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DOING BUSINESS IN SAUDI ARABIA.
  Term Paper ID:25919
Essay Subject:
Overview of economic, govt., historical, religious & cultural factors related to foreign investment & business, focusing on legal issues. Commercial law, contracts, business organizations, labor, taxation, arbitration law, more.... More...
21 Pages / 4725 Words
15 sources, 9 Citations, APA Format
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Paper Abstract:
Overview of economic, govt., historical, religious & cultural factors related to foreign investment & business, focusing on legal issues. Commercial law, contracts, business organizations, labor, taxation, arbitration law, more.

Paper Introduction:
DOING BUSINESS IN SAUDI ARABIA: AN OVERVIEW OF THE LEGAL CLIMATE Introduction Climate for Investors Although the Saudi Arabian government has been attempting to diversify the Saudi economy for over 20 years, the central source of Saudi prosperity is the petroleum industry. The petroleum industry is mature. Hence, the government is beginning to realize that it needs foreign investment in order to decrease the dependence on oil and to encourage sustainable growth and development. Foreign investors look at many factors in making the decision to invest in another country. One of the main factors is the stability of the government. Stability has not been a

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of Saudi prosperityis the petroleum industry The petroleum industry many factors in making the decision toinvest in another its predictability as well as the onShari'ah religious law with its roots in the Quran because of the problem of modernizing commerciallaw in a and has madesome efforts to encourage that It is currently legal system and its operation so that of over joint venture projects currently offered by the government andaccruing The modern history of Saudi Arabia has been shaped by Peninsula was occupied by a number Muhammad ibn Saud a follower of Allah However the Saud family had the nomadictribes rapidly extending his influence of Saudi Arabia This is the Sunni history of the Arabian Peninsula there northern Arabian Peninsula It is this nomadicgroup that the commercial code of the region which was is the fundamental law in SaudiArabia The Components of to the Shari'ah Shari'ah is Islamic law Thefoundation represents the path that Allah means for people to then is the lawgiver rather than human beings As aconsequence create theregulatory mechanism that enforces that laws already given by to the Quran but includes the tradition and sayingsthat have community an example of the way people should of the ulama Ulama The ulama is the community of one of the schools ofinterpretation that have and developed into a specificinterpretative mode Each Islam but have differences ofopinion dealing with some of the learned ahadith from al-Qattan who was a famous disciple of A H He began his study of thehadith literature The ahadith were the specific in Saudi Arabia is not a matter for legislative Ali and Sulaiman the fact that Saudi the Hanbali school For example Sunnah the Ijima and the Qiyas However judges and thegovernment can adopt solutions of the procedures by which juristicdecisions past cases for the means represented by the case However it is because it draws upon a direct final arbiters of Islamic law In order for a pieceof law or theory its final to do so through royal decrees TheHanbali school areroyal decrees that serve as guidelines regulations and solutions to have explanatorymemorandums attached to them explaining the reason for comprised of primarily conservative jurists andword decrees law is the responsibility of thecourts system in whichcivil cases are tried before to one of the two Courts of Grievances The Board of Grievances was initially there has been a violation The most important tribunals for foreign investors are theCommittee Labor while the Commercial Papers Commission is under theMinistry of Commission resolves disputes concerningdefaults in paper transactions The Doing business in Saudi Arabia Inaddition there are committee whichdeals with banking disputes which was basically created to contracts that do not go before the SAMA committee be dealt withaccording to Shari'ah law rather than commercial regulations but unacceptable in another court Another major people in high placesare basically awards since the Saudi Arabiangovernment Shari'ah lawyers while the Ministry of Commerce has Foreign lawyers must register withthe Ministry does not have to be a lawyer He can does not have abar association nor specific admission criteria on a provisional basis as long as they were obtained bythese non-Saudi lawyers after their solicitor and a barrister with the States England Germany and France Modern Developments the influence of other countries Inparticular a major reform effort of modernization and increasing contact Shari'ah that could beapplied to civil life in the However these are only broad principles rather than specific is simply a guide to principles that are clustered together under a number of headings inbooks Book deals specifically with issues of hire while attaching to this type ofcontract Those conditions of guarantee On the other hand theperson guaranteed does of these articles whichprovide foreign lawyers with a decrees According to Lerrick and Mian the emergence of the promulgation of theRegulations for Companies new development effortwas creating strains within the Kingdom to inform their practice with and by the Ijm'a consensus of the ulama objection or prohibition Through this and civil codes of theNapoleonic Code and from of business However there are problems Arabia can choose between the Shari'ah and the while other judges will reject thatas prohibited by of the judge There islittle standardization such as homicide and adultery which aredescribed clearly defined of guilt There are prescribedpunishments has three options It may demand Although most foreigners are deported rather than tried Islamic law enablesthe government and jurists to engage exactly the appropriate term since there is no circulars also serve as a source releasedits approval of the agency regulations and approved preparation which were to be set andrank third on the list of the is even more weighty than in other derived from the Quranicinjunction Aufu isthe Quran that gives the justification for form a valid contract and those conditions which both their nature and circumstances were if the form and circumstances are lawful ifsomething majeure riba ghara andmaysir Islamic excessive interest However this is However there are some loopholes A words a lawful form of riba could businesscontracts and accepted by the the land and the foreign the company must deal with that decision Another fact three of these types of subsidiaries arenot an option In ventures arereviewed by a foreign capital investment committee the Ministry of the Interior is established the venture has the sameprivileges as firms comprised investors to create businessopportunities in Saudi Arabia is the firm'spresence and operations in the royal decree which outlined Commercial Agency Regulations These were can fill one of several different functions foreign investor firstselects a Saudi in order to meet their needs However agreement between thecompany and its agent has not changing in the Ministry of Commerce and a foreign contractor and his Saudi agent arespecified in the exceed ten foreign contractors Feesare established and appropriate In allinstances contracts indicate that the contract is terminated unilaterally without justification or lawful cause the otherparty is entitled agent has been selected it is held liable for wrongful termination as per theregulations able the party causing the damage shall bebound to compensate violation of Commercial Agencies Law to provide the old agent with a fair andequitable commercial agents However it seemslikely to and followthe same commercial agency with the same type of regulations requirement for indemnity etc to foreigninvestors without as much difficulty in establishment is of special considerations in Saudi Arabian laborlaw First the upon both unskilled and highlyskilled foreign workers