I.                   Economic development

1.                   Successive developments in the economy of the United Arab Emirates, and the adoption of free market policies and regulations, have led to impressive growth rates and a trend towards sustainable and diversified development.

2.                   The UAE Government has successfully pursued a strategy to create an enabling business environment that is conducive to economic growth. This has contributed to the world-renowned status of the UAE as an international centre for trade, finance and services and has attracted reputable global companies. The UAE has always focused on strengthening its stance as a hub for private commerce. Hence, it demonstrates an exemplary model to be emulated in all patterns of economic development and modernization.

3.                   The Ministry of Economy and Planning is currently pursuing the Government’s progressive economic agenda, focused around economic liberalization, diversification and promotion of the role of the private sector.

(1)               Economic Growth

4.                   Economic growth in the UAE has witnessed a substantial increase over the last few years. Nominal gross domestic product has risen from AED 254 billion, in 2001, to AED 379 billion in 2004, or by more than 14% a year. While precise data for 2005 was not available at time of publication, the GDP trend is likely to have accelerated in 2005 due to the increase in the average oil price in 2005 and the strong expansion in the non-oil economy.

5.                   The Government emphasizes continued diversification away from dependence upon oil and gas to non-oil industries. This is evidenced by the export mix of the UAE: non-oil exports were 52.3% of total exports in the five years from 2000 to 2004 compared to 31.9% in the 1970s and 29.5% in the 1980s. The services sector is another policy focus; the growth of services will contribute to increased diversification and broad-based growth.

(2)               External Trade Performance and Outward Investment

6.                   The UAE is a trading nation, as witnessed by its high ratio of imports plus exports (of goods and services) to GDP (around 145%).   The UAE is also an important participant in global capital markets through several investment institutions, including, inter alia, the Abu Dhabi Investment Authority, the Dubai Ports Authority, Dubai Holding, the Abu Dhabi’s International Petroleum Investment Co. (IPIC). Its current account has been in surplus since independence, despite large current transfers by expatriate workers and the chronic deficit of the services account, the UAE as a traditional net services importer.

(3)               Inward Investment

7.                   The UAE strongly believes that the private sector (both local and foreign) is the true engine of growth in the long run. Foreign direct investment (FDI) is regarded as crucial in order to transfer knowledge and expertise in areas that are not yet the country’s core competencies, open new market opportunities by the creation of new networks and create employment in knowledge intensive and high value-added sectors.

8.                   Following the success of the Jebel Ali Free Trade Zone, the UAE currently boasts 23 Free Zones. Most of these zones are located in Dubai, though the other Emirates are emulating the lead. Some of the zones cater to service sectors (e.g. Dubai Internet City, Dubai Media City, Dubai Health Care City, Knowledge City, Dubai International Financial Center) while others are industrial zones (e.g. Hamriyah Free Zone, Ajman Free Zone and the Gold and Diamond Park). 

9.                   The basic success formula in the different zones is 100% foreign ownership, corporate tax holidays, no personal taxes, freedom to repatriate capital and profits, and no import duties or currency restrictions.

10.               Outside the Free Zones, the formula is somewhat different: corporate tax holidays for most sectors, no personal taxes, freedom to repatriate capital and profits, and no currency restrictions. Foreign ownership is generally set at a ceiling of 49%, though that is changing with the UAE’s commitments to the WTO.

(4)               Population and Employment

11.               Population, in the UAE, has been rising, over the last few years, at a staggering rate of around 7% per annum. Around 2% of the growth rate is natural, while an influx of expatriate workers is helping support the rapid industrialization of the UAE. Population stood at 4.32 million in 2004 compared to 4.041 million in 2003. In 2004, 3 million people were between the age of 15 and 60.

12.               Expatriates constitute the majority of UAE citizens (around 85%) and all expatriates come to the UAE to work or invest. Unemployment does not exceed 4%. Almost 57% of the population were employed in 2004 (2.46 million).

(5)               Fiscal Policy

13.               The UAE maintains the belief that income tax exemptions encourage an increase in FDI and a more vibrant private sector development. All free zones therefore benefit from zero income tax. Moreover, the UAE believes that a balanced public budget is conducive to economic growth in the long run.

