WTO ratifies Saudi Arabia’s membership

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Twelve years after Saudi Arabia first applied to join the World Trade Organisation, the global free trade body ratified the kingdom’s accession as its 149th member on Friday.

The breakthrough came after Saudi and EU negotiators resolved lingering technical disputes over insurance regulations and gas pricing last month.

Although a bilateral trade accord had been signed in 2003, European officials had claimed Saudi Arabia’s policy of fixing gas feedstock prices for domestic petrochemicals companies was tantamount to an anti-competitive subsidy. According to Saudi sources, the EU backed down after receiving assurances that future pricing policies would adhere to WTO regulations.

In September, US trade representative Rob Portman signed the last of nearly 40 bilateral trade agreements the Saudis have negotiated on their path to WTO accession. Some members of the US House of Representatives had demanded that Saudi Arabia improve its human and religious rights record in advance of any trade concessions, but Mr Portman said the agreement would pave the way for “greater openness, further development of the rule of law, and political and economic reform in Saudi Arabia.”

Although the Saudi view of the WTO often seemed equivocal in the mid-1990s, by the end of the decade the ruling Al Saud family was more actively supportive of efforts to privatise state companies and boost inward investment - both to diversify the economy away from a reliance on oil and create jobs for the kingdom’s predominantly young population.

Preparations for WTO entry still cause consternation among some businesses fearing foreign competition and conservatives fearing dilution of the kingdom’s strict Islamic laws, but the government has pressed on with the introduction of 42 new laws and regulations designed to reduce tariffs and trade barriers, equalise treatment of local and foreign companies, and harmonise Saudi trade policy with WTO principles.

Said Al Shaikh, chief economist for the Jeddah-based National Commercial Bank, believes the Saudi economy will grow by 6.5 per cent in real GDP terms this year. WTO membership will encourage inward investment because it “tells foreign investors that Saudi Arabia’s laws and regulations are on a par with the developed world”.

Conversely, he said, although some domestic companies will probably suffer from new competitors entering the market, “those energy-intensive industries on which the kingdom has concentrated for the past two to three years - such as petrochemicals, steel and cement - will find their access to European, US and Asian markets greatly improved.”

A government ‘negative list’ still hampers foreign investment in sensitive industries such as upstream oil production and military equipment manufacturing, but the effect of new liberalisation policies are already being felt in the telecoms and banking sectors.

In August 2004 a consortium led by Etisalat of the UAE was awarded the kingdom’s second mobile telecoms licence to compete against incumbent STC, while the list of foreign banks authorised to operate without local partners now includes Deutsche Bank, JP Morgan and BNP Paribas.

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