May 01 2012
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Counting the cost of a closer Union
Closer GCC integration could be to the bloc's economic detriment
Set against this optimistic backdrop, however, is the political upheaval and age of uncertainty affecting the Arab world. Although the uprisings have yet to seriously impact the GCC states, with the exception of Bahrain, they have generated a reassessment of the mechanisms of regional cooperation. Last May's announcement that the GCC would invite membership bids from Jordan and Morocco surprised many observers, while in December Saudi Arabia's King Abdullah suggested a shift towards a 'single entity.'
At first glance, the GCC states would appear to be well positioned to move towards closer union. Unlike the 27 members of the European Union, they share common linguistic and socio-cultural characteristics and underlying structural similarities in their economies. In addition, they declared a customs union in 2003 and launched a common market in 2008, while in 2009 they formed a Monetary Council as a first step towards an eventual shared currency. That was supposed to launch in 2010, but has been delayed as first Oman, and then the UAE, withdrew from the project.
By contrast, the importance of the GCC states to the world economy has expanded in the past decade of boom and bust. The large-scale economic diversification programmes that developed in this decade created new links of great value to the global economy. This occurred as the Gulf became a world-leading centre of production for a variety of industries ranging from petrochemicals and aluminium to cement and construction products. By 2008, the GCC accounted for 12 per cent of global petrochemical production, as more complex industrial ties developed with emerging and industrialised economies alike.
These new flows became a microcosm of the rebalancing of global geo-economic power. Both geographically and by virtue of their possession of the fuel of world trade, the GCC states are centrally positioned as a pivot around which the shifts in the global economy are taking place.
With the above in mind, the GCC states have succeeded in managing their integration into the global economy on their own terms. Qatar and the UAE have become regional powers with an international reach. More careful policy choices than those made in the 1970s oil price shock have allowed them to project their leverage through sovereign wealth investments across the world. This story of success is now threatened by the upheavals across the Arab world, and may explain the move toward closer integration, but it would come at the cost of the factors that have propelled the GCC states into the forefront of the global economy.
© The Gulf 2012
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