Can Saudi Arabia ever join the WTO?

For nearly a year, Saudi Arabia's accession to the World Trade Organization has been a hot issue not only for the Saudis, but also for the Bush administration, which sees a strategic benefit from having the Gulf's largest state as a member of the world's largest trade organization.

Yet optimism was not always plentiful. During last September's 2003 WTO meeting in Cancun, Mexico, an observing Saudi delegation could not have been impressed by members' inability to come to an agreement on goals set out in Qatar the previous year.

However, both Washington and Geneva were adamant that negotiations for the inclusion of new members, especially from the Middle East, should not be undermined by lack of agreement on broader concerns outlined in the Doha accords. According to officials in Geneva, it was Kuwait that began consulting Saudi Arabia on the prospect of membership and accelerating the process soon after the meeting in Mexico.

With the support of the United States, the prospect of Saudi Arabia's accession into the WTO was well underway. Speeding up. The Bush administration had a vested interest in seeing Saudi Arabia become a member.

On an economic development level, Washington wanted to see Riyadh not only bolster its country's private sector, but also open the country up to US and European investors, as well as others from outside the region. The best way for that to happen was to accelerate negotiations with Saudi Arabia in order for it to meet the requirements for becoming a WTO member.

It was only later that the United States became more vocal about using trade negotiations as a foreign policy tool to bring about overall reform in the Middle East, seeing it as a platform for a wider reform push. That is something which in the last few months has become a bone of contention as far as relations between the United States and countries in the Middle East are concerned.

Since a leak of documents earlier this year that talked about President Bush's broad vision of reform in the greater Middle East, Riyadh has naturally become more skeptical of Washington's plans for the region. Especially when the plans resemble those applied in the 1990s to privatize industry in the former Soviet Union, which proved monumental failures.

But that has not stopped the United States from pushing through negotiations with Saudi Arabia, which has been quick to step up its efforts to create the trade guidelines and economic legislation required to join the WTO. The prospect of accession has been, perhaps, one of the only things the two countries really share enthusiasm for in public.

At the helm in these negotiations is US Trade Representative Robert Zoellick, who has pursued that course aggressively and relentlessly. Although there were some sticking points on getting Saudi Arabia up to WTO standards regarding import-export insurance law, 'the kingdom has made good progress' and brings a 'great attitude' to the negotiating table, Zoellick said in March after a meeting to discuss a free-trade agreement with Bahrain.

More recently, though, the kingdom has made a series of moves to bring the economy into closer alignment with WTO standards, including on the crucial issue of insurance reform. In late May, the Supreme Economic Council's (SEC) secretary general, Abdel-Rahman Al-Tuwaijri, told reporters that the SEC had agreed to sell shares in the National Company for Cooperative Insurance (NCCI), the kingdom's insurance giant and one of just two such firms currently licensed to operate in Saudi Arabia.

Tuwaijri also announced the SEC had 'approved the major steps to privatize the Maaden company,' the kingdom's $1 billion mining firm, owned by the oil ministry. NCCI is a giant, with an annual turnover in excess of $2.7 billion, and the government has long been reluctant to reduce its stake - or allow the firm to face real competition.

The roughly 100 other insurance firms doing business in Saudi Arabia are classed as 'agencies' and have limited options. 'Once the new regulations take effect,' Fahad Almubarak, an insurance specialist and member of the Shura Council, recently told Arabies TRENDS, 'most of those [foreign] companies will request a license to operate in the kingdom. The new law requires a capital of 100 million riyals ($27 million), but at least some of the companies are undercapitalized and won't be able to meet the requirement. As a result, we'll then see consolidations, takeovers and acquisitions among smaller insurers.'

These changes announced by the SEC, involving giants NCCI and Maaden, make plain that the kingdom is pushing hard towards achieving its target of joining the WTO 'before the end of 2004,' according to Fawaz Al-Alamy, the deputy trade and industry minister.

For his part, Zoellick said that while he could not specify a date when Saudi Arabia is likely to become a member of the WTO, he did say that there could be something significant to announce sometime this summer, ahead of the reported 2005 date given by the WTO itself.

