RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/74
11 September 2000
(00-3372)
Trade Policy Review Body
TRADE POLICY REVIEW
BAHRAIN
Report by the Secretariat
This report, prepared for the first Trade Policy Review of Bahrain, has been
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has,
as required by the Agreement establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), sought clarification from the Government of Bahrain on its trade
policies and practices.  The Bahraini authorities provided comments on
Chapters II, III and IV of this Report.
Any technical questions arising from this report may be addressed to
Ms. R. Acharya (tel. 739 5874) or Mr. C. Boonekamp (tel. 739 5226).
Document WT/TPR/G/74 contains the policy statement submitted by the
Government of Bahrain.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Bahrain.Bahrain WT/TPR/S/74
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS vii
(1) I NTRODUCTION vii
(2) T RADE AND INVESTMENT POLICY FRAMEWORK vii
(3) T RADE AND TRADE -RELATED REFORMS viii
(i) Tariffs viii(ii) Non-tariff measures ix
(4) O
THER MEASURES AFFECTING TRADE ix
(5) S ECTORAL POLICIES x
(i) Agriculture and fisheries x
(ii) Petroleum and natural gas x(iii) Manufacturing xi(iv) Services xi
(6) T
RADE POLICIES AND TRADING PARTNERS xii
(7) O UTLOOK xii
I. ECONOMIC ENVIRONMENT 1
(1) R ECENT ECONOMIC DEVELOPMENTS 1
(i) Macroeconomic policies 4
(2) D EVELOPMENTS IN TRADE 9
(i) Composition of trade 9
(ii) Direction of trade 12
(3) T RENDS IN FOREIGN DIRECT INVESTMENT 12
(4) O UTLOOK 13
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 14
(1) G ENERAL CONSTITUTIONAL AND LEGAL FRAMEWORK 14
(i) Overview 14
(ii) The Executive 14
(iii) Legislature 15(iv) The Judiciary 15
(2) D
EVELOPMENT AND ADMINISTRATION OF TRADE POLICY 16
(i) Policy formulation and implementation 16(ii) Main trade laws 16
(3) T
RADE POLICY OBJECTIVES 17
(4) T RADE AGREEMENTS AND ARRANGEMENTS 18
(i) The World Trade Organization 18(ii) Regional agreements 20(iii) Bilateral agreements 21
(5) F
OREIGN INVESTMENT REGIME 21
(i) Introduction 21(ii) General legal framework 22(iii) Incentives 25(iv) International agreements 25WT/TPR/S/74 Trade Policy Review
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III. TRADE POLICIES AND PRACTICES BY MEASURE 26
(1) O VERVIEW 26
(2) M EASURES DIRECTLY AFFECTING IMPORTS 27
(i) Customs procedures and valuation 27(ii) MFN tariffs 28
(iii) Tariff bindings 32
(iv) Rules of origin 33(v) Import prohibitions, restrictions and licensing 34(vi) Anti-dumping and countervailing measures 36(vii) Standards and other technical requirements 37
(viii) Sanitary and phytosanitary measures 38
(ix) Government procurement 39(x) State trading 41
(3) M
EASURES DIRECTLY AFFECTING EXPORTS 41
(i) Customs procedures 41(ii) Export duties and taxes 41
(iii) Duty drawback 41
(iv) Export prohibitions and restrictions 42(v) Free trade zones 43(vi) Export operations of state enterprises 43(vii) Export finance, insurance and guarantees 43(viii) Export promotion and marketing assistance 43
(ix) Measures maintained by importing countries 44
(4) M
EASURES AFFECTING PRODUCTION AND TRADE 44
(i) Registration procedures for companies 44(ii) Competition policy and regulatory issues 44(iii) Public sector companies and privatization 46
(iv) Incentives 46
(v) Performance requirements 48(vi) Intellectual property rights 48
IV. TRADE POLICIES BY SECTOR 52
(1) O
VERVIEW 52
(2) A GRICULTURE AND FISHERIES 53
(i) Agriculture 53
(ii) Fisheries 56
(3) P ETROLEUM AND NATURAL GAS 57
(i) Petroleum 57(ii) Natural gas 59
(4) M
ANUFACTURING 60
(i) Overview 60
(ii) Aluminium 62(iii) Policy framework 63(iv) Incentives 64Bahrain WT/TPR/S/74
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Page
