TRADE POLICY REVIEW

REPORT BY THE SECRETARIAT

UNITED ARAB EMIRATES

This report, prepared for the third Trade Policy Review of the United Arab Emirates, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from the United Arab Emirates on its trade policies and practices.

Any technical questions arising from this report may be addressed to Mr. John Finn (tel: 022 739 5081), Mr. Usman Ali Khilji (tel.: 022 739 6936), and Mr. Samer Seif El Yazal (tel.: 022 739 5459) .

Document WT/TPR/G/338 contains the policy statement submitted by the United Arab Emirates.

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. This report was drafted in English.

CONTENTS

SUMMARY  6

1 ECONOMIC ENVIRONMENT  9

1.1 Fiscal Policy  12

1.2 Monetary and Exchange Policy  12

1.3 Balance of Payments  13

1.4 Developments in Trade  14

1.4.1 Composition of trade  14

1.4.2 Direction of trade  17

1.5 Foreign Direct Investment  17

2 TRADE AND INVESTMENT REGIME  20

2.1 General Framework  20

2.2 Trade Policy Objectives  21

2.3 Trade Agreements and Arrangements  23

2.3.1 WTO  23

2.3.2 Regional and preferential agreements  25

2.3.2.1 Cooperation Council for the Arab States of the Gulf  25

2.3.2.2 Pan-Arab Free Trade Area Agreement (PAFTA)  26

2.3.3 Other agreements and arrangements  26

2.3.3.1 EFTA-GCC Free Trade Agreement  26

2.3.3.2 GCC-Singapore Free Trade Agreement (GSFTA)  27

2.3.3.3 Negotiations  27

2.3.3.4 Other preferential arrangements  28

2.4 Investment Regime  28

3 TRADE POLICIES AND PRACTICES BY MEASURE  32

3.1 Measures Directly Affecting Imports  32

3.1.1 Customs procedures and requirements  32

3.1.2 Customs valuation  34

3.1.3 Rules of origin  35

3.1.4 Tariffs  35

3.1.4.1 Applied MFN tariff  35

3.1.4.2 Bound tariffs  38

3.1.4.3 Preferential tariffs  38

3.1.5 Other charges affecting imports  39

3.1.6 Import prohibitions, restrictions, and licensing  39

3.1.7 Anti-dumping, countervailing, and safeguard measures  41

3.2 Measures Directly Affecting Exports  43

3.2.1 Export procedures and requirements  43

3.2.2 Export taxes, charges, and levies  43

3.2.3 Export prohibitions, restrictions, and licensing  43

3.2.4 Export support and promotion  43

3.2.5 Export finance, insurance, guarantees  44

3.3 Measures Affecting Production and Trade  44

3.3.1 Standards and other technical requirements  44

3.3.2 Sanitary and phytosanitary requirements  46

3.3.3 State-owned enterprises and privatization  47

3.3.4 Taxation and incentives  48

3.3.5 Competition policy and price controls  50

3.3.5.1 Competition policy  50

3.3.5.2 Price controls  51

3.3.6 Government procurement  52

3.3.7 Intellectual property rights  54

3.3.7.1 Overview  54

3.3.7.2 Patents  55

3.3.7.3 Copyrights and related rights  56

3.3.7.4 Trademarks  56

3.3.7.5 Enforcement  57

4 TRADE POLICIES BY SECTOR  59

4.1 Agriculture and Fisheries  59

4.1.1 Overview  59

4.1.2 Trade  60

4.1.3 Policies  62

4.1.4 Fisheries  63

4.2 Industry  66

4.2.1 Hydrocarbon sector  66

4.2.1.1 Regulation of the oil sector  66

4.2.1.2 Regulation of the gas sector  67

4.2.2 Non-hydrocarbon manufacturing sector  67

4.3 Services  69

4.3.1 Financial services  69

4.3.1.1 Banking  70

4.3.1.1.1 Structure  70

4.3.1.1.2 Regulation  72

4.3.1.2 Insurance  73

4.3.1.2.1 Regulation  74

4.3.1.3 Capital markets  75

4.3.1.3.1 Structure  75

4.3.1.3.2 Regulation  76

4.3.2 Construction  77

4.3.2.1 Overview  77

4.3.2.2 WTO commitments  79

4.3.2.3 Policies  80

4.3.3 Telecommunications  81

4.3.4 Transport  83

4.3.4.1 Air transport  83

4.3.4.2 Maritime transport  86

4.3.5 Tourism  87

REFERENCES  90

5 APPENDIX TABLES  92

CHARTS

Chart 1.1 Non-oil direct trade by main HS sections, 2011 and 2014  13

Chart 1.2 Non-oil free zones trade by main HS sections, 2011 and 2014.  14

Chart 1.3 Non-oil direct trade by main origin and destination, 2011 and 2014  16

Chart 1.4 Non-oil free zones trade by main origin and destination, 2011 and 2014  17

Chart 3.1 Frequency distribution of MFN tariff rates, 2015  34

Chart 4.1 Domestic support to agriculture, 2014  61

TABLES

Table 1.1 Selected macroeconomic indicators, 2010-15  9

Table 1.2 GDP and employment, 2010-15  10

Table 1.3 Balance of payments, 2010-14  14

Table 2.1 Main trade-related laws and regulations in the UAE  22

Table 2.2 Notifications to the WTO, March 2013-August 2015  25

Table 3.1 Tariff structure in the UAE, 2011-15  36

Table 3.2 Summary analysis of 2015 applied and bound MFN tariffs  37

Table 3.3 Tariff lines with mixed MFN tariff, 2015  38

Table 3.4 Prohibited goods  39

Table 3.5 Restricted goods  40

Table 3.6 Selected procurement methods and criteria  53

Table 3.7 Public procurement thresholds for approval  54

Table 3.8 Public procurement by the UAE Federal Government thresholds under regional trade agreements  54

Table 3.9 Patents applications and patent grants in the UAE (2011-14)  56

Table 3.10 Copyright works: registration requests and approvals, and registration requests from distributors, 2012-15  56

Table 3.11 Trademark applications and trademark registrations in the UAE (2012-14)  57

Table 4.1 Crop production in the UAE, 2006-13  59

Table 4.2 Livestock numbers in the UAE, 2006-13  60

Table 4.3 Livestock and animal products on commercial farms in the UAE, 2010-13  60

Table 4.4 Imports of fish and agricultural products, 2011-14  60

Table 4.5 Exports (excluding re-exports) of fish and agricultural products, 2010-14  61

Table 4.6 Fisheries catch in the UAE, 2007-13  64

Table 4.7 Top five manufacturing sectors for investment and employment, 2013-14  68

Table 4.8 UAE WTO financial services commitments  69

Table 4.9 Construction in the UAE, 2010-14  77

Table 4.10 Selected large construction projects under construction in the UAE in 2015  78

Table 4.11 UAE WTO construction-related services commitments  79

Table 4.12 Licences issued by the TRA  82

Table 4.13 UAE WTO tourism and travel-related services commitments  87

Table 4.14 Regulatory reforms, 2014  89

BOX

Box 4.1 Islamic banking  69

APPENDIX TABLES

Table A1.1 Non-oil direct exports and re-exports by HS sections and main chapters, 2011-14  90

Table A1.2 Merchandise direct imports by HS sections and main chapters, 2011-14  92

Table A1.3 Non-oil free zones exports and re-exports by HS sections and main chapters, 2011-14  94

Table A1.4 Merchandise free zones imports by HS sections and main chapters, 2011-14  96

Table A1.5 Non-oil direct exports and re-exports by trading partner, 2011-14  98

Table A1.6 Non-oil direct imports by trading partner, 2011-14  100

Table A1.7 Non-oil free zones exports and re-exports by trading partner, 2011-14  102

Table A1.8 Non-oil free zones imports by trading partner, 2011-14  104

Table A4.1 Status of ASAs with other countries  105

SUMMARY

1.  The United Arab Emirates is a federation of seven emirates: Abu Dhabi; Dubai; Sharjah; Fujairah; Umm al-Quwatin; Ajman; and Ras al-Khaimah. As a federation, responsibility for policy, laws, and administration is shared among the federal authorities and the individual emirates. Furthermore, as a member of the Cooperation Council for the Arab States of the Gulf (GCC), laws and policies in some areas, including customs procedures and tariffs, are developed and applied at the GCC level.

2.  Between 2010 and 2014, real GDP growth averaged 4.5% annually. The growth rate declined to 3.1% in 2015. Since 2012 growth has been led by the non-hydrocarbon sectors reflecting the successful diversification of the economy. GDP per capita also increased in real terms reaching US$43,400 in 2015. Although the UAE has diversified the economy, the hydrocarbon sector remains very important: crude oil and gas contributed 34% to GDP, manufacturing 9%, and services 57%. Within services, financial services (13.8% of GDP, including imputed bank services), wholesale and retail trade (11.3% of GDP), and real estate and business services (10.3%) are the main contributors.

3.  After years of fiscal surpluses, the fall in oil prices that started in 2014 has affected Government revenues which declined considerably in 2015, as such, the UAE as a whole expected a fiscal deficit of 3% of GDP in 2015. Consequently, a fiscal consolidation programme was introduced to control public spending. Nevertheless, the UAE has some room for manoeuvre as total public debt was about 14% of GDP in 2015, and the UAE has foreign exchange reserves equivalent to over 7 months of imports. Furthermore, individual emirates have sovereign wealth funds of varying magnitude.

