Gulf Cooperation Council

In this article, we will discuss the Gulf Cooperation Council as it relates to Middle East politics. We will discuss the history of the formation of the Gulf Cooperation Council. We will also go into more detail with regards to the GCC countries, their activities, their political and economic interests, their international relations, as well discussions about recent Gulf Cooperation Council discussions related to current political affairs in the region and in the global system.

What is the Gulf Cooperation Council?

The Gulf Cooperation Council is an international organization comprised of six Middle Eastern countries located in the Gulf region on the Arabian peninsula. The GCC countries are: The United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar, and Kuwait. The Gulf Cooperative Council’s headquarters are in Riyadh, Saudi Arabia.

The Gulf Cooperation Council has established economic, political, military, cultural, and other with one another. For example, “The GCC Charter states that the basic objectives are to have coordination, integration and inter-connection between Member States in all fields, strengthening ties between their peoples, formulating similar regulations in various fields such as economy, finance, trade, customs, tourism, legislation, administration, as well as fostering scientific and technical progress in industry, mining, agriculture, water and animal resources, establishing scientific research centres, setting up joint ventures, and encouraging cooperation of the private sector” (MEA, 2013). As the GCC Charter states in Article 4 of the Gulf Cooperative Council (1981).,

The basic objectives of the Cooperation Council are:

To effect coordination, integration and inter-connection between Member States in all fields in order to achieve unity between them.

To deepen and strengthen relations, links and areas of cooperation now prevailing between their peoples in various fields.

To formulate similar regulations in various fields including the following: Economic and financial affairs
Commerce, customs and communications
Education and culture

To stimulate scientific and technological progress in the fields of industry, mining, agriculture, water and animal resources; to establish scientific research; to establish joint ventures and encourage cooperation by the private sector for the good of their peoples (GCC, 1981).

Along with the current members, there also also been interest by other Middle Eastern countries for possibly joining the Gulf Cooperative Council. For example, Morocco and Jordan have shown strong interest in being a GCC country; their requests are being considered by the other GCC countries (MEA, 2013).

Structure of the Gulf Cooperation Council

The Gulf Cooperation Council (GCC) is made up of the Supreme Council, the Ministerial Council, and the Secretariat General.

• The Supreme Council of the Gulf Cooperation Council is viewed as “the highest authority of the Cooperation Council and shall be formed of heads of member states. Its presidency shall be rotatory based on the alphabetical order of the names of the member states” (GCC Charter, 1981). The Supreme Council meets yearly (unless there is a pressing reason for them to meet more than once a year). The Supreme Council deals with a number of issues in the Gulf Cooperation Council. For example, it discuss issues of importance to GCC countries, it will go over any reports related to the GCC, it can set up a specific commission for any disputes within the GCC, and it also votes on establishing ties (and also defining the ties) between themselves as other countries (and international organizations). Among other issues, the Supreme Council within the Gulf Cooperative Council also appoint the Secretary General of the GCC (Gulf Cooperation Council Charter, 1981).
• The Ministerial Council of the Gulf Cooperative Council is where many of the Gulf Cooperation Council policies are first introduced. Here, the GCC countries bring up ideas and ways for further cooperation. They ministerial council can also pass any resolutions introduced by GCC Countries (every country has a single vote, and it take a unanimous decision in order for any action to be passed). Here, they also “Encourage means of cooperation and coordination between the various private sector activities, develop existing cooperation between the member states’ Chamber of Commerce and Industry, and encourage the movement within the GCC of workers who are citizens of the member states,” as well as “Appoint the Assistant Secretaries-General, as nominated by the Secretary-General, for a period of three year, renewable” (GCC Charter, 1981). In terms of the structure of the Ministerial Council, it is “formed of the Foreign Ministers of the member states or other delegated ministers. The Council Presidency shall be for the member state, which presided the last ordinary session of the Supreme Council, or if necessary, for the state which is next to preside the Supreme Council.” The Ministerial Council of the Gulf Cooperation Council meets four times a year, but can meet more if needed.
• The Secretariat General of the Gulf Cooperation Council is selected by the Supreme Council. Some of the functions of the Secretary General include are to:

History of the Gulf Cooperation Council

The history of the Gulf Cooperation Council (GCC) dates back to 1981. At that time, there were a number of international organizations that have already existed in the region, and in the world. For example, as it pertains to the Middle East, the Arab League (1945), as well as the Organization of the Petroleum Exporting Countries (1960) were already in existence.

