UAE DRAFT 2008 NATIONAL TRADE ESTIMATE REPORT

UNCLAS SECTION 01 OF 05 ABU DHABI 001865

SIPDIS

SIPDIS

DEPARTMENT FOR NEA/ARP, EEB/TPP/BTA
STATE PASS USTR FOR JBUNTIN AND GBLUE

E.O. 12958: N/A
TAGS: ETRD ECON EAGR AE
SUBJECT: UAE DRAFT 2008 NATIONAL TRADE ESTIMATE REPORT

REF: STATE 119765



1. (U) The following is our draft text for the 2008 National Trade
Estimate Report. As instructed, a word document has been e-mailed
directly to USTR.

Begin Text

UNITED ARAB EMIRATES


TRADE SUMMARY

The U.S. goods trade surplus with the United Arab Emirates (UAE) was
$6.21 billion through August 2007, a decrease of 6.2 percent from
$6.62 billion in the same period in 2006. U.S. goods exports
through August 2007 were $7.03 billion down slightly over 7% from
the same period the previous year. Corresponding U.S. imports from
the UAE were $858.9 million down over 15%. United Arab Emirates is
the largest export market for U.S. goods in the Arab world

The stock of U.S. foreign direct investment in United Arab Emirates
in 2006 was $4.5 billion up from $3.3 billion in 2005. There are
currently 750 U.S. companies in the UAE.

FREE TRADE AGREEMENT

After consultations with Congress, the United States began Free
Trade Agreement (FTA) negotiations with the UAE in March 2005. In
early 2007, the United States and the UAE announced that they would
not be able to complete FTA negotiations under the existing time
frame for trade promotion authority, but that both sides remain
committed to completing FTA negotiations at some later date.

IMPORT POLICIES

The UAE is a federation of seven emirates (Abu Dhabi, Dubai,
Sharjah, Ajman, Umm Al-QaIwain, Fujairah and Ras Al-Khaimah). 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). The
individual emirates founded the UAE in December 1971. Over the last
33 years, the UAE has developed into the second-largest economy in
the Arab world, with an estimated 2006 Gross Domestic Product (GDP)
of about $163.14 billion (at current prices); Nominal GDP is
projected at $184.9 billion in 2007. The UAE Real GDP is expected to
grow by 7.7 percent in 2007, according to the IMF's Article 4
report.

The UAE has pursued free market, trade liberalizing policies to
diversify its economy away from a dependence on oil. Despite
possessing around 9 percent of the world's proven oil reserves and
the fifth-largest proven gas reserves in the world, rapid growth in
the non-oil economy reduced oil's share of GDP from 60 percent in
1980 to 35.8 percent in nominal terms.

Tariffs

At a December 2001 Summit, GCC Heads of State adopted an
across-the-board common external tariff of 5 percent for most
products. The new tariff regime was implemented in January 2003 as
part of the GCC Customs Union agreement. The GCC states also agreed
to develop a list of products to which a higher tariff would apply.
Currently, the UAE's exceptions to the 5 percent tariff are a 50
percent tariff on alcohol, a 100 percent tariff on tobacco, and duty
exemptions for 53 food and agricultural items.

Import Licensing

Only firms with an appropriate trade license can engage in
importation, and only UAE registered companies, which must have at
least 51 percent ownership by a UAE national can obtain such a
license. This licensing provision is not applicable to goods
imported into free zones. In addition, not all goods require an
import license.


Documentation Requirements

Since July 1998, the UAE has required that documentation for all
imported products be authenticated by the UAE Embassy in the
exporting country. There is an established fee schedule for this
authentication. For U.S. exports, if validation is not obtained in
the United States, customs authorities will apply the fee schedule
when the goods arrive in the UAE. In the last few years, the UAE
introduced online electronic services to facilitate procedures.

Customs Valuation


ABU DHABI 00001865 002 OF 005


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

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 towards the goal of a more
comprehensive unified food standard, a process which could take a
few more years to complete. Each country currently applies either
its own standard or a GCC standard, causing confusion among some
U.S. businesses.

