The Office of the Chief Economist of Samba regularly produces reports on the Saudi Arabian economy that are timely, accurate, and clearly written and illustrated. SUSRIS has been privileged to share summaries of these reports with you in the past (links below). Today we are pleased to provide the Summary section from the just- released "Saudi Arabia and the WTO" report.  It is featured on the Samba Web site in the " Economy Watch" section. 

As stated in the summary, "This report is intended to fill a gap between the detailed, and lengthy and legalistic Saudi WTO Accession Protocol documents, and the more cursory media treatment of Saudi WTO membership." It does an excellent job in meeting that objective. We recommend the complete report for your consideration.

Saudi Arabia and the WTO
Samba Office of the Chief Economist

SUMMARY

As the world�s largest oil exporter, the 23rd largest importer, and the largest economy in the Middle East, Saudi Arabia is a global trade power. Thus the Kingdom�s absence from the World Trade Organization (WTO) has been an obvious shortcoming in the global trade system.

This was rectified on 11 December 2005 when Saudi Arabia became the 149th member of the WTO after over 12 years of negotiations. In the process of preparing for membership, Saudi Arabia enacted 42 new trade-related laws, created nine new regulatory bodies, and signed 38 bilateral trade agreements. When the Kingdom first applied for membership in the WTO�s predecessor, the General Agreement on Tariffs and Trade (GATT) in 1993, 75 percent of the Kingdom�s tariffs on imported goods were at 12 percent. By 2003, 85 percent of tariffs were 5 percent or less, and the commitments made for WTO membership will now bring tariffs down further.

To become a member, Saudi Arabia made major commitments to reduce tariffs, open services sectors of the economy to greater foreign participation, and to implement all WTO rules upon membership without recourse to transition periods. This means that when Saudi Arabia became a member, it was committed immediately to an intellectual property rights environment, a foreign investment environment, transparency in trade issues, legal recourse for trade partners, and elimination of technical barriers to trade, all in compliance with WTO requirements.

Saudi Arabia also agreed to join several sectoral initiatives upon accession that lower tariffs and other trade barriers for telecommunications services, information technologies, pharmaceuticals, civilian aircraft and parts, and chemicals.

Equally important, however, is what the WTO agreement does not do. It does not require the importation of religiously banned products such as pork and alcohol, change Saudi Arabia�s trade stance toward Israel, address human rights issues, require changes to Saudization policies, weaken Saudi product standards or food safety standards, require the Kingdom to charge higher domestic prices for energy and petrochemical feedstocks, or leave Saudi Arabia exposed without recourse to dumping of inferior foreign products on the market�all concerns that we have heard expressed over the years of Saudi-WTO negotiations.

Our view is that the Kingdom�s membership in the WTO is broadly positive for the economy. There is no single agreement or commitment to the WTO that dramatically effects the economy. Rather, it is the cumulative impact of the hundreds of incremental changes that is broadly positive for growth. This is already demonstrated by accelerating growth of the non-oil private sector over the years of negotiation. From 1990-1995, private sector GDP growth averaged 1.7 percent per year. From 2000-2005, growth accelerated to average 5 percent per year. We believe the reform and trade liberalization of the past decade, much attributable to preparation for WTO membership, accounts for some of the higher growth rates. For the rest of this decade we believe private sector growth will range from 6-8 percent, in line or above the sustainable organic rate of growth. In addition, WTO membership furthers several primary goals of economic policy�diversification of the economy away from oil, job creation for Saudis, and attraction of foreign investment.

We are hard-pressed to identify domestic industries that would suffer significantly under the WTO environment, partly because membership comes at a time when the economy is enjoying a boom�23 percent nominal GDP growth in 2005 with no domestic inflation�and that boom is likely to continue for several years. With such an economic backdrop, domestic firms have the latitude to adjust to competitive challenges while continuing to prosper. Agriculture sees a gradual decline of government support over a 10-year period, which may affect some of the small and marginal players. There was concern that small and medium enterprises, especially in retail, would be harmed, but they remain largely protected from foreign entrants into this segment of the market.

A specific beneficiary is the Saudi petrochemical industry. Using comparative advantage rationale, the Kingdom did not have to commit to increasing prices for natural gas and natural gas liquids (NGLs) used as petrochemical feedstock to be in line with global prices, thus preserving the cost advantage of producers in Saudi Arabia. In addition, Saudi Arabia can champion from within the WTO the Chemical Tariff Harmonization Agreement, which lowers global tariffs on chemical products, including all petrochemicals exported from Saudi Arabia, to a maximum 6.5 percent.

This report is intended to fill a gap between the detailed, and lengthy and legalistic Saudi WTO Accession Protocol documents, and the more cursory media treatment of Saudi WTO membership. In this report we cover in non-technical jargon the specifics of Saudi Arabia�s major commitments for WTO membership and the implications of these commitments for businesses, both foreign and domestic, and for the economy. For those interested in understanding only the most basic issues, we refer you to the final appendix where we have compiled the most frequently asked questions and answered them simply and directly.

Complete report

• Saudi Arabia's Accession to the WTO: Is a "Revolution" Brewing? - Middle East Policy Council Capitol Hill Conference Series on US Middle East Policy - Introduction by Ambassador Chas Freeman - SUSRIS IOI - Jan 22, 2006

• The Saudi and Gulf Stock Markets: Irrational Exuberance or Markets Efficiency? - Khalid R. Al-Rodhan - SUSRIS IOI - Dec. 21, 2005

• Saudi Arabia's 2006 Budget, 2005 Economic Performance - SUSRIS IOI - Dec. 16, 2005

• Saudi Arabia Economic Update - An Economy Watch Report From Samba - SUSRIS IOI - Nov. 3, 2005

• Saudi Economic Performance: A Conversation with SAMBA Chief Economist Brad Bourland - SUSRIS Interview - Feb. 27, 2005

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

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

• SUSRIS Topic Section - Saudi Arabia's Accession to the WTO

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

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