1. Negotiations
2. US-Bahrain

Wake-up alarm over FTA delays

Gulf Daily News, Manama, 15 January 2006

Wake-up alarm over FTA delays

Bahrain could be throwing away the huge advantages of its Free Trade Agreement with the US, as legal hitches, politics and bureaucracy delay its implementation. SARA HORTON reports

THE upcoming Free Trade Agreement (FTA) with the US has been heralded as a breakthrough for Bahrain’s economy.

It will tear down the vast majority of trade barriers between the two countries, making all bilateral trade in consumer and industrial products duty-free and phasing out the handful of remaining taxes within 10 years.

The opportunities it will bring are massive and could transform Bahrain’s economy, but there’s a danger that the country will miss out on the real benefits, warns a leading businessman.

Despite the fact that negotiations concluded in May 2004 and both countries have now ratified the agreement, Bahrain still has work to do before the FTA can come into effect.

The sticking point is Intellectual Property Rights (IPR) legislation, which must be passed by Bahrain’s Parliament first.

Without it the potential economic advantages of the FTA will not only be delayed, their long term impact might be severely undermined, says Mashal Group chief executive director Dr Yousef Mashal.

Other Gulf countries are catching up with Bahrain, which was the first in the GCC to conclude an FTA deal, says Dr Mashal, who is also Bahrain Export Development Society chairman.

Oman has already concluded negotiations on its FTA and the UAE is currently in talks with the US.

Bahrain must seize the advantage now or risk being left behind, as US entrepreneurs may be wooed by other nations first, says Dr Mashal.

"This issue of IPR legislation is a very, very major problem," he observed.

"There are no proper rules as per the requirements of the agreement and these should cover everything from music to books to trade marks and industrial marks.

"Bahrain has not yet fulfilled its commitment to the FTA agreement and it cannot be made effective without this legislation.

"The economy needs the FTA to be effective immediately.

"The US has negotiated with Oman and is talking to the UAE.

"Now if we do want to be at the forefront of the region, we need to start getting the maximum benefit before everyone else.

"Otherwise we’re going to lose out."

A US Embassy official confirmed that the only barrier to implementation was the IPR legislation.

"Ratification has been completed in both countries," he said.

"The final step will be certain trade relations laws and regulations, in particular those relating to Intellectual Property Rights.

"Once these provisions are met by Bahrain, the agreement can come into effect shortly thereafter."

The delay has been a major disappointment to businessmen keen to take advantage of the deal.

Initial indications after the conclusion of negotiations were that the agreement could be in force by January 1 last year.

That date came and went and businesses still have no idea when the FTA will be implemented.

The government and parliament need to work together to ensure that the appropriate legislation is passed quickly, says Dr Mashal.

"The negotiations were started in 2003, we should be getting fruits out of it by now, but every day there seems to be something new to delay it," he said.

"Bahrain’s economy is losing out.

"There are some business people who had prepared for this and feel that this year things will look better, but unfortunately the economy of Bahrain has been hit on the head day after day by the people who should be protecting it.

"Parliament needs to look at ways and means to improve the economy.

"The government is trying to do its best, but it is not the first power now, that is the legislature.

"If they don’t initiate and approve laws and regulations that benefit the economy, everything will sit still."

There appears to be a certain amount of hostility to the agreement and suspicion of the US government’s motives both amongst some MPs and ordinary people, says Dr Mashal, but he believes these concerns are unfounded.

"People wonder why the US wants an FTA with Bahrain when we are so small compared to the US market," he observed.

"They wonder if it is political, but the US has had a very good relationship with Bahrain for a long time.

"This is nothing to do with politics, it’s all economic."

The advantages to both sides are undeniable and will be counted in hard cash and a higher standard of living for Bahrainis, he says.

Dr Mashal admits it probably won’t mean a bonanza for Bahrain businesses wishing to export to the US, saying that the market is simply too big and too competitive for the limited products which Bahrain can offer.

However, there are plenty of opportunities for US companies to invest in Bahrain, to take advantage of cheaper labour and links with the rest of the Middle East.

This will bring capital, cash and jobs here.

"We’re not going to export to the US, there aren’t many products to export and we’re not going to be competitive with the rest of the world," said Dr Mashal.

"To give an example, just look at the garment factories, which are going out of business here because they are not competitive.

