Order Code RL33328
CRS Report for Congress
Received through the CRS Web
Proposed U.S.-Oman Free Trade Agreement
Updated July 19, 2006
Mary Jane Bolle
Specialist in International Trade
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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Proposed U.S.-Oman Free Trade Agreement
Summary
In aiming to fight terrorism with trade, the United States has negotiated and the
President signed on January 19, 2006, the U.S.’s fifth bilateral free trade agreement
(FTA) in the proposed 20-entity Middle-East-Free Trade Area (MEFTA). This
proposed FTA is with Oman. Other U.S.-FTAs are with Israel, Jordan, Morocco, and
Bahrain. A sixth is being negotiated with the United Arab Emirates. Oman is a small
oil-exporting U.S. trade partner that has been supportive of U.S. policies in the
Middle East and is strategically located at the mouth of the Persian Gulf. Because
its oil reserves could be exhausted within 15-20 years, Oman is trying to liberalize
and diversify its trade regime beyond oil and gas to provide economic opportunities
for its fast growing workforce. Supporters of the agreement typically cite political
and economic reasons. Opponents typically point to labor and human rights issues.
The proposed FTA with Oman is similar to other MEFTA FTAs and has three
basic parts: new tariff schedules, broad commitments to open markets and provisions
to support those commitments, and protections for labor and the environment. It
would provide immediate duty-free access for almost all consumer and industrial
goods, with special provisions for agriculture and textiles and apparel.

Among all U.S. trade partners, Oman ranks 88th for the United States, while the
United States ranks third for Oman (after the United Arab Emirates and Japan).
U.S.-Oman trade at about $1 billion for 2005 represents 0.04% (four-one hundredths
of one percent) of total U.S. trade. In 2005, the most important U.S. imports from
Oman were oil and natural gas (75%), and apparel (10%). The most important U.S.
exports to Oman were transport equipment (56%), and machinery (24%). The U.S.
International Trade Commission (USITC) predicts that the economic effect of the
proposed U.S.-Oman FTA is likely to be minimal since trade levels are low; and any
increase in U.S. imports of apparel would come at the expense of workers elsewhere
in the world, not in the United States. Total U.S. foreign direct investment in Oman
was $358 million in 2003, up from $193 million in 2002.
Supporters argue that a U.S.-Oman FTA would contribute to economic growth
and trade between both countries, generate export opportunities for U.S. companies,
farmers, and ranchers, help create jobs in both countries, and help American
consumers save money while offering them greater choices. Critics argue that labor
protections under the proposed FTA are inadequate for Omani workers in particular
and would not afford Omani workers protections equal to those afforded them
currently under the Generalized System of Protections. They also argue that the
proposed FTA would not help level the playing field for Omani and U.S. workers.
For information on the most recent issues in the Congressional debate, see “Current
Issues,” below. Once the President submits the agreement together with the
implementing legislation to Congress, any committees to which it is referred have 45
days to consider (or not consider) it, and either House has 15 more days to vote the
legislation up or down without amendment to the agreement itself or the legislation.
The Senate passed S. 3569, a bill to implement the U.S.-Oman FTA, on June 29,
2006, and the House is scheduled to consider H.R. 5684, a companion bill, the week
of July 17, 2006. This report will be updated as events warrant.

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Contents
Why Oman? Why Now? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
U.S.-Oman Bilateral Trade and Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Foreign Direct Investment in Oman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Proposed U.S.-Oman FTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Tariff Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Market Access and Related Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Commitments to Open Services Markets . . . . . . . . . . . . . . . . . . . . . . . 6
Opportunities for Banks, Insurance, Securities, and Related
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
New Protections for U.S. Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Open and Competitive Communications Market . . . . . . . . . . . . . . . . . 6
E-Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Copyright Protection in a Digital Economy . . . . . . . . . . . . . . . . . . . . . . 7
Patents and Trade Secrets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Intellectual Property Rights (IPR) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Transparent Sanitary and Phytosanitary Measures and Technical
Barriers to Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Government Procurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Customs Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Transparent Rule-Making and Procedural Protections for Traders . . . . 7
Commitments to Combat Bribery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Tools to Enforce the Trade Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 7
Protections for Labor and the Environment . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Labor Protections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Environmental Protections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Debate Over the Proposed Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Arguments in Favor of the Proposed Agreement . . . . . . . . . . . . . . . . . . . . . . 9
Supporters of the Proposed Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 9
Arguments in Favor of the Proposed Agreement . . . . . . . . . . . . . . . . . 10
Arguments Against the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Intergovernmental Affairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Weaknesses in Omani Law and Enforcement . . . . . . . . . . . . . . . . . . . 13
Congressional Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Current Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Possible Outcomes of a Congressional Vote on the FTA and Potential
Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

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List of Figures
Figure 1. Oman’s Geographic Location in the Proposed MEFTA . . . . . . . . . . . . 2
List of Tables
Table 1. U.S. Imports from and Exports to Oman, 2005 . . . . . . . . . . . . . . . . . . . 4

