Boosting economic integration among the Gulf states has been a central objective of the GCC since the organisation was established in late May 1981. Indeed, while the six countries that make up the GCC – namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – have implemented joint projects in a wide variety of sectors, economic cooperation remains a core concern moving forward. As of 2013, the council had made a substantial amount of progress in this area.
In early June 1981, less than a month after the council was established, the six member states signed the first Unified Economic Agreement (UEA), which laid out the basis for economic cooperation between the GCC states for the foreseeable future. The UEA, which has been updated and expanded a number of times since then, was the basis for the Gulf Common Market (GCM), which was introduced in January 2008 and effectively imparted the same rights and entitlements to citizens from all member states.
The region currently faces a number of challenges in terms of increasing economic integration. The common market, introduced in 2008, has yet to be fully implemented in all countries. While the GCM officially allows for the free movement of GCC citizens, businesses and capital throughout the region, regulations surrounding investment, employment and property ownership in each country vary widely. The UAE, which is considered to be among the most liberal markets in the GCC, has attracted a substantial amount of economic activity from around the region, while other countries remain somewhat closed off to foreign activity.
In some ways the goals of the GCM run counter to existing initiatives in many member states, an example being the workforce nationalisation programmes currently in place in Kuwait, Saudi Arabia, Bahrain and Oman. These obstacles to integration within the Gulf are also considered to have had a negative impact on the bloc’s ability to function as a single cohesive market for the purposes of boosting trade with the rest of the world.
The council as a whole and individual member states have worked to address these issues in recent years. So long as the GCC continues to improve internal economic integration for the foreseeable future, the region is expected to see significant trade growth with the rest of the world.
While most local players agree that the GCC still has considerable potential in terms of additional economic integration and expansion, improvements in these areas over the past 30 years have been substantial. At the end of 1980, the year before the GCC was established, the region posted an overarching GDP of $192bn. By the end of 2012 this figure had grown more than eight-fold to around $1.56trn. Over the past three decades GDP growth rates in the region have consistently been among the highest in the world, primarily due to expansive government spending and hydrocarbons-related income.
In 2012, for example, the region posted GDP growth of around 5.2%, according to statistics from the IMF, down from 7.7% in 2011. Saudi Arabia accounted for around 47% of total regional GDP in 2012, followed by the UAE, with 23%; Qatar, with 12%; Kuwait, with 11%; Oman, with 5%; and Bahrain, with 2%, according to data from the National Bank of Abu Dhabi. By the end of 2012 the GCC was the 12thlargest economy in the world, behind Canada.
Trade flows both within the GCC and between the GCC and other economies have also ramped up substantially since the council was founded. According to data from the IMF, in 1980 trade flows among GCC countries were at around $8bn, which was equal to about 3.77% of the region’s total trade flows with the rest of the world. By 2005 this figure had reached $32bn, and by 2008 it had jumped further to $67bn, which was equal to around 6% of the region’s total trade flows. By the end of 2012 intra-GCC trade was worth just under $100bn, according to data from Bahrain’s Ministry of Trade and Industry (BMTI). The jump in trade within the GCC over the past decade can be attributed largely to the establishment of the GCC Customs Union in 2003 and, subsequently, the GCM in 2008.
The Rest Of The World
The GCC as an economic bloc has seen a substantial jump in external trade flows over the past 30 years as well. By the end of 2011 – the most recent year for which official statistics were available at time of publication – the GCC’s total trade with the rest of the world was worth around $1.19trn, up from just $138bn in 1984, according to data from the Secretariat General of the GCC (SGGCC) and BMTI.
The balance of trade in the GCC has historically been heavily weighted towards exports, due primarily to the region’s massive hydrocarbons exports. Indeed, in 2011 exports from the region were worth $811.2bn, according to the SGGCC, compared to imports worth $379.1bn. In terms of exports the region was ranked fifth in the world in 2011, while it came in at 15th globally in terms of imports. The GCC has consistently boasted the highest trade balance surplus in the world. In 2011 this figure reached $432bn, which was more than double the second-highest trade surplus of $201bn in Russia.
The region’s external trade profile has changed dramatically over the past three decades. According to a 2011 report released by the Economist Intelligence Unit (EIU), in 1980 OECD countries accounted for nearly 85% of GCC trade. This is primarily a reflection of the region’s long relationship with a handful of major OECD powers, such as the UK.
Beginning in the 1990s the region began to establish more significant trade ties with emerging economies in other parts of the world. By 2009 emerging markets accounted for around 45% of total GCC trade, which represents growth of about 11% annually since 1980. Comparatively, over the same period GCC-OECD trade expanded by around 5%, according to data from the EIU.
One By One
The GCC has concluded or is in the midst of negotiating free-trade agreements (FTAs) with a wide range of countries and multilateral entities, including the Association of South-East Asian Nations (ASEAN), the EU, the US, China and Japan, among others. In 2011, according to data from the European Commission, the GCC’s top trade partners were the EU, with 11.7% of the trade balance; Japan, with 10.5% of the trade balance; India, with 9.7%; China, with 9.1%, South Korea, with 7.3%, and the US, with 6.9%. The GCC has also signed FTAs with Singapore and the European Free Trade Association (which consists of Liechtenstein, Iceland, Norway and Switzerland), with the GCC-Singapore FTA coming into force in September 2013.
At the same time, a number of potentially transformative FTAs are currently in various states of negotiation. In 2011 trade with ASEAN member states accounted for nearly 8% of total GCC trade, according to the most recent available data from the European Commission, with ASEAN countries accounting for around 10% of GCC exports and 4.5% of imports into the GCC. ASEAN trade is expected to jump considerably in the coming years, as a result of ongoing negotiations between the two regions. In mid-2010 foreign ministers from the two blocs met in Singapore to sign a two-year action plan with the goal of developing a blueprint for an eventual agreement. In 2012 the plan was extended through the end of 2013. ASEAN and the GCC also recently announced that they planned to establish a new action plan to build upon the outcomes of the first plan, and to move the two regions closer to a potential FTA in the coming years.
GCC member states are also in the early stages of developing an FTA with the EU. Indeed, in 2011 the EU was the GCC’s single largest trading partner, accounting for 11.7% of the bloc’s trade balance, according to data from the European Commission. The two sides launched trade discussions more than two decades ago, but negotiations stalled in 2008 as a result of the GCC announcing that it wanted to retain the right to impose export duties. In late April 2013 the EU announced that it planned to open an office in Abu Dhabi, with the long-term goal of restarting FTA negotiations. Currently the EU’s sole GCC office is in Riyadh. Unlike most of the rest of the GCC’s trading partners, imports from the EU outweigh exports to the bloc, as Europe tends to import most of its hydrocarbons from Russia and Africa and demand for luxury goods (many of which are of European origin) is high in GCC member states. Individual FTA discussions are also under way between the GCC and most of its top trading partners.
In addition to the GCC-coordinated FTA negotiations, both Oman and Bahrain have signed bilateral trade agreements with the US. Any future GCC-US FTA would supplement these existing agreements.
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