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Issue No: 11 & 14 - January - December 2003
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Although hopes were high that Saudi Arabia would be admitted to the World Trade Organization before or by next year, it now appears that accession will not occur until 2006. The Kingdom has made significant progress in fulfilling the requirements for membership in the WTO.
So far, the Kingdom has signed agreements with several major trading partners including Japan, Pakistan, Canada, Australia, South Korea, Brazil, Argentina and Mexico. Recently, Saudi Arabia and the European Union have signed a bilateral agreement for free access of goods and services. However, similar agreement with the United States remain to be negotiated.
Saudi Arabia has made considerable progress on enacting legislation in the areas of foreign investment, import licenses, and intellectual property. The Kingdom has implemented a wide range of economic reforms, such as reducing the customs tariff from 12 to 5% last year.
The Kingdom first applied to the WTO’s predecessor organization in 1993 and has been modernizing its financial markets and liberalizing its laws to achieve membership in this highly regarded global body. It is just a question of time before Saudi Arabia joins other nations in the World Trade Organization. |
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It has been three years since Saudi Arabia enacted a new Foreign Investment Law designed to open up certain previously government-controlled business sectors. This year has seen the insurance and health care sectors opened to foreign investors.
High-level sources at the General Investment Authority (GIA) reported in April that the insurance sector will be removed from the negative list and be opened up for direct investment from foreign companies. Many of these companies are seeking to obtain a share of the Kingdom’s booming insurance market. It has been estimated that the medical insurance market alone could realize a profit of SR50 billion ($13.3 billion) within the next five years.
The Saudi Arabian cabinet has approved draft regulations that require employers to pay almost 90% of the insurance premium with employees paying the balance. This plan would relieve the government from paying free medical services for approximately 22 million people, including millions of foreigners working in the Kingdom.
Not everyone approves of this plan, however. Some private hospitals have voiced concerns about having government-run health care facilities provide medical treatment by charging fees. They fear a price war that may compromise the quality of health care in the Kingdom. The hospitals also argue that the plan to involve the government in the insurance program is antithetical to Saudi Arabia’s drive to privatize industries and increasingly involve the private sector in the national economy.
In any event, foreign investors are now allowed to own hospitals in the Kingdom under the Ministry of Health bylaws which are intended to streamline health care services now provided by numerous, separate governmental agencies. Foreign investors no longer need a Saudi sponsor, and they do not need to be physicians.
Privatization will occur either in the form of a long-term lease or in the establishment of a separate corporation composed of governmental representatives and those from the private sector. A health council will be formed to promote and oversee integrated services among all levels of the government, from procurement of medications to the promotion of good health. |
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In the largest privatization effort in the very young history of the Kingdom, national mainstays like the Saudi Arabian Basic Industries Corporation (SABIC), the Saudi Electric Company, and substantial banking interests are to be transferred from governmental control to the private sector. This transfer to the private sector will also include Saudi railways, telecommunications, seaport services, sports clubs, and several hotels.
In order to facilitate such a transfer, the Shoura Council has passed legislation creating a formal, official stock exchange. Traditionally, Saudi Arabia’s stock exchange (bourse) exists on an informal and unofficial basis.
For the time being, it is widely believed that the industries mentioned above will be opened to investment by Saudi interests only. Foreign investment in these industries is being considered and probably will be permitted at a later date.
Under the framework of the World Trade Organization (WTO), which Saudi Arabia is now seeking to join, only industries defined as “developing” are, as a general rule, allowed to enjoy protections from their respective governments such as limiting investments to native citizens and businesses solely. Further, under the framework of the Cooperation Council for the Arab States of the Gulf (GCC), of which Saudi Arabia is a founding member, corporate citizens of other GCC Member States must, for all practical purposes, be treated by local law as though they were Saudi companies instead of foreign investors. Thus, it can be seen that developments necessary to make foreign direct investment in these fields a reality are progressing well. |
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Saudi Arabia has instructed recently the Saudi Computer Society to begin work on crafting a strategy for the development of a national plan to boost the Kingdom’s fledgling Information Technology industry. It is estimated by the responsible authorities that a “five-year plan” will be ready for implementation by the end of 2003.
