BAHRAIN: 2006 NATIONAL TRADE ESTIMATE

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
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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
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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
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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)
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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
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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
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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
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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
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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