WT/TPR/S/74 Trade Policy Review
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IV. TRADE POLICIES BY SECTOR1
(1) OVERVIEW
1. Bahrain's sectoral output and merchandise exports rely, to a great extent, on its energy
resources.  Although its domestic output of petroleum is relatively small, an agreement with Saudi
Arabia provides Bahrain with some 79% of its petr oleum, from an off-shore Saudi Arabian oilfield.
Bahrain's manufacturing sector, and over half of  its exports of manufactured products, is dominated
by aluminium, also an intensive user of energy.  Other industries, based on their share of merchandise
exports, are textiles and clothing, and industrial ch emicals.  Given Bahrain's dependence on energy
resources, the Government has been implementing measures to diversify the industrial base away
from energy-based industrial production and towards value-added manufacturing activities and
services, including financial services.
2. The agriculture sector in Bahrain is small.  Bahrain has relatively harsh environmental
conditions including a lack of arable land and water, and a deteriorating marine environment.  The
discovery of oil in 1932 and an expanding petroleu m industry attracted labour out of agriculture,
contributing to the decline of the sector.  Nevertheless, since the 1970s, the Government has
encouraged better methods of farming to attain higher levels of productivity and increaseself-sufficiency.  The sector currently accounts for around 1% of GDP.
3. The petroleum sector accounted for 53% of merchandise exports in 1998.
2  Reform in the
industry has sought to improve economic efficien cy by consolidating production, distribution, and
refining activities into one state-owned vertically integrated company, and by developing improved
refining techniques.  Bahrain is also encouraging private sector investment in petroleum exploration
and extraction through production-sharing agreements with the state-owned company BANOCO (now
part of BAPCO) to boost petroleum revenue.
4. The extent of the transition of Bahrain's economy away from the primary production of oil is
reflected in the contribution of the petroleum sector (including mining) to GDP, which fell from 36%
in 1975 to 19.1% in 1990 and 13.6% in 1998.  Manufacturing and services have expanded during the
last two decades, accounting for 12.7% and 76.9% of GDP in 1998, respectively.3
5. A strategy of industrial diversification was adopted in the 1970s, due, in great part, to a
decline in petroleum reserves and output.  The strategy included moving production into higher
value-added activities, and away from traditional areas such as pearling and fishing.  As a result, the
manufacturing base is already considerably more diverse than for other countries in the region and
includes petroleum refining, petrochemicals, aluminium and related downstream industries, and ship
repairs.  Further diversification is planned by encouraging "industry clustering" around these keyindustries.  In services, Bahrain has developed a major offshore regional financial services sector.
The Government plans to expand these activities and increase the contribution of other services to the
economy, such as engineering, information technology, legal, consulting, electronic commerce, and
tourism, inter alia , by removing obstacles to domestic and foreign private investment.
                                                     
1 Some information received after completion of the editorial process would appear to require
clarification, with the result that there may be certain data inconsistencies between this and the other chapters;such matters will be clarified for the publication version of the report.
2 Figures on merchandise export shares by sector may vary from those presented in Chapter I.  This is
due to a difference in nomenclature:  in Chapter IV data on trade are based on ISIC whereas in Chapter I SITCis used.
3 Sectoral shares of GDP include imputed banking charges, which account for around 9% of GDP and
increase the total to over 100% of GDP.Bahrain WT/TPR/S/74
Page 53
6. The Government encourages domestic and foreign private investment for all value-added
activities relating to aluminium and petrochemicals, particularly clean industries, which do not
consume a disproportionate amount of energy and other natural resources.  With the exception of
petroleum and some food products, no other manufacturing activity appears to be subject to price
controls.  Nevertheless, much of the sector, notably aluminium production and distribution, is
dominated by the State, which is also extensively involved in infrastructure development.
7. The main services activities include financial services, government services, trade, and
transport and communication.  Liberalization in banking is the most advanced.  Bahrain has a well
developed offshore financial services sector, which has expanded to make Bahrain an important
regional banking centre.  Foreign investment of up to 100% is allowed for GCC nationals and up to
49% for other foreign nationals. Bahrain is also promoting its securities market, raising foreigninvestment limits in publicly listed companies from 49% to 100% for GCC nationals and from 24% to
49% for other foreign nationals in 1999.  Bahrain made commitments in financial services in the
General Agreement on Trade in Services (GATS) and is a signatory to the Fifth Protocol
(WTO Agreement on Financial Services);  no other services sectors are included in its
GATS Schedule.
8. Telecommunications services are provided by the majority state-owned monopoly Bahrain
Telecommunications Company (Batelco).  Despite the market being essentially closed to
private-sector competition, Batelco, which has a str ong government presence on its board of directors,
has become one of the more efficient providers of telecommunication services in the region.
According to the authorities, the Government is aw are of the benefits of liberalizing the sector, and
will establish a national plan to do so in the near future.  Air transport services are dominated by
Gulf Air, which the Government of Bahrain owns with three other countries in the region;  the sectorappears, however, to be open to competition from private investors, both domestic and foreign.
(2) A
GRICULTURE AND FISHERIES
(i) Agriculture
(a) Features
9. Agricultural production in Bahrain is small, accounting for around 0.9% of GDP and 3% of
total employment in 1998, mainly due to limited water resources and the poor and declining quality of
the soil.  Agricultural land is estimated to be around 6,000 hectares, – less than 10% of total land
area – of which around 4,000 ha is cultivated.  According to the authorities, the remaining 2,000 ha
could be exploited if the supply of water could be improved.  Nevertheless, better cropping patterns,
the introduction of greenhouses, the adoption of advanced water-saving irrigation techniques, andincreased use of fertilizers have recently helped improve productivity to some degree.  Bahrain's main
agricultural products include fodder, dates and fruit, vegetables, poultry, eggs, livestock, and fish.
10. Two modes of farming are in operation: traditional and modern. Traditional farms, whose
average size is four hectares, depend heavily on government support.  Modern farming, which
currently accounts for approximately 20% of all farms, uses modern agricultural management andproduction techniques, and is characterized by large agricultural schemes managed by private
shareholding companies or public corporations.  Modern farming methods are used mainly for
livestock production, poultry, fodder, feed concentrates, milk, and vegetables.  Vegetable cultivation
in plastic greenhouses has become extensive.
4
                                                     
4 Food and Agriculture Organization (1996).WT/TPR/S/74 Trade Policy Review
Page 54
11. Bahrain's agricultural trade deficit was US$129.5 million in 1999.  Food imports account for
an important share of total domestic food consumption, approximately 91% in 1999.5  A l m o s t  a l l
Bahrain's requirements of cereals, vegetables and livestock products, are imported;  the largest share
of imports is accounted for by fruit and nuts (29.5%), followed by livestock (22%), vegetables
(18.4%) and dairy products (8.4%) (Chart IV.1).   Local production meets approximately 14% of
domestic demand for vegetables, 72% for milk, 49% for eggs, 80% for dates and for fish, 23% forpoultry, and 3% for red meat.  Given its limited resource potential and unfavourable climate, Bahrain
is likely to remain heavily dependant on imports to meet its domestic demand for most agricultural
products.
12. The value of Bahrain's agricultural exports has been variable over the past five years, but
remains insignificant (0.1% of total merchandise exports in 1999).  The majority of agriculturalexports are fish, crustaceans and molluscs (71.6%), followed by dairy products (11.9%), and coffee,
tea and mate (10.8%) (Chart IV.2).  Much of Bahrain's agricultural exports are re-exports, initially
imported as raw products, processed locally, and re-exported as semi-processed agricultural products,
such as dates, vegetable oils, dairy products, pickles, and soft drinks.
Live animals (01)
22.0%
Dairy products (04 )
8.4%
Edible vegetables 
and roots (07)  
18.4%Edible fruits and 
nuts (08)
  29.5%Cererals (10)
4.3%Cotton (52)
8.8%Other 
5.6%
Coffee tea and maté (09)
3.1%Chart IV.1
Imports of agricultural products, 1999
Per cent
Total imports of agricultural products: US$134.8 million 
ISIC Rev.2 definition of agriculture.  Figures in parentheses are HS codes within the ISIC definition.
WTO Secretariat calculations, based on data provided b y the authorities.Note
Source:
(b) Policy objectives for the sector
13. The Ministry of Works and Agriculture is in charge of policy formulation for the crops and
livestock sectors, and in coordination with other ministries, for the assessment and management ofmarine resources, including fisheries, the marine environment, and mariculture.
6  The Ministry is also
                                                     
5 In 1990 food imports represented around 90% of total domestic food consumption.
6 Mariculture consists of the production, within nurseries, of eggs and fingerlings, for fish farming.
The products would be either exported or used by local fish farmers.Bahrain WT/TPR/S/74
Page 55
responsible for providing technical assistance to farmers and enforcing sanitary and phytosanitary
measures.
Fish, crustacean and 
molluscs (03)
71.6%Dairy products (04)
11.9%Raw hides and skins, leather and 
cotton (41 + 52)
3.3%Other 
2.5%
Coffee tea and maté (09)
10.8%Chart IV.2
Exports of agricultural products, 1999
Per cent
Total exports of agricultural products: US$5.3 million
ISIC Rev.2 definition of agriculture.  Figures in parentheses are HS codes within the ISIC definition.
WTO Secretariat calculations, based on data provided b y the authorities.Note
Source:
14. Bahrain's agricultural policy reflects overall economic policy, which emphasizes
diversification of the production base.  Development efforts in agriculture have included the
promotion of intensified farming, increasing food self-sufficiency and conservation, and further
development of existing agricultural resources.  Recent policy measures emphasize, in particular, land
rehabilitation, preservation of water through the adoption of modern irrigation and drainage
techniques, promotion of the use of treated water, and implementation of legislation related to wateruse and management;  increased production through intensified farming;  and the creation of an
attractive environment for private sector participatio n in agricultural investment, including in existing
public sector projects.  Vertical integration links with food processing is also being encouraged.
15. Agricultural production has been promoted thr ough the provision of subsidies for a number of
inputs such as, irrigation equipment, greenhouse systems, pesticides, water, veterinary drugs, as wellas machinery, pest control, extension, and veterinary services.  The Government also provides basic
infrastructure such as drainage and irrigation facilities, and credit.
7  Subsidies for a number of inputs
such as poultry and feed and, according to the authorities, for others including seeds and dairy
products, have been reduced over the last few years;  subsidies for fertilizers have been eliminated,
while support for irrigation has been maintained (Table AIV.1).  In an effort to reduce ground waterutilization (around 70% of Bahrain's ground water is currently used for farming), the Government has
initiated a programme for using treated effluent for irrigation.  In addition, the Government plans to
begin charging farmers for the use of water and has installed meters to measure water use;  initially,
the Government intends to charge BD 0.05 per cubic metre of water used.  In 1997, Bahrain notified
                                                     
7 Food and Agriculture Organization (1996).WT/TPR/S/74 Trade Policy Review
Page 56
the WTO Committee on Agriculture that in 1996 it had green box measures worth BD 200,000 and
development measures under special and differential treatment exemptions worth BD 950,000 (BD
550,000 for a poultry company and BD 400,000 for crop and animal input subsidies);  no export
subsidies were provided in the same year.8
16. The marketing of all agricultural products in Bahrain is free from state intervention except for
selected food items, such as flour, and meat, for which the Government operates a price stabilizationprogramme as part of the food subsidy programme that is available to all Bahrainis.  Subsidies on rice
and sugar were removed in 1993 while subsidies on flour and meat appear to have been considerably
higher in 1999 than in 1993 (Table AIV.1).
17. The average applied MFN tariff for agricultural products in 2000 is 4.3%, ranging up to 100%
(Table AIV.2).  The average tariff is 2.9%, ranging up to 10%, if tariff peaks relating to tobaccoproducts, are excluded.  In contrast, the bound averag e tariff is higher at 36.1%;  an additional 2%
customs charge may apply, according to the bound tariff schedule, for fresh produce.
(ii) Fisheries
18. The fisheries industry in Bahrain has been in decline since the 1970s, largely due to marine
pollution, dredging, land reclamation, overfishing and illegal fishing in the region.  Traditionally anexporter of fish and shrimp, Bahrain has, since then, curbed its exports of marine products in order to
meet domestic demand.  The sector recovered during the early 1980s, and during the 1990s shrimp
has been identified as having a major export potential.  Currently comprising two main sectors,
artisanal and foreign landings (the industrial fisheries sector was discontinued in 1998), the industry
has grown in recent years, with total fish landings increasing from 3,800 tonnes in 1979 to 9,209
tonnes by 1989, at an annual average rate of 9.2%;  growth has been slower since then, at an annual
average rate of some 1.1%, reaching 10,500 tonnes in 1997.
9  Around 90% of the total catch is
accounted for by artisanal landings.
19. Bahrain's exports of fish products (including re-exports) form the bulk of its agricultural
exports, around US$3.8 million in 1999, or 71.6% of agri cultural exports (Chart IV.2);  much of this
is destined for Saudi Arabia while some frozen seafood is exported to other parts of the world.  The
value of imports was US$1.2 million for fish and US$4.1 million for fish products or 3.9% of totalagricultural imports in 1999.  Due to SPS regulations in the EU, Bahrain has been unable to export
fish products;  technical assistance has been requested from the EU to rectify this situation.
20. Policy with regard to fisheries is formulated and implemented by the Directorate of Fisheries
and Marine Resources under the Ministry of Works and Agriculture.  In the past, substantial subsidies
for fishing gear and equipment, as well as free technical and extension services and storage facilitieswere provided by the Government to assist the fishing industry.  More recently, there has been a move
away from direct subsidies to infrastructural and technical and maintenance assistance.  In 1993, the
National Mariculture Centre,which provides fish stocks to fish farmers, and a new fishing port on the
island of Muharraq were established;  in addition, works are under way to develop the existing port at
Sitra.
10  The authorities are also involved in negotiations with the Bahrain Development Bank to
develop a small loan scheme for the sector.
                                                     
