Saudi Arabia's Accession to the WTO: Is a "Revolution" Brewing?
Middle East Policy Council Capitol Hill Conference Series on US Middle East Policy
U.S. Capitol
Washington, D.C.
January 13, 2006

Questions and Answers 

AMB. FREEMAN: Thank you, Jean-Francois. I guess, on the basis of what you said, that ExxonMobil knows what it's doing keeping its investments and indeed increasing them in Saudi Arabia.

We come now to the question, answer and comment period, and while you're formulating your questions, I'll just go back, if I may, to something you said, Jean-Francois, about the Saudi relationship with China. I learned a few days ago that in a remarkably far-sighted move, Saudi Aramco some years ago sent a group of high-school kids to China to learn Chinese and to go through the Chinese university system to become engineers, understanding where the fastest-growing market is and preparing to deal with it directly. And so it's not the case that some of the changes that are going on in the world were unanticipated. There were some smart people - not just at ExxonMobil but at Saudi Aramco as well - who saw which way the commercial winds were blowing.

And finally, just to underscore Charlie Kestenbaum's point about the absurdity of progress without change, let me tell you a story which illustrates the fact that Saudi Arabia, as recently as the 1940s, had a standard of living and social conditions rather similar to those of Mauritania today - incredibly poor: no electricity, no contact with the outside world in much of the country.

There was a moment during the Gulf War when I was ambassador when I had a chance to talk to the two guards who had been assigned to me by Prince Nayef, in my lousy Arabic. And I realized I didn't know much about their background, and I asked one of the guards about the battle of Al Khafji -- where the Saudi Arabian national guard performed quite heroically in expelling the Iraqi troops that had come over the border into Saudi Arabia. And the guy that I was talking to said, well, of course that's not a surprise because they're Bedu, like me. And I said, well, you know, I don't really know much about your background. What did your grandfather do for a living? And he said, he sold shoes. And I said to myself, shoes? You know, maybe I misheard. Shoes? He said, yes, shoes. I said, well, where did he get the shoes? He said, he killed pilgrims and took them. (Scattered laughter.) That was not that long ago. (Laughter.) And nobody is killing people for shoes in Saudi Arabia these days, and it is an illustration of how remarkably rapid the transformation of that society has been.

We're now ready for questions. Yes? Please come to the mic and tell us who you are.

Q: Good morning. Thank you, gentlemen, for the extremely informative presentations. My name is Tom Lippman. I'm with the Middle East Institute. The question I'm about to deliver to you is one that is asked to me when I talk to high school and college groups, as I often do. If you go to the WTO website and read the language of the various announcements that had to do with Saudi accession, it appears to me that it's constructed in such a way that Saudi Arabia is not required to trade with or abandon the primary boycott of Israel. Is my reading correct?

AMB. FREEMAN: Chris, do you want to address that?

MR. PARLIN: Not surprisingly, this was one of the more frequently addressed issues. If I can just put a caveat, the question of pork and alcohol being second to it, the Saudi delegation - Minister Yamani - were very clear that they would not utilize the opportunity that existed in the WTO to declare that there would not be WTO trading relations between Saudi and the other WTO members, including Israel. They did not exercise this treaty authority. And Minister Yamani made very clear that the Saudis would respect the obligations of the WTO. He also made very clear that despite assertions to the contrary, the secondary and tertiary boycotts had not been enforced and would not be enforced in the future. I believe this went back to 1985, if memory serves me correctly.

So these are the treaty obligations. Standing back in a personal capacity, will there instantaneously be a welling up of trade between Israel and the Kingdom? That remains to be seen. And the reactions, if such happens, also remain to be seen. But as a legal matter, there is nothing special in the Saudi relationship coming out of the WTO treaty.

AMB. FREEMAN: Let me make a couple of comments on this. One of the great ironies, Tom, of the modern age is that the United States, which for so long opposed secondary boycotts, is now the primary practitioner of them; that with respect to countries like Iran, for example, where the U.S. has unilaterally imposed sanctions, we penalize anyone else who trades with Iran even though there is no international - no basis in international law for that action. So the principle which we once defended with great vigor - I remember doing so myself as a young diplomat - we now routinely violate.

The second point I'd make is that there always has been a level - a measure of trade between Israel and Saudi Arabia, clandestinely. The most notable example in my own experience when I went down to the computer souk to check out the software in my capacity as ambassador, looking for illegal software, which I might try on my home computer. I bought an anti-virus program that was made in Israel, which of course contained a virus - (laughter) - which wasn't much of an advertisement for the product. But at any rate, as a practical matter, the animosities between ordinary people on both sides of that divide are not going to go away until something fundamental happens in the Holy Land to reconcile Palestinians and Israelis. And you may be holding your breath for that, but I'm not.

