This section of the report analyses trade policies of the six member states (Bahrain,
Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates (U.A.E.)) of the
Gulf Cooperation Council (GCC).
In 1995, the United States trade deficit with the GCC was $350 million, $322
million less than that in 1994. U.S. merchandise exports to the GCC were $10.2
billion, a $588 million increase from 1994. U.S. imports from the GCC totaled
$10.5 billion in 1995, up 2.6 percent from 1994.
The stock of U.S. foreign direct investment in Saudi Arabia was $2.7 billion
in 1994, 3.8 percent greater than that in 1993. U.S. direct investment in the
U.A.E was $589 million in 1994, up 12.4 percent from that in 1993. U.S. direct
investment in the GCC is largely concentrated in manufacturing and
The GCC is a policy-coordinating forum for its members. Since it cannot
impose trade policies upon its member states, each is free to pass and enforce
its own trade laws. However, there has been growing cooperation among GCC
members on certain issues, such as standards-setting, establishing tariff
ranges, and cooperating on intellectual property protection. There is also
consideration being given to forming a customs union and continuing work on a
free trade area between the GCC and the EU.
The United States seeks to strengthen common action among GCC members, as
well as provide new impetus to the United States and the GCC countries to expand
and strengthen our economic and commercial ties. The most recent U.S.-GCC
Economic Dialogue took place in March 1996 in Bahrain.
The GCC leadership failed to agree on a unified tariff at its annual summit
in December 1995. Many GCC countries maintain high (15-20 percent) tariffs on
products produced locally. As the GCC moves to harmonize its tariff schedule,
there is concern that a "highest common denominator" approach could
significantly increase the number of products across the GCC that face high
Of the GCC countries, Kuwait, Bahrain, Qatar and U.A.E. are members of the
WTO. All four of these countries entered the GATT and WTO under simplified
procedures and with minimal negotiations, based on the United Kingdom's previous
application of the GATT 1947 on their behalf. Saudi Arabia applied for WTO
membership in July 1993, and converted this application to WTO accession early
in 1996. Negotiations for the terms of Saudi Arabia's accession are now
underway, and will be conducted under the standard procedures of Article XII of
the WTO. An observer to the WTO since April 1995, Oman has decided in principle
to join the organization, but has not yet applied for accession.
STANDARDS, TESTING, LABELING, AND CERTIFICATION
As U.S. export interest in the region grows, the United States has become
concerned with certain restrictive standards in various GCC member states. In
particular, shelf-life requirements throughout the GCC for food products are in
many cases far shorter than necessary to ensure safety, posing problems for U.S.
exporters who often face lengthy shipping times. These requirements were in some
cases shortened, and began to be more vigorously enforced in 1993, creating
considerable hardship for U.S. exporters. Labeling and expiration date
requirements are overly stringent and an export impediment for U.S. fresh eggs
and canned baby food products. For example, the U.S. standard for fresh
eggs is 6 months, based on immediate refrigeration and chemical treatment of
shells, while the Saudi Arabian Standards Organization (SASO) standard has been
reduced to 90 days. Canned baby foods are allowed a 1 to 2 year shelf life in
the U.S., while the SASO standard has been reduced to 6 months.
In 1990, the United States entered into a highly successful arrangement with
SASO to encourage cooperation in the development of standards. SASO's work
frequently leads to the creation of regional GCC standards. The United States -
SASO partnership, which includes a U.S. technical advisor in Riyadh funded by
the United States Government, has led to greater transparency in the Saudi
system and has increased opportunities for American exporters to comment on
draft Saudi standards. SASO has already adopted ISO 9000 as approved standards
for Saudi Arabia, and acts as an accreditation body through the quality
assurance department. The U.S. and the GCC concluded a Memorandum of
Understanding on Standards at the March 1996 Economic Dialogue meeting in
In October 1995, a new certification program went into effect to monitor and
control the quality of certain products imported into Saudi Arabia. The
International Conformity Certification Program (ICCP) will apply to 76 regulated
products during its first phase. The program, managed by Inchcape Testing
Services, will inspect and test, on behalf of SASO, any shipment bound for Saudi
Arabia to verify the quality of the goods.
The GCC plans to implement a system for registering companies that comply
with international standard ISO 9000. The central accreditation organization
will be the Gulf Standards Organization (GSO). There will be an agency in each
of the six countries to inspect factories, make recommendations, and issue
registrations. The GSO is negotiating with the European Union to put the program
in place. The EU is sending experts to help the GCC in technical and training
aspects of the program, and to set up mutual recognition systems for
certification and quality control mechanisms.
