Why the six GCC countries can’t agree on important issues such as the currency union.
According to the IMF, the GDP of the GCC in 2007 will reach a whopping US$750 billion, placing it roughly above Australia as the 16th largest economy in the world. And yet, this number does little more than aggregate the economies of six geographically close countries that might as well be on six different continents. It is inconceivable that these half a dozen countries that are, to all intents and purposes, carbon copies of each other, cannot agree on how to proceed with what is clearly the common good for their economies and end up hosting expensive lunches and tea parties with no measurable outcome. There are a couple of issues here that need to be highlighted.
Currency Union: First, the issue of monetary union has started to cause a serious case of currency fatigue amongst even the most ardent supporters of this fantastical idea. Doubts have been cast now that two countries have more or less ofﬁcially pulled out of the currency union. GCC nationals are wondering when the other four are going to admit that they have failed in the most basic of agreements. The sad fact that seems to have been overlooked is that before our esteemed ofﬁcials realised the obvious necessity of a common GCC currency, the region actually had one for over a century that was working perfectly well. It was called the Indian rupee (it still exists today). A currency that was universal in every meaning of the word, accepted as legal tender from Iraq to Yemen (even though India is thousands of miles away) and without the assistance of the European Union, IMF, World Bank, countless consultants, research papers and investment banks that have ultimately contributed to this collective failure that is evident today. There are very few excuses that could be presented to the people of the GCC other than simple apathy and the lack of conviction on the part of the ofﬁcials. Some might argue for maintaining the status quo, in which Ben Bernanke effectively plays the part of the GCC Central Bank governor as he knowingly, or not, dictates the monetary policy of six independent nations from his good ofﬁces in Washington D.C.
Customs Union: Second, as the GCC approaches the sixth year of the so-called customs union, many of us dread yet another announcement from the secretary general of the GCC that the temporary “trial phase” will be extended by another year or two. As one “brotherly” country accuses another of dumping products and the lack of agreement on tariff sharing illustrate, the dream of a customs union has yet to materialise.
The idea of the GCC unifying its customs tariffs and regulations came from none other than the European Union, which insisted in the 1980’s that there would be no free trade agreement (FTA) with the GCC unless the latter establishes one supranational entity that it could sign with. The US, the appointed guardian of the Gulf oil reserves, has deliberately followed a “divide and conquer” policy of signing with individual countries that has cost its signatories dearly (see MONEYworks April 2007 by same author). The UAE has fortunately escaped for another two years, as President Bush’s fast-track negotiating powers have expired as of June 30 this year. Two decades after the EU ﬂoated the customs union idea, no GCC-EU FTA seems to be on the horizon with the Gulf Arab nations now seeking new partners, most of whom are energy hungry Asian countries that would accept to sign FTA’s with what the EU regards as a ﬂawed customs union.
In reality, there have been very few success stories as a result of the establishment of the GCC. These include a semblance of freedom of labour movement, as well as permitting expatriate residents who have lived in a member state for more than six months to visit another for a short stay. The GCC wide electricity grid, which comes into effect in 2010, seems to be another practical and positive step forward.
So, what could be done?
The GCC needs to make up for lost time and implement a strategy with preset milestones and dates to reach an agreement on unifying its laws and regulations concerning foreign direct investment, banking and ﬁnancial services and the legal system, amongst other issues. The currency union cannot be salvaged at this point; however, the customs union can be brought back to life with new rigor, and if the GCC countries agree on unifying their laws, there may be hope yet for the currency union sometime in the future.
This article was originally published in MONEYworks on September 2007.