14.               Total public revenues have increased from AED 77 billion, in 2003, to AED 94.4 billion in 2004, or by around 22.6%. This was primarily due to the increase in oil and gas earnings and increased returns from customs (from AED 2.4 billion in 2003 to AED 3 billion in 2004).

15.               While public revenues experienced a significant increase, total public expenditure increased by a mere 4.3% - from AED 91.4 billion, in 2003, to AED 95.3 billion in 2004. Most of this increase was due to an increase in current expenditures.

16.               As a result of the prudent management of public revenues, the public deficit significantly diminished to AED 855 million in 2004, or less than 1% of total public expenditures. The deficit was financed entirely by returns on government expenditures.

(6)               Monetary Policy

17.               Over the last few years, domestic liquidity increased with increased capital and FDI flows, higher oil prices and increased credit creation by local banks.

18.               Given the fixed peg of the AED against the US dollar and the full and free flow of capital, the effectiveness of monetary policy in the UAE is limited. Local interest rates follow the interest rates on the dollar, and therefore the Central Bank attempts to manage fluctuations in domestic liquidity through certificates of deposit (last of which was announced in August 2005).

II.                Trade Policy Developments

19.               The UAE believes that free trade is a necessary condition for increased competitiveness and productivity in the long run. Protectionism, in the form of high tariff barriers and technical barriers to trade, would only result in a stagnant and inefficient private sector.

20.               It is in this spirit that the UAE has signed several free trade agreements and embarked on negotiations, either individually or with the GCC, on different regional trade agreements.

(1)               Bilateral Agreements 

21.               The UAE has signed bilateral preferential agreements with some Arab Countries (Syria, Jordan, Lebanon, Morocco and Iraq). According to those agreements, the UAE and its partners accord each other preferential access for a specified list of goods.   

22.               In March 2005, UAE officially started negotiations with the USA with the aim to conclude a comprehensive Free Trade Agreement (FTA). Negotiations are still in process. A Trade Investment Frame Agreement (TIFA) had been already signed between the two countries in March 2004. 

23.               With Australia, the first round of FTA negotiations has been also launched in March 2005.  The third round took place in December 2005.

(2)               Regional Agreements 

(i)                 Gulf Cooperation Council (GCC) 

24.               The UAE was a founding member of the GCC on the 25^th of May, 1981, with Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia.

25.               The Unified Economic Agreement (UEA), signed on 11 November 1981 under the Gulf Cooperation Council (GCC), met all the requirements of Article XXIV of GATT Agreement 1994, including paragraphs 5(b) and 8(b).  The free-trade area had eliminated duties and other restrictive regulations of commerce on all trade between the members of the GCC in the products originating in the member states, and work was proceeding to further harmonize trade and commercial policies. 

26.               The GCC Customs Union had been established and was operative since the beginning of January 2003.  Saudi Arabia and other GCC member states were applying the GCC common external tariff.  The rates of common external tariff for more than 85 per cent of the tariff lines were 5 per cent or 0 per cent. Future plans include the application of common external tariff to all items and steps towards a common market and a common currency.

27.               On the liberalization of services within the GCC, the GCC had liberalized trade in services for roughly 100 sub-sectors of services, including professional services, most business services, telecommunication services, banking and other financial services, distribution services, education services, environmental services, health and related social services and tourism services.  The GCC members had agreed to progressively liberalize other services sectors and sub-sectors.

28.               The UAE is currently participating in the ongoing negotiations between the GCC and the European Communities (EC) to conclude a Free Trade Agreement, which should cover market access for industrial and agricultural products, trade in services, intellectual property, rules of origin, government procurement, investment and legal and institutional arrangements. 

29.               On the 6^th of July 2004, the GCC and China signed a framework agreement on economic, trade, investment, and technical cooperation as an initial step to launch the negotiations on a Free Trade Agreement. Similar arrangements have been taken to establish a Free Trade Area with India, Pakistan, Turkey, EFTA and Mercosur.

(ii)               Greater Arab Free Trade Area (GAFTA) 

30.               The Greater Arab Free Trade Area (GAFTA), signed on the 19^th of  February 1997 and in force since the 1^st of January 1998, has eliminated most tariffs among its members on the 1^st of January 2005. The UAE has participated actively in this process. 

