UAE BOOSTS EXPORTS TO GCC, THANKS TO CUSTOMS UNION

C O N F I D E N T I A L SECTION 01 OF 02 ABU DHABI 000552

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: 03/02/09
TAGS: PREL KIPR ETRD ECIN ETTC ECON TC
SUBJECT: UAE BOOSTS EXPORTS TO GCC, THANKS TO CUSTOMS UNION

REFS: A) 03 ABU DHABI 2218
B) 03 ABU DHABI 1756
C) 03 ABU DHABI 221
D) 02 ABU DHABI 6910


1. (U) Classified by Deputy Chief of Mission Richard A.
Albright for reasons 1.5 (b) and (d).


2. (C) Summary and comment: One year after its creation,
the GCC Customs Union is proving to be a commercial boon
for the UAE -- exports and reexports to the GCC states
increased by 33 percent in 2003. Past disputes among GCC
members regarding the unified tariff, revenue collection,
and border inspections have been resolved (see refs A-C).
Most importantly, the UAE Federal Customs Authority --
hastened in its creation by the implementation of the GCC
Customs Union on January 1, 2003 -- has developed into a
full-fledged UAE federal institution, allowing the
individual emirate-level customs departments to speak with
one voice in GCC fora. We remain optimistic that the UAE
Federal Customs Authority will regularize customs
procedures across the UAE, and provide a single entity with
which the USG can coordinate its wide range of export
control initiatives.

End summary and comment.

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UAE Benefits From GCC Customs Union
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3. (SBU) The UAE's exports and reexports to the GCC states
increased to about AED 6.8 billion (USD $1.85 billion) in
2003 -- an increase of 33 percent over 2002 figures,
according to the UAE Federal Customs Authority. (Note:
This total does not/not include the considerable volume of
transshipped goods that passed through the UAE's free trade
zones last year. Exports and reexports include goods
manufactured in the UAE, or items imported into the UAE,
modified and reexported to a third destination. End note.)
UAE customs officials directly attribute the increase in
export revenue to the implementation of the GCC Customs
Union on January 1, 2003, and the subsequent reduction of
tariffs on intra-regional trade.


4. (U) Some local businessmen here feared that the customs
unification would neutralize Dubai's advantage as an export
and reexport hub -- formerly, the UAE's external tariff was
much lower than that of other GCC states -- but 2003
statistics proved otherwise. According to the Dubai
Chamber of Commerce, the number of certificates of origin
issued in Dubai increased 23 percent in 2003. The total
value of these exports equaled AED 47 billion (USD $12.8
billion). Dubai's comparative advantage no doubt lies in
its ability to provide first-class communication,
transportation, and logistical support to traders.


5. (U) Iran was Dubai's number one export destination in
2003, according to the Dubai Chamber of Commerce, but
interestingly, Saudi Arabia, Kuwait, Qatar and Oman,
respectively, were ranked Dubai's other top export/reexport
markets. The prominence of GCC member states on the list
of the UAE's most important trading partners is a marked
change from previous years.

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UAE v. KSA: Can't We All Just Get Along?
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6. (SBU) The GCC Customs Union has provided UAE traders
with unprecedented access to the huge Saudi market.
Indeed, General Director of the UAE Federal Customs
Authority Mohammed Al-Mehairi told Econoff that earlier
problems with Saudi Arabia have subsided (refs A-C). The
Emiratis last year threatened retaliatory trade measures
against Saudi Arabia if Riyadh continued to levy heavy
duties on UAE-origin goods or delay perishable items at the
Saudi border. Al-Mehairi said that many of these problems
probably resulted from miscommunication between officials
in Riyadh and customs officials at the border. UAE traders
continue to have problems exporting UAE-origin dairy
products to Saudi Arabi, however. Al-Mehairi intimated
that certain Saudi royal family members had a vested
interest in protecting the Saudi dairy industry, and UAE
dairy products often spoiled at the border awaiting
"customs clearances."


7. (SBU) Al-Mehairi also noted that the Saudis continue to
levy duties on goods from the UAE's free zones. Riyadh
argues that goods from the free zones are not UAE national
products under the GCC Customs Union agreement. With 12
free zones, and more than 10 others in various stages of
development, the UAE asked the GCC to designate free zone
items as entirely or partially UAE products. To date, the
GCC has remained silent on transshipments or products
entering the GCC via free zones.

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UAE Federal Customs Authority Strengthened
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8. (C) Separate from the GCC Customs Union, the UAE
Federal Customs Authority was created in 2002 to represent
the emirate-level customs departments in GCC fora. A year
later, the UAE Federal Customs Authority has a new office
building, a Director General, and about 25 economists,
lawyers, and support staff. Most executive board meetings
are held in Dubai, to reduce travel time for customs
directors from the northern emirates.


9. (C) Al-Mehairi noted that the power shift toward the
Federal Customs Authority during the last year was most
difficult on Dubai and Executive Chairman of Dubai Ports,
Customs and Free Zones Sultan bin Sulayem, who formerly
wielded considerable independence and power in customs and
trade matters. Although the Customs Authority must obtain
consensus of every customs director before taking a federal
position, Al-Mehairi said that Shaykh Hamdan occasionally
mediates disputes between the enigmatic bin Sulayem and the
head of Abu Dhabi Customs Ali Al-Jabri. Bin Sulayem
reportedly was loath to relinquish responsibility to
Federal Customs Authority inspectors in Dubai, but
acquiesced at Hamdan's urging. (Note: There currently are
fewer than five federal-level inspectors in Dubai, but the
Federal Customs Authority intends to double this number by
end-2004. End note.)


10. (C) In a recent meeting with the Consul General, bin
Sulayem admitted that there is much more coordination
between the emirate-level customs departments, thanks to
the Federal Customs Authority. He said that each Director
of Customs Affairs retains some degree of independence
under the new system, but safety and inspection procedures
are completely regularized across the emirates. Although
there is supposed to be a harmonized federal system of
customs valuation and revenue collection, bin Sulayem said
such coordination is "nonexistent" in practice.


11. (SBU) Al-Mehairi told Econoff that the Federal Customs
Authority intends to deploy by 2005 a single electronic
network among customs departments and with the GCC
countries to unify the technical customs procedures. He
admitted, however, that there is considerable debate about
which electronic system to use -- the system currently used
by Abu Dhabi or Dubai Custom's system -- and is an example
of the challenges he faces in coordinating even minor
details among customs departments. Al-Mehairi said that
the Abu Dhabi system is user-friendly and aggregates data
quickly. The Dubai system, however, is more elaborate and
can collect a broader variation of data, and already is
installed in some of the northern emirates customs
departments.

Wahba