(5) S ERVICES 65
(i) Overview 65(ii) Commitments under the General Agreements on Trade in Services (GATS) 66(iii) Financial services 66(iv) Telecommunications 76
(v) Transport 79
(vi) Tourism 84
REFERENCES 87
APPENDIX TABLES 91
CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Indices of real and nominal exchange rates, 1990-99 9
I.2 Balance of payments, 1995-2000 10
I.3 Product composition of merchandise trade, 1999 11
I.4 Non-oil product composition of  merchandise trade, 1999 11I.5 Direction of non-oil merchandise trade, 1999 12I.6 Foreign direct investment (FDI) 13
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Bahrain, MFN tariff distribution, 2000 28
III.2 MFN tariff escalation by 2-digit ISIC industry, 2000 31III.3 Share of bound tariff lines by HS section, 2000 33
IV. TRADE POLICIES BY SECTOR
IV.1 Imports of agricultural products, 1999 54
IV.2 Exports of agricultural products, 1999 55IV.3 Manufacturing as a share of GDP, 1990-99 61IV.4 Exports of manufactured products, 1999 61
IV.5 Imports of manufactured products, 1999 62
IV.6 Share of GDP, 1998 65
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Basic economic and social indicators, 1990-2000 1
I.2 Economic performance, 1992-2000 3I.3 Fiscal balance, 1995-2000 6
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Main trade-related laws in Bahrain 17
II.2 Status of selected notification requirements to the WTO, 1995 to 15 July 2000 19II.3 Rate of foreign ownership allowed in different types of companies 22II.4 Services in which foreign investment may be permitted 23WT/TPR/S/74 Trade Policy Review
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III. TRADE POLICIES AND PRACTICES BY MEASUREIII.1 Applied MFN tariff, 2000 29
III.2 Regional and bilateral pref erential trading agreements 31
III.3 Applied and bound tariff averages 32
III.4 Prohibited imports, as of June 2000 35III.5 Import restrictions, as of June 2000 36III.6 Export prohibitions 42III.7 Export restrictions, as of June 2000 42
III.8 Commercial incorporation options 45
III.9 Summary of intellectual property rights prot ection in Bahrain corresponding to its TRIPS
obligations 49
IV. TRADE POLICIES BY SECTOR
IV.1 Petroleum production and trade, 1995-99 58
IV.2 Gas production and exports 59IV.3 Structure of the banking industry, 1999 67IV.4 Insurance premiums, 1998 73IV.5 Main indicators in the Telecommunications Sector, 1994-99 76IV.6 Air transport services, 1995-99 80
IV.7 Shipping and maritime transport services, 1995-99 82
APPENDIX TABLES
I. ECONOMIC ENVIRONMENT
AI.1 Balance of payments, 1995-2000 93
AI.2 Merchandise exports, 1985-99 94AI.3 Merchandise imports, 1985-99 96
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
AII.1 The Gulf Cooperation Council stages of integration 98
III. TRADE POLICIES AND PRACTICES BY MEASUREAIII.1 Products subject to specific and mixed minimum import duties, 2000 99
AIII.2 Tariff protection provided under the Industries Support and Protection Act 100
IV. TRADE POLICIES BY SECTORAIV.1 Food and agricultural production subsidies, 1993-99 101
AIV.2 Applied and bound tariffs and imports, by ISIC category, 1999 and 2000 102
AIV.3 Summary of Bahrain's specific commitments in services 105Bahrain WT/TPR/S/74
Page vii
SUMMARY OBSERVATIONS
(1) INTRODUCTION
1. Bahrain has a population of around
640,000 of which some 40% are expatriates,
and a gross domestic product of Bahrain dinar2.9 billion (around US$8.6 billion).  Since
independence, in 1971, Bahrain has
essentially pursued a liberal trade and
investment policy, and has integrated its
economy closely with those of other countriesin the region, primarily through regional
agreements, such as the Unified Economic
Agreement of the Gulf Cooperation Council
(GCC).
