Bilateral trade relations between Saudi Arabia and United Arab Emirates (UAE)
Alpha Partners
Recognised Indian corporate commercial law firm based in Delhi NCR and Dubai
A.?????????Trade Agreements
1.??????????Pan-Arab Free Trade Area-1997
Current signatories:
Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanese Republic, Libya, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syrian Arab Republic, Tunisia, United Arab Emirates and Yemen.
?The objectives of the Pan-Arab Free Trade Area agreement are as follows:
a)???????????Free trade exchange among the signatories from various charges and restrictions imposed on it;
b)??????????Harmonized matching between production of and trade in goods, using various means, particularly provision of funding facilities required for production;
c)???????????Facilitating the funding of inter-Arab trade and settlement of payments resulting from such trade;
d)??????????Granting special concessions to services associated with trade among party-states (signatories); ?
e)???????????Adopting the principle of direct exchange in trade among party-states;
f)???????????Taking into account the development conditions of each of the party states; and
g)??????????Equitable sharing of the benefits and burdens resulting from the enforcement of the agreement.
?2.??????????Gulf Cooperation Council (GCC)
Current signatories:
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates.
The GCC Charter states that the basic objectives are:
a)???????????to have coordination, integration and inter-connection between member states in all fields;
b)??????????strengthening ties between their peoples, formulating similar regulations in various fields such as economy, finance, trade, customs, tourism, legislation, administration;
c)???????????fostering scientific and technical progress in industry, mining, agriculture, water and animal resources, establishing scientific research centres, setting up joint ventures; and
d)??????????encouraging cooperation of the private sector.
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?There are no restrictions per-se in the two trade agreements mentioned above.
?B.?????????Recent restrictions imposed by Saudi Arabia against UAE:
?1.??????????Recently, the Saudi government issued a decree amending the import rules for goods from GCC member states. Saudi Arabia will now exclude any goods manufactured in GCC free zones from preferential tariff concessions. According to the decree published in the Saudi official gazette, all goods made in free zones in the GCC region will no longer be considered locally made. The decree also excludes imported items produced by companies in GCC countries with a workforce of less than 25% local employees, and that have an added value of less than 40% after their transformation process in the GCC country. GCC products made with any components produced in Israel or manufactured by firms fully or partially owned by Israeli investors, will also not be eligible for preferential tariffs. Free zones are areas in which foreign companies can operate under light regulation, and where foreign investors are allowed to take 100% ownership in companies and are a major driver of the UAE's economy.[1]
?2.??????????Saudi Arabia announced that from the start of 2024, the Saudi government and state-backed institutions will stop signing public-sector contracts with foreign companies that sets their headquarters in any other middle east country in the region. It is to be noted that most companies are currently based in UAE and are given?favourable conditions there to set up businesses. While the move is aimed to limit economic leakage and boost job creation, it is also indicative of increasing rivalry and divergence in geopolitical priorities between the UAE and Saudi Arabia.[2] As per news reports, 44 international companies have received license to set up regional headquarters in Saudi Arabia.[3] The companies that have relocated their regional headquarters include PepsiCo, DiDi, Unliver, Siemens, KPMG, Novartis, Baker Hughes, Halliburton, Philips, Flour, Schlumberger, SAP, PwC, Oyo, Boston Scientific and Tim Hortons.[4]
?C.?????????How much business of Saudi Arabia happens from UAE:
?The 2 countries have large economic imbalances, including a $17.15 billion annual trade deficit. The UAE?exports?$24 billion to Saudi Arabia but imports?$6.85 billion. Capital flows are equally lopsided. Saudi tourists—nearly?9% of UAE tourists to Dubai—spend an estimated?$2 billion?annually, while Saudi investors pour an estimated?$2 billion?into Dubai’s real estate.
Additionally, Saudi trade and capital inflows of over?$21 billion?comprise 7.9% of the UAE’s economy or nearly 13% of its non-oil GDP.?
In 2019,?Saudi Arabia?exported $6.6 billion to?UAE. The main products that?Saudi Arabia?exported to?UAE?are?refined petroleum?($1.78 billion),?ethylene polymers?($606 million), and?insulated wire?($318 million). During the last 24 years the exports of Saudi Arabia to UAE have increased at an annualized rate of 9.98%, from $672 million in 1995 to $6.6 billion in 2019.[5]
In 2019,?UAE?exported $17.9 billion to?Saudi Arabia. The main products that?UAE exported to?Saudi Arabia?were?gold?($2.02 billion),?broadcasting equipment?($1.85 billion), and?cars?($1.1 billion). During the last 24 years the exports of UAE to Saudi Arabia have increased at an annualized rate of 17.8%, from $351 million in 1995 to $17.9 billion in 2019.[6]
2 UAE based companies, namely, Creative Zone (business set-up company) and Pro-Partner Group (specializing in company formations) have expanded their operations in Saudi Arabia. Other notable UAE based companies, with offices in Saudi Arabia are: AccorHotels, Damas Jewellery, Etisalat, Distinguished Real Estate?etc. ?
[1] https://www.reuters.com/world/middle-east/saudi-arabia-amends-import-rules-gulf-challenge-uae-2021-07-05/.
[2] https://www.cnbc.com/2021/02/16/targeting-dubai-saudi-arabias-ultimatum-to-pull-hq-offices-to-kingdom.html.
[3] https://www.reuters.com/world/africa/saudi-tv-says-44-international-companies-move-headquarters-riyadh-2021-10-27/.
[4]https://www.thenationalnews.com/business/economy/2021/10/27/fii-44-multinational-companies-shift-regional-headquarters-to-saudi-arabia/. ?