In January 1995, a GCC standardization official reported that the GSO has set
some 580 unified standards for the GCC countries to date, and plans to increase
that number to 1000 soon.
All GCC countries maintain preferential buy-national policies and all except
Bahrain maintain offset requirements requiring that a portion of any major (and
usually military) government tender be subcontracted to local firms. For
example, Kuwait government procurement policies specify local products when
available and prescribe a 10 percent price advantage for local firms in
government tenders. Offset regulations introduced in Kuwait since the liberation
specify that foreign firms awarded government contracts worth over $17 million
must invest 30 percent of the contract value in a project in Kuwait, the GCC or
the rest of the Arab world. Offset regulations are changing and complex.
Saudi Arabian government contracts on project implementation and procurement
are regulated by several royal decrees which strongly favor GCC nationals. Most
defense contracts, however, are negotiated outside these regulations. Under a
1983 decree, for example, contractors must sub-contract 30 percent of the value
of the contract, including support service, to majority-owned Saudi firms. An
exemption is granted where no Saudi company can provide sufficient goods and
services to fulfill the obligation. In addition, Article 1 (D) of the tender
regulations decrees that Saudi individuals and establishments have preference
over all other entities in government dealings. The same regulations also accord
preference to "mixed" entities as long as Saudi nationals hold at least 51
percent of the mixed entities capital. Article 1 (E) follows suit by giving
preference to products of Saudi origin which satisfy the requirements of the
procurement, even when the specifications are inferior to those of a foreign
In 1987, Saudi Arabia put new regulations in force giving priority in
government purchasing programs to GCC products. These items now receive up to a
10 percent price preference over non-GCC products in all government contracts
awarded by foreign contractors. Saudi Arabia requires offsets in military
contracts and recently in commercial government contracts as well.
Oman provides a 10 percent price preference to Omani nationals for Omani
goods and services. Additionally, the government considers quality of product or
service and support as well as cost in evaluating bids. For most major tenders,
Oman typically notifies firms either already registered in Oman or preselected
by project consultants. Oman is known to have an offset program only with the
United Kingdom, although the investment can originate from any country. Offsets
are not standard adjuncts to government contracts and have not been associated
with any U.S. defense transaction, whether commercial or FMS.
The U.A.E. has no requirement that a portion of any government tender be
subcontracted to local firms. There is a 10 percent price preference for local
firms on procurement and tenders. The U.A.E. requires a company to be registered
in order to be invited to receive government tender documents. To be registered,
a company must have 51 percent U.A.E. ownership. However, these rules do not
apply on major project awards or defense contracts, where there is no local
company able to provide the goods or services required. The U.A.E. requires
offset investments by winners of defense contracts. The requirements state that
an investment must generate returns within seven years equal to 60 percent of
the value of the contract.
Bahrain, in its decree number 11 of 1985, provides for preference in
government tenders to Bahraini and GCC products up to a price differential of 10
percent, provided the products meet standard specifications as to kind and
quality. Bahrain does not have an offset program.
Qatar requires foreign firms wishing to participate in government procurement
tenders to bid through local agents. Qatar gives a ten percent price preference
to local firms and a five percent price preference to GCC firms in all
Saudi Arabia has recently reduced wheat production subsidies. The Grain Silos
and Flour Mills Organization
(GSFMO) controls wheat production by assigning production quotas to each of
the country's grain farmers. Farmers can only receive government support prices
within preassigned quotas. GSFMO production quotas for the current year were
reduced to 1.3 million metric tons, compared to two million metric tons in 1995.
The reduction in quotas coincides with a June 1995 decision by the Saudi
Government to reduce production support prices for wheat from $533/Mt to
$400/Mt, still double world prices.