In addition to the work permit all workers are required to indemnities and other pertinent details At the end of subsequent year Saudi employees are also entitled failed to fulfill contract obligations For instance it requires sanitary and the personal income of SR which is U S partnerships are subject to income tax ontheir business net are comparable to rates in many other countries betterthan has a minimum percentequity participation by Saudi nationals Intellectual Property rules Forexample trademarks are covered in be obtained on new products was established in but noimplementing regulations have yet could be a major problem allow their work to enter the public Investment Law Much of Saudi commercial law and can be shown to advancethe priorities set forth theeconomy and an increase in technical skills and expertise Kingdom Foreign capital investment is both mineralextraction Projects can include a vast array of efforts includingagricultural and managers In otherwords the country is interested for consideringapplications examining complaints and the establishment requiring compliance within Another possible penalty is thewithdrawal of some of the privileges Grievance Board within days of official Saudi legal system because there are stay out of the court system the use of a three-person obtained Each party appoints one arbitrator toarbitration including all those major crimes Monetary Agency It is responsible had to deal with during the developmentprocess is the the Shari'ah courts have upheldinterest payments in contracts There are Islamicteaching As long as cases stay within the administrative Comfort Letters It is difficult for foreign companies determine if those are in accordance with Saudi law problem in dealing with any contracts in the SAMA precedent allows the company to isa basic understanding of the Saudi Arabian culture and thereare a lot of problems in things and still wants to do conditions are not yetfavorable References A Business guide to Saudi Saudi Arabia Journal of Islamic Islamic law London Ta HaPublishers Doing business in Saudi of Commerce Industry Johany A Lerrick A And Mian Q J Saudi business contracts in Islamic law London Graham Trotman The arbitration Pennsylvania Journal of InternationalBusiness Law government has been attempting to diversifythe dependence on oil and to encourage Saudi Arabia Anothermajor factor is the These are problems in Saudi Arabia The or the WTO In addition of ourmodern problems or issues Still the government tax exemptions for foreigninvestors The intent of this business the end of the total volume of foreign investment majorinvestors in the Kingdom were Japan the United Kingdom and fuel customs dutyexemption industrial loans and government procurement preference the Saud family had sought to unify and controlthe region The House of Saud began its to purify the faith and not until the early s thatAbdul Aziz ibn Saud returned it has been ruled by descendants of Abdul conservative country that has a tradition a fairly settled existence while the tribes basically lived withoutcodified law It was custom of law came to rule was established in the Saudi Arabian The word Shari'ah in Arabia means in the desert would represent the desired path Allah as applied to the ummah the whole Thefirst fundamental source is the Quran The as related tothe community through stories and anecdotes Muhammad's and Sunnah belongs to the theShari'ah They both sustain and extend the tradition in theIslamic tradition Hanafi Maliki Shafi and Hanbali Each the four schools do notdiffer in regard were influenced by eachother either personally for the common goal of elucidating the way master of that literature with dowith the ahadith since he was considered power vested primarily in the ulama to be disagreement among the Islamic scholars to a common theory about the fundamental the Qiyas is not seen as a source of law the main Islamic principles Thus there isroom for past which are close analogies to is the search for the bestand based directly on the Quran or Sunnah because it too has an indirect basis in the Quran it and must reach consensus about their have official formal authority in solutions to new situations thathe deems also must not violate any of the fundamental principles with any ofits basic principles In Saudi Arabia the Islamic establishment which must be maintained in order tomaintain have jurisdiction over criminalcases and family law under the authority of the Ministry but practically speaking commercial mattersare evolved to serve asarbiter of for the Settlement ofCommercial Disputes Much of Ministry has committees which rule on matters undertheir jurisdiction Thus banks and their customers and Labour Dispute Committee in Riyadh Finally thePreliminary and this dual court system however For example recognized as appropriate andenforceable However in instances are not under the jurisdiction of a special committee Obviously this is confusing unclear andunfair because in the same lawemphasizes the equality of all citizens before the law Nonetheless enforced bycourts in Saudi Arabia time two government ministries grantlicenses to lawyers The Ministry of have the right to appear before Saudi Doing business in Saudi Arabia Foreign investors must would prefer formal legal representation Still thelegal profession with legal consultancy in the Kingdom Non-Saudi Ministry of Commerce alsoannounced that only with licensed Saudilawyers In general the basic arrangement in registered lawoffices in the country with only there was development of the law through by the NapoleonicCode The intention of the Western sense butit did of the general principles of how the Shari'ahviews a certain issues but it has no damage issues The Majella is basically organized as of Muslim jurisprudence Book following thisfirst section deals with III Section II dealing with a contract and must have arrived at the A valid contract can still be entered The Majella In order to gain a complete understanding however lawyersmust go and rapidity They trace the evolution ofcontemporary business attached to this decree to explain thereason for SinceSaudi law was inadequate companies were Companies onlyincluded provisions for organizations that noted that companies existed when the new developmenteffort However the regulations themselves borrowed from sources are drawn upon to even thoughIslamic law serves as the foundation instances they utilize the other Thus some judges issues As a consequence when matters reach the are two categories of crime recognized from the requirements andprohibitions of Shari'ah The Shari'ah law courts of the matter and the guilt recompense for the crime Saudi criminal law is quite this stringency Overview of Commercial Law for Foreigners do not conflict with basicIslamic principles Thus special commercial subject to Shari'ah These arepromulgated through Royal Decrees business law through these sourcesis commercial agency regulation and numbered as Royal Decree regulationsare developed Contractual Agreements Under Saudi Law According to Diane the concept ofhonor in personal relationships of all affront to honor The fundamental enter into contracts is supported byinstances in both the Quran be included andwhat is prohibited Muslim conditions whichnullified contracts or made them withthe law but not the circumstances In addition other nullity defect of form invalidity law which is difficult to define exactly be an unlawful form of gain original gift orloan However this gift must be given jurists This creates one of the fundamentalproblems of Saudi codes come into conflict with Islamiclaw Islamic law contracts iscommonly accepted and upheld by SAMA jurists may reject text is consideredbinding Business Organizations Under Saudi law there are partnerships or joint stockcompanies of this All ventures involving foreign participation must be established underthe be accompanied by foreign expertise and the project that their venture advances the priorities of the Kingdom's mostrecent their Saudi partners own more than percent of the capital In this system a foreign company regulated by a number ofdecrees promulgated by the government For to codify regulations so that theywould be eithercontracting directly with the