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Note:    This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on the United Arab Emirates .

CONTENTS

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SUMMARY OBSERVATIONS vii

                (1) The Economic Environment vii

                (2) Institutional Framework vii

                (3) Trade Policy Instruments viii

                (4) Sectoral Policies ix

                (5) Trade Policy and Trading Partners ix

I. Economic environment 1

(1) Major Features of the Economy 1

(2) Recent Economic Developments 4

(3) Trade Performance and Investment 6

(4) Outlook 9

II. Trade and investment regimes 10

(1) The Institutional Framework 10

(2) Trade Policy Formulation and Implementation 12

(3) Policy Objectives 13

(4) Trade Agreements 14

(i) WTO 14

(ii) Regional agreements 16

(iii) Bilateral agreements 17

(iv) Other preferential arrangements 17

(5) Investment Framework 17

III. trade policies and practices by measure 21

(1) Introduction 21

(2) Measures Directly Affecting Imports 21

(i) Registration, and exclusive distribution rights 21

(ii) Customs procedures 23

(iii) Rules of origin 24

(iv) Tariffs, other duties, and taxes 25

(v) Import prohibitions, licensing and controls 27

(vi) Contingency trade remedies 29

(vii) Standards and other technical requirements 30

(viii) Government procurement 33

(ix) Local-content requirements 36

(x) Other measures 36

(3) Measures Directly Affecting Exports 36

(i) Registration and documentation 36

(ii) Export duties and taxes 36

(iii) Export prohibitions and restrictions 36

(iv) Export subsidies, finance, insurance, and assistance 37

(v) Free zones 37

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(4) Measures Affecting Production and Trade 38

(i) Incentives 38

(ii) State-owned enterprises, state trading, and privatization 39

(iii) Competition policy and price controls 40

(iv) Intellectual property (IP) rights 40

IV. trade policies by sector 44

(1) Introduction 44

(2) Agriculture and Related Activities 44

(i) Main features 44

(ii) Main policy instruments 47

(iii) Developments regarding selected products 50

(3) Mining, Energy, and Water 51

(i) Overview 51

(ii) Petroleum, and gas 52

(iii) Electricity, water, and utilities 55

(4) Manufacturing 57

(i) Main features 57

(ii) Policy framework 58

(iii) Policies in selected industries 59

(5) Services 61

(i) Construction 61

(ii) Transport 62

(iii) Telecommunications 69

(iv) Tourism services 71

(v) Financial services 73

(vi) Trade in business and professional services 78

REFERENCES 81

APPENDIX TABLES 83

CHARTS

Page

I.                ECONOMIC ENVIRONMENT

I.1            Real GDP and population, 1975-04   3

III.           TRADE POLICIES AND PRACTICES BY MEASURE

III.1         Tariff escalation by ISIC 2-digit industry, 2005        26

IV.           TRADE POLICIES BY SECTOR

IV.1                Agri-food trade, by HS section, 2003                46

IV.2         Abu Dhabi electricity and water sector, January 2006                56

TABLES

I.                ECONOMIC ENVIRONMENT 

I.1            The United Arab Emirates at a glance, 1995 and 2004          1

I.2            Main economic indicators, 1999-05   5

I.3            Balance of payments, 2000-05   8

II.            TRADE AND INVESTMENT REGIMES             

II.1          Main federal trade-related laws in the UAE                13

II.2          UAE's selected notifications to the WTO, as of November 2005                15

II.3        Bilateral investment treaty            20

III.           TRADE POLICIES AND PRACTICES BY MEASURES

III.1                Commercial agencies by type of activity                22

III.2                Structure of the MFN tariffs, 2005                25

III.3                 Prohibited products, 2005                28

III.4         Projects implemented by the UAE Offsets Group, 2005                35

IV.           TRADE POLICIES BY SECTOR               

IV.1         Main agricultural products, 1998-04                45

IV.2         Abu Dhabi development expenditures, 2000-04   49

IV.3                Domestic agricultural support measures, 2000 and 2001                49

IV.4                Reserves, production and exports of oil and natural gas, 1990-04   52

IV.5                Activities of the Abu Dhabi National Oil Company (ADNOC), 2005                53