The Oman Development Bank offers interest subsidies for the relatively few
non-petroleum sector exporters obtaining commercial bank letters of credit and
offers some lower than market "insurance" against delay in payment of
LACK OF INTELLECTUAL PROPERTY PROTECTION
Although the GCC and its member countries lack comprehensive laws and
regulations to ensure effective intellectual property protection, some progress
has been made in recent years. Saudi Arabia enacted patent and copyright laws in
1989, the U.A.E. enacted copyright, trademark, and patent laws in 1992, Bahrain
enacted a highly deficient copyright law in 1993, and Kuwait and Oman are still
in the process of drafting copyright laws. The GCC secretariat has declared the
protection of intellectual property rights to be a priority and is working to
facilitate this in the six member states, especially in the area of patent
protection. Presently, all GCC countries have trademark laws; Bahrain, Kuwait,
Saudi Arabia, and the U.A.E. have patent laws; only Saudi Arabia, the U.A.E.,
and Bahrain have copyright laws in place, but in no case is protection adequate
for U.S. or other non-Arab league works. No GCC countries are members of the
major intellectual property conventions, such as the Berne Convention for the
Protection of Literary and Artistic Works, the Paris Convention for the
Protection of Industrial Property, or the Geneva Phonograms Convention, although
several of the GCC countries are planning to join these conventions. Saudi
Arabia became a member of the Universal Copyright Convention on July 13,
Despite the progress to date, IPR problems remain in the entire region due to
a combination of inadequate or non-existent laws and lax enforcement. Pirated
motion pictures, video cassettes, computer software, literary works, and sound
recordings are available to varying extents in all GCC countries, and videotapes
are produced for export in Bahrain. Counterfeit products such as clothing, auto
parts, and household products are also available.
Saudi Arabia enacted copyright and patent laws in 1989. The Saudis assert
that the copyright law is fully consistent with international standards.
However, the United States has a number of concerns with the law, the most
important of which is that U.S. sound recordings are not protected. Saudi Arabia
has acceded to the Universal Copyright Convention, which obliges Saudi Arabia to
protect U.S. and other non-GCC member works. Saudi Arabia's patent law
provides a generally complete and adequate legal basis for protection. In
December, 1995, over six years after the office opened, the Saudi Patent Office
issued its first patents. Saudi Arabia has made significant progress on
copyright enforcement in the video market, though enforcement on sound
recordings and software remains a problem.
The United Arab Emirates (U.A.E.)
The Government has cracked down on piracy of audiovisual works and sound
recordings. As a result, shops in the U.A.E. are clean of pirated audio/video
works and sound recordings. Modern movie theaters have opened since September
1994 and show western movies obtained from licensed distributors. Pirate video
products enter the country from neighboring Oman but are not available in shops
registered and licensed by government authorities. They are distributed from
private apartments. The Government is starting to counter computer software
piracy, which is widespread. The U.A.E. patent law protects pharmaceutical
processes but not products and a factory in the U.A.E. produces pirate versions
of patented drugs.
Recent industry reports indicate that Bahrain has become an export center for
pirated video cassettes. Bahrain in 1993 enacted a new copyright law that
contains serious deficiencies, including lack of protection for U.S. and other
non-Arab League works, and lack of clear protection for sound recordings and
computer software. Bahrain does have relatively good patent and trademark
Kuwait has had patent and trademark laws in effect since 1962, but penalties
under both are so low as to be ineffective in deterring illegal activities. The
patent law, moreover, excludes certain chemical inventions involving foods,
pharmaceuticals and medicines, and grants a term of protection of only 15,
rather than the standard 20 years. It also contains provisions for compulsory
licensing whenever a patent is insufficiently worked in Kuwait or is of "great
importance to national industry."
Kuwait currently has no copyright law, but prepared a new draft law on
copyrights in early 1993, which, in its current form, is seriously deficient and
would not fulfill Kuwait's commitment to provide TRIPs consistent copyright
protection. The United States has expressed its strong interest that the draft
law clearly protect U.S. works and provide standards of protection consistent
with modern international agreements.
Oman and Qatar
In 1995 Oman continued to study and revise draft copyright and patent laws.
Imported pirated products are available in retail outlets. Qatar provides no
legal protection for pharmaceutical patents.
Gulf Cooperation Council
The GCC Secretariat has prepared a draft patent law that would create one
patent system for the member states. The draft law has several significant
problems, including a lack of protection for pharmaceuticals (products or
processes for production) and biological inventions. In addition, the draft
contains a broad compulsory licensing regime.
The GCC also has made efforts to create common trademark and copyright laws,
although these are not as far advanced.
Visa Issuance Policy
Saudi Arabia took steps to liberalize its business visa policy in 1993.
