Saudi Arabia's accession to the World Trade Organization (WTO) is still well into the future, though there are very good reasons for Saudi Arabia to join and for major WTO members to wish the Kingdom to be within the fold. The U.S. in particular has been extremely keen on Saudi accession arguing that it will free up the Saudi economy, remove protectionist barriers, and — in WTO speak — create an open, transparent and rules-based trade regime.

On the other side of the Atlantic, the E.U., which mainly trails the U.S. on accession policy issues, is interested in opening up the Saudi economy and eliminating, for instance, the 30 percent domestic subsidy on the natural gas liquids that provide the petrochemicals feedstock. Equally the Saudis are keen to sell more petrochemicals to the E.U. and reduce the E.U.'s tariffs and quotas.

The Saudi government stated two years ago that its desired timing for accession is the end of 2001, but these timescales have a tendency to slip. There has been little progress in 2001 towards resolving the outstanding issues or, from the Saudi side, in further implementing the domestic reform program. The liberalization program, begun in 2000, has still not gone far enough, as, for instance, although an insurance law may be round the corner, the further opening of Saudi capital markets has stalled. Liberals and major businesses wish to see the momentum of domestic reform accelerated, accession to the WTO speeded up and used as a lever for further domestic reform.

Still, the reform program has set some building blocks in place for opening up the economy, including privatization, freeing up the foreign investment regulations, lower corporate taxation, and a limited opening up of the stock market and the real estate market to foreigners. The Saudi business community has positively welcomed the reforms and the government's new policies. Ouday Al-Shaikh of the newly formed Al-Raedah International Company comments: "The government has changed over the last 10 years and there is a lot more openness. Everybody now has a chance to build a successful business."

But the U.S. and the E.U. say the Kingdom is not really complying with reform and WTO requirements because the implementing regulations for these reforms are not yet on the statute books. The Saudi government argues that it is complying with WTO principles of Most Favored Nation (Article I) and National Treatment (Article III); and that most services in the Kingdom are already compliant with the General Agreement on Trade and Services (GATS).

Photo by Marco Venditti

Other reforms, necessary for the WTO membership and under consideration, are company law, sponsorship, capital markets, insurance, competition, trademark and intellectual property, and the removal of technical barriers to trade. The perspective of Saudi businessmen on the WTO depends usually on the size and sophistication of the company. For instance, a very large conglomerate such as E A Juffali & Bros, headquartered in Jeddah, will understand and profit from WTO membership. Shaikh Khaled Juffali, vice chairman and managing partner, is upbeat: "The WTO is going to play a major role in opening borders and barriers in the Saudi market and Gulf countries."

Other major businessmen dissent. Mr Wahib Binzagr of Beit Binzagr argues: "Saudi Arabia is late in joining the WTO and as a result the negotiations are harder and more difficult. If Saudi Arabia is late in joining, what gain is there for the Kingdom?" Binzagr argues that Saudi Arabia should join the WTO in its own time, in five, 10 or 15 years when the environment for working in Saudi Arabia may be closer to the requirements of the WTO.

Most Saudi businessmen accept that Saudi Arabia will join the WTO sometime — but the question is when and on what terms? They are highly skeptical of brave pronouncements that accession is just round the corner or that in the short term it will be beneficial to the Kingdom.

The Saudi government itself, however, has been very concerned that the wall for entry is ever higher and that the U.S. requires Saudi Arabia to sign certain agreements, such as intellectual property rights law, in advance of accession when other countries were given a grace period. Another issue is whether Saudi Arabia will have WTO developing or developed country status; if the latter, it will have no transitional periods for regulatory changes.

The U.S. is seemingly taking the hard line that the Kingdom should have developed country status. To the Saudi government and to many informed onlookers this is curious as the country is still very much a developing country in education, labor skills, services, and in the conservatism of ordinary people. Talking about foreign companies' criticisms of the "negative list", the sectors defined in early 2001 that are off limits to foreign investment, Wahib Binzagr added: "No less than 75 percent of the Saudis do not understand and do not accept Western culture, and our laws must reflect this state of mind. With education, learning, travel and contact things will get better."

The implications of joining the WTO are beginning to sink in particularly with reference to small and medium-sized Saudi companies. Fears that a WTO "level playing field" in the wholesale and retail agency and distribution business would put many small Saudi businessmen out of business are of great concern. These service sectors have been the backbone of the domestic economy, provide employment and wealth for Saudis and penetration of the market for foreign companies.

The "negative list" has gone some way to helping smaller businesses by putting wholesale and retail agencies and distributorships off limits for foreign investment. The list has shown the country that the government recognizes that, despite WTO competition requirements, the domestic economy continues to need some protection and that WTO membership would hurt some sectors.

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