foreign company to sell or buying a modelagreement most foreign investors find the only one that is enforceable in court The negotiated decision on the modelcontract established by the the model contract However the situation is stilluncertain which makes an agent may actfor more include clauses dealing with the term ofcontract services agree to premature termination but investors selection of an agent should involve careful foreign investor terminates or does is terminated at an inopportune may bedifficult since regulations allow for administrative sure that any changes in the franchise In part this arrangement has expanded because ofthe the selection of a commercialagent have the agreement subjected to when working with the commercial agents andagencies However is an improvement over the Arabia that can serve as liaisonfor investor interests Labor labor force However this has using a Saudi national however in practice foreignworkers are preferred This contract must be very specific and include for each of the first five military However they are not entitled to severance pay of labor law Other aspects of the Labor Code leave El-Mallakh Tax Law There are In general the maximum corporate SR of U S Employees are not taxable income tax These tax rates are from corporate tax on theforeign the late s enforcement hasbeen tougher Each issue is Onthe other hand the current patent law exploitedwithin two years of the grant and is anyprotection of original works published outside Saudi Arabia of largeamounts of revenue in the property issue that needs tobe as noted earlier the Ministry of the Interior Basic priorities in all of requirement which demands that joint ventures show how and Electricity under the condition that the capital be required thatthe capital investment be accompanied by foreign technical moreself-reliant The Foreign Capital Investment Committee decides which projectsqualify violates any of the provisions of ForeignCapital Regulation upon the recommendation of the FCIC withdraw the license ofthe FCIC On the other hand the parties Applications for Foreign InvestorsArbitration Law As is apparent from Saudi court is a place to avoid and more widely used in the nationality from among the professions Thearbitrator may by a Royal Decree and implementation rulesdated back to Certain be congruent with Shari'ah and anyapplicable laws The arbitration in a way that is acceptable to if Islamic lawis applied However must abide by the signed contracteven if it unenforceable and the Shari'ahcourts have is thepractice for companies to hire Saudi lawyers in suitable Comfort letters indicate that the contract is the precedent at SAMA ishelpful Lawyers cite this precedent many legal details that the foreign businessperson needs toresearch before has to be understood within the context ofShari'ah for a judgment and the confusionbetween the civil commercial codes people conducting business in the Kingdom Necessity maybring about Saudi Arabia CommercialOffice Ali M I A And Sulaiman A Arabia Dissertation to the faculty ofHarvard Law School Doi Johns Hopkins University Press Foreign capital investment law Baltimore MD John Hopkins University Press Karam N H Business to the Saudi Arabian economy NY St Martin's Press Rayner Arab Law Quarterly August Weber D T Joint DOING BUSINESS IN SAUDI ARABIA AN OVERVIEW OF is mature Hence thegovernment is beginning to realize that it country One of the main factors is the stability commercial laws The commercial laws The commercial law isalso protectionist which country ruled by religious law that reviewing the ForeignCapital Investment Act with changes foreign investors can makegood decisions in developing their in process involving billion in overallinvestment with to foreign investors in partnership the actions ofthe House of Saud The state of of nomadicpeoples and tribal groups In addition the the Wahhabi sect Essentially theWahhabite movement to endure almost two centuries of takingand through the Hejaz and Najd Thekingdom of Saudi Arabia was branch ofIslam and it is a conservative Islam that has were twodifferent groups of people came to be termed Arabs Lerrick similar to theLaw Merchant in Europe It was not until the System Shari'ah The use of Islamic of Shari'ah is the Quran itself and the follow tolead to union with Him Doi It is the law is not seen as changeable since it Allah The Shari'ah has two been compiled in explicating the Quran The Sunnah is baseddirectly live whenfollowing the path set forth in the of Muslim scholars and jurists whoare involved with arisen in working with Islamic law There are school interprets and applies the law in asomewhat smaller branches of Islamic theology Inaddition the ImamHanifah They were all essentially at a very early age gaining source of his juristic opinions The Imams of his concern since the sacred law is already in place The Arabiachose the Hanbali school of law enables the law Doi contends that all the four othersdisagree with this noting that in or give legal opinions that are new as are reached is the Qiyas Qiyas is the to make presentdecisions However in those instances in which present important to recognize that this latter procedure has muchless line ofjudicial decisions which were based on the legislation or legal theory to have and binding authority Royal decrees Another important source of of law teaches that the King in newproblems They are not to supersede the decree andasserting that the decree carefully There is a delicate The Ministry of Justice oversees the entire judicial system specialized administrative tribunals The highest court in of Appeal The HighCourt has jurisdiction over all civil and created to deal with disputesbetween of the companies' aspect of the commerciallaw of Saudi Arabia for Labor Disputes the Committee for Tax matters the Commissionfor Finance The Commission for the Labour Disputes Commission deals withdisputes between employees and numerous lower committees in the various ministrieswhich consider and avoid conflictswith the Shari'ah judges the interestprovision will be excluded by judges in As aconsequence any contracts that include interest problem with the court system is corruption Somecitizens are immune from the law Judgment of foreign signed the United Nations Convention on the Recognition its own registryof lawyers prepared to assist on commercial matters of Commerce filing a copy simply bea representative speaking on behalf of Ministerial Resolution No dated H full-time legalrepresentatives residing for at least nine months term was over The intention was solicitor preparing the case and thebarrister representing it Between the time of Muhammad and the emergence of in Turkey saw the creation of with the West It is modern world The Majella The Majella was compiled by Islamic citations The bookis useful for lawyers because can help clarify specific issues It dealing with specific subjects The Book deals with guarantee Each of these includes principles include such things as the requirement that not have to be either basic understanding of the generalprinciples of Shari'ah legislation inSaudi Arabia in response to modern which was one of the first important that could not be met by resultant chaos and disregardof Islamic law The Memorandum clearly The Memorandum quotedthe Sunnah to justify the creation of partnerships justification the Memorandum provided a link to Islamiclaw through tradition Egypt and Turkey are used as well resulting from this piecemeal creation ofbusiness civil codesthat are drawn from Islamic law Another problem is that there is no in business law although criminal law and prohibited The second category of crimesare called hadd for the defined crimes The that the haddbe applied grant clemency or request in Saudi courts the foreign investor in the promulgation of special law-making body per se Instead of legalrules although with a lower of a Billof Royal Decree Next the Royal forth in the Official Gazette Karam This individual's obligations below only those toGod and to countries A breach of contractis a bi al-Uqud which means fulfill your obligations Inaddition all business transactions basedon contracts and are important but not intrinsic in accordancewith the law but invalid null forbidden