RIYADH,(Reuters) – Saudi Arabia, looks set to get the green light to join the World Trade Organisation on Friday in a move that will open wider its long-protected but fast-growing economy to the outside.
After 12 years of tough on-off negotiations, a WTO working party which has overseen the talks in Geneva looks certain to approve the final terms under which the kingdom will enter, probably within the next six weeks.
Entry is expected to boost foreign investment in the country, providing funds for diversification of the largely oil-based economy, and bring new export opportunities for Saudi firms, especially in the petrochemical industry.
Investment has already become less cumbersome and fewer sectors are restricted to local businesses, Samba Financial Group economist John Sfakianakis said in a report this week.
"Adherence to international property rights has improved and the liberalisation of the insurance market is improving," he said, adding that the economy will become more competitively structured and certain industries will be helped by the chance of competing abroad "on a level playing field".
Admission still has to be agreed by the WTO”s ruling General Council in early November, but that is seen as a formality and will clear the way for Saudi Arabia to attend a key ministerial meeting in Hong Kong in December as a full member.
The talks have dragged on partly because of domestic fears that WTO free trading rules would limit the country”s right to
Negotiating partners like the United States have taken years to accept that Saudi Arabia”s economy is sufficiently open to join. The European Union held eleventh hour talks this week on insurance sector access.
Fears among small Saudi firms at the international competition which WTO accession will bring are echoed by petrochemical producers in Europe who worry that cheap oil and gas give Saudi firms an unbeatable advantage.
Diplomats say the kingdom finally persuaded the 25-member EU this month that low prices for its petrochemical feedstocks are a natural advantage stemming from abundant oil resources rather than a case of market fixing.
But Saudi economists express concern that many smaller firms are ill-prepared to battle for share in an open market.
"Are we ready? No, we are not. Even though we have been negotiating for 10 years we didn”t do anything to get ready," said Ihsan Bu-Hulaiga of the consultative Shura Council.
Bu-Hulaiga said Saudi Arabia”s services sector may be particularly affected by an influx of foreign companies, but argued that the long-term impact of liberalisation and competition would stimulate the economy.
The kingdom is expected to record a budget surplus of up to 200 billion riyals ($53 billion) this year on record world prices for its crude exports, but is trying to ease dependence on oil and create jobs for a fast-growing population.
"The most important thing about the WTO is that it gives comfort to foreign investors that Saudi Arabia”s laws and regulations are in line with international standards," Amr Dabbagh, head of the investment authority SAGIA said.
Bankers say much of the WTO effect is already being felt as a result of accession preparations. Foreign licensed banks can now set up branches and existing joint venture banks can increase their foreign equity to 60 percent from 40 percent.
France”s BNP Paribas this week became the first bank from outside the Middle East to open a branch in Riyadh and plans two more branches in the country next year. In telecommunications too, competition has been introduced.