Europe’s trade senses an east wind in its sails

It has been decades in the making, but a free trade agreement between the European Union and the Gulf Cooperation Council could now be within touching distance. Having established their own customs union, the six GCC countries are now aiming to create an internal market. This will no doubt help smooth negotiations with the EU, which have been on and off for the best part of 30 years. But just last year, and spurred on in large part by German Chancellor Angela Merkel, the EU and GCC officially entered into a “Trade and Investment” dialogue, which is designed to give a further boost to talks.

The numbers don’t lie

A free trade agreement with the GCC would be good news for Europe’s trade. Together, the GCC’s constituent countries represent the EU’s fourth-largest export market. The EU, in turn, is currently the GCC’s top trading partner, accounting for almost 15% of its global commerce – that is ahead of China, Japan and India.

Last year, in fact, total bilateral trade was calculated at a considerable €143.7 billion, a value which has steadily grown – by over 50% – over the past decade. EU exports to the region in 2017 were worth €99.8 billion, which, compared to imports of €43.8 billion, generated a substantial trade surplus for the bloc. Particularly, with the rise in wealth in the GCC over the past decades, Europe’s traditional exports of machinery and capital goods have been increasingly complemented by its services exports.

A free trade agreement with Europe would only enhance these figures. It has been predicted that Gulf economies could add an extra $64.4 billion to their GDP by eliminating tariffs and cracking down on non-tariff barriers. For the Gulf’s leading oil & gas industry, whose mineral fuel and chemical products are responsible for no less than 77% of the GCC’s exports to Europe, it would be a particular boon: producers could unlock additional returns of up to $2.1 billion under such a deal.

Centers of gravity are shifting east

More broadly, however, the countries of the GCC are increasingly looking east to Asia, rather than west to Europe. Much of this is down to geography, of course. With Asia’s economies continuing to grow, thanks to its prime position in global shipping lanes the GCC finds itself well-placed at the heart of new cross-border trade flows.

But the GCC countries themselves are also home to a growing concentration of comparative industrial advantages, which will also likely support this eastward shift. Again, just look at the energy industry. With booming middle classes in India and China creating more wealth and spending more on consumer goods, pharmaceuticals, automotives and high-tech electronics, demand will only rise for the Gulf’s refined petrochemicals. Overall, around half of the GCC’s products in this fast-developing sector are exported to China, compared to the 12% sent to Europe.

The UAE is perhaps the standout performer in this respect. The country has continued to refine its technical expertise in the downstream sector – Abu Dhabi’s national oil company, ADNOC, having lately committed to investing some $45 billion in future-proofing the industry and attracting the next generation to its workforce over the next half decade.

Indeed, such is the importance of this gradual eastward shift to the energy sector that Abu Dhabi is bringing together the leaders of the world’s oil & gas industry to address it directly, at its flagship International Petroleum Exhibition and Conference (ADIPEC) next month.

And if industry is sitting up and taking notice of this West-East shift, so should politicians and the media. It is safe to say that, in recent years, Brussels and Frankfurt have been rather preoccupied with the implications of Brexit, Trump and China on Europe’s commerce; in contrast, Europe’s trade with the Gulf has rarely hit the headlines. But the fact remains that in the GCC, Europe has a market full of potential. The GCC countries may be looking east; but through a free trade agreement, Europe has the chance to take advantage of new economic shifts – rather than get left behind. After almost three decades, now is the chance to strengthen trade ties with a pivotal, dynamic and growing part of the global economy.

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