Sir?

Q: Chris Schaffer (sp). I have a question about - this relates to what Dr. Seznec is talking about in terms of petrochemicals or industries that might gain competitive advantage with WTO. What do we see in terms of employment generation out of this? And in the industries that might grow, say, in the near- to medium-term in petrochemicals for example, are these high employment-generating, or are there other industries that will profit from the accession that - or membership rather that will enable further employment generation?

MR. SEZNEC: Well, yes, of course. I mean, petrochemicals does not employ that many people. It employs a lot more people than just the production of oil, but by itself it is not an enormous generation of employment, but all the related industry and the downstream from petrochemical will - and is already employing a great number of people. So I don't know what the multiplier effect is on labor - maybe actually Bud might know that better - but the fact is it will create a tremendous number of jobs. And that's the purpose of this whole issue: They want to create jobs for the Saudis, which means the Saudis have to be well-trained. They have to employ women, and we go back to the social issues that were mentioned earlier because that's how the Salafis are going to be sidetracked. All of a sudden we're going to have to have a very good technical educational system, which they are trying to start establishing now mostly privately, but that's another issue.

But I think in the long run they will create more jobs, definitely, and in all manners of industries downstream from petrochemical.

AMB. FREEMAN: There is certainly no contradiction between Islam and science. In fact, historically Islam was the Abrahamic religion of science, the only one of the three Abrahamic religions that actually encouraged the investigation of how nature worked.

Bob, you had a comment on this?

AMB. JORDAN: Well, I think there are other employment opportunities in some of the markets that are being liberalized - insurance and banking for example. These are service industries, but there will be, I think, increasing opportunities there. We will also see most likely an increase in travel - business travel, hotels, tourism, telecom. And so, again, you're going to have to have some education - this isn't employment for ditch-diggers - but that's the whole point. There is a human capital element here that has to be developed and exploited and it's going to be a challenge for the Saudis to do so.

AMB. FREEMAN: Charlie?

MR. KESTENBAUM: Yes, I just offer a note of somewhat skepticism to this issue of labor, and a concern that the biggest challenge that the Saudi government and leadership face is in the employment of Saudis in a competitive manner, particularly if you open up your economy more to competition, then you have to employ people properly, and that's - I don't know, Oscar's here. There is an Exxon Mobil representative in the room. We won't put him on the spot and force him to say anything, but I've just - my understanding is that in a petrochemical complex that produces several billion dollars worth of products per year, they probably employ anywhere from about maybe 150 people, at most, in a modern and efficient petrochemical complex in Jubail or Yanbu.

So even the massive expansions that are being hoped for and anticipated won't produce any kind of mass employment. And the Saudis have struggled with the issue of employment, of Saudi-ization. Again, they went through the gold suk and threw all the Yemenis out and tried to employ all the Saudis there, and they've done it in a vegetable suk and through the insurance industry - its banking and services. So the biggest challenge they face today, realistically, is this - as we all know, the massive population bulge and the effort to educate them when you have - what's the - I don't want to give a wrong number - how many people are graduating with Islamic studies degrees from university now - 40 percent?

AMB. FREEMAN: I think the figure is going down fairly steadily, but -

MR. KESTENBAUM: ..so that's the challenge.

AMB. FREEMAN: But that of course - just to fill in behind your comments - the principal employment opportunity that the expansion of the petrochemical industry presents is not directly in the petrochemical industry itself and the operation of that. You say it's a very capital-intensive, not labor-intensive industry. The principal employment opportunities are going to be for engineering and construction services as these industries are laid out. And these are areas in which American and Japanese, as well as European firms, compete very vigorously for the Saudi market, and increasingly I believe the Chinese will be in that competition.

But there will be a requirement to employ Saudis, and there are universities in Saudi Arabia, like King Fahd University in the Eastern Province, which graduate very qualified engineers. There is indeed a new engineering university being established in Riyadh with assistance from Boeing, and I believe there will be an increased demand for well-educated, hardworking Saudis, who are more numerous than many suspect.

I think, Bud, you wanted to make a comment?