Formerly, all persons coming for business had to be sponsored by a local
citizen, and the Saudi embassy or consulate required approval from the Foreign
Ministry in Riyadh to issue a visa, resulting in substantial delays. The new
policy was aimed at improving upon the old system by eliminating the need for
businessmen representing well-known U.S. firms to have a Saudi sponsor. The new
policy allows businessmen whose firms are involved in joint ventures in the
Kingdom to obtain multiple-entry visas valid for six months. Finally, in the
above cases the Saudi embassy or consulate have the discretion to issue a visa
without obtaining approval from the Foreign Ministry. The new policies have not
yet been fully implemented, and few American executives have multiple entry
Kuwait in 1995 significantly liberalized its visa policy for U.S. citizens.
U.S. citizens no longer need a Kuwaiti sponsor for travel to Kuwait for business
or personal reasons. Americans traveling to Kuwait receive 10 year multiple
entry visas. Only in the case of extended visits (beyond 30 days) are residency
visas and Kuwaiti sponsors required.
Oman continues to take steps to liberalize visa issuance. Oman reciprocally
offers U.S. citizens two year multiple entry business or tourist visas;
processing time can be up to two weeks. "No objection certificates" can be
obtained on shorter notice with the assistance of any of the major hotels where
visitors may be staying. In addition, businesses in Oman can request "NOC's" for
their business contacts. Visa requirements are expected to be dropped entirely
for U.S. citizens resident in the GCC countries beginning in the spring of
In addition to the multiple entry visit visas valid up to 10 years that the
U.A.E. issues to American citizens through U.A.E. embassies and for which no
sponsor is needed, the U.A.E. permits Americans with at least six months
residence in other GCC countries to visit the U.A.E. without obtaining visas
prior to initiation of travel. Such visitors receive U.A.E. visas in the airport
upon arrival, upon payment of a 100 Dirham ($27.49)
The United States now has a reciprocity agreement with Qatar for 10–year
visas of which many U.S. citizens are taking advantage in their commercial
dealings with Qatar.
The United States now has a reciprocity agreement with Bahrain for five-year,
multiple-entry visas, of which many U.S. citizens are taking advantage in their
commercial dealings with Bahrain.
With the exception of the U.A.E., all GCC countries discriminate against
foreign insurance companies, generally by restricting foreign participation
(Kuwait), discouraging new applications (Bahrain), or requiring operation
through a local sponsor (Saudi Arabia, Oman and Qatar).
Banks are variously restricted from entering GCC markets. Saudi nationals
must own 60 percent of any bank. In Kuwait, foreigners are permitted to own up
to 40 percent of Kuwaiti banks. Bahrain has not issued licenses for new
commercial banks since 1983, though the majority of commercial banks in Bahrain
are foreign bank branches; Bahrain does encourage the establishment of offshore
or representative offices of foreign banks. Oman, Qatar, and the U.A.E.
technically allow foreign banks to operate, but have refused new foreign banks
from establishing operations on the grounds that their countries are
"over-banked". There are more foreign bank branches in the U.A.E. than domestic
banks. The U.A.E. has banned the opening of any more foreign bank branches,
although there are indications that the ban is not permanent. Foreign banks may
open representative offices in the U.A.E.. Offshore banking is not permitted in
the U.A.E. Oman is considering permitting the opening of representative offices,
possibly in 1996.
In the past, Kuwait prevented access to government project cargo by U.S.
shipping lines by giving the United Arab Shipping Company the right of first
refusal on all government project cargoes. Bahrain also favors the United Arab
Shipping Company on cargo contracts for government projects. Kuwait no longer
applies this requirement to shipments from U.S. ports. Saudi Arabia follows GATT
guidelines which allow a nation to give preferences to national carriers for up
to 40 percent of government cargoes. Under these rules, the Saudi National
Shipping Company and United Arab Shipping Company receive preferences.
Foreign equity is limited to 49 percent in Kuwait, Qatar, and U.A.E. (The
U.A.E. has exempted the Jebel Ali Free Zone from this barrier, but products
entering the U.A.E. from the Free Zone are treated as foreign products.)
Oman, too, generally has a 49 percent limit on foreign equity participation.
