Brexit lessons for the GCC

30 April 2017

Ever closer cross-border convergence is a dream of the past

The GCC, founded in 1981, is an Arabian version of the EU, created originally by the Treaty of Rome 60 years ago last month. The Rome treaty was signed by six western European states, although it now has 28 members. The GCC still only comprises six states, but there has been speculation other Arab countries could join.

Like the GCC, the EU is an association of very different economies. Germany’s GDP is 50 times greater than Luxembourg’s. Bulgaria’s per capita GDP is less than a seventh of Sweden’s. About one-third of Romania’s workforce is employed on farms, while in the Netherlands, this number is 2 per cent.

Europe was the cauldron in the 20th century for humanity’s bloodiest wars. The divisions were overcome and the EU’s economy today is almost as big as the US’.

The differences among GCC states are smaller. The idea that Arabia should emulate the EU is appealing. About 20 years ago, it seemed inevitable. But it is an option that has been rejected. Britain’s decision on 30 March to begin the process of leaving the EU explains why.

Shoehorning economies that are so different into a single framework requires income transfers to poorer member states and a powerful governing body. The EU’s common currency project is foundering. A common tariff on EU imports and restrictions on national governments’ interventionary powers denies them economic management instruments. The Common Agricultural Programme is bad for food importers. The free movement of people agreed in the EU’s 1992 Maastricht Treaty is being challenged.

The biggest issue is politics. The EU’s trade, industrial and monetary plans require sacrificing national sovereignty. You cannot prove EU membership was good for Britain’s economy. But it was scepticism about European unity that was decisive in the UK’s referendum last June.

The GCC took 12 years to complete its custom union, agreed in 2003. Plans for a single GCC market for goods, services, capital and labour were confirmed in 2008. Progress has been glacial. A GCC currency union, one of the organisation’s objectives, is dead. Oman pulled out of the plan in 2006. The UAE dropped out in 2009, after Saudi Arabia insisted the GCC central bank should be in Riyadh. Kuwait abandoned the dollar peg, the planned anchor for the common currency, the same month.

Since then, the GCC has disagreed about Egypt, Iran and Yemen. Saudi Arabia fell out with Kuwait about Divided Zone oil production in 2015. GCC summits look increasingly pointless.

Brexit suggests the dream of ever closer cross-border convergence may be over in Europe. For Arabia, it is an idea whose time never came. 

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