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the wto effect

The US-Oman FTA is expected to further improve trade between the two countries

Majid al-Toky

The year 2006 saw a major step forward in the relationship between the US and Oman with the ratification of the Free Trade Agreement (FTA) by both governments. The importance of the action stems from the fact that only a few countries in the Middle East have actually signed FTAs.

Only Bahrain and Morocco have succeeded in concluding such agreements with the US. It is believed that the driving force behind these FTAs is that the US administration plans to establish a Middle East Free Trade Area by 2013, a plan which is believed to be quite ambitious given that there are many factors influencing negotiations along with the willingness of the relevant countries to make further progress in this regard.

It is interesting to note that the sultanate continues to be at the forefront of free trade initiatives; a fact that became apparent through its accession to WTO in 2000. This, together with the other measures adopted by the government, will enable Oman to be recognised as taking free trade and economic liberalisation seriously in its effort to diversify its economy and reduce reliance on oil, as well as to attract foreign investment in other sectors of the economy.

The US is Oman's fourth ranked trading partner (imports into Oman), after the United Arab Emirates (UAE), Japan and the United Kingdom. Trade between Oman and the US was valued at US$1bn in 2005. The balance of trade between the two countries has ranged between 48-55 per cent over the years, and exports from Oman to the US are dominated by oil and natural gas.

The FTA between Oman and the US covers many areas, ranging from import tariffs, liberalisation of some service sectors, and labour regulations. The FTA eliminated custom duties on all industrial and consumer goods with the exception of agricultural goods, textiles and apparel, on which it was agreed that tariffs would be phased out over a period of ten years from the effective date of the agreement. As to services, both countries have agreed to open their respective markets to one another across this sector. This includes financial services such as banking, insurance, telecom etc.

Incoming investors from both countries are given various protections, including due process safeguards and the right to receive fair market value for property, as well as prohibitions on imposing certain restrictions such as requirements to buy local rather than foreign inputs for goods manufactured in the host country. Suppliers of services are given the right to set up subsidiaries, branch offices and joint ventures in the other country in accordance with local laws.

For compliance with the FTA requirements, the sultanate had the benefit of the preparations and legislative changes introduced as part of its accession to the WTO, and therefore only a few laws were required to be introduced to comply with the requirements agreed upon in the FTA.

For instance, the sultanate has introduced amendments to the Omani Labour Law and is implementing regulations so as to allow the establishment of labour unions, a federation of unions, as well as giving workers in the country the right to engage in collective barga-ining and conduct strikes.

The FTA is expected to improve trade between the two countries and attract US investors to Oman. However, these impro-vements are expected to take time, depending on several factors as well as opportunities which may exist in both markets.
It remains to be seen how the Oman–US FTA will impact the ongoing efforts in the economic sphere among GCC states, such as work on the GCC customs union and common currency. It is hoped that reforms such as these will benefit not only the US entities operating or intending to do business in Oman, but also improve the living standards and the wellbeing of Omanis and expatriates working in the sultanate. Both parties have agreed to co-operate with each other in many sectors such as education, judiciary and environment, among others.

It is too early to predict the impact of the FTA on the Omani economy as well as on that of the neighbouring countries. What seems to be certain, however, is that Oman, like most governments in this region, has acknowledged and accepted that liberalisation and open markets are good for economic growth and entering into multilateral or bilateral agreements of this nature further confirms this view.

As with any other policy decision, some criticism is inevitable. However, the fact remains that the FTA has now become law in both countries and we hope that businessmen on both sides will see the glass half full and accordingly explore the potential that the FTA may bring to them, both in Oman and the US.

the author
is resident managing partner, Trowers & Hamlins
Tel: +968 24682900
Email: mtoky@trowers.com