Bridging Business Cultures
This article are provided as information only and not intended for basing any decisions.
The World Trade Organization (WTO), which came into existence on January 1, 1995, is the successor organization of GATT (General Agreement on Tariffs & Trade). It is meant as a mechanism for facilitating and unifying international trade and, to that end, its essential functions are:
The main WTO ‘multilateral agreements’ that are binding on all WTO members are those dealing with trade in goods (GATT), trade in services (GATS – General Agreement on Trade in Services) and intellectual property rights (TRIPS – Agreement on Trade Related Aspects of Intellectual Property Rights). There are also numerous ‘plurilateral agreements’ covering specific trade areas that are binding only on those members who elect to be bound by them. A common thread running through each of the multilateral agreements is the obligation on WTO members to provide Most Favored Nation status and National Treatment status to the goods, services and intellectual property of all other members. Furthermore, in addition to ensuring that their laws and trade policy do not violate the general obligations under their individual agreements, members must ensure that their specific commitments are implemented. Some of the obligations that members must negotiate and comply with under the multilateral agreements include:
For those countries that did not become members at the WTO’s inception, membership is achieved through the process of accession. This process follows a set procedure and can take up to several years, depending on how liberal and transparent the applicant country’s existing trade regime is. This process is begun by the applicant country writing a letter to the WTO indicating its interest in becoming a member and submitting a memorandum addressing all aspects of its trade and economic policies with bearing on WTO agreements. The WTO then sets up a working party to review the memorandum. At the same time, the applicant country engages in bilateral negotiations with interested member governments to establish its concessions and commitments on goods and services. During this phase, the applicant must also complete a detailed questionnaire. After an understanding is reached that the applicant’s policies and practices are compatible with the WTO, the working party reviews the applicant’s tariff protections and the applicant agrees to accept certain obligations over a designated period of time. The commitments are put down by the working party in the basic terms of the accession report. This report, along with a draft protocol of accession and the agreed schedules, are then presented to the Ministerial Council for adoption. If approved, the country signs and ratifies, where necessary, the protocol and accedes to the WTO.
Membership in the WTO and adherence to its rules and regulations can be advantageous to countries, particularly those of the Middle East, in a variety of ways. More specifically, WTO membership may be advantageous to these countries in the following manner:
In recent years, Middle Eastern countries have begun to recognize the importance of membership in the WTO. Already Kuwait (January 1, 1995), Bahrain (January 1, 1995), Egypt (June 30, 1995), Qatar (January 13, 1996) and the United Arab Emirates (April 10, 1996) have become members. Saudi Arabia, Jordan and Oman began the accession process a few years ago, while Lebanon began its process earlier this year and Yemen was granted observer status. Of the countries already members, Kuwait and Egypt have been most visibly active in their efforts to achieve compliance. Meanwhile, Saudi Arabia, Oman, Jordan and Lebanon have been equally active readying their laws and trade regimes in anticipation of membership. The following is a brief synopsis of each country’s position vis-à-vis its status with the WTO:
Since becoming a member in 1995, Kuwait has enjoyed a grace period up to the year 2000 within which to comply with WTO regulations. In March of this year, it was reported that Kuwait would be asking the WTO to extend its grace period by up to four years until 2003 or 2004. In the meantime, Kuwait has made some effort to amend and conform its laws in accordance with WTO standards and requirements. The government has formed a committee tasked with looking into Kuwait’s compliance with its WTO obligations, although to date, the committee has not yet embarked on this task. This past year, in an attempt to ensure private sector participation, the Ministry of Commerce & Industry invited business leaders there to a forum for the purpose of discussing and commenting on the laws from a practical business perspective. It is not yet clear what were the results, if any, of this forum. Moreover, from the time of Kuwait’s membership until this past year, the Kuwaiti Parliament did not make any significant progress in terms of new legislation aimed at conformity. Not until this past year when Parliament was dissolved did the Emir enact laws regards foreign investment and IPR – two areas of key significance in terms of Kuwait’s obligations under the WTO. However, these laws must be ratified by the new Parliament before they can have any significant effect on the investment and trade climate in Kuwait. More importantly, once they are ratified, these laws will be futile absent transparent and effective implementing regulations and enforcement mechanisms. Finally, like most countries of the region, Kuwait has not yet opened all of its sectors as it is required to do. Thus, although Kuwait appears to be taking steps in the direction of compliance, it is still a long way from fulfilling its obligations as a member of the WTO.
