RIYADH, 2 January 2006 — One of the most important aspects of Saudi Arabia’s accession to the WTO are the specific commitments the Kingdom has made regarding its import tariffs. Under WTO rules, the Kingdom agreed to cap its tariffs to certain negotiated levels on a product-by-product basis.
Setting tariff caps have two important implications. First, if the WTO-established rate is lower than the current rate, the Kingdom would have to lower the tariff on that product from a date specified, either upon accession to the WTO or upon an established date in the future that has been set by the consensus of WTO members. This enables foreign suppliers to sell their products in the Kingdom at a lower price, thus increasing competitive pressures on local producers. The second implication is that, for many products, particularly those traded among Gulf Cooperation Council (GCC) states, the WTO-tariff cap is actually higher than the current Saudi Arabian rate. However, raising these tariffs from the current GCC customs union rates would be difficult, because everyone would have to agree to do so.
A higher potential tariff for these goods that are not already capped out gives Saudi Arabia breathing room to raise rates in the future if necessary — the WTO allows this under well-defined rules. Thus, local producers of these products will continue to enjoy the same degree of protection from imports as before WTO accession.
A review of Saudi Arabia schedule of commitments in its WTO accession package (available in the WTO website, www.wto.org) is revealing. It shows that the Kingdom has tariff caps higher than existing rates on many products.
Currently, under the GCC customs union, 85 percent of product lines are either duty-free or carry a five-percent import tariff. After WTO accession, the 63 percent of product lines are capped at the 10-20 percent rate band. Currently, only 13 percent of all products (938 lines) are within this band. Forty-two percent of all product lines are capped at a 15-percent tariff rate, many of which are currently taxed at zero or five percent. Of course, as mentioned above, this does not mean that the Kingdom will raise rates on these products. But, more important, this means that the country does not have to lower tariffs on these products. Riyad Bank reviewed 306 specific non-agricultural product lines before and after WTO accession.
Out of them, only 53 lines will see an actual lowering of tariffs, while the remaining 253 lines will see no immediate change in the rates.
(Khan H. Zahid is chief economist and vice president at Riyad Bank. He is based in Riyadh.)