8 WTO documents G/AG/N/BHR/2, 2 September 1997;  and G/AG/N/BHR/1, 2 September 1997, for
domestic support and export subsidies, respectively.
9 Ministry of Works and Agriculture (1998).
10 Food and Agriculture Organization (1996).Bahrain WT/TPR/S/74
Page 57
21. The Government restricts fishing licences to Bahraini-registered ships and fishermen;  the
licences are renewable annually by the Directorate of Fisheries and Marine Resources.  According to
the authorities, all trawlers have been banned from operating in Bahraini waters.
(3) PETROLEUM AND NATURAL GAS
(i) Petroleum
(a) Features
22. Bahrain's proven petroleum reserves are about 200 million barrels, or 0.1% of the world's
total proven reserves.  According to the authorities, Bahrain is still in the primary recovery phase on
which these reserve figures are based.  Additional reserves are expected to be recovered in the next
phase through Enhanced Oil Recovery (EOR).
23. Bahrain's crude oil production comes from one onshore oilfield, located in Awali, (38,000 b/d
or 21.3% of production), and the offshore Abu Saafa field shared with Saudi Arabia (around 140,000
b/d or 78.7% of production).  The Abu Saafa fiel d is managed and operated by Saudi Arabia;
however, under an agreement signed by the two coun tries in 1965, output of the field was split evenly
between Bahrain and Saudi Arabia.  The agreement was subsequently revised in 1992 and 1996, to
give Bahrain 75% and then 100%, of the output of the Abu Saafa field.  Despite Bahrain's relativelysmall petroleum reserves, the contribution of the se ctor to GDP has been important, accounting for
around 18.7% of GDP in 1997, before declining substantially in 1998 to 13.6% of GDP.
11  Crude
petroleum production grew at an average annual rate of about 5% between 1995 and 1999, reaching
around 64.4 million barrels (13.7 million barrels from the local field and 50.7 million barrels from the
Abu Saafa field).  The growth was mainly due to  an increased allocation for Bahrain from the Abu
Saafa field, while output from the Awali field declined slightly during this period.  The authorities
expect production for 2000 to be around 2.1 million tonnes.
24. Bahrain is also a significant importer of crude petroleum, which, along with locally produced
crude oil from the Awali field, is destined mainly for its refinery;  output from the Abu Saafa field is
exported as crude oil.12  Although data on trade by partner are not available, imports of crude oil from
Saudi Arabia amounted to 225,879 b/d in 1999, fr om 212,334 b/d in 1997 (Table IV.1).  Production of
refined products increased from 92 million barrels in 1995 to 96 million barrels in 1999.  The majorrefined products are gas oil, fuel oil, kerosene, naphtha, and gasoline.
25. The petroleum sector has traditionally been Bahrain's largest foreign exchange earner despite
the decline in its share of total exports (53.4% of merchandise exports in 1998 from 67.2% in 1996
and 76.1% in 1992).  The fortunes of the sector ha ve been closely linked to international energy
prices.  An increase in revenue from exports in 1996 was due partly to higher international oil pricesand a higher allocation for Bahrain from the offshore Abu Saafa field.  A decline recorded in the
period 1997/98 was due mainly to falling international oil prices, followed by a recovery in prices at
end 1999, which boosted revenue from US$1.7 billion in 1998 to US$2.6 billion in 1999.
                                                     
11 Including mining.
12 Abu Saafa petroleum has a higher sulphur content than the output from the Awali oil field.WT/TPR/S/74 Trade Policy Review
Page 58
Table IV.1
Petroleum production and trade, 1995-99
(Barrels/day and US$ billion)
1995 1996 1997 1998 1999
Total crude oil production 145,326 142,622 162,612 182,957 176,445
Awali field 39,614 38,695 38,792 37,674 37,472
Abu-Saafa field 105,712a103,927 123,820 145,283 138,973
Refinery production 252,203 260,469 250,938 248,182 262,585
Trade
Crude oil imports 211,592 221,888 212,334 211,448 225,879
Petroleum products exports 244,729 254,190 243,265 243,324 255,873
Exports by value (US$
billion)2.5b3.0b2.7 1.7c2.6c
Share of total exports (%) 61b67.2b.. 53.4c64.0c
.. Not available.
a Source used for 1995:  The Ministry of Oil and Industry (1998), Oil and Gas Facts and Figures,  May.
b SITC (Rev.3) 3 (fuels).c HS 27 (mineral fuels, oils and products of their distillation).
Source: Data provided by the Ministry of Oil and Industry.
26. Until January 2000 petroleum production was carried out exclusively by the state-owned
Bahrain National Oil Company (BANOCO),  whose responsibilities included the exploration and
development of oil fields and the marketing of petroleum products.  The state-owned Bahrain
Petroleum Company (BAPCO) was responsible for Bahrain's only oil refinery, built in 1936 and
located at Sitra.  In January 2000 BANOCO and BAPCO were merged to form one company
BAPCO, which is currently responsible for exploration, exploitation, refining and marketing ofpetroleum products.  There are no private local or foreign companies, with the exception of Chevron
which is currently involved in exploration, active in the petroleum sector.  The authorities indicate
that participation by other companies may be possible in the future.
13  The refinery has the capacity to
process 250,000 b/d of crude oil14;  indications are that in 1999 production was at capacity.  The
merger of BANOCO and BAPCO is expected to increase productivity and reduce costs.
(b) Policy
27. The Supreme Council of Petroleum, headed by the Prime Minister and including participation
from a number of ministers and other officials in the oil sector, determines petroleum policy and
enacts all legislation relevant to petroleum.  The Ministry of Oil and Industry (Directorate of Oil and
Gas Affairs), is the implementing authority and repres ents the State in matters relating to petroleum in
regional and international organizations, particularly the Organization of Arab Petroleum Exporting
Countries (OAPEC), of which Bahrain is a member.15
                                                     
13 In April 1997, the American company Caltex completed the sale of its remaining 40% share in
BAPCO to the Government of Bahrain.  Caltex, owned in equal shares by Chevron and Texaco, continues toprovide management and technical services on a contr act basis, and continues to be a partner with the
Government of Bahrain in other ventures in the petroleum sector.
14 Library of Congress, Federal Research Division (1993).
15 Bahrain joined the OAPEC in 1970;  other members are Algeria, Egypt, Iraq, Kuwait, Libya, Qatar,
Saudi Arabia, Syria, and the United Arab Emirates.  OAPEC's main activities consist of enhancing and
developing the Arab Oil industry through the exchange of expertise and information.  In 1996, petroleumproduction by these countries accounted for 26% of  total world production (Medea Database, undated).Bahrain WT/TPR/S/74
Page 59
28. Domestic prices of petroleum products according to the authorities, have remained constant
and are above international prices (Chapter III(4)(iv)(b)).  Although Bahrain is essentially tax free,
corporate income tax is levied at a rate of 46% on petroleum and gas companies.  The marketing of
petroleum products and of Bahrain's share of crude oil from the Abu Saafa field, locally and
internationally, is carried out by BAPCO (BANOCO until January 2000).
29. Government policy in the petroleum sector has focused on consolidating the oil industry,
including the further development of petroleum resources, expansion of seismographic surveys and
enhancement of developmental drilling.  Foreign investment in the exploration of new areas is being
encouraged.  In this regard, technical evaluation ag reements have been signed with several foreign
petroleum companies, including Texaco and Chevr on.  In February 1997, Chevron Corporation signed
an exploration and production-sharing agreement for oil and gas exploration in the northern andwestern offshore areas.  The national refinery has also kept abreast of the newest technology to ensure
optimal operational performance and quality.  In this context, a number of projects are under way,
including a US$800 million four-year upgrade and rehabilitation programme whose objective is to
improve refined product quality.
30. Foreign investment in petroleum extraction is permitted through exploration and
production-sharing agreements with the Government of Bahrain.
16  Private investment in refining
activities is permitted.
(ii) Natural gas
31. Bahrain's natural gas reserves were estimated at 142 billion cubic meters in 1997, according
to the OAPEC.  The state-owned BANOCO has a monopoly over production of associated and non-
associated gas (24% and 76% of the total, respectively).  Total gas production has risen gradually in
recent years from 355 billion cubic feet in 1995 to 406 billion cubic feet in 1999.  (Table IV.2)
Table IV.2
Gas production and exports
(Billion cubic feet)
1995 1996 1997 1998 1999
Total gas production 355.04 360.60 375.37 392.86 406.37
Natural gas 271.98 279.76 283.57 301.90 310.39
Associated gas 83.06 80.84 91.80 90.96 95.98
Total BANAGAS production 4,385.35 4,142.92 3,976.68 3,877.45 3,832.64
Propane 1,374.61 1,271.84 1,213.12 1,192.21 1,144.20
Butane 1,162.69 1,086.81 1,047.66 1,024.18 1,005.11
Naphtha 1,848.05 1,784.27 1,715.90 1,661.06 1,683.33
Total BANAGAS exports 4,237.34 4,163.81 3,590.61 3,941.39 3,979.77
Propane 1,355.24 1,251.27 1,031.10 1,200.40 1,232.73
Butane 1,182.44 1,082.01 924.75 1,029.97 1,139.44
Naphtha 1,699.66 1,830.53 1,634.76 1,711.01 1,607.60
Source: Data provided by the authorities.
32. Bahrain uses natural gas primarily for domestic purposes.  The primary users are Aluminium
Bahrain (ALBA), the country's largest aluminium pr oducer (27% of total gas production in 1999) and
the electricity industry (23%);  around a quarter is reinjected.  The Bahrain National Gas Company
                                                     
16 U.S. Department of Commerce (1998).WT/TPR/S/74 Trade Policy Review
Page 60
(BANAGAS) operates a gas liquefaction plant.  BANAGAS is owned jointly by the Government of
Bahrain (75%), Caltex (12.5%) and the Arab Petr oleum Investment Corpor ation (APIC) (12.5%).17
The company was formed by Amiri Decree with the primary objectives of processing associated gas
into marketable products, and supplying residue gas for local industrial use. Its products include
propane, butane, and naphtha, which are exported;  the residue gas, including methane and ethane, is
used by local industry including ALBA, BANOCO (in the refinery), and the Riffa Power Station
(Table IV.2).
33. Policy for the sector is established by the Supreme Council of Oil and implemented by the
Ministry of Oil and Industry.  The Directorate of Oil and Gas Affairs in the Ministry oversees
operators, marketers and distributors of liquefied petroleum gas (LPG) in the local market.
34. Corporate income tax is levied on petroleum and gas companies at a rate of 46%
(Chapter III(4)(iv)(c)).
35. BANOCO, which has been responsible for gas production since 1982, has carried out
development drilling programmes and successfully increased its gas production capacity, to meet the
requirements of Bahrain's expanding industrial base.  In 1998, there were indications that Bahrain
would be able to drill new wells as needed, althoug h accurate estimates of reserves were not available.
As in the petroleum sector, the Government is seeking to increase production by attracting foreign
investment into gas exploration, and the Ministry of Oil and Industry signed, in August 1999, a
memorandum of understanding with Texaco and other companies, to conduct technical studies to
evaluate the potential for offshore exploration.  Bahrain has also been exploring the possibility, along
with other GCC countries, of creating a netw ork of natural gas pipelines throughout the GCC
countries.
(4) MANUFACTURING
(i) Overview
36. Bahrain has a relatively well developed manufacturing sector, based mainly on
energy-intensive industries, including aluminium (36.5% of manufactures), metal industries (11.3%),
and chemicals (3.8%).  Growth in the sector has been irregular since the decline in international
energy prices in 1981/8218, and continued to be unpredictable in the 1990s;  its share of GDP
increased from 10.9% in 1990 to 17.5% in 1995 before falling to 12.7% in 1998 (Chart IV.3).  The
latest information received from the authorities indicates that the decline has continued with
manufacturing as a share of GDP falling to 11.9% in 1999.  Exports as a share of total merchandise
exports have also been falling, representing 32% in 1999 down from 44.2% in 1998.19  Manufactured
imports represented 59.5% of total imports in 1999, decreasing from 74.5% in 1998.  The sectorprovided employment to around 12.1% of the workforce in 1998.
37. Bahrain's manufactured exports are dominated by non-ferrous metals, the bulk of which is
aluminium, comprising 58.9% of manufactured exports (18.9% of total exports), followed by textiles
and clothing at 18.6% (5.9% of total exports), and industrial chemicals at 8.1% (2.6% of total exports)
(Chart IV.4).  In 1999, Bahrain imported mainly fabricated metal products, machinery and equipment
(37.2% of total manufactured imports), chemicals, pe troleum, coal, rubber and plastics (20.8%), food
products (12.1%) and textiles and clothing (9%) (Chart IV.5).
                                                     
