|
 |
| |
|
Issue No:4 - August / September 2001
|
| |
|
|
| |
|
|
The next round of World Trade Organization ("WTO") negotiations will be held in Doha, Qatar in November. This round is designed to be one where the delegates can focus on the issues rather than the attendant protests. It is also important because a failure to make progress in Doha could mean a lengthy suspension of any meaningful future rounds. Major issues for emerging market countries such as Saudi Arabia involve reductions in agricultural price supports and greater access to foreign markets in sectors where such nations have a competitive advantage. Greater access to sectors that now limit foreign services and a reduction in industrial goods tariffs by 33% would result in a one-time influx of global economic growth of approximately US $600 billion, substantially more than the estimated US $75 billion resulting from the Uruguay round.
The success of the Doha Round is dependent upon acceptance by the developing nations. Key issues include: tightening anti-dumping rules which regulate a country’s effort to impose a tariff on goods sold below cost within its borders, such as the U.S. steel industry; removing protections for the textile industry in developed nations by 2005; and issues affecting agriculture. The most important goal is if the developed nations can convince the developing nations that the latter can realize real benefits through these negotiations. The developing nations feel like the Uruguay Round benefits never materialized for them and view the developed nations as now asking for more concessions.
Impact of Joining WTO on Saudi Arabia
Saudi Arabia has been seeking to join the WTO since 1993. Even before the beginning of the Sixth Development Plan (1995-2000), Saudi Arabia has been working towards qualifying for the WTO. This is a process with no clearly defined rules or procedures whereby a country negotiates with three different parties: the WTO body collectively, all of the member countries separately, and all other necessary trading partners (regional trade blocks) to eventually achieve a unanimous vote of accession. 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. |
|
| |
The key to the reform movement is the desire to enact laws to make Saudi Arabia a transparent and efficient economy. To accomplish this, two major issues are the reduction and elimination of customs duties on Saudi petrochemical products (the U.S. and the European Union claim they are subsidized up to 30%), and the non-discrimination requirements by which local and foreign investors must receive equal treatment. The General Agreement on Trade in Services ("GATS") also require local laws to conform with the implementation of the non-discrimination principle in the tourism, banking, telecommunications, insurance and transportation sectors. Foreign Direct Investment ("FDI") is the linchpin of this strategy. FDI means job creation in the private sector (as opposed to the government- sponsored jobs that have been the staple of the commodity-based Saudi economy). The Saudi government has already enacted a law allowing for foreign nationals to own land without the sponsorship requirement and to invest in the local stock market (the largest regional market with a market capitalization of over US $60 billion) through twelve established mutual funds.
Most importantly, the creation of the General Investment Authority ("GIA") has engendered a climate of regulatory accountability and has set a blanket policy (with a specific exception list, intermittently being further reduced and modified) that all applications will be formally rejected within thirty days or they are considered automatically accepted. This has been widely hailed as an efficient and responsible initiative, clearly reflecting the Saudi government’s serious intent to reform the economy. These seminal reforms are fostering a business-friendly climate to promote Saudi accession into the WTO.
Another important aspect of the accession negotiations for Saudi Arabia is whether to join as a developed nation (i.e., enter with all provisions active, except those specifically exempted by the accession negotiations) or as a developing nation (which allows for a greater allotment of exemptions for select provisions over a specific period and the phase-in of exempted areas capable of being extended by a showing of economic imperatives). 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.
The expected outcome of these initiatives by the Saudi government will be severe at first. Many small and inefficient businesses that are unable to compete with larger, multinational businesses will be forced to scale back or cease their operations. Many small business owners will choose to work for larger local enterprises or foreign firms. Highly skilled and motivated individuals will rise quickly in both pay and position while those less motivated and unskilled will lose their jobs as a result of the meritocracy of results-oriented capitalism. Although there will be jobs initially lost as local firms lose the competitive advantage of economic protections, they will soon be replaced by new jobs that are being created by companies using an advantage innate to the Saudi Arabian economy.
The lowering of tariffs and duties will translate into lower consumer prices due to reduced costs, which will mean domestic producers will then have cheaper locally priced goods and more competitively priced exported goods. The WTO will also allow Saudi Arabia to subsidize products that cater solely to the domestic market or fill a particular cultural need in Saudi society. The government procurement rules will have to be adjusted, and many of these will not survive the competition for contracts under harmonized procurement regulations required by the WTO.
