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ernmental intervention and with positive results for the workers. Minimum wage rates are established by Council of Ministers' decree. Increases in wages above the minumum, which are subject to discussion in the JCCs, are set by management, with government salaries for comparable work often serving as an informal guide.

c. Prohibition of Forced or Compulsory Labor.-Forced or compulsory labor is prohibited in Bahrain, and the Labor Ministry is charged with enforcing the law. The press often performs an ombudsman function on labor problems, reporting instances in which private sector employers occasionally compelled foreign workers from developing countries to perform work not specified in their contracts, as well as Ministry of Labor responses. Once a complaint has been lodged by a worker, the Labor Ministry opens an investigation and often takes remedial action.

d. Minimum Age for Employment of Children. The minimum age for employment is 14. Juveniles between the ages of 14 and 16 may not be employed in hazardous conditions or at night, and may not work over 6 hours per day or on a piecework basis. Child labor laws are effectively enforced by Ministry of Labor inspectors in the industrial sector; child labor outside that sector is less well monitored, but is not believed to be significant outside family operated businesses.

e. Acceptable Conditions of Work.–Bahrain's labor law, enforced by the Ministry of Labor, mandates acceptable conditions of work for all adult workers, including adequate standards regarding hours of work (maximum 48 hours per week) and occupational safety and health. Minimum wage scales, set by government decree, exist for both private and public sector employees. Complaints brought before the Ministry of Labor which cannot be settled through arbitration must, by law, be referred to the fourth high court (labor) within 15 days. In practice, most employers prefer to settle such disputes through arbitration, particularly since the court and labor law are generally considered to favor the worker/employee. The law provides protection for both Bahraini and expatriate workers. However, all foreign workers are required to be sponsored by Bahrainis or institutions and companies based in Bahrain. Foreign workers, particularly those from developing countries are often unwilling to report abuse for fear of losing residence rights in Bahrain and having to return to their native countries, in which they would face significantly inferior working conditions and earning possibilities. In addition, the labor law specifically favors Bahrainis, followed by Arab expatriates, over all other expatriate workers in the areas of hiring and firing. Women are generally paid less than men, and are prohibited from performing night work, except in certain exempted fields. Women are entitled to 60 days of paid maternity leave, nursing periods during the day, and up to one year of unpaid maternity leave.

f. Rights in Sectors with U.S. Investment.-U.S. capital investment in Bahrain is concentrated primarily in the petroleum sector. It takes the form of minority share interests in the Bahrain Petroleum Company (BAPCO), Bahrain National Gas Com. pany (BANAGAS), and the Bahrain Aviation Fueling Company (BAFCO). There are also joint venture factories producing plastic bottle caps, tissues, and pipes. Workers at all these companies enjoy the same rights and conditions as other workers in Bahrain.

Extent of U.S. Investment in Selected Industries.-U.S. Direct

Investment Position Abroad on an Historical Cost Basis-1993

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Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis 1993—Continued

(Millions of U.S. dollars)

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Income, Production and Employment:

Real GDP (1991/92 prices) 1
Real GDP Growth (pct.)

Current GDP by Sector:.
Agriculture ....
Industry/Mining .....
Petroleum

Related Products
Electricity ...
Construction
Transportation
Suez Canal
Trade
Finance
Insurance
Tourism
Housing
Public Utilities
Social Insurance
Government Services

Personal Services
Per Capita GDP (1991/92 prices)
Labor Force (000s)

Unemployment Rate (pct.)
Money and Prices:

Money Supply (M2)
Banks Lending Rate (pct.) 2
Banks Saving Rate (pct.) 2
Consumer Price Index (pct.)
Wholesale Price Index (pct.)
Exchange Rate (USD/LE)

Free Market Rate
Balance of Payments and Trade:
Total Exports (FOB)

Exports from U.S. (CY/USD) 4
Total Imports (CIF) 3

Imports to U.S. (CY/USD)4
Trade Balance

Trade Balance with U.S. (CY)
Aid from U.S. (USFY/obligations)
External Public Debts
Debt Service Payments (paid)

