Regional Integration of GCC Countries - Essay Example

The GCC did set a number of different economic goals. In addition to the goals set forth below, the GCC decided to adopt a common oil policy; coordinate industrial policy; promote joint projects by coordinating production chains; adopt a common legal framework to aid in regional investment and trade, and link transportation networks.5 Previous to the GCC, the Arab world, similar to other developing countries, has had high tariffs, heavy state intervention in production and industries that were uncompetitive.

The previous attempts to liberalize capital, trade and labour flows were implemented inconsistently and did not have implementation or follow-up.6 Part of the reason for this is because the countries in the Arab world wanted to protect their domestic industries from competition from other countries that had similar products and services to offer, and each country wanted a discretionary trade policy. Therefore, previous attempts to integrate the economics of the countries in the Arab world were modest and unsuccessful, as they focused mostly on tariff reduction while ignoring regional trade in services and cross-border investments.

7 The regional integration that was the GCC’s objectives consisted of many different prongs. First, in 1983, the GCC pledged to establish a free trade area (FTA). Under the FTA, the GCC eliminated tariffs on goods of national origins, while the countries in the GCC were able to keep their own external tariffs. While this is a positive measure, in that it encourages trade within the countries of the GCC, there is also a drawback. The drawback is that other countries will export to the country in the GCC that has the lowest external tariffs in order to access all the markets within that region.

8 The FTA was only the first step. The next step, which occurred 10 years after the establishment of the FTA, was the agreement to set a common external tariff (CET) which addresses the problem stated above concerning countries targeting GCC countries with the lowest tariffs. Ten years after that, in 2003, the GCC established the Customs Union (CU), which was the culmination of the CET agreement. The CU mandated that the tariffs from all goods exported from outside the region would be 5% for the GCC as a whole while exempting certain commodities.

9 However, this apparently was never implemented.10 The CU would represent a high level of economic integration, as it combines the internal elimination of tariffs with the external trade restrictions and tariff harmonization, which cements the union of the countries, in that it requires the creation of a common regulatory body along with common policies regarding external trade. 11 The single market was implemented at roughly the same time as the FTA. What the single market concept does is that it enables individuals to freely move from one country to another within the GCC zone for employment and residential purposes.