Saturday, May 07, 2005

UAE trade policy - Hong Kong Development Council

Customs duty is calculated on the CIF value at the rate of 5%. Imports of all intoxicating liquors will be subject to a 50% customs duty on their CIF value, while the rate for tobacco products is 100% of the CIF value. CIF value will normally be calculated on the value declared on the commercial invoices covering the relative shipment, but Customs is not bound to accept the figures shown and may set an estimated value on the goods, which shall be final, as far as the duty is concerned.
The tie between the UAE and its fellow members of the Gulf Co-operation Council (GCC) -- Bahrain, Kuwait, Oman, Qatar and Saudi Arabia is strong. In November 1999, the GCC agreed to form a customs union. The customs union took effect from 1 January 2003. The accord establishes a single tariff of 5% on 1,500 imported items from non-member countries. It also provides a list of other essential items that can be imported duty-free. Under the accord, goods imported into the GCC area can be freely transported subsequently throughout the region without paying additional tariffs. Until 2005, however, a number of imported products will continue to be subject to varied tariff rates across GCC, and a fully-fledged customs union will therefore not come into effect by then.

The UAE has a total of 13 free zones of varying sizes at different stages of development. These zones offer various incentives to investors, including full foreign ownership, import and export tax exemption, commercial levies exemption, 100% repatriation of capital and profits, multi-year lease, etc. At present, the largest and most successful free zone is the Jebel Ali Free Zone in Dubai, which hosts over 2,800 companies.

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Anonymous Acad Ronin said...

The 5% rate is interesting as it is also the rate that I believe the US imposed on Iraq and on Afghanistan. Currently, some observers are arguing that in doing so the US undermined the Iraqi government's ability to encourage industry by setting higher tariffs.

The 5% rate seems a good compromise between the need to generate some government revenue and the damage that tariffs do to economies. Not only does a low tariff encourage specialization and discourage inefficient import substitution, it undermines such socially destructive activities as smuggling and bribery of or extortion by customs officials.

Does anyone know how the Coalition Provisional Authority arrived at the 5% rate? Were they modeling on developments in the Gulf, or is the causality reversed?

4:27 AM  
Anonymous Anonymous said...

Of course, the 5% rate in the UAE is fiction. There are enough rebates and loopholes available to make the de facto rate more like 1%.

Now, if we have a 50% tax on alcohol, and it still costs the same or less than in the West, well, that tells you a lot about sin taxes in the West.

8:52 AM  
Blogger John B. Chilton said...


Great comments.

I'd be interested, anonymous, to learn more about the effective tariff rate. In my ivory tower I don't have evidence that this is an "of course."

There is indirect evidence supporting your statement: which is that Dubai is a point of transhipment. Perhaps Dubai is responding to the incentives to cheat created by the customs union.

What country gets to keep the tariff collected? The GCC country where the goods first landed, or the GCC country where they end up?

9:39 AM  

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