2. Economic growth in Bahrain is
strongly affected by variations in international
energy prices.  Real GDP growth, as a result,
was slower during the 1990s compared with
the previous decade, averaging around 3.6%
annually since 1994;  growth is expected to be
around 3.5% in 2000.  Although petroleum's
share in GDP has been declining, it stillaccounts for 14% of GDP and some 64% of
merchandise exports.  Non-oil GDP growth
was also moderate in the 1990s, in part due to
low rates of investment, which, after declining
since 1992, have shown signs of improvementsince 1997.  Public investment declined due to
a cutback in government spending as efforts
were made to rationalize fiscal expenditures.
At the same time, private investment declined,
most likely due to slower economic activity asoil prices remained low for much of the
period.  An improvement in private sector
investment since 1998 is a sign of greater
confidence in the performance of the economy
and in the economic reforms pursued to date.
3. The dependence of Bahrain's economy
on its relatively small petroleum resources has
prompted the Government to implement a
number of reforms aimed at diversifying
economic activity and raising economic
growth to accommodate a population growing
at around 3.5% per year.  Efforts focus onfiscal reform to respond to budgetary deficits
caused by low petroleum revenue;  stepped up
privatization and contracting out of certaingovernment services to the private sector;  an
opening up of a larger number of sectors to
private sector investment, both foreign and
domestic;  and sectoral reform, particularly in
services.
4. More targeted efforts have also been
made to address the problem of unemployment
among Bahrainis, which has been rising
recently and was 6% in 1998, considerably
higher than the overall average of around 2%
(including expatriate workers).  In 1989, theGovernment, with assistance from
international organizations, introduced a
programme of Bahrainization, which, inter
alia, sets quantitative targets for firms to
employ Bahrainis, although, according to theauthorities, these targets are flexible, and
training and employment-search facilities for
Bahrainis.
(2) T
RADE AND INVESTMENT POLICY 
FRAMEWORK
5. The Government of Bahrain is headed
jointly by the Amir of Bahrain and theCabinet.  Bahrain's National Assembly was
suspended by the Amir in 1975, and replaced
in 1992 by a Consultative Council, currently
with 40 members, which comments on most
government policies before they become law.
6. The authorities see the maintenance of
liberal and transparent trade and investment
regimes as important for the continued
economic growth and prosperity of Bahrain.
Thus, even though Bahrain's internationaltreaty obligations supersede national law once
the treaty is ratified by the Amir, the
Government has been actively revising
Bahrain's trade and related laws to ensure
that  national legislation reflects Bahrain'sWTO commitments.  In general, all legislation,
including trade legislation, is submitted to the
Cabinet, and once commented upon by the
Consultative Council, must be assented to by
the Amir before becoming law.  The Amir and
the Cabinet may also promulgate legislation
through Amiri, prime ministerial andministerial decrees, which carry the force of
law.  Trade policy implementation is generallyWT/TPR/S/74 Trade Policy Review
Page viii
carried out by the Ministry of Commerce in
cooperation with other ministries if relevant.
7. Bahrain was a founding member of
the WTO and provides at least most-favoured-
nation (MFN) treatment to all WTO Members.
Bahrain has notified its intention to make useof the transitional period granted to
developing countries under various WTO
agreements, including  Customs Valuation and
Trade-Related Aspects of Intellectual Property
Rights (TRIPS).  Notifications in a number ofareas, including preferential rules of origin,
legislation on technical barriers to trade,
sanitary and phytosanitary measures, and
state trading, have, not however, been made.
Under the General Agreement on Trade inServices (GATS), commitments were made in
financial services, and Bahrain signed the
Fifth Protocol on financial services.
