Negotiations to Sign Free Trade Agreement between the Gulf Cooperation Council and China: Horizons and Challenges

A meeting of Gulf States and China took place on January 10, at the invitation of Beijing. The meetings took five days, with high hopes on “achieving a progress” in the negotiations about an agreement for free trade with China and the Gulf Cooperation Council (GCC) the matter which was proposed for the first time in 2004.

In case a progression was made in achieving steps in such direction, then, a type of "institutionalization” will dominate the China-Gulf States relations, the matter which China wishes, as the GCC is one of its most significant trade partners and energy suppliers in the Middle East. But there are inquiries regarding such optimism. These inquiries are concerning whether talking about “the Gulf” as one and unified party are. The disputes, competing, divergence, and sensitivity between the GCC member states are still present. This makes the free trade idea between the Asian giant and the GCC have enough challenges, the matter that this analytic paper sheds the light onto.

However, this caution does not hide the fact of “the strength of motivation” Gulf States has to develop their relations with Beijing. Rarely did the Gulf States made repeated and collective such visits to China while Covid-19 proliferation. This is a step, which analysts deem to be a part of “heading eastwards” strategy, which the Gulf States follow. In this regard, Beijing see that Gulf States passed the stage of choosing to enhance their relations with China, or keeping their relations at a stable threshold, to choose the first track. Gulf States are presenting their countries as promising markets for the Chinese investments in infrastructure projects, like seaports, railways, technology, and artificial intelligence applications. There is no doubt that the ramifications of the competition between China and the US would affect the Gulf States, the subject which this paper will address.

Five Points

During their meetings this month. The Gulf States and China agreed on five points, resembled in:

1. The necessity of establishing “strategic partnership” relations.

2. Signing a joint work plan for the strategic dialogue between the two parties, during the period from 2022 to 2025.

3. To conclude the negotiations concerning the free trade agreement.

4. To establish a free-trade zone.

5. To hold the fourth round of the strategic dialogue and the GCC in Riyadh, in the time the two parties find appropriate.

The two parties, after discussions held by the state minster, Chinese minister of foreign affairs, Wang YI, with the GCC secretary chief, Nayef Falah Mubarak Al-Hajraf, after the Chinese minister met the foreign affairs ministers of KSA, Bahrain, Kuwait, and Oman. And after receiving a phone call from the UAE minister of foreign affairs and international cooperation, according to Xinhua.

Free Trade Negotiations and Partnership Enhancing Justifications

There are many objective justifications, which lead the GCC states and China to deepen their trade partnership. According to Oman’s former ambassador to China, Ibrahim Bin Hamoud Alsobhi “signing a free trade agreement with China is late”. According to him “the affairs and relations between the Gulf States with China must go faster, for China is now the second economic power in the world”.

Al-Ula summit of the Gulf States, held in KSA in January 2021, urged to pay attention on going on signing the free trade agreement with China, stressing out the importance of the strategic and economic relations between the two sides.

To reach the free trade agreement, the negotiations between the Gulf States and China depends on the framework agreement for economic, investment, and technical agreement, signed between the GCC and China in 2004. Also, it depends on the agreement of understanding signed between the two sides in 2010, according to the GCC secretary chief, Nayef Falah Mubarak Al-Hajraf.

If we want to count the reasons and justifications of the two sides' tendency to conclude the negotiations over a free trade, or regarding concluding the five aforesaid steps, within five years, we can refer to the following:

1. The GCC are deemed to be among world's biggest petroleum exporters, while China is the world's second petroleum consumer, consuming around 12.5 million barrels per day, after the US which consumes around 17 million barrels per day. The Gulf States petroleum is c.30% of China's petroleum imports in the world 2019. On another hand, the two sides should discuss how to achieve the goals of reducing carbon after the Climate Summit (COP26).

2. During his visit to the Middle East, in which he visited 4 GCC countries in Mars 2021, the Chinese Minister of Foreign Affairs, Wang Yi, stressed out that his country's aim with the GCC is to reach a strategy about the free trade, the matter which will contribute in increasing the imports and exports between them, and "Enrich the strategic factors for the two sides' relations, and contribute in accelerating the level of economic refresh in China, the GCC, and the world" according to him.

3. Moving forward with the free trade agreement between the two sides, in addition to the five points, is part of China's efforts to achieve greater harmonization between the Belt and Road Initiative and gulf development plans, especially over the next two decades.

