UNITED ARAB EMIRATES 1. General Policy Framework The economy of the United Arab Emirates (UAE) is based on oil. When oil revenues increase, the economy grows, as does demand for imports. When oil revenues fall, the economy slows, and imports decline. Oil, however, is by no means the only important sector of the economy, since the government, manufacturing, services, and construction sectors also contribute substantially to gross domestic product (GDP). In spite of significant achievements in diversifying the economy in recent years, the economy remains oil-driven. Nevertheless, the UAE's substantial holdings of foreign exchange reserves accumulated from surplus oil revenues in past years can temper the effects of fluctuating oil earnings. Aside from the vast oil and financial reserves, the UAE's economy is characterized by the absence of government interference. The UAE is a model laissez-faire economic environment, with maximum freedom and openness and a minimum of governmental regulation or control of business, trade, investment, and finance. This is true at both the emirate as well as the federal level. The UAE has had budget deficits in recent years, primarily due to shortfalls in the contributions made by the emirates to the federal government, which is almost totally dependent on them for funding. Part of the problem has been the discrepancy between revenues of the oil-rich emirates (Abu Dhabi and Dubai) and the less well-off northern emirates. The reasons for the deficit are more political rather than economic, and because of the substantial wealth of the UAE, the deficit has little practical significance. The federal deficit is financed through borrowing from the emirate of Abu Dhabi. Taxes are practically unknown in the UAE, since of contributions from oil revenues, and (to a lesser extent), service fees fund government expenditures. The UAE has no income, sales, property, or value-added taxes; it therefore does not use fiscal policy to regulate the economy. Customs duties are nonexistent or extremely low on all items except for alcohol and tobacco. Special incentives are offered for foreign investors, especially in the free trade zones. Many of these incentives are also offered to local investors. The money supply is controlled very loosely by the Central Bank because of the free, unimpeded flow of foreign exchange into and out of the country. The Central Bank theoretically has authority to adjust reserve requirements but it has seldom used this tool. Thus, the UAE economy, including the financial sector, is influenced to a large extent by external forces beyond its control. However, in August the Central Bank was able to take decisive action to stabilize the financial markets badly shaken at the outset of the Gulf Crisis. The Central Bank supported the banking system by pumping in extra liquidity and assuring that adequate foreign currency was available to meet the increased demand. UNITED ARAB EMIRATES 2. Exchange Rate Policies The official exchange rate is pegged at 3.671 dirhams per dollar. The UAE does not have foreign exchange controls. The fact that the dirham is pegged to the dollar has made U.S. exports more competitive vis-à-vis exports from many other countries as the value of the dollar has declined. 3. Structural Policies Purchasing decisions in the private sector are made primarily on the basis of price and quality, although personal contact and influence with the customer is also an important factor. Government purchases are made through competitive tenders. The government is opposed in principle to controls and subsidies that affect prices Two notable exceptions exist, however, in the production of electricity and (since the Gulf Crisis) of refined petroleum products, which are currently being subsidized. Neither of these subsidies has a notable effect on U.S. exports. The UAE remains essentially a tax-free country, with no basic changes in this policy during the last two years, although government fee collections have increased. Government regulatory policies do not adversely affect the market for U.S. exports. The government has no production standards or input price controls that would influence the direction or character of investment. 4. Debt Management Policies Because of the substantial revenues generated from the UAE's vast oil wealth, the federal government and wealthy emirates have been able to finance rapid growth internally and to maintain a high standard of living without the necessity of borrowing funds from abroad. In fact, the UAE has been a generous creditor and benefactor to developing countries. While its portfolio inevitably contains a number of nonperforming loans, overall, funds have been disbursed based on sound financial criteria and project management principles. Some of the less well-off emirates have borrowed funds from abroad. 