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Proposed U.S.-Oman Free Trade
Agreement
A proposed U.S. free trade agreement (FTA) with Oman was concluded on
October 13, 2005, after seven months of negotiation, and was signed by U.S. Trade
Representative (USTR) Bob Portman and Omani Minister of Commerce and Industry
Maqbool bin Ali Sultan on January 19, 2006. The proposed U.S.-Oman (FTA) is the
fifth U.S. bilateral free trade agreement with a country in the proposed Middle East
Free Trade Area (MEFTA). MEFTA would consist of 16 entities in the Middle East
and four in North Africa. The entire proposed MEFTA is included in the map in
Figure 1, with Oman, heavily shaded, in the lower right hand corner.
Completion of a MEFTA by 2013 was
proposed by President George W. Bush in
2003, as part of a plan to fight terrorism by
About Oman
supporting Middle East economic growth
(for 2005 except as indicated)
and democracy through trade.1 To date,
Location: mouth of the Persian Gulf
besides Oman, the Administration has
(see map)
negotiated and Congress has implemented
Size: slightly smaller than Kansas
free trade agreements with four other
Religion: Ibadhi Muslim 75%, Sunni
MEFTA political entities: Israel and Jordan
Muslim, Shi’a Muslim Hindu
(before MEFTA was announced), Morocco,
Government: monarchy
GDP: $40 billion (similar to that of
and Bahrain. A sixth FTA is being negotiated
Idaho)
with the United Arab Emirates (UAE).2
Labor force: about 1 million (2002)
Unemployment rate: 15% (2004)
Population: roughly 3 million (43%
under age 14) growing at 3.3% per year
Per-capita income: $13,400
Industries: crude oil production and
refining, natural and liquefied natural gas
production, construction, cement, copper,
steel, chemicals, optic fiber.
Primary source: CIA The World
Factbook, 2006.
1 For MEFTA background in this section see CRS Report RL32638, Middle East Free
Trade Area: Progress Report, by Mary Jane Bolle. For background on Oman, see CRS
Report RS21534, Oman: Reform, Security, and U.S. Policy, by Kenneth Katzman; and CRS
Report RL31533, The Persian Gulf States: Issues for U.S. Policy, 2006, by Kenneth
Katzman.
2 The 16 entities in the Middle East (see map p.2) are Bahrain, Cyprus, Egypt, Gaza Strip
and West Bank, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia,
(continued...)

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CRS-2
Congressional consideration of the proposed U.S.-Oman FTA, which is
expected to occur some time this year, is governed by the timeline set forth in the
Trade Act of 2002, (P.L. 107-210). Under this law, which lays out the President’s
trade promotion authority (TPA), the President must give Congress a 90-day
prenotification of his intent to enter into the trade agreement.3 After that, the
President must submit to Congress — under no particular time constraints, but on a
day when both houses of Congress are in session — both the agreement itself and the
implementing legislation. Any House or Senate committees to which the legislation
is referred will have 45 days to report (or not report) the bill; and each house has 15
days after the bill is reported (or the 45 days expire) to consider the legislation. If the
House passes its bill to the Senate, the Senate has an additional 15 days to consider
the legislation. Floor debate in either house is limited to 20 hours, divided equally
between supporters and opponents. For final passage, both houses must vote the
legislation up or down by a simple majority, and neither the implementing legislation
nor the agreement itself may be amended.4
Figure 1. Oman’s Geographic Location in the Proposed MEFTA
Caspian
Sea
S t r a i t o f G i b r a l t a r
M e d i t e r r a n e a n
TUNISIA
S e a
SYRIA
IRAQ
MOROCCO
I R A N
Dead Sea
JORDAN
A L G E R I A
L I B Y A
E G Y P T
S A U D I
U. A. E.
R
A R A B I A
e d Sea
WEST
O M A N
BANK
GAZA
STRIP
Y E M E N
G u l f o f
A d e n
Source: Map Resources. Adapted by CRS. (K.Yancey 12/5/05)
Why Oman? Why Now?
U.S. interest in Oman stems from a number of factors. Oman is a small exporter
of oil and natural gas that is strategically located at the entrance to the Persian Gulf,
35 miles directly opposite Iran. It is not a member of the Organization of the
Petroleum Exporting Countries (OPEC). Oman is a moderate Islamic country which
has sought to maintain good relations with all Middle East countries. It also has a 170
year history of political and economic cooperation with the United States, and has
2 (...continued)
Syria, United Arab Emirates, and Yemen; the four in North Africa are Algeria, Libya,
Morocco, and Tunisia.
3 Prenotification was given on October 17, 2005 — three days after negotiations were
concluded. Subsequently, the agreement was officially “entered into,” or signed, on
January 19, 2006.
4 CRS Report RL32011, Trade Agreements: Procedure for Congressional Approval and
Implementation, by Vladimir N. Pregelj.

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CRS-3
supported the U.S. war on terrorism.5 Oman is an important gateway to the Persian
Gulf region.
Oman has many reasons for wanting to negotiate an FTA with the United States.
It is a country whose proven oil reserves could be exhausted within 15 or 20 years;
yet, almost 40% of the country’s GDP, two-thirds of its export earnings and three-
fourth of its government revenues currently come from oil revenues. It is therefore
trying to liberalize and diversify its trade regime as it seeks to broaden economic
opportunities for a fast-growing workforce. As a result, it is looking to expand its
economy beyond oil and gas exports. It sees the United States as an important ally
in the venture to prepare itself for a time when its economic and social challenges
intersect.6
U.S.-Oman Bilateral Trade and Investment
Oman is a small U.S. trade partner, ranking 88th among all U.S. trade partners.
Total U.S.-Oman trade at $1 billion in 2005 ($593 million in U.S. exports and $555
million in U.S. imports) accounts for 0.04% (four one-hundredths of one percent) of
all U.S. trade. As a trading partner it is also 11th among the 20 MEFTA entities,
which together represent 4% of U.S. trade for 2005. The United States, on the other
hand, ranks fourth in importance among Oman’s trading partners, behind the United
Arab Emirates (UAE), Japan, and the United Kingdom for 2004 (most recent data).
In 2005, the most important U.S. imports from Oman (see table 1) were oil and
natural gas (75%, constituting 1% of all U.S. oil and gas imports from MEFTA
countries), and apparel (10%). The most important U.S. exports to Oman were
various types of transport equipment and road vehicles (totaling 56%), and various
types of machinery (24%). Since 2001, U.S. exports to Oman have almost doubled
to $593 million, for various reasons, while U.S. imports from Oman, at $555 million,
have increased by about a third, primarily because of increases in the price of
petroleum imports. As a result, for 2005, the United States had a small trade surplus
with Oman.
Foreign Direct Investment in Oman
Total U.S. foreign direct investment in Oman was $358 million in 2003, nearly
double the $193 million investment in 2002.7 The Bureau of Economic Analysis
does not report on investment by sector for Oman, when investment is highly
concentrated in a small number of investors, and such reporting might reveal the
5 U.S. Department of State, Bureau of Near Eastern Affairs. Background Note: Oman.
February 2006.
6 Times of Oman - Local News. Oman, U.S. Sign Free-Trade Pact. January 20, 2006; and
Gulf Times. Step Forward in Mideast. January 30, 2006.
7 Office of the U.S. Trade Representative. 2005 National Trade Estimate Report on Foreign
Trade Barriers, p. 458.

