The Joining of Saudi Arabia in the WTO - Research Paper Example

Saudi Arabia was ranked 13th in world merchandise export and 14th in merchandise import.

Merchandise trade was accounting for SR 640.3 billion or 68 percent of the Kingdom's GDP in 2005. Around the world trade contributes an average of 17 percent of GDP making Saudi Arabia one of the most advanced trading economies. The impacts of the WTO accession are unlikely to affect Saudi Arabia's positive trade surplus. For over 10 years, Saudi Arabia had been running a trade surplus of 9 percent. At the time of accession trade surplus was at $87 billion. Saudi Arabia has been able to keep its imports at a third of the value of its imports.

Most of the Kingdom's exports are from the Petrochemical industry and include Crude oil, petrochemicals, and refined oils. However, the Saudi service industry runs a small deficit as most Saudi services are sought from overseas companies. With a strong global oil market, the trade surplus will persist for several years despite the Kingdom's accession to full WTO membership. However, the Kingdom remains vulnerable to volatile oil prices making the need for trade diversification more urgent. In 2004, Saudi main sources of imports were the US, China, Germany, and the UK.

Saudi main trading partner is the US which receives the bulk of Saudi Arabia’s imported crude oil. Other importers of Saudi merchandise are India, South Korea, Japan, and China. Like most nations across the world, Saudi Arabia has improved trade ties with China. Now, Saudi Arabia receives more imports from China than ever before in its history. By 2004, China had become the 5th largest importer of Saudi Arabian Merchandise. With China's accession to the WTO, trade between the two Asian economic powers is expected to increase significantly.

Before committing to the WTO, Saudi Arabia had already started reducing trade tariffs. With entry to the WTO, Saudi Tariff ceilings are expected to come down further. Membership of the Gulf Co-operation Council (GCC) means that 85 percent of the 7.177 items classified in Saudi Arabia for customs policies were charged a tariff of less than 5 percent. At the time of Applying for GATT membership, Saudi Arabia was charging a tariff of less than 12 percent on 75 percent of classified commodities.

The WTO commitment means the Kingdom agreed to lower tariffs across a range of commodities. However, most Saudi tariffs on imported items were below the commitment made to the WTO. For a country to be accepted into the WTO, it has to be undertaking trade reforms as negotiations proceed. Each of the WTO's existing members had to agree that Saudi Arabia’s trade regime complies with the WTO. As part of the compliance, Saudi Arabia enacted 42 trade-related legislation and created nine regulatory bodies to bring the Saudi economy to WTO standards.

However, Saudi maintained that its policies were a result of its commitment to trade liberalization and economic reforms. Saudi Arabia was engaged in 314 bilateral trade negotiations under the Umbrella of the WTO and by September 2005 had signed 38 bilateral trade agreements. In September 2005, Saudi Arabia signed a bilateral trade agreement with the United States its largest import partner.