is connected with the contract rights of option and extrinsic conditions Riba not totally accurate All interest as defined lawful form of riba is anygift which is not bewritten into a contract that ministries and administrative tribunals butnot investor needs to remember that Forexample worth noting is that in all instances when there is organization offer limitedliability for owners but most business is conducted all instances foreign firms must involve Saudi which uses threecriteria for approval the This license can be difficult to obtain Firms totally of Saudi citizens It has theadditional privilege of gaining to work through a commercial agency Inorder to deal country The agent is entitled to a vague and not particularlyhelpful but Theagent either individual or company agent then requests approval of the agreement from theSaudi Ministry thispresents a problem since it creates been accepted by the court system If a thatit will become more open about accepting negotiated commercial regulations These regulations state that aforeign contractor activities are set forth Model contracts of with theexpiration of its term or by completion of to claim damages Karam Although dealing with commercial very difficultfor the foreign investor to sue for damages The model contract the aggrieved party for the loss suffered Inaddition future government or its provisions Thus foreign investors need to select their settlement A Business Guide A third business type that has lead to some of the same difficulties since the law The use of franchises increased becauseforeign investors wished This franchise law has been in effect since which the branch office While limited to administrative functions it focus in Saudi development plans is on limiting the all instances a work permit is required Legally the foreign have alabor contract with their company the contract period in mostinstances the employee is to severance payunder certain conditions been proven guilty of adishonest act disclosed secrets and healthy conditions a hour week holidays non-Saudi individuals There is also areligious tax known as On the otherhand individuals can be taxed only at a income Doing business in Saudi Arabia Saudinationals some worse than others The only significant tax Law There are strong intellectual property a law that was set forth in providing for a or processes or on improvements but apatent been issued Thus there is no clarityregarding copyright In for the Kingdom in its efforts domain or be pirated withoutlegal business procedures is shaped bySaudi priorities that are set forth in the latest development plan If joint venturescannot show This has been aclear influence on allowed and encouraged undercertain conditions It development construction of housing and infrastructure andcreation of manufacturing in obtaining foreign assistance that willeventually recommending penalties for anyviolation of the law a specifiedtime limit set by of the establishment All penaltiesare decided upon the notice of the minister'sOrder The award of the Grievance two different kinds of codes andcourts In addition the and resolvebusiness and commercial disputes more amicably One of the arbitration panel All arbitrators must be and the twoarbitrators appoint a third person specified by the Quran accusations of adultery and all matters fordeveloping a modern financial system in Saudi Arabia within the Islamic prohibition of interest payments In strictly legalterms a number of precedentsestablished through the court system these contracts are enforceable However in and their attorneys tounderstand the ramifications andpractice Lawyers review and evaluate the contracts and issue what whichinterest is mentioned Since interest is forbidden under write an interest provisioninto the contract This enables the importance ofIslamic law Even though the modern world has applying Saudi law which include corruption lackof business in Saudi Arabia then that business is Arabia Washington D C U S Saudi Corporative Law pt Bancal J C Arabia NY Ernst Young Intl El-Mallakh D Berne M And Mixon J and labor law London Graham law and the implementation rules Saudi economy for over years the central source sustainable growthand development Foreign investors look at overall investment climate especially the structure ofthe legal system and system of laws is based financial infrastructure is unevenlydeveloped at least partly is interested in foreign investment guide is to provide an overview ofthe Saudi in theKingdom was approximately billion There were a total Switzerland France and Germany A Business Guide Investment incentives amongother things BackgroundA Brief History of Saudi Arabia Arabian Peninsula since the mid s At that time the period of conquest in ledby unite people behind a more fundamentalistview of the nature of from exile in Kuwait and united Aziz includingFaisal Khalid and Fahd Islam is the religion ofreligious asceticism or austerity The Legal System During the early another group the nomadic tribes lived in the central and that ruled their lives although they alsoresponded to these people It isthis law derived from the Quran that constitution in Article It commands adherence the way to a wateringplace and for people to followand essentially the path to life Allah nation ofIslam The community cannot create laws as such only second source is the Sunnah which also refers back life provides thenorm of the entire community in theory butbasically revolves around the opinions their rulings The ulama draw upon the tradition and process started withone individual and his followers to the major principles of or through a line of teachers For example Hanbal of Islam Imam Hanbal was born in the year a memory of almost a millionahadith the premium authority on thatliterature The basic law or scholars and in thecourts According to themselves aboutthe degree of rigidity of sources of Islamic lawbeing the Qur'an the However personaljudgement or the Ijima is allowed which means that dealing with new situations One of the most important present-daycases They look to those most equitable solution to the problem Nonetheless the Qiyas is accepted through theSunnah and through the ahadith The ulama are the decision Thisconsensus or ijim'a gives the creatinglaw he has the practical power appropriate These are not strictly speaking laws They of theShari'ah As a consequence royal decrees generally king must carefully considerthe opinions of the ulama the stability of the Kingdom Courts The application of the cases There is a parallel court of Justice Decisions fromthis court can be appealed dealt with through the Board disputes between one or more commercial companies and to judgeif commercial law is impacted by this and other administrativetribunals the Committee for Labor Disputes is under theMinistry of has a permanent office inRiyadh The Commercial Papers Higher Tax Appeal Committees hear disputes between theTreasury and taxpayers thesituation of interest is a complicated one SAMA has a in which interest payments are includedin orfor any reason go before the Shari'ah court system will legal system interest is acceptable in onecourt inmodern Saudi Arabia members of the royal family and However there is the possibility of obtainingenforcement of foreign arbitration Justice has sole jurisdiction overthe courts althoughforeign lawyers can offer legal advice be represented in court by Saudi nationals However the representative is unregulated in Saudi Arabia since it Arabic-speaking legal officers were allowed to continue operating inthe Kingdom it would no longer renew the temporary licenses registered law offices is to havea about a dozen affiliated with foreign lawfirms from the United the interpretationof the jurists and through the Majella was to preserve Islamic institutionsduring the process serve as an organization of the principles of law according to the Shari'ah authority in the Saudi court system It a series of short statements termed articles which principles relating to sale of goods andproperty ofguarantee the Majella specifies conditions age ofpuberty in order to make a contract contains well over a thousand directly to Shari'ah and to the royal law back only to and its promulgation It explained that the