to $61 billion in 2009. (Zahniser & Link, 2002)
However, presently the organization is facing problems in terms of Environment and Labour policies. These policies are getting violated by the nations in order to earn more profits and investments. The Trade on the other hand has been bringing a lot of benefits to all the nations. It has been in the news recently for the KeyStone Pipeline XL problem with Canada. According to the news, if the US does not provide a proper solution soon, it will be violating NAFTA.

Figure 4 GDP Growth of NAFTA (Glassman, 2013)
European Union (EU)
European Union consists of 28 countries in Europe. It was established as an aftermath of the Second World War. The European Union has been establishing itself in the Agriculture, Infrastructure, Affairs and Trade sectors since its foundation. EU started as an organization for trade and now has become a platform for all kinds of economical, political and financial strategic decisions. Not only has EU proved itself by its stability and trustworthy actions but it paved the way for peace among the member nations by introducing a common currency, the Euro. Because of the efforts undertaken by the EU the border controls between these cities have been lifted and people have become more enthusiastic about living and working in the European countries. Apart from this the European Union promotes human rights and is making sincere attempts to make the organization as democratic and transparent as possible. Today, European Union accounts for 1/4th of the total wealth of the world. (European Union, n.d.)

Figure 5 GDP Growth in European Union (Spring Forecast : towards a slow recovery, n.d.)

EFTA (European Free Trade Association)
EFTA was founded in 1960, with the goals of creating a mutual agreement economically among the Western Europe countries and increasing and promoting the international trade with other countries. I was founded by the Stockholm Convention. When EFTA was founded it had seven member countries: Austria, Switzerland, Finland, Portugal, United Kingdom, Norway and Sweden. However on later stages all the initial countries other than Switzerland and Norway left and countries like Iceland and Liechtenstein joined. EFTA is now the European association that works for negotiating and promoting the free trade agreements between the four members. The association also manages the integrated economy of all the four members. The members are: Switzerland, Iceland, Norway and Liechtenstein. Further the EEA (European Economic Area) Agreement was offered to three of the countries of EFTA which meant they will have European Union’s Single Market. (This is Efta, n.d.)
The combined GDP of the EFTA states in 2012 was estimated at USD 144 billion. This was one of the major GDP contributions in the European region in that year. (This is Efta, n.d.)
AFTA (ASEAN Free Trade Area)
AFTA was introduced by the south eastern Asian countries and was created through bringing Common Elimination of Preliminary Tariffs (CEPT). AFTA is a block of area in the south East Asian region where the countries have ties with one another in the form of free trade agreements. These countries include the countries that are included under ASEAN (Association for South East Asian Nations).This agreement was signed in Singapore on January 28, 1992. The original members of AFTA are Singapore, Brunei, Malaysia, Indonesia, Thailand and Philippines. Myanmar, Viet Nam and Laos joined the Area in the later stages. Almost all the products that are traded between the AFTA regions other than the general products have been products that would come under the “Highly Sensitive List” and have to be moved with utmost care. (ASEAN, n.d.)
AFTA had a booming profit in the year 2000 when its total exports were valued at $ 408 billion considering that this followed the financial crisis that occurred in 1997 -1998. (ASEAN, n.d.)

Observations on the SWOT Analysis
GCC Trade agreements in my opinion have been greatly beneficial to the member countries. GCC was established to bridge the gaps between the member countries and bring mutual trade policies and rules regarding all the sectors. Oil exports have been the strength of the GCC Countries. These countries have realized that fact and have abundant oil resources. But, I feel that the income of these countries have hugely depended on the oil and oil products exports which could in some cases pose a threat too. We observe other nations promoting the usage of renewable resources as fuel as compared to the oil products. Although this has not been adopted everywhere, if the situation should arise where all the governments around the world switch to renewable resources, it would be bring a huge loss to the economies of GCC countries. Apart from this, one of the greatest plus points to the GCC countries are earned because of their flexible laws for the countries that are interested in making investments in GCC countries. The laws are easily acceptable to investors of all countries and encourage them to invest here. This factor has influenced many countries like United States of America, India and European countries. In addition to this GCC countries are headed towards opportunities in terms of their Capital Projects and the Service industries because of the growth in populations and the numerous construction projects that are providing income opportunities to a large number of people. In terms of Agriculture, Food and Beverages the GCC countries have limited production but due to their ties with various countries such as the US, Canada and other nations, high quality food is being imported every day. Firms all around the world are known to export oil and oil products from the GCC countries which has been bringing huge profits to the GCC member nations. The oil utilization around the world has increased and has posed a need for fuel in all the countries; this would bring more foreign exchange which would contribute positively to the GCC economy. GCC countries have also focused on constantly improving the infrastructure of various health care facilities in their countries and have imported expert physicians and technicians for the same. This in my opinion would boost the health industry in these nations to a great extent and would be vital in improving the quality of life. Another threat to the economy of the GCC countries is the growing amount of terrorist activities in these nations and its effects on the economy. GCC countries have been focusing on improving the quality of life in their respective nations and it has benefitted a lot of people. But at the same time, the middle class has suffered because of the improper construction of political reforms and needs a bit of reconstruction and evaluation.

