US embassy cable - 04MANAMA1175

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