The United Arab Emirates (UAE) has gained much media attention lately as a leading marketing and trans-shipment hub for multinational companies serving the Middle East and North Africa. Bordering the Gulf of Oman, Persian Gulf, Saudi Arabia and Oman, the UAE is strategically placed as a regional hub and gateway between Europe and Asia.
According to the National U.S.-Arab Chamber of Commerce, U.S. imports into the UAE grew nearly 41 percent from $8.5 billion in 2005 to $11.9 billion in 2006, making it the No. 1 U.S. export destination in the Middle East. Overall, nearly $72.3 billion in goods were imported in 2006, most flowing from India, followed by China and Japan. By year's end, the United States expects to claim nearly a 20 percent share of the UAE's import market.
As businesses increasingly export goods to the United Arab Emirates or establish the country as a key link on their global supply chain, what are some of the trends and issues that companies should keep in mind to help succeed in the region while maintaining regulatory compliance?
Current Trade Environment
The UAE is a Federal Sovereign State, formed in 1971, consisting of seven emirates — Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Fujairah and Ras Al Khaimah — and governed by the Supreme Council of the Federation, which is made up of rulers from each emirate. A contracting party to GATT since 1964, the UAE joined the World Trade Organization (WTO) in 1996. The main federal legal instruments on investment in the UAE are the Commercial Companies Law and the Trade Agencies Law and these laws contain provisions limiting and regulating the participation of foreign investors in the UAE domestic economy. Specifically, the Trade Agencies Law designates that importing and distribution activities are reserved for exclusive UAE "agents." However, a significant portion of trade moves through the UAE's free zones (22 in late 2005) where foreign investors can enjoy 100 percent ownership, operate in a tax-free environment and be exempt from the licensing, agency, "emiratization" (hiring of nationals) and national majority-ownership obligations that apply in the domestic economy. Recently, changes have been made to the scope of the Trade Agency Law and reforms are being actively discussed such as adoption of competition legislation, structural reforms, and further liberalization of the services sector.
Logistics, transportation, telecommunications, tourism, insurance, construction and the energy sector are considered to be major areas for future investment. The financial sector is developing rapidly, in part through the creation of financial free zones such as the Dubai International Financial Center, a financial free zone regulated by the Emirate of Dubai and home now to more than 100 financial services and associated companies.
The main products being imported into the UAE include aircraft (most notably, the development of indigenous flag carriers is seen as an important economic catalyst to economic sustainability), automobiles, drilling equipment, industrial engines and agricultural machinery. In addition, the iron, steel and manufactured metal product industries continue to grow. Many expansion projects are currently taking place, with the expectation that the Gulf region will become one of the important world centers for iron and steel consumption within a few years. Steel requirements in the UAE are expected to grow to 4MM tonnes in the medium term from the current level of 2.5MM tonnes. The Emirate of Abu Dhabi, according to the Abu Dhabi Chamber of Commerce and Industry, is expected to invest more than $200 billion by 2010 in construction, water, electricity and tourism. Another $33 billion is slated for industry, including $22 billion for oil and gas projects. The country is investing in growth and expecting to remain a major trade hub for the region.