U.S., Saudi Arabia Reach Agreement On Services Provisions of WTO Deal

Original Publication Date: 
23 August, 2005

The United States and Saudi Arabia have reached agreement on the terms under which U.S. banks and other service providers will be allowed to operate in Saudi Arabia following its accession to the World Trade Organization.

Norman R. Sorensen, chairman of the U.S. Coalition of Service Industries (CSI), said in a letter to members of Congress that the 'high-quality' agreement--one of a series of bilateral accords that will need to be concluded between Saudi Arabia and WTO members before it can join the WTO--will provide 'substantial benefits' to the U.S. services sector.

'We strongly believe it merits your support,' Sorensen said.

An annex to Sorensen's letter, dated Aug. 17, said that, under the terms of the agreement with the United States, the equity cap for joint ventures in the banking sector will be raised from 40 percent to 60 percent immediately upon Saudi Arabia's accession to the WTO--'with additional flexibility on equity limitations on a case-by-case basis'--and that U.S. and other foreign banks will have the right to establish direct branches in the Kingdom.

The annex said that foreign insurance companies will also be allowed to enter the Saudi Arabia as direct branches, or as cooperative insurance companies, with up to a 60 percent share of equity.

Insurance Companies

Companies that currently provide insurance in Saudi Arabia--notably, American International Group Inc. (AIG) and ACE INA--will be able to continue operating in their existing business forms (i.e., branches) and offer new products until April 2008, when they will have to be licensed as either a branch of a foreign insurance company or incorporated as a Saudi cooperative insurance company in accordance with revised legislation expected to be issued in May 2006.

U.S. and other foreign insurers will also be permitted to solicit and sell reinsurance and a number of other products lines on a cross-border basis without being established in Saudi Arabia, the annex to the Sorensen letter said.

A senior Saudi official, citing significant progress in the WTO accession negotiations with the United States over the past few weeks, said earlier this month that Saudi Arabia expects to become a member of the WTO by mid-October--although U.S. officials have said that the joint U.S.-Saudi objective continues to be membership by the end of the year (156 WTO, 08/15/05)

The annex to the Sorensen letter to members of Congress said that, regarding telecommunications, Saudi Arabia has agreed to allow U.S. companies to assume 70 percent of foreign equity ownership by the end of 2008 for both basic and value-added services.

Energy, Delivery Services

Under the agreement, Saudi Arabia, which boasts one-quarter of the world's proven oil reserves, will further open its market to U.S. energy service providers, according to the annex, which says that U.S. companies will now be able to compete on a nondiscriminatory basis for energy services projects in oil and gas exploration and development, pipeline transportation, management consulting, technical testing and analysis, and repair and maintenance of equipment, among others.

The agreement, according to CSI, will also ensure that Saudi Arabia allows the 'unrestricted' express delivery of documents, parcels, packages, goods, and other items 'through all relevant modes of supply' and guarantees that foreign express delivery operators will receive no less favorable treatment than the domestic postal service.

Its audiovisual, transportation, distribution, business, environmental, and hotel and restaurant sectors will also be further opened to U.S. and foreign service providers, CSI said.

U.S. Trade Representative Rob Portman, meanwhile, said in a letter to members of Congress Aug. 9 that the overall U.S.-Saudi bilateral agreement on WTO accession, which, in addition to services, will deal with agriculture and nonagricultural market access and other issues, as well as multilateral negotiations aimed at clearing the way for Saudi membership, was 'nearing completion.'

'U.S. policy is to support WTO access for countries prepared to adopt and apply WTO-consistent measures in their trade regimes and to commit to provide commercially meaningful market access too U.S. goods and services,' Portman wrote. 'It appears that the Kingdom of Saudi Arabia is making a genuine effort to reform its economy and adopt the rule of law. Accordingly, I believe that the accession package, both our bilateral agreement and the broader multilateral negotiation which is nearing completion, will warrant U.S. support.'