Doing Business in the Arabian Gulf

The United States uses about one-quarter of the world's total energy output, but have 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). This article is written to make U.S. Businesses familiar with customs, traditions and laws governing business dealings with that region of the world.

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. 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.

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 speed 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. Paying off officials to sell products overseas is a violation to the US law. The Justice Department is using aggressive tactics to investigate potential Foreign Corrupt Practices Act (FCPA) violations.

Gabriel Sawma, a lawyer dealing with International Law, mainly the European Union Law, the Middle East Law and Islamic Shari'a law. Professor of Middle East Constitutional Law, Islamic Shari'a, Arabic and Aramaic languages. Expert witness on Islamic marriage contracts, including the mahr; expert witness on U.S.-Middle East commercial contracts. Member of the Beirut Bar Association in Lebanon; The New York State Bar Association; Associate member of the American Bar Association. Author of an upcoming book on "Islamic marriage Contracts in U.S. Courts and the Mahr." Author of an upcoming book on conflicts in U.S. Middle East Commercial Contracts. Editor of International Law website: http://www.gabrielsawma.blogspot.com, Email: gabrielsawma@yahoo.com