8. In addition to expanding trade,
Bahrain has increasingly sought private, in
particular foreign direct, investment in order
to increase economic growth anddiversification.  In general, foreign investment
has been permitted in offshore units, export
oriented industries or in sectors that the
Government wishes to develop.  This includes
new industrial companies, in which up to100% foreign investment may take place with
the permission of the relevant authority, as
well as in services associated with these
companies or where the company is
established as the regional centre for thedistribution of its own services.  Since 1999,
additional reform has taken place;  foreign
equity ownership limits in firms listed on the
Bahrain Stock Exchange has been raised from
24% to 49% (from 49% to 100% for GCCnationals).  In addition, efforts are being made
to streamline the approval of foreign
investment projects, an often cumbersome
process requiring permission from a number
of ministries and agencies before commercial
registration is approved.  However, data show
that foreign direct investment (FDI) has notincreased substantially in recent years,
suggesting perhaps that further reform is
required.  Moreover, Bahrain's approach to
approving private investment in sectors with astrong public sector presence may be
dissuasive to foreign investment.
(3) T
RADE AND TRADE -RELATED
REFORMS
(i) Tariffs
9. Although committed to the multilateral
process, Bahrain's trade liberalization has a
strong regional focus.  While remaining
unchanged for much of the 1990s, the tariff
was amended recently in the context of the
GCC's Unified Economic Agreement whichaims to complete a customs union by 2005.
On 1 July 1998, duty on tobacco products was
raised from 70% to 100%.  On 1 January
2000, customs duties were removed on
essential goods and fruit, previously at rates of5% and 7%, respectively.
10. Bahrain's average applied MFN tariff
is 7.7%.  With the exception of alcohol and
tobacco products, and some paper products
related to tobacco, tariffs generally range
from 0% to 20%;  alcohol and tobacco
products carry rates of 125% and at least100%, respectively.  Approximately 99.6% of
Bahrain's tariff carries ad valorem rates of
duty;  specific rates are applied to 20 tariff
lines at the HS 8-digit level, covering tobacco
products.  Imports under 11 tariff lines,including live pigs, oilseeds, poppy seeds and
cultured pearls, are prohibited according to
the tariff and carry no rates.  Tariff protection
of up to 20% is provided for products covered
by the Local Industries Protection and Supportprogramme (Legislative Decree No. 11 of
1985), which is available to industries that
meet a minimum local (and GCC) content
requirement.  The items presently covered
under the Law include medical products,aluminium products, and edible oils.
11. Although the average tariff is
relatively low it is subject to considerable
escalation, in general providing greater
protection for finished products.  Escalation is
probably even more pronounced due to tariff
exemptions provided to certain imports,including from GCC countries, and for rawBahrain WT/TPR/S/74
Page ix
material, machinery, and equipment, which
are not included in the tariff analysis.  In some
sectors, notably non-metallic products (except
petroleum), textiles and clothing, wood and
wood products, and other manufactures, there
is de-escalation in the tariff, with finishedproducts receiving less effective protection
than primary products and intermediate
goods, thus providing an unclear picture of
overall effective protection provided by the
tariff to Bahraini industry.
12. As a result of the Uruguay Round,
Bahrain bound 77.1% of its tariff at an
average rate of 35.6%.  Most tariffs are bound
at 35% with the exception of alcohol and most
tobacco products, for which bindings are atrates of 200% and 100%, respectively.  The
average bound rate of 35.6% significantly
exceeds the overall applied average rate of
7.7%, providing considerable leeway for the
Government to raise tariffs within the
bindings, introducing an element of
uncertainty for traders and investors.Although the majority of the applied tariff is
below the bound rate, applied rates on 18
lines, relating mainly to tobacco, alcohol and
edible oils, appear to exceed their
corresponding rates in Bahrain's schedule oftariff bindings.