5. Significant Barriers to U.S. Exports Import licenses are required for certain products. Their purpose is to assure that only companies qualified to trade in these items are engaged in such transactions. U.S. exporters are not disadvantaged by these requirements. The Central Bank must approve all bank applications to establish operations in the UAE. Currently the government of the UAE believes that the country has too many banks, and the Central Bank has adopted a policy of not accepting applications from new foreign banks that wish to operate in the UAE. Foreign insurance companies and foreign law firms are permitted to operate in the UAE, subject to approval by the appropriate authorities. UNITED ARAB EMIRATES Although the UAE sets regulations on standards, testing, labelling, and certification, these are not particularly onerous and generally do not constitute significant barriers to trade. The British Civil Aviation Authority standards adopted by the UAE, however, are widely considered as biased against American aircraft manufacturers. Except for companies in the free trade zones, mainly in Jebel Ali, there are limits to foreign equity participation, with the UAE joint venture partner holding at least a 51 percent share in a project. There are no formal governmental restrictions on foreign personnel. However, the UAE strongly encourages filling senior positions with qualified UAE nationals whenever possible. The government must grant approval for all foreign investments, but this is not normally an obstacle. Land ownership in the UAE is reserved for nationals, although in some cases, citizens of other Gulf Cooperation Council (GCC) countries may also own land. Countertrade is of little interest to the UAE. Similarly, buy national laws do not really apply to the UAE since out of necessity the UAE must depend heavily on imports. Nevertheless, there is a slight bias in favor of products or services provided by UAE companies when available. The UAE participates in the Arab League economic boycott of Israel, which prohibits direct trade with Israel, as well as transactions with third country firms found to have certain economic relationships with Israel. There are boycott related conditions that appear in tender documents, agency agreements, and letters of credit. In many instances exporters are able to transact business despite the conflict of the Arab boycott requirements and U.S. anti-boycott legislation. In general, normal trade dealings are unaffected by the boycott and many U.S. companies sell successfully to both Israel and the UAE. The government does not have a policy to subsidize exports and, in principle, it opposes all subsidies. However, electricity and, recently, refined petroleum products in the northern emirates are exceptions. The electricity subsidies are not earmarked for exporters but are given across the board. Subsidies are also provided to farmers and fishermen to promote local agriculture. 7. Protection of U.S. Intellectual Property The UAE is a member of the World Intellectual Property Organization, but not a signatory to any of its treaties protecting intellectual property. Intellectual property protection is a relatively new area of concern for the UAE. There is growing awareness among top officials of the problem and the need to do something about it, but effective legislation is still in a formative stage. Draft federal laws on patents and copyrights are being prepared and are under study. A decree was recently issued banning sale of pirated video tapes of television shows. Trademarks are provided some degree of protection by the UNITED ARAB EMIRATES Federal Agencies Law and regulations in some emirates. However, pirated video tapes, computer software, and books, as well as counterfeit products, are still widespread in the UAE. Infringement of new technologies is a problem primarily in the area of satellite signal piracy and cable television. The UAE has indicated its willingness to cooperate with other countries on intellectual property issues, both through the GCC and bilaterally. There is no explicit right of association for UAE workers; labor unions do not exist. The minimum age of employment of children is fifteen years of age. Special labor laws govern employment of children 15 to 18 years old. e. Acceptable Conditions of Work There is no minimum wage, and salaries are determined by market forces. Severance pay, one month annual leave, and a paid trip home annually are common work contract provisions. E. Rights in Sectors with U.S. Investment Worker rights in sectors where U.S. investment exists follow prevailing practices under UAE labor law. High level white collar employees are an exception; they enjoy salary and other benefits equivalent or superior to what they could expect in the U.S. (D)-Suppressed to avoid disclosing data of individual companies Source: U.S. Department of Commerce (unpublished) Bureau of Economic Analysis, August 1990 * Section 8 is an abridged version of Section 6 of the United Arab Emirates country report included in the Department of State's Country Reports on Human Rights Practices for 1990, submitted to the Congress January 31, 1991. For a comprehensive discussion of worker rights, please refer to that report. 39-308 (696) O |