between the UAE and the U.S. over a joint Free Trade
Agreement (FTA) are prompting a plethora of regional and
domestic concerns. With the signing ceremony pencilled
in for 2006, those worries are tackled head on here. But
the question of whether the UAE - currently enjoying a
booming economy and already America’s third biggest
trading partner in the region - would be better off
without such an agreement is still up for debate. There
are those, for instance, who feel such bilateral deals
weaken the unity of the Gulf Cooperation Council (GCC).
reaction to Bahrain’s recent signing, Prince Saud
Al-Faisal, the Saudi Foreign Minister, said: “It is
alarming to see some members of the GCC enter into
separate bilateral agreements with international
powers…taking precedence over the need to act
collectively…They diminish the collective bargaining
power and weaken not only the solidarity of the GCC as a
whole, but also each of its members.”
added concerns that the GCC’s plans to issue a common
currency and commit to monetary union, due to take place
in 2010, may be imperilled by the U.S. FTAs, prompting
questions as the future of the GCC itself. Indeed, how
will the union’s common purpose be maintained if some of
its members sign FTAs and others refrain from doing so?
anxious parties are suspicious of America’s motives and
are asking such questions as, “Why should the U.S.
suddenly want to help Arabs with ‘free trade? The U.S.
administration isn’t interested in helping developing
countries. It cares primarily about maintaining its
position as a superpower.”
wonder why the U.S. feels it advantageous to offer
bilateral FTAs, when it could, perhaps, even more
efficiently, sign up with groupings of countries, such
as the GCC or the Maghreb (Morocco, Algeria and
Tunisia), thus eliminating months or even years of
negotiation, expenses and paperwork.
critics are describing the American strategy of dealing
with each Arab country as a separate case as
‘deliberately divisive’. They further challenge U.S.
motives in entering such agreements only with small
countries (with the exception of Australia), fearing a
type of economic imperialism.
comes to the UAE, in particular, the business community
wants answers to the following broad questions:
Why is the
UAE expected to conform to the U.S. timetable for
signing, rather than one designed to serve its own
comfort level? Since it is the UAE, which has to make
most preliminary changes, this would seem reasonable.
event the UAE chooses to sign-up to the bilateral FTA,
how will this impact its interactions with other GCC
members and certain Asian countries, with which it
currently enjoys excellent trade relations? And if as a
result, the UAE finds itself regionally isolated what
would be the effect of such isolation upon the country
both in economic and political terms?
levels of exports to the US can the UAE aspire to,
bearing in mind ‘Rules of Origin’ [See heading ‘Rules of
Origin’ below for explanation]?
clout does the UAE possess while negotiating such a deal
with such a mega political player and economic
powerhouse as the U.S.?
scrutiny of the bilateral FTA’s fine print, further
issues of possible contention arise, and, in particular,
with regard to agricultural imports.
Trade in agricultural produce
appears to have been weighted to suit U.S. conglomerates
and could result in local markets being swamped by
subsidized American farm products, priced to undercut
similar, locally produced, items.
given that an estimated 30-40 per cent of U.S. corn is
genetically modified (GM), there is a danger that
American corn imports could contaminate varieties of
local corn. Outside the U.S., the opinion is still out
on whether GM foods are potentially harmful to humans in
the long-term, and in many countries these are banned.
history of ‘do as I say but not as I do’ in trade
matters is another red light. While the U.S. demands
that their free trade partners open up their markets to
American goods, services and investment, when it comes
to agriculture, this is often a one-way street.
A case in
point relates to Australia. After the American sugar
industry lobbied hard, U.S. trade negotiators ensured
that sugar was excluded from its FTA with Australia, the
world’s fourth largest sugar-producing nation. This
brought the American government’s double standards under
the spotlight. In particular, its vocal demands that
other countries liberalize their markets, while it
implements a policy of protecting its own farmers.
came to a reduction of tariffs on agricultural imports,
such as meat and dairy items, Australia once again
received a raw deal from the U.S., which offered only
the barest minimum of concessions.
