2008 OMAN INVESTMENT CLIMATE STATEMENT: PART II

UNCLAS MUSCAT 000100

SIPDIS

SIPDIS

STATE FOR NEA/ARP, EEB/IFD/OIA, EEB/CBA
STATE PASS USTR FOR JBUNTIN
COMMERCE FOR ITA THOFFMAN
TREASURY FOR OTA VALVO

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB PGOV USTR OPIC MU
SUBJECT: 2008 OMAN INVESTMENT CLIMATE STATEMENT: PART II

REF: A. MUSCAT 99

B. 07 STATE 158802

This is the second part of the 2008 Oman Investment Climate
Statement. Part I was submitted reftel A.

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Protection of Property Rights
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Real property rights are recognized and enforced in Oman, and
records are well-kept. There is no contemporary history of
arbitrary seizures of land. Subject to government approval,
GCC nationals may own property anywhere in Oman. The
government actively seeks to promote tourism, and a key
component of the drive to attract investment is the ability
to sell villas and estates in mixed tourist/residential
developments slated for construction. For this reason, the
government finalized regulations in 2007 allowing foreign
nationals to own real estate within government-recognized
tourism complexes in Oman, such as the Wave, Yiti, Sifah, and
Blue City. This law permits freehold ownership of
residential property, including full rights of inheritance
according to the laws of the owner's country of origin, as
well as residency status for landowners and their immediate
family members. The law does not apply to commercial real
estate, which cannot be owned by non-GCC nationals.

Oman will provide strong intellectual property rights
protection under the U.S.-Oman Free Trade Agreement. The
government is finalizing revisions to its industrial property
and copyright laws to comply with these obligations prior to
the Agreement's entry into force. Under its FTA obligations,
Oman will provide increased IPR protection for copyrights,
trademarks, geographical indications, and patents. Oman will
also improve enforcement and protection of undisclosed test
data from unfair commercial use.

These revisions will build upon Oman's existing intellectual
property rights regime, already strengthened by the passage
of WTO-consistent intellectual property laws on copyrights,
trademarks, industrial secrets, geographical indications and
integrated circuits in 2000. Further, in October 2000 Oman
issued new, WTO-consistent IPR legislation to protect patents
and other intellectual property rights.

Under Oman's TRIPs-compliant trademark law, trademarks must
be registered and noted in the Official Gazette through the
Ministry of Commerce and Industry. Local law firms can
assist companies with the registration of trademarks. Oman's
copyright protection law extends protection to foreign
copyrighted literary, technical, or scientific works; works
of the graphic and plastic arts; and sound and video
recordings. In order to receive protection, a
foreign-copyrighted work must be registered with the Omani
government by depositing a copy of the work with the
government and paying a fee. Since January 1999, the
government has enforced copyright protection for audio and
videocassettes, and destroyed stocks of pirated cassettes
seized from vendors. The government did not extend
protection to foreign-copyrighted software until late 1998,
when it declared that retailers must halt the importation and
sale of non-licensed software by July 1, 1999.

In October 2005, the government designated the Ministry of
Commerce and Industry as the primary investigative authority
for intellectual property issues, whose efforts are supported
by the Royal Oman Police. To improve inter-ministerial
coordination, a committee consisting of members from the
Ministry of Commerce and Industry, Ministry of Information,
Ministry of Heritage and Culture and Royal Oman Police meets
regularly to review intellectual property concerns.
Enforcement of the copyright protection decree by this
committee has been effective, as once pentiful pirated
video, audiotapes and computer software have largely
disappeared from local vendors' shelves. For example, over
the years, the government conducted a series of coordinated
sweeps that netted over 40,000 counterfeited media products.

Nonetheless, under-the-counter sales of unauthorized software
and DVDs persist in various locations, and authorities
continue to grapple with effective enforcement measures
against such sales. To assist government efforts, the
private sector has been active in promoting awareness and
enforcement of intellectual property rights. For example, in
late October 2003, 16 Omani companies signed the Business
Software Alliance (BSA) Code of Ethics, whose number has now
grown to 40. The Code of Ethics declares that the
signatories would neither commit nor tolerate the
manufacture, use or distribution of unlicensed software and
would only supply licensed software to customers. The
government signed a three-year contract with Microsoft
Corporation for the use of the company's licensed products in
2006, and in 2007, Microsoft reached agreement with several
local companies to halt their distribution of unauthorized
software. According to local satellite TV representatives,
the Ministry of Commerce and Industry has staged sporadic
raids on unlicensed distributors of pirated satellite signals
in response to industry complaints, though the problem
persists.

