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Trade threatens to become the last hotbed of economic and strategic rivalry between Riyadh and Abu Dhabi and runs the risk of joining the tensions of the six-country Gulf Cooperation Council after Saudi Arabia imposed new tariffs on its neighbors’ imports.
The taxes, which came into force this month, range from 3 to 15% and apply to products manufactured by any company based in the Gulf neighbors whose workforce does not include 10-25% of the citizens of this country. Riyadh said the measure was aimed at preventing its industries from being undermined by cheap foreign labor.
But it sinks on the GCC customs union, according to which most products from non-GCC countries are subject to a 5% tariff and trade between GCC members (Saudi Arabia, Kuwait, UAE). , Qatar, Bahrain and Oman) mainly free of charge.
Truck lines have been backed up on the U.S.-UAE border as logistics operators struggle with new paperwork, including a form that forces importers in the kingdom to prove their location and composition by hand. ‘work.
“This has blinded us; the requirements are impossible, “said an executive from a Dubai-based family conglomerate.” This is the end of the GCC: what sense does it make? “
Tariffs are the last front of competition between Saudi Arabia and the United Arab Emirates. Al-Riyadh and Abu Dhabi have shared regional goals for years, cooperating in attempts to contain Islam, jointly intervening in the Yemen conflict in 2015 and launching the Qatar embargo in 2017 after claiming to support the Islamist extremism.
But tensions have risen since the UAE’s withdrawal from the Yemeni armed forces in 2019 and Abu Dhabi’s refusal to a OPEC meeting this month to agree on an increase in oil production sought by Riyadh and Moscow and accepted by other members of the cartel.
Economic rivalry has also intensified as Saudi Arabia, with its ambitious plans led by Crown Prince Mohammed bin Salman, increases measures to boost its economy and diversify from oil, making its manufacturing sector compete. with those of his neighbors.
The kingdom’s new tariff regime was “purely a codification” of current practices used to encourage more “local content,” a finance ministry spokesman told the Financial Times.
“This applies to Saudi products and we expect other GCC products to be certified in the same way to receive GCC product status and exemption,” the spokesman said.
“The UAE cannot benefit from this single market,” said Mohammed al-Suwayed, chief executive of Razeen Capital, a Riyadh-based investment advisory firm. “It will no longer benefit at the expense of other members.”
Indian workers line up to get on a bus after working in Dubai. Saudi Arabia says its tariffs are aimed at preventing its industries from being undermined by cheap foreign labor in neighboring countries © REUTERS
In the United Arab Emirates, where only 10% of a population of 9 to 10 million are nationals, companies claim to be facing great success. The Dubai-based executive said less than 1% of the employees of its manufacturing companies were Emirates. “These [conditions] they are impossible to meet: no manufacturer has that level of local labor, ”he said.
The Saudi market accounted for about 40 percent of sales in one of its conglomerate’s manufacturing units over the past year, he said. Already in competition with Saudi manufacturers, which benefit from lower transportation costs, the unit operates with profit margins of less than 10%. “This just isn’t calculated, we’ll have to switch to other markets,” the executive said.
The 15% tariffs imposed on the metal business of his company, which supplies the construction industry, are likely to provide international rivals in countries such as China and India with a competitive advantage over regional producers, he added.
“This customs issue is a disaster,” said a consultant from a kingdom-dependent food manufacturer for 75% of his business. “It has caused chaos and panic.”
Like Saudi Arabia, the United Arab Emirates has been engaged in manufacturing to help diversify its economy. The kingdom, with a population of 35 million, is the largest export market, with trade worth about $ 20 billion in the first three quarters of 2020.
In Dubai, the most economically diversified emirate, the attraction for foreign investors of about 30 free zones has been access to large neighboring markets such as Saudi Arabia.
Jebel Ali Free Zone, a major manufacturing and re-export hub, accounts for about a quarter of Dubai’s economy. In 2019, it managed $ 95 billion worth of trade, the equivalent of all intra-GCC trade.
Economists say cooperation under the auspices of the GCC, rather than competition between members, would be a better route to a prosperous and diverse regional economy.
“This is an opportunity to rewrite the rules and reach a new customs union agreement and wait for the future,” said Nasser Saidi, a Dubai-based economist.
Building a comprehensive agreement to include services and goods would turn the Gulf Arab states into a global bloc that could negotiate more effectively with other centers of power, he said.
“It is in everyone’s interest to go to a proper common market, leaving politics aside,” he said. “It took the EU years to do well, and there were disputes along the way, so it could take a while.”
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