On the China-GCC Free Trade Agreement

 09.02.2022 Author: Salman Rafi Sheikh

Column: Economics

Region: Middle East

Given how the US withdrawal from the Middle East has impacted Washington’s ties with the Gulf countries, an opportunity certainly exists for the latter to pursue their ties with Beijing more freely than was the earlier the case. There is, in fact, already signs that China and the Gulf may well be taking concrete steps towards the China-Gulf Coopertaion Council (GCC) Free Trade Agreement, negotiations for which began in 2004 and came to halt in 2016. In January 2022, foreign ministers of key Gulf states – Saudi Arabia, Kuwait, Oman, Bahrain – as well as the secretary general of the GCC, Nayed al-Hajraf visited China to discuss trade and investment. This flurry of diplomatic activity is a vital sign of reviving a dialogue that was suspended in 2016 after the Saudia Arabia and UAE led diplomatic boycott of Qatar. Now that intra-Gulf ties have been restored to a large extent, although underlying rivalries remain, the GCC states appear to be eager to co-opt China as their future economic partner.

Although the UAE was not involved in the recent visit, Abu Dhabi is very much engaged with the whole process. On January 13, Wang Yi spoke to his Emirati counterpart and reaffirmed China’s commitment to help it meets its national development goals while emphasising the imperative of finalising and implanting the China-GCC Free Trade Area (FTA) as soon as possible.

This is a very significant development insofar as China, for many in the GCC, could be a counter-weight to the US. In fact, one of the key reasons for the UAE’s decision to end its F-35 deal with the US was its refusal to bow down to the US pressure over cancelling Emirati acquisition of Chinese 5G technology. These revamped ties are obviously geared towards a new future of China-GCC ties. As China’s foreign minister, Wang Yi, recently said, “speedy conclusion of the GSS FTA” as a major foreign policy objective for the year 2022.

There is a logical synergy between the GCC and China. Whereas the GCC is a major source of energy supply to China, Beijing’s Belt & Road Initiative (BRI) presents a multi-billion dollar investment mechanism that can meet the Gulf state’s increasing appetite for diversifying their economy by moving away from sole reliance on oil to industrialisation. In fact, Saudia’s 2030 vision is a major manifestation of where the GCC region is headed in terms of its future economic direction. Therefore, while the US withdrawal from the Middle East might have allowed the region to take a step towards China, there is also little gainsaying that China and the GCC have a high degree of mutual interdependence, and it is driving the politics of trade agreement.

In 2020, despite a massive blow to international trade caused by the COVID-19 pandemic, China replaced the European Union as the GCC’s largest trade partner. With bi-lateral tared valued at US$ 161.4 billion in 2020, China contributed billions through its purchase of 375 million tons of crude oil form the GCC countries while exporting machinery, equipment and automobiles worth US$70.8 billion, making a 5 per cent increase from the last year.

This increase in trade signifies a coordinated shift towards forging a durable Sino-Gulf strategic partnership. In this context, whereas China’s massive Silk Roads projects aim to construct a new, mostly land-based geography of trade to avoid sensitive Sea Lines of Communication (SLOCs), China’s deepening strategic ties with the Gulf would ensure its energy security on a permanent basis as well.

It is this context that we can also make sense of China’s last year decision to pull out US$20 billion from its investments in Africa, with a direct possibility of this money going into the investment-hungry Middle East.

China, as it stands, senses the urge. As a Global Times, the official mouthpiece of Chinese Communist Party, noted in its recent report, the GCC is seeking the “most advantageous path” to development – a search that not only comes against the backdrop of the US’ reduced dependence on the Gulf oil and gas, but also renders “booting and strengthening ties with China .. reasonable and urgent for the GCC members.” The GCC’s urge is matched by the fact that the Gulf region meets 40 per cent of China’s energy demands.

Therefore, a move towards a free trade agreement to complement and reinforce the already high volume of bi-lateral volume and dependency makes sense. In this context, the Gulf states’ increasing appetite for an agreement with Beijing is only matched by the fact that China has already surpassed the US in terms of its global share of free trade agreements. This has been facilitated, to some extent, by the Trump administration’s “America First” policy that led it to withdraw from international trade politics – in particular, the Trans Pacific Partnership – and the Biden’s administration’s focus on reviving domestic economy before bringing the US international trade back on track.

Given the growing synergy between Beijing and the GCC, there is little that Washington can do to bloc, or jeopardise, the China-GCC free trade agreement.

While Washington and the global financial institutions – the International Monetary Fund (IMF) and the World Bank – it controls have been keen to project China’s trillion dollar BRI as “debt trap” for the participant countries, this argument holds little to no relevance to the Gulf in view of the fact that the GCC states are in much stronger financial position than other BRI countries in Asia and Africa, which means that they do not need to borrow money China to support domestic projects.

And, while the Gulf states historically relied on the US for protection from Iran, the fact that Iran is already deeply integrated with Beijing means that the Gulf states can safely rely on Beijing, without even having to confront the prospects of Beijing’s US-like withdrawal from the Middle East, to manage its relations with Iran. Beijing, in this sense, is also poised to play a more direct geo-political role in the Middle East than has thus far been the case.

The Gulf state’s engagement with Beijing is, thus, doubly-decisive insomuch as it serves, with China being the new balancer in the region, both geo-economics and geo-politics.

Salman Rafi Sheikh, research-analyst of International Relations and Pakistan’s foreign and domestic affairs, exclusively for the online magazine “New Eastern Outlook”.

https://journal-neo.org/2022/02/09/on-the-china-gcc-free-trade-agreement/