DUBAI, May 25 (Reuters) - The United Arab Emirates is increasingly pursuing bilateral trade deals outside of the Saudi-headquartered regional Gulf Cooperation Council (GCC), as competition with Riyadh intensifies for economic dominance in the oil-rich region.
Since 2021, the UAE has initiated a raft of trade, investment and cooperation deals on its own - called Comprehensive Economic Partnership Agreements (CEPAs) - bypassing the GCC, a customs union, common market and negotiating bloc.
Abu Dhabi and Riyadh are both accelerating their post-oil economy plans to reduce their dependence on fossil fuels, but the UAE has first mover advantage over its bigger neighbour as the Middle East's existing business and tourism hub. Building on its existing trade infrastructure, it now wants to become a global supply chain leader.
The GCC has concurrently stepped up its game, holding new rounds of Free Trade Agreement (FTA) talks with major trading partners including China, South Korea, and post-Brexit Britain. The GCC Secretariat also appointed a lead trade negotiator in 2022.
Gulf affairs specialist at Waseda University, Abdullah Baabood, said the UAE's unilateral trade push indicates some members are not necessarily happy with the way the GCC handles FTA negotiations.
"There is now increasing competition between Saudi and UAE especially in economic terms. The UAE... wants to be more free in terms of its negotiations of FTAs and it wants to be ahead of everybody," Baabood said.
The Saudi government, the UAE foreign ministry, and GCC officials did not respond to requests for comment.
When asked about competition with the UAE, Saudi Investment Minister Khalid al-Falih on Tuesday told a conference: "Within the GCC we see ourselves as a common market... but the combination of size, vision and quality matters, and Riyadh has all of the above and more."
Negotiating bilaterally, the UAE can advance its economic and political priorities faster.
From previous political foes Israel and Turkey, to Asian giants India and Indonesia, the UAE has so far signed four CEPAs and says it negotiates traditionally laborious trade deals in an average of six months.
Few GCC FTAs have been signed and negotiations, such as talks with China which began in 2004, can languish for years as the bloc navigates competing internal priorities and simmering political feuds.
Some previous Saudi moves have also been seen as direct challenges to the UAE, such as telling foreign firms in 2021 to set up regional headquarters in the kingdom or risk losing government contracts.
In 2021, Riyadh unilaterally changed import rules from GCC countries to exclude goods made in free zones or using Israeli input from preferential tariff concessions, despite the customs union.
For the UAE, which has its primary security ties with the West, Asia is a particular focus of the CEPA strategy. Talks with Malaysia and Thailand were announced this month.
UAE non-oil foreign trade hit 2.2 trillion dirhams ($599 billion) in 2022, up 17% year-on-year, with re-exports up 21% over 2021, and exports up over 50% from pre-pandemic 2019, government data shows.
The CEPA with India, one of the UAE's biggest trading partners, reduced or eliminated tariffs on more than 80% of products, and foresees trade hitting $100 billion within five years.
Bilateral non-oil trade in the 11 months since the CEPA's implementation in May 2022 was $45.5 billion, up 6.9% year on year, UAE Foreign Trade Minister Thani al-Zeyoudi has said.
The UAE and India are very close to agreeing to the settlement of some non-oil commodity trade in rupees, two sources told Reuters.
Dubai-based economist Nasser Saidi said CEPAs could be a "stepping stone" into financial markets, facilitating company cross-listings, and cooperation in new sectors such as clean energy. "They signal a decision to engage on a wider diplomatic front."
The UAE has more than 10 CEPAs in the works, but some major partners like China, Britain and South Korea prefer FTA talks with the six-member GCC which has a population of 56 million and in 2021 said it had a combined GDP of $1.6 trillion.
"Negotiating a GCC-wide FTA could make it easier...to operate between jurisdictions within the GCC and may facilitate broader geopolitical aims of encouraging greater economic integration within the Middle East," Freddie Neve of Asia House said.
Relations between Saudi Arabia, under Crown Prince Mohammed bin Salman, and China have strengthened in recent years, giving new momentum to China-GCC FTA negotiations and bilateral investments.
Some analysts see a GCC-China FTA being finalised in 2024.
South Korea was one of the first countries to launch CEPA talks. Three months later however it restarted dormant GCC FTA talks.
"We ask the individual countries to choose the track they are comfortable negotiating in," UAE minister Zeyoudi told Reuters.
There is regional precedent: Bahrain and Oman signed bilateral FTAs with the United States in 2006 and 2009.
The British Embassy in Dubai, however, said Britain was committed to a GCC FTA with "the greatest economic and strategic value for both sides".
Zeyoudi said while CEPA agreements should be consistent with the GCC customs union, individual countries can go bilateral if terms are less favourable than with the GCC bloc.
The GCC declined to comment.
Reporting by Rachna Uppal and Lisa Barrington; Additional reporting by Aziz El Yaakoubi in Riyadh; Editing by Elaine Hardcastle
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