MR. CLATANOFF: Just very briefly is that I think there is - beyond a doubt that the one reason why the king of Saudi Arabia so much wants to undertake an economic revolution or economic liberalization and expansion that's dictated by the WTO terms is for employment generation, that they're into it for the jobs. They know that they have this population bulge. They know that they have a problem with employment for younger Saudis. And I think they have a commitment to work on it from both sides of the supply and demand equation in the labor market, that economic liberalization should create jobs, increase the demand for labor, but they know they need to work on the supply side as far as their technical education, the number of engineering graduates, math, science, not to mention business and finance and things such as that.

AMB. FREEMAN: Bob, another comment?

MR. JORDAN: Just briefly, I would also note that in Jeddah, Effat College, a private women's college, is in partnership now with my alma mater, Duke University, to educate women engineers.

AMB. FREEMAN: Sir. Again, tell us who you are, Brooks.

Q: Brooks Wrampelmeier. I had a question to the panel as a whole. You've talked a bit about the fact that much of the movement towards WTO membership by Saudi Arabia has been from the crown prince, now king. He is of course a fairly elderly gentleman. We don't know exactly who will succeed him - if Prince Sultan will still be alive when he dies. My question is, do you feel that after the crown prince goes, may there possibly be a change in the top level of the Saudi Arabia government that may decide to move away from some of the reforms that Abdullah has obviously been pushing?

AMB. FREEMAN: Bob?

AMB. JORDAN: Well, this is a parlor game that has been played in Saudi Arabia for a number of years, and it is certainly a relevant question. The short answer is, we don't know. The longer answer is I think the processes are being put in place now that will make it harder for anyone to retrench too much from the economic reforms that have been undertaken. The society now has an expectation of these reforms and an expectation of what has been announced.

Prince Sultan has actually embraced these reforms in his public statements. Again, we don't know who might succeed him, and so a lot of it depends, but there is I think, developing, a critical mass of members of the royal family, of the business community, the merchant families, and the technocrats who have something invested in this. I think world opinion is also important to Saudis, and I think at some point it will also play a role in how far they go. But again, this is speculation; we really don't know.

AMB. FREEMAN: I think a great deal of the answer to that question will depend on how far advanced the process of implementing the agreement has proceeded before succession occurs. And I say that because whenever economic change occurs - for example, a change of policy, the imposition of sanctions, or, in this case the removal of restrictions and the opening of a market, people adjust and very quickly acquire a vested interest in the continuation of the status quo, which I think is the point that Ambassador Jordan was making. Therefore, if there is any time at all for this agreement actually to be implemented, as it is implemented it will gather its own momentum and it will be very hard to reverse.

The second point I'd make is that - again, as Ambassador Jordan said, the issue of succession is one of the favorite games that people play, in Saudi Arabia and elsewhere in the Middle East with respect to Saudi Arabia. For decades there has been speculation that succession in the monarchy would bring about radical instability or change, and that has always proven wrong. Saudi Arabia has a remarkable record of stability and continuity in policies from one monarch to another. Now, clearly King Abdullah has a major objective: the reform of the Saudi political economy and the updating of it, and the restoration of a more cordial relationship with the United States, which is one part of this agenda, I believe, and he needs some time as king to see that agenda through. But I believe those objectives are much more widely shared in the Kingdom. They're not dependent on a single person. And therefore, I guess while I think the question is excellent, I'm not sure that it's worth losing any sleep over.

Q: Dave Ottaway from the Washington Post. One of you made a comment - and I can't remember who it was - that the silent partner operations that are quite common in Saudi Arabia, will no longer be permitted under WTO, and I'm wondering what specifically does - how does that happen? What does WTO say that excludes silent partnerships? Could you elaborate on this? I can't remember who made that comment.

AMB. FREEMAN: Well, I think actually the comment was initially made by Chris and then I amplified it. And, Chris, perhaps you, as the expert on this, might take the microphone. And, Bud, you might want to talk, too.

MR. PARLIN: There is nothing to prevent you having silent partners, but the big thing with the WTO agreement is an end to the so-called agency system where any American firm had to have - or any foreign firm - had to have a local agent. You could not directly export goods into Saudi Arabia; you had to have a local agent. And by Saudi domestic law, that was an exclusive agent. You couldn't have one on the West Coast and one on the East Coast, you couldn't get competitive bids, and you couldn't fire the guy was the worst thing, so that whether your agent was good or bad, you were stuck with him. Now any firm can directly import and sell without using an agent. I mean, that's the crucial thing.

AMB. FREEMAN: This is something that has already - was actually pioneered in the region in Qatar, and you can look at the results there. Many people, for their own reasons, when they do business in Qatar, continue to have a local agent, and that may well be the pattern in Saudi Arabia. But the fact is that the extortion element of this is being greatly reduced and maybe even eliminated.

