Anti-Dumping Issues with India Rekindled

As the Sultanate continues to further diversify the national economy beyond oil and gas, Omani businesses are discovering that their export success depends not just on their ability to deliver quality products, but also on their ability to navigate the import laws of the foreign countries in which they seek to sell.

As reported recently in the Omani press, India has again imposed anti-dumping duties on imports of polypropylene from Oman. This rekindles an issue that has flared up from time to time over the past several years, as India has imposed these duties on Oman, Saudi Arabia and other polypropylene-producing nations.

Anti-dumping duties, such as India’s, are import taxes that are intended to raise the price of imported goods being sold at below-market costs up to the true market cost of the goods. The premise for anti-dumping laws and duties is that even nations committed to free international trade have the right to protect their domestic industries against foreign sellers that are willing to sell goods at a below-cost basis (ie, “dumping” the goods). There are a variety of reasons why some exporters may be willing to sell their goods at cut-rate prices or even below cost: they may be attempting to build their market share or drive competitors out of business; alternatively, they may be receiving subsidies from their home country governments.

The argument stated above is, in any case, the theoretical economic foundation for anti-dumping duties. Nations also may impose anti-dumping duties to protect the comfortable monopolistic or oligopolistic positions of domestic firms that are well-connected with the nation’s political establishment. In practice, many anti-dumping duties likely involve a mix of economic and political considerations. As Oman’s delegation of government and trade officials heads to India to attempt to resolve this issue, it should provide an opportunity for Omani diplomatic prowess to shine.

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Consolidation of Pension Fund Management in Oman

Possible Approaches

Pension funds are a key pillar of the financial sector in Oman. As the Sultanate continues its drive to increase the efficiency of government services, it is possible that we shall see initiatives to consolidate the management and operation of Oman’s various pension funds. In this article, we discuss two possible approaches for consolidation of pension fund management: (i) merging existing funds into a single consolidated fund, and (ii) bringing existing funds under a single management body.

The Consolidated Fund Approach

One approach would be to integrate the various existing funds into a single consolidated pension fund, either by way of a corporate restructuring (including through a series of mergers, asset purchases or transfers) or via a wholesale transfer of all the assets held by the existing funds to a master investment holding company or consolidated fund. The consolidated fund would benefit from unified management, administration and support services and could leverage its size to achieve better economies of scale than the smaller existing funds.

However, a corporate restructuring into a single consolidated fund would involve some challenges. Caution and careful planning would be required to capture the benefits of consolidation while avoiding potential legal and administrative issues, including, among others:

• costs and restrictions relating to the transfer of the existing funds’ assets;
• valuation issues associated with the broad range of the existing funds’ assets;
• personnel and service provider decisions, including, most importantly, the selection of the consolidated fund’s managers;
• tax implications; and
• variations in beneficiary entitlements under the existing funds.

A consolidation team comprising internal and external stakeholders and independent advisers would be required to address these issues.

The Single Management Body Approach

An alternative approach would involve retaining the existing funds’ respective corporate structures, but delegating management authority over the existing funds to a single management body. This approach could be carried out by way of a series of investment management agreements between the existing funds and the management body, with each such agreement being tailored to satisfy the unique requirements of each fund.

The key advantage to this approach is its ability to centralize the management of the existing funds in a single entity while leaving the existing funds intact, thereby largely avoiding many of the issues associated with asset transfers, valuations, beneficiary entitlements and tax implications. As the single management body would manage multiple portfolios with divergent investment strategies and restrictions, certain measures to avoid conflicts of interest and/or market abuse would need to be taken. We nonetheless would anticipate that this approach would enable the Sultanate to optimise the existing funds’ management and achieve significant economies of scale in a relatively straightforward and cost-efficient manner.

We continue to monitor ongoing developments in the Omani pension fund sector, and look forward to discussing them in the blog going forward.

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Oman and India to Launch Joint Investment Fund

Oman has a long tradition of fostering mutual cooperation and trade with its neighbors, and in recent years has taken major steps to further integrate the Omani economy into the global economy, such as joining the World Trade Organization and entering into bilateral free trade agreements with the United States and with Singapore.

