Doing Business in the Arabian Gulf Region

BACKGROUND

The United States uses about one-quarter of the world’s total energy output, but has less than five percent of the world’s population. According to statistics of the US Dept. of Energy, 19.9% of crude oil products imports to the US, during January 2005, came from the Persian Gulf countries (Petroleum Supply Monthly). Of that 14% came from Saudi Arabia.

Today, Saudi Arabia produces more than 76.8 million barrels a day, an income of 3.8 US billion/day. This gives that country a greater role and significant financial and political power in world affairs.
It is a kingdom created by King Ibn Saud (1882-1953) and ruled by the Islamic (Shari’a) law. It is the center of prayer for more than one billion Muslims around the world. It is the homeland of Islam and the Quran is that kingdom’s constitution, which is the source of all legislation.
Doing business in Saudi Arabia is one of the most complex issue any businessman or lawyer faces. Although all commercial codes in the Arabian Gulf region, including S
udi Arabia are based on western-style laws, as long as they did not contradict the Shari’a.


CUSTOMS AND TRADITIONS

The legal system throughout the Arabian Gulf states is very different from that of the United States or Europe. Codified law based on modern norms is still at early stage. Customs are more important in certain situations than written law. You may have a written agency agreement with an agent, with a clause to terminate the agency under certain conditions; however, it is very difficult to terminate the agreement even though the conditions are satisfied. No matter how you draft your agreements with an agent, US firms usually pay considerable amounts of money to buy their way out. In other words, establishing a justified cause for termination of an agreement before the concerned authorities may be impossible.
Recognizing long-standing traditions is very important in establishing a business relationship, showing kindness, practice humility, seek moderation, sincerity, and honor, shaking hands, hospitality and using gestures and body movements are all proper form of communications. Placing the palm of the right hand on the chest immediately after shaking hands with another man shows respect or thanks. A very slight bow of the head is a sign of respect, biting the right forefinger which has been placed sideways in the mouth may be an expression of regret, touching noses together three times when greeting is a gesture of friendship, and so is kissing two men each others on the cheek.
Using the right hand to eat is a sign of cleanness; avoid stretching legs in front of another person, refrain from putting feet on tables or across someone. Keep yourself out of trouble by not staring at women. Keep dogs and other household pets away from your Arab friends; leaving food on a plate after eating is recommended, it shows a symbol of abundance of food and considered a compliment to the host. Do not ask for alcoholics because the Quran forbids that, unless your host offers that. Avoid criticizing someone, in front of others, it can be harmful. Eating pig meat is forbidden in the Quran and so is the ham sandwich. A handshake is expected at all times. In Saudi Arabia, do not take photographs in public, it may cause you some troubles. You may hear IN SHA ALLAH “will of God” many times during conversation; this has been a tradition for centuries.
If you are offered to see the Quran, touch it with clean hands. When you visit a mosque, make sure you take off your shoes at the entrance and leave them there before going in, you cannot go into the mosque wearing shorts. Arab traditions require that men and women do not sit together, that women should sit with women only in a gathering.
Pointing a finger at someone may be taken as a threat, do not do that. When waiting at a bus stop or a train station, you will not see people standing in line; they push and shove, and everyone considers himself to be first in line.
Some of these customs and gestures are older than Islam; they may have been in the Middle East during the early civilizations. Such customs have to be respected and might be effective in reaching a deal with your prospective customer.
These are just few examples of the customs and gestures an American businessman will face when meeting with his counterpart in the Gulf countries.
As a US citizen with Middle Eastern background, I am in a position to give legal as well as social advice on all issues related to doing successful business in the Middle East, especially after the events of September 11, 2001. The rise of the Islamic fundamentalists, the interpretations given to the Quran and the Hadith (which constitutes the saying of the Prophet Muhammed), the Ulama (Muslim scholars) and the four different schools of theology in Islam, the aspirations for democratic reforms, does democracy works in the Middle East and to what extent, all of these fundamental and complex issues are important to understand from the American and European points of view.
Do not eat or drink in front of Muslims during the month of Ramadan. It is a fasting month and Friday is the Muslim Holy Day; business is conducted Saturday through Wednesday or Thursday.
Never interrupt Muslims at prayer. Religious prayers are performed five times a day.