(ii) Non-tariff measures
13. Bahrain maintains non-tariff measures
in the form of import and export prohibitions
and licences for a limited number of products,mainly for health and security reasons.  There
does, however, appear to be a certain degree
of divergence between legislation on these
restrictions and in the application of the
legislation.  This includes information in theCustoms Handbook, according to which trade
with South Africa is embargoed although de
facto such an embargo no longer exists;
import prohibitions on certain products are
included in the current applied tariff but these
are not included in the list of import
prohibitions provided by the authorities to theSecretariat;  and the list of restricted imports
and exports according to the Customs
Handbook provided to the Secretariat isdifferent from the list of restricted products
provided by the authorities.  Other measures,
such as labelling requirements for imported
eggs, appear not to be applied equally to
imported and domestically produced goods,
although there seems to be no explicit mentionof this in the SPS legislation provided.  The
apparent discrepancy between legislation and
practice potentially reduces transparency and
predictability in Bahrain's trade regime and
may increase the scope for administrativediscretion, particularly at the border.
(4) O
THER MEASURES AFFECTING
TRADE
14. An important factor affecting trade
and investment is the size of the public sector.The public sector is an important source of
employment for Bahr aini nationals, and
dominates key activities of the economy,
including petroleum, aluminium, and
telecommunications, but consolidated data on
the sector is not available.  Efforts are being
made to reduce the size of the public sector:during the 1990s the Government partially or
fully privatized a number of state-owned
companies, especially in the services industry.
In addition, some government services are
being contracted out to the private sector,mainly, it appears, for fiscal reasons.
However, a more systematic and stepped up
privatization programme would help to
increase private investors' confidence in the
economy and attract foreign investment.Given the size of the public sector and the
number of key industries in which monopolies
exist, Bahrain may be well served by specific
legislation on competition policy addressing
issues relating to monopolies and unfaircompetition.
15. The Government of Bahrain provides
a number of incentives, particularly in
manufacturing, in order to attract investment
to the sector.  At present, this includes direct
subsidies for electricity and rent, as well as the
provision of other utilities, including waterand sewerage services, at below economic
cost.  There appear to be few distribution
controls although distribution monopoliesWT/TPR/S/74 Trade Policy Review
Page x
exist in some sectors, notably petroleum, gas,
and primary aluminium.  Administered prices
are applied to a small number of products,
such as petroleum, gas, flour, and meat.
(5) SECTORAL POLICIES
(i) Agriculture and fisheries
16. The agriculture and fisheries sector is
small, accounting for some 1% of GDP in
1998.  Environmental constraints have limited
production to fruit and vegetables, fodder,
poultry, eggs, and fish.  Bahrain imports mostof its consumption requirements, including
fruit and nuts, livestock, vegetables, dairy
products, and cereals.  The sector is heavily
subsidized with the Government providing
most inputs such as electricity, water, feed,and pesticides, and credit at low cost or free of
charge.  In line with efforts to reduce
government spending, however, there has been
a recent shift in favour of subsidies that
encourage water conservation and intensified
farming.  Fisheries subsidies have also been
reduced and shifted from the provision ofequipment, storage facilities, as well as
technical extension services, to infrastructural
and technical assistance.
(ii) Petroleum and natural gas
17. Despite its relatively diversified
economy, Bahrain depends to a large extent
on sales of petroleum and petroleum products
for economic growth.  The majority of its
petroleum (almost 79%) comes from the
offshore Abu Saafa oilfield in Saudi Arabia;at present, Bahrain receives all of the oil
produced by this field, which is exported as
crude.  Bahrain also imports a significant
amount of petroleum, mainly from Saudi
Arabia; along with locally producedpetroleum, this is refined locally and exported.