Chris, did you want to comment?

MR. PARLIN: First, a caveat. I am not speaking to what you term silent partnership. That's out of my range of knowledge. But just to back up from the perspective that we had, what Bud has said, yes, indeed, as a reality in the course of the negotiations with the United States in particular, the Saudis agreed that they would eliminate restrictive elements in the importation, distribution of goods, a WTO obligation, part of the basic nondiscrimination element at the root of the WTO, and they also agreed in the course of the service negotiations to voluntarily accept similar obligations of non-discrimination.

So the effect on paper in law through the WTO will be that this practice of commercial agency will cease to be the impediment that many non-Saudi companies complained about in the past.

MR. KESTENBAUM: Look, from a very practical commercial perspective, the successful business model in Saudi Arabia almost - doesn't require a Saudi partner, distributor, agent, but is certainly much better prepared if you have one. I've talked with a lot of the companies, the big companies, that are global in their nature and their reach and have billions of dollars of resources to bring, and invariably they all want Saudi partners, agents, or distributors because it facilitates their knowledge of the market, their access to the market, and the investment and the commitment to the market. So there may be some, a small group, that say, I can do it myself, I want to do it myself, and they will go and do it now they're free to. But I'm sure that the vast majority of companies will continue to operate with Saudi partners and Saudi agents or distributors, and in the rest of the region as well.

AMB. FREEMAN: And in practical terms people will probably stick with the agents they have, but legally now they're not obliged to. That makes a big difference. Also, as I said earlier, I believe that smaller Saudi firms - start-up firms, in effect - now will have opportunities that they did not have that many of my friends in the Jeddah business community have in effect enjoyed - essentially a monopoly position because of their prominence. And that will now be less of a monopoly.

We still have the issue, of course, that you can't get to Saudi Arabia without a sponsor for your visa, which is why it is easier to go to Tibet than to Saudi Arabia. And when you pick a sponsor you are implicitly picking an agent if you're going there to look at business opportunities. So the issue isn't immediately and totally resolved by WTO.

And finally, I agree completely with Charlie. As a practical matter, you're much better off generally in any environment - and Saudi Arabia is not an exception - working with someone local than you are coming in and blundering about as an ignorant foreigner.

Sir?

Q: Mike Daniels (sp). I'm a partner - (inaudible) - firm. Just to follow up on Ambassador Freeman's point that implementation and the speed of implementation is one of the keys, both politically and economically. Just to point out that accession is not the end of the WTO process, that there is tremendous pressure to enforce compliance. They're not perfect mechanisms but they consist of reviews, and in extreme cases dispute settlement. But the pressure will be there. The United States, among others, is assiduous in monitoring what's going on. So there will be that kind of pressure on the Kingdom.

AMB. FREEMAN: Thank you. Go ahead.

AMB. JORDAN: I would just add that you can see this in a case history in the case of the accession of China. China has a long way to go to be what we would call fully compliant with their WTO obligations. You can still buy any kind of pirated DVD you want to in Beijing. There are a lot of issues there but they are being pointed out by the international community, and there is pressure on them, and my guess is will have the same kind of pressure on the Saudis.

AMB. FREEMAN: I'd like to ask a question myself of the experts. The issue of DVDs and counterfeits has been raised. One of the more anomalous practices in Saudi Arabia was the official ban, if you will, on music and video, coupled with the ubiquitous availability of cheap cassettes, DVDs and videos on every street corner practically in any major Saudi city. I presume the WTO agreement will effectively eliminate this hypocrisy, but what will be the effect on the motion picture and entertainment industry and its products in the Kingdom?

MR. PARLIN: I'm not going to be presumptuous enough to say, yes, indeed it will have the effect of cleaning out pirated videos from the suk. I can't resist making the point that one need only go about 15 steps from USTR's front door to find a gentleman who almost every day there is selling videos whose parentage, shall we say, is dubious. What we can say, though - I can't resist that. Throughout my years at USTR I always used to be amazed that somebody didn't just figure out some way to at least ask him to move around the corner. (Laughter.)

What I can say is that certainly as a matter of WTO law, that as part of the top-of-the-line enforcement commitments that the Saudis have made in the intellectual property area, that MPAA, whatever the record association is - I can't remember the acronym; I'm not a good Washington insider on that - they now, and their members, have a range of ability to use the WTO enforcement mechanisms along the lines my partner, Mike Daniels said, starting with official complaints in the various committees, following up in the annual trade policy reviews that the Saudis will undertake, as is true with all WTO members, and finally in dispute settlement, should it remain notorious enough and of enough commercial significance.

