UK-GCC Free Trade Agreement Negotiations: Potential New Benefits for States and Investors

By Robert Volterra, Partner

Fietta, Jehad Mustafa, Associate

“A UK-GCC [FTA] will increase trade and investment both ways, contributing to economic growth and prosperity in the UK, Saudi Arabia and across the Gulf, and cementing the strong diplomatic cooperation between the UK and GCC countries.” could be done. Importantly, it also considers how foreign investors could benefit from such a free trade deal.

Nature and scope of FTAs

An FTA is a treaty between States that seeks to reduce or eliminate barriers to international trade and to promote foreign direct investment between State partners. Such barriers can include:

• Tariffs on imported items levied to increase the prices of such items;

The UK government is targeting opportunities for its food and drink sector as part of the GCC-UK FTA. The GCC is a net food importer with an affluent and discerning customer base. Although tariffs between the parties are already relatively low, the UK sees room for further reductions on areas such as cereals, which currently face a tariff of up to 25%; chocolate, up to 15%; baking products, up to 12%; sweet biscuits, up to 10%; and smoked salmon, which has a 5% tariff at present.

The United Kingdom and the Gulf Cooperation Council (GCC) States have enjoyed a long and close relationship, politically and economically. Despite this, the GCC and the UK have never enjoyed the benefits of a comprehensive Free Trade Agreement (FTA). That looks set to change as talks begin on what all sides hope will be a “modern and comprehensive” deal. Potential and current foreign investors may wish to consider how this could affect the legal protections to their investments in the UK and GCC States.

Following its exit from the EU, the UK Government has prioritised a deal with the GCC as a key objective. This is unsurprising. The GCC has long been an important trading and political partner for the UK - the GCC is the UK’s fourth largest export market outside of the EU. The GCC-UK trade relationship was worth GBP 33.1 billion in 2021, a figure that will increase in 2022.

There is however room for even more growth. All sides agree that a comprehensive free trade deal can make the economic, political, and cultural relationship between these longstanding allies even closer.

This article looks at why and how this

• Quotas that limit the quantity of certain goods that can be imported or control prices;

• Lengthy or unduly complex customs procedures; and

• Government procurement restrictions and “buy national” regulations: for example, conditions that give local businesses an advantage over foreign competitors in winning government contracts.

Removing or reducing these barriers will make it more efficient and easier for businesses to export, import, and invest across borders. This is presently an even more important consideration given the perilous global economic situation.

The UK’s approach to negotiating the GCC-UK FTA FTAs can vary greatly in terms of the sectors they cover, the scale by which barriers to trade are removed, and the depth of the sustainability related provisions.

The scope of the UK-GCC FTA remains to be seen. However, the fact that the GCC and the UK are complimentary economies with few sectors in which they are in direct competition means that the FTA is likely to be ambitious and farreaching.

Other sectors likely to be targeted by the UK Government in negotiations include manufacturing and the renewables sector, as well as services. The UK Government is confident that a strong trade deal could increase UK GDP by up to GBP 3.1 billion per year. The UK Government’s strategic approach briefing has also identified that the GCC is an “important gateway to the Indo Pacific region.”

Speaking at an Arab British Chamber of Commerce (ABCC) event held to discuss the UK-GCC FTA, the UK’s chief negotiator, Tom Wintle, emphasised that the UK Government had a “very clear political will” to conclude the FTA. He emphasised that the forthcoming change of UK Prime Minister would not change this position. Mr Wintle also stressed that the GCC and the UK are “complimentary economies” with very few areas of direct competition, a factor that promises to make the FTA highly fruitful for all parties.

The GCC’s approach to negotiating the GCC-UK FTA

The objectives of the GCC are likely to focus on the ambitious and exciting Vision plans that are in place across the region. A key aim of these Vision plans is greater industry diversification, including diversification away from the hydrocarbon industries. That diversification drive may benefit from smoother access to the expertise that the UK has in technology, cyber, life sciences, creative industries, Artificial Intelligence, financial services, and renewable energy. As noted by His Excellency Dr Thani bin Ahmed Al Zeyoudi, the United Arab Emirates’ Minister of State for Foreign Trade, a UKGCC FTA could “further diversify supply chains and accelerate knowledge transfer”. Other benefits to the GCC could include improved access to UK banking, travel, and telecommunications sectors.