Oman joined the World Intellectual Property Organization
(WIPO) in February 1997, and registered as a signatory to the
Paris and Berne conventions on intellectual property
protection in July 1999. In 2005, Oman acceded to the WIPO
Copyright Treaty and the WIPO Performances and Phonograms
Treaty. In 2007, Oman acceded to a number of intellectual
property treaties, conventions, and protocols in accordance
with the implementation of the U.S.-Oman Free Trade Agreement.

The Ministry of Commerce and Industry, in coordination with
WIPO, has conducted a number of seminars to raise national
awareness of the importance of protecting intellectual
property. Oman has also worked closely with the United
States Patent and Trademark Office (USPTO) in the area of
intellectual property rights protection. Several Omani
officials have traveled to the United States for IPR
training, and the USPTO has hosted a number of IPR
enforcement seminars for government officials in 2006 and

2008.

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Transparency of the Regulatory System
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The government recognizes that its regulatory environment may
hamper investment and commercial activity. In addition to
ownership and agency requirements already mentioned,
licensing of business activities can be time-consuming and
complicated. The absence of a particular clearance can stall
the entire process. For example, processing shipments in and
out of the Mina Qaboos Port can add significantly to the
amount of time it takes to get goods to market or inputs to a
project.

Oman's tax laws also impede foreign investment. Although Oman
amended its tax laws to allow national tax treatment for
joint ventures regardless of percentage of foreign
participation, branches of foreign companies are taxed at 30
percent of income. Oman's labor laws, which require minimum
quotas of Omani employees depending on the type of work, form
another potential impediment to foreign investment. The
government's Omanization effort has been the subject of
criticism in the Omani private sector, which often complains
that it can harm productivity and restrict hiring and firing
policies.

Government red tape and long delays in official
decision-making are other frequent complaints in the local
private sector. Because decisions often require the approval
of multiple ministries, the government decision-making
process can be tedious and non-transparent.

In 2003, the Telecommunications Regulatory Authority (TRA)
began functioning as a legal and regulatory body in Oman.
The TRA oversees the process of liberalization and
privatization of the telecommunications sector. Chaired by
the Secretary General of the Ministry of National Economy,
the TRA's committee members include officials from the Royal
Oman Police. The TRA is currently working with a consultant
on plans to open its fixed-line sector to competition, with a
view toward issuing new licensing requirements in 2008.
These proposed regulations will be available for public
review once drafted. In addition, the new privatization
framework law passed in July 2004 provides for a new
regulator for public utilities that have been privatized in
the power and water sectors.

The government has issued a series of regulations aimed at
increasing transparency and disclosure in its financial
markets. The Capital Market Authority (CMA) has ordered all
public companies to comply with a set of standards for
disclosure. Under the requirements, holding companies must
publish the accounts of their subsidiaries with the parent
companies' accounts. Companies must fully disclose their
investment portfolios, including details of the purchase cost
and current market prices for investment holdings. The new
initiatives also require publication of these financial
statements in the local press. At the same time, the Central
Bank has introduced new rules to limit the level of "related
party transactions" (financial transactions involving
families or subsidiary companies belonging to major
shareholders or board members) in Oman's commercial banks.
The new rules will help increase transparency in financial
transactions in local banks and the Muscat Securities Market
(MSM),and will help clarify the activities of publicly
traded companies. Finally, the CMA has moved to shorten the
time period companies have to file their financial statements
after the close of the fiscal year from three months to two,
shorten the time period in which companies have to hold their
annual meeting after the close of the fiscal year from four
months to three, and require that an internal audit be
completed for joint stock companies with capital of over five
million RO (USD 13 million).

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Efficient Capital Markets and Portfolio Investment
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There are no restrictions in Oman on the flow of capital and
the repatriation of profits, and foreigners may invest in the
MSM, as long as this is done through an authorized broker.
Access to Oman's limited commercial credit resources is open
to Omani firms with some foreign participation. Joint stock
companies with capital in excess of $5.2 million must be
listed on the MSM. According to the recently amended
Commercial Companies Law, companies must have been in
existence for at least two years before being floated for
public trading.

The Sultanate has two loan programs to promote investment.
The Ministry of Commerce & Industry (MOCI) administers a
program designed to promote industrial investment. Formerly
interest free, the program now charges 4 percent interest,
with generous repayment terms. MOCI loans will match equity
contributions in the Muscat capital area, or 1.25 times
equity for other locations. Projects with a high percentage
of local content or employing large numbers of Omanis are
given priority, as are tourism projects outside the capital
area. The Oman Development Bank also administers a loan
program to support development of smaller loans to industry,
agriculture, fisheries, petroleum, mining, and services.

