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Cablegate: Bahrain - July 2004 Appendix to 2003 Investment

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

UNCLAS SECTION 01 OF 03 MANAMA 001175

SIPDIS

DEPT FOR EB/IFD/OIA; ABRYAN AND JHATCHER AND NEA/ARP
DEPT PASS USTR JASON BUNTIN

E.O. 12958: N/A
TAGS: EINV EFIN ELAB KTDB PGOV BA OPIC
SUBJECT: BAHRAIN - JULY 2004 APPENDIX TO 2003 INVESTMENT
CLIMATE STATEMENT

REF: STATE 141379

This appendix serves as an update to the 2003 Investment
Climate Statement for Bahrain. It has been provided to
assist investors in the interim period resulting from the
U.S. Government's decision to begin publishing the Country
Commercial Guide (of which the Investment Climate Statement
is a Chapter) on a calendar year basis, in January instead
of august.

The United States Government has reviewed the 2003
Investment Climate Statement for Bahrain, and has noted the
following changes that have occurred since its publication.
In most circumstances, if a portion of the 2003 Investment
Climate Statement has not been modified in this appendix, it
is because the U.S. Government is satisfied that it
continues to accurately reflect the state of affairs in
Bahrain as of July 2004.

OPENNESS TO FOREIGN INVESTMENT

A new telecom law to open the sector to competition went
into effect in January 2003. The Telecommunications
Regulatory Authority (TRA) awarded a mobile
telecommunications license to MTC Vodaphone, and Internet
service provision licenses are currently available. All
aspects of the telecommunications sector were officially
opened to competition on July 1, 2004. According to the
TRA, new licensees will be operational towards the end of
2004.

The Ministry of Industry, in conjunction with the Supreme
Economic Council, has promoted a one-stop-shop formula for
industries seeking to establish operations in Bahrain.
Officials from the ministry note that 80 percent of licenses
can be processed and verified within 24 hours. The remaining
20 percent, however, are "strategic" licenses for which
verification may take longer.

CONVERSION AND TRANSFER POLICIES: No significant changes
since 2003.

EXPROPRIATION AND COMPENSATION: No significant changes since
2003.

DISPUTE SETTLEMENT: No significant changes since 2003.

PERFORMANCE REQUIREMENTS/INCENTIVES: No significant changes
since 2003.

RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT

In principle, private entities may freely establish,
acquire, and dispose of interest in business enterprises,
subject to the limitations noted in this chapter.
Although foreigners generally may not acquire legal control
of an existing Bahraini company, foreign investors may own
up to 100 percent of a new company. According to Ministry of
Finance & National Economy (MOFNE) officials, the U.S.-
Bahrain BIT stipulates national treatment for citizens of
both countries in each of their respective territories. This
includes the retail industry, for which 51 percent Bahraini
ownership was previously required. However, certain
exemptions to this ruling are provided under existing
Bahraini commercial registration laws.
Services Involving Restrictions on Foreign
Ownership/Participation:
--Legal Services
--Advertising Services
--Publishing and Publication of Local Newspapers and
Periodicals
--Freight and Cargo Services
--Customs Clearance Services
--Pilotage and Berthing Services
--Coastal Water Transportation
--Energy Services Towards the Distribution of Petroleum,
Electricity, and Water
--Telecommunications Services
--Real Estate Services
--Islamic Pilgrimage Services

Services Requiring Local Presence:
--Accounting, Financial Auditing, Bookkeeping and related
Services
--Advertising Services
--Architectural and Engineering Services
--Car Rental Services
--Census, Market Research and Public Opinion Polling
Services
--Construction Services and Construction Related Services
--Consultancy and Management Services
--Debt Collection Services
--Legal Services
--Private Security Guard Services
--Publishing and Printing
--Real Estate Services
--Services Incidental to Mining
--Small Business Services
--Terrestrial over the Air Radio, Television, Satellite
Subscription Services in the territory of Bahrain
--Tourism Hotel Operations and Management
--Transportation Services
--Travel Agency Tour Operators and Tourist Guide Services
--Wholesale and Retail Services

As for public companies listed on the Bahrain Stock Exchange
(BSE), GCC nationals may own up to 100 percent, while non-
GCC foreigners are restricted to 49 percent. There is some
discussion of lifting this restriction, and the Bahrain
Monetary Agency (BMA) Governor has the authority to approve
exceptions. Foreign investors must retain their shares for
at least three years following the creation of a public
company. The restrictions on non-GCC foreigners will no
longer apply to U.S. investors after January 1, 2005,
according to the U.S.-Bahrain BIT.