Australian example begs the question: If the U.S. could
treat Australia, a close political ally and a major
economy, in such a disparate and unfair fashion, what
can a small country like the UAE expect?
Under the envisaged FTA, the UAE
will have new obligations concerning intellectual
property rights (IPRs). In essence, these are registered
artificial monopoly rights to intangibles, such as
Internet business methods, trademarks, computer
programs, designs, manufacturing processes, drug
formulations, the development of new strains of rice
etc. Such IPRs offer owners of intellectual property
legal redress from those individuals or companies, who
copy or use their ‘creations’ without permission.
If the UAE
becomes an FTA partner, the new IPR obligations and
burdens on it will be numerous and onerous. These
include but are not limited to the:
extension of protection for branded drugs and the
limitation of parallel imports, hampering the
availability of affordable generic medicines.
patenting of plants and animals, which will result in
local farmers being unable to save seed or reproduce
fish breeds or livestock.
patenting of computer software, to the detriment of
local programmers and those creative open-source
movements now mushrooming across the world as cheaper
alternatives to Microsoft.
tightening-up of copyright protection, which, even
today presents serious hurdles for students, libraries
and educational institutions.
down on piracy of popular consumer goods such as
digital products, clothing and music videos, tapes and
IPR infringements into criminal offences, even though
such infringements are currently dealt with under UAE
list goes on.
bottom line is that when we are obliged to pay
multinational conglomerates license fees, we ensure
their research and development costs are reimbursed,
and, thus, help to protect those monopolies, which often
are responsible for crippling the economies of
When it comes to foreign
investment within the UAE, the country may find itself
at a disadvantage under the proposed FTA. Simply put, US
corporations often object to being told what to do by
foreign governments and demand parity for themselves and
their investments with domestic investors and theirs.
This is far from the international norm.
time or another most nations have imposed regulations on
foreign investors in line with their own development
strategies. Usually such regulations ensure investment
from overseas benefits not only the investor, but also,
even more importantly, the host country.
example, most states around the world impose percentage
limitations on foreign ownership of essential industries
such as telecommunications, transport or energy, or if
100 per cent ownership is allowed, then stringent
conditions are usually set. In some cases, countries
have issued performance rules requiring foreign
investors to hire a certain proportion of local
employees or utilize a set percentage of
FTAs, however, incorporate broad non-specific
definitions like “investor” and “investment”, which fail
to distinguish between foreign and domestic investments.
As such, foreign investors start out at a level playing
field and are afforded broad protections as well as such
liberal rights as free entry, establishment, operation
and exit. Investments in all sectors of the economy are
covered by most U.S. bilateral investment agreements,
unless specifically excluded under an individual
worrying are the enforceable rights given to U.S.
investors under FTA agreements, which enable them to
resolve their disputes by international arbitration,
rather than in the domestic courts. Moreover, binding,
and often secret dispute mechanisms entitle foreign
investors – which are often multinational corporations –
to challenge any domestic laws or governmental rules,
measures, policies or omission they claim may adversely
affect their investment.
Rules of Origin
Rules of Origin represent the
criterion used to define where a produce was
manufactured or produced or, alternatively, the country
where the item last underwent substantial
transformation. Such rules play a central role in trade
regulations due to policies, which discriminate between
exporting countries: i.e. quotas, preferential tariffs,
anti-dumping policies, countervailing duty (charged to
counter export subsidies) and more.
As far as
the UAE is concerned, the ‘Rules of Origin’ factor is
crucial and may limit the amount of goods it can export
to the U.S. This is because any preferential treatment
offered within the terms of a U.S. FTA refers solely to
those products originating from or transformed by the
mind this important caveat, one wonders just how many
goods the UAE will be allowed to export to the U.S. and
whether the country will benefit from the FTA in real
already a substantial trade gap between the UAE and the
US. In 2003, US exports to the UAE came to US$3.5
billion, while UAE exports to America reached only a
third of that – US$1.1 billion.
