Good Essay On Saudi Arabia
Saudi Arabia is the sixteenth-largest exporter of goods and occupies 29th place in the world in terms of imports (“The World Factbook” 2014). Despite this, the Kingdom initiated trade liberalization quite late, as a result of the GCC Economic agreement signed in 1981 as well as the negotiation about accession to the WTO launched in 1990 (Ramady 15). However, the status of a regional leader and global trends on the establishment of common market, customs union and free trade area around the world push ahead Saudi Arabia with the membership and leadership in several regional trading systems on the Middle East space.
The most significant regional trade mechanism is the Gulf Cooperation Council (GCC) operating since 1981. The total GDP of its members (Bahrain, Kuwait, Qatar, UAE, Oman and Saudi Arabia) in 2013 amounted to 1.6 trillion US dollars. In 2003, these countries founded the customs union, which as of 2005 has not coped with its tasks and was automatically extended until 2015. It should introduce a standardized customs tariff of 5% for imported goods from outside the Union, except for 53 items, whereas the members have to trade with each other on the duty-free basis. The agreement between the Gulf countries also meant a transition from 1 January 2010 to the single currency – dinar, tied to the US dollar, but this step has also turned out impossible (Ramady 54). Another great regional agreement was the Greater Arab Free Trade Area (GAFTA) founded at the Arab League summit in Amman (Jordan, 1997), which obliged the members to decrease yearly the tariffs on Arab products by 10% (Wrampelmeier 37). To sum up activities of those institutions , it is worth emphasizing that all the projects were not fully implemented because of the low intra-regional trade rate among their members (about 7%), so that the elimination of Customs on the regional space does not promise them great economic benefits (Ramady 72).
Among the multilateral global trading systems it is worth paying attention to the G20 and the WTO. To join the latter in 2005, Saudi Arabia had to take on the whole list of the WTO rules, which entailed the liberalization of several private sectors. In particular, it has opened up access to the Arabia's market for Israel, which led to a revision of the boycott on Israel by the Arab League countries (Williams 2).
Continuing to talk about the WTO, I will go on to the issue of Saudi Arabia's trade policy. In 2012, the WTO has officially recognized that the Saudi Arabia's market is open to all types of products. Saudi authorities have already signed up to the initiative on the reduction of agricultural subsidies, supported by many countries. Saudi Arabia reduced the amount allocated for these purposes by 13% and waits for other countries doing the same, as it might briefly put down the food prices, which the Kingdom as a great importer is mostly interested in. In addition, some tariffs designed to protect local producers were reduced from 20 to 15% by 2015. However, in most cases, according to the GCC's rules in Saudi Arabia is applied the 5% tariff. Besides, there are 666 commodities which can be imported to the country duty-free, esp. weapons (except for firearms) and livestock, as Saudi Arabia is one of the greatest buyers of this kind of production around the world. As to the non-tariff quotas, the Kingdom is considered not to apply them absolutely. Due to commitments to the WTO in 2007, Saudi Arabia also eliminated the authentication requirement for import documentation, which no longer demands the approval of the Chamber of commerce (Williams 3).
Nevertheless, there is a sphere in which Saudi Arabia will not come to liberalization. The point is that the trade policy of this oil-based economy ab origin had meant the high oil exports taxation in order to increase the oil world price. That was relatively successful, as while in the mid-1980s the oil prices fell down significantly, the Saudi Arabia continued growing. Apart from that, Saudi authorities cannot agree upon liberalization of the oil sector, because if there were no tariffs and state regulation in this sphere, that would be much more complicated for the ruling family to keep the oil export under their control. So the further taxation of oil export enables the Saudi regime to keep possessing monopoly of oil trade and, therefore, to remain in power (Wrampelmaier 84).
Monetary policy of Saudi Arabia has always been based on the peg of riyal to the US dollar by fixing at 1 dollar = 3,75 riyals. Against the background of the dollar devaluation this led to an increase in import costs and inflation. Moreover, even though oil prices have repeatedly set records, Saudi Arabia's oil exports earning actually declined due to the devaluation of petrodollars. Against the background of deteriorated relations with the United States in 2007 and then in 2010, Saudi Arabia stated the Kingdom could stop tiying the currency against the dollar and bind it to a traditional basket of major global currencies like it had done Kuwait. On the one hand, in the current terms the dollar peg does allow at least a little to balance the losses caused by the fall in world oil prices, so that it will remain a cornerstone of the Saudi Arabia's monetary policy. But on the other hand, the fixed exchange rate supported by the authorities of Saudi Arabia is requiring more financial resources. When there is an actual change in rate, they are buying/selling dollars/gold. In fact, in spite of those efforts the Arabian currency is losing in value, and in terms of current dynamic regarding oil revenues, maintaining the fixed exchange rate becomes increasingly unprofitable. That is also the reason why the plans on introducing the single GCC currency – dinar which would be pegged to the dollar as well failed in 2010 (McPhail 2).
McPhail, Bruce. "Saudi Arabia and the $ Peg: The First Impact of Floating the Riyal against the Dollar Would Be to Depreciate Saudi Arabia's Export Earnings and Foreign Asset Holdings." Middle East 1 May 2008. Print.
Ramady, M. A. The GCC Economies Stepping up to Future Challenges. New York: Springer Science Business Media, 2012. Print.
"The World Factbook." Central Intelligence Agency. Central Intelligence Agency, 1 Jan. 2014. Web. 24 Apr. 2015. <https://www.cia.gov/library/publications/the-world-factbook/rankorder/2078rank.html>.
Williams, Stephen. "Saudi Arabia Joins WTO: After Years of Negotiations, Saudi Arabia Has, at Last, Reached an Agreement to Become a Member of the World Trade Organisation. Stephen Williams Looks at the Implications." Middle East 1 Dec. 2005. Print.
Wrampelmeier, Brooks. "Saudi Arabia in the Balance: Political Economy, Society, Foreign Affairs.(Book Review)." Middle East Policy 22 June 2006. Print.