So as a matter of law, for Saudi as well as for all other WTO members, that type of practice is now actionable in a way it was not before.

AMB. FREEMAN: Jean-Francois.

MR. SEZNEC: Actually, I don't really have a comment directly on this. I mostly have a question actually, but somewhat related to this. I think one of the key components of this WTO agreement is to have transparency in the law, and that is a major issue as far as I'm concerned because if there is true transparency in the law it means that the royal family will lose its main privilege: its ability to control the judges.

So what I'm not sure of is what is the real text under the WTO agreement. Reading all this stuff I couldn't really understand whether there was a full transparency of the law and how it was going to be implemented under Sharia.

AMB. FREEMAN: Well, we have - I'm a recovering lawyer but he's a real one, so we'll ask Bob Jordan to comment on that.

AMB. JORDAN: Well, when you talk about cinema, for example, which was one of the great concerns of the conservatives when we were trying to push accession forward, there's still a lot at play. The negative list I think still imposes some regulations on - stringent regulations on the content of motion pictures that might be imported into the Kingdom. There is no plan that I know of at this moment that has legalized or promoted motion picture cinema institutions throughout the Kingdom, but I have seen a recent press report that they are building some shopping malls and other facilities that do have the capacity to include theaters and cinemas in them, in the event that the society moves in that direction sometime in the near future. So at least some people are investing money in that concept.

Now, the content of theatrical releases on satellite and cable facilities in the Kingdom is almost without regulation as a practical matter, and I can't tell you how many members of the royal family contacted me to be sure that they had access to the Armed Forces television network on their satellite dishes, which were nominally illegal at the time.

AMB. FREEMAN: The American ambassador, for much of his time in the Kingdom, is a TV repairman. (Laughter)

Chris?

MR. PARLIN: Thank you, Chas. Just a further amplification. There is nothing in the WTO that says that a country must accept what it considers to be morally unacceptable cinema - let me go broader - that requires it to import and distribute pork products, import and distribute alcoholic products. That's not what the WTO is all about. This was a point we had to make repeatedly with Saudi officials up to and including the ministerial level - equally with U.S. business interests that saw some opportunity to grow - rush into a market that they had seen as closed.

The Saudis are perfectly within their rights to maintain these religiously based, morally based restrictions. What the WTO says is no discrimination. What you cannot do is allow your locals to do it, to make and distribute X-rated cinema while preventing [San Fernando] Valley from exporting its fine productions into Saudi.

So in the area of DVDs, as with the others, as long as there is no element of discrimination, a country is not required to change its social standards.

AMB. JORDAN: I would just add that this point was not fully recognized during some of the negotiations with the USTR, and we kept trying to make the point - the Saudis kept trying to make the point that the rationale for this is are you trying to subsidize a domestic industry or trying to protect that industry by refusing to import these substances. Obviously in Saudi Arabia there is no domestic industry for alcohol, for pork, for cinema, certainly for pornography.

And so finally that got through and I recalled one discussion in which there was some musing going on about whether to agree to this concept of allowing the prohibition of some of these things, and someone in the room said, well, you know, there is a country that is allowed to prohibit the importation of pork, and its name is Israel. And that sort of broke through a stalemate in the discussions at the time.

AMB. FREEMAN: I understand the Israelis actually raise pork in cages that ensure that the pigs do not set foot in the land of Israel because they are off the ground - such are the wonders of talmudic interpretation.

Charlie?

MR. KESTENBAUM: Yeah, I just wanted to remind you that that was exactly what I was trying to get at in my remarks was to how unique Saudi Arabia is and how you have to look at it in the context of what is being discussed here in terms of religion and culture.

I would like to give you one story briefly that gives a sense of that - how they adapt and how clever they are at it. When they were trying to introduce - I don't know if this is a true story or not, but it's what Saudis told me, and they are very proud of it, actually, the ones who told me - was that when King Faisal was trying to introduce the telephone that one of the imams came to him and said that is the instrument of Satan and we are going to ban it. And he said, wait a minute, and he dialed up the imam at the holy mosque in Mecca and he put him on the phone and he heard the call to prayer, and he said, there you are; Satan couldn't possibly do that.

When they were - Mutawa were going through the suk years ago smashing wineglasses because they said we don't have - we don't allow wine here. So the king held a big banquet, invited all of the ulama to the banquet and served them orange juice and - I don't know if this is true or not and - this is the holy water from Zamzam in the glasses and said, see, they are holding holy water; there is no wine here, so stop smashing the glasses.

