The accord was signed between Commerce & Industry Minister Hashim Yamani and EU Trade Commissioner Pascal Lamy in Riyadh and ensures the EU's backing of the kingdom's bid to join the WTO. Saudi Arabia, the largest economy outside the WTO, has already signed bilateral agreements with 13 countries including Japan, Canada and Australia. The conclusion of the EU agreement was the first of two major trade accords still to be concluded. A deal with the US is now expected to be signed in the fourth quarter given both parties find consensus on three key issues, protection of industries, services - including financial services - and copyright laws.

'This is an extremely good development as the EU is Saudi Arabia's number one trading partner,' says a local economist. 'This is equal almost to WTO membership and it shows that the EU understands that Saudi Arabia is an important trading partner. The US has little room to manoeuvre now and a deal should be signed by the end of the year.'

The kingdom has made significant progress towards WTO membership in recent months, accelerating reform efforts by approving the long-awaited capital markets and insurance laws, as well as an anti-money laundering law and a health act among other legislations. Other laws are in the making. 'The biggest challenge for the government will now be to implement the laws swiftly,' says the economist.

In addition, the government hopes to increase the pace towards the long-expected privatisation of state-owned companies such as Saudi Arabian Airlines, Saudi Basic Industries Corporation (Sabic)and Saudi Railways Organisation, sources at the Economy & Planning Ministry say. In December, the government launched a successful initial public offering (IPO) for Saudi Telecom.

The trade agreements are part of the accession procedure, which requires applicant governments to engage in bilateral negotiations with interested WTO working party members on concessions and commitments on market access for goods and services.

The results of these bilateral negotiations are consolidated into a document, which is part of the final accession package. All remaining issues will have to be resolved before 2005, when the kingdom's WTO-set grace period ends.