Legal Update

Issue No: 16                                                May - September 2004

 

Contents:

 

1.         Dr. Alnowaiser Presents Arbitration Lecture

2.         New Saudi Labor Law Proposed        

3.         Electronics Transaction Law Coming

4.         Drive to Protect Intellectual Property Rights

6.         WTO Accession Imminent

5.         New Capital Markets Authority Established

 

 

Dr. Alnowaiser Presents Arbitration Lecture

 

Dr. Khalid Alnowaiser presented a lecture on the growing significance of international arbitration at the Fifth Conference of the Arab International Arbitration Union in Rabat City, Morocco in early July.  The conference was held under the auspice of His Majesty Mohammed the 6^th, the King of Morocco, and with HRH Prince Dr. Bandar Bin Salman Bin Mohammed Al Saud, Chairman of the Saudi Arbitration team. In his speech, Dr.  Alnowaiser said that arbitration has become the most common way of settling disputes arising in commercial investment contracts.  He noted that the current popularity of arbitration is that major national investment projects embody foreign elements deemed essential in such situations, and virtually every investor seeks to have arbitration clauses incorporated in such contracts to quickly resolve disputes.

 

When arbitration is utilized, Dr. Alnowaiser stated that it is very important that the law and customs of the country where the contract is executed are followed to govern the arbitration, saying, “Place prevails over the shape and form of the contract.”  So long as the contract is legally valid under the laws of the country where it is signed, it will be upheld by arbitrators.

 

Given that arbitration resolves contractual disputes more quickly and with less expense than through the judicial system, the contracting parties have more confidence in entering into an agreement.  This is most useful in international transactions, thus furthering multinational investments and the infusion of foreign capital.  Dr. Alnowaiser said that arbitration thus strengthens trade relations, boosts judicial cooperation, and increases commercial activity.

 

The Rabat conference was attended by a number of judges, lawyers, professionals and legal scholars having an interest in international and Arabian arbitration.

 

Riyadh Office Fully Functional

 

The Law Firm of Dr. Khalid Alnowaiser (LFKAN) is pleased to inform you that our Riyadh office is now fully equipped and functional. We welcome you to visit our office at your earliest convenience.

 

LFKAN’s Riyadh office is located in the Kingdom Center, Floor 23, P. O. Box 1631, Riyadh 11311. For more information regarding LFKAN’s Riyadh office, please contact (9661) 2110088 or email us at  info@lfkan.com.

 

 

New Saudi Labor Law Proposed      

 

With the background of a 10% unemployment rate in the Kingdom, which is essentially 300,000 Saudi citizens, the government is finalizing a sweeping overhaul of the existing labor law.  The new law consists of 179 articles, encompassing all labor issues affecting employees and their employers.

 

Drawing upon the principles of Shariah which call for observance of human rights and the furtherance of social justice, the law proposes to regulate all aspects of employment within the Kingdom.  Its provisions will apply to the approximately 500,000 private firms operating in the country which employ more than 7,500,000 workers.

 

Although issuance of the new labor law is not required by the Kingdom’s bid for WTO membership, it will amend provisions in the existing law that violate international labor agreements which have been ratified by the Saudi government.  The clear goal of the proposed law is to promote Saudization in the private sector as long as there are trained Saudis who can take over the jobs which are available.  Currently, one half of the small and medium-sized companies – which represent 70% of the Saudi market – are being operated by expatriate workers.  Given the Saudi unemployment rate, the new labor law rightfully promotes the goal of Saudization.

 

The proposed labor law addresses employee training and qualification, labor relations and conditions such as wages, working hours, breaks, days off, and vacations, prevention of occupational accidents and compensation for work-related injuries, employment of women and children, labor disputes, and job site inspections among other provisions.

 

The employment of women in dangerous professions and harmful industries is strictly prohibited.  Women are not to be employed in jobs having night shifts stretching to eleven consecutive hours.  Employers will be required to provide medical care to women during pregnancy and after delivery, and they must designate a special rest area for all female employees.

 

Pregnant women would have the right to take maternity leave for four weeks before or after their delivery date and are entitled to half of their normal salary if they have completed more than one year of employment.  Employers are prohibited from terminating the services of any female worker during maternity and sick leaves.

 

Upon return from maternity leave, nursing mothers would receive one hour in addition to their usual daily breaks to feed their babies, which will be considered compensable time.  For those business owners employing more than fifty female employees, the law urges them to provide nannies to supervise and care for all children who are under six years of age.

 

The new labor law is expected to be submitted to the Ministry of Labor for final approval sometime this summer.

 

Electronics Transaction Law Coming

 

Saudi Arabia’s first e-Transaction Law is expected to be approved soon.  The law will facilitate secure electronic transactions that are being increasingly utilized by business and industry.  The Kingdom is set to be the first of the Gulf countries to have its own national Public Key Infrastructure (PKI) system.