GCC Countries have free trade agreements among themselves. The trade within these countries is carried out at minimal costs. This strengthens the political and economical relations between these countries. They even have integrated army operations which make the armies in the GCC countries one of the most powerful ones in the world. Although looking at a wider scenario, a lot of free trade agreements have been getting formed between nations and a lot of free trade are being created and integrated. One of the biggest examples is of EU (European Union). It now so many sub branched organizations and control over such a huge area in Europe that it is the most grossing and influential organization in the world. It thus contributes to roughly one quarters of the total global wealth. Another example that we could take is of AFTA. It is a trade area formed by a number of South East Asian or more specifically ASEAN countries. AFTA has been steadily improving over the years considering that it is one of the recently established organizations. Other Trade agreements that could be compared to the trade agreements that take place between the GCC countries are NAFTA and EFTA. Both are Free trade agreements pertaining to a group of nations or states. NAFTA has been influencing America, Canada and Mexico and has even helped Mexico City turn into a modernized and developing city. EFTA has been playing its role in the economies of its member states and has been a bit lesser compared to the other ones but never the less a successful trade agreement.

Figure 6 GDP Comparisons of Different Countries (This is Efta, n.d.)

In the above figure we notice that the maximum GDP capital have been of EU. It is then closely followed by the United States. GCC Countries like Saudi Arabia and United Arab Emirates are very low compared to these organizations. GCC Countries thus should try improving their trade policies in order to establish themselves along with these organizations. (This is Efta, n.d.)

From the above analysis and observations, we have been able to establish certain facts about the trade policies in GCC countries and worldwide. Dividing them into points, we have:
• UAE invests not only in the oil products, but also majorly in the infrastructural and tourism projects.

• The total trade has gone up considerably in the last two decades

• Oil exports have been influencing the trade in a huge way, especially inter trade.

• The intra trade within GCC Countries is relatively more than the inter trade.

• Trade Policies adopted by the GCC countries are one of the stronger ones among the other trade agreements and areas.

• GCC Countries might face threat by the growing encouragement for the usage of renewable resources as compared to oil products, rendered by various governments

• Declining foreign investments in the region demand for more feasible changes in policies.

As we approach the end of this paper, few suggestions can be applied to the trade policies in the GCC Countries in order to enhance the already progressing economy. The suggestions are as follows:
• Most importantly, GCC should focus on improving the inter trade as compared to the intra trade which is already established.

• Attention should also be rendered to increasing the exports of products other than the oil products to maintain the steady income even if other countries totally adapt to renewable resources.

• Reforms to control the effects of terrorism in the countries which would build the trust in the current foreign investors and to attract new countries to invest on them.

• Restrictions that these nations put on the people of their countries in terms of economic policies have lately been influenced by political decisions which in certain cases need to be re-evaluated and reformed properly.

The Free trade agreements have made sure that the trade between GCC countries and with them are properly managed. These relations have made it possible for GCC to sustain a halethy political, economical and social relationship within themselves and other countries. After the formation of GCC, the profits earned by all the member states have greatly increased as compared to pre GCC period. The trade relations between the GCC countries and other external economies increased by approximately 39%. (Boughanmi, 2008) This gives rise to the fact that the GCC countries increased trade relations between each other(intra-trade), as well as other external economies during the period of the analysis.
As compared to the other economies around the world, GCC still stands strong in the way the have built their economic ties aligned with their political interests. This has lead the GCC countries to gain profits in so many sectors. One of the biggest factors being that the intra-trade between GCC countries is blooming and hence is one of the most important and necessary trade relations in the area. The GCC countries have been found to be trading among themselves at almost two times the trade frquencies that the exhibit between external economies such EU and USA.
Lastly, the GCC Countries should currently focus on retaining the foreign investors they have always had as the foreign exchange could help the ocuntries to a agreat extent. Intra trade is already so powerful that it is natural and systematic but at the same time it is important for the GCC to understand and accept the importance of the Foreign Trade & Investment and make sure that together they bring a situation wherein this factor improves.

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March 8, 2018

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