UK-GCC Trade Negotiations 

Last week the UK government announced the start of negotiations with the Gulf Cooperation Council (GCC) on a new free trade agreement (FTA). The GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE – six high-income economies that are home to 54 million people, with a combined value of $16 trillion.

The UK’s trade relationship with the six GCC states is worth over £33 billion annually and the bloc as a whole is equivalent to the UK’s fourth largest export market outside of the EU. The UK government estimates that a comprehensive FTA could add £1.6 billion a year to the UK economy in the long run. So what do we expect could be achieved in a successful negotiation? 

An FTA with the GCC could make exporting cheaper while improving choice and competition at home. Import duty is applied to a wide range of UK goods entering the bloc – although rates are generally low – on average around 5.5%. However, there are notable exceptions in some GCC countries, particularly on food and drink items – for example, tariffs of up to 25% on cereals, 15% on chocolate and 10% on biscuits. GCC states are highly reliant on imported foods and represent a significant export destination for UK producers.

We also anticipate an FTA helping to facilitate stronger exports in manufacturing, particularly in the automotive and machinery sectors. There is also a significant opportunity for the UK green energy sector to deepen its presence in GCC states as they transition from oil towards renewable sources. For instance, by lowering or removing tariffs of up to 15% currently applied to wind turbine parts.

Other opportunities for goods traders include benefitting from simple rules of origin, straightforward and transparent customs procedures and potentially the removal of discrepancies in rates of duties for the same product across the GCC. Producers also have to comply with a very diverse set of complex product standards which could be simplified and made more transparent through an FTA, with closer cooperation between regulators in each country. These improved terms would be particularly beneficial for small and medium sized companies, which account for over 85% of all UK goods businesses exporting to Qatar, Saudi Arabia and the UAE.

As the world’s second largest services exporter, the UK could benefit hugely from substantial liberalisation in services restrictions currently in place across GCC states, where foreign equity caps, residency rules and joint-venture requirements are very common.

The GCC does not have an integrated services market, with each country operating its own independent regulatory environment and legal system - so this will prove a challenging aspect of the negotiation. Nevertheless, with the UK already exporting over £12 billion of services each year, even some degree of improvement such as greater transparency and cooperation between the GCC countries themselves would have a positive effect.

Improved terms for business travel could help drive deeper trade in services, with an FTA potentially securing new commitments to help professionals enter each market for both short and longer-term visits. Visa arrangements in GCC states are commonly perceived as complex, slow and expensive – so commitments to simplify processes and increase transparency could go a long way, particularly in helping small & medium sized exporters.

The UK and GCC states already have a strong bilateral investment relationship worth £30 billion covering a diverse range of sectors from construction to life sciences. An FTA helps to provide legal certainty and could also remove a range of restrictions that may be holding back investment, including equity caps, licensing restrictions and limitations on corporate structure. It could also liberalise market sectors currently unable to benefit from foreign investment – for instance, Kuwait effectively prevents overseas entities from investing in its oil and gas industry.

None of the GCC states are parties to the WTO government procurement agreement (the plurilateral rulebook which seeks to regulate public sector contracting) and GCC countries have a wide range of measures in place which limit the ability of UK suppliers to fulfil government procurement opportunities. 

For instance, Saudi Arabia requires foreign suppliers to subcontract 30 percent of the value of procurement contracts to firms owned by Saudi nationals. A similar arrangement can be found in Qatar. Bahrain has very complex and slow tendering processes and foreign firms operating in the UAE often complain that procurement processes are opaque and payments are late. An FTA could provide greater market access by minimising some of these barriers, providing binding guarantees to suppliers and help provide greater transparency of procurement opportunities and processes.

With over 56% of the UK’s services exports to GCC states digitally delivered, an ambitious digital chapter could help to create opportunities for priority sectors while improving efficiency in the bilateral trade corridor. A modern digital chapter which includes some elements of the CPTPP and UK-Singapore DEA e-commerce provisions would be a good outcome.  Negotiators will press GCC partners to remove existing data localisation requirements across the region, provide commitments on the non-disclosure of source codes and algorithms and make progress towards the implementation of paperless trading. 

A comprehensive FTA will also include provisions in a wide range of other areas, including intellectual property, innovation, competition, agriculture, sustainability and labour standards.  A date has not yet been set for the first round of negotiations but they are expected to take place during summer 2022, running in parallel with the UK’s other trade negotiations – including with Canada, Mexico and India. However, negotiating with the six members of the GCC may prove more logistically challenging and may therefore take considerably longer than some of the other negotiations. The government has said it hopes that negotiations can be concluded within two years (with implementation likely to be at least three years away).

What should I be doing now?

The trade corridor between the UK and the Gulf is set to widen over the coming years, regardless of the outcome of this negotiation. Indeed, the GCC’s demand for imported goods and services is forecasted to grow by 35% - or £800 billion - by 2035. A successful FTA negotiation will mean British businesses are able to secure an even greater share of the commercial opportunities this rapid growth provides. 

Implementation of an eventual deal might seem far away, but now is the time to quantify the opportunity for your business. Whether you’re in goods or services, large or small, you should evaluate your operations, supply chain and investment decisions to position your business to take advantage of these developing relationships. For support in assessing your priorities, Deloitte’s specialists are on hand to help.

Please contact:

James Caldecourt
Head of International Trade

Amanda Tickel
Head of Tax & Trade Policy