US embassy cable - 05MANAMA1727

UNCLAS SECTION 01 OF 03 MANAMA 001727 
 
SIPDIS 
 
EB/MTA/MST AND NEA/ARPI 
USTR FOR JBUNTIN AND GBLUE 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, EFIN, BA, ECTRD 
SUBJECT: BAHRAIN: 2006 NATIONAL TRADE ESTIMATE 
 
REF: STATE 174191 
 
1. (U) Post's update for the 2006 National Trade Estimate 
(NTE) is included as follows.  Electronic copies of the NTE 
update and the Arab League chapter update, have been provided 
to USTR in electronic format, per reftel instructions. 
 
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TRADE SUMMARY 
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2. (U) The Kingdom of Bahrain continues to enjoy an overall 
surplus in its international balance of trade.  Its surplus 
increased from $971.8 million in 2003 to $1031.3 million in 
2004.  Bahrain's principal exports are crude and processed 
oil, the value of which rose from $4667.6 million in 2003 to 
$5536.6 million in 2004.  Goods and services exported to the 
U.S. peaked at $405 million in 2004 compared to $378 million 
in 2003.  However, imports from the U.S. dropped sharply from 
$508 million in 2003 to $301 million in 2004, resulting in a 
bilateral surplus with the U.S. of $104 million. 
 
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IMPORT POLICIES 
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3. (U) Bahrain is a member of the Gulf Cooperation Council 
(GCC) and applies a common external tariff of five percent to 
most products.  A Muslim country, Bahrain applies a tariff of 
125 percent to alcohol imports and 100 percent to tobacco 
imports. Some 417 items (mainly food products) are exempted 
from customs duties entirely. 
 
4. (U) The U.S.-Bahrain Free Trade Agreement (FTA) was 
ratified in July 2005 by the Bahraini government.  As of 
November 2005, the FTA awaited U.S. ratification.  Once 
implemented, the FTA will provide the basis for duty-free 
trade for 100 percent of consumer and industrial products. 
Roughly 98 percent of agricultural products will enjoy 
duty-free status.  The remaining 2 percent will see tariffs 
gradually phased out over the next 10 years. 
 
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STANDARDS, LABELING, TESTING, AND CERTIFICATION 
--------------------------------------------- -- 
 
5. (U) As part of the GCC Customs Union, member countries are 
working toward unifying their standards and conformity 
assessment systems, and have progressed considerably toward 
the goal of a unified food standard originally targeted for 
adoption by 2006.   However, each country currently applies 
either its own standard or a GCC standard, which can cause 
confusion for U.S. exporters. 
 
6. (U) Bahrain generally uses international or GCC standards, 
and the development of standards in Bahrain is based on the 
following principles: (a) no unique Bahraini standard is to 
be developed if there is an identical GCC standard in 
process; and (b) developing new Bahraini standards must not 
create trade barriers.  The total number of GCC standards 
adopted as Bahraini standards currently stands at 1020, out 
of which 320 are mandatory and 700 are voluntary.  There are 
also approximately 434 draft GCC standards under development. 
 
7. (U) Bahrain has replaced its product shelf-life 
requirements, a major impediment to U.S. processed food 
exports to the Gulf region, with international (Codex) 
standards. 
 
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GOVERNMENT PROCUREMENT 
---------------------- 
 
8. (U) In October 2002, Bahrain implemented a new government 
procurement law to ensure transparency and reduce bureaucracy 
and corruption in government tenders and purchases.  Under 
the new law, specified procurements are eligible for bid by 
international suppliers.  A Tender Board is chaired by a 
Minister of State who oversees all tenders and purchases with 
a value of BD10,000 ($26,525) or greater. 
 
9. (U) The Tender Board is an important measure toward 
ensuring a transparent bidding process, which the Government 
of  Bahrain recognizes as vital to attract foreign 
investment.  The Tender Board awarded tenders worth $453.6 
million in 2004.  Upon implementation, FTA provisions 
addressing government procurement will be in effect for U.S. 
suppliers. 
 
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EXPORT SUBSIDIES 
---------------- 
 
10. (U) Bahrain has phased out most subsidies for export 
industries, but permits duty-free importation of raw 
materials for export products and of equipment and machinery 
for newly established export industries. 
 
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INTELLECTUAL PROPERTY RIGHTS (IPR) 
---------------------------------- 
 
11. (U) Bahrain has finalized the process of joining the 
World Intellectual Property Organization (WIPO) copyright 
treaty and the WIPO Performance and Phonograms Treaty.  The 
agreements will be effective on December 15, 2005.  A 
significant public awareness campaign was launched in March 
2005, equating piracy with theft.  Islamic preachers were 
enlisted to educate the public on the intellectual property 
rights concept.  However, the Motion Picture Association 
(MPAA) of America complains that the Government of Bahrain 
has failed to act to curb a growing trend of cable television 
piracy.  The MPAA alleges that unlicensed operators are 
tapping into cable television feeds and illegally selling 
access to the diverted signal, thereby depriving U.S. motion 
picture studios of royalty proceeds. 
 
12. (U) The Government of Bahrain is preparing to submit 
several key pieces of draft IPR legislation to Parliament to 
achieve full compliance with FTA obligations.  The new 
legislation will improve protections and criminalize various 
IPR violations, including copyright, trademark and patent 
infringement. 
 