4.  Trade is critically important to the UAE with total trade in goods and services equivalent to nearly 176% of GDP in 2015. The surplus in trade-in-goods is partly offset by a large deficit in trade-in-services. Balance of payments data indicates that the total value of goods exports fell in 2014 to US$371 billion as oil and natural gas exports fell to US$112 billion and are expected to have fallen further to US$75 billion in 2015. Nevertheless, the UAE continues to run a current account surplus.

5.  Trade, investment and development policy in the UAE is focused on diversification of the economy, with a particular emphasis on improving competiveness and high technology sectors. Free zones and economic specialized zones are important facets of the UAE economy and the Government's growth strategy. The main advantages for investment are no corporate or personal income taxes, exemptions from customs duties, and exemptions from several domestic regulations that apply within the customs territory, including Emiratization. In addition, foreign ownership is not limited to 49%, as it is within the customs territory. Currently, about two-thirds of exports of non-oil products are from free zones.

6.  At the Federal level, the Ministry of Economy is responsible for trade policy and development of the national economy. As a member of the GCC, the UAE applies the Common Customs Law, the common external tariff, the Unified Guide for Customs Procedures at First Points of Entry, the Common Law on Anti-dumping and Countervailing Measures, and other common rules relating to trade. Also through the GCC, the UAE is a party to free trade agreements with the EFTA states and Singapore and negotiations on trade agreements with several other countries.

7.  Under the GCC common external tariff, the tariff on most products is either duty free or 5%. A tariff of 100% or a minimum specific duty is applied to tobacco products. Although nearly all tariffs are below their bound rate, there are 19 tariff lines with a minimum specific duty and, therefore, the ad valorem equivalent could be greater than the 200% bound duty. Prohibited products include live swine and other products prohibited on security, health and safety grounds. Restricted products include pig meat products and alcoholic beverages which require import licences and, in most cases, the tariff on these products is 200%.

8.  The customs authorities of each emirate are responsible for applying the GCC Common Customs Law, and the Unified Guide for Customs Procedures. Dubai Customs and the General Administration of Customs in Abu Dhabi have electronic systems for customs declarations. The UAE intends to begin implementing an authorized economic operator (AEO) programme by launching a pilot programme with Dubai Customs.

9.  Trading (importing and/or exporting), in the UAE requires a trading licence and a trader code which is available from the customs department of each emirate and is valid throughout the UAE. To qualify for a licence the applicant must be a UAE national or a company established in the UAE that is 51% owned by UAE nationals. Distribution of imported goods may only be undertaken by trade agencies which must be owned by UAE nationals or by companies wholly owned by UAE nationals. Free zones are exempt from these licensing requirements.

10.  In September 2015, the UAE notified the WTO that the GCC Common Law on Anti-dumping and Countervailing Measures of 2003 had been ratified and that a Federal law was being prepared which would incorporate the 2010 amended GCC Common Law.

11.  As a member of the GCC, the UAE is a member of the Gulf Standardization Organization (GSO) and most of the standards published by the Emirates Authority for Standardization and Metrology (ESMA) are based on GCC standards. According to the authorities, about 77% of standards conform to international standards and, in the absence of an international standard, the national standards of another countries may be used as a basis for a UAE standard. In 2014, an automated system for conformity assessment was introduced by the ESMA with plans to introduce online systems for certification and accreditation of conformity assessment bodies.

12.  Imports of all live animals and animal products (except food products of animal origin) and fodder need an import permit issued by the MOEW. Additionally, all live animals and animal products as well as all plants and plant products are subject to quarantine requirements and need to be accompanied by health certificates. The draft GCC Guide for Control on Imported Foods was issued in 2015. The Guide describes principles and regulatory requirements to be applied by the importing countries. Application of the Guide is to be on a trial basis until 1 June 2016.

13.  Implementing regulations for the Competition Law were issued in October 2014 which provided details on the processes and procedures for the Law's implementation. However, the UAE Cabinet has yet to determine thresholds for the de minimis exemption and market share thresholds to define dominant position and economic concentration. In general, prices are decided by market forces and price monitoring is largely to improve consumer awareness. However, the Ministry of Health publishes prices for about 8,000 pharmaceutical products. Price controls also apply to telecommunications services, and to electricity and water.

14.  The UAE is not a party to the Agreement on Government Procurement. Federal laws apply to procurement by most federal agencies while at the emirate level, local laws apply. However, a new government procurement law is expected to come into force in 2016. Under the current federal law, price preferences of 10% are given to companies with up to Dh 10 million in capital and 51% owned by UAE or GCC nationals.

15.  State involvement continues to be prevalent in many sectors such as oil and gas production, air and maritime transport and facilities, telecommunications, and financial services. Ownership structures also tend to be complicated, with government owned holding companies, individual emirates and sovereign wealth funds all having stakes. The authorities contend that the Government owned entities are run on purely commercial grounds and are provided no preferential treatment. Some of these companies (Emirates Airlines, Etihad Airways, DP World and Dnata) are market leaders in their field. Furthermore, state investment, both domestically and internationally, through sovereign wealth funds is sizeable. According to the authorities, the reasons for such widespread state ownership range from revenue and strategic reasons to pushing the government agenda on diversification and development.

16.  The decline in oil prices since 2014 affected the UAE, with revenues and export receipts falling. However, due to its successful diversification strategy, the UAE is managing to weather the storm while maintaining growth and investment. The UAE continues to pursue a strategy of diversification concentrating of high technology sector and high growth sectors such as the Islamic economy. To be able to benefit fully from its efforts the UAE may need to speed up reforms such as the full implementation of the Competition Policy Law, easing of restrictions on foreign investment including the requirement of majority ownership by UAE nationals and further improving the business environment.

1    ECONOMIC ENVIRONMENT

1.1.    In the aftermath of the global financial crisis, the UAE economy has proved to be resilient. As a result of prudent macroeconomic management, the economy has been able to post positive economic growth. Between 2010 and 2014, real GDP grew at an average annual growth rate of 4.52%, and is expected to be around 3% in 2015 (Table 1.1) .¹ Growth was initially driven by the hydrocarbon sector, which grew by an average annual rate of 6% between 2010 and 2012. However, since 2012, growth has been led by the non-hydrocarbon sector, which grew at an average annual rate of 5.6% between 2012 and 2014. Within the non-hydrocarbon sector, growth was driven by construction, retail and wholesale trade, tourism, and manufacturing. Construction growth was due to housing and infrastructure projects as well as landmark tourism projects. Manufacturing growth came about due to investments in free trade zones and further development of industry clusters, particularly in the construction materials sector, in food processing, and in the manufacturing of aluminium and petrochemicals (Table 1.2) . As a result of the growth, GDP per capita rose from US$34,600 in 2010 to US$43,400 in 2015. Trade continues to play a very important role in the UAE economy; trade in goods and services as a proportion of GDP rose from 151% in 2010 to over 176% in 2014.

Table 1.1 Selected macroeconomic indicators, 2010-15

..  Not available.

a  Preliminary data. GDP growth for 2015 is estimated based on the “Economic Composite Indicator" designed by the Research and Statistics Department of the Central Bank. Missing data are not available.

b  Due to changes in economic sector classifications in bank report forms during 2013, the annual percentage change for broad money for the year 2013 is exaggerated on account of the inclusion of government-related entities deposits in M2, starting in 2013.

c  Foreign liabilities of the banking system are only due to incomplete coverage of debt raised by non-banks in the international markets.

d  Excludes foreign assets of sovereign wealth funds.

Source:  Federal Competitiveness and Statistics Authority for GDP, Bank for International Settlements (BIS) for nominal and real effective exchange rates, and Central Bank of the UAE for balance of payments and monetary data. Consolidated government revenues do not include ADNOC transfers and government income.

Table 1.2 GDP and employment, 2010-15

..  Not available.

a  Preliminary data.

Source:  Federal Competitiveness and Statistics Authority.

1.2.    Future risks to growth arise from persistent lower oil prices, which will result in lower export revenues and fiscal pressures. Furthermore, the appreciation in the real effective exchange rate would in all likelihood negatively impact the current account and competitiveness of the UAE. However, the authorities maintain that there is no evidence of this being the case.

1.3.    The authorities are cognizant of the above challenges. In this regard, a fiscal consolidation plan has been put in place (Section 1.2) . Additionally, the authorities are in the process of drafting a new Foreign Investment Law, which would allow 100% foreign ownership in specific sectors outside the free zones. However, efforts to strengthen and improve the business environment need to continue, particularly in the area of enforcing contracts and resolving insolvencies. Furthermore, as envisaged by the Government, transitioning towards a knowledge-driven economy through better quality of education, promotion of innovation and use of new technologies, would contribute to raising productivity and diversifying the economy; thus sustaining growth. In this respect, the Government has started to implement initiatives in alternative energy, Islamic economy, and space and aerospace.

1.4.    Improving SME access to financing is important for inclusive growth. In this regard, progress has been made in SME finance through the issuance of a new SME Law and the establishment of financial infrastructure, such as a credit bureau and credit registry. Other initiatives which have been put in place over the past few years include using public funds to facilitate access to credit, fostering financial literacy, and helping business incubation.