So the Saudis have a very unique perspective on things and a very unique way of going about adapting themselves to the world around. So keep that in your perspective as to how you seen them adjusting and adapting to all of these things.

One other quick comment is that on intellectual property rights is probably the most difficult subject that they are going to face in adjusting to the WTO, so with all of the countries. China is the largest source of pirate products in the world today and they are in there. And the Internet is changing everything. Whether they like it or not they are changing because all of my friends have satellite dishes and every time somebody scrambles a signal, somebody - they run down to the suk and get - pay some money and get a chip or a card and that de-scrambles it until the broadcaster can re-scramble it again.

AMB. FREEMAN: Charlie has illustrated a very important point, which those who watch Saudi Arabia quickly come to understand, and that is that process of change in that kingdom, not just in this instance but generally, is top-down. Liberalizing movements have always come from the rulers and been sold to a rather reluctant and socially very conservative populous. And so the issue of leadership, which someone asked about earlier, really is quite relevant in this regard.

MR. CLATANOFF: But I just want to stress this idea of what they have to let in and what anybody can keep out under WTO rules. The technical term is, quote, national treatment, that you treat the goods of a foreigner the same as you treat the goods produced in your own country. You get, quote, national treatment.

And so since the Saudis obviously don't allow local production of alcohol or pork, then they have no reason to do it. And, you know, as far as banning pornography or banning books or things like that, I want to remind you that in the United States of America, it's illegal to import goods in the United States with forced or bonded child labor.

Now, that is completely consistent with the WTO because we say you can't use forced and bonded child labor to make goods in the United States. It's a weird little thing. We say we do it. I don't know how well we do it, but that is a part of our trade law, and the idea that you can't import goods made with slave labor has been in U.S. law since the tariff act of 1893, and it's certainly WTO consistent.

So if Saudis say they don't want to bring in pornography, or pork, they certainly have the right to do that as long as they are, quote, national treatment.

AMB. FREEMAN: Could you identify yourself again?

Q: (Off mike) - Schaffer. I appreciate taking a second question. This is probably for Mr. Parlin or Ambassador Jordan, but I'm wondering if we could expand the discussion a little bit beyond the WTO - and if you - to other trade agreements or prospective trade agreements. And I'm wondering if you think that we're sort of at a point where it's going to take some time to digest this, or if there will be other - I know that BIT might come on line or be launched and then FTA with the U.S. - so these sorts of things, and whether you see internally in the kingdom some momentum for this or where we are vis-�-vis other agreements.

MR. PARLIN: Certainly among the people that we talk to on a regular basis that we deal with, the WTO is clearly not the end of the process. Rather they are keen in either pushing the negotiating or in initiating negotiations of new agreements. The BIT, the Bilateral Investment Treaty, potential FTA's, Free Trade Agreements, with the U.S., with the E.C., with others, both in the individual name of the kingdom, and also GCC, Gulf Cooperation Council-wide agreements. So among this liberalizing corps, the WTO is just the tip of the spear in their effort at internationalization and globalization.

AMB. JORDAN: I would just add that in July of 2003, the Saudis signed with the U.S. a TIFA, Trade Investment Framework Agreement, which alone really means nothing; it simply means you are going to agree to agree on various bilateral trade issues, but this clearly kind of plays moving forward with a series of bilateral agreements. And then finally I would say, you know, the president had made it clear that his vision is some sort of a free trade zone in the Gulf, and this would contemplate I think a Gulf-wide environment that is really a free trade area. And so this is all part I think of a larger picture.

AMB. FREEMAN: Do we have other questions or comments?

MR. SEZNEC: Could I -

AMB. FREEMAN: Please.

MR. SEZNEC: I started hinting at this earlier, but there really is a question for Ambassador Jordan and for Chris. I mean, this whole issue of transparency of the law to me is very important. And I was just wondering since you have been in the actual negotiations of these things, what has really happened on having a transparent commercial law and to a certain extent transparent criminal law in the kingdom in the sense that until now we didn't really know how the discussions in courts would ever take place.

And now I think Saudis have to abide by that, which is a - implies a complete change in the actual magistrates that are doing this and - well, anyway, I would love to hear comments from people who have been actually involved in this.

AMB. FREEMAN: Chris, do you want to lead off?

