Trade may become the latest flashpoint of economic and strategic competition between Riyadh and Abu Dhabi, and may intensify tensions in the six-nation Gulf Cooperation Council after Saudi Arabia imposes new tariffs on imports from its neighbors.

The taxation effective this month ranges from 3% to 15% and applies to all products produced by companies located in neighboring Gulf countries and whose labor does not include 10% to 25% of the country’s nationals. Riyadh said the move is aimed at preventing its industry from being weakened by cheap foreign labor.

However, it has been rude to the GCC Customs Union. According to the Customs Union, most products from non-GCC countries are subject to 5% tariffs, while GCC member countries-Saudi Arabia, Kuwait, United Arab Emirates, Qatar, The trade between Bahrain and Oman is mainly duty-free.

As logistics operators struggled to deal with new paperwork, including forms requiring Saudi importers to provide proof of their location and workforce, the truck route along the Saudi-UAE border was supported.

These ones [conditions] Impossible to comply-no manufacturer has such a level of local manpower

“It left us stunned; these requirements are impossible,” said an executive at a family business in Dubai. “This is the end of the Gulf Cooperation Council-what’s the point?”

Tariffs constitute the latest frontier of competition between Saudi Arabia and the UAE. For many years, Riyadh and Abu Dhabi have shared the same regional goals, to cooperate to contain Islamism, to intervene in the Yemen conflict in 2015, and to initiate an embargo on Qatar in 2017 after claiming that Qatar supports Islamic extremism.

However, since 2019, the UAE has withdrawn its armed forces from Yemen and Abu Dhabi has OPEC meeting This month agreed to the increase in oil production sought by Riyadh and Moscow and accepted by other cartel members.

With Saudi Arabia’s ambitious plan led by Crown Prince Mohammed bin Salman, economic competition has intensified. The country has taken measures to boost the economy and diversify its oil, making its manufacturing industry more compatible with neighbors. Country competition.

A spokesperson for the Ministry of Finance told the Financial Times that the Kingdom’s new tariff system is “purely codified” currently used to encourage more “local content”.

“This applies to Saudi products, and we hope that other GCC products will be certified on the same basis to obtain GCC product status and exemptions,” the spokesperson said.

“The UAE cannot benefit from such a single market,” said Mohammed al-Suwayed, CEO of Razeen Capital, an investment consulting firm based in Riyadh. “No more profit at the expense of other members.”

In the UAE, only about 10% of the population of 9-10 million are nationals, and the company says they are facing a huge blow. The Dubai-based executive said that in his manufacturing operations, less than 1% of employees are Emirati. “These ones [conditions] Impossible to comply: no manufacturer has such a level of local manpower,” he said.

He said that in the past year, the Saudi market accounted for about 40% of the sales of his group’s manufacturing division. Already competing with Saudi manufacturers benefiting from lower freight rates, the division’s operating profit margin is less than 10%. “That’s just not counting-we will need to move to other markets,” the executive said.

He added that imposing a 15% tariff on the metal business his company supplies to the construction industry may give international competitors in countries such as China and India a competitive advantage over regional producers.

“This customs issue is a disaster,” said a consultant for a food manufacturer, who relies on the kingdom for 75% of its business. “This caused confusion and panic.”

Like Saudi Arabia, the UAE has also turned to manufacturing to help diversify its economy. This kingdom with a population of 35 million is its largest export market, with trade volume of approximately US$20 billion in the first three quarters of 2020.

In Dubai, the most economically diversified emirate, foreign investors in approximately 30 free zones are attractive to entering large neighbouring markets such as Saudi Arabia.

The Jebel Ali Free Zone is a huge manufacturing and re-export center, accounting for about a quarter of Dubai’s economy. In 2019, it processed trade worth 95 billion U.S. dollars, which is equivalent to the entire GCC internal trade.

Economists say that cooperation under the auspices of the Gulf Cooperation Council, rather than competition among members, will be a better way to a prosperous and diversified regional economy.

Dubai economist Nasser Saidi said: “This is an opportunity to rewrite the rules, formulate a new customs union agreement and look to the future.”

He said that reaching a comprehensive agreement that includes services and goods will make the Gulf Arab countries a global group that can negotiate more effectively with other power centers.

“It is in everyone’s interest to move to an appropriate common market without considering politics,” he said. “It took several years for the EU to make the right decision, and there was controversy in the process-so it may take some time.”