Staff writer
Japan and Saudi Arabia are very likely to conclude a deal by next month on the oil-rich country’s admission to the World Trade Organization, government sources said Tuesday.
The agreement would be the first of its kind between Saudi Arabia and a major industrialized nation, the sources said, adding it would also have a favorable effect on stalled negotiations between Tokyo and Riyadh on extending Arabian Oil Co.’s drilling rights in the Khafji oil field.
The sources said that high-level Japanese trade negotiators will visit Riyadh next month, probably around Jan. 15, for what they expect to be the last round of bilateral negotiations on Saudi Arabia’s WTO entry.
The sources said, however, that the planned negotiations may be moved up to early January because Takashi Fukaya, international trade and industry minister, may visit Riyadh in the middle of next month in a bid to reach a separate political settlement on the Arabian Oil issue.
Fukaya also plans to make a European tour next month for talks with WTO Director General Mike Moore and officials of the 15-nation European Union on ways to get a new round of global liberalization talks launched as soon as possible, the sources said.
At their ministerial meeting in Seattle early this month, the WTO member nations failed to set a formal agenda for the new round, because of sharp differences over whether to link trade with labor and environmental issues as well as over a possible review of antidumping rules and reductions in farm subsidies.
There is a possibility that Fukaya will visit Riyadh either before or after his European tour in response to a recent Saudi Arabian call for accelerated negotiations on the Arabian Oil issue, the sources said. The request was made last week in a letter to Fukaya from the Saudi Arabian oil minister.
Saudi Arabia filed a membership application with the WTO in 1996. The 135-member WTO is the Geneva-based watchdog that succeeded the General Agreement on Tariffs and Trade in January 1995 as a new and more powerful watchdog on international commerce.
Arabian Oil, Japan’s largest oil producer and a firm with strong government backing, holds exclusive rights to drill oil in the Khafji oil field off the former neutral zone between Saudi Arabia and Kuwait. Oil produced by the firm in the Khafji field accounts for about 5 percent of Japan’s total crude oil imports.
Although the current 40-year agreement giving Arabian Oil exclusive rights to the oil concession is to expire at the end of February, Riyadh has not yet pledged to renew the agreement, despite repeated Japanese requests to do so.
Saudi Arabia, which is increasingly frustrated by what it views as insufficient Japanese investments in the country, is widely believed to be using the Khafji question as a bargaining chip to press Japan to accelerate its investment.
Saudi Arabia is courting foreign investment as part of efforts to diversify its oil-
dependent economy and create jobs for its burgeoning population, which has skyrocketed from 7 million to 17 million over the past 25 years.
To win a Saudi commitment on the exclusive oil-drilling rights, Japan has offered a comprehensive package of measures to encourage Japanese investment in the Mideast country.
The package, which was presented to Saudi officials in Riyadh at the end of June by Hisamitsu Arai, vice international trade and industry minister for external affairs, contains an offer of nearly $4 billion in public funds, including loans from the Export-
Import Bank of Japan, over the next 10 years.
The package includes a pledge to support Saudi Arabia’s bid to join the WTO as well as a plan to increase imports of Saudi crude oil.
But the biggest sticking point in the negotiations is a $2 billion Saudi project to construct a 1,400-km railway to transport mining resources from inland areas to coastal areas.
Although Riyadh has asked for Japanese funding of the rail project, Tokyo has so far rejected the request, claiming the project would be unprofitable.
Since it presented its comprehensive package of Saudi Arabia-bound investment promotion measures, Tokyo has accelerated bilateral negotiations with Riyadh.
On the WTO front, the sources said Saudi Arabia has offered to slash maximum tariff rates in half for imported industrial products, from 30 percent to 15 percent on average. Almost all of Japan’s exports to Saudi Arabia are industrial products, mainly transport machinery such as passenger cars and trucks and electric appliances.
The sources said that although Saudi Arabia’s current import tariffs for industrial goods are actually lower, at an average of 12.5 percent, the recent offer means that the country would not raise the average import-tariff rate beyond the 15 percent level in the future despite possible deterioration of the country’s trade performance.
In addition to the tariff-
reduction front, Tokyo and Riyadh have made progress in other areas, including Saudi Arabia’s protection of Japanese companies’ intellectual property rights, the sources said.
Any countries aspiring to WTO membership must reach bilateral market-
access deals with major trading partners before being admitted, and a deal between Tokyo and Riyadh might accelerate Saudi Arabia’s bilateral negotiations with other major industrialized countries, making it possible for Saudi Arabia to be admitted to the WTO by the end of next year, the sources said.

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