17 Economist Intelligence Unit (1999).
18 Economist Intelligence Unit (1999).
19 Manufactured products include non-ferrous metal basic industries;  chemicals;  textiles and wearing
apparel;  food, beverages and tobacco;  fabricated metal products, machinery and equipment;  and other
manufacturing industries classified under ISIC 3.Bahrain WT/TPR/S/74
Page 61
02468101214161820
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999Chart IV.3
Manufacturing as a share of GDP, 1990-99
Source :Ministry of Finance and National Economy (1998), National Accounts, 1998;   and data provided by the 
authorities.Per cent
Food, beverages and tob acco (31)
4.3%
Textiles and wearing 
apparel (321 + 322)  
18.6%
Industrial chemicals (351)  
8.1%
Other chemicals, incl. Pharm. 
(352-356)
1.5%
Iron and steel industries 
(371)
1.7%Non-ferrous 
metal basic 
industries 
(372)
58.9%Fabricated metal 
products, machinery and 
equipment (38)
3.6%Other manufacturing 
industries (323-324, 33, 
34, 36, 39)
3.2%Chart IV.4
Exports of manufactured products, 1999
Per cent
Manufactured exports: US$ million 1,279.6 
Figures in parentheses are the ISIC Rev.2 codes.
WTO Secretariat calculations, based on data provided b y the authorities.Note:
Source:WT/TPR/S/74 Trade Policy Review
Page 62
Food products (311 + 312)
12.1%
Beverages and tobacco ( 313 + 314 )
3.7%
Textiles and wearing apparel 
(321 + 322)  9.0%
Chemicals, 
petroleum, coal, 
rubber, plastics (35)  
20.8%
Basic metal 
industries (37)
4.9%Fabricated metal products, machinery 
and equipment (38)
37.2%Other manufacturing industries 
(323-324, 33, 34, 39)
8.3%
Non-metallic mineral 
products (36)
3.9%Chart IV.5
Imports of manufactured products, 1999
Per cent
Manufactured imports: US$ million 2,105.7
Figures in parentheses are the ISIC Rev.2 codes.
WTO Secretariat calculations, based on data provided b y the authorities.Note
Source:
38. In 2000, the average tariff on manufactured imports is 8% ranging up to 20%, with the
exception of some tobacco and alcohol products, for which the tariff exceeds 100% (Table AIV.2)
(Chapter III(2)(ii)).  Under the National Industry Protection and Support Law, imports that compete
with certain local industries are subject to a 20% ad valorem  tariff.  According to the authorities, this
is to assist some national industries during the initial years of operation;  the protection is gradually
phased out.  The products subject to this protective tariff include some aluminium products, tissue
paper, cotton buds, disposable medical plastic, plastic syringes, vegetable oils, sulphuric acid, distilled
water, and spring mattresses (Table AIII.2).  The simple average tariff for manufactured products(ISIC 3), excluding tariff peaks, is 7.4%.  Around 78% of Bahrain's tariffs on manufactured products
are bound at an average rate of 35.6%.  The current applied tariff in the manufacturing sector is
generally lower than its bindings, although some applied tariffs, notably for tobacco and alcohol
products, appear to be considerably higher than their corresponding bound rates in Bahrain's bound
tariff schedule (Chapter III(2)(iii)).
(ii) Aluminium
39. Despite declining production and exports, aluminium remains the largest industry and the
largest source of exports in the manufacturing sector.  In 1998, the sector accounted for 5.1% of GDP
(8.6% in 1995) and 31% of employment in the industrial sector.  Production of aluminium rose
steadily during 1995-99, from 449,211 tonnes to 500,921 tonnes.  Exports by value (ISIC 372) appear,Bahrain WT/TPR/S/74
Page 63
however, to have declined during this period, from US$881.1 million to US$752.3 million,
representing 18.9% of total exports in 1999, compared to 21.5% in 1995.20  According to the
authorities, this decline is attributable to fluctuations in the international metal market.
40. The two main aluminium companies are Alum inium Bahrain (ALBA) and the Bahrain-Saudi
Aluminium Marketing Company (BAL CO);  the two companies were merged in June 1999.  The
ALBA smelter, created in 1971, is majority stat e-owned (77%);  a 20% share is held by the
Saudi Arabian Basic Industries Corporation (SABIC)21, and the remaining 3% by Breton Investment,
a German company.  BALCO, which was also majority state-owned (77%), with the remaining 23%
owned by SABIC, was responsible for the sales and marketing of ALBA's output before it was
merged with ALBA.  There are also a number of smaller companies involved mainly in the
production of aluminium products from primary and recycled material.22
41. Bahrain is the largest manufacturer of primary aluminium in the Gulf region and the ALBA
smelter's capacity in 1997 was 500,000 tonnes per year.  A 450,000 tonnes per year coke-calcining
plant is scheduled for completion in 2001, which w ould allow ALBA to meet its own requirements of
calcined coke (250,000 tonnes per year), and export the remainder.  Calcined coke is transformed in
the smelter into carbon blocks, which are used as anodes in the aluminium smelting process.  Calcinedcoke is presently imported from the United States and Argentina whereas alumina is imported from
Australia only by BALCO, the marketing arm of ALBA.
42. In addition to producing aluminium, ALBA gene rates its own electricity for its energy needs;
the excess contributes towards meeting Bahrain's energy requirements.
43. The average applied tariff for aluminium imports is 8%, with two rates, 5% and 20%.
(iii) Policy framework
44. Policy for the manufacturing sector is formulated and implemented by the Ministry of Oil and
Industry.  Applications for industrial licences, whic h are required of all investors, must be submitted
to the licensing section of the Industrial Development Directorate (IDD) in the Ministry of Oil and
Industry.  Following a review by the IDD, and approval by the Industrial Licensing Committee, a
preliminary licence is issued.  The final licence, valid for one year, is issued once the location of the
project has been approved by a number of other agencies.  The applicant must then apply to theMinistry of Commerce for commercial registration (Chapter II(5)(ii) and Chapter III(4)(i)).  Private
domestic and foreign investment in the manufacturing sector including for aluminium, petrochemicals
and downstream industries, is, according to the auth orities, strongly encouraged;  however, to date
there have been no applications by private compan ies to invest in sectors competing with existing
government-owned or parastatal companies (Chapter II(5)(ii)).
45. While in the past Bahrain has devoted itself to developing energy based and capital intensive
industries, particularly in aluminium and petrochemicals, in recent years, it has encouraged
investment in downstream activities related to these industries.  The Government's primary goal is to
                                                     
20 The figure used to calculate this share is for non-ferrous metal basic industries (ISIC 372 Rev.2);
given a lack of more precise data, we assume that the majority of Bahrain's exports under this category arealuminium.
21 Saudi Arabia's Public Investment Fund.
22 These include Bahrain Atomisers International (BAI), which produces 7,000 t/y of aluminium
powder and 2,000 t/y of aluminium pellets;  Middle Aluminium Cable (MIDAL), which has a capacity of60,000 t/y of aluminium cables;  and the Bahrain Aluminium Extrusion Company (BALEXCO), whichproduces some 21,000 t/y of extruded products using billets from ALBA.WT/TPR/S/74 Trade Policy Review
Page 64
diversify the industrial base and to increase the manufacturing sector's share in GDP, as the sector is
considered to be strategic to overall economic development.  Specific measures taken include new
legislation and an implementation mechanism regardin g industrial land;  and participation in regional
and international organizations to attract foreign investment, in addition to developing the oil and gas
sectors, two of the main sources of national income.23
46. According to the Ministry of Oil and Industry, the economy is structured around a small
number of key basic industries, downstream industries and a reasonably large number of small and
medium-sized industries.  The Government intends to support "industry clustering", as a mechanism
for further industrialization.  As a first step a research foundation was established to identify forward
and backward linkages that could be the basis for further value-added industrialization.  In parallel,
the Government continues to make large infrastructure  investments to support the industrial sector, for
example the South Hidd Industrial Area.  Other large scale industrial projects include expansion of the
iron-ore pellet plant of the Gulf Industrial Invest ment Company (GIIC), the Granulated Urea Project
(one of the expansion projects at GPIC), and establishment of the Coke Calcining and Desalination
Plant at ALBA.  To promote downstream industries in aluminium, petrochemical and industry-related
services, the Government has, with the assistance of the Islamic Development Bank and theUnited Nations Industrial Development Organization (UNIDO), established a programme, which it is
expected would present some 40 investment projects to foreign and local investors in these industries.
The Government is also working with the GCC to further Bahrain's industrial development.
24
47. Another concern is unemployment among Bahrainis and the need to create jobs for a growing
labour force.  The authorities believe that large companies may no longer be able to absorb the rapidly
growing workforce and are targeting small and medium sized enterprises (SMEs), which they believe
can create new job opportunities.  Measures taken include the establishment of a Small and MediumEnterprises Unit (SMEU) within the Ministry of Oil and Industry, which provides existing and
potential entrepreneurs with business and advisory services.  The SMEU also maintains links through
an international network of SMEs for informati on on investment opportunities, technology transfer,
venture capital and any other business enquiries.  In addition, it works in coordination with UNIDO in
Bahrain, to identify small and medium scale projects to be promoted, as well as with the privatesector, particularly chambers of commerce and industry, development banks, and business and
investment promotion offices.  A number of the i ndustrial licences issued in 1999 were for SMEs,
including for aluminium, petroleum, construction and engineering, crafts, textiles, and food.
(iv) Incentives
48. With the exception of refined petroleum products, which, according to the authorities, have
been fixed for some years and are above international prices, there are no price controls on
manufactured products.  The Government provides incentives in the form of reduced electricity tariffs
and a two-year rent-free period for investors renting land in the industrial zones.
25  Tariff exemptions
are granted to newly established export industries for imports of raw material inputs for exports, and
of equipment and machinery.  Exemptions for impor ts of raw materials, machinery, and equipment
may also be granted under the Local Industries Protection and Support Law, which aims to encourage
local industries to compete with external competiti on (Chapter III(2)(ii)).  The Government does not
appear to specifically target incentives to small businesses, although the Bahrain Development Bank
provides financing to small and medium-sized enterp rises (Chapter III(4)(ii)).  Incentives for regional
exports are also provided in the form of tariff exemptions provided by other GCC States, which may
                                                     
23 Ministry of Oil and Industry (1999).
24 Bahrain Promotions and Marketing Board (undated b).
25 For electricity, once commercial production has co mmenced, the investor may apply for a reduction
in electricity rates from BD 0.016 per kilowatt per hour to BD 0.012 per kilowatt per hour.Bahrain WT/TPR/S/74
Page 65
be obtained after one year of operation in Bahrain, provided that at least 40% of value addition takes
place in Bahrain or another GCC country.26
49. Other indirect incentives for companies include a Prime Minister's Award for companies that
show excellence in performance, quality, management standards, customer and staff satisfaction,
higher employment of local labour, and utilization of  local raw materials, as well as increased exports.
(5) SERVICES
(i) Overview
50. In 1998, services accounted for some 77% of Bahrain's GDP and for 50.3% of total
employment.27  The largest share in the sector is held  by financial services  (22.9% of total GDP),
followed by government services (18.7%), real  estate (10.3%), trade (10.1%) and transport and
communications services (8.3%) (Chart IV.6).  Growth in services has been irregular since 1994,averaging around 3% annually between 1994 and 1998.  After contracting by 14.3% in 1994,
domestic banking showed steady growth until 1998.  The performance of offshore banks has been
even stronger, with the exception of contractions in 1995 and 1998.  Annual growth in transport and
communications and in trade, hotels and restaurants averaged around 2.8% and 1.4%, respectively
during 1994-98.
Chart IV.6
Share of GDP , 1998
Per cent
The shares total 110.1%, which is mainly due to the addition of imputed banking charges in GDP data.
Ministr y of Finance and National Econom y (1998 ), National Accounts, 1998; and data provided b y the authorities.Note:
Source:Services
76.9
Agriculture
0.9Petroleum and 
mining
13 6Manufacturing
12.7Electricity and water
19Construction
4.1
Financial services 22.9
Trade 10 1
Hotels/restaurants 2 3
Transport/communication 8.3
Real estate 10.3
Social/personal services 4 3
Government services 18.7
                                                     
