Gateway to Development

Experts opine that US-Oman FTA has opened a flood of opportunity for the Sultanate’s economic development. Akshay Bhatnagar looks at some of the strategies to maximise the benefits

“The Free Trade Agreement between Oman and the United States has the potential to usher in a new era. Apart from eliminating tariff barriers, the agreement will provide new opportunities in services, a secure and predictable legal framework for investment, and streamlined customs procedures to facilitate trade.”

This statement by HE Gary A. Grappo, the US Ambassador to the Sultanate, paints a bright picture about the benefits that will accrue to Oman post-FTA. Shaun Donnelly, Assistant US Trade Representative for Europe and Middle East, echoed the sentiment, when he said: “For Omani businessmen, the agreement gives access to the world’s single largest market and provides boundless opportunities.”

Together, these comments should help allay any concerns over the Free Trade Agreement (FTA), which was signed in 2006, especially among private sector and small and medium enterprises. The US-Oman FTA, HE Maqbool Bin Ali Bin Sultan, Minister of Commerce and Industry said, is currently being fine-tuned and is expected to come into effect early 2007. The FTA is a step in the direction laid down by the seventh Five-Year Economic Development Plan (2006-2010), which lays emphasis on enhancing the private sector’s role in the Sultanate’s growth and on increasing foreign trade and investment. To fulfil the twin objectives, Oman is already pursuing FTAs with various trading blocks, including the European Union, Turkey, China, Japan, India, Pakistan and New Zealand.

New Frontiers
To create awareness about the benefits of the FTA and to discuss opportunities for businessmen in both the countries, the Ministry of Commerce and Industry along with Omani Centre for Investment Promotion and Export Development (OCIPED), Oman Chamber of Commerce & Industry (OCCI) and the US Embassy, organised a day-long ‘FTA Awareness Conference 2006’ at Muscat last month. More than 400 senior representatives of the Sultanate’s corporate sector attended the event. More such awareness conferences are slated in other parts of the Sultanate in 2007.

Once the agreement comes into force, trade in consumer and industrial products will become duty-free. “Oman can export many products, including petrochemicals, handicrafts and fisheries. Similarly, we will be interested in US investment here to develop tourism, resorts, construction, IT and management,” HE Eng. Salem bin Said Al-Ghattami, Chairman of OCCI, said at the conference.

On the benefits of the FTA, Grappo said, “The Agreement puts investors’ minds at ease through substantive legal protections, including the right to equal treatment and due process, the prohibition of placing certain restrictive requirements on investors, and the establishment of an effective, impartial, and transparent dispute settlement process. The Agreement also commits each government to establish high levels of environmental protection and to ensure that labour standards are consistent with internationally recognised labour rights.”

Positive Impact
So far only four Arab nations – Oman, Morocco, Bahrain and Jordan – have signed an FTA with the US. As a result, their bilateral trade jumped by 16.3 per cent between 2004 and 2005, and an estimated 33.5 per cent between 2005 and 2006. The example of Jordan is quite striking. In 2001, when the US-Jordan FTA was signed, the trade between the two nations was to the tune of only US$300 million. Since then it has grown to US$2 billion in favour of Jordan.

Even though the US-Oman FTA is yet to come into force, a positive impact on the Sultanate’s economy is already evident. Trade between the US and Oman was worth about US$1.1 billion in 2005. But since then, till October 2006, US imports rose to about US$747 million, while Oman’s exports touched US$935 million.

The Omani government has initiated a number of economic diversification projects in which US companies are actively involved. Dow Chemicals has teamed up with the Sultanate to build a petrochemicals complex to serve as an anchor for the development of Sohar. Bechtel Corporation is constructing the first greenfield smelter in the region in over 25 years for Sohar Aluminium Company, part of an US$2.2-billion project. Occidental Petroleum, along with its project partners, is investing more than US$3 billion over the next several years in the development of the Mukhaizna field.

US corporations such as AES and PSEG have actively participated in the Sultanate’s privatisation of power and water generation facilities, while Parsons is helping in Oman’s transportation infrastructure development. US construction and financial firms, such as Turner Construction and Bear Stearns, are also actively participating in development resort complexes in Oman.

Oman’s corporate sector too made a start when an agreement was signed between the OCCI and the National US-Arab Chamber of Commerce (NUSACC) to counsel and facilitate interaction between the Omani and US investors.

Areas of Concern
Though the Minister of Commerce and Industry said that Omani companies should not worry as special care has been taken to protect and promote them, especially with regard to the small sector, certain sections of the Omani corporate sector are still a bit worried. Omantel CEO, Dr. Mohammed Bin Ali Al-Wohaibi, raised the concern that Omani ICT sector companies were not in a position to compete in the US market as they were comparatively young. They would be at a disadvantage in the US market despite the FTA, he pointed out.

The US Ambassador countered the argument. “The Omani companies will not be competing with giants such as Microsoft or AT&T. They need to identify their niche areas and look for relevant opportunities with partners of the big US companies,” he said. David Hamod, President & CEO of NUSACC also disagreed with Al-Wohaibi. “The small and medium (SME) enterprises have fewer overheads and hence can be very competitive. Our experience says that if we (Arab companies) do our homework well, we can do well,” he said.

The Way Ahead
John M. Adams, Senior Associate, Booz Allen Hamilton Inc., pointed at the way forward for Omani companies and the government. “The first task is to identify the key target sectors that have possible opportunities for increased trade,” he suggested, adding, “The sector-specific initiatives to improve sector competitiveness can be private sector-driven but will also require government policy support.”

“Oman is at the crossroads,” he said, “some hard decisions must be taken. Payoff will not be immediate. Take for example, the barriers in sectors that provide the key inputs affecting the competitiveness of other sectors – such as ICT services and transport – should be reduced. While saying that “Oman is well on the way to creating a robust telecommunication market,” he pointed at the “comparatively high” cost of leased line. “An E-3 international digital leased circuit (including tail ends) from Oman to Europe costs more than US$250,000 per month; in Europe, on an average, the same capacity costs nearly half as much!” he said.
OCCI Chairman Al-Ghattami agreed with Adams. “To enlarge the private sector’s benefits from the FTA with US, we have to work quickly to prepare detailed studies of the opportunities which this agreement provides at all fields and sectors besides identifying the suitable mechanisms and forms to achieve those benefits in the coming period,” he asserted.

On the role of private sector and government in making FTA a success story, he said, “The FTA requires a common effort from both the government and private sectors to promote for the advantages which this Agreement is offering to the private sector. This would increase the private sector’s contribution in the comprehensive development plans and programmes including the plans of economy diversification, employment of people, attracting investments, transfer the new technology and develop the methods and tools of the management, production and marketing.”

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