MR. PARLIN: You bet. As with many of my answers, I have to say that what I talk about is what has been agreed to on paper. I cannot swear that at this moment all of this has actually been operationalized, but clearly there is a commitment to the full range of WTO-required transparency including publication and dissemination of laws, regulations, administrative decrees of general effect and operation, judicial decisions.

In every instance there is a commitment to use either the existing official gazette. I butcher the translation, but the umkara (ph) or to establish new official journals and gazettes that will be - whose existence will be widely known in many, if not all instances. There also is an increased use of the Internet - various agencies, ministries, judicial entities are setting up websites, most of them available not only in Arabic but at the very least with English translation - so a broad commitment to make the commercial and economic world within the kingdom much more transparent.

I should note that the WTO does not regulate criminal matters, and so I can't speak to what if anything will change in that area.

AMB. JORDAN: The criminal code in Saudi Arabia was revised fairly recently to provide greater rights to the accused. That is aside from the WTO. There is a commercial court now essentially in Saudi Arabia that deals with commercial disputes.

I think one of the things to watch, and frankly an area of concern is the extent to which Sharia law will trump some of these decisions, including decisions of arbitration panels. So much of commerce, international commerce relies upon dispute resolution through arbitration, and while the Saudis have signed the New York Convention on Recognition of Arbitral Awards, they have made it clear that an arbitration award that is in conflict with Sharia would be in conflict with the public policy of Saudi Arabia, and therefore might not be enforced.

When I advise businesses doing business in the kingdom, I remind them of this potential risk, and so it's just part of the package of business risks that you take when you go forward. My hope is the WTO accession will make these outcomes a little more certain, and the transparency aspect of it will be enhanced.

AMB. FREEMAN: Charlie?

MR. KESTENBAUM: I like to be the voice of practical on-the-ground reality. Let me give you an example of how that works in reality in Saudi Arabia. Ambassador Jordan's predecessor called me in one day early in 2001 and said get up here to the ambassador's office. I went up and he said we have a problem. The Supreme Council of Ulama have just banned Pokemon as Satanic and Zionist creatures, and the ministry of commerce has issued an order to cease all imports and to have all Pokemon products removed from the marketplace.

So I went to a bunch of Islamic lawyers in Saudi Arabia and said - and why were we involved? This was Nintendo, right? Japanese? No, it was Nintendo USA, and they came into the American embassy for help. And I went to a friend who was an Islamic lawyer trained in Mecca, worked for an American law firm, and I said, how did this happen? And he said, well, somebody brought it to the attention of the ulama and they reviewed the case and they pronounced a fatwa. And I said is it disputable? Can you ask for a review? Under what - how do you get it overturned? And he said - don't; can't.

I don't know if anybody has been in Saudi Arabia lately. Pokemon is still banned. I'm assuming they are. Nintendo had never had a chance to dispute it; there was no mechanism by which to claim that these weren't Zionist or Satanic creatures.

And I'll give you another case - Coca-Cola was almost banned after all of those years on the Arab boycott blacklist they finally got back into Saudi Arabia. And one day somebody read a Coca-Cola can where it says Coca-Cola in Arabic and he was reading it and he looked at it in a mirror and backwards he interpreted it as saying la (ph) Mecca la (ph) Muhammad, and brought it to the attention of the ulama, and they were about to issue a fatwa.

Fortunately, Coca-Cola was quicker in the market than Nintendo and were able to present the case that that was a misinterpretation of what was read and it wasn't any intentional misunderstanding, and they didn't get banned.

So I say it's very important that mechanisms of arbitration of transparency be put in place and the Saudis agree to it, but I wouldn't hold my breath waiting for that to actually happen. If the ulama issue a fatwa, I wouldn't expect a commercial court to overturn it on an easy basis.

MR. SEZNEC: It also shows that Coca-Cola had a better agent than Pokemon. (Laughter)

MR. KESTENBAUM: It's probably true. (Laughter)

AMB. FREEMAN: Here is the recovering lawyer in me speaking. I think it's fair to say that in the sweep of history, what is happening in Saudi Arabia with the accession to WTO and the shifts in the nature of the legal system to our - one more compatible with the international system, is a process that has gone on in every successfully modernizing non-Western society.

It is not remembered, for example, that Japan, like China, suffered from extraterritorial regimes in its ports imposed by Western powers, ourselves included. Unlike the Chinese who dealt with this with anger, the Japanese tried dialogue. They went to the Western occupiers and said why are you doing this? And the answer was, well, you have a barbarous and unpredictable legal system that doesn't have an adequate commercial code, which imposes unacceptable penalties on the criminal legal level, and therefore, we need the protection - certainties of our own law, and the protections of our own practices in criminal law.

