RIYADH, 26 December 2005 — Without the World Trade Organization (WTO) you are out of the race in today’s globalized world. With the WTO, you are guaranteed a place at the starting line even if there are no guarantees that you will make it to the finish line.

But, most important, without the WTO the Kingdom’s strategy of economic diversification could be at peril. In its pursuit to diversify the economy away from dependence on crude oil, the Kingdom has emphasized the development of some sectors based on the country’s comparative advantage, such as petrochemicals and related products: aluminum, fertilizer, other minerals and cement.

In addition, Saudi Arabia has 934 nationalized industries that are protected from competition through higher import tariffs than the Gulf Cooperation Council (GCC) common rates, 12-to-20 percent vs. zero-to-five percent.

Without WTO membership, any country can impose any restriction on Saudi exports or on Saudi investments (real or financial) in that country. There would be no commitments to anything by anyone. Rules and trade restrictions can be arbitrary and changed anytime. With WTO membership, everyone in the organization agrees to play by the same rules. From the perspective of traders, businesses and investors, transparency and predictability of foreign trade and investment is a key advantage. Everyone knows exactly what to expect. There will be no sudden change of rules, no arbitrary customs orders, no sudden post-shipment inspections, no arbitrary technical, environmental or health-related restrictions. Every major change has to be announced well in advance and aggrieved parties can appeal to the WTO for litigation and appeal for compensation.

If anyone breaks the rules there is an orderly and transparent procedure to address and solve disputes. Trade disputes under the WTO are now fought over the negotiating table instead of in the battlefield. In the past, it was not uncommon for nations to gain trading advantages or solve trade disputes through wars or imperial, colonial, or mercantile showdowns.

Multilateralism is another key benefit of the WTO, magnifying its potency many-fold. Under the WTO, there is one set of trading and negotiating rules for everyone. To replicate the WTO on a bilateral basis, Saudi Arabia (or any other members) would need to reach 148 separate bilateral agreements.

Today, joining the WTO is not a question of choice anymore but a necessity. The WTO is the world’s most influential economic club, accounting for over 97 percent of global trade. Until now, Saudi Arabia, the world’s largest oil producer, was the only GCC country outside the WTO. In a rapidly globalizing world, it is better for the Kingdom to globalize voluntarily than to be dragged into it. In the short run it will involve some pain for some sectors, but being prepared will mitigate these growing pains.

In the long run, WTO-bred competition will allow world-class local industries to develop, lower prices, increased quality and more consumer choice. Also, time was running out for the Kingdom to join the WTO under present rules. The ongoing Doha Round of talks is meant to expand the scope of the WTO, and Saudi accession later may have had to deal with many new areas of negotiations.

(Khan H. Zahid is chief economist and vice president at Riyad Bank. He is based in Riyadh.)