In front of the US Senate and House of Representatives, Zoellick's words have been supportive for Saudi Arabia's membership in the WTO as a Bush administration trade priority in 2004. Back in March, he told the Senate Committee on Finance that 'in 2004 the United States will continue its efforts to bring Saudi Arabia into the WTO and will expand its network of trade and investment agreements [TIFAs] and bilateral investment treaties throughout the region.'

On July 31, 2003, the Saudi minister of commerce, Hisham Al-Yamani, was in Washington to meet with Zoellick. The visit ended with the signing of a TIFA between the United States and Saudi Arabia to reduce trade barriers and increase the flow of goods between the two countries.

Many in Washington see the signing as a major step toward the real goal of Saudi accession. During the September 2003 US-Arab Economic Forum in Detroit, the prospect of Saudi membership in the WTO was a subject of wide discussion while businessmen and delegates met in informal sessions to discuss trade.

The feeling was that Saudi membership would be a watershed event, an historically unprecedented move to diversify economies in the Middle East. US Secretary of State Colin Powell and other American officials who attended the forum said that Saudi Arabia's WTO membership was an integral part of the creation of President Bush's Middle East free-trade zone.

'Helping governments, whether it is the Saudis or the Algerians in their accession efforts with the WTO . . . [are] all pieces [that] add up to something that is quite serious that over the long haul can make a difference,' Assistant Secretary of State for Near East Affairs William Burns said in a breakout session with Arab journalists.

That difference is being made through the enhancement of a broad set of goals outlined in the Middle East Partnership Initiative introduced by President Bush nearly two years ago. According to the State Department, 'The initiative strives to link Arab, US, and global private-sector businesses, non-governmental organizations, civil society elements and governments together to develop innovative policies and programs that support reform in the region.'

According to Burns, 'What you're seeing since the launching of the partnership initiative . . . are a series of programs being announced to give some flesh to those broad initiatives, so that the words actually mean something.'

But have the words gotten ahead of the fleshing out? Zoellick, who comes across more as an academic than as a diplomat, has flown the globe more than twice over in support of President Bush's broad trade policy. When you talk to him, his optimism is unwavering. But the feeling is a bit different when listening to Saudi officials talk about WTO negotiations. When they speak, they are most often trying to correct some misleading assertion presented in the press.

Thus was the case in April, when a Saudi delegation visited the United States. Usamah Al-Kurdi, a member of the Shura Council, was giving a talk at the US government-sponsored Center for International Private Enterprise (CIPE), when a question was posed about reports suggesting WTO negotiations were effectively stalled. Al-Kurdi rather nonchalantly dismissed the claim. WTO negotiations have 'not been stalled . . . but are ongoing [and] very close to a conclusion,' Al-Kurdi said.

What was unprecedented, even for Washington, was that his comment was immediately supported by a high-level official from Zoellick's office. The official, Cherie Loustaunau, director of the US Trade Representative's Office of the Middle East, stood up during the question-and-answer session to support what Al-Kurdi had so calmly stated. Meeting of minds.

Saudi Arabia is 'moving quickly' to meet the requirements necessary for membership in the WTO, and the talks have 'not stalled,' Loustaunau said. The promise of Saudi accession is enough to make US officials with a stake in it jump out of their shoes when the issue is brought up.

It also shows the close government-to-government relations that exist between the United States and Saudi Arabia over this and other issues - Loustaunau and Al-Kurdi even used the same language in answering the question. Loustaunau went on to describe the plan set out by the US government to have all the Gulf states in line to become free-trade partners by 2013.

Saudi Arabia's WTO membership is a key component in negotiating trade deals with each country in the Gulf, she said. The more you talk to US officials, the more you think that Saudi Arabia is the key and its membership in the WTO will unlock the door to economic, social and political reform in the greater Middle East.

Then enter the greater Middle East initiative, or its most current incarnation, the initiative for reform in the broader Middle East, talks for which began at the June G-8 Summit in Sea Island, Georgia. The initiative, which has met with strong resistance from Saudi Arabia, was made public before the United States had a chance to explain itself and seek the counsel of countries in the Middle East.

The Bush administration has sent envoys to the region since the initiative's leak, primarily to Saudi Arabia, Egypt and Jordan, to outline the plan's particulars How WTO membership fits into the initiative, exactly, has not been explained yet. But it clearly has the opportunity to either help or hinder the process.