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Saudi imports from UAE drop 23% in a year

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As megaports are developed across the GCC, some are questioning the continued relevance of special free zone incentives
  • UAE imports down nearly a quarter but Oman imports up 111% 
  • GCC free zones goods now subject to customs duty in Saudi

Saudi imports from the UAE fell by 23 percent year-on-year in April, with analysts citing last year’s changes to the customs rules as the main reason for the drop.

Imports into the kingdom from the six GCC countries, which also includes Oman, Bahrain, Kuwait and Qatar, rose seven percent year-on-year to 6.55 billion riyals ($1.75 billion) in April, according to a report by Saudi financial news platform Argaam, based on data from the Saudi General Authority for Statistics (GASTAT).

While imports from the UAE were down nearly a quarter, imports from Oman soared 111 percent to 1.371 billion riyals, imports from Bahrain increased 83 percent to 1.182 billion riyals and Kuwait contributed 30 percent more goods, reaching 316 million riyals.

While the UAE accounts for 54 percent of total Saudi imports, the yearly decline coincides with new rules introduced by the kingdom in July 2021, changing the tariff agreements on goods coming from other GCC countries.

Under the rules issued by the Saudi Arabian Minister of Finance, goods manufactured in GCC free zones are considered foreign goods and consequently subject to customs duty.

Dubai-based Sowmya Ramaswami, consulting practice manager – global trade and exports solutions, at global research firm Euromonitor International, said this new policy had a big impact on goods from the UAE, as it explicitly targeted products made in free zones. 

“We know that a large part of the UAE’s exports are facilitated via free trade zones,” she said.

The new rules also stated that, as from July 2, 2021, goods should be accompanied by a valid Certificate of Origin, the manufacturing or processing of the goods must represent at least 40 percent of the value of the imported item and at least 25 percent of the workforce where the product was produced must be GCC nationals.

“We expect that these assessments will lead to cases where the RoO [Rules of Origin] may not be met, and consequently the goods shipped to KSA may be subject to customs duty (up to 25 percent for certain products),” professional advisory firm PwC said in an online commentary in July 2021.

“In view of this, businesses need to evaluate potential changes in their activities to accommodate the new rules and continue to access KSA on a duty free basis,” it added.

Freddie Neve, Middle East associate at the London-based Asia House think tank, agreed the new customs rules had a major impact.

“The UAE has the highest number of free zones in the GCC and a large proportion of its exports originate from them, so it makes sense that the UAE would be more impacted than other Gulf states by this policy change,” Neve said.

“Asia House research has previously tracked the growing economic competition between the GCC states.

“Often this competition has pushed GCC states to further liberalise certain sectors and enhance the incentives on offer for foreign businesses looking to invest in the GCC.

“On occasion, this has coincided with the implementation of trade barriers,” he added.