Major EU-Gulf trade boost revives talk of reducing barriers

With $175bn worth of annual business between the two blocs, a free trade deal seems only sensible, yet visas and vested commercial interests remain obstacles.

Major EU-Gulf trade boost revives talk of reducing barriers

Amer Ziab Al-Tamimi

last update on 25 Apr 2024

When the Gulf Cooperation Council (GCC) and the European Union signed a Cooperation Agreement on 15 June 1988, Crown Prince of Saudi Arabia Mohammed bin Salman was two years old.

Brussels and the Gulf states have been talking about a free trade deal for a very long time, but in the last year or two, trade has grown so sizeably that the logic for a final push now seems stronger than ever.

After Russia invaded Ukraine and the West imposed sanctions, GCC-EU trade got a boost, with Europe looking for an alternative energy supplier.

Energy exports topped $186bn in 2022, up from $124bn a year earlier, yet analysts on all sides can see the potential for deeper trade links between the two blocs.

EU’s unloved visas

The obstacle still seems to be freedom of movement, specifically the visas Gulf nationals still require before they enter Europe.

The six-nation GCC (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) wants the 27-member EU to waive its visa requirement.

Brussels says no, however, even though UAE citizens were exempted in 2015, and a European Parliament committee is looking to do the same for Qatar and Oman.

Likewise, negotiations with Kuwait are ongoing but may not be resolved before the looming elections in the EU's legislature.

GCC nationals complain that the EU entry visa system is slow. Due to high demand in summer months, it can take weeks to get one, with officials citing long processing delays.

Beyond that sticking point, though, wider GCC-EU relations are robust and rooted in longstanding economic ties.

In 2022, GCC exports to the EU more than doubled, up to $92bn from $43bn in 2021, while GCC imports from the EU rose from $77bn to $93.5bn.

Trade and investment

The direct and indirect investments made by Gulf states' sovereign wealth funds, institutions, and individuals have benefitted many European industries.

Similarly, the European Commission says the GCC countries are "an important source and destination of investment for EU Member States".

EU states see GCC countries as a source of capital for mega projects planned for the coming years and decades.

Likewise, Gulf states increasingly value European technology and management in sectors such as energy, water, and infrastructure, including ports and airports.

After Russia invaded Ukraine, most EU countries chose to source their hydrocarbons from elsewhere. The GCC was a good alternative.

In 2022, the EU was the second largest trading partner of GCC countries after China, with Gulf states accounting for 12.3% of EU trade (China took 15.8%).

In 2022, GCC exports to the EU more than doubled, up to $92bn from $43bn in 2021, while GCC imports from the EU rose from $77bn to $93.5bn. The GCC is now the sixth-largest export market for EU goods.

Saudi Arabia accounted for a big slice of the figures, with its exports reaching $47bn and imports amounting to $35bn in 2022.

Talks and negotiations

The 1988 Cooperation Agreement established regular dialogue on GCC-EU trade and investment issues, macroeconomic matters, climate change, energy, the environment, and research.

A more structured informal EU-GCC Dialogue on Trade and Investment was launched in May 2017.

AFP — A photo of participants in the 27th Joint Ministerial Council of the Gulf Cooperation Council and the European Union in Muscat, October 10, 2023.

In November 2023, the GCC-EU Business Forum met in Manama. On the agenda was the environment, social progress, trade in services, and adapting regulations and legislation to open up trade and investment.

Some familiar sticking points remain, however. Notably, there is opposition from EU petrochemical manufacturers.

They see an EU-GCC free trade deal as a threat, given that GCC countries' petrochemical industries have comparative advantages that EU industries lack.

The EU sector fears that increased GCC petrochemical production would flood its home market, with GCC production currently going to East Asia likely to be diverted to Europe.

Seeing the benefits

Despite such objections, the two blocs have well-developed and cordial relations.

Europe is fertile ground for GCC investments, using the main EU capital markets for investment instruments traded on secondary markets.

In 2023, Gulf investors ploughed $3bn into European startups, five times the 2018 figure. Clearly, the EU remains an attractive place to invest.

GCC money has not just flowed to companies. Gulf interest in real estate—particularly in France, Switzerland, and Spain—remains undimmed.

GCC money has not just flowed to companies. Gulf interest in real estate—particularly in France, Switzerland, and Spain—remains undimmed.

EU technology helps run Gulf healthcare, education, and energy facilities, as well as water distillation plants and clean energy generation systems.

Tourism has also boomed and could grow further if the visa requirements are ditched. GCC citizens contribute substantially to the global tourism industry.

Last year, for instance, GCC tourists spent $1.2bn in Spain, an increase of 64.7% from 2022 and 123.7% from 2019.

A remarkable 434,000 Gulf nationals visited Spain in 2023, up almost 40% from 2022 and up 56% from 2019.

It is not one-way traffic, however. GCC countries, particularly the Kingdom of Saudi Arabia and the United Arab Emirates, are now holiday hotspots for Europeans.

Shutterstock — Hot Air Balloon Festival over Mada'in Saleh (Hegra) ancient site, AlUla, Saudi Arabia. was taken in 2020 Mar 18

Learning to commit

The EU, particularly Germany, France, Italy, and Spain, are important security sources for GCC countries. Their military equipment and advanced weapons let Gulf states address regional threats.

Many EU countries have defence agreements with several GCC countries, supporting the US defence strategy in the region.

This tangled web of bilateral agreements may soon evolve into a more unified GCC-EU defence agreement, which may grow into a free trade agreement.

To take the next step, both sides need only see that their common interests outweigh the trade and investment barriers, which, with some thought, should be surmountable.

It seems time these two built on their sound economic, political, and security relations and became honest partners.

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