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new medium- and long-term financing will hinder U.S. firms' ability to find suitable finance terms for Algerian customers. Firms from countries retaining extensive bi. lateral lines of credit with Algeria have an advantage over U.S. firms in this regard.
The government had maintained a monopoly on particular services, most notably insurance and banking. In November 1994 the legislature is reviewing a draft bili ending the government's monopoly in the insurance sector. The banking sector, however, is opening up to private investors. One private bank now operates in Algeria, and a second bank has received a ense. Foreign banks are allowed to have representative offices in Algeria, but these may not engage in commercial transactions. A U.S. bank, Citibank, maintains such an office in Algeria. 6. Export Subsidies Policies
About 97 percent of Algeria's export earnings come from the hydrocarbons sector. To date few other economic activities able to compete internationally have emerged. The government's contractionary budget policies preclude it from offering any kind of explicit export subsidy to foster new exports. Exporters do enjoy below-market priced energy, but to the extent that the official rate for the dinar remains overvalued, exporters pay an implicit tax as well. 7. Protection of U.S. Intellectual Property
Algeria is a party to the Universal Copyright Convention and the Paris Conven. tion for the Protection of Industrial Property. The government of Algeria has a good record of respect for intellectual property rights. Generally, Algerian practice is to obtain authorization and pay royalties for proprietary technology. Copying of patented technologies is generally beyond Algeria's technical capabilities. There are no reports of trademarks being counterfeited or suffering problems obtaining registration. 8. Worker Rights
a. The Right of Association.—Algerians have the right to form and be represented by trade unions of their choice. Government approval for the creation of a labor union is not necessary, although limits are imposed on union activities. Unions may not receive funds from abroad, and the government may suspend a union's operations if it violates the law. Unions may form and join federations or confederations and affiliate themselves with international bodies.
b. The Right to Organize and Bargain Collectively.-A 1990. law permits collective bargaining for all unions, and this right has been freely practiced. The law also prohibits discrimination by employers against union members and organizers and provides mechanisms for resolving trade union complaints of antiunion practices by employers. It further permits all unions, whether longstanding or newly created, to recruit members of the workplace.
c. Prohibition of Forced or Compulsory Labor.-Forced or compulsory labor has not been practiced in Algeria and is incompatible with the Constitution.
d. Minimum Age of Employment of Children.—The minimum employment age is 16 years and state inspectors enforce this regulation in the state sector. It is not much enforced in the agricultural sector or in the growing informal sector, where economic necessity is forcing a growing number of children into menial jobs.
e. Acceptable Conditions of Work. --The 1990 law on work relations defines the overall framework for acceptable conditions of work, but leaves specific policies with regard to hours, salaries, and other work conditions to the discretion of employers in consultation with employees. A guaranteed monthly minimum wage rate for all sectors is set by the government. Algeria has a 44-hour work week. A government decree regulates occupation and health standards.
f. Rights in Sectors with U.S. Investment.—Nearly all U.S. investment is located in the hydrocarbons sector. The rights outlined above better enjoyed by Algerian workers at these U.S. facilities than in the Algerian economy at large.
Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993
(Millions of U.S. dollars)
Food & Kindred Products
Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993-Continued
(Millions of US dollars)
Income, Production and Employment:
GDP (at current prices)
Money Supply (M2 ann. pct. growth)
Exchange Rate (USD/BD)
Non-Oil Exports to U.S.
Non-Oil Imports from U.S. 3
*Excluding imports of military items and civil aircraft. 1. General Policy Framework
Although the Government of Bahrain has controlling interests in many of the island's major industrial establishments, its overall approach to economic policy, especially those policies which affect demand for U.S. exports, can best be described as laissez-faire. Except for a few basic foodstuffs, the price of goods in Bahrain is determined by market forces, and the importation and distribution of foreign commodities and manufactured products is carried out by the private sector. Owing to its historical position as a regional trading center, Bahrain has a well-developed and highly competitive mercantile sector in which products from the entire world are represented. Import duties are primarily a revenue device for the government and are assessed at a ten percent rate on most products. The Bahraini dinar (BD) is freely convertible, and there are no restrictions on the remittance of capital or profits. With the exception of the petroleum sector, Bahrain does not tax either corporate or individual earnings.
Over the last two decades, the Government of Bahrain has encouraged economic diversification by investing directly in such basic industries as aluminum smelting, petrochemicals, and ship repair, and by creating a regulatory framework which has fostered the development of Bahrain as a regional financial and commercial center. Despite diversification efforts, the oil and gas sector remains the cornerstone of the economy. Oil and gas revenues constitute over 60 percent of governmental revenues, and oil and related products account for about 80 percent of the island's exports. The largest source of the government's oil revenue comes from Bahrain's 100,000 barrelday share of the offshore Abu Safa Field, which is shared with and managed by Saudi Arabia.