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CRS-4
identity of individual investors. However, most of it is likely invested in oil and gas-
related facilities.
Table 1. U.S. Imports from and Exports to Oman, 2005
U.S. Imports from Oman
U.S. Exports to Oman
Import and
Export and
(SITC number)
$mil
%
(SITC Number)
$mil
%
Petroleum (33)
400
72% Transport equipment (79)
170
29%
Apparel (84)
53
10% Road Vehicles (78)
159
27%
Natural Gas (43)
14
3% Machinery (72,74,71,77)
145
24%
Misc. Manufacturing (89)
57
10% Scientific instruments (87)
14
2%
Iron and Steel (67)
10
2% Food/agricultural (1-11)
11
2%
Subtotal $534
97% Subtotal
$499
84%
Other
21
3% Other
94
16%
TOTAL
$555 100% TOTAL
$593 100%
Source: U.S. International Trade Commission Dataweb; SITC: Standard International Trade Code.
However, the Department of Commerce’s Country Commercial Guide for Oman
reported that the largest investor in Oman is Royal Dutch Shell Oil which holds 34%
of Petroleum Development in Oman, the state oil company, and 30% of Oman Liquid
Natural Gas. In addition, U.S. firms, Gorman Rupp (water pumps) and FMC
(wellhead equipment), have entered into industrial joint ventures with Omani firms,
and Dow Chemical announced a joint venture with Oman Oil Company and the
government of Oman in July 2004 to develop a large petrochemical plant in Sohar.8
The Country Commercial Guide for Oman also reported that total investment
in listed Omani companies with foreign participation was $2.4 billion in September
2004, of which 8.94% ($215 million) was (worldwide) foreign investment. Foreign
capital also constituted 7.5% of all capital invested in finance, 3% of all capital
invested in manufacturing, and 9% of all capital invested in insurances and services.9
The Proposed U.S.-Oman FTA

The proposed FTA with Oman is similar to other recent FTAs with MEFTA
countries (Morocco and Bahrain), with slight variations. The proposed U.S.-Oman
FTA has three basic parts: new tariff schedules for each country, broad commitments
8 U.S. Department of Commerce. Doing Business in Oman: A Country Commercial Guide
for U.S. Companies (no date). Section on foreign direct investment statistics.
9 Ibid.

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CRS-5
to open markets and provisions to support these commitments, and protections for
labor and the environment.
The USITC argues that the economic effect of the agreement on the U.S.
economy is expected to be small but positive, and that the impact on U.S. workers
is likely to be minimal because trade with Oman is low. U.S. apparel workers are a
group that is potentially adversely affected. Apparel imports from Oman declined
by 57% in 2005 over 2004, because the World Trade Organization (WTO)
Agreement on Clothing and Textiles (ACT) expired in January of 2005, ending the
trade quota system among WTO partner countries. The USITC reports that tariff
reductions and elimination under the proposed U.S.-Oman FTA should restore some
of the competitiveness of Oman’s apparel exports among U.S. purchasers — and
estimates that the resulting increase in imports would come at the expense of workers
elsewhere in the world, not U.S. workers.10
Tariff Provisions
Under the proposed U.S.-Oman FTA, the United States and Oman would
provide each other immediate duty-free access for tariff lines covering almost all
consumer and industrial goods, with special provisions for agriculture and textiles
and apparel. For agricultural products, Oman would provide immediate duty-free
access for current U.S. exports in 87% of agricultural tariff lines; and the United
States would provide immediate duty-free access for 100% of Oman’s current
exports of agricultural products to the United States. Both countries would phase out
all tariffs on the remaining eligible goods within 10 years.11
Textile and apparel products are divided into three categories. Most U.S.
imports from Oman are category A (cotton and manmade fibers) for which duties
would be eliminated immediately so long as the goods meet the FTA rules of origin
requirements. On category B products (home furnishings — mainly bed and kitchen
linens) tariffs would be reduced over five years, and for category C products (wool
goods), tariffs would be reduced over 10 years. Most apparel must be assembled in
an FTA party from inputs (yarn and fabric) made in an FTA party.12
At present, virtually all U.S. textile and apparel imports from Oman are dutiable,
with an average tariff rate of 15.4% in 2005. At the same time, only 11% of U.S.
agricultural imports from Oman are dutiable. These dutiable products carried an
average tariff of 10.4% in 2005.13 Most U.S. exports to Oman incurred the common
external Gulf Communications Council (GCC) tariff of 5% to all non-GCC members.
The GCC includes, besides Oman, Bahrain, Kuwait, Qatar, Saudi Arabia, and the
UAE.
10 U.S. International Trade Commission (USITC). U.S.-Oman Free Trade Agreement:
Potential Economy-Wide and Selected Sectoral Effects, p. 2-4, 2-5.
11 Office of the USTR, Summary of the U.S.-Oman Free Trade Agreement, Sept. 2005.
12 USITC, op. cit., p. 2-4, 2-5.
13 CRS calculations from USITC Dataweb.