26 According to the Ministry of Oil and Industry (undated) however, additional requirements are that at
least 51% of the company's equity be held by a national of Bahrain or another GCC country, and that at least20% of the company's employees are Bahraini.
27 Data at current prices.WT/TPR/S/74 Trade Policy Review
Page 66
51. The services sector is a key element in Bahrain's policy of economic diversification.  The
Government's objectives include the further development of commercial services, offshore banking
and tourism, to increase private investment and remove obstacles to foreign investment;  liberalizing
foreign investment, it expects, will help economic diversification, bring technology transfers and
provide better employment opportunities.
52. Transport, telecommunications, other infrastructure, and part of financial services are in the
hands of the public sector.  However, current government policy sees privatization as a necessity for
economic development, and private sector participation in the economic development process will be
encouraged.  A number of companies in the services sector have been privatized over the past ten
years, including in trade services and tourism (Chapter III(4)(iii)).
(ii) Commitments under the General Agreements on Trade in Services (GATS)
53. Bahrain participated in the Uruguay Round negotiations on trade in services and made
commitments in insurance services.  In the 1997 negotiations, under the Fifth Protocol to the GATS
(WTO Agreement on Financial Services), Bahrain expanded its offer to include banking and other
financial services.  In its GATS commitments in banking and other financial services, Bahrain has
tended to bind the existing legal framework, while in insurance services, the applied policy appears to
be more liberal than its commitments.  In addition, some sectors, such as tourism and transport, while
not included in Bahrain's Schedule of specific commitments, are significantly liberalized.
54. During the Uruguay Round, Bahrain bound market  access and national treatment for all
offshore insurance services and "onshore" reinsurance and retrocession services, in three modes of
supply, except for the presence of natural persons.  Establishment is permitted only in the form of a
joint-stock company, and acquisition of land or property is not allowed.  Market access for banking
and other financial services, in cross-border supply and commercial presence, is unbound for almostall subsectors except for cross-border supply of money broking services;  market access with regard to
consumption abroad is bound in some subsectors.  In addition, each subsector is subject to specific
conditions and limitations (Table AIV.3).  Limitations generally relate to the form of establishment,
domestic equity ownership, which must be at least 51% of total equity;  and licensing or approval,
which is required either from the Bahrain Monetary Agency (BMA), the Bahrain Stock Exchange(BSE), the Minister of Cabinet Affairs and Informa tion, or the Ministry of Transportation, depending
on the activity.
55. Under Bahrain's horizontal commitments, commercial presence is permitted only in the form
of a joint-stock company
28, and acquisition of land or property is not allowed.  Bahrain has no MFN
exemptions under Article II of the GATS.
(iii) Financial services
(a) Banking services
Structure
56. As of December 1999, the banking sector in Bahrain consisted of 176 banks and other
financial institutions, including full commercial banks (FCBs), specialized banks, offshore banking
units (OBUs), investment banks (IBs), and others (Table IV.3).  Ten new licences were issued during
                                                     
28 In practice, however, according to the authorities, under the Company Law, insurance companies
must be established as joint-stock companies;  commercial presence for other activities may take other legalforms as provided in the Law.Bahrain WT/TPR/S/74
Page 67
1999, for four IBs, two OBUs, two investment ad visory and other financial services, and two
representative offices.  The majority of offshore and commercial banks are foreign branches, and
foreign investors appear to have major equity owne rship in local banks.  The Government of Bahrain
fully owns both specialized banks, the Bahrain Development Bank and the Housing Bank, and holds
49% of the equity of one FCB, the National Bank of Bahrain.  According to the authorities, there are
no banking activities that are monopolized by law or in practice.
Table IV.3
Structure of the banking industry, 1999
Banking units Local Foreign branches Total
Full commercial banks 6a13 19
Conventional 5 12 17
Islamic 1 1 2
Offshore banking units 11 37 48
Conventional 9 37 46
Islamic 2 0 2
Investment banks 29b4 33
Conventional 17 4 21
Islamic 12 0 12
Specialized banks 2c02
Representative offices .. .. 36
Investment advisory .. .. 13
Money changers .. .. 19
Money brokers .. .. 6
TOTAL 48 54 176
.. Not available.
a The Government has a major stake in one bank;  foreign investors own major stakes in the other five.b Foreign investors own majority stakes.
c Government owned.
Source: Data provided by the authorities.
57. At end 1999, the banking sector (FCBs, OBUs, and IBs) had total assets of US$102.1 billion,
of which 86.4% were held by offshore banks, 9.7% by commercial banks and about 4% by investment
banks.29  Offshore banking assets totalled US$88.2 billion at end 1999, of which 95.6% were held by
foreign nationals, including 31.7% by other Arab nationals, 14.4% by Asians, 18.3% by the Americas,
29% by western Europe and 2.3% by others.  The banking sector has grown consistently over the past
decade, growth in total assets averaged around 8% annually for FCBs, 8.7% for IBs and 5.6% forOBUs.
58. The growth rates for FCBs and IBs reflect an important increase in economic  activity;  FCBs
have accounted for an important share of growth in commercial banking, providing over 90% of their
credit to the private (business and personal) sector at end 1999.  The breakdown of domestic lending
by FCBs in 1999 by economic sector suggests that the biggest share goes as personal credit (34.6%),followed by trade (20.6%), manufacturing (15.6%), construction (11.8%) and 7.5% to the government
sector.
59. Since the establishment of an offshore financial services centre in Bahrain in 1975, the OBUs
have prospered by serving as a channel for the financial surpluses generated in the region.  Expansion
                                                     
29 Bahrain Monetary Agency (1999).WT/TPR/S/74 Trade Policy Review
Page 68
has gone through several stages:  the sector grew rapidly during the oil boom in the late 1970s,
especially in terms of total assets, slowing dow n in 1983, due to a decline in profitability and
difficulties with international loan repayments;  during the 1990s, the offshore sector rebounded as
indicated by the growth in its total assets, which were US$88.2 billion at end 1999, increasing from
about US$60 billion in 1990.
Policy60. The provision of banking and other financial services (excluding the insurance and securities
sector) into or from Bahrain is regulated and supervised by the Bahrain Monetary Agency (BMA)
under the Bahrain Monetary Agency Law (Amiri Decree No. 23 of 1973), and regulations and
circulars issued by the BMA.  Other provisions of relevance are in the Commercial Companies Law
(Amiri Decree No. 28 of 1975), the Law of Commer ce (Amiri Decree No. 7 of 1987), the Labour Law
(Amiri Decree No. 23 of 1976), and the Social Insurance Law (Amiri Decree No. 24 of 1976), as
amended.  Together these Laws govern matters such as the establishment (and liquidation), licensing
and de-licensing and regulation of banks, bankers' books and banking instruments, and employment
issues.
61. Bank licensing procedures are the same for Bahraini and foreign-owned banks.  Investors
must apply for a licence to the BMA, and must submit any information required by the BMA.  The
BMA may also attach terms and conditions it judges appropriate for the granting of a licence.  The
criteria and procedures for licensing are kept under regular review by the BMA;  the last such review
took place in May 2000.  Licences are granted by the BMA with the approval of the Minister of
Finance and National Economy.
62. Banks may be universal or specialized; they may not operate insurance companies or
branches, although they may engage in stock-broking through subsidiaries.  There is no requirementfor domestic companies to employ specifie d companies for specific banking services.
63. Foreign ownership (except for GCC nationals) of locally incorporated "onshore" banks,
including FCBs, IBs, and specialized banks, is limited to 49%, whereas up to 100% foreign ownership
is permitted for OBUs;  GCC nationals may own up to 100% of locally incorporated "onshore" banks.
There are no national management requirements, including for board members and senior executives,but a "fit and proper test" is applied on an ongoing basis;  the "fit and proper test", according to the
authorities, refers to the experience, integrity and suitability of the person concerned to hold a senior
position in a bank, and factors considered include qualifications, and the financial history of the
person concerned.  There are no preferences for the approval of new entrants under bilateral
agreements but reciprocity provisions may apply.  There are no explicit limitations to employment offoreign nationals, though emphasis is placed on the employment of Bahraini nationals wherever
appropriate (Chapter I(1)(i).  Foreign-based commercial banks may raise funds from or grant loans to
residents and may own and operate branches in Bahrain, for which there are no restrictions on the
level of foreign equity ownership allowed.  They also have access to credit and deposit insurance in
the local market and are free to install any equipment they require for their activities.
64. The BMA relies on a comprehensive system of prudential regulations and banking
supervision, based on internationally accepted standards.  Capital and other prudential requirements
tend to differ for FCBs, OBUs and IBs (Box IV.1) .  For new commercial banks incorporated in
Bahrain a  minimum paid up capital of BD 20 mill ion (around US$53 million) is required;  however,
the BMA, at its discretion, may fix the capital necessary for any banking unit on the basis of a certainBahrain WT/TPR/S/74
Page 69
percentage of all the institution's liabilities, and in any case, not less than the prescribed minimum.30
The minimum paid up capital required for OBUs is US$50 million, but may be increased on a
case-by-case basis;  for IBs, the minimum paid up capital requirement is US$50 million.  Branches of
foreign banks are not subject to the capital adequacy framework.  The minimum risk adjusted capital
adequacy ratio was raised from 8% to 12% on 1 January 1998, to which all locally incorporated banks
were required to adhere with immediate effect.
Box IV.1:  Islamic, offshore, and investment banks
Commercial, offshore and investment banks may operate in Bahrain under conventional or Islamic principles.
Islamic financial institutions  are subject to the same general supervisory and prudential regulations as
conventional banks.  However, the Bahrain Monetary Authority (BMA) has issued specific requirements fortheir establishment.  These include:
- all banks carrying out banking activities in accordance with Islamic principles must be established as
a separate legal entity, whether incorporated in Bahrain or elsewhere;
- they must abide by the principles of the Sharia (Islamic law) and appoint a religious Supervisory
Board which will prepare and submit to the shareholders for their approval, an annual report on itsactivities and the bank's compliance (or otherwise) with Islamic principles;
- audited accounts for banks incorporated in Bahrain must be prepared in accordance with Islamic
Accounting Standards (or other standards permitted by the BMA);  and
- in addition to regular liquidity requirements, and unless otherwise agreed with the BMA, total
Islamic financing to any single entity or person, may not exceed 15% of the bank's capital and
reserves.
The authorities actively promote further growth in Islamic banking.  Actions taken include the sponsoring and
promotion of the activities of the Accounting and Auditing Organisation for Islamic Financial Institutions(AAOIFI), which is in the process of developing a set of accounting standards for Islamic banks, which willconform with international norms and practices.
Offshore banking units (OBUs)  may be either branches of international commercial banks or local banks.
OBUs may not deal with residents of Bahrain except the Government of Bahrain and its agencies and withlicensed banks;  other than normal business operation requirements, they may only deal in foreign currencyunless agreed with the BMA.  They also require approval from the BMA to participate in domestic developmentprojects.  OBUs are exempted from cash reserve requirements, tax on interest paid to depositors, and income tax.They are also not required to maintain any formal liquidity ratio or cash reserves with the BMA;  the ratio ofdeposit liabilities to capital and reserves is also lower for OBUs than for commercial banks.  However, they are
required to pay annual licence fees of BD 10,000 to the BMA on 1 January of each year.  The BMA may use itsdiscretion to charge a pro-rata fee in the first year, subject to a minimum fee of BD 1,000.  With few exceptionsthe OBUs appear to be branches of large international banks.
Investment banks (IBs)  are more restricted in their activities than  OBUs.  Aside from being limited to transact
with non-residents and banks in Bahrain, their primary activities are traditional investment and merchant bankingactivities, particularly directed towards securities (such as mergers and acquisitions, bond issues, underwriting,
and financial advice).  Loans and advances, but not overdrafts, may be made to non-residents.  Deposits may beaccepted from non-banking institutions outside Bahrain, of a value of at least US$50,000, as well as from banks.In certain cases, with the permission of the BMA, dealings may be undertaken with non-bank residents ofBahrain.  As with the OBUs, IBs pay annual licence fees  of BD 10,000 to the BMA on 1 January of each year.
The BMA may use its discretion to charge a pro-rata fee in the first year subject, to a minimum fee of BD 1,000.
Source: Bahrain Monetary Agency, The Establishment, Regulations and Supervision of Banks and other
Financial Institutions in Bahrain:  Part I Licensing;  and Economist Intelligence Unit (1999),
Country Profile:  Bahrain 1999/2000.
                                                     
