JEDDAH, 14 March 2004 — The process of accession to the WTO, according to the most optimistic reports, is nearly complete.
It is generally agreed that Saudi Arabia has completed the difficult part of the process and the EU — the Kingdom’s main trading partner — has endorsed entry.
“We particularly value the decision that Saudi Arabia has taken to comply with all WTO rules by the time of accession and to eliminate the number of obstacles to international trade like the bans on the importation of certain food products and dual pricing of gas products,” said EU Trade Commissioner Pascal Lamy.
In May 2001, Saudi Arabia lowered its tariff barriers from 12 percent to five percent over most import categories, though infant industries continue to be protected by the higher 20 percent rate.
The question of agricultural subsidy within the Kingdom is one of the details still under intense debate. Professor Mohammed Sahlawi, a Riyadh based economist, sees the Kingdom’s agriculture divided into two distinct areas, the basic and the industrial.
The smaller producers of foodstuffs (basic) - for example vegetables and fruit for consumption within the Kingdom - he feels will continue and will feel little or no threat from imported produce. “We produce these basic foods cheaply and competitively, and they should be encouraged,” he says adding that they have little need of subsidy.
Large-scale industrial farming - wholesale production of beef and dairy produce - will be affected by the WTO requirement to reduce and eventually eliminate farm subsidy. These industries, says Professor Sahlawi, “are still relatively infant here, and should be subsidized for some time, but gradually phased out. I don’t see a plan for that in Saudi Arabia - it could be a sticking point in the negotiations.”
Part of the conditions of entry to the WTO is that the candidate country commits “to observe WTO rules and discipliners upon accession and transitional periods required to make any legislative or structural changes where necessary to make these commitments.” Agriculture has long been seen as crucial to the Saudi economy. Between 1985 and 90, the sector grew by an average of 13.8 percent per annum. Although labor levels in the industry have fallen, productivity has increased markedly over the last twenty years. The government-led developments in agriculture, emphasized in the Government Development Plans, include:
• The need to diversify away from oil economies
• The recognition that agricultural developments will develop forward and backward linkages in machinery, agricultural services and fertilizer manufacturing - helping develop peripheral industries
• Making a contribution to environmental awareness and conservation
• Raising income levels in rural areas as part of a balanced regional development program
Subsidy by the government has been instrumental in supporting these aims - not least in providing the means to overcome the singularly harsh climate. The perceived threat of these pillars of the Development Plans posed by the removal of trade barriers, subsidy and low tariffs has been a cause of great concern in the Saudi negotiating team. “The Uruguay round of WTO negotiations introduced significant disciplines on both export and domestic subsidies in the agricultural sectors,” says Professor John Presley, a senior economic adviser to the Saudi British Bank. “The agreement established ceilings on both value and volume of subsidized exports of farm products.”
Export subsidy expenditure was to be reduced by 36 percent from the 1986-90 levels over six years in equal amounts, and the volume of subsidized exports cut by 21 percent. For developing countries, the amounts were 24 percent and 14 percent.
“As a full member, Saudi would be able to extend substantial export subsidies to its farmers, but the accord limits current subsidy activity and prohibits export subsidy on products not previously subsidized,” Presley said. In some important sectors though — coarse grains, fruit and vegetables — the commitments allow some flexibility to shift subsidies between products.
The Uruguay round required member countries to convert all non-tariff measures into tariffs to bind all the agricultural tariffs and then cut the combined tariffs by an average of 36 percent from the 1986-88 levels. There was some flexibility within that requirement for cutting, but each tariff had to achieve at least 15 percent over the six-year period. Of particular importance to the domestic dairy industry, each country has to agree to achieve a “minimum access” level for product groups, which means members will have to import modest amounts of their most protected products.
The effect of WTO entry will make agriculture vulnerable to greater competition.
Saudi Arabia would, on membership, be required to bind its tariffs after any tariffication of any quantitive import restrictions. Even if this were not strictly required, it would be possible for the Kingdom prior to membership to reduce the levels and coverage of the more sensitive subsidy instruments and replace it with higher tariffs. “There is,” says Professor Presley,” plenty of evidence of ‘dirty tariffication” in the developed countries in order to maintain their substantial levels of protection.” The discipline in the agricultural sector is less stringent than in the industrial sector.
Production subsidies that do not strongly affect trade (the green subsidies) could continue, while those on domestic production that impact strongly on trade (yellow subsidies) and all export subsidies would have to be reduced over time.
There would not however be a requirement for the immediate liberalization of Saudi agriculture, although in later rounds of talks there would be strong pressure to liberalize the sector.
“Since Saudi Arabia does not have a comparative advantage in large parts of this sector,” Presley said, “it will be the most energy-intensive, least water-dependent and most naturally protected parts of this sector that are likely to survive or emerge from this transformation process.”
