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Cablegate: Bahrain's Response: Features of Free Zones

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 MANAMA 000484

SIPDIS

DEPT FOR NEA/ARP, EB/TPP AND EB/CBA
DEPT PASS USTR JBUNTIN
COMMERCE FOR EWHITEMAN AND CLOUSTAUNAU

E.O. 12958: N/A
TAGS: ECON BA ETDR
SUBJECT: BAHRAIN'S RESPONSE: FEATURES OF FREE ZONES

REF: STATE 27837


Answers are keyed to questions in reftel. Answers to
questions a, b, and e were provided by the Director
General of Customs, Ali AlMahmeed. Questions c, d, f, g,
h, i,and j were answered by the Advisor for Industrial
Planning at the Ministry of Industry, Abdul Aziz AlKaabi.


a) Does the country have any type of customs free zone,
free trade zone, foreign trade zone, export processing
zone, freeport or manufacturing bonded warehouse?
There are Duty Free Zones in the towns of Hidd and Sitra
hosting export processing and trans-shipment businesses.
The only planned free zone including ports and industry
will be located in Hidd following its completion in 2006.
The Customs Directorate facilitates bonded warehousing
for storage of goods only under the authority of Customs
and if the company seeks to use Bahrain as its trade hub.

How many zones are there currently?
1 in its final stages of completion (Hidd).

Are there geographic limitations as to where they can be
located?
Only 1 is being developed so far; however some
authorities refer to Bahrain as duty free due to Customs'
case by case approach to dealing with duties. They also
cite that no duties are levied on exports or on goods
temporarily imported before trans-shipment. Additionally,
all raw materials and equipment for manufacturing in
Bahrain gain duty relief under the Protection and Support
Law. Exemptions are also available on goods stored in
bonded warehouses.

Are they successful?
Not yet evident.

b) How is the zone authority structured?
The zone authority for Hidd port is yet to be formed.
However, according to Customs, the zone will be under a
Director General of Free Zones, which will be under the
authority of the President of Customs, Ports, and Free
Zones, who works for the Ministry of Finance and National
Economy.

Is it part of the Customs Administration, or is it a
separate government or non-government agency?
The zone will be part of the Customs Directorate.

Is this zone federally or locally administered?
It will be administered through the Customs Directorate
under the Ministry of Finance and National Economy.

Are they considered enclaves that are outside of the
country or are they Customs-controlled?
The zone will be operated within the rules and regulation
of the Customs Directorate.

c) Is a license or other type of authority required for
each manufacturing activity in the zone?
Yes, a license will be required from the Ministry of
Industry for manufacturing activities in the Hidd
Industrial Park.

If so, roughly how long does the process of obtaining a
license take?
The Ministry of Industry in conjunction with Supreme
Economic Council has promoted a one-stop-shop formula for
industries seeking to establish operations in Hidd's
industrial park. Officials from the ministry note that
80% of all licenses can be processed and verified within
approximately 24 hours, however the remaining 20%
represent other licenses that are classified as strategic
for which verification may take slightly longer.

d) Can businesses manufacture products in the zone?
Yes businesses will be able to manufacture in the
industrial park.

Can they manufacture using both foreign and domestic
inputs?
Unclear, yet to be defined.

Can the merchandise be sold in the home market?
Industries will be export oriented, but yet unclear if
goods can be sold in the home market.

e) What are the Customs benefits related to manufacturing
or processing in the zone?
Duty free export and transit; dity-free import of raw
materials.

Can merchandise be imported and re-exported duty-free?
Yes.

Is duty payable on manufactured merchandise upon leaving
the zone for the home market?
No.

If so, is duty payable on the entire value of the product
or are there exemptions for domestic components and
domestic value added?
Unclear, yet to be defined.

When a product that is manufactured in the zone is
brought into the home market, does the manufacturer pay
duties at the rate that applies to the finished product
or at the rates that apply to the components that where
brought into the zone?
Unclear, yet to be defined.

Or, does a manufacturer have a choice between the two
rates?
Unclear, yet to be defined.

Is capital equipment used for zone manufacturing activity
permitted entry free of duty?
Yes.

f) Are there any special provisions for small and medium-
sized businesses?
Provisions for small and medium-sized business are a work
in progress, but will fall under the authority of a new
department dealing with small industries and crafts.

Or, for new foreign direct investment?
Yes, but yet to defined.

g) Are there any tax exemptions? (i.e., exemptions from
tax on merchandise, income, real property)
Bahrain levies neither personal nor orporate income
taxes. There is no VAT, nor property tax.

h) Are there any other financial incentives? (loans
funding for infrastructure or facilities, subsidies on
rent, utilities)
Yes, subject to WTO commitments, Bahrain will offer
financial incentives, including duty-free raw materials,
subsidized utilities (NOTE: Bahrain subsidizes power and
water to all consumers. END NOTE), and assistance with
funding facilities through development banks and the
Bahrain Business Incubator. Bahrain is a major financial
center, so low-cost capital is readily available.

i) Are there exemptions from other laws or regulations?
(environmental, labor laws, nonproliferation export
controls)
Legal regulatory exemptions may be dealt with in a case-
by-case basis.

j) Are there any restrictions or requirements, such as
export requirements, local content requirements, or
ownership requirements?
Ministry of Industry will assess restrictions and
requirements on a case-by-case basis but will remain
flexible.

#FORD

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