Oman’s immense investment into infrastructure development in recent years, coupled with its drive to diversify the economy away from oil and gas, has led to a rise in interest by US companies in foreign direct investment into the Sultanate.
This was recently highlighted by a visit to the US city of Houston of a delegation representing the Special Economic Zone Authority in Duqm (SEZAD), led by H.E. Yahya bin Said Al Jabri (Chairman of SEZAD). The event was attended by more than 70 companies, the majority of which operate in the US oil and gas sector.
The US-Oman Free Trade Agreement (FTA), entered into on 1 January 2009, has been key to leveraging foreign investment interests by offering incentives that aim to improve bilateral trade relations.
Key benefits of the FTA
Following several years of negotiation the FTA was entered into on 1 January 2009. The agreement is designed to offer a number of benefits to both Omani and US companies, including:
- eliminating the majority of tariff and non-tariff barriers;
- enhancing protection for investors (including enabling investors to fully own businesses without the requirement for engaging a local partner);
- reducing the minimum share capital requirement for an Omani-incorporated, US-owned entity to OMR 20,000 from OMR 150,000;
- removing the requirement to have entered into a contract with the Omani government (including contracts with companies partly owned by the Omani government) prior to registering a branch office of a US entity;
- expediting the movement of goods and provision of services; and
- safeguarding intellectual property rights, labour and environmental standards, as well as dispute resolution procedures in order to improve the regulatory climate for bilateral trade and investment.
Complying with rules of origin
It should be noted, however, that potential beneficiaries must ensure compliance with certain requirements. In the context of preferential tariff treatment, for example, a product should qualify if it has been wholly grown, produced or manufactured in the US or Oman. There are detailed rules relating to products which do not wholly originate in either country but have been manufactured using component parts from other countries. In general, a product which has been substantially transformed as a result of the manufacturing process will probably qualify for preferential tariff treatment, provided that the value of materials produced in Oman or the US, plus the direct costs of processing operations performed in Oman or the US, is at least 35 per cent of the value of the product at the time it is imported.
A number of recent news stories have highlighted successes stemming from the FTA across a variety of sectors. In November 2018, California-based company GlassPoint Solar which registered in Oman under the FTA in 2011, entered into an MOU with Occidental of Oman to develop plans to establish a mega-solar thermal energy plant with the aim of facilitating oil production in Occidental’s Mukhaizna field. The solar steam produced by the proposed plant would be utilised by Occidental in order to assist in enhanced oil recovery or EOR.
An additional example involves a café named 3rd Street Donuts, owned by Omani entrepreneur Mundhir Al Alawi. Marc J Sievers, US Ambassador to Oman, recently attended the opening ceremony of the 3rd Street Donuts café in Seeb during the Discover America Festival in Oman. The café has taken advantage of the benefits of the FTA by importing duty-free US flour, along with other ingredients used in its products.
3rd Street Donuts demonstrates that small and medium-sized enterprises (SMEs) have the opportunity to utilise the FTA, in addition to larger companies. This is particularly important in Oman, where there is a drive to increase the contribution of SMEs towards the country’s GDP.
Taking advantage of the FTA
At Dentons, while we see the FTA as useful a tool which can utilised to great effect by both US and Omani companies alike, it is critical that both the Omani and US governments continue to raise awareness of the FTA so that potential beneficiaries are fully informed as to how they can make best use of the significant advantages afforded to them. Separately, sufficient guidance and assistance must be available to participants to ensure that the administrative requirements of the FTA are appropriately addressed. The US Embassy in Oman has developed a number of useful resources offering guidance in this area, which can be accessed here.
Dentons is the world’s largest law firm with strong cross-border capabilities, and has operated in the Sultanate of Oman for 36 years (and in the Middle East for over 50 years). We have expertise in advising US and Omani clients on how best to utilise the incentives afforded by the FTA. As the expansion of global markets and value chains continues to make the world a smaller place, we keep you informed about the rules and practices governing the establishment of FTA companies in Oman, and work with local Omani companies to develop and implement the right strategies for trade with the US.
Our associate firm, S&A Law Firm, provides dispute resolution and advocacy services throughout Oman, possessing a deep knowledge in all the main areas of dispute resolution, including litigation, arbitration and mediation.