Business / #ForbesBusiness



July 27, 2016,   4:27 PM

Gulf Countries Could Take Advantage Of UK Weakness In A Post-Brexit Trade Deal

Dominic Dudley

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Middle East countries are, like most of the rest of the world, still astonished that the UK has voted to leave the EU. But the Gulf Cooperation Council (GCC) could be a corner of the globe that benefits from the shock, by taking advantage of the UK’s weak position when it comes to negotiating new free trade deals.

Trade between the UK and the GCC is worth more than £22bn a year, with a hefty trade surplus for the UK. Britain buys oil and gas from the region – which it will need more of in the future as its North Sea reserves are steadily used up – and sells arms, aircraft engines, cars and other goods, as well as financial, educational and other consultancy services. It also maintains a strong military presence in the region and is building a new naval base in Bahrain at the moment.

The two sides know each other well. Gulf investors have long been keen buyers of UK assets. Their existing investments will have been hurt by the referendum result, but the decline in the value of sterling and the anticipated fall in property prices mean that new investments are getting cheaper by the day. London also plays an important role as a European base for Gulf individuals and businesses and, although that will diminish after the UK leaves the EU, Gulf investors are too wedded to the city to abandon it. Many of the region’s elite maintain homes in the UK capital and they often turn to London’s courts to settle their marital and business disputes.

The UK cannot legally sign any free trade deals until it has left the EU, which seems unlikely to happen before 2019 at the earliest. In the meantime it needs to hire lots of trade negotiators. Right now, the UK suffers from a chronic shortage of experience in this area, after years in which the task was outsourced to Brussels. The pressure that London will be under to sign deals quickly – if only to show its own population that Brexit can be a success – means that the Gulf states and others will be in a strong position to push for a deal favourable to them.

Among the issues that are likely to crop up is a demand for some sort of visa waiver programme, which the UAE already has with the 26 European countries that are party to the Schengen agreement. That may upset some of those in the UK who voted for Brexit in the hope of curbing immigration. Ease of investment is also likely to be a core issue. From Britain’s point of view, the GCC countries are a prize worth chasing. The six countries have 53 million consumers and a combined GDP of around $1.4 trillion, which is just behind Canada and larger than that of South Korea or Australia.

Economic growth rates in the Gulf are subdued at the moment because of low oil prices, but there is still plenty of business worth chasing for UK oil and gas companies, construction contractors and consumer goods firms.

A prospective EU-GCC trade deal has stumbled over human rights issues in the past, leaving the two sides with a 1988 cooperation agreement which represents little more than an ambition to do more in the future. The UK will probably have to agree to ignore human rights concerns if it wants to sign a free trade deal quickly and, if its strategy of avoiding any criticism of the five-year-old political crackdown in Bahrain is any guide, it will be happy to do so. That alone would represent a win for the GCC.

As to the people the Gulf governments will be dealing with in the coming years, the UK’s new Foreign Secretary Boris Johnson is fairly well known to many in the region, by reputation if not from actual meetings, as a result of his long and ignoble history of gaffes and derogatory and offensive remarks, but his name tends to elicit a smile or even a smirk from Gulf nationals. Liam Fox, the man in charge of lining up new international trade deals, is fairly well known to senior government figures in the region from his time as Secretary of State for Defence between May 2010 to October 2011 (a position he had to resign from in disgrace). He has maintained some links to the Gulf states since then, for example attending an event in Bahrain in March 2013.

The Gulf countries are far from alone in being in a strong position when it comes to negotiating a trade deal with such men. The UK’s representatives will find themselves on the back foot when they sit down with their counterparts in many parts of the world – partly because of their dislike and distrust of Johnson’s boorish reputation but also, more importantly, because they know that the UK will be desperate to sign a deal. When it comes to negotiations, the side that needs a deal the most is also the one that usually has to concede the most.


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