In order to understand the timing of the formation of the Gulf Cooperation Council, it is necessary to have an understanding of the events leading up to 1981. In 1978, the country of Iran was experiencing great turmoil as the citizens spent much of the year protesting the policies. This culminated in a political revolution in 1979, in which the Shah was forced from power. Then, in the political events following the revolution, the Iranian religious leaders were able to gain support and establish an Islamic theocracy.

Not only did they establish power, but following these events, the top religious leader, Ayatollah Ruhollah Khomeini began criticizing neighboring regimes, calling for other political overthrows in the Middle East.Then, in 1980, Iran went to war with Iraq, which caused great concern for many of the Gulf states, among others in the region. As a result of this conflict between Iran and Iraq (which lasted until 1988). Both of these factors drove the six countries to form the Gulf Cooperation Council. Their thought was that this new organization can help them counter any aggression, as well as challenge any political ideas or movements that might have been advocated by outside states (such as Iran), which could have negative consequences internally, as it related to their domestic political stability (Aljadani, Mear, & Raimi: 2015). As Qureshi, in 1982, writes, “Although at its inauguration it was declared that the GCC was to be primarily an economic and social organization, somewhat along the lines of the European Economic Community, it was clear from the beginning that political and strategic factors had been primarily responsible for bringing the states together” (84). Qureshi (1982) goes on to say that “producing more than half of OPEC’s total oil exports and controlling the Straits of Hormuz, the Gulf region has always been vulnerable to outside pressure. Of late, however, this pressure has been intensified. The Revolution in Iran, with the resultant upset in the balance of power in the area, combined with the Soviet occupation of Afghanistan and US efforts to strengthen its presence in the Indian Ocean/Persian Gulf region emphasized the vulnerability of the Gulf States to foreign intervention” (84). And because of the inability of these individual states to protect themselves against more powerful actors, they felt the need to form the Gulf Cooperation Council (Qureshi, 1982). Thus, the role of both politics and economics was important to the GCC countries at the time (Aljadani, Mear, & Raimi: 2015).

The Gulf Cooperation Council Agreement centered on the various forms of cooperation that were expected between member states. It is explained that “Under the 1981 agreement, the member countries were at liberty to maintain control over their respective national currencies and exchange rates, as well as independent control over fiscal monetary policy measures. The GCC countries decided to embrace the idea of a single currency area with a view to transforming the region in line with contemporary demands for competitiveness and openness. Consequently, at the second meeting of the highest coordinating organ of GCC held in November 1981 (6 months after the ratification of GCC charter), the member states endorsed an Economic Agreement on full economic integration in the region which entails having a single currency (Laabas and Limam, 2002; Aljadani, et al., 2014). As laudable as the goal is, it has suffered several setbacks linked to a number of factors” (Aljadani, Mear, & Raimi: 2015).

The Economies of the Gulf Cooperation Council (GCC)

As mentioned above, at least part of the reason for the formation of the Gulf Cooperation Council is due to their interest in developing economic relationships with now other GCC members. The objective of the Gulf Cooperation Council was to establish economic integration between states. They have worked towards “economic integration, as well as free trade between the countries. (Aljadani, Mear, & Raimi, 2015). The GCC trade number between one another are upwards of 92 billion dollars. This figure is also expected to rise.