4. According to Kuwaiti economic analyst, Hajjaj Boujdour, establishing a free trade zone between the GCC and China will greatly raise the level of liberalization and facilitation of trade and governance of the trade, and economic interests of the two parties. The intentions to hold the fourth round of strategic dialogue between the GCC and China in Riyadh, would enhance the communication and following-up the programs of development between the two parties. Boujdour suggests that a coordination office should be established as a mechanism to begin implementing this plan.

5. In 2021, the GCC Statistical Center released data, showing (as shown in the table below) the most important non-petroleum trading partners of the Gulf states over the past 10 years. China ranked first on the list, with a total of $11.7  billion in commodities exports.

6. The free trade agreement with China helps the Gulf states, led by the United Arab Emirates, in re-exporting the Chinese goods to a third party. The past few years confirm that there is a common political will, between the Gulf and China, to develop the horizons for bilateral trade, with trade rates increasing from $90 billion in 2010 ,to about $178 billion  in 2019, according to World Bank data.

7. The free trade agreement will create trade and investment opportunities, that promote and contribute to economic and GDP growth. And will contribute, according to analysts, in increasing innovation. It would also contribute to improving the use of resources and direct industrial sectors, towards the most efficient and competitive. this will have a positive impact on increasing workers' wages, and increasing the flow of foreign direct investment.

Beyond Trade

Talking about the privileges of the free trade agreement in not purely limited to the commercial aspects. It goes beyond that to the strategic and geopolitical dimensions.

China's economy is on a record rise on a global scale. It has become extremely difficult for emerging and prosperous economies to avoid engaging with the Chinese Giant, even as strategic competition between Beijing and Washington grows. It is a competition that is not in favor the Gulf States, which are more adamant that their economic future will not make qualitative leaps away from Asia, including, China, along with India, Japan, and South Korea.

It might be enough to indicate China's importance in Gulf strategic planning, to pay attention to the decline in the Gulf relations with Taiwan. For its part, the Chinese approach refers to an ambitious foreign policy toward the Gulf region two decades ago. Accordingly, protecting and developing their strategic partnership requires more what is than trade, especially since the relations between the GCC countries and the U.S.-Western ally, regarding security and defense issues are different today than how they were in the last three decades.

According to observers, the geopolitical presence in the Gulf-China relations is reflected in the fact, that the latter's presence, as part of the new equations in the Middle East, expands "the space of the Gulf states to maneuver in their relations with Washington, and puts them in a stronger negotiating position. However, this position does not come at no cost, as the Gulf States also have doubts about China's close strategic relations with Iran".

More than a year ago, the GCC States observed signing the world's largest free trade agreement without the United States. It was a scene that reflects the depth of shifts in the international strategic environment, which the Gulf States do not want to be out of adapting with facts thereof. In November 2020, 15 countries from the Asia-Pacific region signed the world's largest free trade agreement, including one third of the world economy. The Regional Comprehensive Economic Partnership Agreement (RCEP) was concluded after eight years of negotiations. Chania, Japan, South Korea, and Australia participated in such Agreement. It is likely that the RCEP Agreement would lead to enhance Beijing's dominant role in facing the US, which did not take part in the Agreement. This Agreement covers 2.1 billion people, so, the Chinese prime minister, Li Keqiang, to say after the virtual signing protocols (due to Covid-19) "multiallelism is clearly appears to be the best pace, it resembles the right direction for the progress of the world economy and humanity".

Ostensibly, Gulf States and China do not want to be out of the context of such direction.

Opportunities and Challenges

While foreseeing the opportunities and challenges involved in the negotiations for a free trade agreement between the GCC countries and China, attention can be drawn to a number of data and limitations, including, for instance, the following:

- Commenting on the visit of four GCC foreign ministers to China on January 10, a senior U.S. State Department official tried to downplay the importance of visits by Gulf officials. Stressing that each country has a sovereign right to make decisions based on its own interests, and that the United States remains committed to its partnerships in the Gulf. "We recognize that our allies and partners in the region have complex relations with China, which will not always be compatible with our relations... Our focus is on bridging the gaps in areas such as technology and infrastructure, which we have seen China exploiting to exert a coercive pressure. We will rely on innovation and competition in these areas".

