New import rules exclude free zones and products with Israeli components, as well as factories with less than 25% local workers

The Kingdom of Saudi Arabia has issued a new decree modifying import duties from Gulf countries, in a move that observers say is aimed at separating the Saudi market from other Gulf states and putting pressure on them. Gulf Cooperation Council countries.

According to the ministerial decree published in the Saudi Official Gazette, goods produced in free zones, many of which are located in the United Arab Emirates, will be treated as foreign goods and cannot benefit from tariff concessions. In addition, the Gulf customs agreement will not apply to goods comprising a component produced in Israel or manufactured by companies wholly or in part owned by Israeli investors or companies, as stated in the Arab boycott against Israel.

Another part of the new regulation states that Saudi Arabia will exclude products made by companies with a workforce of less than 25% of the local population, and industrial products with an added value of less than 40%. % after GCC customs manufacturing process. agreement.

This exclusion came as a shock to Gulf circles, as factories in Gulf countries rely heavily on expatriate workers who work for less, especially from countries like Bangladesh, India, Pakistan and Nepal, and who constitute more than 90% of factory workers due to their low wages, according to statistics released by the Gulf Statistical Center for the General Secretariat of Gulf Cooperation Council States.

According to data released by the Gulf Statistical Center, trade between Gulf Cooperation Council countries – other than oil – before the coronavirus pandemic in 2019, amounted to more than $ 73 billion, with an annual growth rate 3.9%. The Gulf countries also export between themselves 24% of goods of national origin, which is equivalent to a quarter of the total products exported by these countries, excluding oil.

The decision to treat goods produced in the free zones as non-Gulf goods mainly targets the United Arab Emirates, as the United Arab Emirates zone of Jebel Ali is the largest free zone in the Gulf and exports more than 40% of its products. to Saudi Arabia. . The decision to increase tariffs on its products will cause great damage in this region, according to economic observers.

Free zones, which are one of the main engines of the UAE economy, are areas where foreign companies can operate under light regulations and where foreign investors are allowed to fully own businesses.

The kingdom announced recent rule changes despite the UAE being Saudi Arabia’s second-largest trading partner after China in terms of import value, based on Saudi trade data.

The UAE is also a major hub for the re-export of foreign goods to Saudi Arabia, including Turkish goods subject to an unofficial embargo by Riyadh, according to official statistics.

In addition, the exclusion of products containing components made in Israel comes after the UAE and Israel normalized relations and opened up to economic cooperation between the two countries.

The announcement of Saudi tariff changes comes amid deep disagreements in economic relations between Saudi Arabia and the United Arab Emirates, such as Saudi Arabia preventing its citizens from traveling to the Emirates in an attempt to stop the spread of the coronavirus, despite unofficial UAE sources responding that Abu Dhabi would be less affected than Riyadh. Relations between the two countries were also tested this week on questions about extending oil production cuts in OPEC +.

Saudi strategic and economic analyst Dr Ali Al-Qurashi told The Media Line that the new regulations “end a long period of unwarranted courtesy and indulgence by opening our markets far and wide without reciprocity, without deviations. and without tricks that are no longer acceptable. “

He added that “(c) these rules come after years of problems regarding the Gulf Customs Union and the insistence of some Gulf Cooperation Council countries to keep tariffs floating so that they can locate industries. and export them to the rest of the country. GCC countries as national industries on preferential terms.

Al-Qurashi also said that: “The new fees have fired a pity bullet against attempts to disrupt the customs union by floating tariffs and receiving Saudi preferential treatment without any consequences, and whoever wants a customs union after today must first comply. by this regulation.

The move has also given the Saudi private sector “an excellent competitive and protective environment” in areas such as emerging industries, and will benefit both the Saudi workforce and the workforce. Gulf in general, he added.

Article 18 of the resolution, which deals with free zones, “will kill the free zones that have destroyed our local industries and flooded our markets by protecting domestic producers and importers in countries of origin from dumping in the Saudi market, which is pursued by countries that surround us with free zones and covet preferential treatment to enter our markets, ”Al-Qurashi said.

Neither the UAE, nor any other Gulf country, has issued any official statements or amendments to its tariff laws in reaction to recent Saudi rulings.

Saudi and Emirati social media influencers clashed over the new regulations as Saudi influencers tweeted attacks on the United Arab Emirates and goods exported from the massive Jebel Ali Free Zone in Dubai, including references to the export of 10 million fake packets of cigarettes from the port of Jebel Ali to Saudi Arabia, while the Emiratis accused Saudi Arabia of starting to think “selfishly”.

Every country has the right to regulate its internal affairs and impose its laws, and traders always adapt to it.

UAE economic analyst Saeed Rais told The Media Line that “Saudi Arabia’s new import rules go against the unity of the Gulf economy.”

“We aspire to economic unity and the promotion of intra-Gulf trade, but such demands can complicate matters. All Gulf countries depend on expatriate workers, and the conditions for having a quarter of citizens’ jobs cannot be matched. Even in Saudi Arabia itself, the number of foreign workers in factories exceeds 90% of the workers there, ”he said.

“The Jebel Ali free zone will be affected, but partially. Certainly, investors will find alternative markets for their products there, but perhaps the Saudi citizen will also be affected by the rise in prices after increasing the tariffs on them, ”Rais added.

“Maybe it will be a summer cloud and it will end soon,” he said. “It is true that the whole economy is affected by the repercussions of the coronavirus, but the Gulf countries certainly remain an economic force to be reckoned with in the world, and therefore, such things will certainly improve later.”

Meanwhile, Bahraini economic analyst Akbar Hussain told The Media Line that “Bahrain’s situation is different from Saudi Arabia’s because the Saudis are Bahrain’s biggest trading partner; but we in Bahrain have domestic workers everywhere, maybe only a few simple exports will be affected, but it sure won’t have a big impact.

He added that: “Every country has the right to arrange its internal affairs and impose its laws, and traders always adapt to it. There is nothing wrong, and they still have a large profit margin that can cover the difference in tariffs.

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