As global protectionism rises, GCC should dare to open up trade

Much is being said about the prospects of free trade and globalisation these days. The new US president Donald Trump, has threatened to impose tariffs of up to 45 per cent on Chinese goods, accusing the country of economically "raping" the US. Political opposition to globalisation has unfolded worldwide as global trade has slowed. Between 2012 and 2015, growth in world trade slowed to an average 3.2 per cent a year. This is about half the average between 1986 and 2008, according to the World Trade Organization. Trade can grow only if economies are performing well. China’s slowdown and the stagnation in the euro zone are suppressing world trade.
In this context where does the GCC region stand on trade integration?
Last week, at a retreat on Abu Dhabi’s Saadiyat Island, Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, said that combining the capabilities of the UAE and Saudi Arabia could create historic opportunities for the region.
"Through our integration, solidarity and unity, we can protect our gains, enhance our economies and build a better future for our people," he said at the retreat, which was attended by 150 Emirati and Saudi officials. Named after the Arabic word for determination, the Al Azm retreat was intended to create projects to benefit the people of both countries. It followed Saudi King Salman’s visit to Abu Dhabi in early December as part of a tour of the region that also included Qatar, Bahrain and Kuwait.
The new proposal for greater integration comes at an opportune time as both countries look to the post-oil era with trade and cooperation playing an important part of their strategies.
Over the past decade, much has been said about the need to remove intra-GCC barriers to trade and investment. Efforts to this end paved the way for the establishment of a customs union and a common market. The lesson learnt from the European Union is the need for robust economic policy coordination.
Saudi Arabia and the UAE can do a lot to increase non-oil, intra-GCC trade and investment, support export diversification, reduce volatility in export earnings and contribute to overall economic activity. The two countries can jointly develop alternative sectors, such as renewables, and economic diversification can improve productivity growth and generate technological spillovers for manufacturing.
The road has been bumpy, but the spirit of integration has often withstood challenging times. Since the GCC’s inception in 1981, it has emphasised the role of "coordination, integration and inter-connection between member states in all fields". Because of security threats at that time, political cooperation became foremost, with culture and education taking a back seat. In the 1990s, as oil prices crashed, economic integration became a priority as regional markets were seen as an area of potential growth.
The Economic Agreement of 2001 set goals and targets for achieving a common market and monetary union. Coordination in agriculture, industry, environmental sustainability and scientific research were included for the first time. By 2003, a customs union was announced, but discord in revenue-sharing schemes emerged on whether the member state of first entry or the product’s final destination of consumption should retain tax revenue. Bahrain and Oman signed bilateral free-trade agreements with the US in 2004 and 2006, respectively, which complicated efforts for intra-regional trade.
To the region’s credit, in 2008 an important step was taken by launching the GCC common market. This granted economic equality for companies and citizens across the region’s borders. Barriers to goods as well as capital and labour were essentially removed. In 2010, the single currency adoption was announced, but the euro zone crisis as well as Oman’s unwillingness to join and differences over the location of the central bank obscured the path ahead.

Source: The National