OBG talks to Karel De Gucht, EU Trade Commissioner

Interview: Karel De Gucht

What has been the biggest hurdle in the negotiations of a GCC-EU Free Trade Area? When do you expect the process to be concluded?

KAREL DE GUCHT: The EU is committed to deepening its trade relationship with the Gulf region. We relaunched negotiations on the EU-GCC Free Trade Agreement (FTA) in 2002 with the goal of reinforcing this new regional market and bringing it closer to the EU. Since 2007, we have been very close to concluding an agreement that will not only be an important region-to-region FTA in the global trading system, but will also open doors for new investment and trade beyond what we offer each other through the World Trade Organisation.

With only one outstanding trade issue in the negotiations – the treatment of export duties – I believe we could be in a position to close a deal soon with clear political willingness on both sides.

How can the GCC countries enhance their appeal as a market for international trade and investment?

DE GUCHT: The Gulf region is looking for a role in the global economy beyond the market for hydrocarbons. Investment in the region is needed for sustainable economic growth and job creation. The region needs diversification for economic development and growth. It is crucial that the GCC governments continue to pursue their recent policies, driven by the private sector, to invest heavily in expanding local infrastructures and in areas such as tourism, transport, the health sector, environmental technologies, renewable energies and the financial sector. Although GCC countries have made efforts to liberalise their economies, more needs to be done to further ease investment conditions. In many sectors international investors still face significant restrictions on foreign ownership.

What economic lessons can be learnt from the recent political and social unrest in the region?

DE GUCHT: The Arab Spring has reminded us all that markets are redundant without the men and women that bring them to life. People need to be equipped with education and training for the right jobs. The unrest in the region did not result solely from dissatisfaction with the entrenched political establishments and a lack of democracy. It also reflected the frustration arising from a number of structural economic weaknesses, including inefficient labour markets and poor education systems, low trade integration, high vulnerability to food and energy prices, and dominant public sectors, reinforced by high population growth and resulting in decades of an unequal and below-potential economic performance.

The main causes need to be addressed through structural reforms aimed at promoting sustainable and inclusive growth and fighting unemployment; replacing generalised subsidy systems with targeted social transfers; reforming labour markets; strengthening educational systems; fostering the role of the private sector; improving economic governance; and deepening international and regional trade integration. Trade, together with the right accompanying policies, will be key factors for the Gulf region’s success.

To what extent is the shift of GCC trade toward the East a concern for the EU?

DE GUCHT: As an advocate for open trade and as the world’s largest exporter of goods and services, the EU can only welcome the fact that the GCC is getting more active in the multilateral trading system, including looking towards Asia. That said, trade relations between the GCC and the EU should be deepened in parallel. There is a clear economic case for concluding an FTA between them. It could open avenues for trade diversification, particularly on the GCC’s part. GCC governments have already undertaken many efforts to diversify their industrial and service structures. These newly established industries and service sectors could take advantage of the huge markets offered by the EU. An FTA would also open new investment opportunities on both sides and foster political spin-offs.