And looking at there economies, it can be understood why the GCC may want to cooperate and coordinate some of their economic efforts. For example, as Sturm, Strasky, Adolf, & Peschel (2008), in a European Central Bank (ECB) report explain, “Gulf Cooperation Council (GCC) countries share a number of specific structural economic features, while also displaying some significant differences. Key common features are: a high dependency on hydrocarbons as expressed in the share of oil (and gas) revenues in total fiscal and export revenues and the share of the hydrocarbon sector in GDP; a young and rapidly growing national labour force; and the heavy reliance on expatriate labour in the private sector” (6).

Thus, coming to economic understandings on economic issues might serve all of these countries’ interests as they look to grow economically. However, it has been argued that with these same points comes challenges for the Gulf Cooperation Council, and the specific GCC countries. For example, “These features [mentioned above] also pose common structural policy challenges to GCC economies, notably economic diversification to reduce the dependency on the hydrocarbon sector and to develop the private non-oil sector. Both are necessary to create employment opportunities for young nationals, given that the hydrocarbon sector is not labour-intensive and further increasing public sector employment is not sustainable. In order to enhance the employability of nationals, efforts to reduce the educational mismatch between nationals’ qualifications and private sector needs are key” (Sturm, Strasky, Adolf, & Peschel, 2008: 6).

Economic Diversification of GCC Countries

According to many economists and political scientists, in order to for the GCC countries to thrive economically in the future, they will need to diversify their economies. In fact, the issue of economic diversification is one of the most important issues facing the GCC countries as they look to maintain economic growth and development in the years to come. However, as of now, there is heavy reliance on oil and hydrocarbon, not only in terms of exports, but also with regards to funding domestic spending. For example, in 2005, taking into account the fact that over 80% of public services are financed by oil revenues, the share of GDP that depends directly and indirectly on oil and gas revenues exceeds 50% of the total. Oil income contributes around 80% to government revenues, while oil exports account for over two-thirds of total GCC exports. Only 10% of GDP is generated by manufacturing, and just 4% by agriculture (Sturm & Siegfried, 2005: 32). A decade later, there is still heavy reliance on oil as GCC countries’ exports, and also for funding domestic social programs and services.

Yet, there are a couple of problems that have faced GCC countries as it pertains to their oil-based economies, economies that scholars argue with continue to hurt the Gulf Cooperation Council if they don’t reform or strongly diversify their economy from oil to something more diversified. For one, a strong reliance on oil will limit their abilities to extend their ability to establish other sectors of their economy. Then, a related problem is the fluctuation of oil prices; when prices are lower, this will leave less money for the states in the Gulf Cooperation Council. This reliance on oil for GCC countries is quite strong. In fact, “Hydrocarbon dependency has changed little over the last decade, with fiscal dependency mostly increasing (Figure 1.1). During 1990–99, hydrocarbons generally accounted for about 80 percent of revenue and exports of goods and services in the GCC, with the exception of Bahrain. In the period 2000–09, fiscal dependency mostly increased, with the majority of GCC countries converging toward hydrocarbons accounting for almost 90 percent of revenue and 80 percent of exports. The exception was the United Arab Emirates, where hydrocarbons have fallen to about 60 percent of exports and their share in revenue has fallen slightly” (IMF, 2011: 2). Part of the problem has been that with such high oil prices (up until much of 2015, where countries such as Saudi Arabia and some other OPEC countries have continued to pump out high amounts of oil), these countries continue to rely on this income and sector (IMF, 2011), which has led to ignoring other sectors (or potential sectors) of their respective economies.

This issue of price fluctuations was prevalent in 2015, where the price of oil per barrel dropped below 40 dollars in December. In a report entitled  World Economic and Financial Surveys Regional Economic Outlook report on the Middle East, the International Monetary Fund said that a number of Gulf countries faced cash shortages in the upcoming years if the price of oil continued to stay this low.