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SERVICES AND BARRIERS 
--------------------- 
 
13. (U) Financial Sector: In March 2004, as part of an effort 
to stimulate the insurance industry and reinforce Bahrain's 
position as a major insurance center in the Middle East, the 
Bahrain Monetary Authority (BMA) lifted the requirement that 
foreign insurance brokers and loss adjusters have a local 
partner to operate.  These firms, which were previously 
required to have at least 51 percent Bahraini-ownership, are 
now permitted to operate with 100 percent foreign-ownership. 
The BMA is holding consultations on further reform in areas 
such as captive insurance, solvency, business conduct, risk 
management and financial crime, enforcement, central bank 
reporting and public disclosure, intermediaries, and Islamic 
insurance.  As a result of entry into force of the FTA, 
Bahrain will lift the moratorium on the issuance of new 
insurance licenses for life and medical insurance and will 
lift the moratorium for non-life insurance licenses six 
months after the agreement takes effect. 
 
14. (U) In 2004, Bahrain's Central Bank issued seventeen new 
licenses: one investment bank, four offshore banking units, 
one full commercial bank, two investment advisory brokers, 
two financial services ancillary service providers, three 
representative offices, one money exchange unit, and three 
Islamic banking and financial institutions. 
 
15. (U) Telecommunication Sector: The Telecommunications 
Regulatory Authority (TRA) announced in April 2003 that all 
licenses would be issued for fifteen years, rather than in 
perpetuity.  On July 1, 2004, the telecommunications sector 
was fully liberalized, including paging services, very small 
aperture terminals (VSAT), public access mobile radio 
services, international telecommunications facilities, 
international telecommunications services, national fixed 
services, internet service providers (ISP), and value-added 
services licenses.  By December 2004, the TRA had liberalized 
the market by granting three international telecommunication 
facilities licenses, five international telecommunication 
services licenses, and five VSATs. 
 
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INVESTMENT BARRIERS 
------------------- 
 
16. (U) The U.S.-Bahrain BIT provides benefits and protection 
to U.S. investors in Bahrain, such as most-favored-nation 
treatment and national treatment, the right to make financial 
transfers freely and without delay, international law 
standards for expropriation and compensation cases, and 
access to international arbitration.  The BIT provides 
national and most-favored-nation treatment for U.S. 
investments across all sectors, with exceptions for ownership 
or control of television, radio or other forms of media, 
fisheries, initial privatization, air transportation, and the 
purchase or ownership of land.  As of January 1, 2005, U.S. 
investors can purchase or own shares traded on the Bahrain 
Stock Exchange (BSE). 
 
17. (U) Bahrain permits 100 percent foreign-ownership of new 
industrial entities and the establishment of representative 
offices or branches of foreign companies without local 
sponsors.   Wholly foreign-owned companies may be set up for 
regional distribution services and may operate within the 
domestic market as long as they do not exclusively pursue 
domestic commercial sales.  Foreign companies established 
before 1975 may be exempt from this rule under special 
circumstances. 
18. (U) Since January 2001, foreign firms and GCC nationals 
may own land in Bahrain.  Non-GCC nationals may now own 
high-rise commercial and residential properties, as well as 
property in tourism, banking, financial and health projects, 
and training centers, in specific geographic areas. 
 
19. (U) In an attempt to streamline licensing and approval 
procedures, the Ministry of Commerce opened the Bahrain 
Investors Center (BIC) in October 2004 for both local and 
foreign companies seeking to register in Bahrain.  According 
to Ministry of Commerce officials, 80 percent of all licenses 
can be processed and verified within approximately 
twenty-four hours, an additional 10 percent within five 
working days and the remaining 10 percent, involved in 
environmental, power, health and other important utilities 
and services, are processed separately and licenses are 
issued on a case-by-case basis. 
 
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ELECTRONIC COMMERCE 
------------------- 
 
20. (U) In September 2002, Bahrain implemented an Electronic 
Transactions law, recognizing the validity of electronic 
transactions.  In order to encourage use of this 
technological advancement, the Ministry of Commerce has 
implemented electronic government.  Banks offer electronic 
banking and the parastatal telecommunications company now 
accepts electronic transactions for bill payments. 
 
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ARAB LEAGUE BOYCOTT 
------------------- 
 
21. (U) Bahrain does not have any restrictions on trade with 
U.S. companies that have relations with Israeli companies. 
Outdated tender documents in Bahrain have occasionally 
referred to the secondary and tertiary aspects of the 
boycott, but such instances have typically been remedied 
quickly.  Bahrain's Ministry of Finance circulated a 
memorandum to all Bahraini Ministries in September 2005 
reminding them that the secondary and tertiary boycotts are 
no longer in place and to remove any boycott language from 
government contracts. 
 
22. (U) The Government has stated publicly that it recognizes 
the need to dismantle the primary boycott and is taking steps 
to do so.  It recently closed down its boycott office, the 
only entity responsible for enforcing the boycott.  Closure 
of the boycott office was widely acknowledged as tantamount 
to lifting the primary boycott. 
 
23. (U) The U.S. Government has received assurances from the 
Government of Bahrain that it is committed to ending the 
boycott.  Bahrain is fully committed to complying with WTO 
requirements on trade relations with other WTO members and 
Bahrain has no restrictions whatsoever on American companies 
trading with Bahrain or doing business in Bahrain, regardless 
of its ownership or relations with Israeli companies. 
Bahrain did not attend the November 2005 Arab League Boycott 
meeting in Damascus.  Israeli-labeled products are reported 
to be found occasionally in the Bahraini market.  There are 
no entities present in Bahrain for the purpose of promoting 
trade with Israel. 
 
MONROE