GCC Free Trade Agreement: An Opportunity For Pakistan’s Economic Growth – OpEd

Free trade agreements (FTAs) are crucial for increasing economic cooperation among countries by reducing or eliminating tariffs and trade barriers. They ensure the free flow of goods, services and investments between countries, giving nations access to wider economic markets.

Furthermore, such agreements help countries integrate with regional and global supply chains. In 2004, a vision of free trade between Pakistan and the Gulf Cooperation Council (GCC) was discussed encompassing the six member nations of Saudi Arabia, the United Arab Emirates (UAE), Bahrain, Oman, Qatar and Kuwait. On 28 September 2023, GCC initiated a preliminary FTA with Pakistan, forged by years of a close relationship and a shared vision for regional prosperity. According to the Secretary General of GCC, “the two sides look forward to concluding and signing this agreement at the earliest possible time.”  The agreement promises to dismantle trade barriers, fostering a dynamic marketplace where investment flourishes, production thrives and businesses across diverse sectors gain access to new markets. The agreement also has broader objectives, aiming to foster collaboration in energy, health, food security, agriculture, transportation, environment, culture and education.

The GCC-Pakistan free trade agreement holds immense potential for trade in the energy sector. The GCC countries occupy most of the Arabian Peninsula and are known for their large reserves of crude oil and gas especially Saudi Arabia, UAE and Qatar. The three countries collectively hold 30 percent of the world’s proven oil reserves and 22 percent of global natural gas reserves. By having FTA with GCC, Pakistan can overcome its energy crisis. In 2023, Pakistan imported over 85 percent of its crude oil from GCC countries and a substantial amount of liquefied natural gas (LNG) from Qatar to meet its energy needs. Pakistan currently has two operational LNG terminals, located in Port Qasim, but more are needed to meet future demand. The FTA could incentivize joint ventures between GCC energy firms and Pakistani companies to invest in building new LNG terminals, improving storage capacity and upgrading infrastructure. With the GCC-Pakistan FTA, tariffs and trade barriers on energy products such as oil, gas and refined petroleum products could be lowered, making energy imports from the GCC more cost-effective for Pakistan. 

Another potential area of collaboration under the FTA is the development of regional pipeline infrastructure. The construction of oil pipelines from the GCC countries to Pakistan could reduce dependence on shipping routes vulnerable to geopolitical disruptions. For instance, a pipeline extending from Oman to Gwadar or Karachi would ensure a direct and secure supply of crude oil to Pakistan. Similarly, a gas pipeline proposal linking Qatar to Pakistan, which is still in finalization, could ensure a stable flow of natural gas, complementing LNG imports. Such a project could be executed with regional development banks or international financing institutions. 

The FTA would also diversify energy sectors and renewable energy presents a growing area of collaboration. Pakistan’s solar potential is over 2.9 million MW, while GCC countries like the UAE and Saudi Arabia have made significant strides in solar energy development. Under the FTA framework, joint ventures in solar energy projects, particularly in Pakistan’s Thar Desert and Balochistan could enhance the renewable energy mix of both regions. The FTA could also foster greater technology transfer and expertise exchange in the energy sector. UAE and Saudi Arabia have been investing heavily in AI and digital technologies for energy management. Joint programs and training under the FTA could help Pakistan develop similar capabilities. On 29 October 2024, the Prime Minister of Pakistan while addressing the eight editions of the Future Investment Initiative (FII) held in Saudi Arabia stated that “AI is more than a trend; it’s a force revolutionizing economies, societies and industries. At this juncture, Pakistan is not just embracing AI, we are committed to excelling in it.”   

The GCC-Pakistan FTA can enhance Gulf food security and boost Pakistan’s economic stability, creating benefits for both regions. The GCC countries rely on distant suppliers, resulting in higher costs and potential delays due to geopolitical tensions or logistical challenges.  By establishing a tariff free trade arrangement with Pakistan, the GCC could secure a closer and more consistent supply of essential food items. Reduced tariffs would lower the cost of imports for GCC nations, potentially passing savings on to consumers while ensuring access to staples like rice, meat, fruits and vegetables. Pakistan primarily exports halal food products, which GCC member economies typically import. Pakistan is one of the top five exporters of agricultural products and a leading rice exporter to GCC member states. According to the United Nations COMTRADE database, Pakistan’s total exports to Saudi Arabia in 2023 were $632.06 million, Qatar $157.83 million, UAE $1.4 billion, Kuwait $127.44 million, Bahrain US$60.59 millionand Oman $173.3 million. 

Furthermore, the country has a comparative advantage in exporting white chocolate, sugar confectionery, chewing gum, lactose and sugar and syrup to GCC countries, which can be increased with the implementation of FTA. Pakistan has a comparative advantage in exporting to Saudi Arabia due to the latter’s reliance on imports to meet its agricultural needs. Saudi Arabia has limited domestic farm production, making it an attractive market for Pakistan’s fruits and vegetables products. This relationship allows Pakistan to capitalize on its strengths in these sectors, effectively catering to Saudi Arabia’s demand. These opportunities reflect Pakistan’s potential and opportunity to strengthen its exports to GCC countries and capitalize on its comparative advantages in different product categories. 

The GCC-Pakistan FTA represents a transformative opportunity for both regions, fostering deeper economic cooperation and integration. By eliminating tariffs and trade barriers, the FTA is poised to enhance trade in various sectors such as energy, agriculture and technology, facilitating mutual benefits that offer multiple opportunities for economic growth. Pakistan’s strategic location and agricultural strengths can significantly boost food security for GCC nations while diversifying its economy through increased exports of halal products and other goods. Additionally, the potential for collaboration in renewable energy projects and technological advancements underscores the FTA’s role in promoting sustainable growth. As Pakistan capitalizes on its comparative advantages and strengthens ties with GCC countries, the FTA offers a win-win situation for both GCC and Pakistan.