Trucks are lined up for hours at the border between Saudi Arabia and the United Arab Emirates as some international manufacturers find their goods snarled up in a deepening economic rivalry that’s raised the cost of doing business and complicated growth plans.
Saudi Arabia, the UAE’s fifth-largest trading partner, has imposed new rules excluding items made in free zones from preferential tariff arrangements meant to facilitate the free flow of goods within the six-member Gulf Cooperation Council.
The measures are having the greatest impact on some companies operating out of free zones in the UAE, home to Middle East business hub Dubai. They’re already affecting a bilateral trading relationship that was worth a total $15.26 billion last year.
Confusion over the rules means trucks have been delayed for clearance at the border since they came into effect on July 9, with some shipments already being turned away, the head of a regional haulage company and manager at an international freight forwarder said. The volumes of cargo heading into Saudi Arabia from the UAE have dropped significantly as a result, the haulage chief said, declining to be named because of the sensitivities over the new rules.
Saudi authorities are looking out for free zone for products that have a “Made in UAE” stamp on them but don’t have added UAE production value, they said. Firms must satisfy requirements including a workforce of 10%-25% citizens to avoid fees, which is particularly tough for any business in the UAE — where 90% of the population are expatriates — to fulfill.
While the Gulf neighbors have, for now, managed to end an impasse over oil policy that roiled global energy markets in recent weeks, the frictions over trade suggests their broader competition isn’t yet abating.
Beyond the latest measures, Saudi Arabia has raised pressure on international firms to shift their regional headquarters to its shores, in a direct challenge to Dubai and the companies that have chosen it as the base from which to serve the broader region, where doing business can be more complex.
Finance Minister Mohammed Al-Jadaan said earlier this month the Saudi trade rules, which were planned long before the latest dispute with the UAE over oil production, were aimed at supporting local manufacturing in the Gulf.
Free zones are areas where firms are permitted to operate under a different set of regulations to the rest of the country and they’ve been a particular pillar of economic growth in the UAE. The change comes as Saudi Arabia plans its own network of free zones with the goal of diversifying its economy and attracting foreign investment.
In a sign of how serious the rivalry’s becoming, the de facto ruler of the UAE visited Saudi Arabia Monday, where the official Saudi Press Agency said he discussed with his Saudi counterpart ways to boost bilateral cooperation and confront regional challenges.
For companies like Turkish group Yasar Holding, which owns the Pinar dairy brand that manufactures in the UAE via a locally based company, it’s costing more to ship products into Saudi Arabia. The new policies are affecting Yasar’s business and plans in the region, a person with direct knowledge of the matter said.
In 2019, the company chose the UAE as the place to make its labneh, a creamy strained yogurt popular across the region, with an eye on exporting to Saudi Arabia, a much larger market. It made the shift because a separate Saudi-UAE feud with Qatar, which ended earlier this year, had made it harder to sell its produce in Saudi Arabia. Now, its business is yet again bumping up against regional rivalries, the person said.
Yasar Holding declined to comment.
So far, other Gulf countries have not taken any publicly-reported measures in response to the Saudi changes, though several have significant free zones and stand to be affected.
In the UAE, a trade and logistics free zone at Jebel Ali port helped transform Dubai into a global trade hub. More than 8,000 companies, including multinationals that produce many of the best known household brands, have set up operations at Jebel Ali since its foundation in the mid 1980s, according to its website.
An executive at a Gulf-based food and beverage company said it took two days to sort out issues at the border when its trucks were stopped by Saudi customs over the new rules. The company was asked to pay an additional 10% for import, which was then paid back once the company proved it met the new requirements.