Oman caught between the GCC customs union and bilateral free trade with the US: Is it worth breaking the rules?

Abstract

At the turn of the last decade, the members of the Gulf Cooperation Council (GCC) decided to speed up the process of economic integration, leading to the launch of a customs union in 2003 and a common market in 2008. In 2011 there was even talk about establishing a Gulf Union and extending the GCC to Morocco and Jordan. Oman and Bahrain, two of the smaller GCC member countries, however, started simultaneously to negotiate free trade agreements (FTAs) with the United States of America. According to theory, signing an FTA with an external partner while at the same time belonging to a customs union means that the respective country is “breaking the rules” of the latter. The Omani government hopes that the agreement signed with the United States in 2006 will provide an instrument to enhance exports, stimulate investment and promote transfers of technology as a means for achieving higher growth, employment and diversification. Yet the question remains what kind of complementary measures need to be taken to enable the Omani economy to benefit from such a far-ranging agreement with a strong and highly developed partner. In addition, Omani companies, the public administration and the political leadership alike might face a difficult task in the future to be able to reconcile the implementation of the FTA with the GCC-internal process of integration. On the one hand, they must be expected to confront significant additional costs and administrative burden to comply with the multiplicity of rules and regulations of various trade agreements Oman is a member of. On the other hand, they might have to cope with substantial opportunity cost for the sake of better market access to the US in terms of provoking disagreement with the other GCC members.