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CRS-6
Market Access and Related Provisions14
The proposed U.S.-Oman FTA contains broad commitments to open markets
in sectors such as banking, insurance, securities, and telecommunications. It also
includes protections for U.S. investors, and for holders of copyrights, trademarks,
patents, and trade secrets. It includes enforcement measures for intellectual property
rights infringement. In addition it contains transparent sanitary and phytosanitary
measures, government procurement disciplines, streamlined and transparent customs
procedures, commitments to combat bribery, and tools to enforce the trade
agreement. More specifically:
Commitments to Open Services Markets. Oman would provide market
access across its entire services regime, including audiovisual, express delivery,
telecommunications, computer, distribution, and healthcare; and services incidental
to mining, construction, architecture and engineering. The agreement would enhance
Oman’s commitment to the WTO General Agreement on Trade in Services
(GATS).15 Annexes I and II of the agreement indicate the exceptions to the coverage
of the agreement that each country has reserved for itself in the case of services.
Opportunities for Banks, Insurance, Securities, and Related
Services. U.S. financial service suppliers would have the right to establish
subsidiaries, branches, and joint ventures in Oman, to expand their operations
throughout Oman, and to offer the full range of financial services. Annex III of the
agreement lists the exceptions to the coverage of the agreement that each counry has
reserved for itself in the area of trade in financial services.
New Protections for U.S. Investors. All forms of investment would be
protected under the agreement, including enterprises, debt concessions, contracts, and
intellectual property. U.S. investors would enjoy in most circumstances, the right to
establish, acquire, and operate investments in Oman on an equal footing with Omani
investors and with investors of other countries. Annexes I and II of the agreement
indicate the exceptions to the coverage of the agreement that each country has
reserved for itself in the case of foreign investment.
Open and Competitive Communications Market. U.S. phone
companies would have the right to interconnect with a dominant carrier in Oman at
nondiscriminatory rates. U.S. firms seeking to build a physical network in Oman
would have nondiscriminatory access to key facilities such as telephone switches and
submarine cable landing stations.
E-Commerce. Each government would commit to nondiscriminatory
treatment of digital products and would agree not to impose customs duties on digital
products transmitted electronically.
14 This section only, except as otherwise indicated, is from USTR. Summary of the U.S.-
Oman FTA, op. cit.
15 USITC op. cit, p. xii (this sentence).

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CRS-7
Copyright Protection in a Digital Economy. Each government would
commit to protect copyrighted works, including phonograms, for extended terms
consistent with U.S. standards and international trends.
Patents and Trade Secrets. Grounds for revoking a patent would be limited
to the same grounds required to originally refuse a patent, thus protecting against
arbitrary revocation. Patent terms could be adjusted to compensate for unreasonable
delays in granting the original patent, consistent with U.S. practice.
Trademarks. The proposed FTA would apply the principle of “first-in-time,
first-in-right” to trademarks and geographical indications, so the first person who
acquires a right to a trademark or geographical indication would be the person who
has the right to use it. Each government would be required to establish transparent
procedures for the registration of trademarks.
Intellectual Property Rights (IPR). The proposed FTA would require each
government to criminalize end-user piracy, providing a strong deterrence against
piracy and counterfeiting. The proposed FTA would mandate both statutory and
actual damages under Omani law for IPR violations.
Transparent Sanitary and Phytosanitary Measures and Technical
Barriers to Trade. Oman would commit to a science-based regime for sanitary and
phytosanitary measures and to transparent procedures for developing and
implementing technical regulations.
Government Procurement. U.S. suppliers would be granted
nondiscriminatory rights to bid on contracts to supply most Omani government
entities; and Omani government purchasers could not discriminate against U.S. firms
or in favor of Omani firms when making government purchases above a threshold
monetary level.
Customs Procedures. The proposed FTA would require transparency and
efficiency in customs administration, including publication of laws and regulations
on the Internet and procedural certainty and fairness.
Transparent Rule-Making and Procedural Protections for Traders.
Each government would publish its laws and regulations governing trade, and would
publish proposed measures in advance, and provide an opportunity for public
comment on them. Each government would ensure that a trader from the other
country could obtain prompt and fair review of a final administrative decision
affecting its interest.
Commitments to Combat Bribery. Each government would be required to
prohibit bribery, including bribery of foreign officials, and to establish appropriate
criminal penalties to punish violators.
Tools to Enforce the Trade Agreement. All core obligations of the
proposed FTA, including enforceable labor and environmental provisions, would be
subject to the dispute settlement provisions of the agreement. Dispute panel
proceedings would be subject to requirements for openness and transparency.

