Benefits and Costs of Saudi Arabia’s Accession to the WTO
Al-Hayat - 17/09/05//
Mindful of keeping pace with the international developments, the Kingdom of Saudi Arabia sought, 10 years ago, to join the World Trade Organization (WTO) and submitted to this end a request for accession on June 1993. Since then, the Saudi working team responsible for initiating the negotiations to ensure Saudi Arabia’s accession to the WTO held 8 multilateral negotiation rounds with the 30-country work team appointed to examine the Kingdom’s application. The agenda comprised, in every round, main issues related to some sector agreements on trade and services in order to determine to what extent the Saudi economic and trade policies and systems meet the requirements provided for in these agreements. Besides, the Saudi technical team held three rounds of bilateral negotiations with the WTO member states delegations. These rounds were destined to examine the said countries’ requests and remarks on the Kingdom’s initial commodity and service offers as well as the internationally required interim periods to be respected by the Kingdom. On the other hand, Saudi Arabia has taken, at the domestic level, many steps to advance economic reforms and restructuring, thereby seeking to harmonize the developments potentially affecting the Saudi market, after its accession to the WTO, and to ensure the Saudi producer’s competitive capacity at the international level. Hence, it has tried, for example, to reduce the taxes imposed on the profits of foreign companies and to carry the losses forward for indefinite periods.
Saudi Arabia has apparently settled its entry, as the United States voiced, during the Crawford Summit held on April 25, 2005 between the Saudi Crown Prince and the US President, its support for the Kingdom’s accession to the Organization before the year’s end. Moreover, this point has been confirmed further by last week’s agreement concluded with Washington.
In fact, the Kingdom has agreed with the team responsible for examining its entry application on major gains and costs that can be summed up as follows:
At the level of achieved gains:
Saudi Arabia has apparently succeeded in fixing custom ceilings higher than the currently imposed duties. Yet, it has excluded 49 goods prohibited by Islam from accessing the Saudi market, along with 490 other sensitive commodities related to industrial development and food security. This exclusion was based on Article XX of the 1947 GATT Agreement that has subsequently formed part of the 1994 GATT Agreement; one of the WTO concluded conventions. The said article stipulates that member states are free to take all the needed measures, so as to prevent some goods from reaching their markets, provided that such prohibition is not favored out of “an unjustifiable discrimination between countries” and does not constitute a disguised restriction on international trade. Article XX has listed as well few examples of some potential bones of contention arising between the member states, as to preventing a particular commodity’s access to the market. Such prohibition may be adopted as a means to protect public morals, human, animal, or plant life or health.
As concerns the subsidies allocated for agricultural imports and exports, we find that Saudi Arabia does not apparently subsidize its agricultural exports. Nonetheless, it provides its farmers with local financial support. In fact, this trend is likely to persist, upon the unanimous approval of all countries, for 10 years. Then it will be subsequently reduced, throughout the interim period, by 13.3% annually. In the service trade that comprises 12 main sectors, 15 sub-sectors, and 620 activities, the GATT (General Agreement on Tariffs and Trade) provides for the respect of two main principles: the market access principle, which means that the foreign service providers are entitled to have access to the local markets; and the principle of reciprocity of treatment, which means that the foreign service providers must not be subject to discriminatory measures in having access to the local market. However, Saudi Arabia has succeeded in excluding radio transmission, TV broadcast, and cinema film production or showing, while authorizing the distribution of films and videotapes, pursuant to the Saudi law.
Moreover, both parties agreed to open the education, bank, health, travel, and tourism services to foreign providers. Besides, the Kingdom has authorized the entertaining, cultural, and sport services, save the amusement ones and entitled the tourist guides to offer their services, while excluding the Hajj and the Minor Pilgrimage.
Moreover, the Kingdom has laid down some conditions and constraints hindering the movement of natural people. For it undertook to maintain the foreign employment at 10% as concerns management posts and at 15% for others. Besides, it accepted to ensure that both rates combined would not exceed 25%, according to the Saudi plan aiming at handling the problem of unemployment.
As for the national treatment principle, it does not apply to almsgiving, Hajj, and Minor Pilgrimage services that must remain limited to the Saudis.
The Kingdom’s accession to the WTO and the respect of its commitments are expected to positively affect the Saudi economy. For instance, the GDP will increase, as forecasted, by 13%, while exports will mount by 10% and private consumption by 6%. In addition, private investment and tax revenues will keep on flowing by 12 and 17% respectively. By contrast, the agricultural subsidies will annually decline by 13.3%, while the imports value will increase by 14%. Moreover, about 7% of small-sized enterprises may be harmed, which will incite them to modernize their structure and to merge. This will then help them face the world competition that will certainly be fueled, as foreign investors will join the Saudi market.
In this context, it is worth mentioning that the United States has recently submitted to the Kingdom 14 demands to conclude a bilateral agreement. By virtue of such an agreement, the Kingdom must increase the rate of communication services and of foreign ownership in fixed and mobile phones to 100% end 2006, thereby ensuring the absolute majority for decision-making. In addition, the Kingdom will raise the banking services to 100% and the distribution ones to 75%, as of the accession date. Following these demands, Saudi Arabia has taken decisions submitted by the negotiating team as offers. Thus, the rate of foreign ownership in fixed and mobile phones must be boosted to 49% upon accession, then to 51% end 2007. The ownership rate in the banking service activities too will be raised to 49% upon accession and to 51%, three years after the accession date.
Furthermore, Saudi Arabia and the United States have settled their disagreement over insurance and the reduction of tariffs imposed on agricultural imports by eliminating all the obstacles to liberalizing the Saudi insurance sector. They were also on the verge of concluding an agreement on reducing the tariffs on the imported US agricultural products.
As for the advantages and gains the Saudi sectors will reap if the Kingdom joined the WTO, they can be summed up as follows:
1.
Develop the quality of goods and services in particular, and the performance of the Saudi economy in general, as a result of the world competition pressures.
2.
Provide the Saudis with services and goods at competitive prices that suit their incomes.
3.
Settle and solve professionally all trade conflicts and disputes through the Organization, so as to preserve the rights of the Saudis and their economic partners.
4.
Ensure an equitable treatment for all countries in the world markets, without bias for any State against another, so long as it is a member state.
5.
Promote the world economic growth, let alone the trade opportunities at the local and regional levels.
6.
Develop highly transparent trade systems.
7.
Benefit from the trade information available at the international centers and organizations, such as the International Trade Center in Geneva.
8.
Benefit from the technical consultations the Organization provides to the member states through the Geneva-based International Trade Center.
As for the major drawbacks and challenges the Saudi farmers may face, they lie in the fact that the Saudi government has reduced the financial subsidies and other kinds of assistance it grants them, seeking to treat them on equal basis with their US counterparts. Besides, the government has limited its support to the development and investment funds and abolished the custom duties on more than 1,500 competitive agricultural and industrial commodities with the national Saudi companies. This will certainly affect the performance of the trade, industrial, and agricultural sectors in Saudi Arabia.
As concerns the petrochemical industry and gas, the Americans call upon the Saudis to annul the comparative advantage the local oil and petrochemical companies enjoy.
In short, Saudi Arabia’s accession to the WTO will undoubtedly improve the performance of the productive sectors in the Saudi economy during the next five years following the accession.
* Mr. Ahmad is the Executive President of Al-Athim Trade Group.
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