In 1998, petroleum and mining accounted for
around 14% of GDP.  The importance of the
sector has been declining, however, prompting
efforts to increase exploration in addition to
diversification of the economic base.18. Policy issues relating to petroleum
and natural gas are overseen by the Supreme
Council of Petroleum, headed by the Prime
Minister.  Until January 2000, the production
and distribution of petroleum was carried out
by the state-owned company, the BahrainNational Oil Company (BANOCO).  In
January 2000, BANOCO was merged with the
Bahrain Petroleum Company (BAPCO), also
state owned, which previously managed
Bahrain's oil refinery.  The new companyBAPCO will henceforth be responsible for
exploration, crude and refined oil production
as well as distribution and marketing, both in
Bahrain and abroad.  Private investment is
allowed in petroleum refining, and inpetroleum extraction, through production-
sharing agreements with the Government of
Bahrain;  with the exception of Chevron
Corporation, however, which is involved in
exploration activities, there is no private
investment in the sector.  In an effort to further
develop Bahrain's petroleum resources, theMinistry of Oil and Industry has signed
agreements with foreign companies to conduct
exploration activities for oil and gas.
19. Natural gas is used mainly for local
industry and for reinjection.  As for petroleum,BANOCO (now part of BAPCO) has a
monopoly over the production of gas, whereas
the Bahrain National Gas Company
(BANAGAS), owned by the Government of
Bahrain, Caltex and the Arab PetroleumInvestment Corporation (APIC), operates
Bahrain's gas liquefaction plant.
20. Domestic prices of petroleum and gas
are controlled;  gas prices remain below
international rates despite an 80% increase inthe price to consumers in 1998.  Domestic
distribution of petroleum and natural gas
products may be carried out only by BANOCO
(now part of BAPCO) and BANAGAS,
respectively.
(iii) Manufacturing
21. The manufacturing sector is mainly
based on energy-intensive products, including
aluminium, metal industries, and chemicals.Bahrain WT/TPR/S/74
Page xi
The largest industry, aluminium, accounted for
around 5% of GDP and almost 60% of
manufactured exports in 1998.  Production of
primary aluminium, until June, 1999 was
carried out by the state-owned company
Aluminium Bahrain (ALBA).  The majoritystate-owned Bahrain Saudi Aluminium
Marketing Company (BALCO) was
responsible for marketing the output of ALBA.
In June 1999, the companies were merged;
production and sales of primary aluminium iscurrently carried out by the new company.  A
number of small, private companies also
operate in the sector, producing mainly
aluminium products from primary and
recycled material.
22. The manufacturing sector is
considered to be strategic for Bahrain's
development, and policy is therefore aimed at
diversifying the industrial base.  Thus, a recent
shift in policy has been to encourage
investment in downstream activities related to
Bahrain's existing energy intensive industries.The Government has also invested in the
development of infrastructure to support the
development of these new industries.  In
addition, efforts are being made to attract
foreign investment in these industries withtechnical assistance from international
organizations.  Investment incentives for the
manufacturing sector include reduced
infrastructure costs, such as free rental for a
two-year period of land in the industrial zonesand reductions in electricity tariffs, as well as
tariff exemptions for the import of raw
material inputs for exports and of equipment
and machinery.
(iv) Services
23. Contributing around 77% of GDP and
50% of employment in 1998, services is by far
the largest economic sector in Bahrain.  The
main activities include financial services,
government services, real estate, trade, and
transport and communication services.  Along
with manufacturing, th e development of the
services sector forms an important part of
Bahrain's diversification strategy.  Financial
services, especially offshore banking, is welldeveloped and the Government has continued
to pursue reforms to strengthen the financial
services sector further.  This was also the only
sector in which Bahrain made commitments
under the GATS and under the Fifth Protocol.
24. Bahrain's banking sector is regulated
by the Bahrain Monetary Agency (BMA), and
investors must be licensed by the BMA to open
banking units in Bahrain or offshore.  There
are no foreign ownership restrictions for
offshore banks, whereas up to 49% of the totalequity of a local bank may be held by foreign
nationals (up to 100% is permitted for GCC
nationals).  The insurance sector, which is
regulated and supervised by the Ministry of
Commerce is subject to similar restrictionswith regard to foreign investment.  Bahrain
has also been developing its stock market,
which began operating in 1989, and recent
reforms allow non-Bahrainis to own between a
49% (maximum for non-GCC nationals) and
100% (GCC nationals and companies) of the
shares of listed companies.
