Saudi Arabia, being the largest Arab nation both in physical size and the size of the economy, was ranked as the 15th largest exporter and the 20th largest importer in the world in 2014. The country is ranked high in the foreign trade market because of its great participation in the global market. Shoult (2006) argues that, being the largest economy in the region, Saudi Arabia plays a crucial role in the Arab world economy, accounting to more than 25% of Middle East’s G.D.P (Gross Domestic Product). The nation’s strong economy and a rapid economic growth rate can be attributed to effective government controls, the wide range of incentives offered by the government and a wide range of support services and facilities. For instance, in 2014, Saudi Arabia’s G.D.P amounted to $753 billion with a per capita income of $52,000. It is imperative to note that that factors such as the easily available loans that are interest-free also have played a major role in Saudi Arabia’s economic development. In 2014, Saudi Arabia recorded exports of $300 billion and imports of $145 billion leading to a positive trade balance of $160 billion (Shoult, 2006).
The economy of the kingdom of Saudi Arabia largely depends on petroleum, accounting to 75% of total exports. However the country is striving to diversify its economy into the production and export of a range of industrial products. Statistics show that the kingdom of Saudi Arabia is the largest producer and exporter in the entire globe. As such, the country’s chief export is crude petroleum followed by other products such as petrochemicals, building materials and electrical appliances. On the import side, the country mainly imports cars, refined petroleum and other products such as packaged medications and aeroplanes. The country is involved in foreign trade with a wide range of nations, exporting its oil products to over 90 countries in the world (Richardson, 2007). In 2014, China topped the list of Saudi Arabia’s export partner followed by the United States, Japan, South Korea, India and Singapore. The kingdom of Saudi Arabia has had different trade relationships with different countries, others with low or no trade costs such as Singapore while others with very high trade costs such as the United States. This paper will discuss Saudi Arabia’s relationship with Singapore, being a country that it has no trading costs and the United States, being the country that it has high trading costs
Saudi Arabia’s Trade Relation with Singapore (a Country it has No Trade Costs with).
Saudi Arabia and Singapore have had trade relations dating way before the 21st century. The major bilateral collaboration between the two nations was reached on April 2006 when the two countries founded the Saudi-Singapore Business Council (SSBC). The council was established when Crown Prince of the Kingdom of Saudi Arabia visited Singapore and together with Singapore’s Prime Minister Lee Hsien Loong presided over the signing of a bilateral agreement between the two countries’ business councils (Chua, 2016). The agreement has substantially improved the trade between the two countries with the elimination of high trade costs from trade policy instruments such as tariffs and import duty. The SSBC also played in the two nations’ trade relationship as it market the first business-to-business relationship.
Other events have taken place between the kingdom of Saudi Arabia and Singapore to improve the trade relation and eliminate the barriers of trade that result to high trade costs. These events include the GCC-Singapore Free Trade Agreement (GSFTA) that was first implemented in the beginning of September 2013. The main objective of the GSFTA is to strengthen the trade relationship between the GCC nations, which constitutes Saudi Arabia, Kuwait, UAE, Bahrain and Qatar, and Singapore (Chua, 2016). The agreement has marked a major milestone towards ensuring a trade cost-free between Singapore and GCC nations such as Saudi Arabia. As such, the two countries can have a free trade in goods and services, investment as well as government and custom procedures. The free trade between these two nations ensures that neither of the two countries imposes any trade policy that may be a barrier to trade. These instruments include tariff taxes, import policy, voluntary export restraints, subsidies, local content requirements and anti-dumping duties.
The GSFTA was reached after the GCC nations found out that the Singapore’s MUIS Halal standards closely resembled the Arab Halal standards. The close similarity between Saudi Arabia’s and Singapore’s Halals has allowed the two countries to have a free import and export between the two nations. The agreement qualified close to 95% of goods and services produce and exported by Singapore for tariff-free concessions that commenced with immediate effect. The agreement also forecasts that additional 2.3% of goods from Singapore that are tariff taxed will not be taxed by 2018 (Chua, 2016). Consequently, Singapore ensures that all imports from Saudi Arabia that meet the halal standards are subject to zero-tariff treatment.
