Saudi Arabia’s Free Zone Tariff Exclusions Signal Widening Rift

Abeer Abu Omar, Salma El Wardany and Reema Alothman
·3 min read

(Bloomberg) -- Saudi Arabia said it would exclude imports from free zones or linked to Israel from a preferential tariff agreement with neighboring Gulf Arab countries, signaling growing strains in relations with the United Arab Emirates which has normalized relations with the Jewish State.

According to a ministerial decree published Saturday in the Saudi official gazette Umm al-Qura, products coming out of free zones across the six-member Gulf Cooperation Council will be handled as if they were foreign imports. The decree also stipulates that goods using inputs from Israel, or from firms partially or fully owned by Israeli companies, would not benefit from reduced duties aimed at facilitating intra-regional trade.

Free zones, where firms operate under a different set of regulations to the rest of the country, are operational in various parts of the Gulf but are a pillar of the economy in the UAE, where Dubai has established itself as an international trade hub. Saudi Arabia has been increasing pressure on international firms to shift their Middle East headquarters to the kingdom, posing a direct challenge to Dubai as regional rivalry heats up.

“Saudi Arabia and the UAE had open disagreements on a number of issues in recent days,” said Ziad Daoud, Chief Emerging Markets Economist at Bloomberg Economics. “On oil policy, their rift within OPEC+ was unusually public. On public health, Saudi Arabia has restricted its citizens’ travel to the UAE on virus concerns. Finally, the decision to exempt goods made in free zones and the reference to Israeli input shows escalating regional competition.”

The UAE normalized relations with Israel last year and the two countries have since signed a string of agreements to grow business ties and introduced direct flights that have carried tens of thousands of Israeli tourists to Dubai. Bahrain has also normalized ties with Israel.

A disagreement over oil production within the OPEC+ alliance of crude exporters last week exposed growing differences between the two Gulf Arab allies. Saudi Arabia moved to ban its citizens from the UAE, citing pandemic concerns, and the import policy is a further sign of diplomatic strain.

Read: OPEC+ Shows No Sign of Healing Rift Just Before Talks Resume

“Saudi Arabia will exclude from the GCC tariff agreement goods made by companies with a workforce made up of less than 25% of local people and industrial products with less than 40% of added value after their transformation process,” the decree said. Saudi Finance Minister Mohammed Al-Jadaan said in a tweet that the move was meant to support Gulf manufacturing and encourage local inputs.

The change comes as Saudi Arabia plans its own network of free zones with the goal of diversifying its economy and attracting foreign investment, a strategy that the UAE and Oman have relied on for years. Saudi officials are working on the framework for special economic zones across the kingdom that will provide incentives and smoother bureaucracy to attract businesses.

However, Saudi Arabia has had mixed results with special zones in the past, with projects like King Abdullah Economic City on the kingdom’s Red Sea coast struggling to get off the ground.

(Adds chart, more context.)

More stories like this are available on bloomberg.com

Subscribe now to stay ahead with the most trusted business news source.

©2021 Bloomberg L.P.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting

Recommended Stories

  • Norwegian pension fund sells off groups linked to Israeli settlements

    Norway's largest pension fund announced Monday it had divested assets in 16 companies for their links to Israeli settlements in the West Bank, including telecom equipment giant Motorola.

  • PL Season Preview: The New Signings So Far

    Chuck takes a look at setting expectations for the completed Premier League transfers so far. Sancho may be the star but who else stands out? (Getty Images)

  • Letter from Africa: Lamenting the Algeria-Morocco border closure

    The Morocco-Algeria border has been closed for decades, despite close ties between the people.

  • Tehran Says It’s Ready to Pump More Oil Rapidly: Iran Snapshot

    (Bloomberg) -- Here is a snapshot of what’s happening with Iran, the status of nuclear talks and energy markets.Latest developmentsIran reiterated on Sunday that it can boost oil production rapidly if U.S. sanctions are lifted.Outgoing Oil Minister Bijan Namdar Zanganeh said the country had taken “many measures” to ensure it can pump more crude in “a very short time.”World powers have worked for months to broker an agreement between Iran and the U.S. that would restore Washington’s membership of

  • 20 years after 9/11, lawsuit against Saudis hits key moment

    As the 20th anniversary of the Sept. 11 terrorist attacks approaches, victims' relatives are pressing the courts to answer what they see as lingering questions about the Saudi government's role in the attacks. A lawsuit that accuses Saudi Arabia of being complicit took a major step forward this year with the questioning under oath of former Saudi officials, but those depositions remain under seal and the U.S. has withheld a trove of other documents as too sensitive for disclosure. The information vacuum has exasperated families who for years have tried to make the case that the Saudi government facilitated the attacks.

  • USD/INR: Rupee Snaps Four-Day Losing Streak, Gains 24 Paise In Early Trade

    The Indian rupee snapped its four-day losing streak in the early trade on Monday, appreciating by about 24 paise against the U.S. dollar as the greenback took a breather after last week’s U.S. jobs data soothed jitters about the timing of policy normalisation.

  • Five classic Italy v Spain clashes ahead of Euro 2020 semi-final

    Italy and Spain will face off at a fourth consecutive European Championship when they meet in Tuesday's semi-final at Wembley.

