Gulf Cooperation Council Trade Agreement - Coursework Example

GCC Trade Agreement Gulf Cooperation Council (GCC) is an economic integration among the six members of gulf region. The primary objective of the GCC was to create a monetary union and encourage trade among member countries. The GCC trade agreement was first initiated in November 1981, but was comprehensively revised later in 2001. By 2008, the countries had established a common market. The GCC trade agreement of 2001 among member countries lays a strong foundation for the relationship among member countries, and has a significant role in the economy of each country. Notably, the trade agreement encourages intraregional mobility of capital, technology, goods and capital; hence allowing member countries to easily access resources and goods that they don’t have comparative advantage. The monetary union also allows for easy economic exchange between the countries through the use of a single currency. There is also a trade agreement between GCC and European Union (EU). This trade agreement also affects the economies of GCC member states by expanding trade into new regions of Europe and improving the economic and social welfare of the people of the member states. Specifically, the FTA between GCC and EU enables member states to acquire imports at internationally competitive prices. This is achieved through reduced tariffs and other trade barriers between GCC member countries and the member countries of the EU. In article 1 of chapter 1 (Trade) of the 2001 economic agreement of the GCC, a common external tariff and a common customs regulation was established to enhance trade among members and prevent unfair competition from external corporations (GCC, 2001). Goods produced within any member country were also considered as the national products of each country. Furthermore, tariff and non-tariff barriers were eliminated. Article 2 provides rules on international economic relations whereby member states are required to negotiate collectively as GCC in order to serve the negotiating positions of member countries (GCC, 2001). Economic agreements with external trading partners should also be collectively concluded to serve the interests of member countries. Export and import rules and procedures, and commercial exchange policies of the region are also unified to enhance its collective negotiating power with international partners. Bahrain is one of the six members of the GCC which is affected by the trade agreement among the GCC member states. Unlike other members of the Gulf Cooperation Council, Bahrain does not rely on oil. The country has invested heavily on financial markets and tourism. The World Bank has ranked the Bahrain as a high income economy. Its Human Development Index (HDI) is also high. In terms of politics and leadership, the kingdom of Bahrain is ruled by an authoritative regime. The GCC Trade Agreement has a significant impact on the economy of Bahrain. Being a strong financial base, Bahrain is able to access goods from the EU and other GCC member countries and export its financial services easily as a result of the GCC-EU FTA and the GCC trade agreement. The GCC trade agreement consists of various economic policies that encourage joint economic action. Those policies include customs union, development integration, economic and monetary union, and the common market. The main intention of the policies is to achieve full economic unity and integration. The trade agreement provides specific programs and workable mechanisms that enhance coordination and cooperation as well as economic integration among member states. The trade agreement is implemented by GCC working committees and Secretariat General of the GCC. The trade agreement among the GCC member states has encouraged economic ties and harmonized financial, economic and monetary policies of the member countries. This allows the member countries to conduct trade easily among each other. For instance, Bahrain’s strength in financial services is boosted by the harmonization of monetary and financial policies because it enables the country to expand its market for financial services outside its borders. The customs union of 2003 also created a common external tariff and free movement of goods and services across the gulf region without tariff and non-tariff barriers of trade. This is of significant impact on the economy of Bahrain because it enhances improved movement of financial services out of the country and entry of goods and tourists into the country; hence earning income from exports and benefiting from the consumption of import goods. The trade agreement also led to the development of industrial and commercial laws as well as custom laws that guide trade and association among member countries. This encourages free trade and promoted best practice in trade without any interference by illegal trade which may affect legitimate trade among member countries. Unification of laws in the region led to the adoption of about 40 standard laws, most of which are binding while others are just adopted as reference points. Laws and standards enable the members of the GCC to interact and trade with each other in harmony and justice in order to enhance effective exchange of goods and services. This affects economic growth in Bahrain by enhancing efficient utilization of resources with other members of the GCC trade area. Economic growth and development of Bahrain and other members of the GCC are also affected by the GCC trade agreement through technical and economic cooperation achieved through joint institutions. The GCC agreement established joint institutions such as Gulf Investment Organisation, GCC Standardization Organization, Patents Office, Commercial Arbitration Centre, the GCC ATM Network, etc. These institutions play a significant role in promoting economic cooperation as well