This month the Sultanate unveiled a new initiative to further its policy of economic integration, signing an agreement to set up a US$100 million joint investment fund with India.  The State General Reserve of Oman and the State Bank of India each shall contribute half of the investment fund’s capital.  The fund will be used to finance projects in a variety of sectors, including tourism, healthcare, telecommunications and general infrastructure projects in both countries.

The signing of this agreement marks an important milestone for the Sultanate, and even could offer a glimpse into the future, showing that not only trade but also direct investment increasingly may be conducted through international arrangements.

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New Law Alert: Taxation

A new income tax law for Oman was issued on 25 May 2009. The new law will apply to a company’s accounting periods which begin on or after 1 January, 2010.

The main highlights of the new income tax law are:

• • The replacement of a territorial basis for taxation with a global system – this means that Omani tax authorities will tax overseas income but relief will be granted for taxes paid overseas. Such relief will be available even if Oman does not have a double tax avoidance treaty with the relevant country where tax has been paid.

• • There will be a uniform tax rate of 12% for all branches (including branches of foreign companies) with an initial tax-free exemption of RO 30,000. Previously, foreign branches (other than GCC companies) were taxed at a rate of up to 30%. Oman will now have the lowest tax rate in the region when compared with other countries which impose taxes.

• • A 90-day threshold in any period of twelve months has been introduced for triggering the requirement for a permanent establishment of a foreign company in Oman – this will create certainty for foreign companies who visit on a limited basis as to whether a permanent establishment is required.

• • A statute of limitations of ten years has been introduced; previously, the tax authorities could pursue a company without any limitation of time.

• • There will now be penalties for late filing of tax returns as well as for incorrect tax filings.

The new tax law includes modifications that are generally favorable to companies doing business in Oman. Companies likely will be particularly interested in the tax reduction for branches of foreign companies, as this was previously a significant drawback for companies in deciding whether to form a branch in the Sultanate.

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Focus on: Labor Unions

In 2006, an amendment to the Labor Law was issued that permits the establishment of trade unions in Oman. Since then, the number of labor unions in Oman has steadily increased. Currently, there are more than 55 labor unions across the Sultanate according to the General Federation of Oman Trade Unions (GFOTU). This represents a dramatic increase over 2007 and 2008 levels.

Trade unions are organizations of employees that work together to achieve common goals. In Oman, trade unions may work to defend employee rights, improve financial and social situations, and represent employees in work-related matters. The trade unions have also formed the GFOTU, which is an independent body that oversees labor unions in Oman established under the new law, and which promotes labor rights and the interests of unions.

As the number and visibility of labor unions increases in Oman, there are several issues for employers and employees to consider.

Employers should make themselves aware of the laws and what actions are permitted and prohibited with respect to trade unions. For example, it is unlawful for an employer to terminate an employee based on the employee’s membership or role in a trade union. In addition, employers may be subject to fines or imprisonment if they interfere with an employee’s right to carry out trade union activities.

Conversely, employers may look to trade unions as a resource for facilitating communication between the employer and the employee. Trade unions have the advantage of organization, which means an employer can communicate information about company policy, safety matters or other work matters to the union, which can disseminate this information to all employee members.

Employers have taken different approaches to the increase in labor unions in Oman. Some employers, seeking to gain the communication and policy benefits of labor unions, have actually sought to help employees form labor unions. Other employers have taken a more passive approach and waited to see the impact of the labor unions rather than actively promoting their formation.

Similarly, employees should consider the legal requirements for forming a union, as well as the rights and restrictions associated with trade unions under Omani law. For example, while trade unions have the right to bargain collectively or engage in peaceful strike action in order to improve their financial or employment situation, there are limits on what actions the employees may take. Specifically, employees planning to engage in a peaceful strikes must notify the employer at least three weeks prior to the date of the strike. Further, employees working at establishments that provide basic services to the public are not permitted to strike.

With the rapid increase in labor unions in the Sultanate, employers and employees should consult the law before taking any steps to form a union or before setting union-related policy. While labor unions can provide substantial benefits to both employers and employees, it is important to ensure that the correct laws and regulations are followed in order to achieve the maximum benefits.

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