25. Liberalization is also proceeding,
albeit more gradually, in other services
sectors, including telecommunications,
maritime and air transport, and tourism.  All
basic telecommunications services areprovided by the majority state-owned provider
Bahrain Telecommunications Company
(BATELCO).  Some value-added services have
been recently opened to competition although
there appear to be no plans to allowcompetition into basic telecommunications.
While Bahrain did not participate in
negotiations on Basic Telecommunications
Services, the authorities are considering
making commitments under the GATS.  In airtransport services, gradual liberalization in a
controlled manner has been favoured by the
authorities.  Gulf Air, which is jointly owned
with the Governments of Qatar, Abu Dhabi
and Oman, according to the authorities, no
longer has exclusive access to some routes
under the terms of its charter, althoughgovernment employees are directed to use
Gulf Air's services whenever possible.  In
maritime transport, the authorities wish to
develop Bahrain into a competitive regionalWT/TPR/S/74 Trade Policy Review
Page xii
distribution centre.  In this regard, a new port
is being developed to add to existing capacity
at port facilities at Mina Salman.  Some
private activities in the port are currently
allowed, notably stevedoring;  the authorities
believe however, that efficiency of portservices would be best maintained through
joint public-private ownership of port services.
Tourism is an important source of revenue,
and employment and has grown steadily since
the completion of the King Fahd Causewayconnecting Bahrain to Saudi Arabia; this is
the main route used by tourists to Bahrain.
The Government has also intensified efforts to
attract specialized tourism, including sports,
conferences, and business meetings, inaddition to encouraging visitors to Bahrain's
historical sites.
(6) T
RADE POLICIES AND TRADING
PARTNERS
26. While committed to the WTO, Bahrain
maintains close trade and investment ties with
other member countries of the Gulf
Cooperation Council (GCC).  In addition to
not paying customs duties, investors from
GCC countries have preferential investment
access in Bahrain;  they are allowed equityownership of up to 100% in certain sectors
compared with 49% for other foreign
investors.  Ties between the GCC countries
were strengthened and formalized through the
Unified Economic Agreement, signed in 1981,forming a customs union between the member
countries by 2005.  In preparation for the
union, Bahrain raised its tariff on tobacco
products, to a minimum rate of 100% in 1998,
and removed tariffs on essential goods andfruit in 2000.  Imports from GCC countries are
exempt from customs duties;  preferential
treatment is also provided for goods produced
in other GCC countries under the GCC's
preferential rules of origin, and forgovernment procurement, and GCC content isincluded under local-content programmes.27. Members of the GCC also signed an
agreement with 12 other countries in the
region in 1997 to form the Greater Arab
Free-trade area (GAFTA), to be completed by
2008.  The agreement, which came into effect
on 1 January 1998, aims to reduce tariffs onproducts included in the agreement by 10%per year until end 2007.
28. The GCC is currently negotiating a
free-trade agreement with the EuropeanUnion), which would build on the Cooperation
Agreement signed between the GCC and the
EU in 1998.  Bahrain receives preferential
access to certain markets under the
Generalized System of Preferences.
(7) O
UTLOOK
29. Although Bahrain has a relatively
diversified economic base, real economic
growth must rise to sustain a growing labour
force.  The Government's structural reforms to
open up the economy and reduce the size of
the public sector have borne some fruit as
private investment has shown a tendency toincrease recently.  However, the economy is
still dependent on Bahrain's small petroleum
resources as has been evident from a
slow-down in economic activity since the mid
1990s.  The Government's privatizationprogramme has been slow to start and private
domestic and foreign investment, while
allowed in several activities, has not taken
place in sectors with a major public sector
presence.  Important sectors such aspetroleum and telecommunications are
essentially closed to private investment,
whereas reform in services, other than
financial services, has been piecemeal.  An
acceleration and deepening of economicreform will therefore not only be important for
economic growth, but would also send a
positive signal to potential investors.
Predictability and transparency of the trade
and investment regime would be enhanced
were Bahrain to more actively notify its
legislation to the WTO, and bind a greaternumber of services in the GATS.