"But Bahrain is trying to leave its reliance on oil behind and needs to become a diverse economy.

"Bahrain has the capability of becoming a developed country, with its people, knowledge and history to build upon.

"However, it needs technology and investment and through the FTA this can happen."

He believes that US companies will see the opportunities to invest here, but only if Bahrain shows them what advantages are on offer.

"US companies will bring investment here, bring hi-tech machines and train people to produce high quality goods competitively," he continued.

"Bahrain can offer them the Middle East market, access to GCC countries, a tax free environment, the low cost labour they need and low cost utilities and raw materials.

"It has the best financial centre in the whole area and a good transport sector, which are very important factors.

"The US companies would be able to manufacture here and still send their goods back to the US, because they would be tax and duty free and the only additional costs would be transportation.

"That would be minimal compared to the low cost of production in Bahrain.

"It’s a win-win situation.

"We need technology and they need a wider market and cheaper costs."

Lower labour costs may be an attraction for the US, but Dr Mashal believes that investors will prefer Bahrainis and still pay more than many local companies, because the work will be more skilled.

"We could use one machine to replace 15 people on a manufacturing line and have it operated by one or two technicians who have been trained to use that machine," he said.

"They will get higher salaries because the machine will depend on them."

Bahrain will still need expatriates to do the labouring jobs, but there is no reason why Bahrainis can’t do more skilled work.

"The FTA will upgrade and uplift the knowledge of employees," continued Dr Mashal.

"Every country has low skilled expatriate workers and we will still continue to need them, but we want to elevate our own people and this agreement will do that.

"Companies from the US won’t do what we have done for the last 25 to 35 years and rely on labour-intensive methods, they will use capital which needs skilled technicians.

"Even people who have left school early can be trained to do these jobs.

"They might not be good at academic study, but they can use their hands, their common sense and their logic."

Bahrain businesses can reap the rewards by going into joint ventures with US investors, offering their local expertise and contacts.

However, even if the FTA is implemented quickly, none of this will happen if businesses don’t prepare and make contacts with potential investors.

They also need government support to bring them together with US entrepreneurs.

"Bahraini Ambassador to the US Dr Naser Al Belooshi has been willing to do anything and everything to promote the FTA, but here nobody is acting, nobody has prepared anything for this FTA," warned Dr Mashal.

"There is no proper strategy from the government side or from the Bahrain Chamber of Commerce and Industry, which represents the business sector.

"Business people are just waiting to see what is going to happen and time is passing.

"There isn’t even a website to tell businesses what the FTA is, where they can ask questions and how to make contacts.

"The Economic Development Board formed an FTA follow-up committee last year, but I personally have never heard anything more about it.

"The government and the BCCI need to set up an FTA unit like those in Jordan and Morocco, to help both sides get together and answer questions."

In comparison, US businesses have vast resources available on the Internet from the US government and other interested, to get the information they need.

Dr Mashal recommended that organised tours be arranged to take representatives from small and medium businesses to the US, to meet potential investors and promote Bahrain.

"This will change the perspective many Americans have of Bahrain as a small underdeveloped country with people who are not educated," he said.

"We have to show them what we really are and people will start talking."

Similarly business representatives visiting Bahrain should be given the opportunity to see more of the country and its people.

"People visit Bahrain and unfortunately they don’t know who to go to," he observed.

"They get directed to government offices and by the time they leave they have still not seen Bahrain or the Bahrainis.

"We need to promote the people of Bahrain, because they are all we have."

Studies should be carried out to research which areas of the economy could benefit the most from the FTA and develop a strategy to market them.

However, the key to the success of the FTA once it has come into effect will be cohesion between the government, legislature, businessmen and the people of Bahrain.

"Put these all together and it should be like a symphony, but it seems like the government’s democratic reform is going one way and the economy a different way, while the parliament is in a different hemisphere and the people are in a different galaxy," remarked Dr Mashal.

"The government is introducing reforms to assist business, but the parliament is discussing closing businesses on Fridays, while the people seem to think that they can earn money while they sleep.

"Those who riot are killing the economy, but they also carry signs saying they want jobs.

"If they kill the reputation of the country and stop its advancement, who is going to come here and give them jobs?

"We are a small country in an area where turbulence is all around us and it is easy for people to think we are part of all the violence.

"We need to show the investors that we are not.

"Everyone needs to work together and then we can gain the benefits of the FTA."