1.1    Fiscal Policy

1.5.     In 2014, consolidated government revenues (i.e. the Federal Government, and the Governments of the seven emirates) declined by 5%. The decline came about due to a fall in local government tax revenues, which are comprised of fees paid by hotels and restaurants, fees on profits of foreign banks, and royalties on oil and natural gas. Furthermore, with oil prices continuing to slide, government revenues decreased by 21% during the first nine months of 2015, compared to the same period of 2014, due mainly to a decline in taxes of 30.3%. These revenues, however, do not include important transfers from Abu Dhabi National Oil Company (ADNOC) and government investment income.

1.6.    The authorities continued to pursue an expansionary fiscal policy, with total expenditures rising by nearly 11% in 2014. Expenditure growth was fuelled by local government public spending with a view to continue funding planned spending programmes and refrain from reducing capital spending which would have had a detrimental impact on non-hydrocarbon real growth. Consequently, the fiscal surplus declined from nearly 11% of GDP in 2012 to 5% of GDP in 2014. However, during the first nine months of 2015 expenditures decreased by 13.9% reflecting the start of a fiscal consolidation plan by the Government. With weakening oil prices the fiscal balance is expected to have been a deficit of 3% of GDP in 2015.

1.7.    As a result of the fiscal surpluses up to 2014, gross general government debt declined from nearly 22% of GDP in 2012 to approximately 14% of GDP in 2014.

1.8.    To mitigate the impact of the decline in international oil prices, the authorities have embarked on a fiscal consolidation programme. Under the plan, the authorities envisage a consolidation of 2.8% of non-oil GDP in 2015 and of a total of 13.5% of non-oil GDP by 2020. The authorities plan to achieve their target through expenditure cuts by:

•  controlling public wage bill growth (stabilizing the size per capita and limiting wage increases to correspond to productivity gains);

•  continuing reductions in energy and water subsidies and other transfers, while protecting those in need²;

•  lowering capital transfers to Abu Dhabi government related entities; and

•  stabilizing other expenses in real terms.

1.9.    Further gains can be realized if the authorities choose to implement revenue enhancing measures such as the broadening of the corporate income and excise taxes and introducing a VAT.

1.2    Monetary and Exchange Policy

1.10.    Monetary policy is formulated and conducted by the Central Bank of the UAE (CBUAE) . The Central Bank is also responsible for the formulation and implementation of banking and credit policies, so as to ensure the stability of the currency and the growth of the national economy of the UAE in a balanced manner. The CBUAE has authority over the banking and financial sectors, except for the financial institutions operating in the Dubai International Financial Centre (DIFC) . The UAE has a fixed exchange rate regime, whereby the domestic currency, the UAE dirham (Dh) is pegged (since November 1997) to the U.S. dollar at an exchange rate of Dh 3.6725/US$1. The UAE's exchange system is free of restrictions on payments and transfers for international transactions, except for certain restrictions under terrorist financing provisions, taken in accordance with UN resolutions. Hence, the CBUAE has to keep enough reserves to maintain the currency's peg to the U.S. dollar. As a result, monetary policy is focused on maintaining the peg. As per Union Law No. 10 of 1980 concerning the Central Bank, the Monetary System and Organization of Banking, the CBUAE also acts as banker of last resort to the Government and the financial sector, and as the Government's financial advisor.

1.11.    Under the provisions of Union Law No. 10 of 1980, the CBUAE may use a number of instruments to attain its monetary objectives. The fixed peg of the dirham to the U.S. dollar, however, means that local interest rates must be aligned to those of the dollar across the maturity curve. The main instruments used by the CBUAE to regulate domestic liquidity are:

•  the minimum reserve requirement;

•  US$/Dh swaps for dirham liquidity;

•  advances and overdraft facility for banks;

•  prudential regulations;

•  issuance by the CBUAE of certificates of deposit and repo facilities on certificates of deposit (CDs); and

•  liquidity support facilities made available to commercial banks since the advent of the international crisis.

1.12.    During the review period, the CBUAE maintained an accommodative monetary policy, while customer deposits at banks continued to grow thanks to available liquidity and growth in non- resident deposits. Following the fall in oil prices which started in June 2014 and continued into the second half of 2015, however, domestic deposits slowed down leading to an increase in total customer deposits in the order of 3.5% in 2015, while domestic credit remained resilient, increasing by 8.1%.

1.13.    On the exchange front, U.S. dollar appreciation resulted in the REER appreciating by 3.3% in 2014, and by 9% in Q1 2015 compared to the average 2014 level.

1.14.    Inflation, as measured by the consumer price index, rose from 0.7% in 2012 to 4.1% in 2015. The increase has come on the back of rising rents (housing represents nearly 40% of the consumer price basket) and, to a lesser extent, on the removal of subsides on fuel.

1.3    Balance of Payments

1.15.    The balance of UAE merchandise trade declined in 2014, falling to US$131 billion, from US$144 billion in 2013 (Table 1.3) . Explaining part of the decline was a 13.8% decrease in the value of hydrocarbon exports. This was partly offset by a sizeable increase in the value of non-hydrocarbon exports, resulting in a milder 0.9% contraction in the value of total exports. The weakening merchandise trade balance was also attributed to a 4.3% increase in the value of imports.

1.16.    The services trade deficit, consisting of travel, transport, freight, insurance and government services, widened in 2014. The deficit increased from US$49.3 billion in 2013 to US$50.8 billion in 2014. The softening trade balance, in conjunction with a widening balance of transfers deficit, resulted in a decline of the current account surplus. In 2014, the current account surplus fell to 13.7% of GDP.

1.17.    With regard to the financial account, the deficit widened in 2014 to US$52.4 billion. Accounting for this widening was an increase in the net outflow of private capital. Public sector capital outflows increased. Consequently, the surplus of the overall balance of payments reached 2.3% of GDP in 2014, a decline from 5.1% in 2013. As a result, net foreign assets of the Central Bank increased during the same period. Foreign assets of the Central Bank provided cover for 7.1 months of imports (net of re-exports) in 2014, up from 6.6 months in 2013.

Table 1.3 Balance of payments, 2010-14

(US$ billion)

..  Not available.

a  Preliminary data.

b  Not separately compiled for the years 2010-11; estimated at 40 to 70% of emirates imports.

c  Estimate based on UNCTAD World Investment Report.

d  Including estimated changes in SWF net external assets.

Source:  IMF, Article IV Consultations 2013, 2014 and 2015.

1.4    Developments in Trade

1.4.1    Composition of trade

1.18.    Since trade data from UN Comtrade was not available, the Secretariat used data provided by the authorities at the HS 4-digit level and the IMF. There are certain discrepancies with the balance of payments data due to different methodologies used. Furthermore, comprehensive trade data was not available, hence free zone trade, non-oil trade and trade in oil, oil products and gas are discussed separately.

1.19.    Total non-oil exports and re-exports increased from US$88.4 billion in 2011 to US$102.3 billion in 2014 (Chart 1.1 and Table A1.1) . Within non-oil exports, the share of aluminium, vehicles and machinery has increased substantially. In contrast, the share of precious stones and metals has decreased.

Chart 1.1 Non-oil direct trade by main HS sections, 2011 and 2014

Source:  WTO Secretariat estimates, based on data provided by the UAE authorities.

1.20.    Non-oil free zone exports and re-exports rose from US$39.8 billion in 2011 to US$64.7 billion in 2014. Within this category, the share of machinery, particularly electrical machinery, rose considerably as did the share of vehicles. On the other hand, the shares of mineral products and precious stones and metals have decreased (Chart 1.2 and Table A1.3) .

Chart 1.2 Non-oil free zones trade by main HS sections, 2011 and 2014.

Source:  WTO Secretariat estimates, based on data provided by the UAE authorities.

1.21.    Exports of oil, oil products and gas were approximately US$112 billion in 2014 after being nearly US$130 billion a year earlier. They were expected to decrease further to US$70 billion in 2015. The decline has come about due to the fall in the international price of oil.

1.22.    Non-oil imports rose from US$164.1 billion in 2011 to approximately US$190 billion in 2014 (Chart 1.1 and Table A1.2) . The shares of machinery, transport equipment and chemical products rose, while those of precious stones and metals and base metals declined.

1.23.    Over the same period free zone imports rose from US$60.3 billion to over US$80 billion (Chart 1.2 and Table A1.4) . The shares of machinery and chemicals rose, while those of precious stones and metals and base metals declined.

1.4.2     Direction of trade

1.24.    Hong Kong, China was the largest export destination for non-oil goods from the UAE, followed by India and the EU-28. The shares of both Hong Kong, China and India declined markedly, especially India (Chart 1.3 and Table A1.5) . On the other hand, the share of the EU-28 and the Middle East as a whole increased significantly.

1.25.    Exports from the free zones were concentrated in the Middle East, with Saudi Arabia, Iraq and Iran being the three largest destinations (Chart 1.4 and Table A1.7) . During the period under review, the shares of Saudi Arabia and Iraq declined, while that of Iran rose many fold.

