In May 2007. I wrote an article entitled ‘The Truth about the American Free Trade Agreements’ in this column. The article pointed out that the GCC states always end up at the short end of the stick when it comes to the Free Trade Agreements (FTAs) it has negotiated with the west. The western powers have always emphasized issues that have less to do with trade than with scoring points on their home turf. For example, the US included a so-called “import relief’ clause in its FTA with Oman to prevent dumping by the Sultanate, although what Oman produces that could so negatively affect the US economy was never explained.
When the Bretton Woods conferences were being held in New Hampshire in 1944 by Allied victors of World War Two, only Saudi Arabia was an independent state. That conference shaped the world for the next six decades. US President George W. Bush and British Prime Minister Gordon Brown have both called a second Bretton Woods conference to “create the right new financial architecture for the global age.”
The GCC must lobby the Group of Seven Industrial Nations in which it has literally invested so much to make sure that it is properly represented this time in the person of Abdul Rahman Bin Hamad Al Attiyah, the current GCC secretary general, who should also be sent with a clear mandate from the leaders of the GCC. Al Attiyah will be attending with the weight of a close-knit group of nations that is cementing its economic integration and a GOP (PPP) that will touch US$ 1 trillion by the end of 2008.
Even if the GCC states are not invited, they must make sure that their legitimate concerns are taken into account. The GOP of the GCC easily ranks it within the top 20 economies of the world, surpassing Industrial giants such as South Africa, Indonesia, South Korea, Turkey and Australia. Even with the readjusted 2009 GOP growth figures (produced by Merrill Lynch for the GCC) to decline to 4.5 per cent from 6.2 per cent due to “the weakening global backdrop and lower oil prices,” they are still much higher than those of, say, Australia, the growth of which is forecast to range from a high of 2.2 per cent to a dreaded recession.
The GCC is a strong economic region that should help in the recovery from the current global crisis. The region is expected to run a current account surplus of more than US$ 500 billion by the end of 2008. Its proven crude oil reserves, thanks largely to Saudi Arabia, add up to more than 480 billion barrels, nearly 45 per cent of the world’s oil deposits.·
In addition, its proven gas reserves account for over 20 per cent of the world’s reserves, thanks to Qatar’s huge northern oil fields. The GCC will probably not have such an opportunity again in the foreseeable future to ensure that its interests are taken into consideration at the Bretton Woods Two negotiations. It must not let this opportunity pass without positively exploiting it.
So far, the Europeans and the Americans have been demanding that GCC sovereign wealth funds (SWFs) open up their books, but there has never been an instance where any GCC SWF used its holdings in leading international companies to influence management decisions within these firms. Keep in mind that the oldest of these SWFs goes back more than half a century with Kuwait’s Investment Authority. In 2007, the Organization for Economic Cooperation and Development voiced its “suspicion” and demanded that SWFs adopt disclosure standards, given that “many have reached a size where they have become potential market movers.” Ironically, it is the SWFs that are called upon today to rescue the world’s equity markets.
For two decades, the EU has been putting off signing an FTA agreement with the GCC, the US has been negotiating on a country-by-country basis in order to give itself the best deal and the GCC has been economically dictated by the IMF, among others. It is time that the GCC stepped up to the position that its economic strength has granted it. Bretton Woods Two is about to re-engineer the world economy for the next half a century. Will the GCC stand idly by, or will it step forward and demand a seat at the economic negotiations table?
That is the one-trillion-dollar question.
This article originally appeared in the November 2008 issue of MONEYworks. (PDF Download)