GCC: Moving Towards Unity

By John Haldane

Nations in the Gulf have drawn increased attention in recent months because of a string of OPEC meetings attempting to stabilize oil prices, and because of the ongoing Iran-Iraq tanker war not far from their borders. Concerns within the Gulf countries themselves over the war, and over falling oil revenues, have led them to tighten the bonds first established in 1981 when Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman formed the Gulf Cooperation Council (GCC) to bolster regional economic and military cooperation. This cooperative is Ming place in one of the world's most important economic areas. The oil reserves of the six GCC member states are estimated at 274 billion barrels, or about 52 percent of the world's total. Their combined gross domestic product is approximately $160 billion. What is more, these states currently constitute a nearly $10 billion market for U.S. goods and services.

Regional Cooperation Pre-GCC

The decision to create the GCC followed several years of discussions and meetings, often at Saudi Arabia's initiative, to review common problems and to seek ways of establishing regional institutions for political, economic and social cooperation. A number of such institutions came to be formed during these pre-GCC years: The Arab Gulf Organization, the Gulf Television Authority, the Arab News Agency, and, in 1976, the Gulf Organization for Industrial Consultancy (GOIC). The latter group, composed of the GCC states and Iraq, has been active in the regional coordination of industrial project planning, especially in chemical and petrochemical, basic metals, and other engineering industries.

The rulers of the six GCC states realize that economic integration is necessary for continued political stability and prosperity in the Gulf. Therefore, the Unified Economic Agreement, presented soon after the GCC charter was drawn up, delineated ambitious goals for economic coordination aimed at eventual unification of economic, monetary, commercial and financial policies. The first step toward implementation was taken in March, 1983, with the removal of most customs duties among the GCC states. Standardized passports were first issued about a year ago, and GCC businessmen now are provided special transit facilities at ports of entry throughout the Gulf. Also, laws have been amended to permit equity investment by a national of one state in a project or business venture in another member country.

The fifth and latest meeting of the GCC was held last November in Kuwait, where an economic agreement was signed to standardize electric, water and telephone rates; abolish remaining import duties; and to grant all citizens of member states the right to buy and sell real estate within the GCC countries. In addition, approval was given for the construction of a Gulf-wide gas network. King Fahd Bin Abdul Aziz of Saudi Arabia stated upon the conclusion of the meeting that the GCC had established itself as "a good model of economic integration," as well as a dynamic political and social regional force.

One of the key organizations within the GCC is the Gulf Investment Corporation (GIC), which was created as the regional development and financial arm of the GCC. Its mission is to plan and implement major infrastructure projects for the region, such as a natural gas pipeline that would include the large offshore natural gas reserves of the state of Qatar and of Sharjah, one of the seven United Arab Emirates. The GIC also is studying the feasibility of establishing a company to integrate the supply of spare parts for basic industrial plants and equipment throughout the Gulf, and is planning to set up a regional air cargo and freight company. Other plans under consideration include project feasibility studies for an oil pipeline and refinery in Oman to process Gulf crude, and a coastal road network and a rail line between Kuwait and Oman. Future areas of cooperation under study are the unification of power grids, the establishment of a regional stock market, the creation of a common currency, and the merging of the three airlines operated by GCC countries (Saudia, Kuwait Airlines, and Gulf Air) into one regional airline. Such a merger would create a fleet of more than 100 planes, making the resulting airline one of the ten largest in the world.

GIC Shows Promise

The Gulf Investment Corporation may prove to be one of the more successful GCC cooperative ventures. It is an important source of investment funds for future Gulf projects and it trains GCC nationals in sophisticated financial and investment practices. Problems have arisen, however, with GIC funding because of continuing soft oil prices and the resulting loss of revenues, and the related drawing-down of foreign reserves by GCC member states. The GCC states realize, nevertheless, that development of modern downstream industries is crucial to their region's economic future so that oil may become an economic rather than a purely commercial resource.

The GCC will be four years old in May of this year, and already it has achieved a considerable measure of coordination. Admittedly there have been delays in economic decision-making because of the need by member states to deal with the problems of reduced oil revenues and those stemming from the Iran-Iraq war. However, both of these concerns have only served to emphasize to the leaders of the six GCC nations the necessity of strengthening political and economic ties.

John Haldane is a specialist in Middle East affairs who has served as a foreign service officer in Baghdad, Beirut and Cairo, and as an international economist in the Departments of Commerce and Treasury.