So the Japanese sent 10,000 students to Germany, some of whom studied to be judges, some to be lawyers, some to be clerks, and they translated the entire German legal code into Japanese. The 10,000 students returned. The Diet met and passed the German legal code into law. And the next day the courts opened for business, the lawyers hung out their shingles, and the clerks sat there waiting for cases.

And the Japanese went to the foreigners and said, now what is your excuse? And all of the foreigners -- with the exception of course of the Belgians -- agreed there was no excuse. The Belgians hung onto their extraterritorial rights until almost 1920 I believe.

But this is a very common pattern and it is one that every non-Western country has to struggle with as it adapts to an international system that is basically - was basically made somewhere in the Atlantic, not in the Arabian Gulf. I expect Saudi Arabia will have many difficulties as it proceeds, but the fact is that it has taken the historic step of committing itself to join the world. And as several of the speakers have said, it will be under scrutiny and it will be under pressure to make good on this commitment.

A final footnote on the Japanese experience, which I think may be instructive. Both the German and the Japanese laws obviously were identical. In the case of the family law, in order to get a divorce under this legislation, you were required to go through a period of mandatory mediation by a court-appointed mediator. And in Germany, of course, the mediator meets with the estranged couple and tries to reconcile them so as to bring the marriage back together. In Japan, the purpose of the mediator is to speed the separation and to make it amicable.

So the same provision of law works 180 degrees apart in the two societies. I expect there will be elements of peculiarity in the way the Saudis interpret international legislation, and I think in many cases they will be entitled to do that.

I think we have brought this to a moment when perhaps it's appropriate to conclude. I would like to thank the panelists for taking a subject, which I think is important, and making it interesting, lively, and transparent. Would you join me inn a round of applause for the panelists?

Presentations provided in separate SUSRIS IOIs:

• William Clatanoff - Former Deputy U.S. Trade Representative for Labor

• C. Christopher Parlin - Partner, Loeffler Tuggey Pauerstein Rosenthal, LLP

• Robert Jordan - Former U.S. Ambassador to Saudi Arabia

• Charles Kestenbaum - Former Regional Director, U.S. Dept. Of Commerce

• Jean-Francois Seznec - Adjunct Professor, Columbia University's Middle East Institute

• Moderator/Discussant - Chas. W. Freeman, Jr. - President, Middle East Policy Council

• Questions and Answers

Middle East Policy Council

The MEPC, since its formation in 1981, has provided political analysis of issues involving the greater Middle East. Through its programs, publications and Web site, the Council strives to ensure that a full range of U.S. interests and views are considered by policy makers. We challenge the conventional wisdom, ask the difficult questions, encourage a wide spectrum of views, provide forums to stimulate thinking. The Council strives to fulfill these objectives through three major activities:

• Middle East Policy - a quarterly journal of political, economic and social analysis.

• A Capitol Hill Conference Series - forums for members of Congress, their staffs, federal government officials, foreign policy experts and the media.

• Workshops for high school teachers - daylong training sessions to build a fact-based foundation for educating America's youth about the Arab world and Islam.

KNOWLEDGE, INSIGHT AND PERSPECTIVE - THESE ARE THE PATHS TO UNDERSTANDING. THEY ALSO ARE GOALS OF THE MIDDLE EAST POLICY COUNCIL.

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On SUSRIS

WTO Accession:

• Accession of Saudi Arabia to the WTO - SUSRIS

• World Trade Organization Accession - SUSRIS IOI - Nov. 10, 2005

• The Implications of WTO Membership: A View from the Kingdom - SUSRIS IOI - Oct. 30, 2005

• World Trade Organization Accession: Saudi Arabia Gets "Green Light" - SUSRIS IOI - Oct. 28, 2005

• WTO Accession: One Step Closer - SUSRIS IOI - Oct. 12, 2005

Capitol Hill Series:

• 35th in the Capitol Hill Conference Series on U.S. Middle East Policy Conference Panel, January 23, 2004 Saudi Arabia: Enemy or Friend?

• David Aufhauser, Former General Counsel, Department of the Treasury

• Frank Anderson, Former Chief, Near East and South Asia Division, CIA

• David Long, Retired U.S. Foreign Service Officer -- Saudi Arabia, Sudan, Morocco and Jordan

• Nathaniel Kern, President, Foreign Reports, Inc.

• Hussein Shobokshi, President, Shobokshi Development & Trading; Managing Director, Okaz Printing and Publishing