A critique of GCC summit at Dammam
The next summit in Muscat will need to refocus the goal of integrating GCC economies− implementation of the monetary union by 2010 and exploring ways for overcoming the adverse effects of inflationary pressures                       By Dr Jasim Husain Ali

Little breakthroughs, if any, were made on the economic front during the 10th consultative summit for head of states of Gulf Cooperation Council (GCC) in Saudi Arabia. To be fair, the mid-year gathering of regional leaders commenced only five years ago. Saudi Arabia hosts the summit by virtue of serving as general secretariat for GCC.

The last regular and annual GCC summit, twenty-eighth in a row, was held in the Qatari capital of Doha in December 2007. Amongst others, the summiteers agreed to launch the Gulf Common Market (GCM) from January 2008. The GCM allows for free movement of factors of production amongst member states. Oman is due to host the next GCC summit towards the year-end.

The gathering held on May 20 provided GCC leaders an opportunity to review the developments post the Doha summit. Except for Oman, all other GCC countries were represented by head of states.

Interestingly, Qatar was hailed for embracing the more recent projects aimed at integrating the GCC economies. In particular, reference was made to an announcement of the imminent construction of a causeway linking Qatar and Bahrain. Actual construction is due to start towards the end of this year and be completed in 2013.

The causeway project is an integral part of the Gulf Common Market (GCM). GCM covers all economic and investment services, dealings in the stock market and setting up of companies in the public and private sectors besides social insurance among GCC citizens. In other words, GCM focuses on finding a unified regional market through which nationals would benefit from available opportunities.

Customs union
The summit produced no breakthroughs with regards to either the customs union or monetary union projects. The GCC commenced customs union status at the start of 2003 hoping to complete the requirements by 2005. However, implementation was delayed due to numerous obstacles till 2007. Technical officials have now been entrusted with the task of coming up with a formula for distribution of customs revenues taking into account issues such as final destination of goods.

Interestingly, the UAE revealed in June that it has transferred a sum of $360 million in the form of custom revenues as per the unified clearing system to the other five GCC countries. The amount covers the period of January 2003 to September 2006. The extraordinary announcement was possibly one of few positive developments with regards to implementation of the customs union project.

Another stumbling block relates to limited transparency. It has been alleged that some member-states are not confining themselves to unified customs rates on imports, with some charging less in order to entice business. GCC states are required to adhere to a standard external trade policy with non-members, a document adopted during Abu Dhabi summit held in 2005.

Monetary union
Likewise, the final communiqué made no mention about dates for the likely implementation of the monetary union. If all things work according to schedule, the project should be implemented in 2010. As of now, Oman remains the only GCC member-state opting out of the planned monetary union.

Implementation of the ambitious monetary union project requires member countries adhering to several conditions dealing with fiscal and monetary standards. These include limiting public debt to 60 per cent of gross domestic product (GDP); restricting budget deficit to 3 per cent of the GDP; keeping inflation below the average rate plus 2 per cent; interest rate not exceeding the lowest rates in member countries plus 2 per cent; and reserves to cover import bills of four months.

Ostensibly, Oman is not pleased with conditions attached to the ambitious project, wanting to be free of conditions while pursuing its economic development programme. However, the Omani leadership will have the opportunity to present their case when the Sultanate hosts the next GCC summit in Muscat by the year end. A possible delay in the implementation of monetary union cannot be ruled out, if only to appease Oman.

Also, another challenge relates to Kuwait unilaterally linking its currency to a basket of currencies, ending the practice of linking its dinar solely to the US dollar starting from May 2007. The Kuwaiti authorities opted to make the move as part of efforts to contain the decline in the value of the US dollar.

An emerging threat to the planned monetary union relates to growing inflationary pressures impacting on the condition that inflation in a member country not exceed the average rate plus 2 per cent. This is due to the widespread gap in inflation rates amongst GCC countries. According to the IMF, inflation rates amounted to 14 per cent and 4.1 per cent in Qatar and Saudi Arabia in 2007 respectively.

Oil town
The Saudi city of Dammam, which serves as governorate of the eastern province, hosted the summit. The selection of Dammam was not at all surprising, as it plays a key role in Saudi Arabia’s oil industry. The next summit in Muscat will need to address challenges facing the goal of integrating GCC economies. These would largely relate to the implementation of monetary union by 2010 and exploring ways for overcoming the adverse effects of ever growing inflationary pressures.

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