1.26.    In 2014, the UAE's largest source of imports was the EU-28 followed by China and the U.S. The shares of all three increased during the period under review. However the share of imports from India declined considerably (Chart 1.3 and Table A1.6) .

1.27.    China was the largest importer into free zones followed by the EU-28 and Viet Nam. The shares of China and Viet Nam rose. In contrast, the shares of the EU-28, U.S. and India experienced a decline (Chart 1.4 and Table A1.8) .

1.5    Foreign Direct Investment

1.28.    Between 2010 and 2013, FDI inflows into the UAE grew at a steady pace, reaching US$10.5 billion in 2013. In 2014, FDI inflows declined slightly to US$10.1 billion. As a result of the steady increase in investment, the stock of FDI stood at US$115.6 billion in 2014.

1.29.    In 2013 (latest available data), the largest investor in the UAE was the United Kingdom, followed by India and France. Real estate, renting and business activities attracted the most investment followed by wholesale and retail trade, repair of motor vehicles and motorcycles, and financial intermediation. It is expected that inward FDI will increase with the promulgation of the new Investment Law.

Chart 1.3 Non-oil direct trade by main origin and destination, 2011 and 2014

Source:  WTO Secretariat estimates, based on data provided by the UAE authorities.

Chart 1.4 Non-oil free zones trade by main origin and destination, 2011 and 2014

Source:  WTO Secretariat estimates, based on data provided by the UAE authorities.

2    TRADE AND INVESTMENT REGIME

2.1    General Framework

2.1.    The United Arab Emirates (UAE) is a federation of seven emirates: Abu Dhabi; Dubai; Sharjah; Fujairah; Umm al-Quwain; Ajman; and Ras al-Khaimah. There have been no changes in the political system of the country since the last TPR.³ The Federal Constitution⁴ states that the UAE has exclusive legislative and executive jurisdiction for foreign affairs, security and defence, nationality and immigration issues, education, public health, currency, postal, telephone and other communication services, air traffic control and licensing of aircraft, labour relations, banking, delimitation of territorial waters and extradition of criminals. Responsibilities that are not under the exclusive jurisdiction of the Federation are the responsibility of each emirate.⁵

2.2.    The executive, legislative and judiciary functions in the UAE are executed by the five federal authorities: the Federal Supreme Council; the President; the Council of Ministers; the Federal National Council; and the Federal Judiciary.

2.3.    The Federal Supreme Council (FSC) is the highest constitutional authority in the UAE and is composed of the rulers of each of the seven emirates. It is also the highest legislative and executive body. The FSC is responsible for formulating government policies at federal level, endorsing federal laws and sanctioning decrees, and ratifying treaties and international agreements. The FSC selects the President and the Vice President for terms of five years from among its members. The FSC is responsible for approving the appointment of the Prime Minister of the Federation, accepting his resignation, and requesting his resignation upon suggestion of the President of the Federation. Furthermore, the FSC approves the appointment of the President and the judges of the Federal Supreme Court, accepts their resignations, and dismisses them in the cases specified by the Constitution.

2.4.    The President is the chief executive of the State, who has the right to convene and preside over meetings of the FSC. The President signs and promulgates laws, decrees and decisions sanctioned by the FSC. The President appoints the Prime Minister upon approval by the FSC, the Deputies of the Prime Minister and the ministers. Currently Sheikh Khalifa bin Zayed Al Nahyan, the ruler of Emirate of Abu Dhabi, is the President of the Federation.⁶

2.5.    The Council of Ministers of the Federation is composed of the Prime Minister, the Deputies of the Prime Minister and the ministers. The Prime Minister and the ministers constitute the executive branch of the Federation. The Council of Ministers, among other tasks, is responsible for implementing the general policies of the Federation (both domestic and foreign), drawing up the annual budget and the final accounts, preparing draft decrees, issuing regulations necessary for the implementation of the federal laws, and supervising the implementation of laws, decrees, decisions and regulations. One of the key functions of the Council of Ministers is to initiate the drafting of federal laws and submit them to the Federal National Council (FNC) before submitting them to the President for presentation to the FSC. Sheikh Mohammed bin Rashid Al Maktoum, the Ruler of Emirate of Dubai, has been the Vice President and Prime Minister of the UAE since 2006.

2.6.    The Federal National Council is a consultative council to the FSC. The Council is made up of 40 members. Half of the members are elected⁷, while the other half are appointed by the rulers of the emirates for a four-year term with the possibility of renewal. The number of seats for each emirate depends on the population. The FNC reviews legislation and proposes amendments to it, but it does not have the authority to veto laws or to initiate new laws. The FNC has the power to summon and question any federal ministers. The last FNC election was held in October 2015.

2.7.    The Federal Judiciary is an independent body (under Article 94 of the Constitution) . It includes the Courts of First Instance, Courts of Appeal, the Federal Supreme Court and the UAE Public Prosecutors.

2.8.    The Constitution allows each of the seven emirates the right to choose either to participate in the federal judicial system or maintain its independent system. Four emirates (Sharjah, Ajman, Fujairah, and Umm Al-Quwain) follow the federal judicial system, while Abu Dhabi, Dubai and Ras al-Khaimah maintained their own independent system. Similar to the federal judicial system, Dubai also has Courts of First Instance, Courts of Appeal and a Court of Cassation – which is the supreme judicial body. Abu Dhabi, established a Commercial Court in May 2008 (the only one in the UAE) to respond to the needs of the expanding business sector in the emirate.⁸

2.9.    The Federal Supreme Court is the highest federal judicial authority. The rulings of the Federal Supreme Court are final and binding on all. It is governed by a president and five judges, who are appointed by a decree issued by the President of the UAE after the approval of the FSC. It acts as an appellate court with respect to the decisions of the lower courts and at the same time ensures that the lower courts apply and interpret the law consistently. The judges are responsible for deciding if federal laws are constitutional; mediating between inter-emirate disputes; and trying cases involving cabinet and senior federal officials.

2.10.    The Court of First Instance has general jurisdiction and includes the Civil Court, Criminal Court, and Shariah Court. The Shariah Courts handle cases related to divorce, inheritances, child custody, child abuse, and guardianship of minors. Following judgement by the Court of First Instance, parties have the right to appeal to the Court of Appeal on factual and/or legal grounds. Following judgement by the Court of Appeal, aggrieved parties have the right to appeal to the Court of Cassation.

2.11.    Each emirate has a local executive council functioning in parallel and in coordination with the Federal Government. The emirates Abu Dhabi, Dubai, Ras al-Khaimah, Sharjah, Ajman and Umm al-Quwain have Executive Councils with different departments working like ministries. In addition, Abu Dhabi and Sharjah have a National Consultative Council which functions like the FNC. Other emirates use the diwan – the ruler's office, through which the concerns of citizens are submitted to their governments.

2.2    Trade Policy Objectives

2.12.    As stated in the last review, the most important goal of the Government is to attain balanced and sustainable economic growth by creating a business-friendly environment through economic reforms, a sound foreign trade policy regime, development of national industries, innovation and R&D, promotion of exports, promotion of investment, regulation of competition, promotion of small and medium enterprises, protection of consumers and intellectual property rights, and diversification of the economy.⁹

2.13.    The Government of the UAE seeks to attain sustainable development through the implementation of UAE Vision 2021.¹⁰ Trade is one of the essential elements of the strategy. In line with the strategy, the following initiatives are pursued:

•  diversification of the economy (including the diversification of income sources, investments in the non-oil sector, and expansion in trade infrastructure);

•  creation of an enabling environment for trade and investment, in particular in the new economic sectors such as aerospace and technology;

•  enhancement of competitiveness in foreign markets; and

•  development and promotion of commercial diplomacy with other countries.

2.14.    Between 2012 and 2014, the non-hydrocarbon sector grew at an average annual rate of 5.6%, with the growth rates for: the manufacturing sector growth of 3.3%; electricity, gas and water of 7.2%; and transport, storage and communications of 4.1%.

2.15.    Individual emirates create their own strategy within the framework of the overall federal plan, for example, Abu Dhabi developed its long-term plan – Economic Vision 2030.¹¹ Strategies at the emirates level are expected to work towards guaranteeing and enhancing the position of the UAE; for example, extensive investment in air and sea transport infrastructure (for both passengers and freight) at the emirates level would contribute to achieving the sustainable development goal of the UAE as a whole.

2.16.    The main trade-related laws and regulations of the UAE are presented in Table 2.1.

Table 2.1 Main trade-related laws and regulations in the UAE

Source:  Information provided by the UAE authorities.

2.17.    In March 2013, the Ministry of Foreign Trade was dissolved through a presidential decree and its tasks, rights and obligations were transferred to the Ministry of Economy. The Ministry of Economy is now able to propose to the Government policies to enhance trade and promote exports to foreign markets. It builds contacts and negotiates treaties and agreements on trade with foreign countries, and monitors their implementation. The Ministry also represents the UAE in exhibitions and regional and international conferences related to foreign direct investment, and works to create an attractive investment environment. The ministry is also responsible for the development of the national economy, the creation of a pro-business environment that contributes to achieving balanced and sustainable development of the country, the enactment and modernization of economic legislation, the development of national industries and exports, the promotion of investment, the regulation of competition and the small and medium enterprises (SMEs) sector, the protection of consumer and intellectual property rights, and the implementation of policies to diversify the economy. H.E. Sultan bin Saeed Al Mansouri is the Minister of Economy.

