From January 1 this year citizens of the Gulf Co-operation Council nations are officially part of a common market, a formalisation of integration processes that have been gathering speed over the past few years. And the ambitious objective is to move the GCC to a single currency by 2010.
It sounds like a miniature version of the European Union, with a population of 32 million rather than 320 million. The aim is to guarantee freedom of movement and labour rights for GCC nationals, reciprocal ownership rights and complete the elimination of barriers to trade.
At the same time the GCC will be able to speak with one voice in negotiations with other trade blocs, like the EU itself. In short this is a charter for economic reform and market liberalisation and ought to be welcome to progressive business interests in the region.
The devil, of course is in the detailed implementation. The GCC has a secretariat based in Riyadh, the equivalent of the EU’s European Commission in Brussels.
Over the years the European Commission has come in for a lot of stick from member states over the speed at which the common market has developed. But in terms of bureaucratic patience and determination Brussels has no equal, and being a permanent body of highly qualified officials, progress has been just as relentless as the founder of the European Community Jean Monet imagined.
No doubt a similar degree of patience will be required in creating the GCC common market. In practice border controls cannot be dismantled overnight and measures to harmonise trade regulations take time to put in place; even common documentation is a nightmare when the consultancy process involves six nations.
This is also true for visa harmonisation. A starting point is for the freedom of movement of GCC nationals. But then what about expatriates who perform a vital role in the regional economy? Special business visas for senior expatriate executives might be a good idea but again the negotiation process will be complex.
However, all eyes are on the 2010 deadline for a single GCC currency. Oman has already signalled it will not take part, in a move reminiscent of the UK and the euro. So this will be a currency union of five countries, four of which have currencies pegged to the US dollar.
Abu Dhabi has offered to host the GCC Central Bank but it is far from clear if this will be acceptable to other members. And this is just the first decision. Deciding on whether to go for a dollar peg or to switch to a Kuwait-style basket of currencies is another big issue.
Then you have to decide who will be the governor of the new central bank: will the position alternate between the richest countries or tend to stay with the dominant power? Also how will the mandate of the new central bank be framed: to strictly control inflation or to promote economic diversification of the GCC?
These are major questions that will affect the business future of the GCC for decades to come, just as the founding fathers of the European Union set the big picture in stone in the post-war era. There will undoubtedly be many frustrations and setbacks along this road, but with oil prices high the prize of a more integrated GCC is something well worth pursuing.
A larger domestic market is always welcome for any business, and like a rising tide, raises all ships. On the other hand, increased competition may not be welcome in more protected markets. And a period of adjustment and compromise to local circumstances is expected but not tolerated forever.
The goal of a larger market also requires consolidation and the survival of the fittest to ensure that economies of scale increase the productivity of the regional economy. A more efficient economy means a higher per capita GDP for everybody in the long run, and more jobs.
It is to be hoped the GCC can avoid repeating some of the errors of the European common market which was started in 1956, but was not really completed until the dismantling of the last internal barriers to trade by 1993.
The European single currency came in 1999, again a snail’s pace. Then there has been the expansion with the joining of many nations from the former communist bloc.
The GCC can perhaps move more quickly with its smaller population and the existing alignment of its currencies with the dollar will help. There are less regulations to harmonise and precedents from the EU to follow. But perhaps the real benefits of such an integration of national economies are intangible.
In Europe, the common market arose from a desire to make national economies so interdependent that there could be no more wars, and in that it succeeded, while providing a vast domestic market for manufacturers and service firms. You tend to get on better with your neighbours, especially when you are doing business with them.
How long will it be before the GCC is looking for new members, and becomes an Arabian common market? Well, there is plenty of work to do before signing up new members.
Why the EU is a common example