The budgetary accounts for the central government are prepared on a biennial basis. The budget for 1993–94 was approved in April 1993. Budgetary revenues consist primarily of receipts from oil and gas (over 60 percent) supplemented by fees and charges for services, customs duties, and investment income. Bahrain has no income taxes and thus does not use its tax system to implement social or investment policies. In 1993, revenue was $1.487 billion and expenditures were $1.659 billion. The resulting $172 million shortfall was financed through the issuance of threemonth and six-month treasury bills to domestic banks, according to the normal practice of recent years. 1994 revenue is projected to be $1.590 billion and expenditures are projected to be $1.789 billion. The projected $199 million deficit will also be fipanced through the issuance of treasury bills. The 1995–96 budget is expected to be approved by the Council of Ministers by spring 1995. It will most likely project budget shortfalls similar to those seen over the past two years.
The instruments of monetary policy available to the Bahrain Monetary Agency (BMA) are limited. Treasury bills are used to regulate dinar liquidity positions of the commercial banks. Liquidity to the banks is provided now through secondary operations in treasury bills, including: (A) discounting treasury bills; and (B) sales by banks of bills to the BMA with a simultaneous agreement to repurchase at a later date (“repos”). Starting in 1985, the BMA imposed a reserve requirement on commercial banks equal to five percent of dinar liabilities. Although the BMA has no legal authority to fix interest rates, it has published recommended rates for Bah. raini dinar deposits since 1975. In 1982, the BMA instructed the commercial banks to observe a maximum margin of one percent over their cost of funds, as determined by the recommended deposit rates, for loans to prime customers. In August 1988, special interest rate ceilings for consumer loans were introduced. In May 1989, the maximum prime rate was abolished and, in February 1990, new guidelines permitting the issuance of dinar certificates of deposit (CD's) at freely negotiated rates for any maturity from six months to five years were published. 2. Exchange Rate Policies
Since December 1980, Bahrain has maintained a fixed relationship between the Bahraini dinar and the U.S. dollar at the rate of one U.S. dollar equals 0.377 BD. Bahrain maintains a fully open exchange system free of restrictions on payments and transfers. There is no black market or parallel exchange rate. 3. Structural Policies
Bahrain ratified the Uruguay Round Agreements and became one of the founding members of the World Trade Organization (WTO) on January 1, 1995. Bahrain is also a member of the regional Gulf Cooperation Council (GCC). As a member of the GCC, Bahrain participates fully in its efforts to achieve greater economic integration among its member states. In addition to according duty-free treatment to imports from other GCC states, Bahrain has adopted GCC food product labeling and automobile standards.
Efforts are underway within the GCC to enlarge the scope of cooperation in fields such as product standards and industrial investment coordination. In recent years, the GCC has focused its attention on negotiations on a trade agreement with the European Union. If these negotiations are successfully concluded, such an agreement could have a long-term adverse impact on the competitiveness of U.S. products within the GCC, including Bahrain. Bahrain is also an active participant in the on. going U.S.- GCC economic dialogue. For the present, U.S. products and services compete on an equal footing with those of other non-GCC foreign suppliers. Bahrain participates in the Arab League economic boycott against Israel, but this year an. nounced that it would not observe secondary and tertiary boycott policies against third-country firms having economic relationships with Israel.
With the exception of a few basic foodstufss and petroleum product prices, the Government of Bahrain does not attempt to control prices on the local market. Because most manufactured products sold in Bahrain are imported, prices are basi. cally dependent upon the source of supply, shipping costs and agents' mark-ups. Since the opening of the Saudi Arabia-Bahrain Causeway in 1985, local merchants are less able to maintain excessive margins and, as a consequence, prices have tended to fall toward the levels prevailing in other GCC countries.
Bahrain is essentially tax-free. The only corporate income tax in Bahrain is levied on oil, gas, and petroleum companies. There is no individual income tax, nor does the island have any value added tax, property tax, or production tax. A few indirect and excise taxed are assessed. Aside from customs duties, including a tax on gasoline, a ten percent municipal levy on rents paid by residential tenants and a 12.5 percent tax on office rents are imposed. 4. Debt Management Policies
The Government of Bahrain follows a policy of strictly limiting its official indebtedness to foreign financial institutions. In the past, it has financed its budget deficit through local banks. The $1.4 billion Aluminum Bahrain (ALBA) Smelting Plant Expansion Project, completed in December 1992, was financed in part through for: eign commercial and supplier credits. The Government of Bahrain does not regard this debt as sovereign risk. Bahrain has no International Monetary Fund or World Bank programs. 5. Significant Barriers to U.S. Exports
Standards: Processed food items imported into Bahrain are subject to strict shelf life and labeling requirements. Pharmaceutical products must be imported directly from a manufacturer which has a research department and must be licensed in at least two other GCC countries, one of which must be Saudi Arabia.
Investment: The government actively promotes foreign investment and in recent years promulgated regulations permitting 100 percent foreign ownership of new industrial establishments and the establishment of representative offices or branches of foreign companies without local sponsors. Most other commercial investments are subject to government approval and generally must be made in partnership with a Bahraini national controlling 51 percent of the equity. Except for citizens of Kuwait, Saudi Arabia, and the UAE., foreign nationals are not permitted to purchase land in Bahrain. The government encourages the employment of local nationals by setting local-national employment targets in each sector and by restricting the issuance of expatriate labor permits.
