The Persian Gulf region is one of the most significant areas in the world economy. Its rich energy resources are indispensable for global economic stability and development. The states of the region are acknowledged as the leading producers of oil and natural gas; therefore, their security and stable economic growth are very important. To ensure the prosperity, development, and safety of the Persian Gulf region, the Gulf Cooperation Council was established. The main objective of the research paper is to find out, whether the Gulf Cooperation Council is a successful example of efficient regional economic integration.
The agreement on the Gulf Cooperation Council (hereinafter – the GCC) creation was concluded on 25 May 1981 between six states: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. The further economic agreement was signed on November 11, 1981 (“GCC: History” par. 1). The fundamental reasons and preconditions of the GCC establishment were the following:
- The geographic proximity. As the Arabian Peninsula is a single geographical entity, the people of the GCC states have many similarities in culture, language, traditions, and customs. This is one of the most favorable conditions for integration.
- The economic conditions. The GCC economies are oil-based (with the increasing importance of the natural gas sector) and export-oriented. The reliance on these sectors is vital for their prosperity and stable growth. Moreover, the economies of the GCC members are open, with the free trade and capital movements, and the role of the government in economic activities is significant (Rouis et al. 2).
- The political systems. The GCC states are formed by traditional Arab societies, which are ruled by hereditary Sunni monarchies. They are oriented to low social participation; therefore, the democratization changes in the countries are barely noticeable. The desire for the preservation of the monarchical system was very important for the integration processes (Bojarczyk 74).
- The necessity of security assurance. The 1980s were characterized by the permanent fluctuations of the Persian Gulf security due to the Islamic revolution in Iran and further military confrontation between Iran and Iraq. The collective Arab national security was weak and fragmented. The need to deal with the common security challenges and threats, to coordinate the security measures, and to create the defense planning council was one of the main reasons for establishing the GCC (Bojarczyk 70-71).
- The global factors. The weak Arab League, the Gulf’s involvement in the Cold War, the Soviet Union invasion of Afghanistan, as well as the growing role of oil-producing countries in international economic relations, were the global factors, encouraging the Persian Gulf states to join their efforts for the mutual economic development (Abdullah 9).
Therefore, the main goals of the GCC were defined as follows: to deepen the coordination, cooperation, and interconnection between the member countries in all spheres, fields, and areas of their activity; to strengthen the relations and the links between their citizens in different fields; to formulate and shape common regulations and policies regarding economic, financial, social, information and legislative affairs, commerce, education, and culture; to foster the scientific and technological progress through the joint ventures; to establish a common currency (Bojarczyk 71-72).
After the restless and turbulent 1980s, the GCC entered the low-intense stage of the integration process. The member states were trying to develop closer relations with the USA. Moreover, the calmer situation in the Iran-Iraq conflict and the fast economic developments have resulted in independent policies of the GCC countries.
In the 2000s, the integration processes started moving faster. The negotiations on a free-trade agreement between the GCC states and the further creation of the customs union have started in 1983. However, the ratification of the respective agreement took place only in 2001, and the customs union was officially established in January 2003. It means, that the members have agreed on the complete abolishment of taxes and tariffs concerning the movement of goods and services within the GCC.
As the next step of the integration, on January 1, 2008, the GCC common market was established (“GCC: History” par. 5). In addition to all customs union preferences, the common market stipulated the unification of technical standards, free movement of the cross-country investments and people as well as the formulation of common legislations regarding internal entrepreneurship.
On December 15, 2009, the creation of a Monetary Council was announced (“GCC: History” par. 6). The challenges and prospects of the GCC monetary union will be described below.
Therefore, until now the GCC has gone through a long evolutional process. The result is a deep and effective integration of the member states from the free-trade zone to the full-fledged common market.
The Gulf Cooperation Council’s progress and the main achievements of integration
As was mentioned above, despite all the difficulties and unfavorable conditions, the GCC states have made good progress and have successfully passed three steps of the regional economic integration: the free-trade zone, the customs union, and the common market. Nevertheless, integration is still an ongoing process.