In October 2002, the UAE created the Emirates Authority for
Standardization and Metrology (ESMA),established under the auspices
of the Ministry of Finance and Industry to manage issues of
standardization arising from the GCC Customs Union. In September
2007, ESMA announced that it has been accepted as the UAE
representative to the Worldwide System for Conformity Testing and
Certification of Electro-technical Equipment and Components
(IECEE)'s Member Body.

As of early 2006, ESMA had 1,810 standards. Ninety-five percent
are based on GCC standards and 5 percent are based on UAE standards.
On October 20, 2007, ESMA announced that it has approved 500 new
standards in the UAE, covering foodstuff, chemical and petroleum
products, textiles, electrical and mechanical products and
construction; 98 percent of the approved specifications were
initially GCC specifications, 47 of which were adopted by the UAE.

In the absence of national standards, suppliers may follow
international standards. In addition, ESMA launched its own
conformity assessment program, the Emirates Conformity Assessment
Scheme (ECAS),on selected products that currently applies to toys,
detergents, paints, lubricants, oils and automobile batteries, food,
chemical and petroleum products, textiles, electrical and mechanical
products and construction. ECAS assesses whether domestically
manufactured products meet national or GCC standards, or
international standards if neither national nor GCC standards exist.
The UAE asserts that the ECAS is a voluntary program and is only
applicable to domestically-produced goods, but the scope and
parameters of ECAS lack clarity and transparency. In October 2007,
ESMA's Director General, Walid Al Mansouri stated that ESMA would
submit 48 new compulsory standard specifications to the UAE Cabinet
to issue regulations pertaining to foodstuff such as consumption,
consumer health, allowed amounts of lead, cadmium and salt. Other
regulations will cover safety requirement for electrical appliances,
domestic pesticides, diapers, CNG pumping stations and motorcycles.


Not all UAE national and GCC food standards are consistent with
international standards published through the Codex Alimentarius
Commission (CODEX),Office of Epizootics (OIE) and International
Plant Protection Convention (IPPC) organizations. However,
regulators are taking steps to more broadly adopt international food
and agricultural standards. The GCC has approved new labeling and
shelf-life standards that would eliminate the long standing
requirement that at least one-half of a product's shelf-life be
valid when a product reaches the port of entry. The UAE is expected
to adopt this standard once finalized by the GCC. The new standard
would still require both a production date and an expiration date on
non-perishable food items; thereby requiring U.S. producers of these
products to re-label their products exported to the GCC at an
additional cost.

In September 2007, the Secretary General of GCC Standardization
Organization, Dr. Rashid bin Fahad, announced that member states of
GCC Customs Union have studied a draft regulatory procedure to make
it mandatory to test goods imported into GCC countries to ensure
safety and quality standards. The new measures would allow customs
clearance of only those imported goods which are manufactured
according to international standards and specifications.

Control of the country's food standards resides in the General
Secretariat of Municipalities (GSM) and the Emirates Authority for

SIPDIS
Standardization and Metrology. These two entities develop food
standards through a technical advisory committee, although, on
occasion, individual municipalities or Emirate-level authorities
still apply food standards independently of broader national
authorities. Most recently, an Emirate briefly required the
labeling of foods with biotechnology enhanced ingredients; the GSM
quickly reversed the action. GSM control over the actions of
individual municipalities appears to be improving. However, when
enacted, differing local standards can be confusing for U.S.
exporters and their UAE importers.

GOVERNMENT PROCUREMENT

The UAE grants a 10 percent price preference for local firms in
government procurement. The UAE requires companies to register with

ABU DHABI 00001865 003 OF 005


the government before they can participate in government
procurements. To be eligible for registration, a company must have
at least 51 percent UAE-ownership. This rule does not apply to 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 commercially
viable joint ventures with local business partners 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. This
requirement is designed to further the UAE objective of diversifying
its economy. To date, more than 40 such joint-venture 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.

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. In
addition, an agreement between the UAE and U.S. pharmaceutical
companies provides for de facto patent protection for a number of
U.S. patent-protected medicines.

The 2002 copyright law 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 2007 industry estimates, the rate of
software piracy in the UAE is the lowest in the Middle East,
estimated to be 34 percent. The UAE is recognized as the regional
leader in fighting computer software piracy; although industry
stakeholders believe the UAE could be doing more to combat piracy.

