Making a success of the GCC common market

The European Union has many critics, but in forging the economic integration of this continent and preventing the wars between nations that rent chaos for centuries, this exercise in international economic cooperation must be judged a success, even if its democratic legitimacy can be questioned as most executive power lies beyond effective democratic scrutiny.

For the GCC the EU provides something of a model, not that the newer organisation cannot learn from some of the mistakes of the Europeans.

Such an economic bloc offers: free movement of capital; free movement of labour; mutual recognition of ownership rights; the reduction and eventual elimination of barriers to inter-GCC trade; and the ability to negotiate as a bloc with other blocs like the EU.

Long process

However, the first lesson to learn from the EU experience is that a true common market takes years, in fact decades, to achieve. Something that is easy to say like 'eliminate trade barriers' is far more difficult in practice to achieve without causing a great upset to delicately balanced commercial interests.

Free movement of capital is more ease to achieve. But then the thorny question of the freedom of financial services companies to establish in any nation state becomes an issue. In a true GCC common market banks should be free to set up as many branches as they like in any country.

In order to harmonise rules and regulations the EU has its executive authority, the European Commission, based in Brussels. And the GCC has its Secretariat in Riyadh.

One of the biggest causes of tension in the EU has always been between the authority of the European Commission and the nation states. It has led to some of the longest stand-offs in the history of bureaucracy. But the Commission has stood its ground.

EU example

The greatest progress was in the eliminating of barriers to trade in 1993, followed by the implementation of the European single currency in 1999, and then the subsequent expansion of the EU to include other nations from the former communist bloc.

Given that the US dollar is pegged to five of the six currencies of the GCC it should be perfectly possible to advance towards a monetary union, now ambitiously scheduled for 2010, albeit with Oman already saying it will stay outside - a little like the UK and the euro.

Certainly the move towards greater integration of the Gulf economies at a time of an oil boom gives the whole enterprise the maximum chance for success. And at a time when the stability of the Middle East is often called into question, anything that provides a more secure platform for business is bound to be welcome.

See also:
GCC summit focus on politics not inflation and revaluation
A new Middle East currency regime looks inevitable