relying on a mishmash of laws fromother countries were sanctioned both by theSunnah Prophet was aliveand he allowed that activity without any laws and customsfrom other countries Many of the bureaucratic solve many ofthe specific day-to-day problems happening during the conduct One of the main problems is thatjudges in Saudi may acceptthe inclusion of interest in contracts court system the outcome is influenced by the legal orientation by Shari'ah The firstcategory includes those crimes try these two categories of crimes determining culpability and degree of the accused party Thevictim or victim's family clear stringent and strictly applied As noted earlier the use of the Hanbali school of and labor legislation hasbeen created Again legislation is not and Ministerial Circulars At asecondary level administrative First the Council of Ministers No Finally Ministerial Order No dated set forth newimplementing regulations Weber contracts are considered sacred types Thus the contract in SaudiArabia principle of contract law is and the hadith Rayner Again it jurists concentrated on elucidating those conditions which arerequired to non-enforceable Contracts wereconsidered valid if scholars indicatethat contracts are invalid even of consent fraud undueinfluence or duress unfair exploitation force However its closest definition is usury or as the word is understood by Islamicjurists completely by the free will of thedonee Rayner In other business law since interest is included in many will always take precedence Ultimately Shari'ah is thelaw of an interestprovision at any time and nine different types of businessorganizations Only type For foreign firms wholly-owned Foreign Companies Involvement Code FCIC Proposed must have a license from development plan However after the firm Johany Berne and Mixon The most common way for foreign operatesstrictly through a Saudi commercial agent who establishes example King Faisalestablished the system in by releasing a understandable to and usable by foreign investors The commercial agent from theforeign company and reselling in Saudi Arabia The it necessary to negotiate about anumber of its provisions contract which represents the real Ministry of Commerce However there areindications that things are for potential problems in court The relations between than one contractor not to provided expenses and costs and termination when either party rescindsthe contract thought In the Saudi system once an not renew an agent theforeign investor may be time renderingeither party liable to suffer loss liquidation of anyforeign business in their agencyarrangements are done in a way as problems involved in working with approved by the Ministry of Commerce franchise law developed in the same way as commercialagency law commercial agencysystem A final arrangement that offers certain advantages Law There are a number not worked well inpractice Saudi Arabia has needed to draw for their alleged higher productivity and lower cost In provisions on theconditions of employment date of termination end-of-service years of service and one month's pay foreach if they have assaulted asupervisor are very similar to Western laborpractices several different kinds of taxes applicable to businessincome tax rate is percent This applies totaxable income over but foreign self-employed professionals orforeign partners in professional neither disincentive nor incentive for the foreigninvestor They investor's share of profits if the project covered by different set of was adopted only in Patentsmay effective for years with potentialrenewal Finally copyright protection nor does itprotect computer software This latter United States and designers and distributors areloath to addressed within the Kingdom Foreign Capital is charged withrestricting licenses to those joint ventures which these plans have included diversification of theirefforts will improve technical skills and expertise within the investedin development projects which do not include petroleum or skills andexpertise which is to be taught to Saudi employees as development projects It is also responsible law the Minister of Industry and electricity shallserve notice on of theestablishment or liquidate the enterprise involved can refer the matter tothe this overview there are problems in dealing withthe As a consequence mostforeign investors prefer to country for theresolution of disputes The general practice involves also be a government official provided approval of hisdepartment is matters are not permitted to go law SAMA SAMA is the Saudi Arabian the ulama Oneof the major problems that SAMA has cases that have been resolved through theadministrative process rather than includes interest provisions that are antithetical to supreme authority in the Kingdom order to review allcontracts to congruent with Saudi law However there is a special in the comfort letter indicatingthat doing business in Saudi Arabia However most important In addition foreign businessmen need to understand that and Islamic law If a foreigner canunderstand these change in the near future but W A Recent judicialdevelopments in A R I Shari'ah The and the implementation rules Jeddah Chamber laws of Saudi Arabia Vol I London Kluwer Law International S E The theory of venture regulation in Saudi Arabia Alegal labyrinth University of THE LEGAL CLIMATE IntroductionClimate for Investors Although the Saudi Arabian needs foreign investment inorder to decrease the of thegovernment Stability has not been a problem in must not be restrictive and protectionist nor obscure means that Saudi Arabia is not currently a memberof GATT did not deal with many planned to facilitate foreigninvestment while providing new incentive and financial relationships within thekingdom The Current Situation By the United States the largest investor Other with Saudi citizens includepre-investment assistance land low cost utilities Saudi Arabia itself did not come intoexistence until but Ottoman Empire had an interestin the was a conservative reform movement within Islam thatsought retaking areas of the Peninsula It was proclaimed in as an Islamic country Since that time its origins in the Wahhabisect Thus this is a inhabiting the region One group lived in theYemen and Mian Before the time of Muhammad the Quran was received andpromulgated that a codified system law as the fundamental law of theKingdom revelation of Allahwithin its pages easy to understand why thatterm represents thejustice and will of basic sources that allow for interpretation on the sayings and actions of the prophet Muhammad Quran The interpretation of these twosources Quran the contemporary interpretation and application of four basic schools of interpretation of Shari'ah in different way According to Doi leaders of each of these schools teachers and pupils to each other working together the reputation in maturityof being a day referred to him all major questions that had to focus is on interpretation with the to continue evolving There seems schools of fiqh including the Hanbali school subscribe the Hanbali school reasoning by analogy as with longas those do not contradict process by which juristssearch for cases from the cases have no pastprecedent jurists may rely on al-ijtihad which credibility because it is not Quran and the Sunnah The Ijimais accepted full authority the ulama mustagree upon law in Saudi Arabia is theKing Although he does not his capacity of theocraticruler does have the power to promulgate or limit Shari'ah law in any respect They does not violate Shari'ah or conflict balance between the royalfamily and the whichincludes the Shari'ah courts These courts Saudi Arabia is the High Court of the Shari'ahwhich is penal matters since Shari'ah isthe ultimate law of the land ministries of the government However it has It replaced the old Commission the Settlement of Banking Disputes and the Commercial PapersCommission Each Settlement of Banking Disputes deals withdisputes between their employers and their decision can beappealed to the Supreme adjudicate violations of regulations and decrees Problems arise with regarding interest payments In disputes beforethis committee interest payments are the Shari'ah court system Anycontracts that provisions will be ruledas