The Gulf Cooperation Council is a political and economic movement that was established in 1981. According to Abdullah Al-Hassan (5), the members of the Gulf Cooperation Council (GCC) have pursued economic and financial integration since 1981. This presentation seeks to highlight the various issues surrounding the GCC union.
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Foundation and why?
The Gulf Cooperation Council was founded in 1981 by the countries bordering the Persian Gulf. The GCC economies, particularly the United Arab Emirates, Oman and Saudi Arabia represent the founding structure of the OPEC. These three countries have been the leading oil producers in the Persian Gulf Region since 1957. According to Abdul Al-Hassan (23), oil has been the foundation of the GCC economies since its establishment in 1981. As a matter of fact, oil contributes to more than a half of the GCC countries GDP.
According to Abdul Al-Hassan (23), the Gulf Cooperation Council was established to cope with regional tensions because the individual states were unable to deal effectively with these local problems themselves. Before the establishment of the GCC, stability and regional security of GCC countries were threatened by a number of factors including the Iranian revolution, the Iraq-Iran war, and unrest within the member states caused by radical Islamic movements.
The GCC union has six active participant. These participants include the UAE, Saudi Arabia, Oman, Bahrain, Qatar, and Kuwait.
Advantage of the GCC
This section analyses the various advantages of the GCC union.
The process of economic diversification within the GCC has had a much greater impact on domestic consumption pattern than on export diversification. Comparative advantage is the main reason for this impact. The policy of export specialisation based on comparative advantage has served the GCC well in the short run.
According to Paul Rivlin (24), the GCC union has served the low-income countries with economic integration than high-income countries due to income convergence. That is, the effect of integration is distributed differently depending on the countries initial conditions.
Abdul Al-Hassan (35) asserts that convergence takes place in the region because integration maximises trade creation. As a result, low-income countries are experiencing an improvement in terms of trade and exports.
Creation of larger market
Countries that have full membership to the GCC union have witnessed larger market and reduced entry cost. Larger markets and reduced entry cost, on the other hand, have enticed new firms to enter these markets, thus eroding the market power of existing firms and enhancing competition. Increased competition, on the other hand, has yielded a number of potential long run benefits.
Larger markets have allowed many firms to exploit economies of scale. Many of the countries within the GCC are too small for activities that could benefit from larger economies of scale. However, regional integration has overcome the disadvantage of smallness and limited market access.
Scale economies and competition
By pooling resources and combining market, the GCC countries have benefited from scale economies and changes in the strength of competition.
Reduction Monopolistic distortion
The establishment of the GCC union has led to the reduction of the monopolistic distortion. Paul Rivlin (37) asserts that stiff competition within the member countries has induced firms to cut prices and expand sales. This has benefited consumers and improved living standards of citizens throughout the region (Doh and Luthans 38).
Efficiency gains in firms
The openness and economic integration of the GCC countries has led to efficiency gains in firms. At the same time, as more differentiated products become available, consumers’ welfare in both countries continues to increase (Doh and Luthans 38).
Increased foreign direct investment
There is growing evidence that economic integration has led to increased foreign direct investment, both from within the GCC region and outside the region. Larger markets within the GCC region have enhanced competition and improved policy credibility, which in turns has accelerated structural reforms (Doh and Luthans 38). Increase in foreign direct investment has raised income both directly and indirectly. It has raised income directly by increasing the capital intensity of production, and indirectly by encouraging technical progress.
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Disadvantage of the GCC
This section analyses the major disadvantages of the GCC union.
High labour imports
The GCC union has witnessed high foreign labour participation in all member countries since its establishment in 1981. GCC union, therefore, has denied local citizens an opportunity to supply labour in various industries within the GCC countries.
In fact, the impact of migrants’ remittances on the economic development of the home countries has been the subject of controversy. According to Abdul Al-Hassan (58), the policy framework in which labour migration took place did not help reap the potential benefits of transfer of funds at the macro level and instead reinforced negative economic repercussions.
Major threat to the stability of the GCC countries
The presence of a large number of foreign workers in the GCC nations weakens the stability nations within the GCC Union (Al-Hassan, 34). Abdul Al-Hassan (34) asserts that increased numbers of foreign workers in the GCC countries exposes the culture and influence the structures of their communities. According to Abdul Al-Hassan (43), foreign expatriates can serve as a tool for political pressure and monetary and economic extortion.
What are the challenges that face the GCC?
Abdul AL-Hassan (29) asserts that the difficulties that have been facing the GCC since its establishment in 1891 include the lack of political development within the member states, border disputes, and population problems. Other factors that pose challenges to the GCC include the existence of conflict in, and between the ruling families; the economic problems faced by the member states because of their over-dependence on oil; and international sanctions.
Detailed evaluation of the effectiveness of the GCC in achieving economic integration based on research carried out by Paul Rivlin (11) reveals eight more challenges.
Paul Rivlin (13) asserts that the GCC experience various challenges that include poor information on aspect of the Unified Economic agreement; problems with customs; the establishment of equal treatment for all citizens; conflicting interpretation of the Unified Economic Agreement; and unequal treatment for all citizens.
Other challenges experienced by the GCC union include the urgent need for a single monetary system and value system; lack of transportation; and unequal competition between industries because of lack of subsidies.
Conclusively, though the integration of the GCC union has come with various disadvantages, it is important to note that it has brought more economic development in various countries. The GCC members have also been working very hard to overcome the challenges facing them as individual countries.
Al-Hassan, Abdullah. A coincident Indicator of Gulf Cooperation Council (GCC) Business Cycles, Issues 2009-2073. Thousand Oaks, CA: Sage Publications, 2009. Print.
Doh, Jonathan and Fred Luthans. International Management: Culture, Strategy, and Behaviour. 2nd ed. New York, NY: McGraw-Hill, 2008. Print.
Rivlin, Paul. Economic Policy and Performance in the Arab World. Boulder, CO: Lynne Rienner Publishers, 2001 Print.