GCC Insights: Saudi Arabia's entry into WTO all set

The stage is set for Saudi Arabia to be admitted to World Trade Organisation (WTO) as early as 2004. In late August, the European Union, a powerful block within the WTO, has supported Saudi Arabia's entry bid. In the agreement with the EU, Saudi Arabia agreed to decrease tariffs and open its market to services such as telecommunications and financial services.

Certainly, the kingdom needs the US endorsement for possible accession to the WTO. The Bush Administration is believed to in favour of Saudi Arabia joining the world body as a way influencing the kingdom's policies from within. This is happening with China, which was admitted to the WTO in late 2001 during the conference in Doha.

The US is expected not to object to Saudi Arabia's application as a way of rewarding the kingdom for taking steps to fight the extremist groups.

To be sure, the Saudi authorities have undertaken numerous liberal economic measures in the last few years in order to enhance its admission chances. The government has passed the foreign investment law (FIL).

Major reforms

The FIL allows for full ownership of companies and grants foreign businesses the right to own land and provides protection against expropriation of property without just and fair compensation. Also, the FIL imposes no restrictions on repatriation of profits and capital.

It also eliminates local sponsorship of foreign investors. Other positive characteristics include guaranteeing equal treatment of local and foreign investors, as all are entitled to apply for soft financing from the Saudi Industrial Development Fund.

The FIL imposes no restrictions on repatriation of profits and capital.

Nevertheless, the presence of a negative list has undermined the FIL. The initial list contained 22 areas in which foreign investment is prohibited.

This includes exploration, drilling and production of oil. But the government has promised regular review of the list for possible amendment.

Additionally, the Saudi Arabia General Investment Authority (Sagia) was set up to regulate and promote foreign investments.

Determined efforts

The authorities seem determined to carry out economic reforms notably privatisation. Late last year, in Saudi Telecommunications Co offered 30 per cent of its shares for sale via an initial public offer to local investors, a move that generated about $4 billion. And plans are underway to woo foreign investments for the opening up of the very small aperture terminal (VSAT) later this year and the GSM in 2004.

Electricity, industrial zones, ports, airports, airlines and a host of others are on the privatisation agenda. The authorities also hope to involve the private sector in running ports, hospitals and schools.

Earlier in the year, the appointed Consultative Council rejected a bill to apply a 10 per cent tax on expatriates earning some 3,000 riyals ($800) a month, fearing that it would add strains to WTO in negotiations.

Saudi Arabia remains the only GCC member state not yet admitted to the WTO. At $186 billion, Saudi Arabia's gross domestic product is larger than the GDP's of the other five GCC states combined.

Saudi Arabia's resence in the WTO world body would enhance the weight extended to the regional economies in the world body.

The writer is assistant professor, College of Business Administration, University of Bahrain