Gulf Cooperation Council Investment in Education

There continues to exist challenges in economic diversification for the GCC countries. Not only is there an unbalanced reliance on oil and hydrocarbon, but as Davis & Hayashi (2007) explain, “in attempting to diversify away from oil, the GCC countries face a major problem in that their existing skill base for workers is low by world standards, and relatively little research, development, and innovation are occurring in the region” (130). This lack of education, particularly at higher levels will pose problems for GCC countries that want to expand their economics in other areas, instead of continuing to focus on the oil industry (Davis & Hayashi, 2007).. Without high education figures, and without significant attention to research, as well as technological development programs and projects, the ability to successfully establish additional economic sectors will continue to be an issue for the Gulf Cooperation Council. It has been argued that “The long-term growth potential of the economy will depend on the education and health of the workforce” (IMF, 2011: 8). Yet, it has been argued that many of the GCC countries are unperforming when it comes to the issue of education (and also other things such as health (IMF, 2011).

Shortage of High Skilled Job Growth

Related to the issue of a lack of sufficient education investment in the GCC countries, there is little high skill job growth in many of the these GCC states. It is important to note that while jobs are being created, the types of positions made are not high skilled positions. In fact, “between 2000 and 2010 approximately 7 million new jobs were created in the GCC, of which fewer than 2 million went to nationals. Many of the positions filled by expatriates were low-skill and low-paying construction jobs, but a large part also went to highly educated professionals for jobs where there was a shortage of nationals with the requisite skills” (IMF, 2011: 4). Many of the positions are often filled by non-citizens, who are often willing to work for low wages, given the supply of labor, and the low-skilled positions available. This could however impact employment rates for citizens in the GCC countries in the years ahead (IMF, 2011) (It is also important to note that there have also been reports of poor human rights conditions for these employees, such as is the case of migrant workers in Qater).

And thus, “Generating jobs for GCC nationals is one of the region’s top economic policy priorities. This reflects the need to provide employment opportunities for a young and fast-growing population. It also reflects two standout features of the GCC economies: the highly capital-intensive nature of the oil sector and the preponderance of expatriate labor. Despite accounting for almost half of GDP, the oil sector employs less than 3 percent of the region’s labor force. And the share of nationals in total employment ranges from about half in Saudi Arabia to less than 10 percent in Qatar. As a result, a large part of economic activity is effectively not directly related to employment of nationals” (IMF, 2011: 19).

The Gulf Cooperation Council and a Single Currency

One of the other economic issues that has been discussed through the Gulf Cooperation Council has been the idea of establishing a single currency between its member states. While there has been great cooperation and economic integration among the GCC countries, they have been unable to establish a common currency, something that has been either in the works, or discussed, for decades. It seems that the Gulf Cooperation Council was close to adopting an agreement on a single currency in 2010. However, Oman and the United Arab Emirates backed away from talks. This seems to be one of the hangups that are preventing a common currency from being established in the Gulf Cooperation Council. The other GCC countries have tried to convince them to adopt a single currency, but an agreement did not come to fruition, as Oman and the UAE have been unhappy with the idea that the central authority would be held in Saudi Arabia (Trenwith, 2014).

There are arguments about the effectiveness of having a single currency among the GCC countries. Some, for example, have argued that having a common currency would provide great benefit to the GCC states. For example,

Furthermore, having a fixed exchange rate (all except Kuwait have tied their currency to the US Dollar) (Trenwith, 2014), as well as a willingness to embrace a common currency are good indicators for the possibility of a single currency (Aljadani, Mear, & Raimi: 2015). Economist Khalid Alkhater has also argued that GCC conditions are good for a common currency, saying that the GCC’s similar production economy (oil), along with trade structures, and common culture and linguistic similarities are conductive to an effective single currency policy (Trenwith, 2014). He even went to say that “The GCC is more qualified to establish a monetary union than the Eurozone” (Trenwith, 2014).

Other points however suggest some challenges to the idea of a single currency for the GCC countries. For example, Aljadani, Mear & Raimi (2015) point out that while some of the factors for a common currency among GCC countries are in place,

Thus, they argue in their work, that in order for a single currency to be adopted, and to work for the GCC countries, they will have to embark upon a few economic changes. Namely, they should not only establish free trade between the member states, but the scholars also argue for the creation of a GCC Central Bank, which would be similar to the European Central Bank. They argue that this bank would serve the role of monetary policy creation. It is important to note that related to this, others, such as Rodrigo de Rato, former head figure of the International Monetary Fund, have argued that “”You need to develop not only a central bank (and) a central banking authority but you also need to have some… strong fiscal union elements that would provide instruments and tools to develop an effective monetary economic policy” (Trenwith, 2014).

In addition, there would need to be more economic diversification among the GCC economies. Lastly, they argue that there would need to be a political buy-in to the idea of a common currency (Aljadani, Mear & Raimi: 2015). However, this has been a challenge, particularly given the political distance between Qatar and others such as Saudi Arabia, the United Arab Emirates, and Bahrain in recent years (Trenwith, 2014). Furthermore, by agreeing to a single currency, states are losing some political sovereignty (Trenwith, 2014), a key issue for leaders not only in the GCC, but also in international relations as a whole.

Overall, the GCC countries seem not only to have political disagreements, but they have also monitored the economic situation in Europe with the European Union, seeing how the EU is dealing with the financial crisis (Trenwith, 2014).

 

References

Aljadani, A., Mear, F. & Raimi, L. (2015). Is Single Currency Agenda Still Feasible In the Gulf Cooperation Council? A Qualitative Meta-Analysis. Proceedings of 11th International Business and Social Science Research Conference 8 – 9 January, 2015, Crowne Plaza Hotel, Dubai, UAE. Available Online: http://www.wbiworldconpro.com/uploads/dubai-conference-2015-january/economics/1420262535_228-Aljadani.pdf

Davis, N. & Hayashi, C. (2007). The Gulf Cooperation Council (GCC) Countries and the World: Scenarios to 2025: Implications for Competitiveness. Chapter 3.1, World Economic Forum. Available online: http://www.weforum.org/pdf/Global_Competitiveness_Reports/Reports/chapters/3_1.pdf

Gulf Cooperative Council (GCC) (1981). Gulhttp://www.isn.ethz.ch/Digital-Library/Publications/Detail/?ots591=0c54e3b3-1e9c-be1e-2c24-a6a8c7060233&lng=en&id=125347

International Monetary Fund (2011). Gulf Cooperation Council Countries: Enhancing Economic Outcomes in an Uncertain Global Economy. Middle East and Central Asia Department. Available Online: https://www.imf.org/external/pubs/ft/dp/2011/1101mcd.pdf

MEA (2013). Gulf Cooperation Council (GCC). February 2013. Available Online: http://www.mea.gov.in/Portal/ForeignRelation/Gulf_Cooperation_Council_MEA_Website.pdf

Qureshi, Y. (1982). Gulf Cooperation Council. Pakistan Horizon, Vol. 35, No. 4, The Middle East (Fourth Quarter 1982), pp. 82-94. Available Online: http://www.jstor.org/stable/41394172?seq=1#page_scan_tab_contents

Sturm, M., Strasky, J., Adolf, P., & Peschel, D. (2008). The Gulf Cooperation Council Countries: Economic, Structures, Recent Developments and Role in the Global Economy. European Central Bank. Occasional Paper Series, No. 92, July 2008. Available Online: https://www.ecb.europa.eu/pub/pdf/scpops/ecbocp92.pdf

Trenwith, C. 2014. GCC single currency comes down to politics, says ex-IMF boss. Arabian Business. Tuesday November 24, 2014. Available Online: http://www.arabianbusiness.com/gcc-single-currency-comes-down-politics-says-ex-imf-boss-572960.html