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18 October 2004
USTR Zoellick Consults U.A.E., Oman on Free Trade Talks
Says governments must have clear commitment to market liberalization
U.S. Trade Representative Robert Zoellick has consulted with senior leaders of the United Arab Emirates (U.A.E.) about launching negotiations for a free trade agreement (FTA) with the United States.
"[T]he U.A.E. has expressed an interest in possibly negotiating a free trade agreement, and so I wanted to come out personally and be able talk with a number of members of the senior leadership and others, in part to listen and to learn about their sense of what's going on in the economy here, their plans for reform," Zoellick said briefing reporters in Dubai October 13.
He said if FTA negotiations were launched, the U.A.E. would be a "very positive partner" because its strengthened intellectual property standards are helping to draw investment and business and its financial services market is booming.
The trade representative said he plans to travel to Oman on the next stage of his trip to assess that government's interest in negotiating a FTA. He said interest in negotiating FTAs with the United States has been growing across the Arab world because governments see that by liberalizing their markets they are able to create jobs, stabilize their economies and adapt to globalization.
Zoellick said governments interested in FTAs must have a clear commitment to market reforms because the agreements are comprehensive.
"We do all industrial goods, agriculture, services, higher intellectual property standards, transparency and anti-corruption, customs provisions, environment and labor issues. And so it is important before possibly going into a negotiation, so that everybody has a clearer sense of what one's involving oneself with," he said.
Zoellick said FTAs help countries attract investment from countries other than the United States and establish rules for competition that break down some of the old established interests.
"We see it as trying to help modernizers and reformers in their opening process," he said.
Zoellick said the U.S. FTA with Jordan has had a huge impact on that country's economy.
Following is a partial transcript of Zoellick's press conference in Dubai:
(begin excerpt)
Partial Transcript
USTR Robert B. Zoellick
Press Roundtable
Dubai, United Arab Emirates
October 13, 2004
USTR Zoellick: Well first, let me thank all of you for coming. I just flew into Abu Dhabi last night, and I had an opportunity to have a number of meetings here today with senior officials in Abu Dhabi and Dubai. And I had a chance to meet some members of the U.S. business community as well.
And the purpose of my visit, as I think all of you are aware, last year President Bush announced an initiative to try to develop a free trade area in the Middle East. We are trying to approach this in a step by step fashion, where we customize the nature of our arrangement depending on the level of the reform process and economic engagement of various countries. So there are some countries for example that are not yet members of the WTO, for example, Saudi Arabia, Yemen. So with those countries we have been working on their accession to the WTO. There are some nine countries that we now have what we call a Trade and Investment Framework Agreement, a TIFA. That for some countries is a way of starting to deepen the bilateral economic relationship so we learn more about the issues in those countries, try to draw the business communities closer together. And then for some that are further along in the economic openness process, to consider developing a free trade agreement. We now have free trade agreements with Jordan, with Morocco -- which we just passed the Congress this year. And we just completed one with Bahrain this year. Cathy Novelli, who's back there -- Cathy why don't you raise your hand -- has been the chief negotiator of these agreements.
And the purpose of this trip is that we have had two TIFA meetings, Trade Investment Framework Agreement meetings, with the UAE. And the UAE has expressed an interest in possibly negotiating a free trade agreement, and so I wanted to come out personally and be able talk with a number of members of the senior leadership and others, in part to listen and to learn about their sense of what's going on in the economy here, their plans for reform. I stopped at the port, which was a very impressive operation, had a brief tour of that. And then to get a sense of some of the key issues that are part of the U.S. free trade agreement process, for example the fact that when we negotiate free trade agreements, they are very comprehensive. Some countries, when you hear people talk about free trade agreements, they may just talk about a few sectors or mainly dealing with industrial goods. We do all industrial goods, agriculture, services, higher intellectual property standards, transparency and anti-corruption, customs provisions, environment and labor issues. And so it is important before possibly going into a negotiation, so that everybody has a clearer sense of what one's involving oneself with. And then to talk about some of the other issues that would be important to have some preliminary sense of before we go forward. And tomorrow, I'll be going to Oman, which is a country that we've had one very good TIFA meeting with. But they've also expressed an interest in a free trade agreement.