The UAE also revised its Trademark Law in 2002. The law confirms
that the UAE will follow the International Classification System and
that one trademark can be registered in a number of classes. The
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. It remains unclear, however, how the UAE provides
for the protection of geographical indications required by the WTO
Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS).

The UAE published the official and final version of its long-awaited
Patent Law in November 2002. The Patent Law provides for national
treatment for intellectual 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 protection of test and other data against unfair
commercial use in the UAE for pharmaceutical products for up to five
years or until a patent is granted or rejected in the UAE, whichever
period is shorter. This is an improvement over the previous
situation, but protection of test data should not be dependent on
patent protection.

The UAE is also considering legislation for data protection, privacy
and other IP-related issues and has consolidated its Intellectual
Property Rights offices into the Ministry of Economy.

SERVICES BARRIERS

Insurance

About half of the current 47 insurance companies in the UAE are
foreign-owned. In 1989, the UAE government banned additional
foreign insurance companies from opening due to a perception that
the market was saturated. In 2004, the Ministry of Economy and
Planning announced that it would open its insurance sector to new
foreign insurance companies and in June 2005, the UAE submitted a
proposal to the World Trade Organization allowing new foreign
insurance companies to open a branch - not a subsidiary - in the
UAE. Any new foreign insurance companies will be required to meet
high international rating criteria and to offer new products to the
market. As of March 2007, no new foreign insurance companies had
entered the market.


ABU DHABI 00001865 004 OF 005


In 2006, the UAE President issued Federal Law No. 16 of 2006
amending some provisions of Federal Law No. 9 of 1984 on insurance
companies and agents. The new amendments stipulate that established
insurance companies in the UAE, or those which shall be
incorporated, must take the form of a public joint stock company.
At least 75 percent of the capital in such companies must be owned
by UAE nationals and the other 25 percent may be owned by a
foreigner.

Banking

The UAE has 21 national and 25 foreign banks. In 2007, Abu Dhabi
announced the establishment of Al-Hilal Bank; a new government owned
Islamic Bank. Two leading national banks based in Dubai, Emirates
Bank International and National Bank of Dubai, merged.

Following a banking crisis caused by accumulated bad debts after the
oil boom in the mid 1980s, the Central Bank stopped granting
licenses to new foreign banks. In September 2003, however, 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 employ UAE nationals. In
January 2007, the UAE Central Bank Governor announced that the
Central Bank has received applications from some foreign financial
institutions (including Chinese and Indian banks) to establish
branches in the UAE.
Figures by the Central Bank show national banks enjoy a stronger
financial position than foreign banks, with national banks' assets
at nearly $213.82 billion compared with foreign banks' assets of
around $59.13 billion in June 2007. Banks operating in the Dubai
International Financial Center, which opened in 2004, operate under
a different civil and commercial law regime predicated on English
common law, and are not subject to the above restriction on new
banks, but are subject to UAE criminal law.

Agent and Distributor Rules

The UAE's Commercial Agencies Law changed substantially in 2006. As
originally written, it required that all commercial agents be either
UAE nationals or companies wholly-owned by UAE nationals. The
foreign principal was allowed to appoint one agent for the entire
UAE or for a particular emirate or group of emirates. Once chosen,
agents/distributors had exclusive rights and the law provided that
an agent could be terminated only by mutual agreement of the foreign
principal and the local agent. In 2006, the UAE made important
changes to the Agencies Law. The amendments include: (1) limiting
an agency contract to a fixed time period, the length of the
contract between the principal and the agent; (2) requiring mutual
consent to renew an agency agreement; (3) allowing either party to
file for damages; (4) eliminating the Ministry of Economy's Trade
Agencies Committee, which handles agency disputes; and (5) allowing
the import of "liberalized goods" without the agent's approval. One
of the most important changes of the amended law for foreign
investors is that now either party can terminate an agency agreement
at the end of the contract. Since 1996, the UAE has not recognized
new agency agreements in the food sector. In an effort to curb
price manipulation and allow unrestricted imports of basic food
products, the UAE eliminated trading agency requirements for basic
food products in August 2006. The food products covered by the
decision include milk, frozen vegetables, baby formula, chicken,
cooking oil, noodles, rice, flour, fish products, tea, coffee,
cheese, pastries and diapers. For some food products deemed
non-essential, agency agreements in existence prior to this period
are still recognized. The restrictive laws currently governing
agency relationships are under discussion in the proposed United
States-UAE Free Trade Agreement.