PROTECTION OF PROPERTY RIGHTS: No significant changes since
2003.

TRANSPARENCY OF THE REGULATORY SYSTEM: No significant
changes since 2003.

EFFICIENT CAPITAL MARKET AND PORTFOLIO INVESTMENT: No
significant changes since 2003.

POLITICAL VIOLENCE

Bahrain experienced intermittent civil unrest in the mid
1990s. Although the situation improved steadily after 1997,
the 2002 upsurge in violence between Israelis and
Palestinians sparked anti-Israeli and anti-American
demonstrations in Bahrain. The protests peaked in April 2002
when a mob attacked the U.S. Embassy. Defense of the
Embassy by Bahraini authorities resulted in the death of a
demonstrator. The 2003 Iraq war and subsequent U.S.
operations in Iraq sparked a few political protests aimed at
the American and British Embassies.

In 2004, a conservative Islamic movement that condemns the
influx of liberal Western influences to Bahrain promoted
three incidents of vigilanteeism that damaged or destroyed
expatriate property, vehicles, and local places of business.
Among several large-scale marches in 2004 protesting
internal issues, only one resulted in violence when police
used force to disperse demonstrators.

CORRUPTION: No significant changes since 2003.

OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS: No significant
changes since 2003.

BILATERAL INVESTMENT AGREEMENTS

Bahrain and the U.S. signed a bilateral investment treaty
(BIT) in September 1999, the first BIT between the U.S. and
a GCC state. The agreement entered into force in May 2001.
In May 2004, the U.S. and Bahrain additionally concluded
Free Trade Agreement (FTA) negotiations aimed at encouraging
trade, development, joint projects, and investment between
the two countries. U.S. negotiations with Bahrain, which
seek to promote Bahrain as a regional center for the
production and distribution of U.S. goods and services, are
the third FTA negotiations with an Arab country, and the
first with a GCC country. The FTA draft is currently in a 90-
day informal comment period, and may be signed in mid-
September 2004. Signature then requires approval from the
legislative branches of the U.S. and Bahrain prior to
implementation. The negotiated agreement may be viewed on
the Office of the United States Trade Representative (USTR)
website: http://www.ustr.gov/new/fta/Bahrain/text/inde x.htm,
or at the Government of Bahrain's FTA website:
http://www.fta.gov.bh. The negotiated FTA does not include
an investment chapter since the Bilateral Investment Treaty
signed in 2001 already covers bilateral investment issues.
Bahrain has bilateral investment protection agreements in
place with several countries, including agreements on the
promotion and protection of investments, agreements on the
avoidance of double taxation and the prevention of income
tax evasion, agreements on economic, trade, and technical
cooperation, and agreements on reciprocal exemptions
relating to taxes on income from the international air
transport business. According to MOFNE, as of 2004 the
countries having bilateral investment agreements with
Bahrain include:
Algeria, China, Egypt, Jordan, Malaysia, Morocco, Syria,
Philippines and the UK. Bahrain has economic and commercial
cooperation agreements with Australia, Bangladesh, China,
Egypt, France, Greece, India, (Iraq), Jordan, Morocco, the
Netherlands, Russia, Singapore, South Korea, Syria, Tunisia,
Turkey and the UK. Bahrain has air transportation tax
agreements with China, France, Greece, Singapore, Turkey,
UK, U.S., and Yemen, and two transportation agreements with
Syria. Bahrain has concluded double taxation agreements with
Egypt, France, India, Jordan, Malaysia, Morocco, the
Philippines, Thailand and Tunisia.

LABOR: No significant changes since 2003.

FOREIGN TRADE ZONES/FREE PORTS: No significant changes since
2003.

MAJOR FOREIGN INVESTMENTS: No significant changes since
2003.

ZIADEH

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