Enabling Decentralized Gulf Cooperation

In the wake of falling oil prices and regional instability, the Gulf Cooperation Council (GCC) countries are looking for new economic opportunities. Generally speaking, experts encourage economic integration, because specialization in production, and operating in larger markets, constitute two of the most important sources of prosperity. The GCC governments have subscribed to this view for some time, having launched an economic aggrandizement project following the establishment of the GCC in 1981, comprising a free trade area, a customs union, a single market, and plans for a single currency.

The European Union’s (EU) pre-2010 economic achievements played an important role in convincing the GCC countries of the importance of such steps. However, the Gulf countries have also struggled to realize the largest potential gains due to a failure to correctly implement the integration plans. This failure can be attributed to a lack of compliance by the six member states regarding the legislation passed by the GCC Supreme Council, especially in the period after 2000, which included the customs union and the single market.

In principle, a GCC citizen should face the same treatment in most of his personal, commercial, educational, etc. affairs in each Gulf country. However, in practice, GCC citizens complain of widespread discrimination in a variety of domains, whereby nationals are given preferential treatment to other GCC citizens. This is partially the result of lethargy in implementing accords; as well as reflecting purposeful non-compliance by GCC governments that regard such behavior as serving their interest, even if it comes at the expense of the interests of the other GCC states.

Based on the European experience, theoretically speaking, one can resolve this issue by providing central GCC institutions with substantial powers: the European Commission possesses the authority to impose fines upon the governments of non-compliant member states. However, at present, such a plan is unrealistic, as a combination of the Greek debt crisis, the European refugee crisis, and Brexit, have led many experts to regard the centralization of the European project as a key flaw that may well lead to the implosion of the EU.

There is a different solution which I explored in a paper, coauthored with my colleague Ghada Abdulla, recently published in the GCC Secretariat General journal, “Attawun”. The international community has succeeded in cooperating in many projects without surrendering to the authority of centralized institutions endowed with the capability to punish non-compliant states. For example, the World Trade Organization (WTO) has successfully monitored international tariffs, as well as convincing many countries to scale back barriers to trade, all without wielding substantial powers. It is more accurately described as a coordinating institution, as the cooperation between member states is largely decentralized in nature. How can the GCC countries make use of such examples in their economic integration project?

Holding participants accountable in a decentralized fashion works by exploiting the role of reputation in international relations: violators must feel that they will be denied future benefits as a punishment. For example, when the International Monetary Fund (IMF) presents financial assistance to a country undergoing a crisis, the loans are accompanied by conditions designed to protect the interests of the international community, such as a repayment schedule, and internal reforms that diminish the likelihood of a future crisis. In the event that the recipient fails to comply, the IMF logs and publicizes the non-compliance, damaging the debtor’s ability to obtain future assistance, be it from the IMF itself or on a bilateral basis from another country. Such a decentralized system incentivizes compliance in most cases.

The most important features of a decentralized accountability mechanism are gathering information on compliance in an objective and transparent way, and publicizing that information to enable the punishment of non-compliant actors.

At present, the GCC states do the first step, as the central GCC institutions have teams that work diligently to log violations in an accurate and objective manner. However, possibly due to the traditional Gulf mindset, they do not publicize the gathered information; instead, the data are circulated internally only, in reports that are delivered directly to policymakers. Certainly, confidentiality is a desirable property for security and military affairs, which are the most important dimensions of Gulf cooperation at present. However, in the case of economic integration projects, the lack of openness about non-compliance may well impair the GCC states’ ability to realize the largest gains.

Among the benefits of transparency in logging non-compliance is that the violating state’s reputation is damaged globally, and not just within the GCC, which sharpens the incentive to comply. As an illustration, Greece’s actions toward the EU have hurt its reputation across the entire world, which diminish the likelihood of a repeat. In contrast, when a GCC country fails to comply with a GCC ruling, only a small number of people know, which contributes to a perpetuation of the non-compliance.

In summary, the GCC’s structure has served the member states’ interests for 30 years, and has allowed them to realize gains that were deemed unlikely at the project’s outset. Despite this, the members may wish to consider modernizing their operations, especially in the domain of economic integration, as Gulf businessmen would benefit greatly from the fruits of economic aggrandizement.

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