The above graph represents the free trade between two nations that have zero trade costs due to presence of a free trade, for instance, Saudi Arabia and Singapore. The equilibrium price of the free trade is at PFT while the blue line segment in the importing and exporting countries shows the free trade quantity.
Saudi Arabia’s Trade Relation with the United States (a country it has high trade costs with).
The kingdom of Saudi Arabia has a commendable level of trade relationship with the United States. However, the trade relationship is sometimes faced with a lot of challenges due the high trade costs resulting from trade policy instruments imposed by the two countries. The trade policy instruments serve the purpose of a trade barrier of certain goods and services. Saudi Arabia and the United States may wish to prevent the import of various goods from either country and may use various trade policy instruments to achieve that. The policy instruments that Saudi Arabia uses to prevent goods and services from the United States hence increasing the trade costs include technical barriers, sanitary and phytosanitary barriers and import policies (Bahgat, 2003).
Technical Barriers.
Some of the technical barriers that the kingdom of Saudi Arabia has taken in the recent past include imposing of strict energy and fuel standards. The kingdom is striving to its energy and fuel standards on a variety of products that the country import. Some of these products include automotive, air conditioners and range of electric appliances, which comprises of a large percent of the United States’ export to the Kingdom of Saudi Arabia. The 2014 automotive fuel efficiency standard by Saudi Arabia made it a mandatory for all light-duty automotive that will be produced by 2020 return approximately 28 miles per gallon. This policy will adversely affect the export of vehicles from the United States due to the high trade costs (Luciani, 2004).
Sanitary and Phytosanitary Barriers
The major trade barriers that the kingdom of Saudi Arabia imposed on the United States through the use of sanitary and phytosanitary barrier include the 2012 banning of the United States’ beef following the discovery of the bovine spongiform encephalopathy in U.S’s beef. However positive efforts are being taken by the two countries to allow the two countries regain the previous beef trade. Other products from the United States that faced Saudi Arabia’s sanitary barrier include the poultry and poultry product that faced suspension due to HPAI (Highly Pathogenic Avian Influenza) outbreak (Bahgat, 2003).
Import policies.
The kingdom of Saudi Arabia applies GCC’s common external tariff tax on various products that are subject to the tax. For instance, the country imposes an average of 5% tariff tax on a variety of goods that come from non-GCC countries and those that it does not have free trade agreements. The country also prevent competition of its domestically produced products by imposing tariff rates of 7% to 40%. Other products such as tobacco, pork, alcohol and goods that the country avoids being imported to the country receive very high tariff rates of up to 100% (Luciani, 2004).
The above graph represents the free trade between two nations that have zero trade costs due to presence of a free trade, for instance, Saudi Arabia and Singapore. The equilibrium price of the free trade is at PFT while the blue line segment in the importing and exporting countries shows the free trade quantity. However, if Saudi Arabia imposes a tariff tax on goods and services from Singapore, the equilibrium quantity and price of the two nations will be altered hence affecting the importing country consumers and producers as well as the exporting country consumers and producers.
In conclusion, Saudi Arabia majorly participates in the foreign trade with huge amounts of exports and imports. The nation has very good ranking in both the global export and import markets due to its massive crude petroleum exports, the largest crude petroleum exporter and other products such as building material. The nation imports various products such as automotive, refined petroleum and packaged medicines. Saudi Arabia has different trade relationships with different countries where it has no trade costs with some nations and high trade costs with others (Richardson, 2007). For instance it has no trade costs with Singapore but high with the United States.
Bibliography.
Bahgat, G. (2003). The New Geopolitics of Oil: The United States, Saudi Arabia, and Russia. Orbis, 47(3), pp.447-461.
Chua, T. (2016). Saudi Arabia now Singapore's largest trading partner in Middle East. [online] Singapore Business Review. Available at: http://sbr.com.sg/economy/more-news/saudi-arabia-now-singapores-largest-trading-partner-in-middle-east [Accessed 3 Jul. 2016].
Luciani, G. (2004). Weathering the storm: Saudi Arabia and the United States. The International Spectator, 39(4), pp.65-73.
Richardson, L. (2007). Building closer economic ties around the world. Ottawa [Ont.]: Standing Committee on International Trade.
Shoult, A. (2006). Doing business with Saudi Arabia. London: Global Market Briefings.
