2005 NATIONAL TRADE ESTIMATE, UNITED ARAB EMIRATES

UNCLAS SECTION 01 OF 04 ABU DHABI 004564

SIPDIS

STATE PASS USTR

E.O. 12958: N/A
TAGS: ECON EFIN ETRD TC
SUBJECT: 2005 NATIONAL TRADE ESTIMATE, UNITED ARAB EMIRATES

REF: STATE 240980


1. The body of this cable is the submission of the 2005 National
Trade Estimate for the United Arab Emirates. A word file with
tracked changes will be emailed to USTR and NEA.


2. Begin text:

TRADE SUMMARY

The United Arab Emirates is a federation of seven emirates (Abu
Dhabi, Dubai, Sharjah, Ajman, Umm Al-Qaiwain, Fujairah, and Ras
Al-Khaimah) founded in December 1971, because the individual
emirates realized that they were too small and too poor to be
viable on their own. Over the last 33 years, the UAE has
developed into the third largest economy in the Arab world, with
an estimated 2003 GDP of about $80 billion. The UAE has pursued
free market, pro free-trade policies to diversify its economy
away from its dependence on oil. Despite possessing 9-10% of the
world's proven oil reserves and the fourth largest proven gas
reserves in the world, rapid growth in the non-oil economy
reduced oil's share of GDP from 65% in 1980 to about 30% now.

The UAE is part of the Gulf Cooperation Council (GCC),an
economic and political policy-coordinating forum for the six
member states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and
the UAE). Since the GCC cannot impose trade policies upon the
member states, each is free to pass and enforce its own trade
laws. However, there has been growing cooperation among GCC
member states on issues such as customs duties, intellectual
property protection, standards setting, and intra GCC
investments. In January 2003, the GCC implemented a Customs
Union, unifying tariffs throughout the GCC. In theory, the
Customs Union means that the members have adopted unified customs
laws and procedures, however there remain many practical details
to resolve including tariff exemptions, standards, and revenue
distribution. The GCC has set 2005 as a deadline for agreement
on convergence criteria and 2010 as the target date for adoption
of a single currency.

The UAE is a major trade hub and a major regional financial
center. Last year, the U.S. exported $3.5 billion in non-
military goods to the UAE (an eight percent market share) and
imported $1.1 billion, and there are approximately 500 American
companies physically present in the country. In 2003, UAE
exports reached $65 billion while imports grew to $43 billion,
giving the UAE a trade surplus of almost $20 billion and a
current account surplus of $11 billion.

IMPORT POLICIES

Tariffs

At the December 2001 Summit, GCC Heads of State adopted an across-
the-board common external tariff of five percent for most
products to start in January 2003 as part of the Customs Union
agreement. The GCC states also agreed to develop a list of
products to which a higher tariff will apply. The exceptions to
the five percent tariff in the UAE are a fifty percent tariff for
alcohol, a one-hundred percent tariff for tobacco, and duty
exemptions for 53 food and agricultural items.

Import Licensing

In the UAE, only firms with the appropriate trade license can
engage in importation, and only UAE nationals can get such a
license, with the exception of goods being imported into free
zones. Not all goods require an import license, however.

Documentation Requirements

Since July 1998, the UAE has required that documentation for all
imported products be authenticated by the UAE Embassy in the
United States. There is an established fee schedule for this
authentication. Without the validation in the United States,
customs authorities will apply the fee schedule when the goods
arrive in the UAE.

Customs Valuation

The UAE notified the WTO Customs Evaluation Committee in October
2004 of its customs valuation scheme.

Textiles

Textile manufacturing represents approximately 10 percent of the
UAE's gross domestic product, and Ministry of Economy officials
have said that the textile sector is key to the UAE's efforts to
diversify its economy. The UAE has attracted a number of garment
manufacturers because of its close proximity to the Indian
subcontinent and the lack of corporate or personal income taxes.
The majority of garment factories are located in free trade
zones, where they operate exempt from UAE commercial law and can
be owned 100 percent by foreigners. In 2003, the Dubai
Government announced the development of a $60 million textile
free zone, called Dubai Textile City that is expected to open in
fall 2005. The UAE has proposed eliminating the four percent
textile tariff that currently exists between GCC members to
further ease restrictions on textile trade.

STANDARDS, TESTING, LABELING AND CERTIFICATION

As part of the GCC Customs Union, member countries are working
toward unifying their standards and conformity assessment
systems, and have progressed considerably toward the goal of a
unified food standard, originally targeted for adoption by 2006.
However, each country currently applies either its own standard
or a GCC standard, causing confusion among business.