The commercial banking sector currently consists of 16
licensed banks (six domestic and ten foreign),with Bank
Muscat being the largest. Most recently, the Bank of Beirut
and the Commercial Bank of Qatar commenced operations in
Oman. In addition, there are two government-controlled and
one private lending entities. The sector as a whole has
largely rebounded from the 1999 economic downturn, with banks
posting healthy profits for 2007. The banking law issued in
November 2000 allowed more efficient control over the
financial sector by the authorities. Furthermore, early in
2003, the Central Bank of Oman promulgated new rules and
regulations to ensure proper and efficient management of the
banks. The effect of this circular was enhanced by the
implementation of a Code of Corporate Governance, as well as
by amendments to the Capital Market Law and the Commercial
Companies Law, which stipulate that boards of directors of
all jointly listed companies must appoint an internal audit
committee, an internal auditor, and a legal advisor.

In November 2005, the government set limits on remuneration
of boards of directors by amending the Commercial Companies
Law through Royal Decree 99/2005. Under the decree and
accompanying regulations, remuneration for a board of
directors may not exceed five percent of a company's net
profits, up to a maximum of 200,000 R.O. ($516,000),unless
the company's Articles of Association provides for a higher
rate. The regulations also require that company reports be
published within two months of the end of the financial year,
and that an ordinary meeting of the general assembly be held
within three months of the end of the financial year.

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Political Violence
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Politically motivated violence is virtually unknown in Oman.
Since October 2000, there have been some demonstrations, with
the most recent occurring in May 2005, but these were
generally orderly.

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Corruption
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Article 53 of the Basic Law of the State, issued in November
1996, compelled ministers to resign their offices in public
shareholding enterprises. As of 1999, Under Secretaries
(deputy ministers) are also required to resign from the
boards of public companies. Most major contracts are awarded
through a slow, rigorous, but generally clean tender process.
Oman advertises tenders in the local press, international
periodicals, and on the Tender Board's website. Also,
bidders are now requested to be present at the opening of
bids, and interested parties may view the process on the
Tender Board's website. Contracts awarded through a
ministry's internal tender process are subject to fewer
controls.

Although Oman is not a signatory to the OECD convention on
combating bribery, Sultan Qaboos has dismissed several
ministers and senior government officials for corruption
during his reign. In one of Oman's biggest corruption
scandals in several years, over 30 government and private
sector employees, including the Under Secretary of the
Ministry of Housing, Electricity, and Water, were convicted
in October 2005 on counts of bribery and forgery, among
others. Oman has not yet signed the UN Convention Against
Corruption. In 2007, Transparency International ranked Oman
53rd best out of 177 countries in its "Corruption Perception
Index," a noticeable decline from its 28th place ranking in

2005.

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Bilateral Investment Agreements
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After consultations with Congress, the United States began
Free Trade Agreement (FTA) negotiations with Oman in March

2005. On January 19, 2006, U.S. Trade Representative Rob
Portman and Omani Minister of Commerce and Industry Maqbool
bin Ali Sultan signed the FTA. Following Congressional
approval of the FTA in September 2006, the President signed
the FTA into law on September 26, 2006. Sultan Qaboos signed
the FTA shortly afterwards. The FTA will be brought into
force once the governments of both the United States and Oman
certify that respective regulations are in compliance with
the provisions of the Agreement. The FTA supplants previous
discussions regarding a Bilateral Investment Treaty, as the
FTA includes an investment chapter.

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OPIC and Other Investment Insurance Programs
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Oman is eligible for Export-Import Bank of the United States
(EXIM) financing and insurance coverage. In late 2003, the
Overseas Private Investment Corporation (OPIC) proposed an
update to its existing 1976 bilateral agreement with Oman to
reflect current investment realities. An agreement has yet
to be reached on the proposed updates.

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Labor
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Oman's 2003 Labor Law governs employee/employer relations in
the private sector, and enumerates the protections afforded
both Omani and migrant workers. The law sets the minimum
working age at 15, provides clear guidelines on wages and
working hours for Omani citizens, and specifies the penalties
for noncompliance with the its provisions. In conjunction
with the U.S.-Oman Free Trade Agreement, Oman made
significant amendments to the 2003 Labor Law. The amendments
and associated Ministerial Decisions allow for more than one
union per firm, require employers to engage in collective
bargaining over terms and conditions of employment, and
specify guidelines for conducting strikes. The amendments
also prohibit employers from firing or otherwise penalizing
workers for engaging in union activity, and increase the
penalties for hiring underage workers or engaging in forced
labor.