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1,094 3,037 3,028

434 -1,933 -2,603

1,026 2,762 3,222

613 -2,196 -2,149 2,097 3,430 N/A

N/A 1,579 N/A 324

N/A - 1,255

2,342 5,300 NA

1,892 3,400 N/A

Key Economic Indicators-Continued

[Millions of U.S. dollars unless otherwise noted]

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Gold and FOREX Reserves 6

9,900 1,480 1,600 N/A-Not available. The Egyptian fiscal year is July 1 to June 30; Unless otherwise indicated, all figures above are for this period. 1 Real GDP are factor cost figures based on the 1991/92 prices. "Lending and deposit rates are average estimates. * Total imports (CIF) and total exports (FOB) are drawn from the Central Bank of Egypt's annual report and are based on the Egyptian fiscal year.

*U.S./Egypt trade figures are based on CY. The 1994 figures cover the period January 1994 through end
July 1994

Ministry of Finance and Central Bank preliminary estimates.
8 Central Bank preliminary figures, excluding gold.
1. General Policy Framework

Egypt is instituting reforms to reduce the role of the state and increase reliance on market mechanisms. In 1991, Egypt listed most foreign-exchange controls, uni. fied the exchange rate, instituted a sales tax, reduced the budget deficit, freed interest rates and began financing the deficit through treasury bill auctions. In the last three years, a stable Egyptian pound (LE) against the dollar and high interest rates have prompted a preference for the use of pounds in favor of dollars by the economy and fed a steady growth in the money supply. While the macroeconomic stabilization program has proved highly successful, the Government has proceeded more cautiously in key areas such as trade policy and privatization. Three years into the economic reform, the international financial institutions and donors are concerned that the Government's timid approach to structural reform is condemning the economy to prolonged stagnation.

Follow on IMF and World Bank programs focus on supporting the private sector. The Government has taken tentative steps toward privatization of the public sector, which represents approximately 70 percent of industrial production. In 1993, the 314 public sector enterprises were organized into 17 holding companies, which are permitted to sell, lease or liquidate company assets, and sell Government-owned shares. The Government claims to have sold approximately LE 4.5 billion (USD 1.3 billion) in assets to date. Despite these claims, delays in the procedure, disagreements over the valuation process, and a general reluctance to follow through on

bids have slowed the process to a crawl. Outright sales have been few and share flotation, method now favored by the Government, have been hampered by the weakness of the long-dormant stock exchange. Further, many important public sector companies are not candidates for privatization, including the national airline (Egypt Air), telecommunications (Arento), and electricity utilities (EEA). Trade reform has been sigạificant; but domestic industry remains protected by relatively high tarifs rates and non-tariff import barriers. In 1993, import bans on most commodities were eliminated, and in 1994 the maximum tarist rate was reduced from 80 percent to 70 percent (with a few exceptions).

As reforms proceed and the private sector gains more strength, exporters of U.S. products (which are popular in Egypt) may find improved market opportunities in Egypt. This will depend on the Government's ability to spur private investment, which remains dormant outside of the tourism sector. Potential investors await progress in privatization and the elimination of bureaucratic barriers before proceeding with new projects.

The United States is Egypt's largest supplier of imports. U.S. exports to Egypt in 1993 totaled USD 2.8 billion. Annually over USD 200 million worth of exports are financed through USAID's Commodity Import Program, over USD 400 million through various USAID projects and about USD 165 million under Department of Agriculture programs (GSM102). A substantial portion of the USD 1.3. billion in U.S. military assistance finances U.S. exports to Egypt. 2. Exchange Rate Policy

Egypt, in November 1991, adopted a free-market exchange system subject only to Central Bank buying and selling intervention. The exchange rate is essentially free of restrictions now and non-bank dealers are allowed. High interest rates and stable exchange rates have stimulated large capital inflows and a change in preference fa. voring the use of pounds instead of U.S. dollars by the economy. Central Bank foreign exchange reserves stand at USD 17 billion. New inflows are concentrated in short-term deposits and Treasury bills. A new foreign currency law was passed in

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April 1994, eliminating all restrictions on repatriation of tourism and export proceeds.

