US embassy cable - 04ABUDHABI4564

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