In February 2022 Bahrain commenced construction on the US Trade Zone (USTZ), following a memorandum of understanding signed in January 2021 between the US Department of Commerce and Bahrain’s Ministry of Industry and Commerce. Located in Salman Industrial City, it is expected to become operational by 2024. The project has received $40m as an initial investment, which will eventually be expanded to $200m. The USTZ will cover a total area of 1.1m sq metres.
By establishing clusters in the USTZ, US companies can leverage the Customs duty exemptions offered on imported raw materials, manufacturing, spare parts and construction machinery. They can also benefit from the support of various Bahraini government agencies that facilitate the growth of start-ups. The strategic location of the USTZ in proximity to Khalifa Bin Salman Port, Bahrain International Airport and the King Fahd Causeway presents a significant advantage for businesses, as it reduces logistics costs for exports to the GCC and beyond. The multi-modal Bahrain Sea-to-Air Logistics Hub is expected to further enhance the efficiency of container transit between the airport and the port, reducing turnaround times to as little as two hours. In light of these advantages, the USTZ holds immense potential as a manufacturing and trade gateway for US companies operating in the GCC and surrounding regions, as well as those looking to enter these markets.
Economic Benefits
The USTZ plays an important role in the kingdom’s Covid-19 Economic Recovery Plan, as well as the medium-term Industrial Sector Strategy 2022-26 launched in December 2022. The latter seeks to raise the industrial sector’s GDP share to 14.5% by 2026. The figure stood at 13.9% in the second quarter of 2022. Additionally, the strategy seeks to boost the sector’s contribution to overall exports to 80.1% by 2026. The establishment of the USTZ could incentivise US companies to contribute to the achievement of these targets, while also creating new opportunities for domestic businesses. By facilitating new logistics and supply chain possibilities, the USTZ has the potential to promote economic growth in Bahrain. Additionally, the construction and operation of the USTZ is expected to generate employment opportunities for 5000 to 6000 individuals.
Designated a major non-NATO ally by the US in 2002, Bahrain and the US are economic partners under a free trade agreement (FTA) signed in 2006. Since then, the total volume of bilateral trade has risen from $400m to $2.8bn in 2022. Under the FTA, US farmers have bolstered their agricultural exports to Bahrain. Notably, the kingdom has demonstrated an openness to foreign participation in the services sector, which has paved for US financial service providers to enter the market, as well as companies in the telecommunications, audiovisual, express delivery and distribution, among others.
Trade Strategy
The efficacy of the USTZ and the FTA in spearheading Bahrain’s efforts to diversify trading partners remains to be seen. Despite the US being a significant trading partner of the GCC economies in aggregate, exporting goods worth over $36.2bn to the region in 2021, China emerged as the largest exporter to the region that year, India, whose exports to the region totalled $87.4bn, also outperformed the US. As such, while the US remains a key strategic partner for the kingdom, other countries also have an important role to play in helping Bahrain cement itself as a centre for manufacturing and trade in the GCC.
The USTZ in Bahrain is a promising initiative that could bring numerous benefits to both the US and Bahrain, as well as the wider GCC region. With Customs duty exemptions, logistical advantages and government support, the USTZ could become a centre of economic activity that can attract US companies to contribute to Bahrain’s economic recovery and long-term development plans. As the kingdom continues to explore ways to deepen economic ties with its trading partners, it is possible that similar concepts to the USTZ could be explored, offering new opportunities for growth.
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