2.18.    The Federation of UAE Chambers of Commerce and Industry, which is the umbrella organization for all the Chambers of Commerce and Industry, represents the private sector in the trade policy formulation process. Each emirate has its individual Chamber of Commerce and Industry. The individual chambers of the emirates are important ports of call for those wishing to do business in the country. The mission of the chambers is to represent, support, and protect the interests of the business community in the emirates. The chambers act as a liaison between the business community and the Government, and provide services like company and trade registration, training, information sharing, and liaison with businesses from abroad. Furthermore, the chambers are assigned various activities such as conducting research, disseminating information related to commerce and industry, providing information on investment opportunities in the country, issuing and authenticating certificates of origin and other commercial documents, and overseeing qualities and standards of goods.

2.3    Trade Agreements and Arrangements

2.3.1    WTO

2.19.    The UAE had been a contracting party to the GATT since 1994 and became a member of the World Trade Organization (WTO) in April 1996. The UAE is a party to the Information Technology Agreement. The UAE is neither a party nor an observer to the Government Procurement Agreement and (as at end-February 2016) . The UAE ratified the Trade Facilitation Agreement under Decree No. 39 of 8 March 2016 and, at that date, was in the process of preparing the deposition of its instrument of acceptance to the WTO. The UAE has been involved in one dispute under the WTO Dispute Settlement Mechanism as a third party.¹²

2.20.    In September 2015, the UAE notified¹³ Federal Decree No. 7 of 2005, adopting the GCC Common law on anti-dumping, countervailing measures and safeguards, under Articles 32.6, 18.5 and 12.6 of the WTO Agreement on Subsidies and Countervailing Measures, the Agreement on the Implementation of Article VI of GATT 1994 (anti-dumping), and the Agreement on Safeguards respectively. The institution responsible for contingency trade remedies in the territory of the UAE is the Directorate of Anti-Dumping under the Ministry of Economy. At the end of February 2016, the UAE had never initiated or imposed any anti-dumping, countervailing or safeguards measures.¹⁴ The GCC Common Law of 2003, as well as its amended version of 2010 and the Rules of Implementation, currently empowers the GCC technical secretariat to conduct trade remedy investigations and to apply trade remedy measures through the relevant committees, inter alia, the GCC Permanent Committee and the GCC Industrial Committee in all GCC members.

2.21.    The UAE Ministry of Economy is currently preparing a Federal Law on anti-dumping, countervailing measures and safeguards in line with the 2010 amendments to the GCC Common Law. This law will be implemented and administered at the national level by the Directorate of Anti-Dumping in the Ministry of Economy. The Federal Law empowers the Directorate of Anti-dumping to operate both: (1) independently to conduct trade remedy investigations; and (2) in support of GCC investigations when the GCC Common Law and Rules of Implementation are applied.

2.22.    UAE applies MFN treatment to all WTO Members except Israel. There is no discrimination between WTO Members and non-members in relation to GCC customs tariffs.

2.23.    As reported in the last TPR, the WTO National Committee (NC) supports the UAE negotiating team at the current WTO negotiations as an advisory body. The NC represents various dominant players in the economic and trade sector of the country. The NC has five sub-committees (national technical teams), namely, market access for agriculture and non-agricultural products, intellectual property rights, protection of domestic production, trade in services, and trade facilitation and government procurement. The Committee is headed by the Minister of Economy. The NC presents the UAE's views and proposals on various issues under negotiations at the WTO with a view to maximizing trade gains and preserving its rights. The national technical team on trade facilitation presented to the NC the commitments of the UAE under category A of the trade facilitation agreement which was approved by the NC and the ministerial council. Category A commitments were notified to the WTO and issued in document WT/PCTF/N/ARE/1 dated 2 June 2015. After the ministerial conference in Bali the UAE Ministerial Council approved the Trade Facilitation Agreement which was ratified on 8 March 2016 under Decree No. 39.

2.24.    In the current multilateral negotiations, NAMA and services liberalization are priority areas for the UAE. The UAE submitted a proposal to eliminate tariffs and non-tariff barriers on raw materials from earth (such as primary aluminium) and from plant extraction, which are used and processed by manufacturing industries.¹⁵ In the area of services, the UAE submitted its initial offer.¹⁶

2.25.    Notifications to the WTO by the UAE between March 2012 and November 2015 are listed in Table 2.2.

Table 2.2 Notifications to the WTO, March 2013-August 2015

Source:  WTO Secretariat.

2.3.2    Regional and preferential agreements

2.3.2.1    Cooperation Council for the Arab States of the Gulf

2.26.    The UAE is a founding member of the Cooperation Council for the Arab States of the Gulf (GCC) .¹⁷ The highest authority of the organization is the Supreme Council of the GCC, which is represented by the heads of the member States.¹⁸

2.27.    GCC member States established a free trade area exempting from customs duties all goods originating from within the GCC. As indicated in the previous TPR, the UAE (as other GCC member States) applies the common external tariff of 5% on most products and operates common laws on customs procedures and valuation. Each member State has the right to declare some products as prohibited and some as restricted (Section 3.1.6) .

2.28.    In January 2008 the common services market was created. The GCC also has common legislation in several other areas including contingency measures, as well as SPS issues (including veterinary quarantine and plant quarantine), and standards and technical requirements.

2.3.2.2    Pan-Arab Free Trade Area Agreement (PAFTA)

2.29.    The UAE is a member of PAFTA; the PAFTA agreement entered into force at the beginning of 1998.¹⁹ The objective of the Agreement is to create an Arab Free Trade Area, also known as the Greater Arab Free Trade Area or the Pan-Arab Free Trade Area.²⁰ The aim was to form the free trade area by 2008 through gradual elimination of trade barriers and an annual reduction of customs duties by 10%.

2.30.    To speed up the liberalization process, the elimination of all tariffs among the PAFTA members was enforced in 1 January 2015 with the exception of some products for reasons such as public health, safety and morals, and protection of the environment. The work on elimination of numerous non-tariff barriers, such as standards, customs and administrative procedures at the borders, and transit fees are being pursued. The implementation of the Agreement is under the responsibility of the Economic and Social Council of the League of Arab States which coordinates its economic integration.

2.3.3    Other agreements and arrangements

2.31.    At the GCC Leaders' Summit in December 2005, it was announced that all agreements after this date would be negotiated as a group.²¹ Since then, the GCC has concluded negotiations of free trade agreements with the European Free Trade Association (EFTA) States and Singapore. Negotiations with a number of other countries are ongoing.

2.3.3.1    EFTA-GCC Free Trade Agreement

2.32.    The EFTA-GCC Free Trade Agreement entered into force on 1 July 2015.

2.33.    The GCC-EFTA Free Trade Agreement covers a broad range of areas including trade in goods, trade in services, government procurement and competition. It was agreed that the GCC will eliminate most customs duties after the transitional period of five years. On services, the GCC members have taken commitments in 11 GATS sectors. Industrial goods, including fish and other marine products of GCC origin, benefit from duty-free access to the respective markets of the EFTA States as of the entry into force of the Agreement. The Agreement also provides for tariff concessions on processed agricultural products. Basic agricultural products are covered by bilateral agricultural agreements which form part of the FTA.

2.34.     According to the authorities, the rules of origin are based on the European model and allow for a value-added rule to be used alternatively for almost all of the items which are not wholly obtained (Section 3.1.3) .

2.35.    According to the authorities, the Chapter on trade in services has a similar structure to the WTO General Agreement on Trade in Services (GATS) . It covers all four modes of supply of a service, as defined under the GATS, and addresses different services sectors. The Chapter deals with general disciplines, whereas more specific provisions for certain sectors or aspects are contained in Annexes (such as on Mutual Recognition, Movement of Persons, Financial Services and Telecom) .

2.36.     In the area of intellectual property rights (IPRs) and investment, the Parties essentially confirm the WTO TRIPS Agreement. They commit to concluding negotiations on an Annex related to IPRs not later than two years after the entry into force of the Agreement. In the meantime, a special consultation mechanism is foreseen in case of problems in the area of IPRs affecting trade conditions between the Parties. On investment, there are no specific provisions contained in the Agreement on Investment, but a side letter, forming part of the Agreement, sets forth the Parties' obligation to conduct negotiations on business establishment in non-services sectors within two years of the entry into force of the Agreement.

2.37.     On government procurement (GP), the Parties agreed to mutually open their government procurement markets. The government entities included and the procurement thresholds are listed in annexes to the Agreement. The provisions of the Chapter on GP deal with the procedures to be followed by a government entity which is procuring goods, services and construction services above certain thresholds. According to the authorities, the Chapter has a similar structure to the WTO Government Procurement Agreement.