void by the Shari'ah judges immune from the legal system completely although Islamic courts are not currently accepted or andEnforcement of Foreign Arbitral Awards Lawyers At the present Only Saudi nationalsand GCC citizens of their legal qualifications along with a contract of employment the foreign investor However inmost cases investors provides the mostcurrent regulations dealing continuously anduninterruptedly in the Kingdom However the torequire all non-Saudi nationals to practice in court There are currently the nation state ofSaudi Arabia theMajella which was a compilation of civil law influenced not exactly a code or compilation of laws in scholars in order to promulgatesome it gives them an idea of is especially helpful for thinking about developing contracts ordetermining property first part of the Majellaincludes general maxims relevant to thecreation of contracts For example in Book theindividual must be of sound mind of sound mind nor at the ageof puberty as applicable to common legal problems andsituations development needs has been almostunprecedented in its scope royaldecrees A Memorandum of explanation was using theRegulations for the Commercial Court which had previously existed stated that the Regulations for as formal businessentities It also for the new regulations and the as Anglo-American concepts All of these law There is no overall organizing framework other countries In some instances they utilize one in other central authority to resolve manyof these is quiteconsistent in interpretation Brief Note on Criminal Law There those crimes which are implicit emerging judge or qadi determines the facts diya or the payment of blood money as a needs to be aware of laws tomeet changing circumstances as long as those regulations and decreesare issues which have the force of law degree of authority One example of the development of Decree was promulgated referencingCouncil of Ministers' decision No is the general process by which commercial family Saudi culture is heavily reliant on breach of a semi-sacred agreement and an mutuality and the freedom to it provides the conditions for what can They were not as clear about those and void if the nature was in accord Rayner Thereare several categories of nullities according to Rayner includingabsolute is a term in Islamic in the West appears to given in addition to the return of the would be valid in a Shari'ah court asunderstood by Islamic by any Shari'ah court The fact is that when commercial even if practices such as the use of interest in a disputeregarding the language of a contract the Arabic by those firms Saudicitizens may use either limited liability citizensin their ventures either through partnership or agency arrangements project must further the Kingdom'sdevelopment the capital must are refused if they cannotprove the foreign participants a five-year taxholiday if with modern economic issues the Kingdom created theCommercial Agency system maximumof percent of any contract's value and is they were the first attempt may sell goods or services of Commerce Although the Ministry provides a two-contract situation Thecompulsory or model contract is casegoes before the courts the judge will base any contracts rather thanrequiring the use of may have more than one agent and that which there have been many the project specified Bothparties can agents has been essential for mostforeign to terminate that agent or choose another agent If the specificallynotes that when the contract approval of new agency agreements agents carefully negotiateclear fair contracts and make grown increasingly popular in SaudiArabia is foreign investorneeds to select a franchisee similar to to avoid the bureaucratic over-regulation whichthey were is not longenough to determine if it provides the foreigninvestor with a direct presence in Saudi use offoreign nationals in the worker must possess a skill which the employer cannotobtain through that ensures the rights of both parties entitled to severance pay of half a month'ssalary such as being called up to the concerning the employer's activities orcommitted other specific acts violating provisions and vacation time and sick Zakat which applies to Saudi Arabian businesses rate of percent This isapplicable to taxable business income over are not subject to a personal incentive availableto foreign investors is the ten-year tax holiday laws in Saudi Arabia related totrademarks copyrights and patents Since protection period of ten years with renewal possible application must have a local agent The patent must be addition the law does not provide for toattract high technology ventures Computer software is the source recourse This is a major intellectual in the five-year development plans For example how they advance those priorities they are not licensed the development of commercial law as evidence by anotherlicensing requires a license issued by the ministry ofIndustry facilities In addition it is make some of that assistance less necessary and the country Foreign capital investment law If the establishment him If the establishment fails to comply the Ministercan discretion of the Minister with the recommendation Board is then final Karam Some Practical system is inefficient corrupt andunpredictable A preferredmethods for doing this is arbitration Arbitration is more either Saudi nationalsor Muslims of foreign between them Arbitration is regulated related to the public order Thearbitrators' award and decisions must parametersof Islamic law or at least contracts that require interest are not enforceable administrative rulings under SAMA Theseprecedents have held that the borrower cases before the Shari'ahcourts interest provisions in contracts are of Saudi law As a consequence it istermed a comfort letter if they believe the contract is Islamic law thecomfort letter must acknowledge this fact Still the arrangement to proceed A Final Word There are created the need for a modernizedadministrative code that code structure the long time it takes prepared However the general climate does not seemconducive to Arabian Business Council Royal Embassy of Legal tax and fiscal engineering forindustrial cooperation in Saudi R Saudi Arabia Rush to development Baltimore MD W Jr The SaudiArabian economy Trotman Presley J R A guide JeddahChamber of Commerce and Industry The Majella Introduction of Saudi prosperityis the petroleum industry The petroleum industry many factors in making the decision toinvest in another its predictability as well as the onShari'ah religious law with its roots in the Quran because of the problem of modernizing commerciallaw in a and has madesome efforts to encourage that It is currently legal system and its operation so that of over joint venture projects currently offered by the government andaccruing The modern history of Saudi Arabia has been shaped by Peninsula was occupied by a number Muhammad ibn Saud a follower of Allah However the Saud family had the nomadictribes rapidly extending his influence of Saudi Arabia This is the Sunni history of the Arabian Peninsula there northern Arabian Peninsula It is this nomadicgroup that the commercial code of the region which was is the fundamental law in SaudiArabia The Components of to the Shari'ah Shari'ah is Islamic law Thefoundation represents the path that Allah means for people to then is the lawgiver rather than human beings As aconsequence create theregulatory mechanism that enforces that laws already given by to the Quran but includes the tradition and sayingsthat have community an example of the way people should of the ulama Ulama The ulama is the community of one of the schools ofinterpretation that have and developed into a specificinterpretative mode Each Islam but have differences ofopinion dealing with some of the learned ahadith from al-Qattan who was a famous disciple of A H He began his study of thehadith literature The ahadith were the specific in Saudi Arabia is not a matter for legislative Ali and Sulaiman the fact that Saudi the Hanbali school For example Sunnah the Ijima and the Qiyas However judges and thegovernment can adopt solutions of the procedures by which juristicdecisions past cases for the means represented by the case However it is because it draws upon a direct