Legal Perspective of Contract Principles in Oman - Literature review Example

? Legal Environment Table of Contents Table of Contents 2 Part 3 Part 2 4 Part 3 7 Part In this paper the researcher will try to understand legalperspective of contract principles in Oman. Various researchers have tried to understand the importance of a legal entity in a country like Oman and the country has amended it over the course of time in regular interval. Well, finding the answer is not a small task because multitude of macro environmental pressure has forced the country to amend its law in regular interval. However, in the small scope of this essay, the researcher will try to find the reasons from business perspective. For example, Sadah (2010) has pointed out those countries like Oman lacks in proper legal framework which can not only protect domestic players but also attract foreign investors. Hence, it can be said that providing a stable legal framework to domestic and foreign companies is related to Oman’s growth and prosperity. McConnaughay (2001) has defined law as a structure and combination of principles which provide guidance to companies on how to do business and also takes care of the interest of investors. In Oman, Commercial Companies Law under the Royal Decree No. 4/1974 takes care of most of the business entities such as Joint-stock Companies, Limited Liability Companies (LLC), joint venture between partners etc (Morison Muscat, 2010). However, such an old prescription is not helpful for Oman to solve the entire pertinent and current day business problem. For example, the age old Royal Decree No. 4/1974 is not helpful to guide business operation of commercial companies which might or might not have principal operation in Oman. Another important thing is that, in last 20 years, rapid industrialization in Oman has increased interest of foreign investors to invest money in order to expand business in the country (Morison Muscat, 2010). In such context, Oman government has two jobs in hand, 1- increasing bi-lateral agreement with foreign countries in order to attract foreign investors and protect the interest of domestic players. Age old legal framework of the country was not sufficient to provide reliable answers to the bi-faceted problems of Oman government hence the government needs to amend its laws in regular interval in order to make it more reliable and practical which can take care of interest both foreign investors and domestic companies. Part 2 Research scholars such as Siviglia (1993), Fox (2009) and Christou (2009) have pointed out that, commercial agreement between countries is important facet of international trade policy for government of any country. Careful analysis of the work done by Fox (2009) shows that commercial agreement between Sultanate of Oman and any foreign Country is exposed to both advantages and disadvantages. Commercial agreement between Sultanate of Oman and international countries comes under the Royal Decree No. 102/94- FCIL and foreign capital investment policy (Morison Muscat, 2010). According to the law, foreign companies need to get license from Omani government in order to commence business in the country. Investors of foreign countries are allowed to invest in tourism, construction, infrastructure, technology or own share of Omani company. Commercial agreement between foreign countries and Oman also includes the clause that, foreign investors will be eligible for tax holidays if their service is found to be necessary to economic growth of Oman by the Council of Ministers (Morison Muscat, 2010). There are plenty of advantages associated with signing commercial agreement by Sultanate of Oman with international countries such as, foreign partners will invest additional fund to the Oman economy which will positively impact the gross domestic product growth of Oman, technological partnership between foreign companies and domestic players will ultimately increase the overall technological capacity of the Oman, foreign investors will create job opportunity by investing money in Oman which will significantly improve the labour market condition of Oman, domestic companies in Oman will get the opportunity to export their products to foreign countries which will help the Oman government to earn additional revenue by taxing both export and import activities and finally entry of foreign players will enhance the market competitiveness which will alternatively help domestic customers to access world class quality products. However, there are some disadvantages associated with the commercial agreement between Sultanate of Oman and any foreign Country. For example, lack of protectionism measure of Oman government will enhance the volume of import from foreign countries which will negatively impact the capacity of domestic players. (Source: Sexton, 2012) According to the above model, if Oman government fails to provide protectionism quota or trade quota and restriction to foreign export and investment, then it will not only increase its dependency on international partners but excess of supply will decrease the price of the product in domestic market which will negatively hurt the interest of domestic players. There are possibilities that excessive import or presence of international player with greater resources might create competitive threat for domestic players. Using the concept of game theory as stated by Nash (1996), the above mentioned disadvantages might not be viewed as zero-sum game. In such