2.38.     The Chapter on Dispute Settlement allows for the settlement of disputes arising under the Agreement between one or more EFTA States and the GCC to be settled amicably or through arbitration. Furthermore, the Agreement includes provisions on anti-dumping, state trading enterprises and subsidies, as well as sanitary and phytosanitary measures and technical regulations. ²²

2.3.3.2    GCC-Singapore Free Trade Agreement (GSFTA)

2.39.    The GSFTA entered into force on 1 January 2015.²³ The Agreement covers trade in goods and services, customs procedures, technical regulations and standards, rules of origin, e-commerce, and government procurement.²⁴

2.40.    The GSFTA's Trade in Goods Chapter provides for immediate comprehensive tariff eliminations by Singapore for 100% of imports originating in the GCC. Since it is a reciprocal agreement, the GCC will also eliminate tariffs for 99% of imports originating in Singapore. The tariffs on the remaining 1% of Singapore originating imports will be removed 5 years after the entry into force of the Agreement. Goods shall be deemed originating goods of a Party if they are (a) wholly obtained or produced in the territory of the exporting Party; or (b) have attained a qualifying value added of not less than 35% based on the ex-works price. ²⁵

2.41.    On services, the GSFTA builds on the commitments made by Singapore and the GCC countries at the multilateral level, in particular, the WTO General Agreement on Trade in Services (GATS) . Specifically, Singapore and the GCC have committed to liberalize various services sectors beyond its WTO commitments. Broadly, the schedule of specific commitments include the following sectors: business services: professional services, computer and related services, rental and others; communication services; construction and related engineering services; distribution services; educational services; environmental services; financial services; health related and social services; tourism; recreational, cultural and sporting services; and transport services.²⁶

2.3.3.3    Negotiations

2.42.    The GCC is currently negotiating free trade agreements with Australia, China, the EU, India, Japan, the Republic of Korea, MERCOSUR, New Zealand, Pakistan, and Turkey.

2.43.    As at end-November 2015, the UAE has signed 92 agreements on avoidance of double taxation with different countries (35 with European countries; 26 with Asian countries; 11 with Arab countries; 12 with African countries; and 8 with North and Latin American countries) .

2.3.3.4    Other preferential arrangements

2.44.    The UAE does not grant Generalized System of Preferences (GSP) treatment to any countries; while it is a beneficiary of GSP treatment provided by Australia and Turkey, as well as the Russian Federation, Belarus and Kazakhstan.²⁷

2.4    Investment Regime

2.45.    The Government of the UAE has developed an economic agenda that aims to enhance the role of the private sector, liberalize its economy, and diversify its product and export base. The UAE Vision 2021 focuses on the UAE becoming the economic and commercial capital for more than two billion people by transitioning to a knowledge-based economy, promoting innovation and research and development, strengthening the regulatory framework for key sectors, and encouraging high value-adding sectors. The aim is to improve the country’s business environment and increase its attractiveness to foreign investment.

2.46.    Vision 2021 also aims for the UAE to be among the best in the world in entrepreneurship as this plays a key role in unlocking the potential of nationals and enables them to be a driving force of the UAE’s economic development through small and medium enterprises in the private sector. Furthermore, Vision 2021 also aims to instil an entrepreneurial culture in schools and universities to foster generations endowed with leadership, creativity, responsibility and ambition.

2.47.    The Ministry of Economy works to unify and facilitate procedures for the registration and licensing of foreign investment projects. The Ministry established a comprehensive database on investment interests and submits periodic reports to the Federal Council of Ministers about the investment environment in the country. Officials monitor and assess the extent of foreign investment and the annual flow of investment.

2.48.    There are four major federal laws affecting foreign investment in the UAE: the Companies Law, the Commercial Agencies Law, the Industry Law, and the Government Tenders Law. Although the legal framework in the UAE favours local over foreign investors, investment laws and regulations are being reconsidered and supplemented to make the investment regime more transparent and investor-friendly, including the introduction of a new Foreign Direct Investment Law.

2.49.    On 1 July 2015, Federal Law No. 2 of 2015 concerning Commercial Companies entered into force. This Law replaced the Federal Companies Law No. 8 of 1984.²⁸ According to its Article 2, the objective of the Law is to contribute to the development of the working environment and capacities of the State and its integration into a global market and business environment, specifically, to raise the levels of company governance, supporting foreign investment, protection of shareholders and promotion of social responsibility of companies. The new law introduced several specific amendments. The amendments include:

•  recognition of the concept of holding companies – all limited liability companies (LLCs) and joint-stock companies (JSCs) may now be established as holding companies in order to conduct their activities through relevant subsidiaries;

•  recognition of the Companies Registrar – the Ministry of Economy shall issue a regulation setting out the activities and functions of the Companies Registrar;

•  procedures for pledging shares – the new law allows shareholders in LLCs to pledge their shares, and such pledges must be made in accordance with the company's* memorandum;

•  removal of the limit on the number of directors appointed to an LLC;

•  expert valuation of shares in kind (i.e. non-cash);

•  corporate governance;

•  social responsibility;

•  strategic partners;

•  crimes resulting from violating the Companies Act and reconciliation;

•  the acquisition of companies; and

•  the requirement to rotate auditors nominated by the board of directors/managers and approved by the general assembly of the relevant companies every three years.

2.50.    The new law applies to commercial companies established in the UAE, as well as to branch offices of foreign companies operating in the UAE. According to the new law, companies established in the UAE are required to have a minimum of 51% UAE national ownership. Exceptions apply to free zones, where 100% foreign ownership is allowed.

2.51.    Foreign companies may also open branches or representative offices, where 100% foreign ownership is allowed. These branches and representatives can carry out only those activities for which they were licensed by each emirate. Branch offices of foreign companies are required to have a national agent which must be a UAE national or company with 100% national ownership. However, the UAE Government is considering relaxing the requirement of such restrictions in certain industry sectors under a new Foreign Investment Law.

2.52.    The hydrocarbon sector is also excluded from the provisions of the Federal Companies Law. Furthermore, some companies are exempted from the provisions of the Law, including:

•  companies operating in certain oil, gas or power sectors in which the federal or local government directly or indirectly holds 25%;

•  companies excluded by resolution of the Federal Cabinet; and

•  companies wholly owned by federal or local government and companies held in full by such companies.²⁹

2.53.    The provisions of the Commercial Agencies Law require that foreign principals distribute their products in the UAE only through exclusive commercial agents that can be UAE nationals or companies wholly owned by UAE nationals. The foreign entity can appoint one agent for the entire UAE or for a particular emirate or group of emirates (Section 3.1.1) .

2.54.    The Federal Industry Law stipulates that industrial projects must have 51% UAE national ownership. The law also requires projects to be managed by a UAE national or have a board of directors with a majority of UAE nationals. There are some exemptions from the law, and, as is the case with the Federal Companies Law, these exemptions are provided for projects related to the extraction and refining of oil, natural gas, and other raw materials.

2.55.    The Federal Law No. 1 of 1979 on organizing industrial affairs and governing investment in the industrial sector (excluding those for free zones) provides for incentives for industrial companies. However, the only incentive actually provided to industrial companies is the right to import all materials included in the industrial project's licence duty free.

2.56.    There have been no changes to the land ownership regime since the last TPR. Ownership of land is restricted to UAE nationals, although there are exceptions which vary from emirate to emirate. For example, in Abu Dhabi, under the relevant law³⁰ and its amendments, GCC nationals may only own land in special "investment areas" (of which there are currently 3 in Abu Dhabi) and non-UAE nationals may own floors of buildings in any investment zones. According to a special resolution³¹, non-UAE natural or juristic persons have the right to own, buy, sell, rent, mortgage and invest in investment areas. They may hold “mustaha” rights for up to 50 years (subject for renewal for a similar duration) and sign usufruct (similar to lease) contracts for up to 99 years in properties located inside investment areas. Both the right of usufruct and mustaha are essentially forms of long-term lease with the primary difference being that the right of mustaha includes the right to build or develop upon the property of another, whereas the right of usufruct does not.

2.57.    In Dubai, under the relevant law³², GCC and other non-UAE nationals have a right to own freehold or leasehold property. However, this policy does not give non-GCC property owners permanent residence visas or an automatic right to work in the emirate. They are only allowed to hold an interest over land in the form of freehold or leasehold interest for 99 years in designated areas, of which there are currently more than 30 in Dubai. Other emirates apply different specific regulations on property ownership.

2.58.    According to the authorities, if the investor acquires a property with a value over Dh 1 million, the investor will be entitled to a residency visa for 6 months subject to renewal provided that they retain the property.

2.59.    Among others, a new draft Insolvency Law was approved by the Cabinet in July 2015. This law will help to unlock more foreign investment by reducing uncertainty in the existing federal bankruptcy laws. One of the key elements in the new draft law is the decriminalizing of the bouncing of cheques, which will provide greater encouragement to entrepreneurial businesses, by affording them greater protection in the case of business failure.³³ The draft will be referred to the Federal National Council for approval.

2.60.    In February 2012, the UAE Government issued the Competition Law No. 4 of 2012 with the aim of providing a comprehensive regime covering merger controls, prohibitions on restrictive agreements, and prohibitions on abuse of a dominant market position.