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CRS-8
Protections for Labor and the Environment
Labor Protections. Each government would be required to effectively
enforce its own labor laws, as with other FTAs negotiated under the presidential trade
promotional authority or “fast track” authority of the Trade Act of 2002 (P.L. 107-
210). This would be the only labor provision enforceable through the proposed
agreement’s dispute resolution process, and the maximum penalty for each violation
would be limited to $15 million per violation per year. If the Party complained
against fails to pay a monetary assessment, the complaining Party can take other steps
to collect the assessment (or otherwise secure compliance), including by the
suspension of tariff benefits under the FTA.
However, the labor section of the proposed U.S.-Oman FTA also contains other
provisions, which are subject to consultation rather than actual enforcement: Each
country would also agree not to weaken or reduce its labor laws to attract trade and
investment. Each government would reaffirm its obligations as a member of the
International Labor Organization (ILO, which requires it to uphold ILO core labor
standards) and commit to “strive to ensure” that its laws provide for labor standards
consistent with internationally recognized labor rights (which are defined in the
proposed FTA to reflect U.S. trade law, and are slightly different from ILO core labor
standards.)16 Labor ministries together with other appropriate agencies would agree
to establish priorities and develop specific cooperative activities.
On July 8, 2006, the Sultan of Oman issued a Royal Decree (74/2006) amending
provisions of Omani labor law to provide some labor rights consistent with ILO core
labor standards. As amended by the decree, Omani law would permit the right to
form unions, the right to bargain collectively, and to engage in other union activities.
The law would also prohibit employers and others from imposing any compulsory
or forced labor with specific penalties for noncompliance. Penalties are provided for
those who would interfere with union activity, or decline to provide the necessary
facilitation or information. The Royal Decree delegates promulgation of regulations
to the Ministry of Manpower; therefore, specific details regarding its implementation
and enforcement are yet to be determined.17
16 While both ILO core labor standards and U.S. internationally recognized worker rights
provisions (defined in the Trade Act of 1972 as amended) refer to similar standards, they
differ in one respect. While both lists include the right to organize and bargain collectively,
a prohibition against forced labor, and protections for child labor, the ILO set includes
additionally protections against employment discrimination; while the U.S. set includes
additionally labor protections relating to minimum wages, maximum hours, and safety and
health protections.
17 Qaboos bin Sa’id, Sultan of Oman. Royal Decree 74/2006. Amending Some Provisions
of the Labor Law. See also July 12, 2006 Letter of Omani Ambassador Humaina Al-
M u gh a i r y t o U S T R S u s a n S c h w a b s u m m a r i z i n g i t s p r o v i s i o n s
[http://www.nftc.org/default/trade/mefta/oman/071206%20Oman%20ltr%20to%20UST
R%20re%20labor.pdf].

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CRS-9
Environmental Protections. Each government would be required to
effectively enforce its own environmental laws. This would be the only
environmental provision enforceable through the proposed agreement’s dispute
resolution process, and as with labor provisions, the maximum fine would be limited
to $15 million per violation per year.
Each country would also agree not to weaken or reduce its environmental laws
to attract trade and investment. As a complement to the proposed agreement, the
governments would sign a Memorandum of Understanding on Environmental
Cooperation that would establish a Joint Forum on Environmental Cooperation,
develop a plan of action, and set priorities for future environment-related projects.
The Debate Over the Proposed Agreement
Arguments in Favor of the Proposed Agreement
Supporters of the Proposed Agreement. Support for the agreement is
broad in the business community. Among businesses, support is led by the National
Foreign Trade Council and the Business Council for International Understanding
which heads up the Middle East Free Trade Coalition (MEFTC), an alliance of about
120 companies and associations including the U.S. Chamber of Commerce, and the
National Association of Manufacturers. Support also comes from 24 out of 27 trade
advisory committees representing business labor, environment, state and local
government, agriculture, various industries, and functional areas (e.g., consumer
goods, distribution services, small and minority businesses, customs matters,
intellectual property, and standards and technical trade barriers.)18
Congressional support on the House side is led by the Congressional Middle
East Economic Partnership Caucus (MEEPC), a bipartisan group of lawmakers
which began with 16 members and six co-chairs including Representatives Ben
Chandler, Phil English, Darrell Issa, William Jefferson, Gregory Meeks, and Paul
Ryan.
Congressional support on the Senate side is led by Senator Charles Grassley,
Chairman of the Senate Finance Committee, and by Senator Craig Thomas,
Chairman of the Subcommittee on International Trade, which held hearings on the
proposed U.S.-Oman FTA on March 6, 2006.
18 Sec. 2104(e) of the Trade Act of 2002 requires that advisory committees provide the
President, the U.S. Trade Representative, and Congress with reports required under Section
135(e)(1) of the Trade Act of 1974, as amended, not later than 30 days after the President
notifies Congress of his intent to enter into an agreement. Under Section 135(e) of the
Trade Act of 1974, as amended, the report must include an advisory opinion as to whether
and to what extent the Agreement promotes the economic interests of the United States and
achieves the applicable overall and principal negotiating objectives set forth in the Trade
Act of 2002.

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CRS-10
Arguments in Favor of the Proposed Agreement. USTR Portman has
asserted that the proposed U.S.-Oman FTA would contribute to economic growth and
trade between both countries, generate export opportunities for U.S. companies,
farmers, and ranchers, help create jobs in both countries, and help American
consumers save money while offering them greater choices. He points out that in
addition to eliminating tariffs on U.S. exports, Oman would provide substantial
market access across the entire services regime, provide a secure, predictable legal
framework for U.S. investors operating in Oman, provide for effective enforcement
of labor and environmental laws, and protect intellectual property. Furthermore, he
argues that this proposed agreement would support and accelerate the market
liberalization that Oman started as part of its accession to the WTO in 2000.
Portman contends that joint U.S.-Omani efforts would advance economic growth
and democracy, raise living standards and promote peace and economic stability in
the Middle East — a region of almost 350 million people and a $70 billion trading
relationship with the United States.19
The overall Advisory Committee for Trade Policy Negotiations (ACTPN) also
notes that the proposed agreement, if approved, would strengthen the likelihood of
additional agreements in the region and improve and strengthen overall U.S. relations
with the countries of the Middle East.20
In addition, those in favor of the proposed agreement assert that Oman is one
of the most “open” countries in the Middle East. Economic Freedom of the World,
2005, published by Canada’s Fraser Institute, reports (p. 4) that when measures of
economic freedom and democracy are included in a statistical study, economic
freedom is about 50 times more effective than democracy in diminishing violent
conflict. Economic Freedom ranked Oman 17th out of 127 countries in terms of
degree of economic freedom afforded in five basic areas.21 The only MEFTA country
it ranked higher was the UAE, which tied for 9th place (with Australia, Luxemburg,
and Estonia.) Other MEFTA country rankings were Bahrain (24th), Jordan (25th),
Israel ( 50th), and Egypt, (tied for 78th with Iran and Morocco.)22
In 2003, Oman passed a new labor law extending its labor protections for
domestic workers to foreign workers (who predominate in the private sector). In
response to some calls to strengthen the Omani labor law further, Chuck Ditrich,
National Foreign Trade Council vice president, urges patience, acknowledging that
19 Office of the USTR. United States and Oman Conclude Free Trade Agreement. Oct. 3,
2005.
20 Letter from William E. Frenzel, former Member of Congress and Chairman of ACTPN,
November 15, 2005.
21 These are: size of government expenditures and taxes, legal structures and security,
access to sound money, freedom to trade internationally, and regulation of credit, labor, and
business.
22 The Fraser Institute. Economic Freedom of the World, 2005 Annual Report, by James
Gwartney, Florida State University, Robert Lawson, Capital University, with Erik Gartzke,
Columbia University. 188 p. The five areas are: (1) size of government; (2) legal structure
and protection of property rights; (3) access to sound money; (4) international exchange; and
(5) regulation.

