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

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

Thank you. In my career I have primarily acted as boots on the ground in these kinds of negotiations and efforts. So I would like to add value to the program today to follow up what Ambassador Jordan said by trying to give you a little sense of what it is like to stand in Saudi sandals -- what the Saudi society and economy are like and how they got that way. Then you can get a better sense of predicting where it's going and where these changes everyone's talking about are likely to lead.

Please don't misunderstand what I'm about to say, but Saudis have been largely spoiled over the last 25 to 30, 40 years in economic terms. They have been spoiled because they have had open and easy access to everyone else's markets and they have had very restricted markets and access back home, to be protected.

I will give you a simple example. Prince al-Waleed bin Talal is said to be the largest shareholder and a very influential individual in Citigroup's portfolio of owners. Yet Citigroup itself has in the last year or two withdrawn from its banking venture SAMBA. Saudi American Bank in Saudi Arabia - Citigroup sold its last 18 percent and exited the market, even though he is their largest shareholder.

When I asked the vice chairman of Citicorp why did they did that, he said they had a lot of liability and no control, and the limited ownership didn't give them the authority they wanted to make the right decisions from their perspective.

So we have large sense of monopoly in the Saudi economy. It is not entirely the case as everything in the world is complex. You have, you know, Aramco as a monopoly, and yet you have the largest investment that Exxon Mobil has made in the world, is in Saudi Arabia's petrochemical industry. So it's a bit of a mixed picture, but it's still a largely monopolized society.

Saudi Arabia - and I may be stating the obvious - Saudi Arabia is still a very tribal society. And what tribal society means in the Saudi Arabian context is very interesting. Again, it's a complex relationship. On the one hand, as you may know, Bedu ethics are very egalitarian and yet at the same time - cause if you ever run across any Bedu, they are fiercely independent people, and yet at the same time, they have overlaid on that a very, very strict and rigid hierarchical system of birth and tribal relationships through age and through family relations. That is something that we in America can't really understand very well.

Think of an economy where the leader and the most greatest hero of the tribe is somebody who can go in and steal his neighbor's camels and get back without a fight or having to kill anybody. The tribal term in Arabic is Hazu (ph), which means you raid your neighbor and get back. So the concept of business is very different. They didn't look at it in a Columbia Business School perspective as win-win; everybody goes home happy with a little smiley face on your lapel. It's win-lose.

So the economic situation is very complex in Saudi society. It's a monarchy; it's not an absolute monarchy because of these tribal relations and because of the overlay of Islam. But there is a tremendous sense of entitlement in any monarchy. We as Americans - again, we don't understand or relate to that because we don't have any - our history is resisting and fighting monarchy and egalitarianism. And so we don't understand how in a monarchy, the monarch owns everything or controls everything.

I have seen Saudi Arabian royal family members drive up to a gas station, have the gas tank filled with gas and drive away without paying, and you know, the Bangladeshi is standing there with the pump in his hand. You know he is not writing down the number and calling the police because there is no point in doing that; he can't collect.

I have seen Saudi royal family members drive through police roadblocks that are searching for terrorists. The guy just - comes in his Lamborghini - zoom - right through. The police are standing there with their guns, they look at the Lamborghini - off he goes. What to do? If I did that they would chase me as far as they could and pull me over. He's a Saudi; he goes right through. So there is a sense of entitlement, and it extends into the economy.

At the same time, entitlement brings responsibility. If you own everything you have to take care of everybody. So that sense of responsibility, of entitlement created a system of welfare that you had give free education, you had to give jobs and employment. You had to give everything to everybody because if you didn't you couldn't own everything; you couldn't command the loyalty. So that created another major economic distortion in this economy.

So a picture I'm building here is something that we and WTO have no relationship at all to or concept of how it works and why it works the way it does and how it changes. Healthcare, education - everything is free or it has to be free. So, again, where is the free market? Well, it's free as long as it's given and owned by somebody else.

Then we overlay Islam. And I apologize if I'm moving very fast, but I like to just give a - we can get into any of these issues later in the extensive Q and A period. Islam - what kind of free and open market, what kind of WTO can you have when half the population is not allowed to work or can't get to work because they can't even drive to work? What kind of business can operate in a global arena where they have to shut down five times a day for prayer?

As a kind of humorous aside, in my experience Saudi time is so different than ours. Nothing ever comes on time in Saudi Arabia except prayer; that you can count on; that is clockwork. So it is a very different society, again, culturally. The WTO rules are not going to be implemented in a way that we have been really talking about here, not in the short term. Maybe over the long term, and that is probably the intention of the leadership in designing the WTO is to create a long Saudi-time concept of transition.

There is a - Ambassador Freeman here has said that Saudi Arabia is characterized by progress without change, but we all know that that is impossible. There is change going on all of the time. Saudi Arabia is changing every day. The WTO accession is a major milestone as we pointed out, and I agree with that completely. The Saudi's fear is change without stability. They want it to be stable; they want predictability. They want to know what is going to happen and how to get it.

I would just like to make one other point about Saudi Arabia and time - and I have got my three-minute notice - which is that we have to understand a little bit of sense of history in America. I appeal to all of those in the audience, many of whom are very knowledgeable and experienced in the Middle East.

My mother was born into this country; she couldn't vote. I was born into this country, there was segregation, there was discrimination against minority groups. Go to the movie theater today, when you go home this evening, and watch the movie about the Texas western integration of basketball. That's probably happened in almost the lifetime of everybody here.

So we don't understand history and the depth of things and how quickly things are moving for us, but the Saudis are being - their heads are spinning in this thing, in how fast it's changing. So I appeal to you to consider that, to understand that WTO and all these changes may not happen, even though they've signed onto everything. They're still going to operate in Saudi time; they're still going to operate in a Saudi way of going about doing things that's going to have progress without change or change without disruption.

Thank you very much, and I'd be happy to talk about any issues - what happens in agriculture, what happens in insurance, in services - in detail because I was a commercial person, but I wanted to add a sense of non-commercial perspective to understand that. 

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:

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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