Exchange rate stability and the sharp increase in the availability of hard cur rencies, now readily accessible in the market, should increase opportunities for U.S. exports to Egypt when demand conditions become more favorable and with expected future reductions in trade restrictions. Egypt's export competitiveness, however, has eroded significantly due to the exchange rate which has not been depreciating to compensate for annual inflation rates of 10-13 percent. 3. Structural Policies

Egypt is committed to eliminating most domestic price controls. The Government freed all industrial prices with the exception of pharmaceuticals, cigarettes, rationed sugar and rationed edible oil. The Government still subsidizes mass-consumption bread, which stimulates demand for U.S. wheat. The Government has shown no sign of relaxing price controls on pharmaceutical products, which are administered inflexibly and are financially harmful to U.S. and other foreign pharmaceutical companies. While energy, transportation, and water prices are expected to remain administered, price increases have brought domestic petroleum product prices to about 88 percent of international prices (June 1993) and electricity prices to about 77 cent of long-run marginal costs (the exact figure is in dispute between the World Bank and the Government). The Government is committed to raising energy prices further. Additionally, the Government is in the process of deregulating the cotton sector and reactivating the cotton exchange.

Despite much progress, domestic industry is still protected by high tariff rates. In March 1994, the maximum tariff rate was cut to 70 percent and tariffs between 70 and 30 percent were reduced by ten percentage points. The lower rate was main. tained at five percent. The Government is committed to reduce further the maximum custom tariff to 60 percent by end-1994 and 50 percent by mid-1995. Several commodities including passenger cars, tobacco products, and alcoholic beverages are exempt from the tariff ceiling. In February 1994, the Government imposed "service fee” surcharges of three and six percent (depending on the custom duty of the imported item), which undid much of the benefit of the customs rate reduction. After the World Bank cried foul, the Government undertook to abolish this surcharge by July 1995. In addition to the custom tariff, a sales tax ranging between five and 25 percent is added to the final customs value of the imported item. Assembly in. dustries may benefit from lower custom rates on imported goods if they meet a local content requirement of 40 percent. Continued liberalization of the import regime and free-market pricing of domestically-produced commodities should help V.S. goods competing in the Egyptian market.

The Government instituted a General Sales Tax (GST), at first applicable at the
import and manufacturing level, in May 1991. The GST is to develop in stages into
a full value added tax by 1995. Taxes on certain consumer goods (alcoholic and soft
drinks, tobacco and petroleum products) not integrated in the GST were raised and
progressively converted to ad valorem taxes. A Unified Income Tax has been passed
which reduces marginal tax rates, simplifies the tax rate structure, and aims to im.
prove administration of tax policy. Both the GST and the income tax are designed
to broaden the tax base and compensate for the loss of customs revenues caused by
tariff reductions.
4. Debt Management Policies

In early 1991, official creditors in the Paris Club agreed to reduce by 50 percent the net present value of Egypt's official debt, phased in three tranches of 15, 15 and 20 percent. Release of the three tranches was conditioned on successful review of Egypt's reform program by the IMF. At about the same time, the U.S. Government forgave 6.8 billion dollars of high-interest military debt. As a result, Egypt's total outstanding medium- and long-term debt has declined to about USD 34 billion, and the debt service ratio has been reduced from 46 percent to around 17 percent. Egypt has cleared-up its arrearages to Paris Club creditor countries and is committed to remaining current on its Paris Club payments. The reduction in Egypt's debt service bill has helped it reduce dramatically the budget deficit, create macroeconomic stability and build a high level of reserves (approximately USD 17 billion). In September 1993, the IMF announced an extended fund facility of Special Drawing Rights (SDR) 400 million (USD 556 million), covering the period June 1993 to June 1996. The World Bank is working in parallel with the IMF on a Structural Adjustment Monitoring Program (SAMP). In July 1994, the Paris Club postponed implementation of the final tranche of debt relief, due to a lack of satisfactory IMF review, as required by the agreed minute.