(3)               UAE Priorities in the Doha Development Agenda (DDA)

31.               The UAE is a strong believer and advocate of the Multilateral Trading System.  It is playing an active role in the current round of multilateral trade negotiations.  Its main interests in the Doha Development Agenda (DDA) include greater non-agricultural market access (NAMA) and further liberalization of trade in services.

32.               In NAMA, the UAE proposed the inclusion of an additional sector under the sectoral tariff elimination initiative.[1]  The UAE has called on Members to eliminate all tariffs on raw materials, in particular on primary aluminium, a vital and strategic input for its manufacturing sector. 

33.               The UAE also submitted its initial offer in services, which is basically in line with the policy objectives set by the government and its reform process that is currently underway.[2] 

34.               The UAE also recognize the importance of an effective and rational “differential and special treatment” that enables domestic sectors to benefit from transitional periods of adjustments in order to take necessary steps to consolidate competitiveness. It is crucial for the survival of those sensitive activities.

35.               The UAE also supports the strengthening of technical assistance programs for developing and least-developed countries in the following areas: Information on the Multilateral Trading System, Implementation of the WTO Agreements, and Capacity Building. The specific needs and priorities for UAE are related to the following issues: Competition Law, SPS & TBT, customs procedures and trade facilitation, classification of some services sector like energy services and maritime transport, evaluation of trade in services, notifications procedures related to all WTO agreements, and regionalism/bilateralism and the multilateral trading system.

III.             Sectoral Developments

36.               Diversification away from oil and into industry and services has been high on the government's agenda for the last couple of decades. Below are a few developments in some economic sectors[3].

(1)               Manufacturing

37.               Manufacturing is the largest non-oil economic sector in the country, contributing around AED 14% of GDP and around one fifth of the entire non-oil economy. This sector includes cement and blocks, ceramics, textiles and clothing, pharmaceuticals, gold and jewellery, and other subsectors. Growth in manufacturing was a result of both increasing demand (due to a rapidly rising population) and increased export-oriented supply (with the expansion of the free zones and FDI).

38.               Manufacturing industry will play an increasingly important role in UAE's economy. This will be facilitated by the current availability of basic infrastructure and communications within the industrial zones, the geographic proximity of the UAE to suppliers of raw materials (e.g. India and China) and buyers of final products (e.g. EU and Arab countries), and the availability of private capital.

(2)               Telecommunication

39.               The telecommunication sector in the UAE is one of the most advanced in the world. In the past few years, the sector has witnessed rapid growth in m-penetration (mobile penetration), which in 2005 exceeded 95% of the population. In addition, e-penetration (internet penetration) has reached 47%, of which almost one in five subscribers use broadband, both among the highest in the Middle East. Various initiatives to accelerate the advancement of the telecom sector have been taken by the UAE Government. These include the Federal law by Decree No.3 of 2003 and its Executive Order which initiated the telecom liberalization process and established an independent Telecommunications Regulatory Authority (TRA). The TRA is vested with powers to regulate a competitively sustainable telecom sector. A second operator with a comprehensive license will begin commercial operations in 2006. 

40.               The UAE was the first country in the region to introduce GSM mobile and the first to offer third generation (3G) mobile data services.  To help maintain the country’s leadership position, the TRA has established a Telecommunications Development Fund, financed by licensed telecom operators, which will foster research and development in the UAE telecom sector. 

(3)               Tourism

41.               The experience of the UAE in tourism has been extremely successful, and tourism is picking up at a surprisingly positive rate. In 2004, an estimated 5.4 million tourists visited the country. Hotels boast 95% occupancy throughout the year and several hotels have started to construct new branches to cater to the exponential growth in demand.

42.               The UAE has mostly attracted business, leisure and shopping tourism. Given the UAE's year-round sunshine, rich marine life, and the generous endowments of islands, beaches, the UAE is positioning itself into a top "sun, sea and sand" tourism destination. Additional facilities and attractions, such as shopping malls, museums, and golf courses are being built in several emirates.

43.               Dubai has a regional niche in the annual Dubai Shopping Festival, which attracts thousands of visitors, from the region and internationally, to the city. The recently established Abu Dhabi Tourism Authority has set itself a target of increasing annual visitor numbers to over 3 million by 2015. To achieve that, Abu Dhabi plans to spend at least AED 40 billion over the coming ten years. Other Emirates are promoting tourism as well. Sharjah is branding itself in cultural preservation and heritage, education and the arts.

