Saudi Arabias Admission to the WTO - Essay Example

The accession to the WTO in 2005 was an outcome of 12 years of strenuous multilateral and bilateral negotiations, policy, and legal reforms to bring the kingdoms’ foreign trade into compliance with WTO requirements. Initially, KSA applied to join GATT in June 1993. Following the creation of WTO in 1995, its request was converted into an application to join WTO. The government embarked on comprehensive restructuring strategies and an economic reform programme to ensure stability, transparency, predictability and accountability to achieve WTO approval. The government endeavoured to develop Saudi Arabia's domestic market by reforming various commercial and economic regulations intended to liberalize the business environment.

WTO is the only international body mandated to regulate trade between nations. The legislation relates to matters related to the reduction of tariff and non-tariff barriers which affect international trade in goods and services, safeguarding intellectual property rights, harmonizing trade regulations and strengthening the rule of law. WTO members have access to the global economy through interconnected channels. The integration of domestic markets into international economic networks requires economic reforms which WTO regulates.

Saudi Arabia’s admission to the WTO forms the basis for its dominant force in international trade and economic relations in the future. Initially, the Kingdom had a policy of protecting domestic industries. The accession to WTO has induced broad benefits to the country as well as to other members. Nevertheless, Ramady and Mansour note that such accession has both positive and negative effects. Critics argue that WTO accession would minimize the country’s right of restricting goods prohibited by Islamic laws. On the other hand, proponents say it presents an opportunity to ‘create real market systems and to establish KSA global trade and production systems that comply with global rules of the game’. Moreover, Saudi Arabia is ranked as the 8th highest recipient of Foreign Direct Investment (FDI). This paper aims to examine Saudi Arabia’s accession to the WTO, the advantages of accession and the impact of the FDI on the KSA’s economy.

Joining WTO has many benefits for the KSA economy. Research has shown that Saudi Arabia’s economy is heavily dependent on international trade. With globalization, the country cannot afford to lock itself out from the international market through anticompetitive practices. The impact will be felt about reforms with which KSA must oblige, such as the new code for taxing foreign invested capital, regulations on sponsorship, reducing import tariffs, applying non-discriminatory measures and phasing out government subsidies to the private sector.

Saudi Arabia’s quest to join WTO started in the early 1990s. Just before its WTO accession in the last quarter of 2005, the benefits of the strenuous process of economic and legal reforms were starting to bear fruit. For example, the national growth rate increased by 22.6% in 2005. The private sector experienced a 6.7% growth rate in 2004. Such economic performance could only be attributed to KSA’s WTO regulation compliance in anticipation of joining the WTO. This was a strong indicator that the kingdom would perform well in the international market despite the cut-throat competition. Saudi Arabia, similar to many other developing countries, has faced high unemployment and low skill sets in the majority of its population in various sectors. The entry of WTO and the subsequent diversification of KSA’s economy by the government provided diverse employment opportunities. Firstly, the entry of foreign investors and the growth of various service industries provided attractive job opportunities to the population. As a result, this has contributed to poverty reduction and has improved living standards while creating revenues for the government through taxation. Foreign Direct Investment (FDI) has also led to the transfer of skills and know-how to the country’s labour force. 

Foreign investment has promoted the transfer of new technologies and skills to the local market through the training of KSA’s labour force. When the country gained accession to WTO, foreign investors recognised the country’s domestic market and the general trade environment as being predictable, reputable, transparent and stable.