Potential impact of Saudi GCC traiff changes on the UAE

Saudi Arabia announced on 5 July that it will no longer include goods made by companies with less than a 25% local workforce or with less than 40% of value-added in the GCC tariff agreement, effectively imposing charges on these imports. The new rules mean goods re-exported from the UAE to Saudi Arabia are likely to be subject to customs duties. In addition, any goods containing components from Israel or made by Israeli companies will also be excluded from the GCC tariff agreement. 

In this analysis we have assumed that all re-exports will be subject to Saudi customs duties. Data is sourced from the UAE Federal Competitiveness and Statistics Authority (FCSA) and Dubai Customs.

Estimating the impact on the UAE's re-exports

Saudi Arabia is the UAE’s largest re-export market.   In 2019, the UAE re-exported AED 57.2bn of goods to Saudi Arabia, which was 12.5% of total UAE re-exports.  In the first nine months of 2020, UAE re-exports to KSA amounted to AED 55.4bn or 20.6% of total UAE re-exports.  The pandemic has likely skewed the 2020 figures as global trade volumes declined sharply in Q2 2020, so 2019 figures are likely a better representation of the true nature of the UAE/ KSA trading dynamics.

Assuming 10% growth in the value of re-exports to KSA since 2019, around AED 63bn worth of the UAE’s re-exports are likely to be subject to customs duties at the Saudi border.  The rate applied will depend on the product, but Saudi customs duties range between 5%-25% after they were increased in June 2020.

Half of the UAE’s re-exports globally are machinery & equipment (37%) and jewellery & previous metals and stones (22%). Another 12% is (transport) vehicles.  The Saudi tariffs on these items are as follows:

• Machinery equipment and parts – up to 15%
• Motor vehicles and parts – 15%
• Jewellery, pearls etc – 5%

Estimating the impact on Dubai's re-exports

In 2019, Dubai’s re-exports (reported by Dubai Customs) totalled AED 420.3bn or around 90% of total UAE re-exports as reported by FCSA.  If we apply the 90% to the estimated UAE re-exports to KSA, then AED 50-60bn of Dubai re-exports could be subject to tax at the border with KSA. 

Importantly, Dubai Customs data shows that while 2/3rds of Dubai’s re-exports are via the freezones, 1/3rd is not freezone trade.  It is thus not only freezone companies that could be affected by the new Saudi tariffs. As these non-freezone goods are still classified as “re-exports” they would presumably not meet the 40% value-added requirement to be exempt from Saudi customs duties.