30 According to the authorities, the actual paid up capital for existing banks is a minimum of
BD 5 million (US$13.3 million).WT/TPR/S/74 Trade Policy Review
Page 70
65. Liquidity ratios are established in consultation with the BMA and include a loan/deposit ratio
of 60-65%;  and primary liquid assets (in the form of cash, short term deposits, and marketable
securities) of not less than 25% of total deposit liabilities.  A minimum reserve balance of 5% of
deposits in Bahrain dinars must be maintained by commercial banks with the BMA.  Other regulatory
requirements include classification and provisioning for non-performing loans, credit risk evaluation,
and credit concentration rules set by the BMA in 1996;  branches of foreign banks are not subject tocredit concentration rules but are required to follow  rules set by the regulator in their home country.
31
66. The BMA may conduct discretionary on-site inspections, supplemented by the reporting
accountants system32, and off-site analyses based on prudential and financial data included in reports
collected periodically by the BMA.  Furthermore, all banks are subject to annual or semi-annual
audits by independent auditors.  According to the au thorities, banks' credit portfolios, cash flow, net
incomes, and solvency have remained stable over the last few years.  Most banks in Bahrain have
consistently reported net profits, and non-performing loans of locally incorporated banks, which
represented 4.7% of total loans as of end 1999, (6.0% at end 1996), were adequately provisioned for.
67. State-owned banks like the Housing Bank and the Bahrain Development Bank undertake
preferential lending.  Rules and regulations governing preferential lending are set by the Ministry ofFinance and National Economy. The housing sector, small businesses, and project finance receive
preferential lending.
68. The banking sector is exempt from the payment of corporation or other institutional or
withholding tax.
(b) Securities market
69. The Bahrain Stock Exchange (BSE) was established in 1987, through Legislative Decree
No. 4, and became operational in June 1989.
33  The BSE is an independent legal entity, managed by a
board of directors, chaired by the Minister of Co mmerce.  The members of the board are appointed by
Resolution of the Council of Ministers and include representatives of the Ministry of Commerce,
Ministry of Finance and National Economy, the BMA, and three members elected by the Bahrain
Chamber of Commerce and Industry;  in addition, two members representing banks incorporated in
Bahrain, and auditing and accountancy offices, are appointed by the chairman.34  The BSE regulates
brokerage companies while the issuers of securities are regulated either by the Ministry of Commerce
(non-financial institutions) or by the BMA (financial institutions).
Market structure and recent developments
70. The securities industry currently comprises brokerage companies, market makers35, and
individual brokers.36  Custodianship services are offered by banking and non-banking institutions.
Share registration services are offered by the companies themselves as well as assigned auditing firms
licenced by the BSE.  Securities and financial instruments traded on the BSE include shares, bonds,
mutual funds, and currency warrants.
71. At the end of 1999, the BSE listed 37 local companies, four foreign companies37, 34 mutual
funds, and four bonds (two corporate and two govern ment bonds).  The market capitalization of local
                                                     
31 Bahrain Monetary Agency (1994).
32 Introduced in 1997, the "reporting accountants syst em" established rules to supplement information
obtained, during on-site inspections, by the BMA, through reports prepared by the accountants.
33 Bahrain Stock Exchange (undated a).
34 BSE Law (legislative Decree No. 4 of 1987), and BSE By Law.Bahrain WT/TPR/S/74
Page 71
companies amounted to about BD 2.7 billion and outstanding shares were 6.9 billion shares, reflecting
an increase of around 23% over the 1995 figure of  5.6 billion.  The volume of traded shares rose
substantially from 185 million in 1995 to 536 million in 1999, while the total value of traded shares
increased from BD 40 million in 1995 to BD 168 million in 1999.38  In mid-1998, the Government
relaxed ownership restrictions in order to in crease liquidity in the market (see below).39
72. The investment sector accounted for the highest market capitalization, number of shares
outstanding, transactions, and the volume and value of shares traded in the market in 1999.  In that
year, investors from 31 nationalities (excluding Bahrainis) traded on the BSE, five from GCC
countries, and 25 from other countries.  The contribution of non-Bahraini investors to the value of
shares traded was 17%, of which 14.4% were accounted for by GCC nationals.
Regulatory framework73. The By-Law of the BSE, issued in December 1998, lays down the rules and provisions
governing the listing and admission to trading of securities (stocks and shares of Bahraini joint-stock
companies) and bonds and bills issued by the Government or public institutions, or any other Bahraini
or non-Bahraini securities authorized to be traded by the Board of the BSE.  The BSE has also signed
cross-listing agreements with the Muscat Securiti es market (1995), Jordan Stock Exchange (1996),
Capital Market Authority of Egypt (1996);  a li nkage agreement with the Kuwait Stock Exchange
(1997);  and a tripartite agreement with the Kuwait and Muscat Stock Exchanges in 1996.
74. In order to list, companies require permission from the BSE.  One incentive for foreign
companies to list on the BSE is a reduction of the annual subscription fees paid by Bahraini
companies.  On the other hand, requirements for foreign companies requesting a listing on the BSE
are more restrictive than those for domestic compan ies, including the rule that the company should be
a joint-stock company listed in the country of its incorporation, or a closed company established atleast three years prior to submission of its application for listing (two years for Bahraini companies);
the paid up capital of the company should not be less than US$10 million (BD 500,000 or around
US$1.3 million for Bahraini companies);  and that the company should have had net profits from its
principal activities for three consecutive years preceding its application (two years for Bahraini
companies).  Other requirements for a foreign company are that its Memorandum and Articles ofAssociation or the laws of the country of its incorporation should not impose restrictions on the
transfer of its share ownership between investors;  and that it should assign a representative office in
Bahrain for the transfer of share ownership, distribution of dividends, financial reports, and other
related issues.  Foreign banks and foreign offshore companies wishing to list on the BSE must, in
addition, obtain authorization from the BMA.
75. Bahraini companies listed on the BSE that wish to list on foreign stock exchanges are
required to obtain the approval of the BSE before seeking a listing overseas.
76. There are no restrictions on investment options of major public investors operating in the
BSE.  However, irrespective of nationality, investor s, owning 5% or above of the shares of a listed
company must disclose their ownership to the BSE;  investors who own 10% or more of the shares of
                                                                                                                                                                    
35 Market makers are defined in the By-Law of the BSE, as natural persons or corporate bodies that are
licensed by the Board of Directors of the BSE, to deal on their own behalf on the exchange floor.  They do not
have the right to act for others.
36 Bahrain Stock Exchange (undated a).
37 The four foreign companies were all registered in other GCC countries.
38 Bahrain Stock Exchange (undated b).
39 Economist Intelligence Unit (1999).WT/TPR/S/74 Trade Policy Review
Page 72
a listed company must notify the BSE in writing prior to execution of any transaction, failing which,
the BSE may cancel the transaction;  the BSE may also disclose the name of any investor owning
10% or more of the shares of a listed company.  To own 20% or more in any listed company, the
investor must seek permission from the BSE, which may reject the request if it is deemed to have a
negative effect on the economy.  In order to own shares in a company under BMA supervision,
permission must be sought fr om both the BSE and the BMA.
77. Currently, there are 13 brokerages trading on the BSE, falling into two categories.  Those
classified as (A) are licensed to trade in securities of local, GCC, and international issuers registered
at the BSE, on behalf of their clients as well as for their own accounts.  They are also allowed to act as
custodians and offer advisory and research services.  Brokers classified as (B), a classification that
includes individual brokers, are only licensed to buy and sell securities on behalf of their clients.  Thecommission charged by brokers is negotiable.  To be eligible for membership of the BSE, these
companies must be registered with the Ministry of Commerce and be members of the Bahrain
Chamber of Commerce and Industry.  The minimum paid up capital requirements vary according to
the services provided.  Brokerage and market-making companies of Class (A) require a minimum paid
up capital of BD 350,000.  For Class (B) the requirements are BD 30,000 for limited liabilitycompanies (WLL), BD 200,000 for joint-stock companies and BD 100,000 for market makers.
40
78. In general, the holding company rather than it s subsidiary may list on the BSE.  However, in
the case of brokerage firms, the BSE may grant a licence to a subsidiary of a financial institution
incorporated to act as a brokerage company.  There is no monopoly on brokerage and market-making
services imposed by law or in practice.
79. The brokerage profession is no longer restricted to Bahraini joint-stock companies,
Bahraini-owned WLL companies, and Bahraini nationals;  approval may be granted by the BSE'sBoard of Directors to non-Bahrainis experienced in securities brokerage to work with licensed
brokerage or market-making companies.
41  Under Resolution 4 of 1999, permission may also be given
to foreign brokerage companies to undertake brokerage or market-making activities, provided that the
company has a distinguished record in the field of securities, is deemed to enhance the securities
market in Bahrain, and to add an international dimension to the brokerage profession in contributingto attracting foreign investors.
80. According to the By-Law of the BSE conditions of employment for brokerages and
market-making companies vary depending on whethe r ownership is Bahraini or non-Bahraini.  For
Bahraini companies, employees performing broker age and market-making functions must be Bahraini
nationals with educational qualifications of not less than secondary school or the equivalent, orsufficient relevant experience.  For foreign comp anies, branches of foreign companies, and exempt
companies, employees performing brokerage and market-making functions may be non-Bahraini with
an academic qualification of not less than a university degree or equivalent, or sufficient relevant
experience.
42  However, according to comments received from the authorities in the context of this
Review, the same conditions of acceptance for Bahrain individuals to be employed by listedbrokerage companies and for listing Bahrain brokerage firms shall be applied to non-Bahraini
brokerage firms seeking to list on the BSE, as well as to non-Bahraini individuals seeking to work
with listed brokerage firms.  As of January 2001, all brokers wishing to practice will be required to
obtain an "Investment Brokerage Services Representative Programme" Certificate, equivalent to the
Securities and Exchange Commission (SEC) Series 7 qualification requirement of U.S. brokers.  In
                                                     
40 Bahrain Stock Exchange (undated a).
41 Under amendments of certain provisions of the BSE's internal regulations relating to the Members of
the Exchange (Resolution No. 4, 1999).
42 The BSE By-Law.Bahrain WT/TPR/S/74
Page 73
addition, the company, its managers, partners, administrators or those who assume brokerage or
market-making functions, should not have been declared bankrupt in Bahrain or abroad.
81. Restrictions on ownership of a listed company's shares have been relaxed since 1999,
allowing GCC citizens to own up to 100% of the co mpany's shares rather than 49% as was previously
the case;  foreigners other than GCC citizens ma y own up to 49%, previously 24%.  Ownership above
49% for non-GCC nationals may be granted by the Ministry of Commerce by special resolution(Resolution No. 10 of 1999).  Previous conditions requiring foreign individuals to be resident in
Bahrain for one year in order to be eligible to acquire shares in a Bahraini company and to own a
maximum of 1% of a company's issued capital shares, were also lifted by Resolution No. 1 of 1999.
43
82. On the other hand, the founders of any listed company must own up to 10% of the
outstanding shares of a newly established company, failing which the company would not be eligiblefor incorporation.  Members of the board of directors and senior executives are not allowed to trade in
their company's shares before the announcement of any statements deemed to affect the price of
shares.  Neither are they allowed to buy or trade in their company's shares for 30 days before the end
of the fiscal year, nor before the financial results of the fiscal year are released.
(c) Insurance services
Structure
83. The insurance industry in Bahrain consists of 88 companies of which 69 are offshore and 19
are based in Bahrain.  Among these, there are four reinsurance companies, of which two conduct
business offshore and two are based in Bahrain.  In addition, other insurance-related services are
registered in Bahrain, including insurance brokers, insurance consultants, surveyors and loss adjusters,
representative offices, and actuaries.  All the offshore insurance companies are foreign owned.  Of the
onshore companies, ten are branches of foreign companies, and nine are Bahraini companies(Table IV.4).  Six of the nine have a large percentage of non-Bahraini participation.
44
Table IV.4
Insurance premiums, 1998
BD '000 and per cent
Life Fire Marine Motor MiscellaneousPer cent of
total
insurance
Bahrain companies 974 7,756 2,629 13,621 7,660 66.7
Bahrain National InsuranceCo.974 3,544 878 3,245 2,279 22.3
Bahrain Kuwait Insurance Co. 0 1,565 528 1,544 1,799 11.1
Al Ahlia Insurance Co. 0 688 166 738 1,626 6.6
United Insurance Co. 0 0 0 1,483 0 3.0
Takaful International
Insurance Co.0 304 97 1,573 119 4.3
Table IV.4 (cont'd)
                                                     