Egypt has been a member since June 30, 1995. With respect to its GATS commitments, Egypt has committed to only 4 of the 12 sectors covered by GATS, namely construction, finance, tourism and transport. Lately, there has been pressure on Egypt to commit more sectors, a key obligation as a WTO member, and particularly to open and liberalize its telecom sector. It has been reported that this will be a main area of discussion with Egypt at the next round of talks in Seattle in November 1999. To that end, Egypt is said to be in the process of evaluating the sale of up to 20% of Telecom Egypt, perhaps as early as next year. This issue of Egypt’s continued liberalization of its service sectors was one of the main issues discussed at Egypt’s second Trade Policy Review in June of 1999. The review session also discussed Egypt’s economic environment and its trade policies and practices. The members of the review board commended Egypt on its economic reforms, however, they stressed that in order for Egypt to achieve its objectives, it needs to diversify its exports, attract more foreign investment and achieve greater transparency. With regards to its trade policies and practices, there is still concern over certain tariffs that Egypt applies that appear to be in breach of WTO requirements, as well as Egypt’s IPR and trade defense legislation, which do not yet conform with WTO standards. Egypt is also one of 14 developing and 5 developed countries, to date, that have chosen to be founding members of an Advisory Centre on WTO Law. The purpose of this center will be to provide seminars on WTO Jurisprudence and legal advice on WTO legal questions, with membership open to all WTO members. The hope is that the Centre will begin operations by mid-2000.
Bahrain has been a member of the WTO since its creation on January 1, 1995. Since then, it has remained predominantly silent with regards to its WTO obligations and commitments. While sell-off and privatization of state-owned utilities has been on the government’s agenda for some time, no concrete action has been taken. With regards to IPR requirements, in July of 1997, Bahrain sent a communication to the WTO in which it exercised its rights under TRIPS to delay for a period of four years its application. Another issue confronting Bahrain and the other countries of the region is that of restrictions on foreign business. Many see this as an impediment to continued growth in foreign investment. Under the WTO’s requirements of equal treatment and open sectors, such restrictions must ultimately be abandoned. Bahrain apparently recognizes this and on September 29, 1999 signed a Bilateral Investment Treaty with the US that guarantees the right to invest in most sectors on terms no less favorable than those given to domestic investors and third-country investors. Notwithstanding, for effective implementation of the right, Bahrain will need to establish the necessary legal and administrative mechanisms and ensure complete transparency. At the same time, Bahrain re-asserted its commitment to meet its TRIPS obligations by the January 1, 2000 deadline.
Qatar was granted permission to accede in November of 1995 and became an official member of the WTO on January 13, 1996. Like Bahrain, it has been mostly passive in its compliance activity, with the exception of the IPR arena. On April 15, 1999, Qatar sent a notification to the WTO notifying the Council for Trade Related Aspects of Intellectual Property Rights that nationals of other WTO members enjoy non-discriminatory treatment with respect to all IPR. However, Qatar must continue in this spirit of equal treatment and open its sectors to other members before it can begin to fully reap the benefits of WTO membership.
The UAE acceded on April 10, 1996. It, too, has a lot of work ahead to ensure compliance with the WTO rules and standards. One area in particular that has been a major topic of discussion for the Middle East, and the UAE, is piracy. There is no question that the UAE will need to bring its 1992 copyright law and patent legislation up to TRIPS standards before it can fully avail itself of the benefits and advantages inherent in WTO membership and encourage increased foreign investment in its economy. The United States will most likely continue to exert efforts in this regard until it is satisfied that the UAE’s laws provide the requisite protections in this area.