However, joint venture industrial projects may be up to 65 percent foreign
owned, and, in projects of high national priority, up to 100 percent. The
imposition of progressively higher taxation the higher the foreign ownership can
be offset by the authorization of a five year tax holiday, which can be
Saudi Arabia has no legal restrictions on the percentage of foreign
ownership; however, under current policy, wholly foreign-owned investment
proposals are unlikely to receive government approval. Moreover, Saudi
government incentives such as tax holidays normally are not available unless
there is at least 25 percent Saudi ownership. Wholly foreign-owned branch
offices are generally approved, however. The Foreign Capital Investment Code
requires that foreign investment be made in line with the nation's development
priorities and that investments include some technology transfer. Foreigners may
not invest in joint ventures engaged solely in advertising, trading,
distribution, or marketing. Real estate ownership is restricted to wholly-owned
Saudi entities or citizens of the GCC.
Only in Bahrain is 100 percent foreign equity sometimes allowed.
In some areas, such as real-estate, as well as in most shares of publicly
traded companies, non-GCC investment is banned in all GCC countries.
Agent and Distributor Rules
In GCC countries, U.S. firms may find that compliance with U.S. law presents
special challenges when selecting a local agent. Many GCC business leaders are
also prominent government officials. Local agents are required in all sales
transactions in Kuwait and Oman. Saudi law requires that in-country distributors
be licensed by the Ministry of Commerce. Only Saudi citizens can obtain
licenses, although a recent GCC decision may broaden this to include GCC
citizens. Direct sales are possible except in the case of sales to government
agencies, where a "service agent" is required. The U.A.E. permits two types of
commercial entities to import and distribute products. One is a 100 percent
U.A.E.-owned business and the other is a limited liability company in which
foreign ownership up to 49 percent of equity is permitted. In 1993, Oman
liberalized its agency laws slightly. The change enables any importer to bring
in goods without paying a commission to the relevant agent, provided that the
goods are brought in through Omani ports or airports.
Termination of agency agreements can be difficult in all the GCC countries
and may involve unreasonable financial losses to the foreign supplier. A
commercial agency law adopted by Bahrain in November 1992 makes it easier to
terminate agency agreements in cases where the agent has not carried out his
Varying degrees of licensing procedures are enforced to protect domestic
industries or restrict importing to nationals of GCC countries except in
Bahrain. In Saudi Arabia, the importation of certain articles is either
prohibited or requires special approval from competent authorities. The
following products require special approval: agriculture seeds, live animals and
fresh and frozen meat, books, periodicals, movies, tapes, religious books and
tapes, chemicals and harmful materials, pharmaceutical products, wireless
equipment, horses, products containing alcohol, and natural asphalt.
All GCC countries impose unusually complicated export documentation
requirements for goods imported by the GCC. The documents must be both certified
by an approved Arab-U.S. Chamber of Commerce and certified by the consulate of
the country for which the goods are destined. In Oman, this documentation is not
required if the importing company has an existing agency agreement with the
United States exporter. At the end of 1995, Oman declared that it would be
simplifying all customs clearance documentation requirements over the next few
years to expedite the flow of goods and promote use of Omani ports and
Corporate Tax Policies
Saudi Arabia, Oman, and Kuwait tax foreign companies at a higher rate than
they tax domestic companies. Additionally, several GCC countries tax royalties
as if they were 100 percent profit, and maintain a variety of other tax policies
considered unfair to foreign companies. The U.A.E. imposes a 20 percent income
tax on foreign banks. No tax is levied on domestic banks. Oman, in late 1995,
was reviewing proposals that could provide national treatment to joint
Omani-foreign joint ventures. Foreign investors receive incentives, including a
ten year tax holiday, for approved agricultural and manufacturing projects with
a minimum 25 percent Saudi participation.
Procedural and Financial Irregularities
Procedural and financial irregularities can be significant barriers to trade
in GCC countries. Such irregularities have resulted in lost opportunities for
U.S. suppliers of goods and services, and forced some U.S. businesses out of
some markets. Disregard of irregularities may subject Americans or U.S.
companies to prosecution under the Foreign Corrupt Practices Act.
The Arab League Boycott of Israel
On September 30, 1994, the GCC announced that it would end adherence to the
secondary and tertiary aspects of the Arab League Boycott of Israel, which
eliminated a significant trade barrier to U.S. firms. In January 1996, Oman and
Israel signed an agreement to implement a 1995 announcement to open trade
missions in early 1998. In March 1996, the GCC reiterated its commitment to end
the secondary and tertiary boycott, and recognized the "total dismantling of the
Arab Boycott of Israel as a necessary step in advancing the peace process and
promoting regional cooperation in the Middle East and North Africa." (See the
Arab League chapter for further information.)