Peter Mandelson, the European Trade Commissioner, believes that the European Union is two or three sticking points away from completing a landmark free-trade deal with the Gulf.

Mr Mandelson told The Times that the two sides were discussing the final language and he was optimistic that the treaty could be signed by the end of the year.

His confidence came after meetings with counterparts from the Gulf countries at the World Economic Forum gathering in the Middle East.

An agreement would give European companies better access to one of the world's fastest-growing and richest regions.

The talks are taking place between the EU and the Gulf Co-operation Council (GCC), which comprises Bahrain, Kuwait, Oman, Qatar, the United Arab Emirates and Saudi Arabia.

The formal language, which will reduce tariffs and quotas on trade, will be discussed next week at a summit between ministers.

The broad themes are to boost economic links, improve bilateral trade and give Europe access to investment opportunities in the Gulf.

States such as Dubai have free zones for foreign companies, but many other states, including Saudi Arabia, are difficult to compete in.

The EU hopes that a free-trade agreement would help to balance the flow of trade.

At present Europe buys a huge quantity of oil and gas from the Gulf, but the region remains a comparatively small importer.

The EU estimates that exports to the Gulf were $4.4 billion (£2.2 billion) last year, compared with $269 billion to the United States.

European legislators want language forcing Gulf countries to improve human rights and address labour conditions for foreign workers.

This is likely to be circumvented by using diplomatic language, but greater problems exist. For example, the EU wants Gulf nations to reduce barriers to market entry.

The GCC has complained that European politicians keep adding conditions that are impossible to meet.

Trade deal

— The European Community struck a region-to-region relationship with the Gulf Co-operation Council (GCC) members - Saudi Arabia, Bahrain, Qatar, Kuwait, the United Arab Emirates and Oman - with a Co-operation Agreement in 1988

— Both sides agreed to talks on a Free Trade Agreement, which began in 1990 but soon reached a standstill. In 1999, the negotiations regained momentum after the GCC's decision to create a customs union. Negotiations resumed in March 2002 and gathered pace last year

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