RIYADH, 12 December 2005 — With the Kingdom having formally acceded to the World Trade Organization (WTO) yesterday, agricultural subsidies will start to be gradually reduced by 13.3 percent over a ten-year period.
Samba Financial Group Chief Economist Brad Bourland said that Saudi Arabia “has committed to reduce its aggregate measures of support for agriculture under a long-term plan” to minimize any adverse impact on the agricultural sector.
The Sixth WTO Ministerial Conference is being held in Hong Kong from Dec. 13 to 18. This sixth conference is deemed vital for enabling the four-year-old Doha Development Agenda negotiations to move forward sufficiently to conclude next year.
The Kingdom has already concluded bilateral market-access negotiations with all interested WTO members. The WTO general council formally concluded negotiations with Saudi Arabia on Nov. 11 of this year on the terms of the country’s membership to the WTO.
Asked about tariff protection for local industry, Bourland said that, effective from Sunday, it will be reduced from 20 to 15 percent. He said the phased tariff reduction for the agricultural sector should not create much of a problem for the industry.
Industry sources point out that the Kingdom has a list of 938 locally manufactured products that enjoy tariff protection. The government committed two years ago to shorten the list by almost half by the end of 2005. However, with 2006 approaching, this has not yet happened and the protective barrier continues across a broad spectrum of industrial and consumer products. In one case, the tariff barrier has been extended to a matchstick factory that is no longer in operation.
In this context, financial consultant Motasher Al-Murshed said that the government should set up a think tank consisting of experts from various sectors to steer the national economy through the challenges looming ahead.
“We have to rethink the national strategy and make sure that the government’s privatization program does not create a situation whereby it loses its competitive advantage,” said Al-Murshed.
Al-Murshed said that while the privatization program is good for the national economy, the Kingdom’s strategy should be to open up the sectors rather than pull out of them altogether. He identified the telecom, petrochemicals and the oil and gas sectors as areas where the government should maintain its presence while allowing private-sector participation at the same time. However, air transportation, railroad and seaports could be privatized under a phased plan, he added.
Such an approach would allow the government to hold on to its competitive advantage and promote diversification of the economy away from oil.
“Oil is not a dependable source of national income, since oil prices keep fluctuating. If the government withdraws from highly lucrative sectors like telecommunications, oil and gas, it could create serious problems,” Al-Murshed said, adding that various Western governments have adopted a similar policy of maintaining their economic presence in key sectors.
The WTO meeting in Hong Kong will discuss a number of trade-related issues arising from the earlier Doha Development Agenda negotiations to help developing countries in world trade. It was recognized that the global trading system was unequal and unfair for most of the world. Thus this meeting is being billed as a “Development Round.”
Ministers from key countries in WTO negotiations have set for themselves a March 1, 2006 deadline for agreeing on a target year for eliminating agricultural export subsidies as well as opening markets in non-agricultural products and services.
However, the concerns as in previous years will be the lack of transparency and democracy in the decision-making processes, and the power that the rich nations have over the poor to distort trade in their favor.
The previous ministerial meeting two years earlier collapsed as the developing world managed to stand up against unfair demands and tactics from rich nations. Yet, since then, the same kinds of issues have resurfaced as rich nations appear to have hardly moved on their countless promises, pledges and obligations.
