The working perceived party on the accession of Saudi Arabia was established on July 21, 1993 (WTO website). Saudi Arabia gained formal accession in October 2005, especially following the successful bilateral agreements with the USA in May 2005. Along with Russia and the Ukraine, Saudi Arabia had remained the largest economy in the world and the only country of the Gulf Cooperation Council (GCC) that is not a member of the 147 state-trade bodies.

The process of accession and membership to the WTO, will, in principle, provide Saudi Arabia with many benefits. Firstly, it will protect the Kingdom from discriminatory trade policies of other nations by fostering greater interdependence and by involving the use of settlement procedures to resolve trade disputes with other nations. Secondly, Saudi Arabia will no longer be subjected to anti-dumping practices or countervailing duties except within the framework of WTO guidelines. Instead, Saudi exports to WTO members will give the kingdom Most Favoured Nation (MFN) status. Thirdly, the mere process of WTO membership will help accelerate privatisation, domestic economic reforms and make Saudi Arabia a more attractive destination for Foreign Direct Investments. Finally, the accession to WTO could institute greater domestic efficiency and cost-cutting measures in the Saudi economy.

. If Saudi Arabia does enter the WTO, it should, in theory, help increase Saudi Arabias volume of trade, but it also presents several negotiating, cultural/religious and economic problems. WTO accession will require that Saudi Arabia remove protectionist barriers, place ceilings on tariffs, open further key service sectors to foreign participation (such as banking, finance and the upstream oil sector), and improve protection for intellectual property rights. It will have to endeavour to build an open, transparent and rules-based regime with tribunals on trade disputes and new legislation on technical trade barriers, customs evaluation and food health regulation. Additionally, WTO calls for tariff limitation, several sectoral initiatives (including an Information Technology Agreement), a government procurement agreement and agreements on pharmaceuticals, medical and construction equipment, in addition to all publishing services.

Membership will entitle Saudi Arabia to all the benefits that have been exchanged among WTO members, especially protecting Saudi Arabia from arbitrary exclusion of its exports to other WTO members; petrochemicals are a key example. However, it is not clear so far from the talks whether the Kingdom will join WTO on stricter

Weaker local producers under competition strain

Govt. procurement policy giving local priority will be scrapped, making some local firms unable to effectively compete against foreign competition

Export sales may not go up owing to quality considerations

Growth in some sectors could slow down, with unemployment consideration

Implementation of international patent laws will have impact on certain sectors such as pharmaceuticals and chemicals

Less-efficient service providers in insurance, banking and telecommunications will be negatively affected by competition

Positive

Lower-priced imported inputs Shift from exporting primary products to exporting

value-added industrial products

Higher multinational investment in local industry with implementation of international patent laws

Wider variety of technology transfers

Table 1 indicates a mixed score sheet of positives and negatives. As far as the private sector was concerned, their major worries centred on the loss of export markets. Of even greater significance was the loss of the lucrative and discriminatory government contracts, for which only Saudi companies could bid, resulting in the institutionalisation of local industrial inefficiencies. Some Saudi service and manufacturing enterprises were designed and set up to function in a secure environment protected by high tariffs and monopoly agency agreements.

Having to operate under WTO rules might put them out of business, as opening up the economy to foreign multinationals and imports will threaten profit margins and the monopoly of commercial agencies. The insistence of the industrialised countries on fully implementing these changes was one of the prime causes for the failure of the Cancun 2003 WTO talks.

The threats arise from the inability or unwillingness of major Saudi industries to adapt themselves to the new economic challenges and international competition that will be faced. Dependency on state subsidies and protectionist tariffs might induce a sense of economic security in the short term. In the long term, WTO accession will ensure that only economically, managerially and financially efficient companies are the ones most likely to survive and grow in the era of globalisation.

Impact of accession on selected Saudi industries

As discussed above, Saudi Arabia WTO accession could have a profound impact on the nations various industrial sectors, especially on key hi-tech industries that had been cushioned from international competition until now, but which are expected to face competition from overseas counterparts. The petrochemical, telecommunications and the finance services sectors are examined in this section to assess how they can effectively withstand WTO accession.

Petrochemical industry

Saudi Arabia holds the right of trade and exploration for upstream petroleum production, although joint ventures with foreign companies in gas exploration have been initiated under the Great Gas Initiative Program between Saudi Aramco and foreign companies during 20032004. The petrochemical downstream industry is dominated by the majority-owned Saudi Arabian Basic Industries (SABIC), but SABIC also operates joint ventures with foreign-owned companies. WTO accession will provide golden opportunities to open up this sector further to restructure and upgrade itself through further cooperation and joint ventures with world-leading companies.