context, government of Oman has taken following protectionism measures in order to address the shortcomings of commercial agreement and protect the interest of domestic companies. Structure Activity Condition Only Joint-stock companies are allowed to have 100% foreign shareholding. For other companies, maximum allowed foreign shareholding is 70%. Ministry of Commerce & Industry investigates the nature of business proposal of foreign companies and allowed only those foreign companies to invest in the country which are deemed as ‘interest of the national economy. ’ Minimum capital requirement to establish business in Oman for a foreign companies is RO 500,000. Foreign investors need to obtain FCIL license from government of Oman otherwise they are not allowed to conduct business in the country. Representative Office, licensing units are not exempted from paying taxes. These units are not are not directly allowed to compete with domestic players. These foreign investors are allowed to participate in trading activities, service sector but they are not allowed to participate in manufacturing activities. Representative offices of international investors are not allowed to import, export or sell its product to domestic market. These units are only permitted to promote its product and they must have OCCI and Commercial registrations. Oman government has the power to investigate any wrongdoings of the representative units of international business operations. (Source: Morison Muscat, 2010) Hill (2011) has stated that national government and ministry of international trade need to apply the concept of trade quota in order to protect domestic companies and also improve their competitiveness. In such context, it has been observed by the researcher of this study that, although government of Oman has taken protectionism measure to protect domestic companies from the uneven competition from more resource (financial and non-financial) rich foreign companies but the government has not taken much action to restrict international import in the country. Hence, the study will recommend that, government of Oman should implement trade quota for foreign exporters in order to reduce their volume of export to Oman. The government should also allow limited number of trading agencies to import goods from foreign countries in order to maintain price equilibrium in domestic market and give the opportunity to domestic companies to serve the demand of local market. In some cases, Oman government can put Tariff Rate Quota (TRQ) or monetary quota on import from foreign countries in order to maintain the supply-demand equilibrium in domestic market. Part 3 Literally, conciliation and reconciliation process is defined as some sort of arbitration mechanism which is created in order to resolve disputes. Although the term conciliation committee and reconciliation committee might sound similar but there is significant difference exists between their functionality. For example, in case of Oman, reconciliation committee starts working only in those conditions where conciliation committee fails to settle the dispute (Chamber Oman, 2013). Conciliation committee comes under the supervision of jurisdiction policy of Oman, this committee handles issues like monitor a trade dispute between local players or local players and international investors who are registered under the chamber of commerce in Oman and then this committee prepares a draft proposal of reconciliation for the rising dispute between traders. Both conciliation and reconciliation committees are allowed to participate in arbitration process or express their opinion to chamber of commerce of Oman regarding national and international trade disputes (Chamber Oman, 2013). Both conciliation and reconciliation are performing pretty well when it comes to working with government of Oman in conjugated manner. For example, dispute had been created between foreign investors and Sultanate of Oman regarding the payment of tax and conciliation committee has settled the dispute by recommending that foreign investors are liable to pay tax losses incurred during the period of tax holidays to government of Oman. This example is stating that conciliation and reconciliation committee of Oman act in situation specific manner and help government to address trade dispute by in optimal manner. Reference Chamber Oman., 2013. Arbitration And Compromise Committee. [online] Available at: [Accessed 27 May 2013]. Christou, R., 2009. Drafting Commercial Agreements. New York, NY: Thomson Reuters. Fox, W. A., 2009. International Commercial Agreements: A Primer on Drafting, Negotiating, and Resolving Disputes. Alphen aan den Rijn: Kluwer Law International. Hill, C. W. L., 2011. Global business today. 7th ed. New York City: McGraw-Hill. McConnaughay, P. J., 2001. The scope of autonomy in international contracts and its relation to economic regulation and development. [online] Available at: [Accessed 27 May 2013]. Morison Muscat., 2010. Doing Business in Oman. [pdf] Available at: [Accessed 27 May 2013]. Nash, J., 1996. Essays on game theory. Camberley: Edward Elgar Publishing. Sadah, M. A., 2010. International arbitration contract principles: analysis of Middle East perceptions. [online] Available at: [Accessed 27 May 2013]. Sexton, R. L., 2012. Exploring economics. Stamford, Connecticut: Cengage Learning. Siviglia, P., 1993. Commercial agreements: A lawyer's guide to drafting and negotiating. Eagan, Minnesota: Lawyers Cooperative. Read More