Saudi Arabia has revised the tariffs that previously governed its imports from fellow Gulf Cooperation Council countries, aiming to deal a blow to the United Arab Emirates’ position as the Gulf’s primary trade and business hub.
According to Reuters, Saudi Arabia has amended its rules on imports from other GCC countries to exclude goods made in free zones or “using Israeli input” from preferential tax breaks.
The government announced the new policy in a decree published in the Saudi official gazette Umm al-Qura. According to the decree, any goods made in free zones — which are prolific in the UAE — and any goods that contain a component made by Israel, or made by a company fully or partially owned by Israelis, will be disqualified from previously beneficial tariff concessions for GCC countries. Those imports will now be treated as if they come from foreign countries.
“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 also said, according to Bloomberg.
The changes to the Saudi tariff rules are widely seen as aimed directly at challenging the domination of the UAE in the Gulf’s trade ties. The UAE and Israel normalized ties last year, and signed a tax treaty in May to encourage economic cooperation between the nations. The Finance Ministry said at the time that the treaty stipulates lower taxes to encourage investment.
“The idea once was to create a GCC market, but now there’s the realization that the priorities of Saudi Arabia and the UAE are very different,” Amir Khan, senior economist at Saudi National Bank, told Reuters. “This regulation is putting flesh on the bone of these political divergences.”
Saudi Arabia was largely believed to have given its tacit acceptance to the UAE’s normalization with Israel, and there was much speculation that it would eventually follow the UAE in normalizing ties. Following the Abraham Accords, Saudi Arabia allowed Israeli flights to use its airspace for the first time. In November, then-prime minister Benjamin Netanyahu reportedly traveled to Saudi Arabia and met Saudi Crown Prince Mohammad bin Salman.
But Saudi Arabia is also working to diversify its economy and reduce its dependence on oil as well as boost employment levels for its citizens.
In recent days, Saudi Arabia and the UAE, considered close allies, have also sparred over a plan by the OPEC oil cartel and allied producing countries to extend the global pact to cut oil production beyond April 2022. One of the group’s largest oil producers, the UAE is seeking to increase its output — setting up a contest with OPEC heavyweight Saudi Arabia, which has led a push to keep a tight lid on production.
The Associated Press contributed to this report.