Speaking at the ABCC, Bahrain’s Minster for Industry, Commerce and Tourism, His Excellency Zayed bin Rashid Alzayani, said that the GCC was “very much committed” to securing an ambitious FTA with the UK. He also set the ambitious deadline of August 2023 for the FTA to be agreed. His Excellency Alzayani noted that the creation of a dedicated team within the GCC Secretariat with expertise in negotiating FTAs, together with the fact that the GCC is a harmonious entity, made meeting this deadline possible. Similarly, the UK’s team led by Tom Wintle has the advantage of representing only one State, which should facilitate negotiations. By contrast, the EU’s negotiations with the GCC for an FTA started in 1990 and are still not finalised.

While the GCC will negotiate with one voice it has left open the possibility for individual member States to conclude bilateral agreements with the UK if they have specific requirements. In this respect, His Excellency Salman bin Hamad Al Khalifa, Crown Prince of Bahrain, has said that the GCC’s approach may be to negotiate a “general sort of [FTA] that will be acceptable to all. And then maybe a more bilateral agreement with countries that have an appetite to do more.”

State-to-State dispute resolution

The UK and the GCC are close allies. Complex and far-reaching FTAs however inevitably bring with them the risk of trade disputes. A recent example is the dispute between Canada and New Zealand regarding dairy imports under the TransPacific Partnership Agreement.

The GCC-UK FTA is likely to include a mechanism for resolving State-to-State disputes. The UK Government’s strategic approach briefing indicated that the UK will seek to establish “a strong state-tostate dispute settlement mechanism that promotes compliance with FTA”, among other reasons to provide “predictability and certainty for businesses and stakeholders”.

Investment protections and dispute settlement

The UK and the GCC States have long had friendly political and economic relations. But, as with any major business endeavour, foreign investment inevitably carries certain political and regulatory risks.

It is common practice for FTAs to include an investment chapter providing foreign investors with certain additional legal protections against those risks associated with foreign investment. The UK-GCC FTA will likely offer this as well.

Such investment protections are key to increasing foreign capital flows between the UK and the GCC States. Investors often rely on these investment protections in making investment decisions, such as how to best structure their investments.

What specific legal protections the GCCUK FTA will offer foreign investors will depend on the negotiated text of the agreement. The legal protections included in FTAs vary. However, they generally provide for the following substantive protections, which may also be included in the UK-GCC FTA:

• Protection against “illegal expropriation”, which concerns situations where the State deprives a foreign investor of the legal title to or of the possibility of utilising its foreign investment, without adequate and prompt compensation;

• “Fair and equitable treatment”, which involves principles of good faith, the protection of legitimate expectations, transparency, protections against denial of justice, and prohibitions of discrimination and unreasonable conduct;

• Prohibitions on more favourable “national treatment” and a guarantee of “most-favoured nation” treatment, which require the State to treat foreign investors and their investments no less favourably than how it treats domestic investors and investments. The most favoured nation standard allows a foreign investor to rely on any more favourable substantive protections offered to the investors of any third State; and www.volterrafietta.com as trustees, making them responsible for ensuring that the crypto assets are not removed from the wallets. This is an important development in curbing fraud as the cryptocurrency exchanges now have the potential shoulder the responsibility for the safety of the funds within the wallets.

• An “umbrella clause”, whereby the obligations of the State with respect to an investment (for example, contractual obligations) are automatically incorporated into the investment chapter of the FTA.

It is likely that the UK-GCC FTA will also offer foreign investors procedural protection against adverse State action, in the form of investor-State arbitration. This is a dispute settlement mechanism that allows qualifying foreign investors to bring a claim against the host State for breach of the FTA’s substantive investment protections in an international and neutral forum.

There are strong reasons to include investor-State arbitration in the UKGCC FTA. First, this is what gives the substantive protections teeth. It also avoids a dispute between a foreign investor and the host State from escalating to the State-to-State level, which may cause unnecessary diplomatic friction. There are many other advantages of investor-State arbitration. For example, such arbitral proceedings can be shorter than national proceedings. The parties also have discretion in who to appoint to decide the dispute and how to conduct the proceedings (for example, by choosing the language of the proceedings and the rules for the taking of evidence). Another important advantage is that investment arbitration awards are often easier to enforce in other States than judgments delivered by national courts.

The UK-GCC FTA could result in changes to the protections currently enjoyed by foreign investors from or with investments in the UK and the GCC States. At present, the UK and three GCC States - Bahrain, the United Arab Emirates, and Oman - have bilateral agreements in place that offer certain investment protections similar to those likely to be included in the UK-GCC FTA. (The UK and, respectively, Kuwait and Qatar, signed such bilateral investment treaties, but these are not in force). It will be a matter for the UK and the relevant GCC State to consider whether these bilateral investment treaties will be terminated once the GCC-UK FTA comes into effect.

