Although according to recent Saudi trade data, the UAE is the second largest trading partner after China in terms of import value, but Saudi Arabia has announced the latest rule changes.

Saudi Arabia has amended its rules for imports from other Gulf Cooperation Council (GCC) countries to exclude products produced in free zones or imported using Israel from preferential tariff concessions-this is for the United Arab Emirates (UAE) as the The challenge center for regional trade and commerce.

Despite being close allies, Saudi Arabia and neighboring UAE are still racing to attract investors and companies. Their national interests are also increasingly divided, such as relations with Israel and Turkey.

In addition, Saudi Arabia, the region’s largest importer, is striving to diversify its economy and reduce its dependence on oil, while providing more employment opportunities for its citizens. This is also covered by the rule changes announced over the weekend.

From then on, Saudi Arabia will exclude from the GCC tariff agreement products produced by companies with less than 25% of the local population and industrial products with added value less than 40% after the transformation process.

A ministerial decree issued in the official Saudi Gazette Umm al-Qura stated that all goods manufactured in the free zone of the region will not be considered as locally manufactured.

Free zones are the main driving force of the UAE economy. They are areas where foreign companies can operate under loose supervision, and foreign investors can own 100% of the company in these areas.

According to the decree, products containing components manufactured or produced in Israel or companies wholly or partly owned by Israeli investors or products produced by companies listed in the Arab boycott agreement in relation to Israel will be disqualified.

The UAE and Israel signed a tax treaty in May last year, and the two sides worked hard to stimulate business development after their relationship normalized last year. Bahrain, another member of the Gulf Cooperation Council, has also normalized relations with Israel.

“The idea used to be to create a Gulf Cooperation Council market, but now people realize that Saudi Arabia and the UAE have very different priorities,” said Amir Khan, a senior economist at the National Bank of Saudi Arabia.

He said: “This regulation is adding fuel to the bones of these political differences.”

In February of this year, the Saudi government stated that it would stop awarding national contracts to companies that have a Middle East hub in any other country in the region. This is another blow to Dubai, one of the emirates of the UAE. Dubai’s economy is built on its open business qualifications and promises to provide a dazzling lifestyle for wealthy expats.

Although according to recent Saudi trade data, the UAE is the second largest trading partner after China in terms of import value, but Saudi Arabia has announced the latest rule changes.

It is also a major re-export hub for exports of foreign products to Saudi Arabia, including Turkish goods, which have been informally boycotted by Riyadh.

The Ministry’s order stated that companies whose local labor accounts for 10% to 25% of the total labor force can compensate for the difference by increasing the industrial added value of their products, and vice versa. It added that in any case, the added value should not be less than 15% in order to benefit from the preferential tariff agreement.

Saudi Arabia and the UAE have also started a standoff over the OPEC Plus agreement in the past few days. The UAE opposes an agreement voted on Friday to increase production by about 2 million barrels per day from August to December 2021 and extend the remaining period of production cuts to the end of 2022.