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Persian Gulf common market hits protectionist shoals

Attempts to mold six conservative Arab oil-producing states into a single economic unit appear to be foundering on the fears of businesses in the smaller Gulf states.

The Gulf Cooperation Council (GCC), established in May 1981 by Saudi Arabia, Kuwait, the United Arab Emirates, Bahrain, Qatar, and Oman, was intended to coordinate political and economic efforts among the states. It was also viewed by the members as a way to confront rising tensions in the area, especially between the GCC states and Iran.

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''The GCC is the only thing that can save this region,'' a member of a prominent Kuwaiti merchant family said. ''Our strength lies in economic integration.''

In November a GCC summit meeting in Riyadh adopted a charter calling for free trade, travel, and residency in the six states and coordination of their oil, industry, trade, technology, marketing, and monetary policies.

Within weeks, though, the United Arab Emirates (UAE) moved to protect its businesses from being swamped by Gulf businessmen, particularly Kuwaitis and Saudis.

Late last year the UAE issued a law requiring all commercial agencies in the Emirates to be 100 percent owned by UAE citizens. Non-UAE citizens have until Aug. 1 this year to turn over their agencies to Emirate nationals, with the option of an additional year's grace period.

The UAE move has been echoed by calls for similar action in other Gulf states.

The Bahraini newspaper Akhbar al-Khalif recently quoted Jasem Murad, a member of the board of the Bahrain Investment Company, as saying, ''A single Kuwaiti investor can buy half the entire area of Bahrain, because we are a small state.''

Mr. Murad demanded a review of th GCC charter and questioned the fact whether ''the weak should have the same status as the powerful.'' At a recent symposium in Bahrain, businessmen expressed concern that enforcement of the GCC charter would detonate inflation in Bahrain and create social unrest among the middle class.

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With the exception of Saudi Arabia, Gulf Arabs are a minority in their own countries. The minority status of the indigenous population is becoming a major obstacle to integrating the six countries' economies.

Kuwaiti merchants with longstanding business interests in the Emirates acknowledge the problem that expatriates in the UAE account for 80 percent of the total population. They nevertheless accuse the Emirates of ''outright nationalization.'' They have asked the Kuwaiti government to intervene in favor of a regulation in the UAE exempting Gulf nationals from the new law. The Kuwaiti secretary-general of the GCC, Abdullah Bishara, is believed to have discussed the issue during a visit to Abu Dhabi earlier this month.

To Kuwaiti merchants the issue is a question of principle.

''We are all multimillionaires,'' says Jassim Zayani, who represents the British-based BL PLC and Rolls-Royce companies in both the UAE and Kuwait. ''We can easily invest our money elsewhere, but we have cooperated with the UAE for 30 years. That is what counts and that is what hurts.''

The matter is further complicated by accusations of UAE government favoritism in the takeover of commercial agencies in the Emirates. UAE Prime Minister Rashid ibn Said al-Maktoum is said to have written at least one letter to a major European car manufacturer suggesting who should take over the company's UAE agency.

Mr. Zayani claims that BL received a letter later last year signed by UAE Defense Minister Muhammad al-Rashid suggesting that Ahmad al-Tayar, a UAE government official, be appointed UAE agent for BL. Mr. Zayani accuses Sheikh Muhammad of wanting ''a piece of the cake'' in the sale of Land- and Range-Rovers to the UAE armed forces and police. But the UAE finance minister, Hamdan Rashid, refused to confirm to Mr. Zayani that the UAE government was officially sponsoring UAE nationals as candidates for the takeovers.

''The UAE is shortsighted,'' says another Kuwaiti merchant. ''One agency here or there does not make the difference. The issue is the Gulf's urgent need for economic integration.''

Kuwaiti merchants admit that the smaller Gulf states, based on past experience, have reason to fear the influx of speculative Saudi and Kuwaiti capital.

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