GCC Gulf Cooperation Council 1

 Founding  Objectives  Economic Integration  Recent Situation  Background  Characteristics  Effects  Implication  counter measures 2

Established in Abu Dhabi on 25 May 1981 Persian Gulf states regional security < economic interests fastest growing economies in the world, mostly due to a boom in oil and natural gas global slowdown -> reduce oil demand -> lower price rising government spending 1) Founding & Objectives 2) Recent trend 3

4 What happen in process of Economic integration? How about FTA trend? What do we need to know?

P rocess of E conomic I ntegration 5

1) Free flow of capital 2) Freedom of movement, residency and employment (in both private and public sectors) Common market F ree T rade A rea realization - Abolish the tariff barriers within the area - Lift the travel restrictions within the area OIC(Organization of the Islamic Conference ) GCC Custom union is formed - common external tariff 5%

GCC's Single Currency they had more in common than euro zone states, sharing the same culture and language and facing similar political and economic challenges 7 Some barriers Withdrawal of the UAE, OMAN Increasing domination of Riyadh Social unrest in the Middle East

8 IS IT STABLE ENOUGH?

9 'cut government spending' IMF That’s OK. Oil price is stable GCC Oil demand ▼ Oil Price ▼ GCC’s income ▼ GCC’s future fiscal risks ▲

Background of GCC FTA promotion The reason why the GCC want to negotiate FTA? GCC countries : after iraq war(2003) they seriously recognized that it is important to build up a foundation for long-term economic growth along with plans to reduce high dependency on oil. Other countries : because of high oil price situation(after 2 nd iraq war), they want to secure resources and expand political influence on GCC.

Background of GCC FTA promotion Positive factors : anticipating trade and investment expansion through FTA promotion. Negative factors : damage to immature domestic industry in GCC

Current status of GCC FTA ConclusionNegotiationConsideration GCCLebanon(2006) Syria(2006) Singapore(2008) EFTA(2009) EU Mercosur China Indo Japan South Korea Australia Turkey New zealand Iran Pakistan OmanUS(2005) UAEUS BahrainUS(2004) KuwaitUS QatarUS Relative countries more active than the GCC countries

Characteristics of GCC FTA promotion 1. The rules of coordinated response - GCC countries not individually negotiate for FTAs with other countries, but negotiate collectively with other countries -Unfied GCC trade policy in 2005s -Except for the case of the United States Conclusion of a contract : Bahrain(2004), Oman(2005) During contract negotiations : UAE, Kuwait

Characteristics of GCC FTA promotion 2. Cooperation agreement, Framework agreement -when proposing any trade agreements between the GCC countries and other economic groups it must firstly be taken into consideration that the agreement be of tangible benefits to the GCC countries. - This agreement commonly include energy and economic cooperation.

Effect of GCC FTA promotion 1.Trade creation effect & Trade diversion effect Baier & Bergstand analysis result (unit: 10 billion $) (unit: 10 billion$)

Effect of GCC FTA promotion 2. They could improve their international position 3. They could resolve negative the country’s image such as islam fundamentalism, terrorist nation, and human right issues. 4. Since the GCC need to reform chronic problems of the region such as high unemployment and low economic growth, FTA could serve as a good opportunity.

The importance of GCC to Korea 1.Korea's Oil Dependence and Oil-Rich GCC -GCC accounted for 40% of the oil reserves & 28% of the world's oil exports -South Korea relies on imports for almost all of its crude needs. -the importance of the Middle East in terms of energy security 2.Saudi Arabia -Saudi Arabia is the richest oil-producing country in Middle East area -Saudi Arabia is more important politically and diplomatically than other middle-east countries

The importance of GCC to Korea 3. The mutually beneficial industrial structure - Korea is based on manufacturing industry -GCC has abundant resource 4. Each nations are pursuing FTAs in strategic importance - Pursuing an FTA with GCC, including the U.S., EU, China, India - FTA of major countries with GCC would weaken the competitiveness of Korea's exports -

The progress of South Korea-GCC FTA negotiation -FTA negotiations went three times until now -All FTA negotiations are at a standstill because of the tariff removal of automobiles in March 2010 July 2008 The first South Korea –FTA Negotiation (Seoul)March 2009 The second South Korea-FTA Negotiation (Saudi Arabia Riyadh)July 2009 The third South Korea-FTA Negotiation (Seoul)

Direction and strategy of KOREA-GCC FTA Korea-GCC FTA have a difficulty in bilateral negotiation with automobile & petrochemicals 1.Automobile -5 cluster : support manufacturing industry promote manufacturing industry through the investment by foreigner - automobile to be the local production system should have at least a certain size of the domestic market -Saudi Arabia is not attractive market for the local production to the automobile maker

Direction and strategy of KOREA-GCC FTA Korea-GCC FTA have a difficult in bilateral negotiation with automobile & petrochemicals 2. Petrochemicals -Korea have a high value-added strategy in petrochemicals -tariff removal will reduce profit of Korea -Korea implements open economy policy through FTA -Decrease in profit is inevitable Korea should adequately back down on petrochemicals and accomplish automobile problems.

Direction and strategy of KOREA-GCC FTA Each nations of GCC is Monarchy - The political interests have a strong infuluence on economic cooperation -Need to expand political and diplomatic interchange so that Korea can reinforce competitiveness in GCC area Basic rule of GCC -GCC countries not individually negotiate for FTAs with other countries, but negotiate collectively with other countries -Korea needs to negotiate for FTA with not individual country but whole GCC