Telecommunications

As of January 1, 2005, the UAE revoked the monopoly rights of the
Emirates Telecommunications Corporation (Etisalat) and allowed for
the creation of a second telecommunications company. On May 6,
2005, the Telecommunications Regulatory Authority (TRA) announced
that it had approved the establishment of a second, largely
government-owned, telecommunications company, Emirates Integrated
Technology Company, which will operate under the trade name Du. The
UAE government currently owns 40 percent of Du. The rest of the
company is held equally by Mubadala Development Company (20
percent),TECOM Investment (20 percent) and by the UAE public (20
percent). Neither foreign nor local telecommunications companies
are allowed to own shares in Du; nor are companies whose foreign
ownership exceeds 50 percent. Local press reports have quoted the
TRA Director General as stating that the duopoly will continue until
2015 when the market will be further liberalized. In February 2007,
Du began mobile phone operation, with half million subscribers as of
July 2007. Du provides fixed line services through an arrangement
with Etisalat.



ABU DHABI 00001865 005 OF 005


INVESTMENT BARRIERS

Except for companies located in one of the free zones, at least 51
percent of a business established in the UAE 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-owned/49 percent
foreign-owned limited liability company. Subsidies for
manufacturing firms are only available to those companies with at
least 51 percent of the capital owned by a UAE national.

The laws and regulations governing foreign investment in the UAE are
evolving slowly. There is currently no national treatment for
investors in the UAE. Non-GCC nationals cannot own land, but the
Emirates of Dubai and Ras al Khaimah are currently offering
so-called freehold real estate ownership to non-GCC nationals within
certain areas. In August 2005, UAE President Sheikh Khalifa bin
Zayed Al-Nahyan, acting in his role as the ruler of the Emirate of
Abu Dhabi, signed Abu Dhabi law number 19 of 2005 concerning real
property, which was published in the Abu Dhabi Gazette in September

2005. The law provides that UAE nationals may own land and
interests in land throughout the Emirate of Abu Dhabi. GCC citizens
will be able to own land within designated investment areas.
Non-GCC nationals will have the right to own buildings, but not the
land, in investment areas. Investors must enter into a leasehold
arrangement to rent buildings. Foreign investors may purchase 79 of
the 128 issues on the UAE stock markets, Abu Dhabi Securities Market
(ADSM) and Dubai Financial Market (DFM).

Under UAE law, foreign investors are allowed to own up to 49 percent
of a company. However, company by-laws in many cases prohibit
foreign ownership. Specific sectors where there is a need for
foreign expertise or where local investments are insufficient will
be liberalized to allow 100 percent foreign ownership. Some of the
sectors which may be liberalized are education, health, professional
services and computer-related services.

In August 2007, the UAE issued Federal Law No. 10 (2007) which
amended listing requirements for family owned companies.
Family-owned businesses can now list on the UAE's two stock markets
by listing a minimum stake of 30 percent of the company. Founders
can now maintain a 70 percent stake. This law amends the general
rule of the Federal Companies law, which stipulated that the maximum
stake that the founders of a public company could hold in a publicly
listed company was 45 percent.

Dispute resolution continues to be a problem due to foreign
investors' concerns that pursuing international arbitration may
jeopardize the investor's business activities in the UAE and a
reluctance to take disputes to the domestic court system.

ELECTRONIC COMMERCE

In 2002, the Emirate of Dubai passed The Law of Electronic
Transactions and Commerce, 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 a false e-signature or certificate, or
provides false statements online for fraudulent or any other
unlawful purpose. In 2006 the UAE issued a comprehensive national
law on Information Technology Crimes, which criminalizes a broad
range of fraudulent activities affecting commerce. 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.


End Text.

Sison