Opening the way to free trade in
services can restrict a government’s ability to ensure
its citizens’ access to affordable and adequate basic
services. The removal of restrictions and government
regulations, whether environment, social or communal,
considered “barriers to trade” can erode the quality of
life for nationals.
Apart from practical
apprehensions, there are fundamental political worries
about the proposed FTA.
has made no secret of its wish to sign up to a Middle
East Free Trade Agreement (MEFTA) encompassing some 20
regional countries by 2013. With this goal in mind, it
is busy negotiating bilateral FTAs with Middle Eastern
Arab businessmen, especially manufacturers and
exporters, view this as an opportunity, others are more
sceptical and wonder whether the FTAs are yet another
way America can manipulate the region to suit its own
political and economic interests.
past few years, the links between corporate interests,
globalisation and the US. Military, which protects both
American big business and the superpower’s geopolitical
agenda, have become apparent.
particularly noticeable following the invasion of Iraq
when USAID shut out foreign contractors and, instead,
awarded lucrative, no-bid reconstruction contracts to
the Bush administration’s corporate backers and crony
companies. Such behaviour does not inspire confidence in
the US administration’s sense of fair play.
It is not,
therefore, surprising that many in the region view the
American FTAs with a jaundiced eye. Detractors believe
that the core purpose of such trade agreements are to
secure the planet for US multinational giants and to
spread US hegemony, while crushing those communities and
economies, organized around a different value system.
The UAE should hold a series of
seminars and workshops for the benefit of the UAE
business community so as to share with the private
sector the reasons why the government has seemingly
decided to sign-up. Rather than present the private
sector with a fait accompli, the UAE authorities should
take business people into their confidence, ask their
opinions, and listen carefully to their views.
the government signing on the dotted line, it should
ensure that the business community’s interests are fully
protected. In particular, equitable compensation should
be awarded to sole agency-holding individuals and
companies, whose business may be put at risk by the FTA.
At the very least they must be able to recoup their
investments in infrastructure, premises, machinery,
advertising and promotions etc, when faced with
unexpected and unfair competition.
ratifying any agreement, business people from Austria to
Argentina – and we Arabs are no exception - consult with
their legal advisers on two important clauses: One
concerns the agreement’s tenure, and the other relates
to its termination. The question is: Has the government
paid due attention to those clauses in the proposed FTA?
For the sake of future generations and our
responsibilities towards them, it should, else there is
a danger that the FTA could one day become a noose
around our necks.
should also be aware of the following pitfalls inherent
in the FTA and is advised to insist on opt-out or
non-conformance clauses when negotiating its final terms
subsidies and support, presently available to UAE
nationals, will have to be extended to US investors as
well. Further, US financial institutions will receive no
less favourable treatment than their UAE counterparts.
For example, whereas foreign banks are subject to
taxation, American banks in the country may be entitled
to demand tax exemptions on par with domestic banks.
companies will no longer have to be sponsored or
partnered with local service agents. Thus, some UAE
nationals are set to face a substantial loss in income.
Furthermore, such privileged companies will not be bound
to include Emiratis in their management teams and so
there will be little scope for locals to rise to senior
the event the UAE Agency Law remains in effect, when US
agency agreements are cancelled or not renewed when
their terms expire, any compensation or indemnity paid
to the local agency holder will be subject to prescribed
companies will receive the same status… or better…
currently extended to companies belonging to GCC, Arab
League and Islamic Organization countries. Over time,
awarding preferential treatment to American concerns
could affect the UAE’s relationship with those bodies
and even result in their eventual fracture.
Enforcement of international labour laws could result in
the formation of trade unions. Such collective
bargaining power could result in difficulties with
hiring and firing, increased operating costs with the
possibility of strikes and social unrest always looming.
imperative that the UAE evaluates the proposed FTA’s
pros and cons and the very real effect its
implementation will have on not only the business
community but also on the society as a whole. There is
no doubt that the country is faced with a monumental
decision and one which should not be taken lightly. In
the final analysis, as always, we put our faith in our
government to do the right thing.