Intellectual property also will be dramatically affected by accession to the WTO. The immediate impact of implementing international patent and trademark laws will be to cause consolidation and cooperation of local companies with global companies in order to provide the services and access that the foreign multinationals can offer. Over the long term, the benefits to the Saudi economy will far outweigh initial uncertainties. According to a World Bank study, a country’s system of intellectual property protection seems to have a substantial effect on technology transfers by firms to that country. At least 86% of leading United States, German and Japanese chemical and drug companies reported that a country’s level of intellectual property protection has a major impact on their decision to choose to invest in research and development facilities in that country.
The GATS (not to be confused with the General Agreement on Trade and Tariffs, i.e.,"GATT") is integrated into the WTO and will require the selective opening of industries such as banking, insurance, telecommunications, transportation, and tourism initially with a scheduled gradual opening up of most industries to foreign competition. This will allow Saudi Arabia to protect certain industries needing time to adjust to the new competition (telecommunications and insurance come to mind), while providing access to foreign markets for those industries that are competitive, such as banking and finance. Benefits to Saudi citizens will come in the form of improved services at lower costs and with a greater choice in the type of services available. It is unlikely that Saudi Arabia could claim protected status for its commercial banking sector due to its sophistication and efficiency, but other less developed industries may benefit.
Saudi Arabia accession to the WTO is inevitable and seen as a necessary step in view of the Kingdom’s economic importance to the world. In order to facilitate this process, legal reform is as essential as economic reform. Such reforms mandate economic transparency and predictability. These reforms are part of the Saudi government’s effort to create an environment that will attract foreign investors as well as repatriate some of the Saudi capital currently invested abroad. Saudi Arabia is at the crossroads of reform and must continue to proceed with the meaningful and productive reforms of the recent past to obtain accession to the WTO and ensure a prosperous future for its people. |
|
| Top |
|
|
The Ministry of Commerce ("MOC") is in the process of drafting a law to prevent monopolies, unfair competition and exclusive agencies in Saudi Arabia. The law consisting of twelve Articles is designed to promote efficiency and provide for equal business opportunities for both Saudi nationals and foreigners.
The MOC also has proposed two laws aimed at protecting the Kingdom from dumping and protective tariffs. The new law prevents agreements between commercial establishments and traders that are designed to hamper fair competition, control prices of products, prevent free movement of goods in the market, or prevent any person from obtaining a controlling share of any market. |
| Top |
|
|
| The Saudi Telecom Company ("STC") is now finalizing the regulatory prerequisites for offering its shares to the general public. This Initial Public Offering ("IPO") is one of the largest in Saudi history. Saudi commercial law requires a company to publish its financial reports for the previous two years at least four months prior to the public offering. In an effort to improve its share price, STC has awarded a US $678.66 million to global telecom companies Ericsson and Nokia to expand and improve the Saudi mobile phone system. The contracts call for lower subscriber costs and an expansion of the networks in Jeddah and the western province. Services such as General Packet Radio System ("GPRS") Wireless Applications Protocol ("WAP") and Intelligent Network will be added as the foundation systems are established and the services installed. |
| Top |
|
|
| In the past few years, the medical community has been rocked by fraudulent insurance scams. Companies have come into the market without adequate capital or the intent to honor their commitments. The Saudi government has taken steps to rectify this situation and enforce regulatory requirements. The new medical insurance regulations administered by the Health Insurance Council ("HIC") require HIC approval which is contingent on a bank guarantee of SR25 million and reinsurance with an international insurance company. This capital requirement is similar to those used in the U.S. and Europe to assure solvency and proper dispersal of funds by the courts if so required. The HIC will organize a dispute settlement committee to sort out any disputes that may arise. |
| Top |
|
|
| |
|
|
| |
|
|
|
|
|
|
 |
| |
12/4/2009:Ministry steps up clampdown on copyright piracy 12/4/2009:Construction of New Office is near to completion 14/4/2009:JCCI preparing black list of car rental defaulters 7/4/2009:Justice Ministry warns ‘lawyers’ without permits
|
|
|
| |
|
|
| |
| |
|