Saudi Arabia Joining Wto

INTRODUCTION

Saudi Arabia is currently engaged in negotiations that will result in admission to the World Trade Organization (WTO). This report discusses the impact of WTO accession on the economy of Saudi Arabia. The benefits and negative effects are presented in the report.

1. PROBLEMS AFFLICTING THE SAUDI ECONOMY

1.1 Lack of diversity in sources of GDP

Saudi Arabia: GDP growth since 1997

Lack of diversity in sources of GDP and budgetary revenues continues to impede Saudi economic development. Oil and oil derivatives make up around 90-95% of total Saudi export earnings, 75% of budget revenues and approximately 35-40% of GDP. The government decision in May 2001 to reduce applied tariff rates on most imports to 5% resulted in lower customs receipts accruing to the budget.

Saudi Arabia has 260 billion barrels of proven oil reserves and up to 1 trillion barrels of ultimately recoverable oil. Saudi Arabia is one of the world's largest producers (currently slightly more than seven million barrels per day), exporters and holders of spare oil production (about 3 million barrels per day). Saudi Arabia's share of world oil production has declined from 17% in 1980 to approximately 9% currently. OPEC's decision to maintain production cuts in order to stabilize world oil prices in the $22 to $28 range, has restrained government oil revenues. Despite OPEC's current success in maintaining oil prices, the long-term price trend (and Saudi government oil revenues) will likely be downward, given rising non-OPEC production, more efficiency in usage, new technologies and conservation. Saudi policy makers must diversify the economy to reduce the domestic impact of oil price fluctuations.[7]

1.2 Unemployment

Saudi Arabia faces serious pressures for job creation over the long term. Although unemployment data are generally not officially available, analysts estimate unemployment among Saudi males ranges from 14% to 20%. Saudi women, hired under strict gender segregation requirements, represent only 4-6% of the labor force, primarily in education, health care and banking. Currently, the large majority of workers in the private sector are foreign, numbering 5-6 million with most coming from South Asia, the Philippines and Africa. With nearly 40% of the population born after the 1990-91 Gulf War and approximately 70% under the age of 30, Saudi Arabia, like other affluent Gulf countries, has an enormous "youth bulge." The Saudi government and the private sector can only absorb about half of the 150,000-200,000 job seekers entering the marketplace annually. The Saudi economy, which needs to grow substantially faster than the more than 3% population growth rate to absorb the Saudi "youth bulge," must diversify and the non-oil sector must grow more rapidly. The government no longer has sufficient resources to act as employers of last resort or provide all the funding needed for basic infrastructure. The Saudization policy which was adopted to replace expatriate workers with qualified Saudi nationals has not achieved the desired results leading to the persistence of the unemployment problem.[2,7]

2. WTO ACCESSION

2.1 WTO Overview

The World Trade Organization (WTO) is an international organization dealing with the global rules of trade between nations. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible. At the heart of the system -- known as the multilateral trading system -- are the WTO's agreements, negotiated and signed by a large majority of the world's trading nations, and ratified in their parliaments. These agreements are the legal ground-rules for international commerce. Essentially, they are contracts, guaranteeing member countries important trade rights. They also bind governments to keep their trade policies within agreed limits to everybody's benefit.[7]

2.2 Saudi Arabia & the WTO

Saudi Arabia has been seeking to join the WTO since 1993. Saudi Arabia is currently the only Gulf Cooperation Council (GCC) member that is not a member of the WTO. The Saudi government is in the process of initiating important and sweeping reforms throughout the country to facilitate accession and prepare Saudi industries for the rigors of global competition. The reform policies include:

 privatization of public sector companies,

 reducing tariffs,

 reducing the number of public sector companies,

 reducing subsidies,

 liberalizing trade regulations,

 safeguarding intellectual property rights,

 introducing a new foreign investment code, and

 Eliminating the sponsorship requirement by granting foreigners the right to wholly own corporations and real estate. [4]

Another important aspect of the accession negotiations for Saudi Arabia is whether to join as a developed nation or as a developing nation (which allows for a greater allotment of exemptions for select provisions over a specific period). Saudi Arabia would prefer to join as a developing nation, but this status must be negotiated jointly and severally with the WTO members and consensus is required for accession.[6]

3. BENEFITS OF WTO ACCESSION

Accession to the World Trade Organization (WTO) is a fundamental component of any long-term Saudi economic reform program. Though much work remains before the accession negotiations can be concluded, the Saudi accession to the WTO will be a positive achievement for Saudi Arabia and the global economy. The following are the benefits that Saudi Arabia can avail when it joins the WTO.

3.1 Transparent Trade Regime

The implementation of WTO provisions by Saudi Arabia will provide enhanced transparency in and access to the Saudi market. The required changes in the Saudi trade regime will provide the foundation for Saudi economic expansion. Among other things, accession will require Saudi Arabia to remove projectionist barriers, place ceilings on tariffs, open further key services sectors to foreign participation and improve intellectual property rights protection. These changes will result in an open, transparent and rules-based trade