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CRS-11
Oman still has some areas that may need further legislation, but argues that Omani
laws must be viewed in the context of a “very traditional society” that is committed
to modernization.23 For example, the government of Oman reportedly recognizes the
need for more explicit provisions for collective bargaining in its laws.24 Moreover,
Oman has reportedly undertaken consultation with the ILO for technical assistance
in complying with ILO core labor standards.25
Arguments Against the Agreement
Three of the 27 reports by trade advisory committees mandated under the trade
promotion authority language of the Trade Act of 2002 have some criticisms of the
proposed U.S.-Oman FTA: those committees on the environment, intergovernmental
affairs, and labor.
Environment. Most members of the Trade Policy and Environment
Committee agreed that the environment and public participation provisions were
acceptable; however, they noted that the proposed U.S.-Oman FTA lacks some
environmental provisions which have appeared in other agreements and which would
have been appropriate. Examples of such provisions are the extensive public
participation framework from the Central America Free Trade Agreement (CAFTA)
and some basic environmental provisions which appeared in the FTAs with Chile and
Singapore.26
Intergovernmental Affairs. The Intergovernmental Advisory Policy
Committee, in principle, supported the trade liberalization objectives of the proposed
agreement. However, the committee stressed the need for trade agreements to
continue to respect the authority of state and local governments to regulate in areas
under their jurisdiction. They also stressed the need for ongoing consultations with
sub-federal governments.27
Labor. The labor groups are the most vocal critics. They argue that potential
losers from the proposed agreement would be workers in Oman who would miss out
on the opportunity to be more fully protected by labor standards. Other implied losers
would be U.S. workers for whom the proposed agreement does little to “level the
23 Labor Promising Battle Over Bush’s Mideast Trade Agenda. Congress Daily. March 2,
2006.
24 Response from the Sultanate of Oman to the House Ways and Means Trade Subcommittee
Minority Staff, January 4, 2006.
25 Letter from Ambassador Hunaina Al-Mughairy, Omani Ambassador to the United States,
to the Minority Chief Counsel of the Trade Subcommittee, House Ways and Means
Committee accompanying Response from the Sultanate of Oman to the House Ways and
Means Trade Subcommittee Minority Staff, January 4, 2006.
26 Trade and Environment Policy Advisory Committee. The U.S.-Oman Free Trade
Agreement. November 15, 2005. 30 p.
27 Office of the USTR. Trade Advisory Committees Support U.S.-Oman FTA. Nov. 18,
2005. See also Intergovernmental Policy Advisory Committee. The U.S.-Oman Free Trade
Agreement (FTA). November 15, 2005.

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CRS-12
playing field.” Main arguments against the proposed FTA offered by labor interests
are concentrated primarily on two basic issues: weaknesses in the proposed
agreement, and weaknesses in Omani laws and enforcement, for which the proposed
agreement does not adequately compensate.
Weaknesses in the Proposed Agreement. Labor critics point out that
the Trade Act of 200228 requires U.S. negotiators to “seek provisions that treat U.S.
principal negotiating objectives equally with respect to both: (1) the ability to resort
to dispute settlement; and (2) the availability of equivalent dispute settlement
procedures and remedies. However, critics argue, the proposed agreement does not
do this. Further, they argue, the proposed FTA is a step backward from protections
offered Oman under the Generalized System of Preferences:
Not All Labor Provisions Are Treated Equally. The proposed U.S.-Oman
FTA identifies three basic labor commitments for partner countries: (1)
commitments to comply with ILO standards; (2) commitments to enforce their own
labor standards; (3) and commitments to not derogate from those standards in order
to attract trade and investment. However, critics argue, only the second of these three
commitments is enforceable through the dispute resolution procedures of the
proposed U.S.-Oman FTA. This treatment, they argue, contrasts with provisions of
the U.S.-Jordan FTA which makes all three commitments enforceable through the
dispute resolution process.29
Unequal Treatment of Labor Compared to Most Non-Labor Provisions.
Second, there are different dispute resolution procedures for labor and non-labor
(e.g., intellectual property) violations, For labor (and environmental) violations, the
potential penalty for the one labor (and environmental) violation (failure to enforce
one’s own laws) that is open to the dispute resolution procedures is capped at $15
million per violation per year. For non-labor (and non-environmental) violations,
there is no cap on any monetary assessment.

A Step Back from GSP. In addition, the AFL-CIO sees the proposed U.S.-
Oman FTA as being a step back from the Generalized System of Preferences (GSP)
program. Under GSP, trade preferences for developing countries including Oman are
dependent on such countries’ taking steps to afford their workers internationally
recognized worker rights. A challenge to GSP eligibility for any country begins with
a petition to the Office of the USTR documenting that a country is not taking steps
to afford its workers such rights. In June of 2005, the AFL-CIO petitioned the
USTR to remove Oman from GSP status, arguing that it was not affording its
28 P.L. 107-210, Sec. 2102(b)(12)(G). This law gives the President authority to negotiate
trade agreements that will then be considered by Congress on an expedited basis.
29 Even though both parties committed to this enforcement pattern in the U.S.-Jordan FTA,
the countries exchanged letters just before Congress debated the agreement, promising to
“make every effort to resolve [any differences] without recourse to formal dispute settlement
procedures.”