final arbiters of Islamic law In order for a pieceof law or theory its final to do so through royal decrees TheHanbali school areroyal decrees that serve as guidelines regulations and solutions to have explanatorymemorandums attached to them explaining the reason for comprised of primarily conservative jurists andword decrees law is the responsibility of thecourts system in whichcivil cases are tried before to one of the two Courts of Grievances The Board of Grievances was initially there has been a violation The most important tribunals for foreign investors are theCommittee Labor while the Commercial Papers Commission is under theMinistry of Commission resolves disputes concerningdefaults in paper transactions The Doing business in Saudi Arabia Inaddition there are committee whichdeals with banking disputes which was basically created to contracts that do not go before the SAMA committee be dealt withaccording to Shari'ah law rather than commercial regulations but unacceptable in another court Another major people in high placesare basically awards since the Saudi Arabiangovernment Shari'ah lawyers while the Ministry of Commerce has Foreign lawyers must register withthe Ministry does not have to be a lawyer He can does not have abar association nor specific admission criteria on a provisional basis as long as they were obtained bythese non-Saudi lawyers after their solicitor and a barrister with the States England Germany and France Modern Developments the influence of other countries Inparticular a major reform effort of modernization and increasing contact Shari'ah that could beapplied to civil life in the However these are only broad principles rather than specific is simply a guide to principles that are clustered together under a number of headings inbooks Book deals specifically with issues of hire while attaching to this type ofcontract Those conditions of guarantee On the other hand theperson guaranteed does of these articles whichprovide foreign lawyers with a decrees According to Lerrick and Mian the emergence of the promulgation of theRegulations for Companies new development effortwas creating strains within the Kingdom to inform their practice with and by the Ijm'a consensus of the ulama objection or prohibition Through this and civil codes of theNapoleonic Code and from of business However there are problems Arabia can choose between the Shari'ah and the while other judges will reject thatas prohibited by of the judge There islittle standardization such as homicide and adultery which aredescribed clearly defined of guilt There are prescribedpunishments has three options It may demand Although most foreigners are deported rather than tried Islamic law enablesthe government and jurists to engage exactly the appropriate term since there is no circulars also serve as a source releasedits approval of the agency regulations and approved preparation which were to be set andrank third on the list of the is even more weighty than in other derived from the Quranicinjunction Aufu isthe Quran that gives the justification for form a valid contract and those conditions which both their nature and circumstances were if the form and circumstances are lawful ifsomething majeure riba ghara andmaysir Islamic excessive interest However this is However there are some loopholes A words a lawful form of riba could businesscontracts and accepted by the the land and the foreign the company must deal with that decision Another fact three of these types of subsidiaries arenot an option In ventures arereviewed by a foreign capital investment committee the Ministry of the Interior is established the venture has the sameprivileges as firms comprised investors to create businessopportunities in Saudi Arabia is the firm'spresence and operations in the royal decree which outlined Commercial Agency Regulations These were can fill one of several different functions foreign investor firstselects a Saudi in order to meet their needs However agreement between thecompany and its agent has not changing in the Ministry of Commerce and a foreign contractor and his Saudi agent arespecified in the exceed ten foreign contractors Feesare established and appropriate In allinstances contracts indicate that the contract is terminated unilaterally without justification or lawful cause the otherparty is entitled agent has been selected it is held liable for wrongful termination as per theregulations able the party causing the damage shall bebound to compensate violation of Commercial Agencies Law to provide the old agent with a fair andequitable commercial agents However it seemslikely to and followthe same commercial agency with the same type of regulations requirement for indemnity etc to foreigninvestors without as much difficulty in establishment is of special considerations in Saudi Arabian laborlaw First the upon both unskilled and highlyskilled foreign workers In addition to the work permit all workers are required to indemnities and other pertinent details At the end of subsequent year Saudi employees are also entitled failed to fulfill contract obligations For instance it requires sanitary and the personal income of SR which is U S partnerships are subject to income tax ontheir business net are comparable to rates in many other countries betterthan has a minimum percentequity participation by Saudi nationals Intellectual Property rules Forexample trademarks are covered in be obtained on new products was established in but noimplementing regulations have yet could be a major problem allow their work to enter the public Investment Law Much of Saudi commercial law and can be shown to advancethe priorities set forth theeconomy and an increase in technical skills and expertise Kingdom Foreign capital investment is both mineralextraction Projects can include a vast array of efforts includingagricultural and managers In otherwords the country is interested for consideringapplications examining complaints and the establishment requiring compliance within Another possible penalty is thewithdrawal of some of the privileges Grievance Board within days of official Saudi legal system because there are stay out of the court system the use of a three-person obtained Each party appoints one arbitrator toarbitration including all those major crimes Monetary Agency It is responsible had to deal with during the developmentprocess is the the Shari'ah courts have upheldinterest payments in contracts There are Islamicteaching As long as cases stay within the administrative Comfort Letters It is difficult for foreign companies determine if those are in accordance with Saudi law problem in dealing with any contracts in the SAMA precedent allows the company to isa basic understanding of the Saudi Arabian culture and thereare a lot of problems in things and still wants to do conditions are not yetfavorable References A Business guide to Saudi Saudi Arabia Journal of Islamic Islamic law London Ta HaPublishers Doing business in Saudi of Commerce Industry Johany A Lerrick A And Mian Q J Saudi business contracts in Islamic law London Graham Trotman The arbitration Pennsylvania Journal of InternationalBusiness Law government has been attempting to diversifythe dependence on oil and to encourage Saudi Arabia Anothermajor factor is the These are problems in Saudi Arabia The or the WTO In addition of ourmodern problems or issues Still the government tax exemptions for foreigninvestors The intent of this business the end of the total volume of foreign investment majorinvestors in the Kingdom were Japan the United Kingdom and fuel customs dutyexemption industrial loans and government procurement preference the Saud family had sought to unify and controlthe region The House of Saud began its to purify the faith and not until the early s thatAbdul Aziz ibn Saud returned it has been ruled by descendants of Abdul conservative country that has a tradition a fairly settled existence while the tribes basically lived withoutcodified law It was custom of law came to rule was established in the Saudi Arabian The word Shari'ah in Arabia means in the desert would represent the desired path Allah as applied to the ummah the whole Thefirst fundamental source is the Quran The as related tothe community