The minimum wage for Omanis working in the private sector,
including salary and benefits, is 140 R.O. (about $363) per
month. Work rules must be approved by the Ministry and
posted conspicuously in the work place. The workweek is five
days in the public sector and generally five and one-half
days in the private sector. The labor law and subsequent
regulations also detail requirements for occupational safety
and access to medical treatment. There is no minimum wage
for non-Omanis, however. In addition, non-Omanis in retail,
personal service outlets, construction, and petroleum fields
typically work up to seven days a week, depending on their
contracts. Oman relies heavily on expatriate labor,
primarily from India, Bangladesh, Pakistan and Sri Lanka, to
perform menial and physically taxing work. Expatriates also
fill many managerial positions.

However, 'Omanization,' the localization of labor, is a high
priority for the government. The government has published
Omanization rates per sector for the period running from 2006
through 2010 for each individual sector of the economy.
Omanization targets are legally enforceable. The Ministry of
Manpower will not issue a labor clearance for those companies
that fail to hire qualified Omanis to meet the labor targets.
In case qualified Omanis are not available, the Ministry may
issue labor clearances pending future availability of
qualified Omanis to fill such positions. The Ministry also
assists companies in training Omanis for high-demand
positions if the companies agree to hire them once trained.
The sectoral committees revise hiring targets and the plan
can be readjusted to meet market realities. Under the
U.S.-Oman Free Trade Agreement, the Omani government may set
Omanization targets of 80%, excluding managers, board
members, and specialty personnel.

In 1994, Oman became a member of the International Labor
Organization (ILO). Oman has since ratified four of the
eight core ILO standards, including those on forced labor,
abolition of forced labor, minimum working age, and the worst
forms of child labor. Oman has not ratified conventions
related to freedom of association or collective bargaining,
or the conventions related to the elimination of
discrimination with respect to employment and occupation.

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Foreign Trade Zones/Free Ports
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The government is keen to establish free zones to complement
the Sultanate's port development. Salalah's free zone is
taking shape, as the Salalah Free Zone Company (SFZC) is
working with the government to finish the first phase of the
project, which includes the establishment of roads and
utility lines, as well as the leveling of industrial plots.
An incentive package includes a 30-year tax holiday,
duty-free treatment of imports and exports, permission for
100% foreign ownership, and tax-free repatriation of profits.
Additional benefits include a one-stop shop for business
registration and a low 10 percent Omanization requirement.
U.S.-based Octal Petrochemicals, India-based TVS Group, and
government-supported Salalah Methanol are the anchor tenants.
The government is also establishing a free zone adjacent to
Sohar Port. In addition, the government opened a free trade
zone at an interior border crossing point with Yemen
(al-Mazyounah) in 1999.

Oman has no general provisions for the temporary entry of
goods. In the case of auto re-exports, a company can import
vehicles into the country for the purpose of re-export;
duties are refunded if the vehicle is re-exported within six
months.

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Foreign Direct Investment Statistics and Major Foreign
Investors
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Systematic information on foreign direct investment is
limited. As per Capital Market Authority statistics from
October 2007, foreign participation equaled 24% in terms of
shares held in the Muscat Securities Market. Foreign capital
constituted 25% of the shares held in finance, 23% in
manufacturing, and 22% in insurance and services.

The largest foreign investor is Royal Dutch Shell Oil, which
holds 34 percent of Petroleum Development Oman, the state oil
company, and 30 percent of Oman Liquid Natural Gas. Other
companies, such as Occidental Petroleum, BP Amoco, Novus
Petroleum, Hunt, British Gas, and Nimr have also invested in
Oman's petroleum and gas sectors. Two U.S. firms, Gorman
Rupp (water pumps) and FMC (wellhead equipment),have entered
into industrial joint ventures with Omani firms. Both joint
ventures involve modest manufacturing operations. Since
1999, Oman has witnessed increased foreign direct investment
through the privatization process. Major foreign investors
that have entered the Omani market recently include AES
(U.S.),Suez-Tractabel (France),Alcan (Canada),LG (Korea),
Veolia (France),SinoHydro (China),and National Power
(U.K.). Bechtel is constructing an aluminum smelter on
behalf of Sohar Aluminum.
GRAPPO