I. COMMERCIAL OVERVIEW

Brief Synopsis of Commercial Environment

Although the Government of Bahrain has controlling interests in many of the
island's major industrial establishments, its overall approach to economic
policy, especially those policies which affect demand for U.S. exports, can
best be described as laissez-faire.  Except for certain basic foodstuffs, the
price of goods in Bahrain is determined by market forces, and the importation
and distribution of foreign commodities and manufactured products is carried
out by the private sector.  Owing to its historical position as a regional
trading center, Bahrain has a well developed and highly competitive mercantile
sector in which products from the entire world are represented.  Import duties
are primarily a revenue device for the government and are assessed at a
ten-percent rate on most products.  The Bahraini dinar (BD) is freely
convertible, and there are no restrictions on the remittance of capital or
profits.  With the exception of the petroleum sector, Bahrain does not tax
either corporate or individual earnings.

Over the last two decades, the Government of Bahrain has encouraged economic
diversification by investing directly in such basic industries as aluminum
smelting, petrochemicals and ship repair; and by creating a regulatory
framework which has fostered the development of Bahrain as a regional
financial and commercial center.  Despite diversification efforts, the oil and
gas sector remains the cornerstone of the economy.  Oil and gas revenues
constitute over 60 percent of governmental revenues, and oil and related
products account for about 80 percent of the island's exports.

Overview of Import Market

Bahrain's total imports, excluding oil, weapons, and aircraft (not reported in
Bahraini trade statistics) amounted to 2.5 billion U.S. dollars in 1993.  The
U.S., as in other recent years, was the number one source of imported goods
for Bahrain, selling goods worth 349.4 million dollars; 14.3 percent of total
imports in 1993.  By U.S. Department of Commerce figures, U.S. exports of
goods of all descriptions to Bahrain in 1993 were even higher, amounting to
653.1 million dollars, a jump of 33.6 percent over 1992.  U.S. sales to
Bahrain benefit from generally warm U.S.-Bahraini relations and a local
perception that U.S. firms offer high-quality and reliable prices, with the
relative weakness of the dollar also helping to make American goods more
price-competitive, particularly in relation to Japanese goods.  Not included
in the figures for trade in goods is a large U.S. advantage in the sales of
services, particularly in the engineering, financial, and petroleum services.


Major Business Opportunities

As the headquarters of Gulf Air (owned jointly by Bahrain, Qatar, Oman, and
the Emirate of Abu Dhabi), Bahrain provides a major market for aircraft sales;
Gulf Air spending for aircraft during 1993-95 is expected to total over 1.7
billion dollars, with a large portion of that going to aircraft from Boeing.
Planned or proposed projects such as new electricity and desalination plants,
a new container port, new hospitals and a refinery upgrade offer major
possibilities for sales in these sectors.  On a long-term bases, U.S. products
have done well in the categories of construction and building machinery and
equipment, furniture, air-conditioning equipment and vehicles.

Bahrain offers what many foreign businessmen judge to be the freest and most
orderly business environment in the Gulf, or, for that matter, in the Middle
East-South Asia region.  Around seventy American firms have set up regional
headquarters in Manama, including AT&T, the American Bureau of Shipping,
American Express, Chase Manhattan Bank, Chemical Bank, Citibank, Compaq, Cray
Research, Digital Equipment, DHL, Grumman, ITT Defense, Merrill Lynch,
Shearson Lehman Hutton, Telerate, and UPS.