2.61.    In June 2014, the FNC approved the Federal Law No. 2 of 2014 on Small and Medium-Sized Enterprises. As stated by the authorities, the law supports Emirati-owned small and medium enterprises and will play a significant role in promoting sustainable economic development to facilitate the promotion and development of these enterprises. According to the law, federal departments have to award at least 10% of their purchases of goods and services to small and medium enterprises. Government-related firms, in which the Federal Government holds stakes of more than 25%, must also ensure at least 5% of their contracts are with SMEs. The law categorizes SMEs, establishes a dedicated council and determines incentives to be offered to small business owners of small and medium-sized enterprises. Emirati entrepreneurs falling under the small and medium classification will benefit from a number of incentives offered by the council, including credit and funding facilities, financing, marketing and reduced licensing costs. Emirati business owners will also benefit from land grants for industrial or agricultural purposes and receive support for promoting their companies at exhibitions around the world. The law also includes additional benefits to inventors, patent owners and companies that invest in research and development.³⁴ However, the law still lacks a specific definition of what constitutes an SME.

2.62.    In June 2015 the UAE Government announced the limited opening of telecoms operator "Etisalat" to foreign investors. These new regulations allow for legal persons, including institutions, in the UAE, or UAE government agencies, or other legal persons, to own shares in Etisalat. Also, non-national individuals and entities may own up to 20% of Etisalat Group’s shares.³⁵

2.63.    In September 2015, the UAE announced that from early 2016 labour reforms would be enforced. As a result, a new system will be created under which workers' contracts will be lodged with the labour ministry rather than with employers. The new provisions will allow foreign workers to terminate their contracts and change employer.³⁶ The new system will also stop so-called "substitution", under which foreign workers sign one contract before they leave their home country and are compelled to renegotiate wages when they arrive in the UAE.³⁷

2.64.    As at end-November 2015, 43 of the 55 agreements related to encouragement and protection of investment³⁸ had entered into force.³⁹ The UAE is a member of the Multilateral Investment Guarantee Agency. There are no restrictions on investments abroad by UAE nationals.

2.65.    On government procurement, the Cabinet issued Resolution No. 32 of 2014 concerning the procurement and warehouse management regulations at the federal level. The resolution streamlines purchasing procedures and accounting methods of federal entities to ensure efficiency and effectiveness of the procurement process.

3    TRADE POLICIES AND PRACTICES BY MEASURE

3.1    Measures Directly Affecting Imports

3.1.1    Customs procedures and requirements

3.1.    The legal basis for customs procedures in the UAE is the Common Customs Law for GCC States of 2002 and the amended Federal Law No. 8 of 2015 on the Federal Customs Authority (FCA) which replaced Law No. 1 of 2003. Under the new law, the Board of Directors was replaced by the Commissioner of Customs with the same jurisdiction as the Board. The Commissioner of Customs has a ministerial-grade position and reports directly to the Cabinet of Ministers. As under the previous legislation, the FCA remains responsible for developing customs policy, proposing legislation, and applying customs procedures, and it has the authority to set risk management rules and charges for customs services.⁴⁰ The new law applies from 28 January 2016. In addition to the FCA, each emirate has its own customs department and the FCA works in cooperation with them in developing policy and legislation, and in applying customs procedures. In 2015, the Customs Affairs Department of the GCC Secretariat published the GCC Unified Guide for Customs Procedures at First Points of Entry to facilitate customs operations in the GCC member States.⁴¹ According to the authorities, the guide is compatible with the International Convention on the Simplification and Harmonization of Customs Procedures (the Revised Kyoto Convention) .

3.2.    The UAE is a member of the World Customs Organization (since 1979), and a contracting party to the Revised Kyoto Convention on the Simplification and Harmonization of Customs Procedures (since 2010), the International Convention on the Harmonized Commodity Description and Coding System (since 2002), and the Istanbul Convention on Temporary Admission (since 2010) .⁴² The UAE notified its category A commitments under the Agreement on Trade Facilitation on 2 June 2015⁴³ and ratified it on 8 March 2016.

3.3.    The UAE has customs cooperation agreements with several trading partners, including: Pakistan (2006); Algeria (2007); Azerbaijan (2011); India (2012); Kazakhstan (2012); Argentina (2013); Armenia (2013); Maldives (2014); the Republic of Korea (2015); Morocco (2015); and the Netherlands (2015) .⁴⁴

3.4.    In 2015, the UAE was ranked 101^st out of 189 economies in terms of ease of trading across borders with an average of six documents and 109 hours needed for importing and a cost of US$961 for a container.⁴⁵ However, as the authorities pointed out, the ranking for trading across borders is based on exporting plastics and articles thereof (HS 39) to India, and importing parts and accessories of motor vehicles (HS 8708) from Japan, neither of which are very representative of trade in the UAE. Other indicators rank the UAE more highly: the World Bank Logistics Performance Index for 2014 ranks the UAE as 20^th out of 150 economies for logistics generally and for customs specifically⁴⁶; the World Economic Forum's Burden of Customs Procedures ranks the UAE as third out of 140 economies⁴⁷; and the IMD customs authorities indicator ranks the UAE 7^th out of 61 economies.⁴⁸

3.5.    Importing into, or exporting from, the UAE customs territory requires a trading licence and a trader code which is available from the customs department of each emirate and which applies throughout the UAE. To qualify for a licence the applicant must be a UAE national or a company established in the UAE that is 51% owned by UAE nationals. Distribution of imported goods may only be undertaken by trade agencies which must be owned by UAE nationals or by companies wholly owned by UAE nationals. Trade agencies are required to register with the Registry of Commercial Agents in the Ministry of Economy. Under the Agency Laws of the UAE⁴⁹, a distribution agreement between a foreign supplier and a local agency which is registered, or which could be registered, with the Registry of Commercial Agents, may provide the local agent with exclusive rights to import and/or distribute the goods in the area specified under the agreement. Such a distribution agreement may only be terminated if the foreign supplier or importer can present "a material reason justifying its termination or non-renewal". Cases for termination go first to the Commercial Agencies Committee and may be appealed to the courts.⁵⁰

3.6.    No licence is required for trading from or to the free zones.⁵¹ Goods that are imported and exported to and from free zones follow the same procedures as goods imported or exported into or from the customs territory of the UAE.

3.7.    Under the Common Customs Law of the GCC, natural and legal citizens of the GCC States have the right to exercise the profession of customs clearance on obtaining a licence from the customs administration of their State. Furthermore, since 1 January 2015, the Unified Guide for Customs Procedures and the single point of entry principle apply to imports into the GCC. Therefore, goods entering any port in the GCC States should be subject to the same import procedures, including payments of tariffs, and, once cleared, are free for circulation throughout the GCC States.⁵²

3.8.    According to the authorities, under the Unified Guide, the documents to be attached to the single customs declaration for imports are the original invoice and original certificate of origin. No documents are required for goods in transit. Additional documents may be required by other government agencies, such as a halal slaughter certificate from an approved Islamic Centre in the country of origin required for an import permit issued by the Ministry of Environment and Water (see Sections 3.1.6, 3.3.1, and 3.3.2) .

3.9.    Although customs procedures must follow the GCC Guidelines, the customs department of each emirate is responsible for applying the law and different customs systems are used. In 2011, Dubai Customs launched the domestically developed electronic declaration system, Mirsal 2, which allows for the electronic presentation and clearance of documents on a 24/7 basis. The system includes risk assessment systems linked with domestic and regional authorities and international organizations.⁵³ The General Administration of Customs in Abu Dhabi has a fully operational electronic customs declaration system (Dhabi) in all customs centres in the emirate. The electronic system includes electronic payment, archiving of declarations, approval of declarations, and authorizations.

3.10.    Since 2014, the Federal Customs Authority's Unified Customs Gateway has worked as an interface between the customs administrations of the emirates and other regulating government authorities. The main system has two sub-systems: the circular system automates correspondence on prohibited and restricted goods from the relevant government authorities to the local customs administrations; and the authorization system works to regulate and manage the issuing of export and import permits from the responsible authorities.

3.11.    In the GCC, goods are inspected and examined based on risk assessment and, under Law No. 8 of 2015 on the FCA, the FCA is to prepare, unify, and adopt customs risk management criteria and develop joint regulations to manage risks. In most circumstances, inspections take place in the presence of the owner of the goods or her/his representative although this is not required where the customs official suspects the presence of prohibited goods.

3.12.    Since 2007, the General Administration of Customs in Abu Dhabi has operated a Golden Card programme for import and export companies that meet specified criteria such as a good compliance record. Under the programme, qualified operators can avail of simplified import procedures. As at 1 November 2014, there were 44 participants in the programme. According to the authorities, in 2016, the UAE will begin implementing an Authorized Economic Operator (AEO) programme by launching a pilot programme to be implemented by Dubai Customs in coordination with the FCA. The experience of Dubai Customs will then be used as a benchmark in order to implement the programme on the federal level by the other customs administrations.

3.13.    The Common Customs Law of the GCC States applies specific provisions to imports of goods in transit, destined for warehouses, into free zones, and for re-export:

•    goods in transit are not liable for import duties subject to providing a bank guarantee or refundable deposit equal to the customs duties plus charges. Transit is prohibited for goods subject to import prohibition or restriction, and goods infringing intellectual property rights;

•    a warehouse for imported goods may be established by the customs authorities and may be located outside the customs area. Goods imported and stored in a customs warehouse are not liable for payment of import duties unless released onto the domestic market. A bank guarantee or refundable deposit equal to the customs duties is required. Goods may be stored in a customs warehouse for up to 365 days after which the customs duties should be paid;

•    goods imported into free zones and duty-free shops are not deemed to have entered the customs territory and are not liable for customs duties. However, goods imported into the customs territory from a free zone or duty-free shop are treated as foreign goods regardless of any local raw material they may contain;

•    a customs department may permit temporary admission of goods for up to six months (or up to three years for capital goods) including: heavy machinery and equipment for completion of projects or conducting experiments or tests related to such projects; goods for completion of processing; temporary imports for playgrounds, theatres, exhibitions, etc.; machinery and equipment imported for repair; containers and packing importing for refiling; animals admitted for grazing; and commercial samples for exhibitions.