43 Bahrain Stock Exchange (1999).
44 Bahrain Kuwait Insurance Company, and Tekaful International are both 50% owned by Kuwaiti
shareholders;  Bahrain National Insurance Company is partly owned by Iraq;  Bahrain Norwich Union is 49%foreign owned (Bermuda);  Gulf Union Insurance has a mixed shareholding (61% Saudi Arabia, 21% Bahrainand 18% others);  and Arab Insurance Group is owned jointly by the governments of Kuwait, Libya and theUAE.WT/TPR/S/74 Trade Policy Review
Page 74
Life Fire Marine Motor MiscellaneousPer cent of
total
insurance
Bahrain Norwich InsuranceCo.0 757 751 1,873 1,471 9.9
Gulf Union Insurance &
Reinsurance Co.0 898 209 3,165 366 9.5
Foreign branches 9,850 1,505 461 3,897 612 33.3
American Life Insurance Co. 3,969 0 0 0 184 8.5
New India Insurance Co. 0 546 124 417 139 2.5
Arabia Insurance Co. 67 170 56 447 43 1.6
Iran Insurance Co. 0 75 12 1,758 21 3.8
General Acc. Fire and Life 0 242 68 304 61 1.4
Northern Assurance Co. 0 350 27 208 81 1.4
Guardian Royal Exchange.
Insurance Co.0 76 70 245 38 0.9
Al-Nsir Insurance Co. 0 41 5 261 35 0.7
Royal Exchange Insurance Co. 0 5 99 257 10 0.8
Eagle Star International Life
Limited5,814 0 0 0 0 1.2
Total 10,824 9,261 3,090 17,518 8,272 100.0
Note: The table refers only to companies based in Bahrain;  data on companies practising only reinsurance are also excluded.
Source: Data provided by the authorities.
84. Insurance companies operating in Bahrain (including domestic and branches of foreign
companies) deal with general (motor, fire, marine and other) and life insurance.  Offshore companies
conduct transactions outside the country with a total annual turnover of over US$1 billion.  Most of
them deal with all insurance classes, and a few are specialized in health insurance, insurance
consultations, life insurance, and insurance brokering.  Local insurance and reinsurance companies(Bahraini and foreign branches) employ 862 persons, of which 54% are Bahraini citizens.
85. The total assets of Bahraini insurance companies grew at an average annual rate of around
8.5% between 1994 and 1998.  Bahrain's insurance industry (Bahraini companies and branches of
foreign companies operating in Bahrain) earned around BD 48.9 million in premiums in 1998,
growing by 9.5%, from the BD 44.4 million registered in 1997.  Growth in life insurance was higher
than in other insurance classes:  the level of life insurance premiums increased by 26.6% (from
BD 8.6 million in 1997) to BD 10.8 million in 1998, or about 22% of total premiums underwritten in
the market.  For general insurance, premiums grew  by 5.2% to BD 38.1 million in 1998 (77.9% of the
total) from BD 36.2 million in 1997.  For reinsurance, The Arab Insurance Group's assets totalled
BD 574.6 million in 1998, a growth of about 70% since 1996;  the assets of its subsidiary, ARIG Re,were BD 281 million.
45  Premiums of ARIG Re were BD 59 million in 1998.
86. The life insurance market is concentrated in  the hands of three foreign companies which
account for 91% of all premiums, and one Bahraini company.  These companies are Eagle Star
International Limited, with 53.7% of the market, American Life Insurance Company (36.7%), Arabia
Insurance Company (0.6%) and Bahrain National Insu rance Company (9%).  Given that only a small
portion of the population (1.5%) had contracted life insurance policies in 1998, the sector has an
important growth potential.  General insurance is concentrated in the Bahraini companies, with the
majority accounted for by the Bahrain National Insurance Company.
                                                     
45 Both the Arab Insurance Group and its subsidiary, ARIG Re, are based in Bahrain.Bahrain WT/TPR/S/74
Page 75
87. By law, monopolies are not allowed in the sector.  However in practice, the United Insurance
Company has exclusive rights over international vehicular traffic crossing the Causeway connecting
Bahrain and Saudi Arabia.
Regulatory framework
88. The insurance sector is regulated and supervised by the Ministry of Commerce (Insurance
Section), under Legislative Decree No. 3 of 1987, with respect to compulsory insurance for civilliability arising from traffic accidents;  Legislativ e Decree No. 17 of 1987, with respect to insurance
companies and organizations;  and Implementing Regulations No. 6 of 1990.  A new insurance law
was expected to be enacted in the year 2000;  according to the authorities this law is in the final stages
of being approved and will include, inter alia,  higher capital requirements and the introduction of
solvency margins.
89. Insurance companies and organizations covere d by the current Insurance Law (Legislative
Decree No. 17 of 1987) are Bahraini insurance a nd reinsurance companies; branches of foreign
insurance companies in Bahrain, exempt (offshore)  joint-stock insurance and reinsurance companies,
any other insurance organization, representative offices of foreign insurance companies, and the
Vehicle Insurance Fund (this Fund, according to the authorities, has been wound up).  The Bahrain
Islamic Insurance Company
46 operates under the Sharia (Islamic Law) and applies the concept of
Islamic cooperative insurance.  Classes of insurance operations defined by law are:  life insurance;
savings and fund accumulation insurance;  fire insurance;  insurance against land, river, sea, and air
transport hazards;  insurance against accidents and liabilities;  motor insurance;  reinsurance
operations;  and other insurance.  According to the auth orities, direct insurers must take the form of a
joint-stock company, in which foreign ownership of up to 49% of total equity is permitted.47  A n
indirect insurance company may be in the form of a limited liability (WLL) company, with amaximum of 49% foreign equity ownership.  Offsho re companies in all branches of insurance, and
foreign branches of insurance companies, may be 100% foreign owned.  Certain national management
requirements are established by law, and include a "fit and proper test" as well as physical presence in
Bahrain.  Applications by reinsurance companies for licences must demonstrate technical viability,
and include details of the proposed reinsurance programme.
90. With the exception of the GCC, companies from different trading partners are treated equally.
Minimum paid-up capital requirements, under the Law are not less than BD 500,000 for Bahraini
joint-stock companies (public and closed);  and BD 1 million for Bahraini reinsurance joint-stock
companies
48;  according to the authorities, minimum capital requirements for offshore insurance
companies are BD 100,000 for direct insurers, BD  20,000 for "insurance services (offshore)", and
BD 10,000 for "insurance services (onshore)".  The authorities retain the right to require higher
capitalization.  Insurance companies are required to set aside 10% of their annual net profits in a
Compulsory Reserve Fund until the amount reaches 100% of the capital.  Cash deposits must be made
in one of six national banks listed in the law49, to the amount of BD 50,000 for life insurance,
BD 25,000 for general insurance (increased by BD 10,000 for each class of insurance up to a
                                                     
46 Shareholders include the Bahrain Islamic Bank, the Bahrain Islamic Investment Company, the
Orphans Fund at the Ministry of Justice, and prominent Bahraini nationals (Bahrain Monetary Agency, 1994).
47 Legislative Decree No. 17 of 1987 limited the ope ration of insurance services provided in its
Article 4 (and listed previously) only to firms established as a Bahraini joint-stock company.  This provision
was not applicable to companies engaged in insurance activities and already existing in Bahrain before this date.
48 Article 9 of Implementing Regulations of Legislative Decree No. 17 of 1987 with respect to
Insurance Companies and Organizations.
49 National Bank of Bahrain;  Bank of Bahrain and Kuwait;  Al Ahli Commercial Bank;  Bahrain
Islamic Bank;  Bahrain Saudi Bank;  Grindlays Bahrain Bank.WT/TPR/S/74 Trade Policy Review
Page 76
maximum of BD 75,000), and BD 150,000 for reinsurance.  Long-term business assets must be
maintained separately, and each branch of insurance must be accounted for and reported separately.
Currently there are no prudential requirements for maintaining reserves in specified local assets,
composition of portfolio, or maximum exposures to specified risks, but the new draft insurance law
defines specific solvency margins for insurance co mpanies and provides for an investment policy.
91. The situation in the insurance sector is more liberal than reflected in Bahrain's commitment to
the GATS.  Under GATS, no limitations were placed on market access and national treatment for all
offshore insurance and insurance-related services .  However, for local insurance services, only
reinsurance and retrocession services are included in the list of commitments.  The presence of natural
persons is unbound for all insurance services.
(iv) Telecommunications
Structure
92. At end 1999, Bahrain had 165,400 operational fixed lines (25 lines per 100 inhabitants), up
from 135,853 lines in 1994, (24.3 per 100 inhabitants) (Table IV.5);  the fixed line average waiting
time is five days.  The density of fixed line services is not expected to grow substantially, due to the
small population, for which there is already one fixed line per household.50  In contrast, the mobile
telephone service network has expanded considerably since 1994, with the number of subscribers
increasing at an average rate of 50% per year between 1994 and 1999.  In 1999, there were 133,500
mobile subscriptions corresponding to 20 subscribers per 100 inhabitants, up from 17,616 in 1994,
(3.14 per 100 inhabitant).  It is expected that mobile subscriptions will increase to 230,000 lines by
2001.  The network for both fixed and cellular networks is entirely digital.
93. Paging services subscribers have also grown, from 55,524 in 1994 to 84,700 in 1999
(Table IV.5).  In 1999, there were 15,200 subscribers for internet services51, a growth of 22% over
1998, achieving a penetration rate of two per 100 inhabitants.
Table IV.5
Main indicators in the Telecommunications Sector, 1994-99
(Units and US$)
1994 1995 1996 1997 1998 1999
Operational fixed lines 135,853 140,850 144,391 152,303 157,619 165,400
Per 100 inhabitants 24.3 24.2 24.1 24.6 24.5 25
Capacity 150,540 160,224 169,547 175,000 198,000 210,000
Mobile subscribers 17,616 27,600 40,080 58,543 92,063 133,500
Per 100 inhabitants 3.14 4.75 6.7 9.4 14.3 20
No. of payphones 878 996 1,101 1,321 1,589 1,840a
Paging subscribers 55,524 61,016 65,934 70,629 74,000 84,700a
Cable TV subscribers .. .. 4,000 4,500 .. ..
Fixed line services (US$)
Connection charge .. .. .. .. 53.0 53.05
Monthly subscription charge
R e s i d e n t i a l . .. .. .. . 3 . 1 3 . 1
Business .. .. .. .. 5.7 5.8
Table IV.5 (cont'd)
                                                     
50 World Markets Research Centre (1999).
51 Bahrain Telecommunications Company (1999).Bahrain WT/TPR/S/74
Page 77
1994 1995 1996 1997 1998 1999
Local call chargeb.. .. .. .. 0.05 ..
Mobile telephone services (US$)
Connection charge .. .. .. .. .. 92
Monthly subscription charge .. .. .. .. .. 26.32
Call chargeb
Peak .. .. .. .. .. 0.12
Off-peak .. .. .. .. .. 0.08
Revenue (US$ million)c229.2 242.7 264.2 294.9 336.8 ..
(as % of GDP)c(4.31) (4.42) (4.55) (4.84) (5.26) ..
Investment (US$ million)c48.6 48.6 61.1 53 71 119
.. Not available.
aE x p e c t e d .
bP e r  m i n u t e .
c Batelco.
Source: World Markets Research Centre (1999);  and International Telecommunications Union (1999).
94. Other new services were introduced during 1998/99, including a pre-paid card service for
fixed telephony (around 1.5 million cards were sold in 1999);  prepaid mobile telephone service (over
44,100 SIM card sold in 1999);  Inet 900 service;  a dial up internet service for which users do nothave to pay monthly rental charges;  a pre-paid internet service, and, since September 1999, an online
real-time e-commerce service, the "@Itijara.com".  Investment has recently focused on the
development of a high-tech network capable of supporting wireless, multimedia, and data services.
95. The Bahrain Telecommunications Company (Bat elco) has a monopoly over the provision of
basic telecommunication services and most value-added services, including internet services inBahrain;  the exceptions are VSAT and audio-te xt services, which may be provided by private
companies.  Batelco became a Bahraini Shareholding Company (BSC), listing on the Bahrain Stock
Exchange (BSE) in 1981;  its shareholders in clude the Government, which owns 37% of the
company's shares, government agencies, and Cable and Wireless, each holding 20% of the shares.
52
In addition to fixed line services Batelco has provided mobile telecommunication and internet services
since 1995, through its "sub-brands" Mobileplus and Inet, respectively.  According to the authorities,
although Batelco does not face competition within Bahrain, it remains competitive at the regional
level with low connection and telephone charges (Table IV.5).  Investment by Batelco in the
telecommunications sector has been significant, increasing from under US$50 million to almost
US$120 million between 1994 and 1999.  Batelco was also the first telecommunications company in
the Middle East region to be awarded ISO 9002 accreditation (in 1996), in recognition of its high
quality standards.53  Although the authorities believe that telecommunications service charges should
be cost based, they acknowledge a degree of cross-subsidization by Batelco between local and
international charges.  Batelco is currently in the process of drafting a costing model based on
standards developed by the International Telecommunications Union.
                                                     