Government Procurement Practices: The government makes major purchasing decisions through the tendering process. For major projects, the Ministry of Works, Power, and Water extends invitations to selected, prequalified firms. Likewise, construction companies bidding on government construction projects must be registered with the Ministry of Works, Power, and Water. Smaller contracts are handled by individual ministries and departments and are not subject to prequalification.
Customs Procedures: The customs clearance process is used to enforce the primary boycott of Israel. While goods produced by blacklisted firms may be subjected to minor delays, the secondary and tertiary boycotts are no longer used as the basis for denying customs clearance. Bahraini customs also enforces the Foreign Agency Law. Goods manufactured by a firm with a registered agent in Bahrain may only be imported by that agent or, if by a third party, upon payment of a commission to the registered agent. 6. Export Subsidies Policies
The Government of Bahrain provides indirect export subsidies in the form of preferential rates for electricity, water, and natural gas to selected industrial establishments. The government also permits the duty-free importation of raw material inputs for incorporation into products for export and the duty-free importation of equipment and machinery for newly-established export industries. The government does not specifically target subsidies to small businesses. Bahrain is a member of GATT, the GATT Subsidies Code, and the WTO.
7. Protection of U.S. Intellectual Property
The Government of Bahrain is not yet a signatory to any major intellectual property convention, and its new copyright law, adopted in 1993, excludes from protection nearly all foreign works which are first introduced outside Bahrain. Procedures for enforcement even of this limited law are unduly cumbersome, and there is no effective enforcement mechanism. Consequently, protection of intellectual property is qonsidered unsatisfactory by U.S. standards. The sale of unauthorized cheap video and audio tapes and counterfeit computer software is widespread. Patents and trademarks, however, are protected by Bahraini law.
Existing intellectual property protection is provided by the Patent, Design, and Trademark Law of 1955, as amended by Ministerial Decree No. 22 of 1977 and implementing regulations of 1978. The Trademark Law was revised in 1991 and reissued as Decree No. 10 of 1991. Protection periods are as follows: (1) A trademark can be registered for a period of ten years, renewable without limit for further tenyear periods; (2) A design can be registered for a period of five years, but the reg. istration is only renewable for two periods of five years each; (3) A patent can be registered for 15 years, renewable for one five-year period if the patent is deemed by the Patents and Trademarks Registration Office of the Ministry of Commerce and Agriculture to be of special importance and not to have realized revenue commensurate with the expenses involved in its formulation.
The enforcement of trademarks is generally left to the local agent or an appointed representative of the trademark owner. The government does not have a proactive policy of seeking and/or removing counterfeit goods from the marketplace. Trademark registration fees and procedures have not been identified as obstacles to secking or maintaining trademark protection.
Infringement of new technology in Bahrain is basically limited to software piracy. Private satellite receivers are banned. The U.S.-based Cable News Network (CNN) is transmitted for one hour every night on an open channel by the Ministry of Insormation with the agreement of the firm, and viewers wishing to receive ČNN on a 24-hour basis must pay a fee.
Bahrain's recently enacted copyright law, Legislative Decree No. 10 of 1993, applies only to intellectual properties of Bahrainis and other Arab authors who are nationals of states which have ratified the Arab Copyright Protection Agreement of 1958. Intellectual properties of other foreign authors are protected only if originally published in Bahrain. There are no reliable estimates of losses to U.S. trade as a result of Bahrain's failure to provide adequate copyright protection. However, as part of its Uruguay Round obligations under the Trade Related Intellectual Property Agreement (TRIPS), Bahrain will bring its laws into conformity with international intellectual property rights conventions. 8. Worker Rights
a. The Right of Association.—The partially suspended 1973 Constitution recog; nizes the right of workers to organize, but trade unions do not exist in Bahrain, and the government does not encourage their formation. However, the government passed a series of labor regulations which, among other things, allow the formation of elected workers' committees in larger Bahraini companies. Worker representation in Bahrain today is based on a system of joint labor-management consultative coun. cils (JCCs) established by ministerial decree. Between 1981 and 1984, 12 JCCs were established in the major state-owned industries. In 1994, four new JCCs were established in the private sector, including one in a major hotel. Further expansion of the JCC system into tourism and banking sectors is under active consideration. The JCCs are composed of equal numbers of appointed management representatives and worker representatives elected from and by company employees. The selection of worker representatives appears to be a fair process, and worker representatives appear generally to genuinely represent worker interests. The elected labor represent. atives of the JCCs select the 11 members of the General Committee of Bahraini Workers (GCBW) established in 1983 by law, which oversees and coordinates the work of the JCCs. The JCC-GCBW system represents close to 70 percent of the islands indigenous industrial workers, although both government and labor representatives readily admit that nonindustrial workers and expatriates are clearly underrepresented within the system.
b. The Right to Organize and Bargain Collectively.-While the JCCs described above are empowered to discuss labor disputes, organize workers' services, and discuss wages, working conditions, and productivity, the workers have no entirely independent, recognized vehicle for representing their interests on these or other laborrelated issues. Bahraini labor law neither grants nor denies workers the right to organize and bargain collectively or to strike. There are no recent examples of major strikes, but walkouts and other job actions have been known to occur without gov