New Zealand-Gulf Cooperation Council (GCC) Free Trade Agreement

Background information paper

Background

Following the visit of the Minister of Trade to Saudi Arabia and the United Arab Emirates in March 2006, the government agreed that New Zealand should express its interest to the Gulf Cooperation Council (GCC) Secretariat in negotiating a high quality and comprehensive Free Trade Agreement (FTA). New Zealand’s proposal was approved by the GCC Council in September 2006.

A small team of New Zealand officials visited Riyadh, Saudi Arabia, in December 2006 to undertake initial discussions with the GCC, covering the scope of the agreement, negotiating mechanisms, and timelines. These initial talks showed promise of New Zealand reaching a high quality FTA with the GCC, but further information is required to obtain a more complete picture of New Zealand and GCC negotiating interests.

Gulf Cooperation Council (GCC)

The Cooperation Council of the Arab States of the Gulf, commonly called the Gulf Cooperation Council (GCC), is a regional organisation, headquartered in Riyadh, involving six Gulf Arab states of the Arabian peninsula which share common economic and political objectives. Established in 1981, the GCC is comprised of Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates and Oman.

Among the GCC Secretariat’s trade/economic objectives are:

• Harmonising regulations in various fields such as economy, finance, trade, customs, tourism, legislation and administration
• Fostering scientific and technical progress in industry, mining, agriculture, water and animal resources
• Establishing scientific research centres
• Encouraging business joint ventures
• Encouraging cooperation in the private sector
• Establishing a customs union (achieved on 1 Jan 2003), a common market (by end-2007), and a common currency (by 2010).

In summary, the GCC is a region where:

• Economies are growing quickly
• Markets are maturing
• Consumer demand for imported goods and services is high and on an upward growth trajectory
• Economic indicators underline the importance of New Zealand securing a stable, strategic economic partnership on a par with other countries, and recognition as a supplier of choice.

Key Economic Indicators and Economic Profile

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The GCC, as a regional bloc:

• Comprises an area of 2.2 million square kilometres and a population of approximately 35 million people (including approximately 15 million expatriates).
• Contains at least 44 percent of the world’s proven oil reserves, which come from Saudi Arabia, Kuwait and the UAE. Saudi Arabia alone possesses the world’s largest proven oil reserves (25 percent) and is the world’s largest oil producer (12 million barrels per day). Qatar possesses the world’s third largest proven gas reserves. Oil and gas exports comprise 49% of GDP and 78% of all GCC exports.
• Displays impressive economic indicators: in 2006 gross domestic product (GDP) of US$592.8 billion; average GDP growth rates of 7.8 percent and average GDP per capita incomes of approx US$23,000.
• On a per capita income basis, ranks on a par with the North American Free Trade Area (United States, Canada and Mexico) and the European Union in comparison with other regional trading blocs.

According to analysis by the Institute of International Finance (IIF) and drawing on World Bank data, in the last six years (2001-06), the GCC economy:

• Has more than doubled in size, making it currently the world’s 17th largest economy, with its aggregate GDP approaching that of the Netherlands.
• Will surpass the Netherlands and rank as the world’s 16th largest economy by the end of 2007, based on this year’s projected GDP of almost US$725 billion. Burgeoning state revenues fuelled by soaring oil and gas prices is a significant factor underpinning the economic boom in recent years.
• Averaged 6 percent in overall real economic growth during 2000-05, which in turn resulted in large gains in per capita GDP, which nearly doubled from US$12,000 in 2002 to US$23,000 in 2006.

Forecasts for 2007 and subsequent years are bullish:

• The International Monetary Fund (IMF) notes that growth in the region continues to outpace global growth and should average 6-7% in 2007 – similar to the rates of the last three years.
• On current trends, the GCC’s aggregate GDP could reach the milestone US$1 trillion mark by 2010, and analysts forecast the GCC could become the world’s 10th largest economic power in a decade based on current growth trends.

Revenues derived from high oil and gas prices in recent years (with conservative estimates of US$50 per barrel) have enabled the GCC member states to:

• Build an impressive infrastructure, which provides an ideal base for both energy and non-energy related economic activities.
• Seek to reduce their economic dependence on oil and gas, and to varying degrees, to implement economic policies that create a climate conducive to attracting a greater range of business activity. This is seen as an imperative.

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For example, a breathtaking investment boom is changing the Gulf’s landscape:

• The non-oil economy is benefiting from budget surpluses and sharp increases in capital spending.
• Skyscrapers of extraordinary height are being built in major cities. Flurries of mega projects worth over US$1 trillion are either underway or at the advanced planning stage, aimed at modernising basic infrastructure and diversifying the Gulf’s industrial base.
• Project implementation will boost the construction, real estate, public utilities (water/power), transport, information technology (ICT), tourism, finance, health care and petrochemicals sectors in the next five years.
• Rapid population growth is seeing higher demand for, and increased capital expenditure in, education/training and housing. Transport networks (railways, roads, ports and airports) are being expanded to facilitate growing volumes of trade within and outside the region.

Further information about the GCC can be obtained from the Secretariat’s web site: and from the web site of a major think-tank in the region, the Gulf Research Centre [external links].

Relations with New Zealand

In recent years, New Zealand has made considerable efforts to step up its relations with the six GCC states, both to support efforts to improve security and stability in the Middle East, and to pursue our economic interests.

The GCC is a significant market for New Zealand:

• If treated as a single destination, the GCC was New Zealand’s eighth-largest export market by value in the year to December 2006, with our merchandise exports to the region worth NZ$791 million.
• Exports in 2006 represented a 20 percent increase in exports to the region from the previous year, or approx 2.3 percent of New Zealand’s total goods exports in 2006.
• The GCC market, by value, ranked ahead of our exports in 2006 to, for example, Hong Kong, Malaysia and Thailand.
• New Zealand’s exports to the Gulf region have experienced on average 10 percent growth per year over the last six years, compared with average growth in New Zealand’s total exports of 3.7 percent per year over the same period.

Table 1:

The following table shows the breakdown of New Zealand's merchandise trade for the year to December 2006 with each GCC member country and as a percentage of our trade globally:

Country	Exports (NZ$m)	% of NZ exports to GCC	Imports (NZ$m)	% of NZ imports from GCC
Saudi Arabia	410.8	52	523.4	29
UAE	222.3	28	576.4	32
Kuwait	70.8	9	173.6	10
Oman	55.8	7	133.5	7
Bahrain	16.2	2	14.1	1
Qatar	14.8	2	389.2	21
GCC-6	790.7	100.0	1810.3	100.0
The World	34619.4	2.3	40774.2	4.4

NZ's interest in pursuing an FTA with the GCC>>

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