52 The company is also one of the major employers of Bahrainis;  of a total workforce of 2,122 at end
December 1999, 94% were Bahrainis (The Bahrain Telecommunications Company, 1999).
53 World Markets Research Centre (1999).WT/TPR/S/74 Trade Policy Review
Page 78
Policy framework
96. There is no overall telecommunications law governing the sector54;  The only legal references
are Legislative Decree No. 18 of 1981, which establishes Batelco as a shareholding company;  the
Memorandum and Articles of Association of this shareholding;  and Resolution No. 1 of 1997,
prohibiting call-back services.  There are also no specific laws relating to other issues such as
licensing, numbering plans, tariffs, technical standards, interconnection rates, and service qualitymonitoring.
55  The Ministry of Transportation is the telecommunications policy maker and the
Telecommunications Directorate, within the same Mini stry, is the regulator.  The latter was created in
1996, and reports to the Minister of Transportation.  The Telecommunications Directorate also
establishes licence fees and type approves equipment.  Frequency allocation is regulated by the
Ministry of Cabinet Affairs and Information on a limited basis.  The Universal Service obligationappears not to be applied.
97. The Government's strategy has been to give a large degree of freedom to Batelco to develop
Bahrain's telecommunications network.  Batelco is, however, responsible to the Telecommunications
Directorate for the overall direction of policy.  In addition, the Directorate keeps close contact with
Batelco's activities, meeting regularly with Batelco in a Coordination Committee to discuss plans forthe development of the sector.  Among subjects discussed recently by the Committee are the
establishment of a Telecommunications Act, universal service requirements, and tariff regulation.
Batelco must also submit any proposed charges for telecommunications services for approval by the
Ministry of Transportation before they are presented to its board of directors.  In addition, the
Directorate provides advice to the company regarding the provision of new services.  The Ministry
has a significant presence in Batelco's management;  the Minister of Transportation is the Chairman of
Batelco's Board of Directors and of its Execut ive Committee;  four members of the Government
including the Director of the Telecommunications Di rectorate are also on Batelco's Board of Directors
and on its Executive Committee.  According to the authorities, this is to look after the national and
public interests of Bahrain.  This arrangement also suggests no genuine separation of regulatory
powers from operational responsibilities in Bahrain.
56
98. The use of leased line or private networks, except for voice services, is allowed;  third-party
resale and connection of leased line or private networks to the Public Switched Telecommunication
Network (PSTN) are not allowed.  Telecommunicati on operators are not allowed to provide cable
television services57, which are provided by the Ministry of Transportation.  The supply of VSAT
services must be authorized by the Ministry of Transportation.  Recently, the supply of audio-text
services (value-added services) was opened up to a limited number of suppliers on a case-by-casebasis.  The authorization process for audio-text services requires details including the service to be
provided, size of the business, and justification of the need to introduce the service to the market.
There are no plans to license private or foreign operators to provide basic telecommunications
services, or to open any other telecommunications services to competition.
99. Unlike telecommunications services, competition has been allowed in the market for
telecommunications equipment supply and installation since 1994.  Since then, demand for high-tech
products has risen, due to Batelco's investment strategy and to consumer demand for communications
devices.  Major international suppliers of equipment include Siemens (switch and base stations for
GSM, and GSM subscriber capacity expansion pr oject), Ericsson (cellular phone and GSM network
equipment), 3 Com (internet infrastructure), Marconi (SDH transmission equipment), and Harris
                                                     
54International Telecommunications Union (1998).
55 International Telecommunications Union (1998).
56 World Markets Research Centre (1999).
57 International Telecommunications Union (1998).Bahrain WT/TPR/S/74
Page 79
Corporation (management systems).  The supply of equipment for mobile satellite services must be
authorized by the Ministry of Transportation.  The supply of internet service equipment is allowed as
long as the providers are licensed under Bahrain's commercial registration procedures.  Although the
Ministry of Transportation does not test telecommunications equipment, it does type approve the
equipment, a list of which is provided to suppliers and to the Customs Authorities.  According to the
authorities, new regulations in 1993 allowed licensed suppliers to install and commission PABX'sof up to 2,000 lines, previously restricted to 100 lines.
100. Bahrain did not participate in the negotiations on Basic Telecommunications Services, but,
according to the authorities, Bahrain is considering making GATS commitments in this sector.
101. The Government of Bahrain is of the view that continuous development in the
telecommunications sector is essential for Bahrain to preserve and promote its position as a majorfinancial market in the region.  So far, the lack of competition does not appear to have restricted the
development of the communications network.  Grow th in the domestic market is expected to be
driven by demand for advanced, value-added, and data services over the medium to long term, given
that the market for fixed line and even mobile subscriptions is reaching saturation in Bahrain;
Batelco's well developed infrastructure and profitability at a relatively low tariff, and the smallpopulation, indicate that there may be no room for a cellular or fixed line competitor.
58  For this
reason, no liberalization is expected in the near future.  If liberalization were to occur, private sector
involvement would likely be limited to some value-added services and to niche service providers, due
to government policy, which favours limiting the supply of telecommunication services to one
provider, and the relatively small market.
(v) Transport
102. Due to its strategic geographic location, transport plays a major role in the economy of
Bahrain.  Transport, including air, maritime, and road transport, together with communications,
accounted for some 8.3% of Bahrain's GDP in 1998.
103. Transport services were not included in Bahrain's schedule of commitments to the GATS.
(a) Air transport
104. In 1999, Bahrain International Airport handled around 3.4 million passengers, down slightly
since 1995, giving an average annual growth rate of 0.1% for 1995-99.  Air cargo handled reached
126,562 tonnes, or an average annual growth rate of 4.9% since 1995.  Total aircraft movements were
54,763 in 1999, down by 2.5% on the previous year (Table IV.6).  Bahrain has air links with 72
destinations, the top ten among them accounting for 62% of all passengers handled.  Gulf Air, based
in Bahrain, accounts for the highest share of passenger traffic to all destinations, averaging 67% of thetotal in 1998.  According to the authorities, Bahrain International Airport can handle up to ten million
passengers a year, although it is currently using only about one third of its capacity.  During the
1999/2000 winter schedule, 34 scheduled airlines, including six cargo/courier carriers, operated to
Bahrain.
59
105. The performance of the air transport sector has been linked closely to that of Gulf Air.  Since
1995, the carrier has gone through retrenchment  and downsizing, following intense regional
competition from new national carriers established in its shareholding States, including Qatar Airways
and Oman Air;  as a result, growth in the sector has been limited.  The Government's reaction has
                                                     
58 World Markets Research Centre (1999).
59 Ministry of Transportation (undated).WT/TPR/S/74 Trade Policy Review
Page 80
been to encourage new foreign operators to serve Bahrain through various incentives including fifth
freedom operations60, in areas of demonstrated market demand and inadequate capacity, while
continuing to support Gulf Air through negotiated bilateral agreements.
Table IV.6
Air transport services, 1995-99
1995 1996 1997 1998 1999
Passengers ('000) 3,431 3,407 3,446 3,435 3,417
Arrivals 1,428 1,408 1,447 1,494 1,471
Departures 1,442 1,414 1,455 1,473 1,456
Transit 561 585 543 467 490
Cargo services (tonnes) 104,371 115,997 116,586 125,514 126,562
Discharged 61,591 68,242 68,078 72,928 74,737
Loaded 42,780 47,755 48,508 52,586 51,825
Aircraft movement 53,831 56,749 54,314 56,169 54,763
Passenger flights 35,870 35,030 32,470 31,496 31,126
Freight flights 3,190 4,458 4,210 5,030 5,554
Others 14,771 17,261 17,634 19,643 18,083
Source: Data provided by the authorities.
106. The Ministry of Transportation, represented by, the Department of Civil Aviation Affairs
(CAA), is the supervisory authority;  the CAA is also responsible for all regulatory mattersconcerning civil aviation, the provision and management of air traffic services, meteorology, and the
management of all air transport related services at Bahrain International Airport.  The CAA is headed
by the Under-Secretary for Civil Aviation who repo rts directly to the Minister of Transportation.
Regulation in the sector is governed by the Civil Aviation Law enacted under Amiri Decree No. 6 of
1995;  and Regulations enacted under Resolution No. 2 of 1997 to issue Air Navigation TechnicalRegulations, and Ministerial Decree No. 1 of 1999, on Sales and Marketing of Air Transport Products
and Services in accordance with the GATS.
107. Air transport and related services have been developed in line with Bahrain's policy objectives
of economic growth and diversification.  The authorities believe that Bahrain's air transport policy
encourages new operators to enter the market, including through measures such as liberalization ofmarket access, freedom of pricing, and determination of frequency and capacity by market demand
but in a controlled manner.  In addition to the recently enacted Civil Aviation Law and Regulations,
61 bilateral air transport agreements, signed with different countries, and temporary operating permits,
have allowed this expansion.  However, the Government has not considered binding its policy through
undertaking commitments in the GATS.
108. Airlines operating in Bahrain require approval from the CAA either under the provisions of
an air transport services agreement or through a temporary operating permit.  Key parameters coveredby bilateral air transport agreements are reciprocity of capacity and frequency.  Airlines are free to set
prices and agree on capacity under commercial agreements, in line with the bilateral agreement signed
with their country of origin.  Approvals for cargo operations, including prices, do not, in general,
appear to be restricted;  prices must be submitted to the authorities for information purposes.
According to the authorities, there are, in principl e, no objections to allowing new entrants into the
market.
                                                     
60 Fifth freedom is defined as the right granted by one State to another to put down and take on, in the
territory of the first State, traffic coming from or destined to a third State.Bahrain WT/TPR/S/74
Page 81
109. Bahrain does not have a national air carrier as such.  Gulf Air is jointly owned with the State
of Qatar, the Emirate of Abu Dhabi and the Sultanate of Oman, and is headquartered in Muharraq,
Bahrain.  The State of Bahrain owns 25% of Gulf Air and discussions to privatize part of it have taken
place, although there are no plans to do so in the immediate future.  The only other airline established
in Bahrain is DHL International E.C., a private, majority foreign-owned, courier and cargo operator,
set up as an Exempt Company with a local partner (Chapter III(4)(i)).  No tax incentives are providedfor either airline as no taxes are applied to the sector in general.
110. There are no government subsidies or guarantees provided to Gulf Air;  however exclusive
access to some routes is granted under the terms of its charter.  In the context of this review, the
authorities stated that Gulf Air's Charter had recently been amended so that the carrier no longer had
exclusive access to any routes.  Government employees travelling on duty or on leave paid by theGovernment are directed to use Gulf Air's services whenever possible.  Local purchase orders are,
under the directions of the Ministry of Finance and National Economy, limited to Gulf Air;  however,
some discretion is allowed for the use of alternative carriers.  There are no restrictions or incentives
placed on Gulf Air to purchase aircraft or equipment from particular sources, and the Government
actively encourages Gulf Air to cooperate with other carriers, in particular from other GCC countries;agreements between carriers are made on a commercial basis.
111. According to the authorities, Bahrain adopts a mu ltiple designation approach in its bilateral
negotiations, which allows more than once carrier from a State to operate the permitted services;
benefits including special rebates, discounts, and incentives for landing, take-off, and parking charges
are provided to all airlines on a case-by-case basis, based on airline performance;  further details on
these charges and rebates are not available.  Some classes of aircraft are exempt by law from payment
of these charges, and include aircraft of the State of Bahrain, of the United Nations and its agencies,the League of Arab States and its agencies, aircraft used without remuneration, and any other aircraft
that may be exempted by the CAA.
61
112. There is no specific slot-allocation system in operation at Bahrain International Airport.
Airlines submit proposed schedules on a seasonal basis and these are allocated by the CAA following
discussions with the relevant authorities, including Gulf Air, through an Airport SchedulingCommittee.  There is no difference in slot allocation between peak and off-peak hours;  however
"grandfather" rights are respected.  Schedule clashes at peak periods are resolved by mutual
agreement between the airline concerned and the CAA to facilitate handling and customer
convenience.
113. Bahrain International Airport is government owned, and managed by a directorate under the
CAA, which is also responsible for the airport's fire services.  A private company, Bahrain Airport
Services, established in 1978 and operating since 1996 under a new 25-year sole right franchise
agreement, carries out ground, cargo, and mail handling and in-flight catering, and operates catering
facilities in the terminal.  Airlines may handle some or all of these services themselves:  DHL
currently does.  The authorities are not considering allowing a second handling agent into the market.
Other facilities include fuel services, which are provided by the Bahrain Airport Fuelling Company,
on behalf of its three shareholders, BAPCO, Calte x, and Air BP;  and duty-free facilities, which are
provided by the Bahrain Duty Free company under a franchise agreement.
                                                     
