Saudi Arabia has become a member of the WTO. The business community in general, and the general public, in particular, are still not the wiser on what are the implications of entry to the world trading body. Why do countries aim to join the WTO? The answer is simply — that being a member of this exclusive club will give its members the same trading privileges to deal with each other without discriminating trade barriers. Countries that were not able to export to others because of artificial barriers can now do so and increase their share of international trade. Or so it seems, for if one country is exporting more and gaining, then another is importing more and theoretically losing. The above is a pessimistic assumption and is often used as an argument against WTO entry by countries that feel most threatened. In reality, not all industries and services in a country will suffer, with some gaining international market share and increasing their national wealth, while others losing out.
Some countries take effective measures to ensure that national interests are protected during negotiations depending on the negotiation power of the two parties. At a minimum, it has been observed that nations that go prepared for such negotiations have teams composed of government representatives, lawyers, academics and representatives of the private sector who are best qualified to argue and defend their various positions on key industries.
In this way, there are no surprises when final documents are signed and all parties can then reflect on how to implement the agreements. If certain industries had lost out because the level of tariffs had to come down more than others, then at least those industry representatives could begin to prepare themselves for the hard choices facing them. As such, transparency and acceptability by the majority can be easier to defend in public discussions. However, if negotiations are shrouded in total secrecy and no representative of potential gainers or losers from the private sector are even in the negotiating team, then issues concerning the WTO become emotional heated debates.
Not everyone will be better off, but the aim of WTO accession is that sufficient numbers will be better off after entry to make the whole effort worthwhile. As far as the Arab and Islamic world is concerned, different countries have adopted different negotiation styles. Some such as Egypt, Jordan and Malaysia have led the way by having as inclusive delegations as possible, which represent many viewpoints. The consequent public awareness campaigns were better managed. Some countries tended to have discussions with the private sector after negotiations had been concluded. This leads to bitter recrimination, and the lack of transparency causes all kind of accusations to be made. This is unnecessary, for in the final analysis; the government negotiating team is supposed to represent the best interests of the private sector, and not to do so defeat the whole purpose of trying to join the WTO. As for Saudi Arabia, the relevant bilateral agreements and WTO agreements have been signed. It is no use crying over spilled ink. There is no going back on one of the most momentous steps that the Kingdom has taken to be part of the global economy, or be left behind. It is imperative that the private sector is prepared, from now, on the likely effects of joining, especially in industries that are currently enjoying high tariff protection and subsidies. Those are the ones that will be the most at risk.
Even seemingly profitable industries such as the Saudi financial and insurance sectors will face competition after WTO entry, and yet industry surveys reveal that not all Saudi financial institutions are taking the threat seriously. In the face of international services and reduced costs, consumer loyalty can evaporate. It was somewhat surprising to note that the first significant deal that the newly licensed Deutche Bank carried out was a mega Islamic financing for SABIC — right in the backyard of the Saudi banks with their more extensive Islamic financing experience. Such deals from post WTO entrants can only serve Saudi consumers and raise the level of efficiency of the domestic sectors through more transparent competition.
The stakes are high for the Kingdom, but some forward planning can help. At the least there should be detailed discussions between the private sector and the government representatives who signed the bilateral agreements on what has been agreed upon and the implications for Saudi industries. National level industry-specific workshops and seminars should be conducted that are focused, and aimed at company middle managers who will face the realities of WTO competition. The various Chambers of Commerce and Industry should put regional rivalries aside and cooperate in the establishment of a National WTO Center to develop expertise and public awareness, as well as conduct feasibility studies on economic sectoral impacts.
It is not too late to start a focused national awareness program on specific industry effects. Until the recent crash in the Saudi stock market some Saudi companies had taken their eyes off the ball of WTO competition, and found that it was more lucrative to trade in local shares. The Saudi regulatory authorities have moved quickly to stop such activities, and hopefully the private sector can once again concentrate on more painful, but fruitful, export-led long-term wealth generation that the Kingdom needs. Just ask China and India following their WTO accessions.
(Dr. Mohamed A. Ramady is Visiting Associate Professor, Finance and Economics, at King Fahd University of Petroleum and Minerals.)