Stating, “the Gulf Cooperation Council (GCC) was born to tackle political, security and economic matters,” Qatar’s foreign minister asked in March: “Is it doing what it is supposed to do?”
With an emphatic “no”, the minister pointed to the failure to materialize the Qatar-Kuwait gas pipeline, which is awaiting the approval of Saudi Arabia. “Qatar is currently exporting gas to Korea, but not to Kuwait,” he said.
The statement from Doha reopens an old debate about the GCC’s relevance in an age of dynamic political, economic, and social and security developments not only in the region, but the world as well.
Small countries have often sought strength from one another by forming regional organizations or trade blocs to curtail the influence of larger countries and blocs. The forces of globalization accelerated this process — since the World Trade Organization (WTO) was establishment in the mid-1990s, over 95 Regional Integration Agreements (RIAs) have been signed, compared with only 124 such deals in the previous 46 years.
A number of factors make the GCC countries natural candidates for forming a RIA, including their shared language, culture, religion and geographic proximity. Further, their similar exchange rate regimes have also facilitated integration.
Following the 1981 Unified Economic Agreement (UEA), a GCC Free Trade Area was established in 1983. Further, discussions on creating a customs union took approximately 20 years to conclude — in January 2003 it was agreed that the process of implementing the custom unions would end in 2005, but it is still elusive.
The UEA also agreed “member states shall seek to coordinate their financial, monetary and banking policies and enhance cooperation between monetary agencies and central banks, including the endeavor to establish a joint currency in order to further their economies.” Forming a monetary union is the final step in the economic integration process and a GCC single currency is scheduled for 2010. However, the relatively slow progress of GCC regional economic integration leaves questions about the timetable.
The available statistics on FDI, other investment and trade suggest that RIA is quite limited among the GCC countries. The Arab Monetary Fund estimates suggest a scarcity of intra-GCC investment flows. Of the $125 billion investment outflows from the region during 1990-2002, only about two percent ($2.56 billion) was intra-regional. Trade between the GCC states is also low compared to their trade with other economic blocs. In 2003, the intra-GCC exports amounted to 4.9 percent of their total exports, down from 6.5 percent in 1997. The intra-GCC imports constituted 6.7 percent of the total, falling from 9.2 percent during the same period. In contrast, prior to the single currency more than 50 percent of European Union trade was intra-regional.
Currently GCC financial market integration is minimal with only some cross listings of stocks and no plans yet for common capital markets, as well as supervisory and regulatory bodies.
There is little cooperation among the region’s stock markets either with few cross listings or merger and acquisition activities. Yes, Saudi Arabia approving the principle of full equality for GCC nationals in sharing investments and establishment of companies is a good move, but the necessity of having two stock markets in the UAE (NBAD and DFM) for example is questionable.
On the flip side, if we look at intra-regional trade as a proportion of non-oil GCC trade, it is roughly double at about 13 percent. The tourism sector is a case in point — for example, over five million Saudis visited Bahrain in 2003.
Several projects have been announced to increase the transport links between the GCC States — causeways between Qatar and Bahrain and Qatar and the UAE, an Arabian Gulf railway network, as well as a “transrapid” magnetic levitation rail route from Qatar to Bahrain with an option of extending it to the UAE and Oman.
Economic activities across GCC borders are also gaining increasing momentum with 6,247 business licenses being granted in other member states in 2003 — 30 percent of them in Saudi Arabia — which is 50 percent more than in 1992.
The figures would have been better but for political wrangling — Saudi Arabia has accused Kuwait of hindering the import of Saudi goods into Kuwait; and the Saudi displeasure over the Bahrain-US free trade agreement (FTA) could be extremely damaging for the GCC customs union. Qatar, Oman and the UAE are currently negotiating FTAs with the US, which raises the question about whether national interests will override the desire for RIA and threaten regional consolidation.
In conclusion, it is unfair to characterize all the actions by GCC as absolute failures. As a political entity, it has managed to surmount certain challenges as exemplified during the invasion and subsequent liberation of Kuwait. The regional integration process has also witnessed a mixed bag.
The monetary union plan is moving ahead and a common market scheduled for 2007.
The GCC has been in existence for almost 25 years, and although it still has some way to go before meeting its founding objectives. The question, thus, is not about the relevance of the GCC but the extent to which the member states are willing to accept an organization that they have created for their good.
— Dr. N. Janardhan is editor of gulfinthemedia.com and Emilie Rutledge is economic researcher at the Gulf Research Center, Dubai.