The official date of the monetary union establishment is February 27, 2010. The respective agreement was signed by Kuwait, Saudi Arabia, Bahrain, and Qatar. It was a very important step toward establishing a common currency, called Khaleeji. However, two members of the GCC, Oman, and the United Arab Emirates, have refused to take part in the monetary union and the initial launch of the currency. This decision was caused by political factors and disagreements among the GCC states. It was planned to adopt the Khaleeji in 2010, nevertheless, there were no significant developments till 2014 (“GCC: History” par. 6).
In 2014, the dialog has been recommenced to convince Oman and the UAE to become members of the monetary union and support the idea of the common currency. There are many preconditions for the common currency, as the GCC states’ economies are similar in size, the structure of trade, and the majority of important economic indicators. The unified currency is expected to strengthen the internal GCC’s trade and investments, and in the long-range perspective – to improve the position of the GCC countries on the global markets. But despite the possible progress, experts and analysts are mostly skeptical of Khaleeji’s launch anytime soon. Thus, the ultimate GCC’s objective remains unachieved.
Nevertheless, the GCC was more successful concerning the other goals, and the main achievements are the following:
- The easing of intra-regional restrictions. The mutual trade between the GCC states has significantly increased due to the Customs Union Agreement, as trade restrictions were eased and intra-regional tariffs were removed. For example, the trade exchange volume was $100 billion in 2013. Moreover, the restrictions concerning service sectors, internal migration, and capital flows were minimized or abolished (Abdullah 34-40).
- The increased financial sector integration. The GCC states have fulfilled best world practices in financial regulation. The central banks have implemented the Basel II standards regarding the commercial banks’ capital adequacy. Furthermore, specialized authorities were established to supervise the financial markets (Rouis et al. 12-13).
- The development of the infrastructure. The GCC states have a well-developed and modern transport infrastructure. It concerns land, air, and sea transport. Nevertheless, some improvements are needed in other transport sectors. That is why a significant number of essential infrastructure projects were finished and currently, the GCC countries are working on the further modernization of the power and railway sectors as well as the gas pipelines (Rouis et al. 15).
- Unified technical standards. The GCC states were able to establish unified technical standards, currently covering more than 3,000 products.
- Cooperation in common security. Despite the GCC states’ security assurance wasn’t officially proclaimed as the block’s objective, it was one of the main reasons for GCC creation. The cooperation in this field has reached quite an impressive level. First of all, the Comprehensive Security Strategy was adopted in 1987 with further broadening into the Security Agreement (last revised in 2012). Furthermore, several specialized committees were created to deal with the various fields of common security. The policies of the member states were coordinated to facilitate the cooperation on counter-terrorism, civil defense, drug control, criminal investigations and inquiries, penal and corrective institutions, nuclear and radioactive security, etc. (Bojarczyk 81). The GCC was also able to engage in military cooperation with NATO and create its combined military force called the Peninsula Shield.
- The challenges of the Gulf Cooperation Council
- On the current stage of its integration, the GCC faces some serious challenges, which can be defined as follows:
- The orientation towards external relations. Despite all the above-mentioned achievements of the regional economic integration, the GCC states are still oriented towards external relations rather than internal ones. The similarity of their economies was the precondition for the GCC establishment, however, at the same time, it limits the effectiveness of the further integration. Nevertheless, the decision to form a single and concerted block of producers could help the GCC to compete with much more powerful Iran and Iraq.
- The absence of unity. Unfortunately for the GCC, there is no unity among its members. The states often get engaged in different territorial, economic, and political disagreements and disputes. The main reason for such a situation is a tangible gap between the strongest Saudi Arabia and other less powerful members. Bahrain, Kuwait, Oman, Qatar, and the seven united Emirates don’t want to play a secondary role and accept Saudi leadership. They also tend to preserve the statehood character of the GCC instead of complete coordination and unification of their policies and regulations. This tendency also makes impossible the political integration within the GCC, as the monarchs are unlikely to give away their sovereign competencies to the supranational body.
