Washington and Bahrain signed a deal in September abolishing external tariffs, giving it trade advantages over fellow Gulf Cooperation Council (GCC) member states which had signed a customs union fixing tariffs at 5%.
Foreign and finance ministers of the six-nation GCC will discuss the deal, which is yet to come into force, at a meeting early next month after finance ministers failed to resolve the issue in Jedda in October.
“The Bahrain-US agreement is in clear violation of the GCC economic agreement, whether in doing away with the GCC customs union common tariff or in granting the US more favourable treatment than it grants GCC member states,” said the official involved in the talks.
Preferential treatment prohibited
The official said all member states – Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Oman and Bahrain – were committed to collective rather than bilateral negotiations with trade partners.
A 2001 Gulf Arab regional agreement prohibits members from “granting preferential treatment exceeding that granted to member states” or from concluding any deal which violates any part of the agreement.
“Everyone, including Bahrain, agrees that this is what is required from the treaty, but political pressures [on Bahrain] proved to be too strong,” the official said.
Critics say it is political reward
“Bahrain has already signed a free trade agreement to the chagrin of most GCC members, especially Saudi Arabia.”
Yusuf Mahmud, director of economic planning at the finance ministry, denied Bahrain was coming under pressure. “I am unaware of such pressures from the GCC, neither of their dissatisfaction,” he said.
Critics of the deal say it is political reward for the close support which Bahrain, home to the US Navy Fifth Fleet, has provided the United States.
Trade representative Robert Zoellick has praised the tiny island state as an oasis of progress in a region “swept by the bitter winds of extremism”.
Neighbouring Saudi Arabia, the only Gulf country with a land link to Bahrain, is the least liberalised and by far the biggest of the Gulf Arab economies. It fears US goods imported tariff-free into Bahrain will be re-sold within its borders.
These fears escalated after Zoellick said Bahrain had opened its services market to US products “wider than any previous Free Trade Agreement partner”.
US exports to Bahrain totalled $500 million last year and the new agreement opens the door for more aircraft, machinery, vehicles, food and pharmaceutical sales as well as banking, insurance and telecoms services, he said.
US trade expansion
Washington plans talks on similar agreements with two other GCC states, the United Arab Emirates and Oman.
US exports to Bahrain totalled
“There may be ways to design free trade agreements that do not violate the GCC Economic Agreement, but that would be difficult, especially the common external tariff of the customs union,” the Gulf official said.
The United States would likely use the Bahrain deal as a template in its negotiations with the two other states, he said.
The foreign and finance ministers will discuss Bahrain‘s agreement with the United States at a meeting in Bahrain on 7 December, the official added.