as reduction of transaction costs among member countries (Khan, 2009). Reduction of costs means that the member countries will achieve higher income hence improving economic performance of member countries. Bahrain benefits more than other countries because it has well established financial institutions which depend on low cost relationship with a wide range of customers to earn significant income and profits. One of the most significant institutions that have been developed through the GCC trade agreement is the Electric Interconnection Cooperation which offers joint-stock to all members of the GCC. This allows investors in all countries of the Gulf region including Bahrain to invest in the company on order to earn dividends while enjoying the services of electric interconnection across the gulf region. In the spirit of economic and technical cooperation, the Electric Interconnection Corporation supplies power and energy to all the member countries of the GCC in order to allow members to produce goods and services at low costs. This leads to increased economic profits and income in the countries of the GCC including Bahrain. The trade agreement also promotes the development, cooperation and coordination of basic structures in the gulf region which encourage easy movement of goods and services through unified transport and communication systems across the GCC. The income earned through the transport systems adds to the economic benefits of the member countries, but that is not all; improved transport system within the region enhances low-cost transportation which improves the value of goods exchanged between member countries. For example, reduced costs of transport and energy enhanced through the GCC trade agreement leads to reduced prices for consumers. This increases the purchasing power of consumers and increases aggregate demand in the region. As a result, this stimulates more investment and the economy of each country expands. These benefits of economic cooperation cannot be achieved if a country goes alone because it lacks sufficient resources to develop appropriate infrastructure such as transport that can connect it with external or foreign markets. Joint institutions and basic structures formed through the economic and technical cooperation among the GCC members also create employment for member countries and eliminates poverty. As the countries cooperate, they pool resources together and form institutions that will provide employment to their rising populations (Khan, 2009). This enables people in the region to earn income and improve their purchasing power. The increase in purchasing power of people further stimulates the economy by generating demand that attracts domestic and foreign investors into the region who in turn provide more investments to boost the economy. The strong financial sector of Bahrain makes the country a suitable destination for foreign investments in the gulf region as the economy of the region expands. Since most of the GCC member countries depend on the same economic resources – oil and gases, the trade agreement of the GCC is needed to support an “oil plus” economic structure where countries identify non-oil opportunities and coordinate with other GCC members in order to utilize such opportunities through free trade (GCC, 2014). Bahrain is the main beneficiary in this case because it is one of the few GCC members which do not depend solely on oil for its economic performance. Bahrain will be at the centre of non-oil economic structure because it will be willing to import oil products and export financial services to other GCC countries. The cultural advantage of the region can also be utilized by the GCC as it expands its diversity of trade from the normal oil-dependent economy of the gulf region. Interplay of mixed industrial products and sophisticated services is an essential element of GCC trade agreement. A good example is the rise of Bahrain’s financial sector which can be used by other countries in the region to support their industrial products (Peeters et al, 2013). In return, Bahrain benefits from industrial products which are provided cheaply by other member countries as a result of reduced trade barriers enhanced by the GCC trade agreement. Another economic benefit of the GCC agreement to Bahrain and other GCC member states is stimulation of scientific and technological progress in terms of mining, financial services, industry and agriculture. GCC trade agreement reduces barriers to trade and encourages exchange of not only economic resources, but also technology and capital. Development of joint institutions and projects in the region also encourages the stimulation of scientific and technological exchange in the region (Peeters et al, 2013). In this case, Bahrain imports new technology easily from its neighbours. It then uses that technology to develop its industry, agriculture, and mining industries. In exchange, the country provides financial technology and enhances scientific research and development in financial sector in order to improve the financial services of other GCC member countries. Scientific research and technology enhanced through trade in the GCC trade agreement also leads to the development of new and improved products and services (Saleem & Markaz, 1997). Improved quantity and quality of production in the region leads to improved economic performance because the products and services of the member countries earn more value and income. GCC trade agreement also encourages joint ventures and cooperation by the private sectors of the member countries for the economic benefits of GCC members. Cooperation in the private sector encourages production of quality goods and services for the benefit of the people. The GCC’s collective negotiation and unified trade and commercial exchange policies contained in the GCC trade agreement also