 

PKI is a security system that transmits financial transactions over a public network by issuing certificates for confidentiality, integrity, authentication and non-repudiation of data.  It is essential to secure electronic monetary dealings and reduce the possibility of electronic fraud and misuse.

 

In order for e-Transaction to work, PKI must be utilized along with a dependable telecommunication infrastructure, an electronic payment system for money transactions, and well-defined regulations governing electronic business transactions.

 

The e-Transaction Law provides for electronic signatures of legal documents, thus validating and furthering international business agreements.  Some companies, such as Saudi Aramco and other large firms, are already using PKI internally with success, but they need a national Saudi PKI to be fully operational to support their systems.

 

The King Abdul Aziz City for Science and Technology is currently testing the Saudi PKI system, and the only issue delaying implementation is passage of the e-Transaction Law.

 

 Drive To Protect Intellectual Property Rights

                                           

Since March 14, 2004, when the Kingdom enacted a new copyright law, the crackdown on piracy has shown results.  Recently in Jeddah, more than 1.2 million pirated PlayStation Cds worth more than SR26 million were confiscated in a single raid.  By banning the sale of pirated computer software, audio cassettes and videos, the Ministry of Culture and Information reports a 27% drop in the sale of pirated computed programs last year.  Even so, total losses due to piracy exceed $120 million annually.

 

The Ministry recently set up a committee to launch a public awareness campaign on the need to boycott pirated products because of the negative effects such products have on the economy, particularly on investments in the information technology sector.

 

The new copyright law imposes severe penalties on infringers, including fines of up to SR500,000, publishing the violator’s name at his own expense in local newspapers, and compensating copyright holders for damages caused by infringements.

 

New Capital Markets Authority Established

 

In July, Saudi Arabia established a board for a capital markets authority to implement last year’s capital markets law designed to attract foreign investment.  When the law was passed in June 2003, it was hoped that it would revolutionize the Saudi stock market by encouraging more companies to list with the stock exchange, permitting them to issue corporate bonds, and giving banks and brokers a larger role in the stock exchange.

 

Although implementation of the capital markets law is months behind schedule, establishment of the five-member board is a good first step in broadening the Saudi stock market by attracting foreign investors.  The goal is not simply to regulate the market, but rather to substantially reduce, if not eliminate, investment restrictions which currently exist.

 

The capital markets law is designed to provide more transparency in the stock market to encourage average investors to invest with confidence.  Although the Board will concentrate on encouraging more domestic investment, some restrictions will be eased to attract foreign investment as well.

 

A number of international banks recently have been licensed to operate in the Kingdom, and it is expected that they will bring their expertise in providing successful investment techniques to the Saudi stock market.  Further, these banks will compete with Saudi banks in providing better services and lower costs.

 

International banking institutions are expected to bring needed foreign capital to Saudi Arabia, but the capital markets board will be careful to approve regulations that will instill confidence in the Saudi market, thus preventing the outflow of local capital from the Kingdom.  Credit and lending regulations also need to be updated to facilitate the functioning of the Saudi banking sector and its interaction with foreign banking institutions.

 

WTO Accession Imminent

 

After more than ten years, Saudi Arabia’s bid for membership in the World Trade Organization (WTO) is nearing a successful conclusion.  The WTO is comprised of 146 nations, and Saudi Arabia along with Russia and the Ukraine remain the three largest economies still not admitted as members.

 

The Kingdom has enacted significant and wide-ranging economic reforms in the past few years to enhance its accession bid to the WTO.  Saudi public enterprises have been restructured to allow foreign investment, and laws pertaining to intellectual property, import licenses, health measures, customs and trade have been passed to liberalize the Saudi economy.

 

The Kingdom has signed bilateral agreements with 34 countries, which is a prerequisite for WTO accession.  Only a bilateral agreement with the United States remains to be concluded, and that is expected before the end of this year.  Negotiations with the United States have slowed due to the latter’s insistence that the Kingdom stop providing below-market-priced gas to Saudi citizens.  Australia, Argentina, Canada and New Zealand also have requested further meetings to resolve how far the Kingdom will open its markets to farm produce imports and what health standards it will apply.

 

In preparation for the Kingdom’s accession to the WTO, the Council of Saudi Chambers of Commerce and Industry is establishing a service center to provide technical support to Saudi businessmen.  The center will give assistance to agricultural, industrial, and commercial and other Saudi businesses as well as provide Arabic translations of WTO documents and other reference materials.  The center should be in operation by the beginning of 2005 in Riyadh.

 

Saudi Arabia first applied for membership to the WTO’s predecessor, the General Agreement on Tariffs and Trade (GATT), in 1993 and for WTO membership two years later.