It is important that investors that currently rely on existing bilateral investment treaties between the UK and a GCC State consider the potential effects of the GCCUK FTA and any potential agreements to terminate those bilateral treaties on their investment protection in order to mitigate any risks in a timely manner. Likewise, future investors need to analyse carefully whether their investment qualifies for protection under the GCC-UK FTA’s investment chapter.

Volterra Fietta is an elite public international law firm that advises States and investors in contentious and noncontentious matters. Volterra Fietta has acted in numerous disputes before the World Trade Organisation, State-to-State courts and Investor-State dispute tribunals including the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). Volterra Fietta lawyers have extensive experience in negotiating trade and investment agreements on behalf of States and private entities as well as in dispute resolution in these fields.

Landmark Judgment

The landmark judgment allowing NFT service should act to slow down the exponential rise of crypto fraud, particularly in situations where the contact details for fraudulent platforms are no longer active and the anonymous perpetrator has disappeared before the victim recognises the deception, which is often the case.

Giambrone & Partners banking and financial fraud litigation lawyers believe that another way to reduce and limit frauds relating to cryptocurrency may be to hold the organisations surrounding the fraud to account, from the celebrities and influencers that promote scams, (often unwittingly), to social media platforms where romance frauds and pump and dump frauds are frequently found.

Social media platforms were initially slow to act in the face of frauds being pitched on their sites, taking the view that they were simply a medium through which information was delivered and had no responsibility for the nature of the information; they did not protect the users of their facilities. Also, sometimes using what, to some, appear to be spurious arguments to defend their lack of action, suggesting they were unaware a fraud was being executed.

Whilst the social media platforms do not have any part in the deception, holding the facilitators of fraud to account would spur the platforms to introduce tighter controls on those who wish to access their sites, as well as ensuring that the celebrities and their agents are more diligent in investigating the schemes that they are asked to promote. If there are consequences to any association with fraudulent investment schemes, it may cause the celebrities and platforms to consider carefully the products and services that they promote.

Risks Of Investment

In another example, related to the responsibilities that must be recognised by persons or organisations involved in cryptocurrency activities, the Advertising Standards Board (ASB) has sanctioned Arsenal Football Club on two counts, in relation to an investment advert that encouraged fans to buy fan tokens. In the first instance, the ASB pointed out that the football club failed to alert purchasers to the risks of investment and, secondly, the club did not clearly explain that the fan tokens were crypto assets and further purchases of cryptocurrency would be required.

Arsenal Football Club resisted the suggestion, saying that that they were not required to issue such warnings. However, following further consideration by the ASB, the original decision was upheld with the ASB commenting “…the ads trivialised investment in cryptoassets and took advantage of consumers’ inexperience or credulity…”

Accepting Payment

Cryptocurrency is increasingly appearing in commercial transactions with organisations from small companies to big conglomerates accepting payment in cryptocurrency, primarily Bitcoin, the first cryptocurrency to appear in 2009. Some of the major organisations that accept payment in cryptocurrency include Microsoft, AT&T and Shopify. No less an establishment as Sotheby’s announced that Bitcoin and Ether would be accepted as payment in the auction of a work of art by Banksy. In order to trade using cryptocurrency, a company must have a wallet that is protected by cryptography.

Demetri Bezaintes, an associate, points out that “regardless of the undeniable volatility in the crypto market, it has many advantages; the use of cryptocurrency in commerce is becoming more popular and will steadily be accepted as a form of payment across global markets”.

Demetri further commented, “there will inevitably be disputes. The High Court’s acceptance of service of legal documents by an NFT via blockchain will be central to litigation, particularly where there are anonymous defendants holding crypto assets.”

Blockchain Benefits

One of the perceived benefits that blockchain brings to business is that the parties to a transaction can share immutable records relating to the transaction through private distributed ledger technology. This provides endto-end work-flow clarity and limits the potential for disputes. In many industries the “middle man” can be eliminated bringing cost savings. Also, the legal basis of ownership may be more easily verifiable as well as more cost effective and brings a higher level of security.

Once the promised increased regulatory supervision has been enacted, the brave new world of crypto will become far more appealing to commerce and businesses must be ready to take full advantage of new innovation.

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