(4)                 Banking and Insurance  

44.               Banks, in the UAE, have witnessed an unprecedented boom. Aggregate net profits for all UAE banks approached AED 9 billion in 2004, or over 35% higher than 2003. The average return on equity was at least 17.8%.

45.               The UAE is developing an expertise in Islamic banking, which has quickly emerged, in the last few years, as an alternative to commercial (interest-based) loans. In time, this expertise may be exported, in the future, to other markets through international investments and acquisitions.

46.               The insurance sector has also grown; a large portion services the hydrocarbon and construction industries - sectors that have significantly developed, over the last few years, and are expected to continue to grow. Gross earned premiums were a little less than AED 4 billion in 2003, or double the 1999 figures. Given the UAE’s fast population growth of more than 7%, the sector’s outlook is very good. 

(5)               Air and Maritime Transportation

47.               Passenger and cargo transportation has risen in importance over the last few years. The World Tourism Organisation’s Tourism Highlights 2005 report shows that the Middle East was the fourth most-visited region in the world in 2004, attracting more than 35 million visitors—18 per cent higher than the previous year. UAE airlines (Emirates Airlines, Ittihad Airlines and Air Arabia) are updating their fleets and are pursuing a forceful strategy to capitalize on the increased passenger demand by pursuing several strategies, including transportation options that focus on superior passenger experiences as well as options that emphasize affordability.

48.               In addition, the UAE has developed as a regional hub for maritime transportation and logistics. UAE ports handle large throughput to and from the region, and ship and boat building are emerging as strategic competencies.

(6)               Petrochemicals and Fertilizers

49.               Most of the UAE's oil reserves are located in Abu Dhabi, which is home to several major petrochemical and fertilizer industrial complexes. Some of the industrial complexes are the Abu Dhabi Polymers Company, the Ruwais Fertilizer Industries Company and Abu Dhabi Fertilizer Industries Company.

50.               These complexes supply the UAE and the region with various products (plastics and aromatics).

IV.              Future Direction

51.               The UAE has made significant strides in economic development over the last few years. This was primarily due to the UAE government’s provision of an enabling regulatory environment. It is expected that services will play a larger role in the UAE economy over the medium to long run, with rapid increases in niche sectors such as air and maritime transportation, logistics, medical tourism, pharmaceuticals and IT.

52.               The vision of the government of the UAE is to transform the country into a regional (and even global) hub for entrepreneurship in several industrial and service spheres. To achieve that vision, the government is committed to maintaining laissez faire policies and an effective public-private partnership.

53.               It is important to shed light on some of the challenges that has faced the country and the government's steps to address them:

(1)               Reform of the Investment framework

54.               Currently, discussions are underway in the UAE to re-examine the Federal Commercial law that limits foreigners to minority stakes in local firms (the historical cap of 49%).

55.               To some extent, these restrictions have affected the flow of FDI. However, two parameters should be taking into consideration to understand this situation. First of all, the demographic structure of the UAE is such that nationals constitute the minority vis-à-vis foreigners, Second of all, the UAE is a major capital exporter. Those factors explain the philosophy of the current regime i.e. preserving and protecting the economic interests of the nationals and guaranteeing them a share in their own market. 

56.               However, after reaching a certain maturity, and due to the UAE obligations under international trade negotiations, the Government is developing a comprehensive strategy to deal with this new juncture. The main objective is to further diversify the economy. The reform of the current investment framework (through amendments to the Company Law) is perceived as one of the most important ways to materialize this objective and attract more FDI to support this endeavour.

(2)               Competition

57.               In order to protect consumers from unjustified price increases, the government is currently assessing the possibility of introduction of a Competition Law, after evidence surfaced of possible anticompetitive practices. This is in line with the strategy of the UAE government to create an enabling business environment that is conducive to economic growth.

58.               The UAE plans to set up a consumer protection authority, under draft laws that are currently before the economy ministry

(3)               E-government

59.               The UAE national site was fully re-branded to the new www.government.ae and the Ministry of Education website now has participatory features. These developments, and others, have raised the ranking of the UAE from 60^th, in 2004, to 42^nd, in 2005, in global government e-readiness, according to the UN Global E-Government E-readiness Report for 2005.