enable the member countries to develop strong economic relationship with other countries of the world (Vaidya, 2006). This opens the GCC market to the world while at the same time enhancing success in the economic negotiations of the member countries with international partners. Bahrain benefits from this negotiation power of the GCC member states because it promotes entry of investors and encourages foreign income earning of the country from investments of businesses from abroad. The GCC-EU Free Trade Area opens GCC markets for European investors as the GCC trade agreement improves the economies of GCC member states. It also opens the European markets for investors from GCC member states. For instance, financial institutions in Bahrain may expand to the EU at low costs due to the reduction of tariffs and other barriers of trade between GCC member states and the EU (DeRosa and Kernohan, 2005). Furthermore, tourists and other investors in the tourism sector may also take advantage of the opportunity of tourism in Bahrain to bring in foreign exchange into Bahrain through tourism and hospitality investments. The EU is a lucrative market for GCC’s exports. The EU-GCC FTA encourages duty-free access of the European market by the GCC member states for the export of their minerals. Furthermore, it will also receive duty-free imports from Europe in sectors such as chemicals, machinery and transport equipment. Currently, GCC member countries account for 4.2% of EU’s trade, the fifth largest in the world (European Commission, 2014). Similarly, EU is the leading trading partner of GCC accounting for 11% of the total trade of GCC’s goods and services. This shows that the EU is a significant partner of the GCC. Therefore, the GCC-EU free trade agreement comes as a necessary boost for the economic partnership for the two regions. The negotiating groups in the EU-GCC trade agreement contend that the free trade agreement encourages progressive and reciprocal liberalization of trade involving goods and services in the GCC and EU regions. According to the European Commission (2014), the EU- GCC economic cooperation aims at attaining market access opportunities at comparable levels based on each country’s development level. It also promotes sustainable development and economic growth in the two regions. The trade agreement between the EU and GCC also encourages coordination in the international economic environment as well as the economic dialogue and negotiation between the European countries and the GCC member states. Economic negotiation and dialogue brings in new ideas and investment opportunities in the gulf region; hence promoting investment and economic performance in the region (DeRosa and Kernohan, 2005). For example, dialogue and negotiation about financial development is important to the economy of Bahrain because the EU has well developed financial institutions from which Bahrain can learn important lessons to improve its financial sector which is the main pillar of Bahrain’s economy. Coordination in the international business environment also encourages free trade between European countries and GCC member states. The natural resource endowment of the GCC member countries is similar in many aspects. For example, the tourism sector in Bahrain is similar to the tourism sectors of UAE, Saudi Arabia and other GCC member countries. Therefore, the GCC member countries trade little with each other. About 90% of imports for GCC member countries come from the rest of the world including food, equipment, manufactures, and machinery (DeRosa and Kernohan, 2005). However, with the free trade area between GCC and Europe, Bahrain and other GCC countries will enjoy free entry of goods and services from Europe. In conclusion, it is clear that the GCC trade agreement and EU-GCC trade agreement have a significant impact on the economy of Bahrain and other members of the GCC. GCC trade agreement encourages development of joint projects and institutions such as Electric Interconnection Corporation, transport and communication network. These encourage easy access and exchange of resources, capital, technology, goods and services for economic development in the region. Reduced trade barriers also increased exchange of goods and services; hence increasing economic growth. The EU-GCC trade agreement also allows GCC members to access European markets while attracting investors and goods and services from Europe. This also encourages economic development in the region. Bahrain benefits by offering its strong financial services to attract investors and exchange them with goods from other countries in order to encourage economic development in the country. References list DeRosa, D.A. and Kernohan, D. (2005). Measuring the Economic Impact of an EU-GCC FTA. Journal of Economic Cooperation, 26(1), 107-192. GCC (2014). The Cooperation Council for the Arab States of the Gulf: Main Achievement. Accessed December 9, 2014 from http://www.gcc- sg.org/eng/indexd087.html?action=Sec-Show&ID=397. GCC (2001). The Economic Agreement between the GCC States. Muscat: GCC Supreme Council. European Commission (2014). Countries and Regions: Gulf Region. Accessed December 9, 2014 from http://ec.europa.eu/trade/policy/countries-and-regions/regions/gulf-region/. Khan, M.S. (2009). The GCC Monetary Union: Choice of Exchange Rate Regime: Working Paper Series. Washington: Peterson Institute for International Economics. Peeters, M., Ṣabrī, N.R., & Shahin, W.N. (2013). Financial integration: A focus on the Mediterranean Region. Berlin: Springer. Saleem, M., & Markaz al-Imārāt lil-Dirāsāt wa-al-Buḥūth al-Istirātījīyah. (1997). GATT and the impact on the GCC countries. Abu Dhabi, U.A.E: Emirates Center for Strategic Studies and Research. Vaidya, A.K. (2006). Globalization: Encyclopedia of trade, labor, and politics. Santa Barbara, Calif: ABC-CLIO. Read More