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CRS-13
workers internationally recognized worker rights.30 Oman continues to hold GSP
status.
Weaknesses in Omani Law and Enforcement. When there are
weaknesses in the proposed agreement, critics argue, if a country’s basic laws and
enforcement of those laws are strong enough, workers could still be protected.
Oman, critics argue, lacks protections in certain areas.
Omani Gaps in Ratification of ILO Core Labor Standards. First, as of
the date of this report, according to the ILO website, Oman has ratified conventions
relating to only two of the four basic ILO core labor standards (enumerated in a
footnote on p. 7): those protecting against child labor, and those prohibiting forced
labor. Oman has not ratified conventions related to the right to organize and bargain
collectively and the elimination of employment discrimination.31
Lack of Other Omani Laws and/or Enforcement. Furthermore, various
sources suggest that Omani labor laws and/or enforcement do not fully cover certain
aspects of the following areas relating to core labor standards/internationally
recognized worker rights:
Right to Organize and Bargain Collectively. The State Department’s
Country Reports on Human Rights Practices, 2004, finds in the area of “right to
organize and bargain collectively,” that Omani law does not provide workers with the
right to form or join “unions” but does permit them to form representation
committees with the goal of taking care of their interests. The LAC reports that where
representation committees exist, however, they are by law, not authorized to discuss
wages, hours, or conditions of employment.32 Country Reports for 2005 adds an
unofficial estimate that 25 representation committees, representing 9.1% of
employees in the private sector, have been registered since 2004 and reports that
provisions of the law apply to [Omani] women and foreign workers [as well as
Omani men].33
Right to Strike. Furthermore, according to Country Reports for 2004, the
Omani law does not address strikes or explicitly provide for the right to collective
bargaining. However, it reports that the 2003 Omani labor law removed a 1973
prohibition on strikes and details procedures for dispute resolution. Country Reports
for 2005 also indicates that, while labor unrest was rare, there were four reported
30 Before the United States Trade Representative: Petition to Remove Oman From the List
of Beneficiary Developing Countries Under the Generalized System of Preferences (“GSP”),
June 15, 2005. Source: USTR website at [http://www.USTR.gov].
31 ILO Database of International Standards.
32 Labor Advisory Committee for Trade Negotiations and Trade Policy (LAC). The U.S.-
Oman Free Trade Agreement. November 15, 2005. p. 5. Country Reports for 2005
indicates that the minimum wage is insufficient to provide a decent standard of living for
a worker and family.
33 Country Reports for 2005 was released March 8, 2006.

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CRS-14
strikes during the year. The most significant one closed the largest seaport for two
days.34
Prohibition of Forced or Compulsory Labor. Country Reports for 2004 also
finds that the Omani law prohibits forced or compulsory labor, including that of
children. Country Reports for 2004 further notes that even though the protections of
the 2003 Omani labor law apply equally to foreign and domestic workers, at times
foreign workers (who account for 80% of private sector workforce and 50% of all
workers in Oman) were placed in situations amounting to forced labor.
Country Reports for 2005 echoes the finding that some situations amounted to
forced labor and adds that employers sometimes withheld documents that would
release workers from employment contracts and allow them to change employers.
Without such documents, a foreign worker must continue to work for his current
employer or become technically unemployed and consequently a candidate for
deportation. Country Reports for 2005 further reports that many foreign workers
were not aware of their right to take such disputes to the Labor Welfare Board, which
“in most cases” released the worker from the service contract without deportation,
awarded compensation for time worked under compulsion, reimbursed the worker
for back wages, and subjected the guilty employer to fines. However, Country
Reports 2005 states, there were no available statistics on the number of disputes filed
or resolutions by the end of 2005.
Congressional Activity
Before the U.S.-Oman FTA and implementing legislation were formally
submitted to Congress, both House and Senate committees held preliminary hearings.
The House Ways and Means Committee held full committee hearings on April 5,
2005. The International Trade Subcommittee of the Senate Finance Committee held
hearings on March 6, 2006.
Then, on May 10, the House Ways and Means Committee held “mock” markup
hearings on the Administration’s draft implementing legislation and approved the
bill without amendment on a party-line vote of 23-11. On May 18, 2006, the Senate
Finance Committee held its “mock” markup, adopting an amendment before passing
the bill unanimously. The amendment reflected recent concerns about sweatshop
conditions in Jordan (see section below), and implications for production under the
U.S.-Oman FTA.
On June 28, the Senate Finance committee approved the draft implementing
legislation (S. 3569) for the U.S.-Oman FTA by a vote of 10 to 3. On June 29, the
Senate passed the bill by a vote of 60 to 34. On June 29 the House Ways and Means
Committee also approved the draft implementing legislation (H.R. 5684) by a vote
of 23 to 15.
34 Materials received by CRS on April 4, 2006 from the firm of Baker Donelson Bearman
Caldwell & Berkowitz representing the Omani government also report that there were 33
strikes in 2004 in Oman, representing almost 6,000 workers in 17 industries.

