Bahrain enters a new era in integrating itself with the global economy when its Free Trade Agreement (FTA) with the US comes into force in the New Year.

The agreement suddenly frees up the $9.5 trillion American market for the tiny kingdom of Bahrain and its business people.
Will they be able to rise up to the challenge or will the mammoth US producers gobble up Bahrain’s domestic market?
The FTA agreement which has raised a storm within the Gulf Cooperation Council (GCC) is one of the fastest such trade deals entered into by the US, raising eye-brows as well as appreciation for Bahrain’s leadership.
“It took only five months of negotiations before the two countries signed the accord,’’ says a proud Yousif A Humood, director of economic planning in the Ministry of Finance and National Economy.
 “Though the talks had not been easy, we could finalise the treaty at such a fast pace because Bahrain was already ready to merge its economy with the global one and most ingredients were in place,” says Humood, who is the chief coordinator of Bahrain’s FTA negotiating team.
Bahrain enjoys the 16th rank in the global economic freedom index and the top spot in the Arab world; it is a founder member of the World Trade Organisation; and it was also ready in terms of laws and regulations - factors which helped on the road to FTA.
“Bahrain started upgrading its business environment a while ago. From the 70s it become clear to us that we have limited resources and we have to boost the services sector which will be our mainstay.
“Reforms in the services, financial and transport sectors have been taking place since then, while many Arab countries are still discussing such reforms. We have also implemented telecom reforms recently, completely opening up the sector.’’
Bahrain started its economic dialogue with the US in 1999. It signed a Protection of Investment Agreement in September 1999 and the Trade and Investment Framework Agreement (TIFA) in 2003. The TIFA provided a launch-pad for the FTA dialogue.
Because Bahrain already met most requirements for the FTA, the country could conclude the treaty within a very short time, he says.
Now that the FTA is in Bahrain’s bag, how will it change the business scenario?
“The FTA only creates a healthy environment from which free trade can flow. It is up to individual investors and traders to make use of the opportunities provided by the agreement,’’ says Humood.
“This is an accord, it is up to the people to utilise it. Efficiency and speed is what it takes to benefit from the deal. The benefits may not come overnight. But as soon as people realise that they have now access to the huge US market, they will adjust and change their marketing strategies and policies.”
Going by the example of Jordan, another Middle East country which has an FTA agreement with the US, the trade expansion need not take much long either. Since the signing of the agreement, Jordan’s exports to the US have increased from $30.7million in 1999 to $673.4 million in 2003. US exports to Jordan moved from $275.7 million in 1999 to $491.9 million in 2003. The benefits a smaller economy received from the agreement are there for all to see. 
Jordan has simply done more of what it has been doing. Of the total exports from Jordan, textiles and apparels accounted for $582 million.
Bahrain’s vision is to develop mainly six major sectors that can spur economic growth. They include the financial sector, IT, healthcare, education and training, tourism, and downstream industries around aluminium and petrochemicals.
“We see a lot of synergy with the Americans in this and hope to attract investment from the US in these sectors,’’ he says.
The FTA opens up huge opportunities for people in the services sector.
Bahrain is already an attractive centre for financial institutions and more than 40 per cent of the existing companies are US-based. “This sector, along with insurance, is likely to attract further investments. A new insurance law is being finalised to strengthen the system,’’ he says.
Islamic banking is another sector which could benefit form the accord. Already, Islamic funds are marketed all over the world from Bahrain. Auditing is yet another key service which Bahrain-based firms can provide to the US market, he says.
A growing number of reputed educational and healthcare institutions are also being set up in Bahrain and the kingdom hopes to be a Middle East hub for healthcare and education.
In the industrial sector, Bahrain’s main target is to increase investments in downstream aluminium and petrochemical industries.
“The kingdom has invested a lot in expanding the aluminium production capacity at Alba. We are competitive, efficient and supply high-quality aluminium. We would market Bahrain as a place to develop more industries with aluminium as the raw material.”
The same approach will be followed with regard to petrochemical industries as well. “This is an energy-based industry and we are very competitive. We can expand in this area. What we are trying to do is improve competitive advantage and make Bahrain more attractive.”
One of the key features of the accord is the provision which allows companies to derive benefits from the agreement if they add 35 per cent value to a product.
“This is the best deal any country has had with the US with regard to value addition,’’ he says. “Investors from all over the world could make use of this tremendous opportunity provided by the agreement.”
Humood admits it is important to create awareness among the business community over the benefits of the FTA.
The government and the business community have established a steering committee to derive maximum benefits from the deal. Trade missions are also being planned to the US. Last year, a very successful roadshow was held in New York and another is being planned this year in Chicago.
“We have seen that many companies are interested,” says Humood.
And what about the threat of US companies flooding their products in the Bahrain market?
“Bahrain is already open. What stops US companies from coming to Bahrain and swamping the market?’’ asks Humood. “What the FTA does is to give Bahrain firms the same advantage which the US companies already enjoy in Bahrain. It opens up a huge market for Bahrain’s businesses.
Though Bahrain seems like a small market for the mammoth corporations of the US, they should look at the kingdom as a base for their regional operation that could extend even up to the Subcontinent, says Humood.
He is sure the controversy over Bahrain’s signing the FTA will die down soon.
“Most of the GCC countries have signed the TIFA and some are starting FTA talks as well. As soon as everyone signs the agreement, there will be no point to talk about,’’ he says.