- Most likely, the United States wants not only to press for preventing the growth of Gulf-Chinese or Israeli-Chinese military or security relations, but it will not develop trade relations, to the point where Washington loses its pressure on China. Or else, the United States would lose its decades-old dominance over the geo-economic system in the Middle East, as this will ultimately weaken its position on competition with China in Asia, especially since it is difficult to completely separate trade from geo-strategic. Researchers note that "after years of economically-oriented partnership, this Gulf-Chinese meeting highlights that a new post-American geopolitical season in the Gulf has become a de facto".

- The GCC states are an essential part of China's Belt and Road Initiative. It is likely that the return of political relations between GCC countries, since Al-Ula summit was held in Saudi Arabia in January 2021, might reflect on the Gulf Sates opportunities consensus with China, in any prospective free trade agreement. this would contribute to aligning the future strategic development plans of the GCC countries with the Belt and Road Initiative, and enable moving forward with the remaining five points we referred to at the beginning of this paper.

- The China-GCC free trade talks, launched in 2004, faced several challenges. But the current situation creates conditions for negotiations, with trade exchanges between the two parties are steadily growing. Since the United States achieved "energy independence," its petroleum imports from the Gulf have declined. While China has remained the largest importer of Gulf petrochemical products. On the other hand, China plays a pivotal role in helping Middle Eastern countries to transforms their economies, and dismiss their dependence on petroleum. Once reached, the free trade agreement will include facilities in trade, services, and investments. It would help both parties to expand cooperation in emerging areas, such as the digital economy, new energy, and artificial intelligence, in addition to support industrial diversification.

- From a close-to-China point of view, China's high value to the GCC countries reflects its growing importance; although their relationship is sometimes perceived to be limited to petroleum resources. However, the economic reality is much more complex. This view notes that economic exchange between China and the GCC countries has grown over the past 20 years, where such relationship is no longer limited to energy only, or work in one direction. Instead, it has become a two-way process that has diversified and deepened on both sides, to include the development of renewable energy forms, infrastructure construction, and industrialization. In addition, it has also begun to move to other more advanced and value-added forms of economic activity, including investments in the financial, service, cybersecurity, health care, and digitization sectors.

Summary and Conclusions

Cooperation and partnership between China and the GCC states are not new. But the two parties have crossed a long way in strengthening their relations. There is a comprehensive strategic partnership (which is the highest diplomatic type of recognition that Chania offers to another state) between the UAE and KSA on a hand, and China on another hand. Also, there is a strategic partnership (which is the next level of the strategic cooperation which China offers) between Qatar, Oman, and Kuwait on a hand, and China on another hand. This reflects the growing importance of the parties to each other, and ensuring win-win relationship.

However, some are drawing the attention to the difficulties and challenges, and -perhaps- obstacle which are still strong against reaching free trade agreement between the Gulf States bloc as a whole China. Not only because of the difficulty of talking about Gulf as a unified party, but also for other reasons, summarized by analysts on two points. On these two points, analysts conclude that the China-GCC free trade agreement is by no means guaranteed, although the incentives to sign it are strong, therefore, reaching is not unlikely. These two points are:

First: Despite the Gulf reconciliation, that took place at the Gulf Summit in January 2021, the prospects for disputes with Qatar to return are present, as the 2017 crisis was not the first of its kind. But there were similar, albeit less dramatic, experiences of disagreement and tensions in 2014 and earlier.

Second: The structural reforms, required within the GCC states, to speak as a single economic bloc, faced and still facing difficulties and challenges; where there are broad proposals and projects for joint action, which are quickly postponed or discontinued. The bilateral cooperation between the GCC States themselves, or with other regional and international parties, may then appear to be advancing collective action. A joint GCC electricity network was proposed in 2009 and 2011. A common currency was also proposed. But after Oman withdrew from the project in 2006, in addition to the United Arab Emirates withdrawal in 2009, the idea was actually born still.

Given this history, the prospects for further progress in the free trade agreement negotiations are not necessarily promising. With these constraints and challenges, along with the constraints of U.S.-China competition and its implications for the GCC countries, the space for free trade agreement opportunities is contracting.

Reaching the Comprehensive Regional Economic Partnership (RCEP)- the world's largest trading bloc, which includes China as a member- could be a useful reminder to the GCC of the value of free trade. Most importantly, this month's meeting of GCC foreign ministers may reflect a more harmonious future in Gulf's foreign policies, which could predict more chances of success in the future.

The opinions expressed in this study are those of the author. In no way does Strategiecs take responsibility for the views and positions of its author on security, economic, political, social, and other issues, and such views and/or positions do not reflect those of Strategiecs.