WTO membership awaits Riyadh

23 September 2005
Riyadh took a significant step towards accession to the World Trade Organisation (WTO) on 9 September with the signing of a bilateral trade agreement with Washington after months of negotiations. The agreement, the last hurdle to accession, paves the way for the kingdom to join the trade body, possibly as soon as the end of the year.

News of the accord was met with mixed reaction within the kingdom, with some, especially in the agricultural sector, saying that membership will damage the industry. There was also some criticism that joining the WTO would mean Riyadh will have to lift its boycott of Israeli products.

However, the news was generally welcomed by economists. 'It is generally a very positive step for Saudi Arabia,' says Khan Zahid, chief economist of Riyad Bank. 'Membership will increase confidence in the economy and provide it with international recognition, boosting foreign investment. There may be some problems in the short term as it will involve some changes as companies adjust, but it is not like everything has to change overnight.'

Accession to the WTO, which is likely to take place at the ministerial conference in Hong Kong in mid-December, will see the kingdom opening up its economy to foreign competition, although Riyadh will have several years to make the changes to allow the economy to adjust.

Other changes will see a removal of the requirement for the use of local agents for foreign companies, and reductions in the levels of tariffs of foreign goods.

Farmers have voiced concerns that accession will mean an end to government subsidies. 'Agriculture is an area which has no natural advantage in Saudi Arabia so it may be hurt if subsidies are removed,' says one economist. 'But the government is only obliged to not subsidise exports, it can still subsidise production, so I am not sure how it will turn out.'

The agreement will allow Riyadh to continue its boycott of Israeli goods, although it will become illegal for the kingdom to discriminate against countries on the basis that they maintain trade links with Tel Aviv.

The kingdom has been negotiating its entry into the WTO since 1993, completing 36 bilateral trade agreements on the way. 'In the long term, economic growth will be bolstered by this, but in the short term I doubt it will have much impact,' says the economist. 'There are very few examples of countries opening up and not benefiting.'


A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications