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Strengthening Partnerships

Motivating factors for signing a free trade agreement between GCC countries and South Korea

26 يناير، 2024


On December 28, 2023, Seoul witnessed the signing of a free trade agreement between the Gulf Cooperation Council (GCC) and the Republic of South Korea. This agreement comes after sixteen years of trade liberalization negotiations, which began in 2007. Initially, three rounds of talks were held until they were halted in 2010. However, negotiations resumed in 2022 and led to the signing of the agreement.

The liberalization of trade between the GCC countries and South Korea is expected to benefit both parties. Tariff reductions will have a significant impact on the majority of their trade. The successful conclusion of this accord is a result of the combined will of both parties, as they have developed a growing understanding of each other's strategic importance. It is worth noting that this agreement follows the Gulf Cooperation Council's free trade pact with Pakistan in September. Negotiations between the Council and other Asian countries are still ongoing.

Objectives and Motivators

When states and groups establish cooperative or conflicting relationships, it is to pursue their own interests or gain advantage over the other party. Since there is no conflict between the GCC countries and South Korea, the objective is to maximize interests and benefits while maintaining strong cooperative relations.

South Korea heavily relies on Middle Eastern energy imports, particularly oil and gas. The GCC countries account for up to 70% of Korea's oil imports in most years, with oil and its derivatives making up more than 90% of total Korean imports from the GCC. In 2020, fuel and mineral oils accounted for 94% of all Korean imports from GCC countries, totaling $33.1 billion out of $35.2 billion. In 2021, this ratio was 91.6%, accounting for $35.99 billion out of $39.3 billion in total GCC exports to South Korea.

The significance of energy sources in Korea goes beyond mere business considerations. They serve as the backbone of the country's industrial sector, making the safe and uninterrupted flow of energy at reasonable prices a matter of national security. Consequently, Korea is actively seeking to establish a robust network of relations with the Gulf Cooperation Council (GCC) countries. This is evident from the frequent visits by senior Korean officials, including at the presidential level. Bilateral cooperation agreements have been signed between Korea and the GCC countries, further strengthening their ties. Additionally, Korean companies have been awarded substantial contracts to undertake major projects in the region, contributing significantly to their revenue. Notable examples include the construction of the Barakah Nuclear Energy Plant in the UAE. Furthermore, Korean companies are actively competing for various projects as the commercial sectors of the GCC countries continue to expand. In particular, Korea sees great potential in infrastructure and clean energy projects, where its companies can demonstrate their competitive edge.

South Korea is actively seeking opportunities in the region's markets for manufactured goods, particularly modern cars. Additionally, it aims to explore broader markets for products it has not traditionally competed in, such as machinery, equipment, and weapons. Notably, South Korea has recently emerged as a leading arms exporter globally, prompting increased participation in defense exhibits hosted by Gulf Cooperation Council (GCC) countries.

The GCC countries, in turn, closely monitor the growth of Asian powers, recognizing their significance. This interest is evident in various measures, including the adoption of a "Head East" policy in the foreign policies of GCC countries. Furthermore, the GCC countries have established strong relationships with Asian countries, becoming members of various groups and institutions like the Asian Infrastructure Investment Bank. They actively participate in cooperation conferences and engage in confidence-building measures in Asia. As a testament to their commitment, some of these institutions, such as the Asian Infrastructure Investment Bank, have opened offices in GCC countries. For instance, the bank opened its first office outside of China in the Emirati capital of Abu Dhabi in September 2023.

Just as Seoul aims to obtain energy supplies smoothly, consistently, and at reasonable costs, the GCC countries also strive to ensure the continuity, sustainability, and safety of their energy supply chains. In fact, the Gulf countries are increasing their clean energy projects to diversify their economies and ensure the long-term viability of development projects. Asian powers, including South Korea, possess the necessary skills and experience to collaborate on these large-scale projects.

