Capitol Comments

Additional Countries Seek Entry Into WTO

By Peter Mayberry and Jessica Franken | November 15, 2005

Saudi Arabia, Russia Must Open Markets As Condition of Membership

It looks like the 148-member World Trade Organization (WTO) is about to add at least one—and possibly two—new member countries within the coming months. Indeed, at present, there are 31 nations actively pursuing WTO membership and, regardless of size, each of these countries has the potential to alter the global economic landscape once they become members.

This is largely due to the fact that a condition of WTO membership is a commitment to open markets, and several of the countries now seeking to join the organization have had somewhat closed economies for decades. History also shows that WTO membership can dramatically elevate the economy of a newly acceded country, one need look no further than China's rapid expansion following its 2001 accession to see an example of that.

But, of all the countries currently seeking accession to the WTO, Saudi Arabia and Russia stand out. The reasons for this special interest is that both countries are on the cusp of being accepted into the WTO, both have significant economies and both are major sources of crude oil. Both countries also offer potential new markets for nonwovens exported from the U.S.

With this in mind, it is important to review the current status of WTO accession efforts as well as international trade implications for the nonwovens industry.

Saudi Arabia

On September 9, Saudi Arabian officials announced they had clinched a bilateral market access deal with the U.S., thus eliminating the last remaining hurdle to the Kingdom's entry to the WTO and virtually guaranteeing its formal accession by the end of the year. This is not a Free Trade Agreement, however, it is actually an agreement by both sides to significantly reduce the duties charged on goods traded between the two countries. These commitments will then be extended to all member countries under the WTO's normal non-discrimination rules.

Many are surprised to learn that Saudi Arabia is not in the WTO, given its status as the largest free market economy in the Middle East. Indeed, with a $310 billion gross domestic product in 2004, Saudi Arabia is one of the few remaining economically significant Arab states that does not already belong to the WTO.     

The Kingdom's road to WTO membership dates back to 1993, when it first applied for accession. It has taken more than a dozen years for Saudi Arabia to get where it is today primarily because the accession protocol requires that any country applying for WTO membership must conclude a bilateral trade deal with any country that is already a member and requests such negotiations. In Saudi Arabia's case this meant agreements had to be successfully negotiated with 35 other countries.

As part of its agreement to join the WTO, for instance, Saudi Arabia has committed to bind tariffs on more than three-quarters of the industrial products that it imports from the U.S. at 3.2%, with a number of items receiving even lower bound duty rates. The Kingdom has also promised to sign on to other key WTO sectoral agreements that eliminate tariffs on pharmaceuticals and harmonize duties on a long list of chemicals.

Also noteworthy is the fact that Saudi Arabia will implement all WTO rules upon admission without any transition, meaning the Kingdom will immediately comply with global trade rules governing intellectual property, transparency and non-discrimination. According to officials who were involved in the negotiations, the adoption of these kinds of commitments will transform Saudi Arabia from one of the more restrictive trade regimes in the world to one of the more liberal countries in the entire WTO system.     
So what does this mean for the nonwoven fabrics industry? To begin with, Saudi Arabia was the 13th largest importer of U.S. nonwoven roll goods in 2004. Beyond that, in 2003, more than 15% of Saudi Arabia's almost $37 billion in total imports came from the U.S., and this number is widely expected to grow after the Kingdom joins the WTO. And, not surprisingly, the U.S. Department of Commerce has identified oil/gas field machinery as a significant market for U.S. exports. The Commerce Department has also pointed to automotive parts, medical equipment and furniture—all of which can incorporate nonwovens—as significant export opportunities for U.S. companies seeking to do business with Saudi Arabia.

As it stands, the steps remaining before Saudi Arabia can join the WTO are basically formalities, and insiders predict that the WTO's ruling General Council will formally approve the accession documents this month. After that, it will only require the approval from the King of Saudi Arabia and a waiting period of 30 days before the Kingdom becomes a full-fledged member of the WTO.

Russia

With a gross domestic product that exceeded $600 billion in 2004 and an import/export market that topped $230 billion last year, the Russian Federation is the largest economy in the world that is not yet a member of the WTO. And, as with Saudi Arabia, Russia's attempts to join the WTO date back to 1993.     

But 58 WTO member countries have requested bilateral trade deals with Russia over the years and, to date, deals have been sealed with 35 of these nations. Russian officials also predict that 10 more bilateral negotiations will be completed before the year's end. But even though progress has been made, bilateral talks between the U.S. and Russia have proven challenging, largely due to disagreements over Russia's intellectual property protections, its rules against foreign banks and insurers and high import tariffs on aircraft and aircraft parts.

How much longer should it take, therefore, before Russia is able to join the WTO? As one Russian trade official recently put it, "We'd like to complete talks in 2005 and join in 2006. However, this is not the priority. The priority is the conditions under which we'll enter." This intransigence has led some insiders to predict that the accession should not be expected until mid to late 2006 at the earliest.     

Of interest to exporters is the size of Russia's import market, which stood at $79 billion in 2004, $12 billion of which came from the U.S. According to the Commerce Department, automotive parts, medical equipment and devices, aircraft and parts and building materials are among the key opportunities for U.S. Exports.

Industry Considerations

With regard to the nonwovens industry's stance on these accessions, INDA's International Trade Advisory Board (ITAB) has adopted a formal position statement that describes the ITAB's general support for the addition of any new WTO member. The position basically says that as long as these countries maintain their stated commitment to intellectual property rights, market access and rule of law once they are admitted, then we will support their inclusion in the WTO.

Looking ahead, therefore, INDA will monitor the continuing progress of Saudi Arabia, Russia and all the other potential new WTO members to ensure they meet the standards adopted by the nonwovens industry. And, should any of these countries ultimately be admitted to the World Trade Organization, members of INDA's ITAB stand ready to help the U.S. government assure that these countries comply with their WTO obligations.

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