IV.6                Electricity and water charges, January 2006        57

IV.7         Trade in manufactured products, 2003                58

IV.8                Telecommunications indicators, 2000-04   70

IV.9         Hotel indicators, 1995, 2000, and 2003                72

IV.10                Insurance premiums and claims paid, 2003                74

IV.11       Selected monetary and banking indicators, 2000-04   76

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APPENDIX TABLES

I.                ECONOMIC ENVIRONMENT

AI.1                Structure of exports (including re-exports), 2000-04   85

AI.2                Destination of exports (including re-exports), 2000-04   86

AI.3                Structure of imports, 2000-04   87

AI.4        Origin of imports, 2000-04                88

III.           TRADE POLICIES AND PRACTICES BY MEASURES

AIII.1      Applied MFN tariff averages by HS2, 2005        89

AIII.2                Restricted imports, 2005                92

SUMMARY OBSERVATIONS

(1)   The Economic Environment

1.                  The economy of the United Arab Emirates (UAE) has grown by 6% per year on average over the past decade;  in 2003-05, the growth rate rose to 9% per year, partly due to the rising price of hydrocarbons.  Investment of hydrocarbon income surpluses into infrastructure and large projects, together with influx of foreign labour, has contributed to a slight diversification of the UAE's economy:  petroleum and natural gas now account for about one third of the UAE's GDP (down from 74% in 1980), behind the services sector (55% of GDP).  The UAE's per capita GDP is now one of the world's highest, at close to US$24,000. 

2.                  With the rise in hydrocarbon revenues, the UAE's fiscal deficit, which was relatively large in the past, moved into a surplus of 4.5% of GDP in 2004.  The current account is in constant surplus, at an estimated 19% of GDP in 2005.  The UAE's external debt is exclusively private;  it declined from over 25% of GDP in 2000-01 to 12.5% by the end of 2005.  However, driven by rising private consumption and construction expenditures financed by large revenue from hydrocarbons, inflation is on the rise, from an annual average of 3% during 2001-03 to above 10% in 2005. 

3.                  The UAE's economic environment is relatively liberal despite state ownership in certain sectors, restrictions on foreign participation in the economy through capital ownership limitations, and an obligation for branches of foreign companies to recruit UAE agents.  To provide employment opportunities for nationals in private business, an "emiratization programme" has introduced minimum quotas of Emirati staff in banking, insurance, professional, and distribution services.  This policy could eventually become an impediment to doing business in the UAE, essentially because of the lack of skilled UAE nationals in some professions;  it could further increase the relative attractiveness of operating in the free zones, where these provisions do not apply.

4.                  The UAE dihram, the national currency, is pegged to the U.S. dollar.  The  exchange system is generally free of restrictions.  The UAE's high ratio of merchandise trade to GDP (some 145% in 2005) reflects the particular importance of trade to its economy.  Merchandise exports, aside from oil and gas, consist of machinery and appliances, including computers and other consumer electronics, and of a substantial re-export activity.  While exports of crude oil are mainly to East-Asian countries, the main destinations of non-oil exports are India, Arab countries, and Europe.  Re-exports are destined to Iran and India, and other Gulf Cooperation Council (GCC) countries.  The UAE's imports are diversified both in terms of products and origin.  The UAE is a net services importer;  its services sector, which is dominated by state-owned companies, is expanding dynamically both at home and abroad.

(2)       Institutional Framework

5.                  The Ministry of Economy and Planning formulates, administers, and coordinates the UAE's trade policies under the leadership of the Federal Supreme Council.  The Council consists of the Rulers of the seven emirates composing the UAE federation.  In general, each emirate largely retains direct control over its economy, and owns or controls a significant share of business.  Moreover, in several subsectors, the operators are also the regulators.

6.                  A contracting party to the GATT since 8 March 1994, the UAE became an original Member of the WTO on 10 April 1996.  It grants at least MFN treatment to all its trading partners, except Israel.  The UAE has never been involved in any dispute under the WTO Dispute Settlement Mechanism.  Once ratified, treaties/international agreements prevail over domestic legal instruments.  These comprise the Constitution, followed by laws, decree-laws, ordinary decrees, and regulations.  The Commercial Companies Law and the Trade Agencies Law are the main federal legal instruments on investment in the UAE;  they contain provisions that limit the participation of foreigners in the economy. 

7.                  The UAE is a member of the Gulf Cooperation Council (GCC), of which the customs union component became effective on 1 January 2003. The GCC is negotiating bilateral trade agreements with China, the European Union (EU), and Turkey, and is considering negotiations with EFTA, MERCOSUR, India, and Pakistan.  The UAE is considering negotiations on bilateral agreements with Australia and the United States.  To avoid conflicts between bilateral undertakings and commitments as a GCC member, the GCC Heads of States have agreed that any new preferential agreement concluded by one of its members will apply "pari passu" to all members, except for agreements with the United States.  The UAE is also a member of the Greater Arab Free-Trade Area (GAFTA) in which all GCC States participate.  

(3)   Trade Policy Instruments

8.                  The UAE's MFN tariff is based on the GCC Common External Tariff (CET);  its average applied MFN tariff rate was 5.1% in 2005, with the majority of rates at 5% and 420 duty-free tariff lines covering mostly basic food items and pharmaceuticals. Exceptions to the CET are spirits (50%), and tobacco products (the higher of 100% or a specific rate).  All tariffs except on tobacco are ad valorem.  MFN applied tariffs average 6.2% on agricultural products (WTO definition), and 4.8% on non-agricultural products.  Using the ISIC (Revision 2) definition, average tariff protection is 5.3% for manufacturing activities, 5% for mining and quarrying, and 3.3% for agriculture.  All of the UAE's tariff lines are bound, with an average final rate of 15%.  Some 33 tariff lines at the HS eight-digit level carry applied MFN tariff rates that exceed the final bound rate as of April 2006.