The UAE opened the Emirates Authority for Standardization and
Metrology (ESMA),established under the auspices of the Ministry
of Finance and Industry, in October 2002 to manage issues of
standardization arising from the GCC Customs Union. The UAE has
decided not to implement the GCC International Conformity
Certification Program (ICCP) that the U.S. identified as a
barrier to trade. ESMA has launched a voluntary compliance
program (Emirates Conformity Assessment Scheme or ECAS) on
selected products to be verified for compliance. ECAS
specifically applies national or Gulf standards to domestically
manufactured products, and apply international standards if
national of Gulf standards do not exist. The ECAS only applies
to domestically produced, not imported, goods. The UAE enforces
national or GCC food standards that are not based on WTO
standards published through the CODEX, OIE and IPPC
organizations. In addition, the UAE requires that all consumer-
ready food products carry both production and expiry dates and
stipulates that at least one-half of a product's shelf life must
be in effect when a product reaches the port of entry. For red
meats and poultry, the product must arrive within four months of
production. In direct contradiction to the IOIE standards, the
UAE maintains import bans on meat and animal products originating
from U.S. origin poultry and cattle.

In August, 2004, the UAE cabinet transferred control of the
country's Food Safety and Technical Advisory Committee from the
General Secretariat of Municipalities to the ESMA.

GOVERNMENT PROCUREMENT

The UAE does not require that a portion of any government tender
be subcontracted to local firms, but it grants a 10 percent price
preference for local firms in government procurement. The UAE
requires a company to be registered to be invited to receive
government tender documents. To be registered, a company must
have 51 percent UAE-ownership. However, these rules do not apply
on major projects or defense contracts where there is no local
company able to provide the goods or services required.
Established in 1990, the UAE's offset program requires defense
contractors that are awarded contracts valued at more than $10
million to establish joint venture projects that yield profits
equivalent to 60 percent of the contract value within a specified
period (usually seven years). There are also reports, as well as
anecdotal evidence, indicating that defense contractors can
sometimes satisfy their offset obligations through an up-front,
lump-sum payment directly to the UAE Offsets Group. The projects
must be commercially viable joint ventures with local business
partners, and are designed to further the UAE objective of
diversifying its economy away from oil. To date, more than 40
projects have been launched, including, inter alia, a hospital,
an imaging and geological information facility, a leasing
company, a cooling system manufacturing company, an aquiculture
enterprise, Berlitz Abu Dhabi, and a firefighting equipment
production facility. Two of the largest offset ventures are an
international gas pipeline project (Dolphin) and the Oasis
International leasing company -- a British Aerospace offsets
venture. The UAE is not a signatory to the WTO Agreement on
Government Procurement.

EXPORT SUBSIDIES

The UAE does not have export subsidies.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION

The UAE has made the protection of intellectual property a
priority in recent years. The UAE repealed previous copyright,
trademark, and patent laws and issued improved legislation in
2002, providing high levels of protection for U.S. intellectual
property, while an agreement between the UAE and U.S.
pharmaceutical companies provides de facto patent protection for
a number of copies of U.S. patent-protected medicines. In 2004,
the UAE resolved a number of IPR complaints with U.S.
pharmaceutical manufacturers.

The new copyright law, enacted in July 2002, grants protections
to authors of creative works and expands the categories of
protected works to include computer programs, software,
databases, and other digital works. Efforts to combat computer
software piracy in the UAE have been successful. According to
2002 industry estimates, the rate of software piracy in the UAE
is the lowest in the Middle East. The UAE is recognized as the
regional leader in fighting computer software piracy.

The UAE's new Trademark Law, also issued in July 2002, confirms
that the UAE will follow the International Classification System
and that one trademark can be registered in a number of classes.
The new law provides that the owner of the registration shall
enjoy exclusive rights to the use of the trademark as registered
and can prevent others from using an identical or similar mark on
similar, identical or related products and services if it causes
confusion among consumers.

The UAE published the official and final version of the long-
awaited Patent Law in November 2002.

Specifically, the Patent Law provides for national treatment for
property owners from other WTO Members, product and process
patent protection, and enforcement of intellectual property
rights utilizing civil and criminal procedures and remedies. In
October 2003, the Ministry of Health issued a circular providing
data exclusivity protection in the UAE market for pharmaceutical
products equal to the patent term of the pharmaceutical product
in the origin country.

In 2004, the Ministry of Information issued new regulations
allowing for specialized collecting societies as a practical way
for sound recording companies to collect royalties on the
broadcast and performance of copyrighted material. The UAE
government also is considering legislation for data protection,
privacy, and other IP-related issues. The UAE continued to
enforce IPR laws and regulations, and in response to TIFA Council
discussions, identified points of contact for rights holders to
address complaints.