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CRS-15
Current Issues
A report of alleged sweatshop conditions in plants in Jordan producing for
export to the United States has been issued by the National Labor Committee (NLC),
a nonprofit organization that promotes worker rights around the world. The 161-page
report has raised concerns within Congress that similar conditions might exist or
occur in other MEFTA countries, including Oman if the U.S.-Oman FTA were to go
into effect.
The NLC report entitled U.S.-Jordan Free Trade Agreement Descends into
Human Trafficking and Involuntary Servitude, released in May of 2006, documents
conditions in 28 separate factories in Jordan in foreign trade zones, where clothing
is produced by Jordanian and foreign guest workers, mostly for export to the United
States. The report estimates that tens of thousands of foreign guest workers who
entered employment willingly were subsequently stripped of their passports and
trapped in involuntary servitude, sewing clothing in factories for companies including
Wal-Mart, K-Mart, Gloria Vanderbilt, Target, Kohl’s, J.C. Penney, Victoria’s
Secret, and L. L. Bean.35
The Senate Finance Committee responded to the concerns on May 18, 2006, by
unanimously adopting an amendment in its mock markup of the Administration’s
U.S.-Oman FTA draft implementing legislation. The amendment, offered by Senator
Kent Conrad, would prohibit any products made in Oman “with slave labor
(including under sweatshop conditions so egregious as to be tantamount to slave
labor) or with the benefit of human trafficking,” from benefitting from the agreement.
Committee Republicans, including Chairman Chuck Grassley, joined Democrats in
voting for the conceptual amendment. The committee then unanimously approved
the U.S.-Oman draft implementing bill as amended.36
Any amendments passed by a committee during the mock markup process are
advisory in nature, rather than obligatory. The Administration responded that while
they would consider the amendment, they had some concerns. First, they argued, the
amendment might fall outside the scope of the provision in the Trade Act of 2002,
P.L. 107-210, Sec. 2103(b)(3)(ii), requiring that any new statutory language be
“necessary or appropriate” to implement the trade agreement.37
Second, the Administration argued, Sec. 307 of the Tariff Act of 1930 already
prohibits the importation of merchandise produced in whole or in part through prison,
forced, or indentured labor, including by those who voluntarily entered into
employment but were later subject to de facto slave working conditions. In response
to the Administration’s argument, Senator Conrad pointed out that Sec. 307 of the
Tariff Act of 1930 may not be applicable to apparel produced under slave labor
conditions in Oman. This, he argued, is because apparel is no longer made in great
35 The report is available at [http://www.nclnet.org].
36 Washington Trade Daily. Finance Approves Oman FTA Bill, Friday May 19, 2006.
37 World Trade Online. Inside U.S. Trade. USTR Cool to Finance Labor Amendment To
Oman Draft FTA Bill. May 19, 2006.

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CRS-16
quantities in the United States; and Sec. 307 does not apply to goods produced under
forced or indentured labor if those goods are not domestically produced in quantities
that meet the consumption demands of the United States.38
Third, the Administration argued that the amendment may be unnecessary
because FTA language requiring Oman to enforce its own labor laws, which prohibit
forced labor, is strong enough or enforceable enough to discourage or affect its
practice. In addition, the Administration pointed out, Oman has approved core labor
standards prohibiting forced or compulsory labor and has made commitments to
strengthening its labor standards still further. These Omani commitments came from
the Omani Minister of Labor as part of an exchange of letters between House
Democrats, the Omani Minister, and the USTR. The Omani Minister made eight
commitments in March and ten further commitments regarding forced labor and child
labor in May. In those commitments Oman promised to issue Royal Decrees and
Ministerial Decisions to strengthen the country’s labor laws in response to
congressional concerns by no later than October 31, 2006.39
While some Republicans argue that Oman needs time to craft new laws with
technical support from the ILO, some Democrats argue for changes in Omani laws
before the U.S.-Oman FTA implementing legislation is considered by Congress.40
Meanwhile, a few days after the Senate Finance Committee markup hearing,
Jordan’s trade minister Sharif Zu’bi indicated that the NLC report had incorrectly
identified three sweatshops that are not even in Jordan, and that three others had been
closed before the report was released in May. In addition, he noted that the Jordanian
government had formed nine inspections teams to investigate the entire garment trade
in the country, and is working with the International Labor Organization, U.S. labor
committees, the USTR, the State Department, and U.S. and Jordanian apparel
companies to address the challenges and improve their monitoring system.
Possible Outcomes of a Congressional Vote on the
FTA and Potential Consequences
If the proposed FTA is approved, Oman would join four other MEFTA countries
with FTAs, and the proposed MEFTA would be one-quarter of the way complete. An
38 Ibid.
39 Ibid; a letter from Rep. Charles B. Rangel and Benjamin L. Cardin to Her Excellency
Hunaina Sultan Ahmed Al-Mughairy, Ambassador of the Sultanate of Oman on April 6,
2005; and a letter from Maqbool Ali Sultan, Minister of Commerce and Industry of the
Sultanate of Oman to USTR Robert Portman on May 8, 2006.
40 International Trade Daily. Bilateral Agreements: House Democrats Again Press Oman
on Labor Laws Ahead of Free Trade Vote, April 12, 2006; Washington Trade Daily. Ways
and Means Approves Oman FTA, May 11, 2006; Congress Daily AM. Dems Urge
Slowdown On Trade Deals to Stress Labor Rights, June 6, 2006; and news release from
Representative Charles B. Rangel on May 19, 2006.

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agreement with Oman could be a pathway to create private sector jobs for Oman’s
burgeoning population and a gateway to more openness in the Middle East.
If Congress should not approve the proposed U.S.-Oman FTA, any one of a
number of things could happen. On one hand, Oman could just continue trading with
the United States as usual. On the other hand, Oman could likely look elsewhere to
countries such as China, Russia, or India for support in diversifying beyond the
production of oil which could run out in roughly 15-20 years.
In addition, should the proposed U.S.-Oman FTA not be approved, there could
be broader implications. For example, Oman has been letting the United States use
several military facilities. While many would argue that it would be in Oman’s
interest to continue to cooperate with the United States military, Oman might be
tempted to put further restrictions on the U.S. use of these facilities. Oman might
also shrink back from its cooperation on counter-terrorism which is said to have
included sharing/providing tips on intelligence about possible Al Quaida suspects
operating in the Persian Gulf or Oman itself.

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