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

William Clatanoff
Former Deputy, US Trade Representative, Labor 

Good morning. First of all, thanks to the Middle East Policy Council for inviting me. I want to talk a little bit about the American interest in this. But let me stress that the Saudi accession to the WTO was clearly in the interest of the kingdom of Saudi Arabia. They did it. They took the steps they wanted to because they're going to win. We tried to push them in that direction - we, meaning the U.S. government where I worked for a while, but I don't work anymore - in particular after the events of 9/11.

When you looked at world trade from the point of view of the U.S. perspective, there was this conundrum, this anomaly about the Middle East generally, and Saudi Arabia in particular, which is that here is a part of the world that literally gave us the word bazaar for trading, and the market and the souk and everything like that. And yet, as a share of world trade, and particularly non-petroleum world trade, they were miniscule. To give you an example, the United States last year imported more from Hong Kong alone than from all 24 members of the Arab League combined. They're not players in the world stage of non-oil, non-petroleum trade. They're insular. The way the WTO works is sort of the first step to breaking that up.

I think you're all aware that in early 2003, President Bush announced his intentions that we would negotiate a Middle East Free Trade area, that we would like to have free trade agreements with the entire Middle East. At the present time, there are free trade agreements between the United States and Israel, Jordan, Morocco, and just two days ago, the president signed the FTA with Bahrain. And hopefully, within a week or two, the administration will send the trade agreement with Oman to the Hill. But before we can negotiate a free trade agreement, we have to have WTO membership by our trading partners.

And so let me just take about three minutes to sort of walk you through the process, if you will, of WTO accession. It starts with a country saying to the WTO, I want to join. Don't ask me why they use the word accession. You accede to the WTO by accepting the World Trade Organization's agreements. There is a whole series of agreements, number one being the General Agreement on Tariff and Trade, or GATT, the General Agreement on Trade in Services, or GATS, Trade-Related International Property Rights, or TRIPS, Technical Barriers to Trade, TBT - in government, you can't work without acronyms - and SPS, Sanitary and Phytosanitary Standards. So Saudi Arabia had to agree that it would accept all of those pre-existing WTO agreements, would abide by them, and would then negotiate with what's called a working party.

And the WTO is a weird animal. It rules only by quote "consensus," which means everybody has to agree. Saudi Arabia was 149th country to join the WTO, so the first 148 had to agree. And Saudi Arabia, as number 149, had to agree to the accession of number 150, that great state of Tonga, which just joined at the Hong Kong Ministerial. Saudi's official accession was formally approved by the General Council of the WTO on November 11, 2005. They wanted that. It was a special session of the council. They wanted to be a full member before the Hong Kong Ministerial, which gave them the right to vote and lobby and so forth in Hong Kong. So their timing was there.

It took a long time. They started the process in 1993, and frankly, they weren't very serious about it for a long time. And I think that you have to look at the WTO accession as being two things. One, it's important from the point of view of Saudi's trade relations with the world. But two, it's equally important internally that by signing up to these rules, it's a real commitment - and I don't think it got nearly enough press - it's a commitment to internal economic reform. And it has to be viewed in that light.

And to see how much it's changed, the best example I want to give you is that in 2001, Saudi Arabia tabled its quote "investment regime," gave this to the WTO working party. It said that there would be a quote "negative list" that Saudi Arabia would allow foreign investment except in these areas. And the first one on the list - that will not allow any foreign investment - was exploration, mining, and production of petroleum products. Some of them are expected and we, the United States, have the same thing. For example, manufacturing of explosives. That's a security issue. Production of military equipment, all right? Real estate investment in the holy cities of Mecca and Medina, understandable. But how about all insurance and insurance-related services on their quote "negative list." All transportation services on their negative list. That's where they were in 2001. And that is precisely why in the negotiations, the United States was the most difficult. We were the last country to agree to the Saudi accession, but it was primarily that investment was our issue although there were some other issues.

But very quickly, the WTO working party had foreign investment, sanitary and phytosanitary standards, technical barriers to trade. And one thing that really was a big hang-up was import licensing and customs valuation. It's fine to say "Oh, we're going to reduce our tariff from 15 percent to 3 percent of value," but then how do you value it? And the Saudis had a very non-transparent system of import processing and customs valuation. So those were the big issues. They all got worked through. And again, I think the crucial thing is - and particularly distribution - the end to the so-called agency system, so that U.S. importers can now send goods directly in and don't have to have an exclusive agent in the country. These are just indicative of the kinds of domestic economic reforms that Saudi Arabia is going to make in order to live up to its WTO obligations. Thank you.

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