Towards a Monetary Union for GCC

Nasser Al Kaud

The Cooperation Council for the Arab states of the Gulf

Europe ,the Mediterranean and the Euro Conference

Athens 3,4 February 2003

Structure of the Presentation

GCC establishment and structure The process of GCC integration F T A 1983 Custom union: Steps to achieve GCC common (single)

market 2003-2007 GCC monetary union 2005-2010 Concluding remarks

GCC Establishment

The GCC was established on May 25th ,1981. Following the Iranian revolution and after the start of Iran-

Iraq war(1st gulf war ). The GCC is a multi purpose organization ,seeking

“integration and inter-connection between member states in all fields in order to achieve unity between them” as stated in the charter.

GCC membership (Bahrain ,Kuwait ,Oman ,Qatar, Saudi Arabia ,United Arab Emirates).

GCC Structure

In 1981 two main documents were adapted.

A- The charter: it sets up the objectives ,rules and functions of the GCC and its structure.

The structure consist of: 1- The Supreme Council: heads of the states ,attached to it the

commission for settlement of dispute.

GCC Structure(2)

2- Ministerial Council : foreign affairs ministers.

3- the Secretariat General

4- in1997 ,advisory commission for the supreme council was formed. It consists of 30 members ,5 from each member state

GCC Structure(3)

B- Unified Economic agreement - Singed in 1981- Ratified in 1982- Its contents and objectives are so broad - Gradually implemented

GCC Structure(4)

There are other forums where all member states are represented such:

Ministerial committees . Sub-ministerial committees . Technical committees and working groups.

GCC Structure(5)

There are also state- governed ,staff-run Institutions : Gulf investment corporation Gulf organization for industrial consulting (GOIC) Standards organization Commercial arbitration center Communication center Patent office GCC electricity grid authority

GCC Structure(6)

Labor ministries executive office Health bureau Bureau of education Others

Process of Economic Integration:Free Trade Area

GCC free trade area ,FTA ,was implanted 1983 .

Under FTA ,tariffs on goods of national origin is eliminated .

Definition of national origin.

GCC Custom Union

Since early 80’s to early 90’s work were towards reaching Unified external tariffs

GCC member states agreed in 1983 on range for the external tariffs 4%-20%

In 90’s the work is shifted towards achieving custom union

1999 There was an agreement to establish the CU no later than March 2005

GCC Custom Union(2)

In 2001 /GCC summit, the process was expedited. It has been agreed the CU will be implemented in January 1st,2003

In 1/1/2003 CU actually was implemented

Steps to Achieve GCC Single Market

Many gradual steps were taken to achieve this end:

-Free movement of GCC nationals.

- Granting them equal treatment in any of the GCC member states with some exceptions

-Free movement of capital

-Free to invest, with some restrictions, in stock market, real estate

Steps to Achieve GCC Single Market(2)

Article three in the new economic agreement specifies 10 areas where complete equality must be achieved.

these areas are:

1-Movment and residence

2-Work in private and government sectors

3-Social insurance and pensions schemes

4-Education,health and social services

Steps to Achieve GCC Single Market(3)

5- Exercise of all professions and crafts6- Exercise of all economic ,investment and service

activities7- Real estate ownership8- Movement of capital9- Tax treatment10-Incorporation and purchases and sale of shares

(Actual implementation differs from one area of economic activity to another).

Steps to Achieve GCC Single Market(4)

Further steps will be taken during 2003 –2007 to fully implement the GCC single market .

Towards GCC Monetary Union

Harmonization of fiscal and monetary policies. Article (22) of economic Agreement (1981) stated that:“Member states shall seek to coordinate their financial, monetary

and banking policies, and enhance cooperation between monetary agencies and central banks, including the endeavor to establish a unified currency in order to further their desired economic integration”.

In 1983 the monetary Agencies and Central Banks Governors Committee was established.

Towards GCC Monetary Union(2)

This committee’s main task is to implement Article 22. Governors’ committee held its first meeting in April

1983 and formed sub-committees to coordinate GCC policies in banking supervision, payment system, ATM’s and prepare for monetary union

Between 1985-1988 the Governors’ Committee had a condense discussion on a common peg for GCC currencies.

Most of member states, then, agreed to peg their currency to SDR but there was no concuss.

Towards GCC Monetary Union(3)

monetary union idea was debated in early 90’s . But governors and finance ministers decided to delay the discussion to later date.

In 2000 GCC summit, heads of states agreed on the US dollars as a common peg for GCC at this stage.

They also directed the governors and finance ministers to come up ,in the next summit with time table for establishing a monetary union and launching GCC unified currency.

Towards GCC Monetary Union(4)

-In December 2001 the heads of states agreed upon a timetable for establishing a monetary union and lunching a single currency.

The timetable stipulates: -The GCC states will formally peg their currency to

the US dollar no later than January 2003 (all the six members states had implemented this).

Towards GCC Monetary Union(5)

The single currency for GCC member states will be introduced no later than January 2010

For preparation and implementation of this timetable a high level technical committee from central banks and finance ministries had been formed last year.

This committee works under the supervision of Governors’ committee and headed by the governor of the state that holds the GCC presidency for that year.

Towards GCC Monetary Union(6)

This technical committee is meeting regularly to study and debate which convergence criteria should be applied and on what basis.

There is close cooperation on this subject between the GCC and the European Central Bank (ECB)

Last October, ECB-GCC workshop was held in Riyadh and discussed practical aspects of monetary and economic Integration.

Towards GCC Monetary Union(7)

-Last month the supreme council had reviewed the progress report on the timetable and emphasized the adherence to it.

The supreme council also agreed on establishing specialized unit to provide the research and technical support for the Monetary Union Technical Committee

Concluding Remarks

GCC is an economic, political, social, security, regional organization, however the economic side has the most attention

During the first two decades since GCC establishment the emphasis was on cooperation and coordination related to a number of social and economic and political issues. But in the last few years the emphasis was shifted towards more integration, and the process of integration gains momentum

Concluding Remarks(2)

Signing the new Economic Agreement by heads of the states in December 2001, and its implementation will enhance internal ties and improve the competitiveness of GCC economies.

Concluding Remarks(3)

This agreement and the supreme council resolutions have set stages and dates to implement and achieve high degree of integration:

January 2003 to implement Custom Union. No later than 2007 to fully implement the GCC Common

(single) market. No later than January 2010 for establishing GCC monetary

union.

THANK YOU