60.               Greater efforts will be exerted to develop e-government services between government agencies (intra-government, or G2G), government to business (G2B), and government to citizens (G2C).

(4)               Labour Market and Emiratization Policy

61.               The UAE is, perhaps, the only country in the world where foreigners dominate the private sector, both as employers and employees. In almost all countries that allow immigration, the rule is that foreigners are only allowed to take up jobs when suitably-qualified nationals are not available.

62.               This situation is in need of serious thinking and careful policy-making that sets targets with a long-term vision.

63.               It is largely recognized that expatriate workers will continue to play a vital role in the country’s economy. Nevertheless, the authorities feel that the growth of the private sector and employment of non-nationals cannot be left unregulated. Hence, they propose the establishment of quota system for nationals in certain sectors.

64.               It is also recognized that in order for nationals to become active participants in the private sector, efforts are necessary by both parties. This requires fundamental changes in attitudes, conditions and environment within the private sector as well as among UAE nationals seeking employment.

65.               The authorities will continue to support the current labor market strategy in order to increase employment opportunities for U.A.E. nationals. This strategy should continue to rely on a qualitative approach consisting of raising the skills of nationals through better education and training programs geared toward private sector labor demand.

(5)               Better Synergy between Multilateralism and Bilateralism

66.               Currently, the UAE is involved in a vast programme of trade liberalization at the regional level. The UAE policy is not the only example of such trends. A growing number of economies are seeking to liberalize their trade swiftly and on the basis of sound disciplines, even in services and investment.  In doing so, their preferred instrument has been agreements concluded outside the WTO, the reason being that negotiations in the WTO are slow and their ambition is not always set as high as the level that can be achieved in bilateral agreements. 

67.               The UAE, nevertheless, believed that it is essential to have a strengthened system which is fully legitimate and lays down the principles and rules for international trade.  To fulfil that role, the WTO occupies a unique position that no bilateral or regional agreement can equal. This effort should not be wasted.

68.               Consequently, the UAE Government is committed to pursuing trade liberalization globally, regionally, and individually with some leading partners. However, it still believes that the international economic system will prosper most if the regional and bilateral agreements fit within a global framework of rules (i.e. within the WTO framework).

ANNEX: UAE NEEDS IN TRADE-RELATED TECHNICAL ASSISTANCE

(1)            Information on the Multilateral Trading System

§         Modernizing the WTO Reference Center located at the Ministry of Economy and Planning.

§         Considering the possibility to expand the activities of UAE Reference Center as a Regional Reference Center for GCC member states.

§         Exploring the possibility to set up a cooperation program between the WTO and a selected UAE University to create a University Degree on WTO issues in the Department of Law or Economics.

§         Organizing teleconferences between WTO (Geneva) and selected departments in Abu Dhabi and Dubai on specific issues.

§         Due to the success of previous experiences, continuing to organize in UAE regional seminars, workshops, and conference on WTO-related issues.

§         Organizing seminars for Business Community and Academics with targeted massages on the advantages and rights as well as the constraints and obligations emanating from the WTO membership.

(2)            Implementation of the WTO Agreements

§         Organizing national Seminars and workshops, either by the WTO secretariat or in cooperation with other international organizations, on:

• Customs valuation and trade facilitation and Rules of Origin.
• SPS & TBT.
• Trade in Services: Classification of some service sectors e.g. energy services and maritime transport; evaluation of trade in services.
• IPR: familiarization of the Judicial and Customs authorities with the protection of IPR, legal and institutional impacts of the adherence to new international agreements on IPR (other than those required by TRIPs).  
• Notifications procedures related to all WTO agreements.
• Regionalism/ bilateralism and Multilateral Trading System.

§         Adaptation of domestic legislations regarding contingency trade remedies, government procurement, and professional services.

§         Technical and legal advisory related to international best practice in competition for the purpose of drafting a new Law on Competition.

§         Exploring the possibility to launch a Regional Trade Policy Course similar to those organized in some member countries (Kenya, Jamaica and Morocco).

(3)            Capacity Building

§         Strengthening  negotiations skills.

§         Allowing UAE candidates to benefit  from training periods in the WTO Secretariat.

§         Advising on the establishment of national structures in charge of commercial defence.

§         Advising on the appropriate methodology to unify the existing structures responsible for IPR. 

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