E-commerce, e-education, and e-government projects are expected to be promoted through this initiative. Those heading-up this project also hope to include IT training for Saudi nationals as part of the initiative. At all times, safeguarding Saudi culture in the information age will remain a priority. |
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Although progress continues to be made, Saudi Arabia remains a net importer of information technology (IT) products. In 2002 the Kingdom imported $3.2 billion and only produced $600 million in IT. More of its citizens are using the Internet, but the Saudi penetration rate of 8% lags well behind the UAE. Still, the Kingdom is one of only 51 countries in the world to have adopted cyber laws.
In July, the government issued new regulations requiring Internet café users to surrender their ID cards so that their names and ID numbers can be recorded. Café owners now must record the times users log on and off the Internet and maintain these records for six months.
The regulations also provide that no one under 18 is allowed to access the Internet except for those accompanied by a guardian or those who are studying computer science. Users must not access materials that are offensive to the sacredness of Islam and its teachings, or promote violence or the exploitation of others. |
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The Council of Ministers approved new trademark rules on August 5, 2002. The new trademark law approved by the Cabinet stipulates that the names, words, numbers and forms used in a given trademark must be clear and differentiate an industrial product from a commercial one. Any words, models or pictures that violate Islamic teachings, as well as flags and emblems of the Kingdom and other countries, will not be given trademark protection.
The new law allows a person to lodge a complaint to the Commerce Minister within 60 days after the rejection of his trademark application. If the complaint is rejected, the applicant can approach the Court of Grievances within 30 days. The new law comes into effect 90 days after its publication in the Official Gazette and will then nullify the old law which was issued two decades ago. |
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| Under the government’s Saudization program, designed to provide relief in the face of an estimated 12-15% unemployment rate currently plaguing the Kingdom, the required quota of Saudi nationals employed by companies doing business in Saudi Arabia will increase from 30% to 35%. Many are hailing this as a necessary development to help alleviate the current unemployment crisis. Others, however, are asking whether this should be a matter for the private sector, especially since the Kingdom is moving from a controlled economy to one based on free enterprise. The latter assert that in a free enterprise system, the best jobs program relies upon a solid educational program, with the private sector recruiting the best qualified workers, regardless of one’s nationality. This debate is expected to continue. |
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The Shoura Council is debating an employment law that is designed to provide certain maternity benefits for working women. The proposed law requires employers to provide 70 days of maternity leave at full pay if the woman has worked for her employer for at least three years. Half pay is provided for those women employed for less than a year.
Most importantly, employers no longer have the right to fire female employees if they are absent from work for up to six months due to surgery or maternity. Failure to adhere to this new labor law exposes employers to fines and an order to reinstate or otherwise compensate the affected female employee.
Women may ask for maternity leave for the period four weeks prior to the delivery date and another six weeks following birth, provided they supply their employer with a verified medical report from a physician or medical facility. |
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The Saudi Cabinet recently passed new regulations aimed at combating smoking in public places. The legislation bans smoking in the yards surrounding mosques, ministries, governmental offices, schools, health centers, cultural and sports facilities, and all means of public transportation. Offenders will be fined SR200. The new rules also prohibit the cultivation of tobacco with substantial fines imposed on violators.
Smoking in public places in the Kingdom is widespread and ingrained in the culture. Smoking in airports and government offices continues despite the imposition of increased levies on cigarettes. Yet, the sale of tobacco products continues to increase year after year. This situation persists even though cigarette packs are marked as being sold only to adults and tobacco shops are instructed not to sell to minors.
The law will come into effect next year, and it is hoped that the curbing of tobacco use will have a beneficial effect upon the Saudi health care system. |
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Establishment of a New E-commerce Practice Area
We are proud to announce that our firm has established a new practice area in the field of e-commerce. In a rapidly changing world in which businesses and consumers alike are demanding faster communications and transactions and greater availability of knowledge and information, the Law Firm of Khalid Alnowaiser is committed to staying up-to-date on cutting-edge legal issues that accompany changing developments in the world of commerce. |
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| Disclaimer |
| Material contained in this newsletter is for general information only and should not be interpreted as legal advice on any particular matter. Readers are advised to consult their legal advisor directly on any issues discussed herein. Transmission of this document does not create any attorney-client relationship. Although considerable care has been taken to ensure the accuracy of the material in Legal Update, the Law Firm of Dr. Khalid Alnowaiser is not responsible for any errors contained herein. |
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12/4/2009:Ministry steps up clampdown on copyright piracy 12/4/2009:Construction of New Office is near to completion 14/4/2009:JCCI preparing black list of car rental defaulters 7/4/2009:Justice Ministry warns ‘lawyers’ without permits
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