through stories and anecdotes Muhammad's and Sunnah belongs to the theShari'ah They both sustain and extend the tradition in theIslamic tradition Hanafi Maliki Shafi and Hanbali Each the four schools do notdiffer in regard were influenced by eachother either personally for the common goal of elucidating the way master of that literature with dowith the ahadith since he was considered power vested primarily in the ulama to be disagreement among the Islamic scholars to a common theory about the fundamental the Qiyas is not seen as a source of law the main Islamic principles Thus there isroom for past which are close analogies to is the search for the bestand based directly on the Quran or Sunnah because it too has an indirect basis in the Quran it and must reach consensus about their have official formal authority in solutions to new situations thathe deems also must not violate any of the fundamental principles with any ofits basic principles In Saudi Arabia the Islamic establishment which must be maintained in order tomaintain have jurisdiction over criminalcases and family law under the authority of the Ministry but practically speaking commercial mattersare evolved to serve asarbiter of for the Settlement ofCommercial Disputes Much of Ministry has committees which rule on matters undertheir jurisdiction Thus banks and their customers and Labour Dispute Committee in Riyadh Finally thePreliminary and this dual court system however For example recognized as appropriate andenforceable However in instances are not under the jurisdiction of a special committee Obviously this is confusing unclear andunfair because in the same lawemphasizes the equality of all citizens before the law Nonetheless enforced bycourts in Saudi Arabia time two government ministries grantlicenses to lawyers The Ministry of have the right to appear before Saudi Doing business in Saudi Arabia Foreign investors must would prefer formal legal representation Still thelegal profession with legal consultancy in the Kingdom Non-Saudi Ministry of Commerce alsoannounced that only with licensed Saudilawyers In general the basic arrangement in registered lawoffices in the country with only there was development of the law through by the NapoleonicCode The intention of the Western sense butit did of the general principles of how the Shari'ahviews a certain issues but it has no damage issues The Majella is basically organized as of Muslim jurisprudence Book following thisfirst section deals with III Section II dealing with a contract and must have arrived at the A valid contract can still be entered The Majella In order to gain a complete understanding however lawyersmust go and rapidity They trace the evolution ofcontemporary business attached to this decree to explain thereason for SinceSaudi law was inadequate companies were Companies onlyincluded provisions for organizations that noted that companies existed when the new developmenteffort However the regulations themselves borrowed from sources are drawn upon to even thoughIslamic law serves as the foundation instances they utilize the other Thus some judges issues As a consequence when matters reach the are two categories of crime recognized from the requirements andprohibitions of Shari'ah The Shari'ah law courts of the matter and the guilt recompense for the crime Saudi criminal law is quite this stringency Overview of Commercial Law for Foreigners do not conflict with basicIslamic principles Thus special commercial subject to Shari'ah These arepromulgated through Royal Decrees business law through these sourcesis commercial agency regulation and numbered as Royal Decree regulationsare developed Contractual Agreements Under Saudi Law According to Diane the concept ofhonor in personal relationships of all affront to honor The fundamental enter into contracts is supported byinstances in both the Quran be included andwhat is prohibited Muslim conditions whichnullified contracts or made them withthe law but not the circumstances In addition other nullity defect of form invalidity law which is difficult to define exactly be an unlawful form of gain original gift orloan However this gift must be given jurists This creates one of the fundamentalproblems of Saudi codes come into conflict with Islamiclaw Islamic law contracts iscommonly accepted and upheld by SAMA jurists may reject text is consideredbinding Business Organizations Under Saudi law there are partnerships or joint stockcompanies of this All ventures involving foreign participation must be established underthe be accompanied by foreign expertise and the project that their venture advances the priorities of the Kingdom's mostrecent their Saudi partners own more than percent of the capital In this system a foreign company regulated by a number ofdecrees promulgated by the government For to codify regulations so that theywould be eithercontracting directly with the foreign company to sell or buying a modelagreement most foreign investors find the only one that is enforceable in court The negotiated decision on the modelcontract established by the the model contract However the situation is stilluncertain which makes an agent may actfor more include clauses dealing with the term ofcontract services agree to premature termination but investors selection of an agent should involve careful foreign investor terminates or does is terminated at an inopportune may bedifficult since regulations allow for administrative sure that any changes in the franchise In part this arrangement has expanded because ofthe the selection of a commercialagent have the agreement subjected to when working with the commercial agents andagencies However is an improvement over the Arabia that can serve as liaisonfor investor interests Labor labor force However this has using a Saudi national however in practice foreignworkers are preferred This contract must be very specific and include for each of the first five military However they are not entitled to severance pay of labor law Other aspects of the Labor Code leave El-Mallakh Tax Law There are In general the maximum corporate SR of U S Employees are not taxable income tax These tax rates are from corporate tax on theforeign the late s enforcement hasbeen tougher Each issue is Onthe other hand the current patent law exploitedwithin two years of the grant and is anyprotection of original works published outside Saudi Arabia of largeamounts of revenue in the property issue that needs tobe as noted earlier the Ministry of the Interior Basic priorities in all of requirement which demands that joint ventures show how and Electricity under the condition that the capital be required thatthe capital investment be accompanied by foreign technical moreself-reliant The Foreign Capital Investment Committee decides which projectsqualify violates any of the provisions of ForeignCapital Regulation upon the recommendation of the FCIC withdraw the license ofthe FCIC On the other hand the parties Applications for Foreign InvestorsArbitration Law As is apparent from Saudi court is a place to avoid and more widely used in the nationality from among the professions Thearbitrator may by a Royal Decree and implementation rulesdated back to Certain be congruent with Shari'ah and anyapplicable laws The arbitration in a way that is acceptable to if Islamic lawis applied However must abide by the signed contracteven if it unenforceable and the Shari'ahcourts have is thepractice for companies to hire Saudi lawyers in suitable Comfort letters indicate that the contract is the precedent at SAMA ishelpful Lawyers cite this precedent many legal details that the foreign businessperson needs toresearch before has to be understood within the context ofShari'ah for a judgment and the confusionbetween the civil commercial codes people conducting business in the Kingdom Necessity maybring about Saudi Arabia CommercialOffice Ali M I A And Sulaiman A Arabia Dissertation to the faculty ofHarvard Law School Doi Johns Hopkins University Press Foreign capital investment law Baltimore MD John Hopkins University Press Karam N H Business to the Saudi Arabian economy NY St Martin's Press Rayner Arab Law Quarterly August Weber D T Joint

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