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  Negotiations 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).

  In 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.”

  There are 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?

  Some 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.”

  Others 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. 

  A few 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.

  When it 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.

  In the 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?

  What 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]?

  How much clout does the UAE possess while negotiating such a deal with such a mega political player and economic powerhouse as the U.S.?

  Upon scrutiny of the bilateral FTA’s fine print, further issues of possible contention arise, and, in particular, with regard to agricultural imports.

Agriculture

  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.

  Moreover, 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.

  America’s 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.

  When it 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.

The 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?

Intellectual Property

  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.
• clamping down on piracy of popular consumer goods such as digital products, clothing and music videos, tapes and CDs.
• turning IPR infringements into criminal offences, even though such infringements are currently dealt with under UAE civil law…

…and the list goes on.

  The 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 developing nations.

Investment

  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.

  At one 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.

  For 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 locally-made/assembled materials.

  American 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 agreement’s terms.

  Even more 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 partner country.

  Bearing in 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 terms.

  There is 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.

Services

  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.

Fundamentals

  Apart from practical apprehensions, there are fundamental political worries about the proposed FTA.

  The U.S. 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 states.

  While some 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.

  Over the 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.

  This was 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.

Recommendations

  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.

  Prior to 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.

  Before 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.

  The UAE 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 and conditions:

  All 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.

  American 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 management positions.

  Even in 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 limits. 

  U.S. 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.

  It is 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.