And so my hope is that after this visit, when I return to Washington I'll consult with my other colleagues about the possibilities of moving forward with free trade agreements with the Emirates and possibly Oman. I think that gives you a little bit of a brief overview. And I'll open the floor.
Reporter: I am from Khaleej Times. I have two questions. We are supposed to have a [unintelligible]. So, how tough are these negotiations with the U.A.E.? And the second question is, when will the agreement likely be signed?
USTR Zoellick: Well, first as I discussed with the various officials I've met here, the time that it takes to negotiate an agreement depends on first of all how well prepared a country is to negotiate, and second of course, the complexity of the issues. Now, in terms of preparations, we have, on our website, all the text of our pre-trade agreements, so people can look at our agreement with Jordan, and Morocco, and Bahrain and Australia, and Central America, Singapore and Chili, and this is beneficial because it helps countries with the preparation process. And one of the things that Ms. Novelli opened with her counterparts is to try to answer their questions before we get to negotiation to make sure people are comfortable with it.
Now, to give you some rough range, the quickest that we've ever done one is with Bahrain which took between four and five months, and that was in part because Minister Saif, who led the Economy Minister -- Finance and Economy Minister -- led a team across the Bahraini government. They were very well prepared, and they knew what the issues were and were able to move very quickly. Most of the other agreements take about a year to negotiate. Some - we're trying to negotiate with the Southern African Customs Union, takes over a year. So a year is roughly the period, but it can be quicker. In the case of the UAE, our - we first built off the accession process that the UAE had as part of the WTO, and the UAE made a number of very good commitments, so it was a very high quality accession process, and since then, even as we've had these discussions, the UAE has continued to take steps to open up its system. It recently joined something called the Information Technology Agreement which is an agreement in the World Trade Organization to lower all tariffs of information technology products to zero as part of a global trade information technology. It's made some on commitments about joining some of the world intellectual property organization treaties.
So my sense is that the context in the UAE is pretty good, so I could see that this negotiation could move quickly, but each negotiation has its own particular issues, and while we work from a framework, we of course have to customize for the special needs of each country. One of my messages here has been that we see the economic success of the UAE as being important, not only for the people of the Emirates, but also as a model and a light of possibility for others in the region, and what we've learned is, as we move forward these agreements, they start to encourage others to follow the reform process. Let me just give you an example. In the case of Jordan, which obviously has a much lower income per capita level than the UAE, but we used this process to help King Abdullah with his reform process and from about 1998 to 2003, their exports to the United States went from sixteen million dollars a year to over six hundred million dollars a year, and equally important, the foreign direct investment went from about six hundred million dollars in '95-'96 to two point four billion dollars last year. Now, what was also very noteworthy is that by strengthening the intellectual property rights rules, you're getting a more diversified investment pattern. You're getting pharmaceutical companies to invest, Microsoft was investing in some software operations, and so part of this, and part of my visit, is to understand the development process, and see what people are doing in terms of diversifying away from a pure oil and gas economy and then see how the agreements can help. Now obviously the free trade zone process has been an enormous success for the Emirates, but as you know, there are rules that are applied outside the free trade zones in terms of investment and other provisions, so those would be some of the issues that we would be hoping to address in a free trade agreement. But again let me emphasize that, in doing so, we don't, and I particularly especially made this point, this is not something that is trying to develop an exclusive arrangement with the United States. The types of rules that we talk about will often help draw foreign investors from many countries, because it helps with the overall sort of quality of the rules and investment based regime. I talked with one businessperson today, and he made what I thought was a very telling point. He said the reason the free trade agreement could be so important for the Emirates, he said, is not so much what we sell to the United States, because, he said, that may not be all that much, he said, but the process of a free trade agreement is rules for competition, so it breaks down some of the old established interests that might have a hold on the economy in one sector or another, and so it opens up more competition. So part of this is, while we value the trade relationship, and the United States has about four and a half billion dollars worth of two-way trade with the Emirates - so it's a big trade relationship, and the Emirates I think are the third largest economy in the region only after Saudi Arabia and Egypt. But we also see it as something more. We see it as trying to help modernizers and reformers in their opening process.
