GCC and Asean Ministers Boost Trade Links

The first ever ministerial meeting between the Association of Southeastern Asian Nations (Asean) and the GCC in late June provided an early precursor to what could become a free trade agreement (FTA) between the 16 member countries.

Meeting in Manama, ministers discussed possible ways of establishing an Asean-GCC co-operation framework, a trade agreement and ways of fostering better people relations and tourism ties.

Established in 1967, Asean has 10 member countries including Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

The GCC founded in 1981 includes six states: the UAE, Bahrain, Saudi Arabia, Qatar, Kuwait and Oman and better trading agreements with Asean would bolster its food needs as the populations of countries such as the UAE continue to grow at a fast rate.

In January 2009 a GCC-Singapore FTA deal was successfully sealed, which could set the benchmark for a more comprehensive future agreement.

Current Trade

According to statistics published by Bahrain's foreign ministry, the two-way trade amounted to $99 billion (Dh363 billion) in 2008, with the GCC enjoying a hefty $51 billion surplus. The bulk of GCC exports of $75 billion consist of oil, petroleum products, gas and petrochemicals.

The GCC's food import bill amounts to more $12 billion annually but there is still a lot the two blocs can contribute to in terms of trade.

"It is very inspiring for all of us to see the Ministers of Foreign Affairs of ASEAN and the GCC engaging in their formal discussions with such enthusiasm and commitment to enhance cooperation between the two regions,” said Dr Surin Pitsuwan, Secretary-General of Asean.

“What is significant here is the unmistakable solid collective political will on both sides to forge more cooperative relations for the benefits of our peoples in the two regions.

“We must capitalise on this momentum and carry it forward now that we have a clear and unequivocal political direction from our leadership."

Scarce Resources

According to the Dubai-based Gulf Research Centre, production of a tonne of barley requires some 1,212 cubic metres of ground water reserves, a scarce resource in the region.

Dr Samir Pradhan, senior researcher in GCC economics and the Gulf-Asian Programme at the Gulf Research Centre, said the meeting and its potential to secure a trade bloc was important for the future of both regions.

“It is very important to have a trade bloc in order to accelerate seamless flow of regional trade and investment between the two regions,” he told Alrroya.com.

“It would facilitate regional economic integration and substantially benefit multilateral trade and investment liberalisation.

“Apart from exploiting the exiting trade potential between the regions, such trade bloc would facilitate investment flow between the regions which is still very low.”

The initial proposals could see a Regional Trade Agreement (RTA) and is boosted by the uncertainties of the current financial crisis and the growth potentials in each region making it pertinent regional leaders to push for intensive economic co-operation.

“Importantly, the successful GCC-Singapore FTA deal which was sealed in January 2009 was the prime mover for the two regions to rediscover and reinforce mutual economic relations,” adds Dr Pradhan.

“Additionally, the booming economic tie between China and GCC is also another factor for the Asean to up the ante.”

Important Market

Southeast Asia is an important food market for GCC countries and likewise the GCC is a very important energy market for Southeast Asia, however their economies are not the same.

“It would not be simplistic for the two organisations to agree to various modalities of the deal because the growth and dynamics of the two blocks is different in scope and depth,” explains Dr Pradhan.

“While Asean has become a truly regional trading bloc, GCC is a work in progress. Importantly, the member countries of both these bloc are not homogenous, and are at different stages of economic growth, signifying economic diversities.

“This can be corroborated from the fact that Singapore being an important member of the Asean concluded the FTA deal with GCC independently instead of lobbying for broader regional FTA between GCC-Asean.”

Nevertheless, says Dr Pradhan, Singapore’s astute economic diplomacy may clinch the deal with GCC as a bloc, which still eludes other important world economies and groupings like the EU.

“So one should be optimistic regarding the regional trading bloc given the fact that Asean countries would emphasise solely on hard-nosed commercial interests rather than flagging sensitive socio-political issues while negotiating the modalities with the GCC.”

According to the latest data (2007), out of the total two-way trade of $55billion between GCC and Asean countries, nearly $34bn was oil exports - implying an overwhelming 88 per cent of GCC’s total exports to Asean.

Asean has its regional oil and gas resources in member countries, yet it is grossly inadequate to meet the ever increasing regional consumption growth and the result is dependence on imports especially from geographically close Gulf region.

Indonesia was a major oil exporter within Asean, but now it is left with less reserves and in fact importing oil from the Gulf region.

Asean members like Thailand and Philippines meet nearly 60 per cent of their total oil imports from the Gulf.

On the other hand countries like Thailand, Philippines and Malaysia are a major source of GCC’s total food imports including cereals, fruits, fish and meat.

Long Term Agreements

“The GCC cannot afford to ignore these important import sources given the increasing population pressure and glaring food gap,” says Dr Pradhan.

“One can recall the food inflation rocking the GCC in late 2007 and early 2008 when major exporters of rice like Thailand put a ban on exports due to spiralling food prices in the world.

“In these circumstances, GCC countries have become highly apprehensive and seeking long term assured supply agreements with major food exporters to the region.”

Agriculture in the GCC countries is handicapped by hostile agronomic parameters such as insufficient cultivable lands, arid climatic conditions and scarce water resources among others characterise the region’s food security constraints, making a trade bloc with a breadbasket like Asean all the more important.