61 Ministry of Transportation, Civil Aviation Affairs, Civil Aviation Law, (Article 119).WT/TPR/S/74 Trade Policy Review
Page 82
(b) Maritime transport and port services62
Maritime transport
114. Bahrain's merchant fleet is relatively small.  As of December 1999, there were 780 vessels
with a dead-weight tonnage of 365,363 (Table IV.7).  The volume of maritime transport has increased
since 1995 with total cargo handled rising from 1,539 tonnes to 2,540 tonnes in 1999.  An average
2.5 million tonnes of containerized and conventional cargo is handled at Bahrain's main port, MinaSalman every year.  There were approximately 5,000 vessel movements in Bahrain in 1999.
Table IV.7
Shipping and maritime transport services, 1995-99
1995 1996 1997 1998 1999
Vessel movements 8,342 8,306 4,500 4,800 5,000
Passenger arrivals 2,000 2,000 991 .. 1,035
Passenger departures 2,000 2,000 881 .. 1,122
Freight unloaded ('000 tonnes) 1,535 1,558 1,694 1,886 1,765
Freight loaded ('000 tonnes) 4 781 798 792 776
Number of ships .. 832 892 1,197 780
Total merchant fleet (dwt)a223, 000 223,000 222,000 276,725 365,363
Oil tankers .. .. .. 98,512 97,002
Bulk carriers .. .. .. 44,110 44,110
General cargo .. .. .. 98,348 98,302
Container ships .. .. .. .. 98,848
Other .. .. .. 35,755 26,101
.. Not available.
a Data For 1995-97 are from the Statistical Abstract of the ESCWA;  data for 1998 and 1999 are from the UNCTAD Review of
Maritime Transport.
Source: United Nations, Statistical Abstract of the Economic and Social Commission for Western Asia  (ESCWA), 1998;
UNCTAD, Review of Maritime Transport,  1998 and 1999;  and data provided by the authorities.
115. The maritime transport sector is overseen by the Directorate General of Ports, in the Ministry
of Finance and National Economy.  The Ministry establishes the overall policy for the sector, while
the Directorate General of Ports is responsible for the regulation of ports and shipping services,management and operation of container and cargo terminals, and commercial and other activities.
Maritime safety policy is established by the Directorate General of Ports and implemented by the Port
Maritime Safety and Environment Protection Section in the same Directorate.  As a member of the
International Maritime Organization (IMO) sinc e 1976, the Directorate General of Ports applies
international safety conventions and regulations with the assistance of classification societies, which
are members of the International Association of Classification Societies (IACS).
63
116. Legislation regulating the sector includes the Bahrain Maritime Code, promulgated by
Legislative Decree No. 23 of 1982;  the GCC Rules and Regulations for Seaports, of March 1985;
and Decree No. 20 of 1979 in respect of small vessel registration and safety requirements.
                                                     
62 Unless otherwise indicated this section is based mainly on information provided by the authorities.
63 More than 90% of the world's merchant tonnage (over 400 million grt) is classed by the ten members
and three associations of the IACS to ensure that international safety standards are met (InternationalAssociation of Classification Societies, Classification and IACS,  undated).Bahrain WT/TPR/S/74
Page 83
117. Maritime transport services may be provided by the private sector (foreign and Bahraini).
Foreign companies wishing to provide shipping and transport services for passengers must obtain
approval from the Directorate General of Ports.
118. A small number of shipping companies operate in Bahrain.  The United Arab Shipping
Company, a semi-private company with 5% of shares owned by the Government, deals with cargo
services.  A few others deal with the shipping of construction materials.
119. Freight and passenger transport charges are not regulated under Bahraini legislation.  There is
no obligation for government cargo to be carried by state-owned shipping companies;  however, the
Government appears to favour the United Arab Shipping Company for the carriage of government
cargo.64  Shipments to Bahrain must be carried on ships that are permitted entry into Bahraini waters
(including flag/ownership, age of vessel) and may not enter certain specified ports en route.
120. According to the authorities, the only conditions associated with flying the Bahraini flag are
registration and certification.  Any ship may acquire Bahraini nationality if it is registered at any port
in the State of Bahrain, and if the owner or owners are Bahraini nationals;  in the case of a
corporation, it must have Bahraini nationality.  The Minister for Finance and National Economy may,
with the consent of the Council of Ministers, award Bahraini nationality to ships owned by foreigners,
with the proviso that they register at a Bahraini port.65  According to the authorities, there are no
incentives for flying the Bahraini flag.  The authorities stated that cabotage is not regulated, as
Bahrain does not have coastal trade;  however, under Article 4 of the Maritime Code, coastal
navigation, fishing, towing and pilotage in territorial waters as well as navigation between
Bahraini ports is permitted exclusively for ships flying the Bahraini flag.  International and national
safety measures must be maintained.  Multimodal transport is encouraged and regulated through
national laws.
121. No special government funding is available to the maritime sector although the Ministry of
Finance and National Economy holds a general reserve to be used only in the case of an emergency.
Key personnel, maritime engineers, and the number of crew members employed on ships and the
qualifications they must fulfil are defined by the applicable laws, regulations, international
conventions and by the customs authorities although, according to the authorities, there are a smallnumber of exceptions.
66  Details of any restrictions on nationality of crew and key personnel
employed on ships or by shipping companies are not available.
122. Bahrain has not included the maritime transport sector in its schedule of specific
commitments in the GATS although the sector appears to be relatively liberalized.
Port services123. Bahrain's main port is Mina Salman, on the island of Bahrain, which is owned and managed
by the Government.  It was opened in 1962 and has been expanded several times.  Activities carried
out in Mina Salman include general cargo operations, container terminal facilities and long-term
storage and distribution facilities.
67  The port of Sitra mainly handles crude and refined petroleum
freight.  A dry dock on the southern end of the island of Muharraq handles ships repairs.  Bahrain hasbecome a regional ship repair centre, with the establishment of the Arab Shipbuilding and Repair
                                                     
64 Dun and Bradstreet (1999).
65 Ministry of Finance and National Economy (undated a), Article 2.
66 Ministry of Finance and National Economy (undated a), Article 94.
67 Ministry of Finance and National Economy (undated b).WT/TPR/S/74 Trade Policy Review
Page 84
Yard (ASRY), owned by some members of the Or ganisation of Arab Petroleum Exporting Countries
(OAPEC), and the privately owned Bahrain Sh ip Repair & Engineering Company (BASREC).68
124. Although port ownership and management is st ill restricted to the Government, some port
activities, such as stevedoring, have been gradually privatized since 1974;  according to the
authorities, it is expected that most port activities will be transferred to the private sector by 2005.
Further details on activities currently carried out by the private sector and future privatization plans inthe sector are not available.  The Government is also considering some degree of involvement by the
private sector in the ownership of ports and in their operation.
125. A new port is currently under construction at South Hidd, which would be situated across the
water from the Mina Salman port.  By investing in port facilities, the Government intends to develop
Bahrain into a regional distribution centre.  The new port would increase cargo facilities – theMina Salman port was reaching capacity – and improve access to other markets in the region.  The
Government also expects this to boost foreign investment as investors would be seeking a central
location from which to serve markets in the region.
69
126. The new port is equipped with modern facilities and the authorities stress the importance of
organizational and operational methods to ensure its competitiveness.  However, while theyunderstand that the general trend is towards the privatization of ports, and that there will be
competition from other ports in the region, the authorities believe that efficiency may be best
maintained through a joint venture between the Government and the private sector.  Their strategy is
to link commercialization between the public and private sectors by creating an autonomous port
authority, which would focus on regional shipping links and develop a "suitable business
environment" for maritime services.
(vi) Tourism
70
127. According to data provided by the authorities, Bahrain's tourism sector contributed about
9.2% of GDP, and provided employment for 16.7% of the labour force in 1999.  These shares and the
number of visitors to the country are expected to increase as several projects, mainly tourist resorts
and shopping complexes, have recently been approved.  Tourism activities grew very rapidly during
1990-92, increasing at an annual average of 12%, but declined over the subsequent three years beforerebounding to 4% growth in 1996.  The completion of the King Fahd Causeway in November 1986,
connecting Bahrain to Saudi Arabia, was a major boost to the industry;  tourist arrivals increased from
around 95,000 in 1986 to 170,000 and 1.7 million in 1987 and 1998, respectively.  Around 3.3 million
tourists visited Bahrain in 1999.
71  It is estimated that around 75% of tourist arrivals to Bahrain use
the Causeway.  These tourists are predominantly from GCC countries (around 82% of total arrivals).Around 25% spend, on average, 2.7 nights in classified hotels;  43% spend an average five days in
apartment hotels or with friends and relatives;  and the remaining 32% are one-day visitors.
72
128. The key tourist attractions in Bahrain include historical and cultural sites, water sports,
pearl-diving expeditions, and scuba-diving.  In addition, Bahrain has a well developed infrastructure
including high standard hotel accommodation, consis ting of 74 classified hotels and 16 apartment
hotel buildings, with a total of 9,074 beds in 1999, as well as a range of entertainment.
                                                     
68 Ministry of Finance and National Economy (undated c).
69 Ministry of Finance and National Economy (undated c).
70 Unless otherwise indicated, this section is based mainly on information provided by the authorities.
71 Around 10% of these are estimated to be expatriates returning to Bahrain.
72 Classified hotels are hotels rated between one and five stars.Bahrain WT/TPR/S/74
Page 85
129. Tourism Affairs, in the Ministry of Cabinet Affairs and Information, supervises tourism
activities and implements all tourism-related regulations approved by the Supreme Council of
Tourism.  The Supreme Council of Tourism, established by Amiri Decree in 1985, is chaired by the
Minister of Cabinet Affairs and Information, and includes representatives from different ministries,
the Bahrain Chamber of Commerce and Industry, and the hotel and travel industry.  A Tourism Law,
enacted by Amiri Decree No. 15 of 1986, transferred responsibility for licensing touristestablishments from the Ministry of Commerce to the Ministry of Cabinet Affairs and Information,
and established a framework for all tourism activities in Bahrain.  All tourism facilities and activities
must be licensed by Tourism Affairs prior to completing commercial registration procedures with the
Ministry of Commerce (Chapter III(4)(i)).  According to the authorities, there is currently a
moratorium on new licences for one, two, and three star hotels;  licences are generally granted for fourand five star hotels only if the projects proposed offer new attractions not available in hotels of similar
categories.
130. The authorities have intensified efforts in recent years to promote tourism and to diversify
tourist activities.  While general government policy is to encourage tourism projects that preserve the
culture of the country and allow Bahrainis to participate, it has also concentrated on specializedtourism, such as sports activities, conference-related tourism, and promotion of up-scale shopping
centres.  Large-scale tourism is not encouraged except for visitors coming from similar cultures.
According to the authorities, Bahrain's mass tour ism is mainly from neighbouring GCC countries that
share similar customs, traditions, and language, and hence do not have a negative effect on Bahrain's
local culture.  Mass tourism to Bahrain from outside the region is not discouraged but at the same
time, is not targeted.  The objective is to attract tourists with high levels of expenditure and to increase
the average stay, rather than the number of arrivals.  The culture and history of Bahrain are also usedto promote tourism.  The Government has spent significant funds on restoring historical sites, and
intends to focus on marketing them.  To facilitate tourism, the visa application process has been eased.
131. More than 90% of investment in the industry has been by the private sector and, according to
the authorities, foreign participation represents 15% of  the total.  In general, the Government restricts
its activities to the provision of infrastructure rather than investment in projects that may competewith the private sector, although it may partner the private sector when requested.  Foreign investors
may, subject to the Companies Law, own up to 100% of total equity (Chapters III(4)(i) and II(5)(ii)).
132. In general there are no taxes on tourism activities;  however, a 5% government levy is added
to all hotel bills;  the revenue is used to promote tourism in Bahrain and to develop supporting
infrastructure for the industry.
133. Despite considerable liberalization in the sector and an active policy to expand tourism,
Bahrain made no commitments in tourism services in the GATS.Bahrain WT/TPR/S/74
Page 87
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