Saudi Arabia’s New Import Rules and its Effect on the Relationship with the United Arab Emirates

28 Apr 2022

In the process of diversifying its economy and reducing its dependence on the revenue from oil, while growing the job market for its citizens, Saudi Arabia has amended the rules on customs. Under the new import regulations, Saudi Arabia will not apply any preferential tariffs to any products imported by the GCC companies, if it is produced by a workforce constituting less than 25% of local workers and if goods have a local added value that is below 40%. These new customs regulations are a setback to a long-running GCC objective of forming a unified customs zone between its members Saudi Arabia, Kuwait, Qatar, the UAE, Bahrain, and Oman. 

This amendment also widens the rift between Saudi Arabia and the United Arab Emirates (UAE), as the ministerial decree published in the Saudi official gazette, Umm Al Qura states that any product made in the free zones of GCC countries will not have the status of locally made products. The major contributor to the UAE’s economy is the industrial free zones that permit 100% foreign-owned companies to operate under a light regulation. Traditionally allies, Riyadh and Abu Dhabi saw their relationship becoming tenser and tenser since February 2021, when the government of Saudi Arabia restricted the approval of contracts to foreign businesses not based in the Kingdom. This was a knock-back for Dubai, which is widely promoted as the region’s most attractive business center to foreign investors and companies working across the Mideast Gulf.

Furthermore, Saudi Arabia's refusal to follow the UAE in normalizing relations with Israel has influenced the relationship between the two countries. Under the decree, goods made up of components produced in Israel or manufactured by companies owned entirely or partially by Israeli investors or by companies listed in the Arab boycott agreement regarding Israel, will be disqualified.

The current dispute, while disruptive in the short term, can provide an opportunity for a more efficient, modern, trade and investment framework and agreement that would enhance growth prospects and pave way for greater diversification, and higher value-added regional trade. Visit our official website to know more about the latest amendments to UAE laws and regulations.