- New trends in foreign policies. As the winds of so-called Arab Spring revolutions have blown through some GCC states, their leaders had to rethink their foreign policies. The dissension between the GCC states has arisen in 2014 because of Qatar’s pro-Arab Spring policy. Qatar was accused by Saudi Arabia, the UAE, and Bahrain of breaching the GCC security agreement, namely the policy of non-support of any party, organization or individual, able to threaten the security of the GCC states. It took eight months for the crisis to let up, and only after the special meeting of the GCC’s leaders. This disagreement was the most serious one in the history of the GCC, and it has significantly threatened the future of the block. It has also exposed the absence of mutual understanding between the GCC members again (Abdullah 78-85).
- The dependence on hydrocarbon resources. The economic growth of the GCC states is ensured only by the oil and gas sectors. However, the energy resources are finite, and these sectors’ profitability is threatened by the development of renewable sources of energy. Therefore, the GCC should reconsider the ways of assuring its economic competitiveness.
- Poorly developed labor market. Despite more than 70 percent of the GCC population being in productive age, the members’ economies are dependent on the expatriate labor force. The reason is that GCC citizens don’t want to take the low-paid jobs and demand only the high-paid positions. Therefore, the ratio of the cheap and poorly qualified expatriate labor force is quite tangible; however, rapid modernization and the development in oil and gas-related industries require highly skilled specialists (Bojarczyk 75).
The prospects of the Gulf Cooperation Council
The future of the GCC depends on its ability to address the challenges, described above. The most important challenge concerns the economic competitiveness of the GCC states. Under recent developments, they aren’t willing to remain just oil and gas exporters and seriously consider the development of the Arabian Peninsula into an innovation hub. It demands undertaking a variety of economic projects, concerning the energy-efficiency measures, the development of “cleaner” energy technologies, the investments in renewable energy and alternative fuels (solar and nuclear technologies), the creation of jobs for GCC citizens in innovative and knowledge-intensive industries and the preparation for the smooth transition to a post-hydrocarbons economy (“The GCC in 2020: Resources for the future” 2-5).
Despite the introduction of a full-fledged monetary union and a single currency may still take some more years, there are other opportunities for further regional integration. One of them is the expansion of the GCC. The main goal is to find new member states with similar economic, political, and cultural conditions, as well as security issues. It is important to mention, that the GCC’s expansion policy is flexible and does not require full membership. The strategic partnerships are concluded with Jordan and Morocco, as their human and agricultural resources are considered to fit the GCC. The states of functional expansion (of high strategic, economic and social importance) are Yemen and Iraq (Abdullah 70-71). Furthermore, the GCC’s ambition is to have a confederate or a federal union in the future; this idea was expressed by Saudi Arabia in 2011 for the first time.
The future of the GCC also depends on the ability to maintain effective trade relations with other world countries. The negotiations between the GCC and New Zealand were successful and resulted in a free trade agreement in 2009. Moreover, the strategic dialogs are being held with China, India, Turkey, Australia, Pakistan, the European Union, and the Association of Southeast Asian Nations (“GCC: History” par. 9-11).
Generally, the GCC has already made the main decisions and evolution directions concerning efficient regional economic integration. Its role in the Persian Gulf is significant, as the GCC is assuring its security, stable economic growth, and social development. Despite some serious challenges and disagreements between members, the GCC has good prospects for future development and expansion as well as for taking the leading role in the global economy.
Abdullah, Jamal 2014. Gulf Cooperation Council’s Challenges and Prospects. 2015. Web.
Bojarczyk, Bartosz. “The Gulf Cooperation Council – regional integration mechanism.” Annales UMCS, Sectio K (Politologia). 20.1 (2013): 69-85. Web.
GCC: History. n.d. Web. 2015.
Rouis, Mustapha, Ali Al-Abdulrazzaq and Kevin Carey 2010. Economic Integration in the GCC. 2015. Web.
The GCC in 2020: Resources for the future 2010. Web.