9.                  Under the Trade Agencies Law, importing and distribution activities can be reserved for exclusive UAE "agents".  This law leads to market segmentation, constitutes a barrier to full GCC integration, and contributes to high prices for branded products;  following price increases in 2005, a list for basic items was exempted from its coverage.  Customs procedures are simple in order to facilitate the flow of trade, which includes a large re-export activity.  The UAE has implemented the WTO Agreement on Customs Valuation;  the UAE has requested technical assistance to familiarize its customs administration and economic operators with the provisions of the Agreement.  There are few technical regulations;  these are generally based on internationally accepted standards. The Emirates Authority for Standardization and Metrology, established in 2001, encompasses the Emirates Conformity Assessment Scheme, as well as the Emirates National Accreditation System.   Import controls are applied on, inter alia, sanitary, phytosanitary, and Islamic grounds, by means of prior authorizations.

10.              The UAE's export policy on goods and services relies on free zones, wherefrom most non-oil exports take place.  Its free zones (22 in late 2005) are exempt from the licensing, agency, emiratization, and national majority-ownership obligations that apply in the domestic economy.  The UAE does not have export finance, insurance, guarantee, or promotion programmes;  and no export subsidies have been notified to the WTO.  As a result of large public investments, generally in partnership with foreign enterprises that bring in their technologies, many state-owned companies have grown large and efficient enough to compete effectively on world markets.  

11.              The UAE is neither a member of nor an observer to the WTO Plurilateral Agreement on Government Procurement.  It relies largely on foreign companies for public procurement, particularly to realize major projects.  Its procurement provisions tend to vary from contract to contract.  Defence purchases are carried out by the UAE Offsets Group (UOG), through direct negotiation with contractors generally subject to offset obligations.  Spurred by WTO provisions, the UAE enacted new laws, in 2002, on patents, copyrights and trade marks.  The UAE has no competition, anti-dumping, subsidies, countervailing or safeguards legislation.  

(4)   Sectoral Policies

12.              Over the past 30 years, the Emirates Governments have invested large amounts of revenue from oil sales to diversify their economies. These were initially directed towards the creation of state-owned companies in the manufacturing sector, in particular oil- and gas-intensive industries such as aluminium and petrochemicals. 

13.              Manufacturing is now evolving rapidly into high-technology and capital-intensive products, exported increasingly by private companies in the free zones.  Nevertheless, the UAE still depends on crude oil and gas exports for a significant share of its national income.  The entire oil and gas sector, as well as electricity and water utilities, remains state controlled, with foreign participation generally in the form of minority partnerships.

14.              Services, mainly transport, have rapidly become a strategic priority.  The objective is to make the UAE a major transport hub between Europe and South-East Asia.  Accordingly, public funds were invested in developing port and airport infrastructure, airlines, and shipping companies and agencies.  In parallel, tourism, which is targeted as a major source of future growth in the UAE, is now among the fastest growing activities.  The financial subsector is also developing rapidly, in part through the creation of the Dubai International Financial Centre, a financial free zone regulated at the Dubai Emirate level.  The telecommunication subsector remains state-controlled, but changes are under way. 

15.              Remarkable advances have been made in the agriculture sector, albeit at high costs in terms of financial assistance and water depletion;  the fisheries subsector suffers from the consequences of past over-fishing. 

(5)   Trade Policy and Trading        Partners

16.  The UAE's generally liberal and increasingly diversified economy, the importance of trade for its economic performance, and its growing economic power make it an increasingly important supporter of the multilateral trading system.  Nonetheless, the UAE's internal barriers to trade, resulting largely from the absence of a competition policy, institutional weaknesses (in several sectors), and restrictions on foreign participation under the investment regime, contrast with its relatively low border barriers to trade and preclude it from benefiting fully from the advantages of a liberal economy. 

17.       Recent inflationary pressures have increased the UAE's awareness of the pernicious effects of anti-competitive practices and have led to the exemption of basic food items from the scope of the Trade Agency Law.  Further steps, including abolishing this Law, adopting competition legislation, structural reforms, and further liberalizing the services sector (to be bound through multilateral commitments) would improve resource allocation and the UAE's economic performance.  Moreover, tariff reforms – likely at the regional level (the UAE is implementing the GCC's CET) – or renegotiation of the UAE's tariff commitments would consolidate its adherence to the WTO principles.  Trading partners could help the UAE in its reform efforts by providing extended market access for  its goods and services.