Saudi Arabia and the World Trade Organization

Saudi Arabia is the land of centuries of strong culture and religion. Being the largest country of the Arabian Peninsula, Saudi Arabia is internationally acknowledged as the “land of the two holy mosques, a reference to Mecca and Medina, Islam’s two holiest places.”[1] As a state, Saudi Arabia is a monarchy ruled by the direct descendents of the first Arabian king and it’s governed by the Qur’an.

The country possesses several characteristics that make it a dream destination to any tourist; but these exact features drastically differentiate the country from Europe and The United States of America. The major gap between these cultures has prevented Saudi Arabia for several years from joining the civilized countries on numerous domains, the most relevant of which being the World Trade Organization.

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The economy of Saudi Arabia is primarily based on the extraction of natural petroleum, the country being the world’s largest petroleum producer and exporter, with 24 per cent of the global petroleum reserves. Furthermore, petroleum trade accounts for more than 90 per cent in the overall export activities, 45 per cent of the Saudi Arabia gross domestic product and the taxes adherent make up 75 per cent of the entire state budget.[2]

Since petroleum represents the pillar of the Arabian economy, when petroleum extracts are low, the economy rapidly declines. The dependence of economy on petroleum has made Saudi Arabia officials state their intent to develop and industrialize other sectors in support of a growing economy. In doing so, they began with financing higher technologies to extract petroleum and allowing privatization of other sectors, such as communication or energy.

2. Impediments in Saudi Arabia joining the WTO

Saudi Arabia put forward their adhere application on the 13th of June 1993, but they were only approved twelve years later, more precisely on the 11th of December 2005.

The main reason for which the process of joining the World Trade Organization lasted for more than a decade was the protectionist nature of Saudi Arabia’s economy. The Arabian country has been for centuries a closed economy which produced internally all the items they needed, the petroleum exports being the only contact with the outside world. By adopting a protectionist policy, Saudi Arabia had extremely limited trade contracts with other countries, a conduct opposed to WTO regulations.

Other elements of concern in the adhere process regarded policies promoted by Saudi Arabia officials regarding religion and human rights, policies contrary to those of international organizations. For instance, international human rights organizations have objected to the Islamic judiciary system and its punishments. There have been numerous situations when the accused were condemned to corporal punishments such as violent beating and stoning, as well as to violet deaths.

Furthermore, another issue of complaint from the human rights organizations regarded the way in which Arab women were treated. According to Islamic laws, women belonged at home and their main role was to serve their husbands and families; as such, they were being discriminated against in all sectors of life from education and work force to judiciary systems (only 5 per cent of the workforce was consisted by women and the testimony of a woman was not considered a reliable information, but an assumption).[3] The international human rights organizations have formulated several complaints to the officials of Saudi Arabia, but the latter simply dismissed them on grounds that they were only promoting their Islamic ways.

Another reason for which Saudi Arabia’s joining the WTO was postponed for so long was the members’ reticence towards the religious establishments of the country. Saudi Arabia, the mother land of Mecca and Medina was considered by most Muslims the core of the Islamic religion. WTO members feared that their entrance in this sacred land would be considered a sacrilege by other Muslim countries which would commence military conflicts.

The United States of America was one of the most skeptical WTO members that objected to Saudi Arabia joining the organization. In a press release of November 2005, SURIS Center (Saudi – U.S. Relations Information Service) stated: “It was hoped that the process would be complete by the end of last year but negotiations dragged on. The last hurdle, and one of the toughest, was the talks with the US, which were only completed in September. Bilateral agreements with most other countries were completed over a year ago.”[4] The main argument posed by the U.S. in the debates was the necessity for peace in the region before any major decision was to be taken.

The official statements regarding Saudi Arabia joining the World Trade Organization explained that the process lasted for more than a decade due to the difficulty of the negotiations and the “complexity of the issues.”[5]

In a nutshell, the main reasons for the delayed accession of Saudi Arabia to the WTO were the cultural differences that influenced human rights; the protectionist policies applied which created a close economy that drastically taxed imports and the inability to comply with the World Trade Organization which requested the liberalization of economic sectors.

3. Benefits of becoming WTO member

In 2005, the Bush presidency speeded up the negotiations for Saudi Arabia’s acceptance to the WTO and on the 11th of November the same year, the treaty was signed, making Saudi Arabia the 149th member of the World Trade Organization.

In exchange for liberalizing their economical and industrial sectors, focusing their efforts towards properly integrating themselves in the international economy and by adopting a transparent trade policy towards international partners, the WTO promised its newest member financial investments in the privatization of several companies which would lead to a generally decreased unemployment rate and a generally improved status of the economy.

A major effect of the accession to WTO regards the customs policy, which will be modified in accordance with the organization’s ruling. Saudi Arabia will eliminate those import and export taxes that cannot be justified based on WTO regulations. However, the new member is allowed and encouraged to maintain those taxes that “protect public morals, the life and health of the population, national security interests, etc. In addition, Saudi Arabia has agreed to review the list of banned imports at least once a year and to remove items the importation of which would not compromise the legitimate objectives of the Kingdom.”[6] These rulings will support the growth trade contracts by the increase of imports and exports, leading to an increase in the citizens’ living standards.

Another issue on the WTO agenda is that of regulating the activities in the oil and petroleum sector. This measure was regarded with skepticism by some Saudi Arabia officials as it could limit the country’s access to its own natural resources. However, the measure seems equitable to those citizens that do not work in the petroleum sector as the WTO regulations would prevent monopoly. In other words, closely monitoring the petroleum related activities would decrease the financial gap between the petroleum moguls and the average citizens and it would also decrease the level of dependence between the country’s economy and petroleum revenues.

In addition, through the accession agreement with the international organization, Saudi Arabia is obliged to fully implement the “intellectual property rights, the application of technical regulations and standards, as well as the protection of food safety and human, animal and plant life and health.”[7] This clause of the agreement would lead to a major improvement in women’s condition in Saudi Arabia and also that of ordinary citizens.

In the sector of goods, Saudi Arabia will have to lower their import barriers and allow more goods to be imported from member countries. In the field of services, there are expected to significantly improve due to abroad investments. “The benefits that Saudi Arabia can expect to reap from Membership of the WTO regard the efforts to invigorate its private sector, diversify its economy and provide more jobs for its growing workforce.”[8]

Furthermore, aside from the benefits generated by the World Trade Organization in Saudi Arabia, the accession would also improve the status of the country’s neighbors by opening a path to international economies. Saudi Arabia represents the link between Europe and the United States on one hand, and the regions of the Middle East on the other hand. “Members have taken not only a major step towards better international economic cooperation but they have also allowed the WTO to become more universal”[9] by opening the door to Arab and Muslim countries which are currently insufficiently represented in the international trade, said Ambassador Mohamed.