Reporter: ...Sharq Al-Awsat. My question is about the conflicts in these talks with the U.A.E. Some Arabs are saying that Americans are rushing an agreement, that this framework, and they don't want to give [unintelligible]...just to give a break to the UAE business sector interest to fix their situations, first. For example, in the framework of the corporate laws here and the insurance sector liberalization issues, how much is that true from your side?
USTR Zoellick: Well from my perspective again, it was the Emirates that were asking after the free trade agreement, and so we haven't been pressing anybody. We want to try to be responsive to our friends. The Emirates have been a good political and security partner. All you have to do is walk down the street here. You can see the impressive economic reforms and modernization. And so the real purpose of my trip was actually to make sure that my counterparts understand what this agreement involves - the comprehensive nature and try to identify some of the issues that I know will be challenges so that we have, sort of top level buy-in in the process. So on the pushing partners, if you think about it, the United States is, depending on exchange rates, about a quarter or a third of the world's economy. So I've got many countries wanting to do trade agreements with the United States. And so we frankly wanted to help those that are already making reform efforts and so we see this as a win-win proposition. Now you mentioned more particularly there are elements, for example under the company law there's a process, an agency process, by which companies have to have specific agents, and that's an item that we discussed, because obviously it will be sensitive because the people who have these special agency relationships obviously want to keep them. But basically it's a monopoly that they have. Now whether that's good for business and job creation in the UAE is something that people will have to think about, because that may stop some business that exists in the free trade zones, but doesn't exist outside because those are privileged relationships.
There was a similar pattern in the agreement that we negotiated with Central America, and you have to work through those issues sensitively, and obviously I'm not in the process of negotiating either yet with my counterpart for the UAE or you, but I guess what I would say is when you run into an issue like that, or for example there have been some investment restrictions or some of these you mentioned in the financial sector. What you really do is you work with your counterparts to try to solve the problem together. People want to open up a market. Sometimes you handle it by phasing it in. Sometimes you put in other arrangements as you're phasing it in. So, those are the sorts of issues that when you want to have a free trade agreement, while we try to open up as much as possible, on day one, sometimes these things take a period of time. Fortunately we don't have a sensitive agriculture issue with the U.A.E. With some of our countries, we have sensitive agricultural partners, and they take ten or fifteen years to phase things in.
Reporter: Mr. Zoellick, I'm from Bloomberg News. I have to ask you a question that is, I know you're here in the UAE and looking at free trade, but I have to ask you a question that has a slightly wider scale, connected with the WTO case with the European Union and Boeing and Airbus...
USTR Zoellick: How parochial. [laughter]
Reporter: Yeah. I mean, you've got two months, a two-month period of consultations. Do you have any ideas, and if so what are they, because you've favored a negotiated solution. Do you intend to meet the European Union before the sixty days are up and what might you discuss during those meetings, or a meeting?
USTR Zoellick: Well, I'll actually, after my visit in this region, I'm actually stopping in Brussels to see Commissioner Lamy, in part he's been a good friend and a colleague and I wanted to see him and some of the other Commissioners before they leave office.
But let me go back a step. You know, the reason that all our countries, now 147 economies, is that if you can't resolve disputes, you bring it to an international panel or body. So contrary to the old days, where somebody might want to use their power or leverage to squeeze a party, this is a true multilateral response. That's why we created the WTO. In fact I saw one article that mentioned Hugo Palman, who was one of the senior EU trade officials in the 80's and 90's and was the EU Ambassador to the United States made this exact point. So the conclusion that we reached, was that absent the case, that our proposal, which was to end all subsidies going forward, so for us, for them, or anybody else, was not going to be accepted, because the status quo was serving Airbus' needs quite fine. And indeed the CEO of Airbus was suggesting that they might use new launch aid for a new plane to compete with the 7E7, the Boeing plane. So when I say that we'd like a negotiated solution, we would, but the goal of the negotiated solution is also clear, which is to end all new subsidies. And again, sometimes people say "well how do you define a subsidy?" Well we have a very simple answer, let's use the WTO definition of subsidies. Some people have said, "well what about indirect subsidies?" Well if indirect subsidies are covered by the WTO definition, fine. Sometimes people in Europe say "what about defense contracts that Boeing has?" Well, first off, I don't believe that defense contracts are subsidies, they're designed to buy a product. But second, it's interesting, because both EADS and BAE each receive more defense spending than Boeing has.
So if you go back and look at the origin of the 1992 Agreement, it actually came out of some cases that the U.S. filed under the old GATT system. There wasn't an ability to actually enforce a judgment, you could win, but the other party could block it...
Reporter: Let me just come back to the sixty days, you have sixty days until the WTO process may begin...
USTR Zoellick: But then you can keep working. Once you start the process, the WTO process will take months and months and months, could very well take over a year, and so we'll, I'll certainly talk during that process, but after that process begins...
Reporter: And prior to the process as well, I mean you'll talk to them prior to the process as...
USTR Zoellick: Well as I said I would be in Europe on October...
Reporter: Are there sort of fresh ideas, I mean now that we've gone to the stage of actually filing complaints at the WTO, are there fresh ideas as to how to reach a negotiated solution?
USTR Zoellick: Well I think we have clear ideas. And I'm not sure that "fresh" is always good. I think in this case it will probably take a greater recognition of what we believe is a strong case on the part of a number of European parties -- Member states, Airbus, the Commission -- you're obviously in the transfer of authority now within the Commission. And so, I wouldn't suggest that people will find a solution overnight. But the status quo is unacceptable, we're doing what all economies should do if they have a dispute -- bring it to the multilateral authority, and as we proceed with that case we remain open to try to end all subsidies. And if that takes place within two months or four months or five months is less important than if we solve the problem.
Reporter: One very last question...?
Moderator: We need to move on...
Reporter -- Caroline, from CNN. You mentioned challenges in your statement. What exactly are the main challenges you see facing [unintelligible] part of the free trade agreement. And my second question is; do you think the desire of the countries of the region are getting less because of the war in Iraq...
USTR Zoellick: Let me get the first one. You mentioned the GCC, and I forget if you were here when I came in - we're talking about negotiating possibly with the U.A.E and with Oman and we've done one with Bahrain. The reason I want to draw that distinction is the European Union has been negotiating with the GCC as a whole, but, as you know, some of members of the GCC are not even WTO members. So the standards of that negotiation are very different than what we do in a free trade agreement. Not saying one is right or wrong. It's just a different concept. We try to have very high quality comprehensive agreements that hold to high standards, and we believe that the competition will lead others to want to reach those high standards. And that goes to your second question.
Reporter: Well, I'm sorry, you didn't answer about the challenges -- what do you see are the challenges the GCC countries are facing?
USTR Zoellick: Well that depends. In the case of Saudi Arabia and Yemen, you have countries that are not even WTO members, so you have some basic issues in terms of their services, commitments and goods markets. In the cases of Bahrain and Jordan we've already - well Jordan's not a GCC member. Bahrain we've already overcome. In the case of the U.A.E, I think we start in a very good position. I think there are some issues that we've touched on here about some of the agency requirements, and some of the investment provisions. We also know that the government is in the process of considering a change of the labor code, and the trade union law. As part of our agreements, each country commits to enforce their own labor and environment laws, and we encourage countries to meet the basic international labor organization standards. So I don't necessarily say that's a problem area, but it's an area where there's further reform and we hope to work with the government on it. So there are some issues like that, and some in the financial services area again, but I think this is a pretty well developed and modernized economy, but any time you have something this complex, I'm sure there will be issues to work through.
Now your second point is that have I found lack of interest since the war in Iraq. Quite the opposite. In other words, what we've discovered is that, as we've moved forward with these free trade agreements, most recently with Morocco and Bahrain, I think it's led to a number of countries, particularly in the Gulf, to realize that this is a potential opportunity, and it's actually led to an increase of interest. We've signed - how many more TIFAs - three or four TIFAs?
