Gulf Regional Legal Environment of Business - Term Paper Example

?Gulf regional legal environment of business 3 Gulf regional legal environment of business 3 Introduction Competition law The Gulf region remains a key player in the economic development of the Middle East region. The Gulf region has massive oil reserves that attract multinational companies to establish business operations in the region. Oman has numerous legal requirements that act as disincentives to foreign direct investment inflows. Although imports are welcome, Oman blocks some imports that it deems as politically motivated and sector restrictions hinder competition in some business sectors (Ramady, 2012). Competition law is part of the legal environment of business in Gulf region that requires numerous amendments and enforcement. Competition laws facilitate the entry of foreign firms in the economy and ensure that the economy gains from increased product innovation and high quality products. Fair competition laws also facilitate bilateral and regional cooperation between several states thus strengthening both the economic and political relations. Oman has certain anti-competitive laws that hinder free trade in the economy. Examples of the anti-competitive laws include subsidies to the national companies, exempt of import custom duties for national companies dealing with agriculture and manufacturing and requirement that foreign entities cannot have 100 percent of shareholding of the investment. In addition, Oman grants tax exemptions to local shipping companies and uses discriminative tariffs that hinder fair competition within the Gulf region (Kawai & Wignaraja, 2011). 2. Free trade agreements One of the agreements that Oman has entered with other countries is the Gulf Cooperation Council free trade agreement that consists of other countries such as Saudi Arabia, United Arab Emirates, Kuwait, Bahrain and Qatar (Ramady, 2012). The free trade agreement is committed to improvement of investments and trade in goods and services. The agreement aims at elimination of both tariff and non-tariff barriers and expediting the movements of goods and services between the two countries (European Commission, 2013). Accordingly, members of the G.C.C acknowledge that anti-competitive practices restrict trade among the countries and each member is required to implement competition laws that ensure free and fair trading practices (European Commission, 2013). The GCC agreement aims at attaining liberalization of trade and promoting competition among the member countries. The parties to the agreement appreciate that anticompetitive trade practices will restrict the trade among the countries and the parties must maintain competitive laws. The agreement also aims at fostering common scientific progress in fields such as economy and trade and setting up of joint ventures. a. Importance and advantages of the agreements The G.C.C free trade agreement is expected to provide new export opportunities for Oman exports within the bloc. The trade agreement also aims at protecting intellectual property through allowing Oman to establish increased protection for copyrights, patents and trademarks (Bilateral.org, 2012). Accordingly, Oman will conduct government procurement procedures in free and transparent manner without any discriminatory practices. The free trade agreement will spur economic growth in Oman and entrench democratic ideals that are essential for peace and stability in the Gulf region (BBC News, 2013). Ramazani & Kechichian (1988) asserts that he G.C.C free trade agreement will increase the competitiveness of Oman exports through improving the access of the global markets. The agreement also will strengthen the role of the private sector in the economic development of the country. The trade agreement will enable Oman to lower the production process and increase the efficiency in the utilisation of the available raw materials such as oil reserves. All the products manufactured within the member countries are allowed to move freely within the member countries thus increasing the consumers’ choice of variety in the bloc. In addition, the agreement has led to innovations in product methods due to technology transfer and increase in the foreign exchange reserves due to the free movement of exports within the borders of the member countries (Vaidya, 2006). Disadvantages of G.C.C free trade agreement The G.C.C member countries have experienced differences in uniformity in the integration of the hydrocarbon sector. The agreement has led to high unemployment in Oman since Oman is a net importer while compared with the other economies such as United Arab Emirates and Qatar (Vaidya, 2006). The agreement has led to high dependency on the other member countries especially in the supply of essential commodities such as foodstuffs (European Commission, 2013). The Oman domestic companies has experienced unsustainable competition since companies from other countries such as Saudi Arabia have superior technology and are able to produce goods at lower costs. Accordingly, Oman will be vulnerable to economic shocks that may be experienced by other G.C.C countries. The agreement has the potential of causing domestic instability in Oman since the country cannot ensure self-sufficiency. The agreement entails numerous contract procedures and rules that are complicated thus hindering the ability of the countries to establish meaningful commitments due to implementation expenses (Kawai & Wignaraja, 2011). b. Measures of protecting national companies Oman has not implemented fair competition laws since it protects the national companies through preventing and restricting competition. Oman fixes the prices either directly or indirectly through setting caps and controlling