There is no doubt that the GCC nations' free trade agreements with external parties reflect their progress in regional integration and their level of relations with these countries. Secretary-General of the Gulf Cooperation Council, Jasem Mohamed AlBudaiwi, emphasized this point when signing the joint statement to close the negotiations and reach an agreement with the South Korean Minister of Trade, Ahn Duk-geun. He described it as "a historic step towards achieving Gulf economic integration and strengthening economic and trade relations between the two sides." When GCC countries negotiate as a group with another state or group, it implies the existence of uniform standards, coordinated policies, and agreed-upon principles of application. In the case of South Korea, the two parties engaged in negotiations over standards and norms, as these technical concerns significantly impact the trade liberalization process.

In July 2023, the GCC Standardization Organization (GSO) and the Korean Agency for Technology and Standards signed a cooperation program for the year 2023/2024. The goal of this program is to strengthen coordination and cooperation in the areas of standard specifications, conformity verification procedures, and capacity building. GSO Secretary-General Saud bin Nasser Al-Khusaibi confirmed that the memorandums of understanding and ongoing cooperation programs with the Korean side would contribute to removing technical obstacles to trade between the member states of the organization and the Republic of Korea. This move strengthens the spirit of collaboration between the two parties in the areas of specifications, standards, conformity verification, quality, and training. Al-Khusaibi also emphasized the importance of harmonizing standard specifications, technical regulations, and conformity verification procedures as the basic foundation for facilitating and increasing trade exchange.

Expected Benefits

According to available information, the agreement consists of eighteen chapters that cover various aspects such as trade in commodities and services, digital trade, government procurement, intellectual property, small and medium-sized businesses, and customs processes. This indicates the mutual desire of both parties to expand their partnership. South Korean Foreign Minister Park Jin expressed this sentiment during a meeting with the Secretary-General of the Gulf Cooperation Council countries after the signing, stating his country's hope that "the free trade agreement will become an important basis for expanding trade with the GCC countries." Similarly, the Secretary-General of the Gulf Cooperation Council emphasized the goal of expanding cooperation in areas such as manufacturing, the defense industry, medical care, culture, and others. 

An official from the Korean Ministry of Commerce stated that the agreement presents "an opportunity to expand the scope of business prosperity in the Middle East." As a result of this pact, Korea expects to increase its exports of cars, spare parts, and machinery, which are the most essential goods that South Korea exports to GCC countries. According to figures from the Statistical Center for the Gulf Cooperation Council countries in 2021, cars and their components accounted for approximately 24.7% of total Korean exports to the Gulf Cooperation Council countries. When machinery, equipment, and electrical appliances are included, the percentage rises to 54.1%.

 

South Korea is actively seeking to address its chronic trade deficit with the Gulf Cooperation Council (GCC) countries. This deficit has been attributed to the customs duty reductions and cancellations outlined in the agreement between the two parties. From 2013 to 2022, South Korea experienced a trade deficit with the GCC nations. The smallest deficit occurred in 2016, amounting to $17.6 billion, while the largest deficit was recorded in 2013, reaching $80.4 billion.

The customs duty reductions and cancellations will have a broader impact beyond Korean goods. Approximately 90% of the items imported from GCC countries, including petroleum products, liquefied petroleum gas, and liquefied natural gas, will have their customs duties cancelled. This will greatly benefit the GCC countries, especially considering the high taxes imposed on these products by other nations.

The GCC countries hope to benefit not only from oil and gas exports but also from two other opportunities. Firstly, they aim to improve re-export trade with South Korea. Secondly, they seek to strengthen their industrial base through a partnership with Korea.

The free trade agreement signed between the GCC countries and South Korea will enhance cooperation frameworks and bring mutual benefits across various fields. It is important to recognize that the success of any free trade agreement hinges not only on its implementation but also on market conditions, especially during periods of uncertainty and significant fluctuations. South Korea has successfully negotiated an agreement with the Gulf states to broaden its business presence in the Middle East region. Simultaneously, the Gulf states are actively pursuing the enhancement of investment and trade relations with key economic partners in Asia. This includes plans to replicate similar agreements with countries such as China, Japan, and other prominent Asian nations.