  • Suspense as South African police await new orders on Zuma's arrest

    South Africa's police minister on Monday was awaiting court instructions on whether to arrest ex-president Jacob Zuma, who has been given a 15-month jail term for contempt of court

  • China and the U.S. Are Talking Tough. Don’t Believe (Most of) It.

    Frederic J. Brown/AFP via GettyLast week the Chinese Communist Party threw a party for itself. It celebrated 100 years since its founding. It characterized itself as the “savior” of China, the authors of the country’s current greatness. And yet, for all the over-the-top nationalism, you might well conclude much of the hoopla was for the benefit of a foreign audience, an American audience in particular.For all the fluttering red flags and carefully orchestrated salutes to the country from Chinese

  • Lithuania declares state of emergency due to migration surge from Belarus

    Lithuania has declared a state of emergency due to an influx of migrants over the last few days from Belarus, AP reports.The big picture: Lithuania’s Interior Minister Agle Bilotaite said Friday that the decision is not because of an increased threat to the country, but to implement a more robust system to handle migrants who are entering. Get market news worthy of your time with Axios Markets. Subscribe for free.“It’s very important to have a legal system and instruments ... to be able to swift

  • Saudi Arabia pushes back on UAE opposition to OPEC+ deal

    DUBAI (Reuters) -Saudi Arabia's energy minister pushed back on Sunday against opposition by fellow Gulf producer the United Arab Emirates to a proposed OPEC+ deal and called for "compromise and rationality" to secure agreement when the group reconvenes on Monday. It was a rare public spat between allies whose national interests have increasingly diverged, spilling over into OPEC+ policy setting at a time consumers want more crude to aid a global recovery from the COVID-19 pandemic. OPEC+, which groups the Organization of the Petroleum Exporting Countries and its allies, voted on Friday to raise output by some 2 million barrels per day from August to December 2021 and to extend remaining cuts to the end of 2022, but UAE objections prevented agreement, sources had said.

  • Press watchdog puts Hungarian PM Orban on 'predators' list

    Press watchdog Reporters Without Borders has put Hungarian Prime Minister Viktor Orban on its list of “predators,” the first time a Western European leader has been placed in the line-up of heads of state or government who “crack down massively” on press freedom. Two women, the prime minister of Bangladesh and the Hong Kong’s administrative chief, also were added to the list, as well as Saudi Arabia’s Crown Prince Mohammed bin Salman. This was the first time in five years that the watchdog, known by its French initials RSF, has published its press freedom predator's list.

  • What drivers said after Road America

    Here's what drivers said after Sunday's 250-miler for the NASCAR Cup Series at Road America.

  • Delta variant: Which Asian countries are seeing rising cases?

    Some Asian countries are now seeing rising coronavirus infections - is that down to the Delta variant?

  • EURO 2020 semifinals: How to watch England – Denmark, Italy – Spain; schedule, predictions, odds

    EURO 2020 will be one heck of a show this summer, as games are being played in cities across Europe to celebrate the 60th anniversary.

  • Australia's labour market stays strong in face of COVID lockdowns

    SYDNEY (Reuters) -Australian job advertisements extended their record-breaking run in June as demand for labour remained strong despite a round of coronavirus lockdowns across the country, a sign any drag on the economy will likely be fleeting. The survey came hot on the heels of government data on vacancies out last week which showed a huge 23% increase in the three months to May.

  • OPEC+ abandons oil policy meeting after Saudi-UAE clash

    DUBAI (Reuters) -OPEC+ ministers called off oil output talks on Monday after clashing last week when the United Arab Emirates balked at a proposed eight-month extension to output curbs. Saudi energy minister Prince Abdulaziz bin Salman on Sunday called for "compromise and rationality" to secure a deal after two days of failed discussions last week. But on Monday, OPEC+ sources said there had been no progress in resolving the matter and Monday's meeting was called off.

  • Malaysia pledges to tackle forced labor after US downgrade

    Malaysia's government pledged Monday to take steps to eliminate forced labor after the country was downgraded by the U.S. to the worst level in an annual report on human trafficking. Human Resources Minister M. Saravanan said the government is taking the downgrade seriously and has ramped up efforts to battle human trafficking, including increased prosecution for companies involved in forced labor. The U.S. State Department’s annual “Trafficking in Persons” report, released July 2, cited the coronavirus pandemic as contributing to a surge in human slavery between 2020 and 2021.

  • Des Moines faces extreme measures to find clean water

    In the dim light just after dawn, Bill Blubaugh parks his Des Moines Water Works pickup truck, grabs a dipper and a couple plastic bottles and walks down a boat ramp to the Raccoon River, where he scoops up samples from a waterway that cuts through some of the nation’s most intensely farmed land. Each day the utility analyzes what’s in those samples and others from the nearby Des Moines River as it works to deliver drinking water to more than 500,000 people in Iowa’s capital city and its suburbs. Water Works for years has tried to force or cajole farmers upstream to reduce the runoff of fertilizer that leaves the rivers with sky-high nitrate levels but lawsuits and legislative lobbying have failed.

  • UAE rebuffs OPEC+ plan to extend oil-production cuts

    The United Arab Emirates on Sunday pushed back against a plan by the OPEC oil cartel and allied producing countries to extend the global pact to cut oil production beyond April 2022, a rare statement revealing the country’s frustration with the group.