SERVICES BARRIERS

Insurance

In November 2004, the Ministry of Economy and Planning announced
that it will open its insurance sector to new foreign insurance
companies. About half of the current 47 insurance companies in
the UAE are foreign, but the UAE government froze new entries to
the market in 1989 due to a perception that the market was
saturated. New foreign companies will be required to meet high-
level international rating criteria and to offer new products to
the market.

Banking

The UAE has 21 national banks, 26 foreign financial entities, and
a total of 457 branches. Following a banking crisis caused by
accumulating bad debts after the oil boom in the mid-1980s, the
Central Bank stopped giving licenses to new foreign banks.
However, in September 2003, the UAE Central Bank announced that
it would allow the operation of more banks from other countries
on a reciprocal basis. The Central Bank is also considering
allowing foreign banks operating in the UAE to set up new
branches provided that they undertake to employ UAE nationals.
Figures by the Central Bank show national banks enjoy a stronger
financial position than foreign banks operating in the UAE, with
assets peaking at the end of March 2003 at nearly $68.3 billion
compared with foreign banks' assets of around $21.5 billion. The
UAE opened the Dubai International Free Zone in 2004, which
exempts foreign banks from civil and commercial, though not
criminal, law.

Shipping

The UAE presents no major impediments to shipping.

Agent and Distributor Rules

The UAE's Commercial Agencies Law requires that foreign
principals distribute their products in the UAE only through
exclusive commercial agents that are either UAE nationals or
companies wholly owned by UAE nationals. The foreign principal
can appoint one agent for the entire UAE or for a particular
emirate or group of emirates. All UAE commercial agents must be
registered with the Ministry of Economy and Planning. Once
chosen, agents/distributors have exclusive rights, and the law
provides that an agent may be terminated only by mutual agreement
of the foreign principal and the local agent, notwithstanding the
expiration of the term of the agency agreement. Since 1996, the
UAE has not recognized new agency agreements in the food sector.
Agency agreements in existence prior to this period are still
recognized. The UAE is discussing amendments to the Agency Law,
although no formal decisions have been made at this time.

INVESTMENT BARRIERS

Except for companies located in one of the free zones, at least
51 percent of a business establishment must be owned by a UAE
national. A business engaged in importing and distributing a
product must be either a 100 percent UAE owned
agency/distributorship or a 51 percent UAE/49 percent foreign
limited liability company (LLC). Subsidies for manufacturing
firms are only available to those with at least 51 percent local
ownership.
The laws and regulations governing foreign investment in the UAE
are evolving. There is no national treatment for investors in
the UAE. Non-GCC nationals cannot own land, but the emirate of
Dubai currently is offering so-called free hold real estate
ownership for non-GCC nationals within certain properties.
However, the exact legal status of this scheme is still
uncertain. 22 out of 53 stocks on the UAE stock market are open
to foreign investment. Ministry of Economy and Planning rules
allow foreign investment up to 49% in companies on the stock
market, however, company by-laws in many cases prohibit foreign
ownership. There have been no significant investment disputes
during the past few years involving U.S. or other foreign
investors. Claims resolution is also a problem as foreign
companies tend not to press claims for fear that doing so may
jeopardize business activity in the UAE.

ELECTRONIC COMMERCE

In the UAE, the Emirate of Dubai passed The Law of Electronic
Transactions and Commerce No. 2/2002 in 2002, which protects
certain electronic records and signatures, and some electronic
communications. This law also provides penalties for any person
who knowingly creates, publishes, or otherwise makes available
false signature or certificate, or provides false statements
online for fraudulent or any other unlawful purpose. In March
2003, the International Bar Association hosted a conference in
Dubai entitled, Middle East Law and the Internet Age. The
conference addressed the legal developments related to new
technologies, with a focus on electronic commerce in the Middle
East. The Emirate of Dubai has established the Dubai Technology,
Electronic Commerce and Media Free Zone (TECOM),which houses
both Internet City and Media City, two subdivisions which cater,
respectively, to the information technology and media sectors.
In April 2004, the UAE announced the opening of the
telecommunications sector, revoking Emirates Telecommunications
Corporation's (Etisalat) monopoly rights. This decree will take
affect on January 1, 2005.

OTHER BARRIERS

Corporate Tax Policies

There is no income tax or consumption tax in the UAE. Foreign
banks pay 20 percent tax on their profits, and foreign oil
companies with equity in concessions pay taxes and royalties on
their proceeds.

End text.


SISON