3.14.    Imports of specific goods require prior approval from the appropriate government agency before they may be imported. These goods include: all alcoholic beverages; pork and pork products; tobacco and tobacco products; recordings; telecommunications equipment; foodstuffs; feedstuffs; animals and their products; fireworks; and arms, ammunition, and explosives.

3.1.2    Customs valuation

3.15.    The UAE notified the WTO that it had "confirmed all legal, organizational and administrative obligations relating to implementation of Article VII of GATT 1994 and completely accomplished" its implementation.⁵⁴ Under the Common Customs Law of the GCC States, the customs value of imported goods is, in order of priority: the transaction value; the transaction value of identical goods; the transaction value of similar goods; the deductive value; the computed value; and the flexible method. The UAE invoked Annex III, paragraph 3 of the Agreement on Customs Valuation and an importer may request the application of the computed value method before the deductive value method.⁵⁵

3.16.    In cases where the customs authority finds the value of goods is greater than the declared value, customs duties are applied on the basis of the customs authority's finding and a fine may be levied. The importer may appeal a customs valuation to the valuation committee of the local customs administration within 15 days of the registration of the customs declaration and from there to the courts. Goods may be released during a dispute over customs valuation, with possible retention of samples for reference and payment of a deposit equivalent to the duties and charges.

3.1.3    Rules of origin

3.17.    According to the notification by the UAE to the WTO, the "United Arab Emirates does not have any non-preferential ruling of general application relating to rules of origin."⁵⁶ A certificate of origin from the original exporter is required for all imports.

3.18.    To meet the origin criteria goods must be wholly obtained in a given country or have undergone substantial transformation there; substantial transformation is based on the criteria of change of tariff classification, value added, and/or manufacturing or processing operations⁵⁷:

•  for goods to qualify as being of GCC origin, the criteria are being wholly obtained or having undergone substantial transformation with 40% local value added in plants owned 51% or more by GCC nationals; and

•  for goods to qualify as being of PAFTA origin, the criteria are substantial transformation with at least 40% value added or at least 20% value added for assembly operations.

3.19.    The rules or origin under the GCC-EFTA trade agreement are set out in Annex IV to the Agreement under which products must either be wholly obtained or meet other criteria which depend on the product concerned.⁵⁸ Under the GCC-Singapore trade agreement, the rules of origin state that goods must be wholly obtained, have obtained value added of at least 35%, or meet product-specific rules as set out in Annex 3 to the Agreement.⁵⁹

3.1.4    Tariffs

3.1.4.1    Applied MFN tariff

3.20.    The UAE applies the GCC common external tariff (CET) with most of the 7,231 tariff lines (8-digit level) subject to a 5% tariff and most of the remaining tariff lines duty free. Under the CET, each GCC member has the right to declare some products as prohibited and some as restricted (Section 3.1.6, Table 3.4, and Table 3.5) . Imports of about 0.4% of tariff lines are prohibited and about 0.8% are restricted, although the exact number varies based on circulars from various government agencies. Applied MFN tariffs on nearly all products are either duty free or 5%. There are 19 tariff lines for tobacco products with a tariff of 100% or a minimum weight-based specific duty (the statistics set out below assume that the 100% duty is applied to these 19 tariff lines) (Table 3.1, and Table 3.2) .

Chart 3.1 Frequency distribution of MFN tariff rates, 2015

a  The total number of ad valorem lines is 7,214, 18 non-ad valorem lines, and 89 prohibited lines.

b  The result of sub-line averages of 5% and 0% (ITA Agreement) .

c  Includes 2 lines with an ad valorem rate of 100%, and 18 lines where 100% is the ad valorem component of the mixed duty.

Source:  WTO Secretariat calculations, based on data provided by the UAE authorities.

3.21.    The overall average tariff in 2015 was 4.7%, slightly lower than the average of 4.9% in 2011, due to the increase in the number of duty-free tariff lines rather than any changes in MFN applied duties. There are no tariff quotas and few tariff peaks.

Table 3.1 Tariff structure in the UAE, 2011-15

a  Domestic tariff peaks are defined as those exceeding three times the overall average applied rate.

b  International tariff peaks are defined as those exceeding 15%.

c  Nuisance rates are greater than 0% but inferior or equal to 2%.

Source:  WTO Secretariat calculations, based on data provided by the UAE authorities.

3.22.    The average agricultural tariff, at 5.5%, is slightly higher than the overall average of 4.7%, due to the concentration of tariff peaks on beverages, spirits, and tobacco. Apart from this category of products, there is little variation in tariffs from one product group to another with standard deviations for other product groups ranging from 0 to 2.5 (Table 3.2) .

Table 3.2 Summary analysis of 2015 applied and bound MFN tariffs

a  Bound rates are provided in HS2007 classification and applied rates in HS2012; therefore there is a difference between the number of lines included in the calculation.

Source:  WTO Secretariat calculations, based on data provided by the UAE authorities.

3.23.    In all cases, the applied MFN tariff is less than the bound tariff. However, the 19 tariff lines subject to an applied tariff of 100% or a minimum specific duty are bound at 200% and the application of the specific duty could lead to an ad valorem equivalent greater than the bound rate (Table 3.3) .

Table 3.3 Tariff lines with mixed MFN tariff, 2015

Source:  WTO Secretariat calculations, based on data provided by the UAE authorities.

3.1.4.2    Bound tariffs

3.24.    The UAE has bound all tariff lines in the WTO. Bound rates are all ad valorem, range from zero to 200%, and have a simple average of 14.3% (Table 3.2) . Most tariff lines (74% of lines) are bound at 15%. The highest bound rates of 200% apply to swine meat, alcoholic beverages, and tobacco products.

3.1.4.3    Preferential tariffs

3.25.    The United Arab Emirates is a member of the Gulf Cooperation Council (GCC) along with the Kingdom of Bahrain, the State of Kuwait, Oman, Qatar, and the Kingdom of Saudi Arabia. All goods meeting GCC rules of origin may enter the UAE duty free. Each member can issue its own list of prohibited and restricted goods. Goods produced in free trade zones within the GCC are taxed at the applied MFN tariff. Goods entering one GCC member State are allowed to be transported to any other member State without further inspection or duty payments. Prohibited goods may not enter or transit a GCC member State in which they are prohibited.

3.26.    The UAE is a member of the Pan-Arab Free Trade Area (PAFTA) (see Section 2.3.2.2) . Under the PAFTA Agreement all customs duties on goods originating from members were eliminated on 1 January 2005.

3.27.    With regard to imports from Singapore, 6,750 lines have been duty free since 1 April 2015. For imports from EFTA States, 6,535 lines have been duty free since 1 July 2015.

3.1.5    Other charges affecting imports

3.28.    Apart from customs duties and charges related to legalization of documents, no other duties or charges are applied to imports.

3.1.6    Import prohibitions, restrictions, and licensing

3.29.    Under the GCC Common Customs Law, each GCC State may determine a list of prohibited and/or restricted products. Imports that are prohibited in one or more GCC member State and permitted in another may not transit through the States in which they are prohibited.

3.30.    The main domestic legislation on import prohibitions is Law No. 13 of 2007 regarding Commodities that are Subject to Import and Export Control Procedures, as amended. Under this law imports may be prohibited on grounds of public safety, public health, environment, natural resources, and national security or for reasons related to the UAE foreign policy. Under Law No. 15 of 1972, imports of all goods from Israel or bearing Israeli marks or logos are prohibited. Cabinet Decree No. 299/3 of 2009 established the Committee for Goods and Material Subject to Import and Export Control. The list of strategic goods and materials subject to import control is based on several international arrangements, including the Wassenaar Arrangement on Export Control for Conventional Arms and Dual-Use Goods and Technologies, the International Atomic Energy Agency, the Biological and Toxin Weapons Convention, the Missile Technology Control Regime, and the Organisation for the Prohibition of Chemical Weapons. The Executive Office of the Committee is responsible for issuing import permits for goods on the list of strategic commodities while the importers must be licensed by the relevant government agency to practice an activity relating to the import of such materials.

3.31.    The UAE is a signatory to the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), the Basel Convention on Hazardous Wastes, the Rotterdam Convention on Trade in Hazardous Chemicals, the Montreal Protocol on Substances that Deplete the Ozone Layer, and the Kimberley Process Certification Scheme. Goods prohibited from entering the UAE are listed in Table 3.4.

Table 3.4 Prohibited goods

Source:  Information provided by the UAE authorities.

3.32.    Import restrictions are applied to some goods for safety, health, public morals, or security reasons (Table 3.5) . Imports of restricted goods are permitted, subject to additional import requirements, such as veterinary or plant health certificates, or subject to limits such as those applying to alcohol and cigarettes.