The Saudi petrochemical industry is generally competitive in terms of tariffs applied by leading industrialised countries that are already members of WTO. Table 2 sets out petrochemical tariffs applied by the European Union (EU) as well as Saudi Arabia in 2005. The table indicates that Saudi Arabia will not suffer unduly owing to WTO entry, but there could be some market loss for those products where the Saudi tariff rates are higher than EU tariffs. However, Saudi Arabia will have several years of grace period to restructure those petrochemical industries that currently enjoy subsidies and high-tariff protection. Saudi Arabia has committed to lower its tariffs and open its markets to imported petrochemical products with tariffs on polyethylene, polypropylene and polystyrene reduced from 12% to 8% within an interim period ending in 2008, followed by a second interim period ending in 2010 by which time the tariffs will be reduced to 6.5%. At the same time the EU will be reducing its tariffs on the same range of products to 6.5% levels. As a result it might be difficult in the long run for high-cost producers in the EU and elsewhere to meet the lower market prices caused by tariff reductions.

According to SABIC, membership of the WTO can be good to the company (SABIC, 2004) resulting in two benefits. First, it will protect SABIC against anti-dumping measures to which non-members have no redress, making life much easier when dealing with WTO members. Second, it will ease the flow of goods and services between countries, making SABIC even more global in nature. However, SABIC is taking no chances even after WTO entry and has embarked on an energetic policy of establishing joint venture operations in major petrochemical-consuming, developed and developing countries. In the long run, this market diversification will be of more importance to SABIC than the impact of tariff reduction from current protected economies such as the EU for several reasons, namely that nearly 50% of the Saudi petrochemical exports are to non-tariff-protected Asian markets and that the competitiveness of the Saudi petrochemical industry depends primarily on competitive priced feedstock, which represents as much as 60% of the integrated cost in the industry. As long as Saudi Arabia can maintain this comparative cost advantage, then the petrochemical industry in that country will continue to benefit from entry to new markets through WTO accession.

Telecommunications

Saudi Arabia is widely recognised as the largest telecommunications market in the Middle East region, with an estimated 30% growth/annum. Foreign investors have recently been allowed entry into the lucrative telecommunications and internet service sectors in Saudi Arabia when Saudi Telecommunications Corporation (STC) lost its monopoly in 2004 to Ittihad Ettisalat (Mobily), a United Arab Emirates-based telecommunications player in the mobile telephone market. WTO accession envisages more foreign players in this sector. In June 15, 2005, in less than one month from launching its services (May 25, 2005), Mobily reaches 260,000 subscribers, 110% more than the targeted number (Arab News, 2005). The companys aim is to register some

7 million customers within the next four years. Moreover, Mobily is anticipating creating some 5,000 jobs over the next four years. From its side, STC took some steps to promote its competitive advantages by introducing many services (e.g., Qitaf Points;

Data and WAP; Conference Call; Fax Service; JawalNet, etc. ) and reducing tariffs on others (e.g., Aljawal Business Discounts).

Table 3 illustrates the competitive trends for the two current players in the Saudi market showing difference in pricing since competition was allowed for foreign players. Foreign company entry will accentuate this trend putting STC under pressure.

Table 3 indicates the extent of mobile telephone price competition following the entry of a new player in the Saudi market. The reason is simple as in the rest of the world; telecommunications demand in the Gulf is exploding. In 1994, the Saudi Telecommunications Company installed 80,000 lines/year. In 2005 it installed 80,000/month. It will only be a matter of time before landline competition will be allowed. According to press reports, the latest Saudi offer in WTO negotiations with the USA includes a sale of a 2040% share in Saudi Telecommunications Company to a single foreign partner.

Financial sectors

Foreign wholly owned banks were allowed entry to Saudi Arabia during 2003 and 2004, reversing an earlier trend to Saudize the foreign bank branches operating in the Kingdom (Ramady, 2005). Foreign branches are expected to use their larger mother companies capital base to go after big-ticket project financing and investment advisory services, while Saudi banks see WTO accession as an opportunity to capitalise on their local client knowledge and niche expertise in retail, consumer and Islamic financing products. It is in the Saudi insurance sector that the most impact will be felt with foreign companies aggressively pushing for a larger market share in a yet relatively untapped personal, corporate and institutional insurance sector.

Another favourable condition is the political continuity of the government and its ability to control the process of growth. Some of the changes under gradualism were owing to less planning, but more accurately characterised as adjustment to practical circumstances such as bilateral trade agreements and domestic economic restructuring owing to erratic oil revenues over the pats two decades (Wilson, 1997).

However, a gradualist approach is in actuality an easy-to-hard reform sequence. It addresses the easy problems first and leaves the hard ones until later. A radical approach would be to maximise efficiency gains and minimise implementation cost of reforms. However, restructuring may be easier with the gradualist approach as it minimises the political costs of reform. This has been the hallmark of Saudi economic reform to date.

Read the article and summarize it using your own words.

Make sure you answer the following questions.

When did Saudi Arabia join the WTO?

What does the WTO request from Saudi Arabia?

Is joining the WTO a good idea for Saudi Arabia? Explain why.

What are the impacts of joining the WTO on petrochemical, telecommunications and finance services sectors? Just explain if positive or negative and why.