GCC CUSTOMS UNION MAKING IT TOUGHER TO DO BUSINESS

C O N F I D E N T I A L ABU DHABI 000221

SIPDIS

STATE FOR NEA/ARP, NEA/PPR
STATE PASS USTR - JBUNTIN
USDOC FOR USPTO
USDOC FOR 4250/DOC/MAC/ONE/CLOUSTAUNAU
GENEVA PASS USTR

E.O. 12958: DECL 01/14/2013
TAGS: PREL KIPR ETRD ECIN ETTC ECON TC
SUBJECT: GCC CUSTOMS UNION MAKING IT TOUGHER TO DO BUSINESS
IN ABU DHABI?

REF: A) RIYADH 130, B) ABU DHABI 6910


1. (U) Classified by A/DCM Thomas E. Williams for reasons
1.5 (b) and (d).


2. (C) Summary: Although it may be business-as-usual in
some parts of the Gulf (ref A),the launch of the GCC
Customs Union on January 1 is actually raising barriers to
trade in the UAE. The emirate of Abu Dhabi, in particular,
is struggling to manage problems arising from the new
requirement, per the GCC Customs Union, to impose 5 percent
duty on previously exempt consumer goods. The local
business community complains that certain imported goods,
formerly exempt from customs duties under UAE jurisdiction,
are now subject to 5 percent tax. While it is hoped that
the GCC list of products exempted from duties will increase
with time, for now local importers -- and ultimately
consumers -- will pay a higher price for certain products in
the UAE. End summary.

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An U.S. Company Cries Foul...
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3. (C) An American oil services company contacted Econoff
on January 5 to complain that oil field machinery --
previously exempt from any UAE customs tax -- is now subject
to the 5 percent GCC duty. Deputy Director of Abu Dhabi
Customs Department Mohammed Khamis confirmed that oil field
machinery is subject to tax, but told Econoff that the
emirate's Customs Department is willing to review the import
of goods formerly exempted from customs duties on a case-by-
case basis.


4. (U) Khamis noted that import goods on the UAE's
exemption list could be exempted from the GCC customs tax if
the importing company presents its industrial license to the
customs authorities, as well as a letter from the General
Industry Corporation or the Ministry of Finance certifying
that the company is authorized to import the good. Although
it is an untested procedure -- and specific to the emirate
of Abu Dhabi -- Econoff advised the American company that
this certification process may provide a temporary solution
to the problem.

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...And Local Officials Despair
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5. (C) The GCC Customs Union also limits the incentives the
emirate of Abu Dhabi can employ to attract foreign
investors. During a meeting of local and foreign
businessmen on January 12, Director General of the Abu Dhabi
Chamber of Commerce and Industry Mohammed Omar Abdullah
confirmed that the emirate no longer could offer customs
exemptions as a business investment incentive. He privately
told Econoff that Abu Dhabi relied on customs exemptions to
compete with the plethora of free zones in Dubai and the
northern emirates. (Note: Transshipped goods are not subject
to customs in the FZs.) Nevertheless, Abu Dhabi authorities
do not plan to establish a free zone in the emirate,
according to Abdullah.


6. (C) Comment: No one here doubts that the UAE will
benefit from the GCC Customs Union in the long-run, but Abu
Dhabi emirate and local businesses alike are feeling the
painful effects of the transition. The matter is
complicated further by the fact that the newly established
UAE Customs Authority (ref B) -- the supposed central
clearinghouse for customs information and changes related to
GCC Customs Union -- is not yet up-and-running. Although
the GCC exemptions list is sure to grow as Member States
work out the mechanics of the Customs Union, Abu Dhabi
importers are likely to factor in the increased cost of
doing business here and pass it on to consumers. End
comment.

Wahba