AIDE: Seven.
USTR Zoellick: Seven - but how many over the past year or two? Seven? That's the Trade Investment Framework Agreement. We've completed the Morocco agreement; the Bahrain agreement, and if all goes well on this trip we may start two more. So, what I encountered, I had a lot of meetings in Washington about the time of the World Bank Fund meetings, because we had a number of people from the Gulf region there from Yemen and others, is that actually very encouraging sign, which is that a number of the governments recognize that the benefit of trying to open up their economies, make it through the reform program, considering how a broad investment - how that will create jobs and I thank they see it as part of adapting to globalization, but also helping to deal with some of the issues of stability in their economies. And the last point is, each economy varies a lot, and that's why, as I say, we've taken a different approach to this, and even in answering your question - you know no one size fits all. We have a framework that we like to use. One of the reasons that I wanted to come out here personally was that I wanted to see with my own eyes. I wanted to listen to people in the business community and talk to the officials here and see what are their priorities.
Moderator: I think we have time for two more questions.
Reporter: Simon, Dow Jones News Wires. Can you give us more of a sense of these issues - the agency agreements - the lack of, the financial service are closed, and obviously labor provisions are well
USTR Zoellick: What did you say?
Reporter: Labor laws. Some people say that adherence to any kind of international regulation labor laws is very, very bad, particularly in Dubai. Now, are any of these deal breakers in any way or would some be able to be phased in at the time, and maybe, if you can't talk about the UAE agreement talks, if you haven't started the process, can you give us a sense of what happened with Bahrain or with Morocco, and which were phased in and which ones were phased in immediately.
USTR Zoellick: Well obviously again, I'm not going to negotiate with all of you, but let me give you a sense. Take the case of Morocco. We - the negotiation with Morocco took about a year. The most difficult issues were agricultural issues, which we don't have here, and we phased in some of those over fifteen - eighteen - twenty years. But that's the case more in agriculture than in others. Morocco passed a substantial labor law reform in the year that we were working on the trade agreement, and that was very helpful when it came time to pass this with the Congress.
So my general sense as I've mentioned in the U.A.E. is if I look at some of the areas that have traditionally caused difficulties, such as countries being wary to lower their tariffs on goods and agriculture, I don't think that will be a big problem here. Intellectual property standards - UAE has actually already been strengthening them and it's helping to sort of draw investment and business. Financial Services Market - as you know, this is in some ways a booming financial services market, but there's some issues related to some - sub-sectors of it. So I think that frankly, the UAE for us is a very positive partner. I just can't forecast exactly how some of these issues will be worked out, or the process. Let me just give you this other thought. When I return home, I will discuss with my Cabinet colleagues and others taking the next step, which would be to send a notice to the Congress saying we would begin negotiations. When I send that notice to the Congress, we then have a ninety-day period before we formally begin the negotiations. Now during that ninety days we can continue the preparatory work, but if you just take the calendar, even if we did that just shortly after I got back, we'd probably be beginning the negotiations in 2005. You'll probably be working on them in 2005, and you'd probably look to Congressional passage in 2006. So you have time to work on there, even as you're doing the negotiation, and then there's also the possibilities, depending on the terms of phasing in some of the arrangements.
Moderator: Last question. Who hasn't asked one?
Reporter: - I haven't asked one. Leith with Reuters. I haven't asked one. .... begin these negotiations and you say 2005, is that early 2005, is there a date there, part of something you're aiming towards?
...
USTR Zoellick: Well I've got to go back and report to my President and as you know, we're in the midst of something called an election process, but I think that I've been very encouraged, and so my own sense is that the interest and the willingness to try to address some of these issues has been very very positive, and so if that continues to be the case, then I would hope that we would be able to begin early in 2005.
Reporter: Negotiations in early 2005?
USTR Zoellick: I would hope. But you have to talk to Ms. Novelli, she's the one who does them...[laughter]
Moderator: Thank you all.
(end excerpt)
(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)
