It has been announced by Saudi government a drastic change on imports within other GCC countries to exclude goods manufactured in the Freezone areas or using Israeli raw materials from preferential tariffs in order to increase competition and challenge the UAE as a global business hub.

Saudi Arabia’s strategy

Saudi Arabia’s strategy is in direct conflict with UAE, which are both competing to attract foreign capital and businesses in an attempt to gradually diversify their economy from oil.

The recent development in the relationship between Israel and Turkey has further increased the divergence of views among GCC countries. Saudi Arabia has accused Ankara of supporting terrorism and does not see well the new economic agreements made by UAE and Israel such as the tax treaty signed last May,

OPEC

In addition there is still as stand-by situation over the OPEC deal to raise the oil output. As demand is increasing at a faster pace than supply, the UAE would like to raise the total oil output to a bigger quota claiming that they are using only a third of their potential output capacity, which is proportionately more than the other OPEC members, resulting in an unfair disadvantage.

Although UAE is the second biggest trading partner for Saudi Arabia the decision seems confirmed and it will ban every goods manufactured in UAE freezones and also goods that are produced or manufactured using Israeli inputs.

Despite the fact the new import terms will cause disruption, it may bring additional benefits as a result of competition, by using the resources more efficiently and effectively achieving a new investment framework that will improve the growth forecast in the long run.