INTELLECTUAL PROPERTY PROTECTION

We can not assume that a businessman from the Middle East has the same standard of business ethics as we have here in the United States, even lawyers and accountants in that region do not approach an ethical issue the same way we do here. The word “international transactions” sounds good, but it does not have the same meaning that we attach to it and foreign lawyers who focus on statutory interpretation, may place lesser emphasis on factual analyses and issue spotting than do common law trained lawyers.
In the field of intellectual property rights, most of the Middle East countries have not been able to grasp its true meaning. In an entertainment case, my client is trying to locate the producer of a song originated from Lebanon in order to negotiate a payment for using a portion of that song found on a CD he bought in New York, unfortunately, the CD does not carry the producer’s name or any name to contact because CD is being sold apparently without permission. The United Arab Emirates has recently joined the Paris Convention for the Protection of Industrial Property, the first treaty for the protection of IPR to which the UAE has acceded.
In many cases the foreign agent/distributor of an American product or service may register a trademark in his name to peed things up, don’t allow that to happen. The American firm should initiate registration of its trademark before an agency/distributorship is reached. Obtaining an international trademark protection is of utmost importance, that requires filing separate patent and trademark applications for protection in each country.


WORKING WITH INTERNATIONAL COUNSEL

American lawyers practice domestic law, but companies who embark on doing business in the Middle East must seek a legal counsel with Arab speaking lawyer admitted to the bar of the country where business is being conducted. Foreign lawyers have different legal traditions; legal education, ethical views and they operate in different and unfamiliar ways.
Middle East lawyers may not understand your business, your industry or your documentation process. They are familiar with the inner work of the local government agencies. Their retainer fee is much less than what an American lawyer charges. The search for a foreign legal counsel could be obtained from the US Embassy abroad or from the US Dept. of Commerce.
The research for drafting an agency/distributorship agreement should be done here in the United States to conform to US and international law, in consultation with the foreign counsel for conformity with Islamic and local laws.


AGENCY/DISTRIBUTORSHIP AGREEMENTS

The most commonly ways of selling in the Middle East is by appointing a commercial agent/distributor; other forms of sales is to establish a company presence through a joint venture; or authorization to a local firm via a licensing or franchising arrangements.
US exporters with different lines of products may find it more advantageous to appoint different commercial agents or distributors in different states. Many companies handle numerous product lines, making it sometimes difficult to promote all products effectively. Most agents or distributors prefer to handle products on an exclusive basis.
Different countries have different commercial agency laws. Some laws do not distinguish between an agent and distributor, referring to both as commercial agents.
Selecting the right agent or distributor is the most important decision, because termination of a contract without compensation is difficult. Most US firms found themselves paying considerable amount of money to buy their way out of an agreement irrespective of any specific performance criteria, which may have been agreed by the parties.


DISPUTE SETTLEMENT

Some countries in the Middle East are members of the International Center for the Settlement of Investment Disputes. However, most of the disputes are handled through arbitration or have been resolved by the parties involved. Some disputes may end up in the court for arbitration.


TRADE REGULATIONS AND STANDARDS

Each country in the Middle East operates its own customs authority. In recent years there has been a progress between the United Arab Emirates to create Customs Council whose priority is to establish a customs union within the UAE to unify Customs rules and regulations, procedures and documentation


FOREIGN CORRUPT PRACTICES ACT (FCPA)

Paying off officials to sell products overseas is a violation to the US law. The Justice Department is using aggressive tactics to investigate potential FCPA violations.

IS DEMOCRACY COMPATIBLE WITH ISLAM

OTHER US CRIMINAL LAWS AFFECTING INTERNATIONAL BUSINESS TRANSACTION
FOREIGN ANTITRUST LAWS AND USA

US ANTIBOYCOTT LAW AND REGULATIONS

THE MODES OF FINANCING UNDER ISLAM

TAX AND EXCHANGE CONTROL IN THE MIDDLE EAST

FREE TRADE ZONES


FREEDOM OF EXPRESSION

Freedom of opinion and expression within the framework of the law is guaranteed in most of the constitutions of the Middle East countries. However, different interpretations may derive from that principle. There is censorship of the Internet in many countries. In the UAE for instance users do not have direct access to the Internet, they dial in to a proxy server maintained by the government which refuses access to a website if that website is banned. There are also certain prohibitions on the publication of a certain matters under Federal law (November, 15, 1980) regarding publications and publishing which includes for example any criticism of the President of the UAE and the governors of the individual Emirates and the publication of any materials that insult Islam or breach of public morals.


Gabriel Sawma


Copyright© 2005, Gabriel Sawma. ALL RIGHTS RESERVED

For interviews on international law, the Middle East and Islamic (Shari’a) law, or for interview on the topic covered by this article, please contact the author. Tel 609-275-6321, or email gabrielsawma@yahoo.com

The materials contained in this article are for general information purposes only and are subject to DISCLAIMER. The reader should not consider this information to be an invitation for an attorney-client relationship, should not rely on information provided herein and should always seek the advice of competent counsel