5. Significant Barriers to U.S. Exports

Import Barriers: Egypt does not require import licenses. In July 1993, the Government canceled the list of items requiring prior approval before importation. The im. port ban list, which included 210 products in 1990, was significantly reduced in July 1993 and it now includes three commodity groups: poultry, fabrics and apparel, which represent approximately four percent of total production. The Government has pledged to remove the ban on poultry in 1994 and review the ban on textile products in conjunction with GATT negotiations on the Multisiber Arrangement. For food and non-food imports that have a shelf-life, the Government mandates that they should not exceed half the shelf-life at time of entry into Egypt.

Services Barriers: In March 1993, the Bank Law was amended to allow existing foreign bank branches to conduct local currency dealings, and two U.S. bank branches have received licenses to do so. The domestic insuranæ market is closed to foreign companies, but they may operate in free trade zones as minority partners. Four public sector insurance companies (one of which is a reinsurance company) dominate the market, although three private sector Egyptian companies exist. Two joint ventures, each with 49 percent ownership, operate in the free zones. Other services barriers include the following: a screen quota exists for foreign motion pictures; only Egyptian nationals may become certified accountants; there is no law regulating leasing activities in Egypt; and there is regular censorship of films and printed materials.

Standards, Testing, Labeling and Certification: Egypt is party to the GATT Standards Code. The Egyptian Government pledged that it would not introduce any new non-tariff barriers as it reduced tarily rates and eliminated import bans. When the import ban list was reduced in August 1992 and July 1993, however, many items that came of that list were added to the list of commodities requiring inspection for quality control. In August 1994, five more items were added to the list, which now consists of 131 items, including food stuss, spare parts, construction products, electronic devices, appliances, and many consumer goods. Although Egyptian au. thorities stress that standards applied to imports are the same as those applied to domestically-produced goods, importers report that testing procedures for imports disfer, and tests are carried out with faulty equipment by testers who often make arbitrary judgments. Moreover, importers face the problems of ill-defined or unwritten product standards, and backlogs resulting from authorities having limited staff or too few inspection machines.

All imported goods should be marked and labeled. The following information must be written on each package in clear Arabic letters in a non erasable manner: the name of the product, type and brand; country of origin; date of production and expiry date; any special data on transportation and handling of the product. An Arabic-language catalog should accompany imported tools, machines and equipment.

Investment Barriers: In early 1991, Egypt replaced its investment licensing regime with a system for automatic approval of investments in sectors not on a "Negative List.” The list now includes: all military products and related industries; tobacco and tobacco products; and investments in the Sinai (except oil, gas, and mineral exploration). Foreign investors seeking incentives (primarily tax holidays) under Investment Law 230 must obtain project approval from the General Authority of Investment (GAFI), which may cause delays. Industrial establishments may also be formed under Companies Law 159, but they will not receive incentives or protections offered by Law 230. The U.S.-Egypt Bilateral Investment Treaty (BIT) was implemented in June 1992. While its safeguard provisions are generally no more liberal than those in Law 230, it provides a further measure of protection to American investors. The BIT has not yet resulted in significant new U.S. investments which would stimulate Egyptian demand for U.S. machinery, spare parts, and technical services.

Government Procurement Practices: Egypt has not signed the GATT Government Procurement Code. Although Egypt does not employ systematic or discriminatory policies which adversely affect O.S. businesses, the Government buys from public sector firms whenever possible. Egypt's tender regulations are written by the Gov. ernment, for the Government's benefit. A contractor/supplier's safeguard must be negotiated before contract signing, particularly in defining force majeure, “final acceptance," and dispute resolution. Egyptian bidders (public and/or private sector) receive a 15 percent price preference. Government tenders should be awarded to the best qualified, lowest bidder, however, it is typical for Government negotiators to bargain with several bidders. There is no penalty for Government delays in making an award decision or in returning bid or performance bonds. Egypt does not observe the Arab League boycott of Israel. Egypt has moved away from government-to-government barter agreements and toward private sector initiatives.

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