Economic agreements reached at GCC summit unlikely to be implemented

Abul Fadl

Dhu al-Qa'dah 02, 1422 2002-01-16

Occupied Arab World

by Abul Fadl (Occupied Arab World, Crescent International Vol. 30, No. 22, Dhu al-Qa'dah, 1422)

When leaders of the six-nation Gulf Cooperation Council (GCC) held their 22nd summit on December 30-31, the air of achievement and success that once marked such occasions was nowhere to be seen. The avalanche of pledges to implement projects in various economic and security fields sounded more like an attempt to deal with past failures and long-unfinished business than good omens for the future.

The GCC is a loose political and economic alliance formed in May 1981, largely to face up to the “threat” of the Islamic Revolution in Iran. It comprises Bahrain, Kuwait, Qatar, Oman, Saudi Arabia and the United Arab Emirates. Oman, Bahrain and Qatar were represented by their heads of state at the summit, held in Muscat, capital of Oman; the leaders of Saudi Arabia, Kuwait and the UAE were unable to attend because of poor health: their deputies attended instead.

In his address at the opening session of the summit, Saudi Arabia’s crown prince Abdallah bin Abd al-’Aziz sounded like a repentant sinner, lamenting past indiscretions, expressing fear about the future and urging unity against Israel. “What have we done to apply the lofty principles upon which the Arab League was founded? ...to put the [Arab] common defence pact into practice? ...to realise an economic union?” prince Abdullah asked rhetorically in a speech that was a rare instance of self-reflection and candour. He also asked: “The more important question is would the bloody repression currently under way in Palestine have taken place if Israel found in front of it a cohesive ummah, unified in word and ranks, acting through influential, effective and strong institutions?”

Abdallah’s went on: the GCC “has not yet created a unified military force, nor a common market, not adopted a common policy to face crises,” adding: “Our too great attachment to the traditional concept of sovereignty is the biggest stumbling block hindering unification efforts.” He also admitted that the GCC’s reliance on outside powers has not been fruitful. “Our time is too precious for us to waste on begging and entreating states and international organizations; we have done this for long decades in vain,” the frustrated prince said.

Complex economic issues were high on the summit’s agenda. The GCC leaders vowed to increase the pace of economic integration, with an eye to forming a joint economic bloc that will control nearly half of the world’s known oil reserves. They also approved a plan for a unified economic and trade zone, including a customs union by January 2003 and a single currency by 2010. For this purpose, the six oil-producers pledged to apply a unified customs rate of 5 percent on imports. The rate currently ranges from 15 percent in Saudi Arabia to 4 percent in the UAE. The leaders also directed governors of central banks and monetary agencies to peg the GCC currencies to the US dollar by the end of this year.

As shown by the EU experience, grand economic arrangements, such as customs unions and common currencies, are extremely convoluted affairs that can erode mutual trust among even faithful and trustworthy allies. Full economic union was supposed to have taken effect in 1986. In November 1999 a GCC summit set the start date for the customs union in March 2005. Member states had approved draft unified customs laws in September 1998, all to no avail.

But current economic problems make speeding up the customs union a necessity. “Oil prices recently took a serious fall which threatened the prosperity of our people and the comfort of our societies,” said Abdallah. The largely oil-dependent GCC economies were caught in the grip of a downward spiral last year and are set to lose more ground in 2002 as they reel under the economic consequences of the September 11 attacks. A recent report by the UN Economic and Social Commission for West Asia (ESCWA) estimated that the gross domestic product of GCC countries should have grown by 2.3 percent for 2001, much below the 2000 growth of 4.6 percent (attributed mainly to a sharp increase in crude prices). ESCWA estimates put the growth rate for 2001 at 1 percent at best.

As such, speeding up the process of economic integration seems to be a crisis-management manoeuvre to ward off the adverse effects of the volatile oil market. The customs union would pave the way for a long-sought free trade agreement with the EU, the GCC’s main trading partner. This customs union has been hampered by EU demands for a GCC common tariff structure and protectionist EU policies. A preliminary Cooperation Agreement between the GCC and the EU was concluded in 1988. Economic integration might give GCC countries greater leverage to consolidate their monetary reserves, and thus put them in a better position to attract foreign investors.

The rulers of the GCC countries have also agreed to set up a joint defence council and boost their combined forces fourfold to 20,000 men. A Supreme Joint Defence Council, comprised of GCC defence ministers, chiefs of staff and technical military experts, will oversee the implementation of a joint defence pact agreed in Bahrain last year. This pact establishes a collective security arrangement, thus committing member states to defend each other against outside threats. GCC ministers of defence will be required to meet once a year to discuss security issues and coordinate defence plans.

The leaders pledged to develop a 5,000-strong military force, called the Peninsula Shield, into a mechanised infantry division comprising 20,000 men. The current force, formed in 1986 and stationed at Hafr al-Batin in northeastern Saudi Arabia, near the border with Iraq, proved utterly ineffective and helpless when Iraq invaded Kuwait in August 1990. It is difficult to believe that the new force will do any better. About one third of it will be stationed at the Saudi base at Hafr al-Batin; the remaining troops will be deployed throughout member countries. The force will have its own quarters by 2003.

The summit offered to allow Yemen to join some of its agencies in a step toward full membership of the GCC. The summit’s communique said that Yemen would be allowed to join the GCC’s Health Ministerial Council, Education Bureau and Labour and Social Affairs Ministers’ Council. Yemen would also allowed to send a football team to the Gulf Cup, according to the communique, which promised that “other cooperation measures, notably economic, will follow.” The step-by-step approach to Yemen’s membership, which paves the way for Sana to join non-political bodies of the GCC first, was adopted at the behest of Saudi Arabia. Yemen, which is not geographically on the Persian Gulf, has been trying to join the GCC since 1996. Iraq is the only Arab country on the Gulf that is not a member.

Oman has succeeded Bahrain in the one-year rotating presidency of the GCC. The delegates also chose Abd al-Rahman bin Hamad al-’Atiyyah, US-educated Qatari minister of state for foreign affairs, as the regional bloc’s new secretary general. ‘Atiyyah will take over from Saudi Arabia’s Jamil al-Hujaylan, the current secretary general, on April 1, starting a three-year term as the fourth secretary general since 1981.

The challenges facing the GCC are daunting. The prescriptions advanced at the Muscat summit sound good in theory. But the GCC’s track record on implemention is abysmal. Extracting itself from the morass in which it increasingly finds itself mired requires the rulers to be willing to shed a political culture that treats the state as a tribal fief.

Without such changes, Abdallah’s lamentations will remain the useless anguish of affluent rulers in dire economic and political straits.