Saudi Arabia requested accession to the WTO on December 12, 1995. A working party was established in early 1996 and, since then, Saudi Arabia has been in talks and negotiations with the WTO and the other members. Some of the issues being addresses include protection of IPR, reduction of tariff levels, amendment of agency laws and settlement of legal disputes. In preparation for and anticipation of accession, the government has taken some positive steps. By way of example, the government has been working, albeit for several years now, on a law aimed at increasing and facilitating foreign direct investment there. Furthermore, the government is considering setting up an investment body to review its laws and propose incentives to foreign investors. Perhaps most significant are the country’s efforts towards privatization. Recently, it has corporatized its telecommunications sector and created Saudi Telecommunications Company, is in the process of restructuring its electricity sector and is considering setting up a committee to push the privatization of its national airlines. Notwithstanding all of its efforts, the WTO is not expected to approve Saudi Arabia’s accession for at least another year.
Oman obtained observer status in 1995 and applied for accession on April 22, 1996. A WTO working party was established and Oman is now proceeding through the accession process. In February of 1999, an economic advisor to the Omani Ministry of Commerce & Industry was noted as stating that Oman thought it could complete its accession process by the end of the year. As is true with all of the countries of the region, part of Oman’s efforts will need to be focused on its IPR laws and ensuring adequate protection; opening its service sectors and providing for equal treatment; reducing its trade barriers; and implementing the necessary mechanisms to achieve these tasks in a transparent manner. Among the other steps that Oman has taken in anticipation of accession is the Omani government’s recent approval of the establishment of a free trade zone at Salahal Port.
Jordan requested accession to the WTO on September 25, 1995. It has been proceeding through the accession process and is currently in talks and negotiations with the WTO. Of significant importance to Jordan’s accession is a statement made by the US in March 1999 following the signing of a Trade & Investment Framework Agreement between the US and Jordan. At that time, the US pledged to support Jordan’s accession efforts with the hope that Jordan will become a member of the WTO by the year 2000. The US suggested that if Jordan is unable to accede by this time, it will only make it harder for Jordan to do so in the future. The US also stressed the need for Jordan to update its IPR legislation, which Jordan is in the process of doing in order to make its laws consistent with TRIPS. Meanwhile, Jordan has been taking active measures towards accession, including pursuing privatization schemes, working to improve its investment environment and reducing import duties. However, most of its negotiations are in the form of promises of future action, rather than immediate proactive behavior.
Lebanon requested observer status in November 1998 and began its accession process last year, when the WTO accepted Lebanon’s application of accession. A working party was approved in April 1999. In May of 1999, Lebanon stated that it would need $16 billion to join the WTO and it called upon the industrialized countries to render their assistance, saying that these funds would be needed to enhance the competitiveness of the private sector and upgrade production technology and labor, among other things. Perhaps one area in which Lebanon can raise the necessary funds, and simultaneously prepare itself for approval by the WTO, is through privatization. Currently, there are three potential targets for at least partial privatization in Lebanon: the telecommunications sector, the national airline and the power sector. To that end, the government has been working on a draft privatization law, expected to be passed within the next few months, and has established a High Council for Privatization chaired by the Prime Minister and charged with selling projects owned by the country to the private sector. However, it is unclear how long this process will take and how effective it will be as a serious step towards opening trade and competition in Lebanon. Another major step Lebanon has taken in preparation for its accession was to enact a new copyright law providing broad protections more on par with the requirements of TRIP and the Berne Convention for the Protection of Literary and Artistic Work. (See Lebanon’s Copyright Law: Paving the Way to Global Integration, Reema I. Ali and Loubna W. Haddad, MEER, Vol. 22, No. 6).
Yemen applied for observer status in March of 1999 with the intention to apply for accession in the near future. Its observer status was granted in April 1999. To date, Yemen has not made any formal written request for accession.
It is apparent that the task facing the countries of the Middle East in joining the WTO and complying with their obligations and commitments thereunder is an extensive one that will, in most cases, require a revamping of these countries’ legal, commercial and trade structures. Moreover, these countries must address the issues of corruption in their systems and the implementation of effective legal systems to enforce the changes occurring and protect investors’ rights. Resolution of these issues will be key to open competition. However, what is even more apparent is that the countries of the region have begun to recognize the importance of this process if they are ever to integrate successfully into the global international community and the international trade arena.
We have compiled a few articles to help in understanding the complex position of many middle eastern countries.
The following articles are for information only:
Libya Securities and Banking
Outside View: A call for True reform
Outside View: Libya's oil prospects
The Middle East and the WTO
Lebanon's Copyright Law
Telecommunications in the Middle East
Kuwait Oil Sector