the supply in the market. Oman also limits the entry of foreign direct investment through requiring the foreign investors to have a local partner who controls some substantial shareholding of the foreign company (Kawai & Wignaraja, 2011). Oman also provides state aid to certain companies through requiring the national banks to provide subsidies and low than market interest rates in offering loans to the national companies. Oman also safeguards the national companies through exempting imports of raw or semi-processed manufacturing materials from any custom duties. In addition, Oman charges a withholding tax of 10 percent from the gross proceeds to foreign firms that earn management fees, royalties, right to software and research and development activities (BBC News, 2013). Another method that protects the national companies is the tax exemptions that are granted to for a period of five years to the local companies that operate in the agriculture, mining, hospital and higher education sectors (Kawai & Wignaraja, 2011). The local shipping companies are also tax exempt, but foreign shipping companies must meet a stringent criterion in order to qualify for tax exemption (Kawai & Wignaraja, 2011). c. Comments and recommendations Oman government has not successfully implemented the competitive laws that guarantee free trade practices in the economy. The government protects the national companies through subsidies and discriminatory tariffs (Kawai & Wignaraja, 2011). Oman should ensure equal access of markets within the market in order to enable the citizens to access high quality products and enjoy low prices. The government should diversify the economic structure through adding value to the exports in order to attain a competitive edge within the G.C.C common market. Oman must also adopt an internal trade policy that is essential for standardisation of the trade procedures thus facilitating the flow of people and goods within the region. Oman will be able to promote bilateral trade with other countries since the G.C.C countries work as a single economic unit while interacting with markets outside the block such as the World Trade Organisation (WTO) (Ramady, 2012). 3. The concept of Conciliation a. reconciliation committee The concept of Conciliation recognises that some international transactions may be undeterminable at the time the merchandise in entered in the country (Paul, 2009). The concept allows the importers to use reasonable care and enter summaries of transactions using the best available information while understanding that some elements such as the declared value will remain outstanding. At a future date after the specific value has been determined, the importer is allowed to file for reconciliation which will provide the final actual information (Paul, 2009). Application for settlement at Reconcile committee of Oman requires investor to follow Reconciliation Law specifies in Articles 10 and 12. Ministerial Decision no/ 3/3/2006 requires the individual to specify the stamps for reconciliation, his domicile, and the domicile of the other parties to the dispute that requires reconciliation settlement. Accordingly, the reconciliation entry will provide the missing information and any outstanding issues are liquidated. Any adjustments in taxes, fees and duties are also completed by the settlement after the reconciliation process is complete (Paul, 2009). b. Examples that reflect activities and success Devlin (2010) asserts that the reconciliation committee is very important to Oman society. The role of the committee is to deliver justice to the people of Oman. The demand for the services of reconciliation committee has been increasing with time. For instance, the number of disputes presented to the committee increased from 9,058 in 2008 to a total of 22,238 disputes in 2010. About 22,026 applicants were settled in 2010 while only 1,391 disputes remained unsettled (Devlin, 2010). The Islamic Sharia law requires mediation and reconciliation thus the committee is viewed as an essential channel of attaining justice in the society and settling trade related disputes. However, it is not mandatory to attend the reconciliation sessions or accept the outcome of the reconciliation settlement since the investors have the opportunity of pursuing court channels in settling the trade disputes. The Concept of conciliation is also applicable in employment matters in Oman (Paul, 2009). Reference list: BBC News. 2013. ‘Free trade pacts with GCC on Track’, Muscatdaily.com, June 01, 2013. Accessed from http://www.muscatdaily.com/Archive/Oman/Free-trade-pacts-with-GCC- on-track-Turkey-23yc. Bilateral.org. ‘GCC’, bilateral.org. May 2012. Accessed from http://www.bilaterals.org/spip.php?rubrique141. Devlin, J. 2010. Challenges of economic development in the Middle East and North Africa region. New Jersey: World Scientific. European Commission. 2013. ‘Gulf region’, Countries and regions. Accessed from http://ec.europa.eu/trade/policy/countries-and-regions/regions/gulf-region/. Gulf Times. 2013. ‘Full, free trade agreement can enhance inter-Arab ties’, Gulf times. May 26, 2013. Accessed from http://www.gulf- times.com/business/191/details/352290/%E2%80%98full,-free%E2%80%99-trade- agreement-can-enhance-inter-arab-ties. Kawai, M & Wignaraja, G. 2011. Asia’s free trade agreements: is business responding. Cheltenham: Edward Elgar Publications. Paul, J. 2009. International business. New Delhi: PHI Learning Ltd. Ramady, M.A. 2012. The GCC economies: stepping up to future challenges. London: Springer. Ramazani, R.K & Kechichian, J.A. 1988. The Gulf Cooperation Council. New York: University of Virginia Press. Vaidya, A.K. 2006. Globalization: encyclopedia of trade, labor and politics. Santa Barbara: ABC-CLIO. Read More