UNITED ARAB EMIRATES

Agreements and legal base. An Agreement on Trade, Economic and Technical Cooperation was signed between the Soviet Union and United Arab Emirates on 2 January 1990, which sets forth that trade shall be conducted on the basis of individual contracts, and payments shall be made in hard currency. This agreement is still in effect today, but it does not envisage most favoured nation treatment. Pursuant to the agreement, a joint intergovernmental commission on trade, economic and technical cooperation was formed, the first meeting of which was held in March 1997.

During the negotiations between delegations of Russia and the Emirates, within the framework of an official visit by Viktor Chernomyrdin to the Emirates in November 1994, the Emirates refused to sign addenda to this agreement proposed by the Russian side on revising the agreement to read "the Russian Federation" instead of "the Soviet Union" and introducing most favoured nation treatment. During the first meeting of the joint commission, this position was confirmed.

Since customs duties in the UAE are purely symbolic, and Russia offers a 50% discount on import duties for goods manufactured in developing countries, the absence of most favoured nation treatment between the two countries is actually less important than the non-tariff restrictions in the economic and trade sphere which apply to the Emirates.

There is an agreement in effect on air traffic. Russia submitted a draft agreement on mutual encouragement and protection of investments. In 1997, the first stage of negotiations on a double taxation agreement was held.

Trade in million dollars:

1995 1996 1997 1998

Trade turnover 215 295 312 390

Exports 150 110 162 250

Imports 65 185 160 140

A sizable part of the trade turnover is not accounted for by customs statistics: imports by private persons between 1994 and 1997 exceeded 1 billion dollars annually; a significant percentage of export is also not accounted for since deliveries are made through third countries. Special deliveries are included in the export figure, and imports also include the expenses on fuelling the airplanes of Russian airline companies which use the airports in Dubai, Abu Dhabi, Al Ain, Sharja, Fujaira, and Ras Al Haima. Imports, including those not registered by the customs, consist of cars, consumer electronics, clothing and foodstuffs.

The sharp increase in exports in 1998 is explained by the increase in deliveries of gold, paper, and cellulose from Russia. The Dubai Emirate is the world’s largest importer of compound gold. 1997 was a record year for the import of gold, approximately 660 tons of which, 80% of which was re-exported to India. Large-scale Russian gold export to the UAE began in 1998 when the import of gold to Dubai dropped to 380 tons, 23 tons of which came from Russia. The export of newspaper from the Kondopoga Combine to the Emirates continued.

Export in millions of dollars: machinery and equipment (140); precious metals (93); lumber and paper (5); ferrous and non-ferrous metals (1); chemical products and plastics (1). Ball bearings have become a new popular Russian export item to the Emirates, a significant percentage of which is then re-exported.

Import in millions of dollars: machinery and equipment (60); textiles and clothing (30); building materials (15); foodstuffs (10); footwear (10); metals (6); chemical products (6).

Activity of Russian companies and organisations. There is no cooperation between Russia and the UAE in the field of technical assistance and construction. One of the main obstacles to this cooperation is that there are no Russian contracting organisations registered in the Emirates. The Russian side sought to resolve this problem during the first session of the joint intergovernmental commission, by proposing that Russian organisations participate in tenders and that a joint general contracting company be founded in Abu Dhabi with state assistance from the Emirates and Russia to help finance the bids of Russian companies for the construction of power, petroleum, and metallurgical facilities.

At the end of 1998, a representative agency of Energomashexport was registered in Abu Dhabi for the purpose of participating in tenders. The representative of SBS-Argo Bank was recalled from Dubai at the close of 1998.

One of the main non-tariff restrictions is the application of articles of Emirates law provisions on commercial agents, pursuant to which, regardless of the wish of a foreign manufacturing company, the local distributor retains exclusive rights essentially without any time limit. For example, Russian lorry manufacturing plants do not recognise the agreement made by Avtoexport in 1987 on exclusive distribution with Zaher Group (Abu Dhabi), however, under local legislation deliveries to the UAE market through any other company may be blocked.

The number of off-shore companies with Russian shares registered in the Emirates has risen in the free economic zone of Jabel Ali, Ajman and Sharja airport. In the latter alone, there are approximately thirty. A large number are registered under the "flag" of Cyprus, Liberia, Hong Kong, and other countries. The role of such companies as the partners of Russian exporters is limited since they form a superfluous intermediary link between Russian exporters and local importers due to the special features of UAE legislation, which only permits national companies to carry out import into the country.

Some regions are essentially already forming their own foreign trade representative offices in the UAE in the form of private broker companies (Tatarstan, the Kurgan and Chelyabinsk regions, Kabardino-Balkaria).

Indebtedness. In 1988-91, the UAE granted the Soviet Union US million in loans (including the state of US million). The state debt is to be settled by part of the cost of Russian deliveries. The commercial bank debt is to be repaid under a general arrangement with the London Club of Creditors. Part of the commercial debt was resold in 1996-97 to third country banks.

Gulf Connection, April 1999. Meetings with the management of the Al Gureir Corporation were organised for the Rosargopromstroi delegation headed by its president, V.M. Vildmanov, which participated in the international investment conference-seminar, Gulf Connection '99. Potential cooperation in the building and updating of several house-building and wood-working combines in Ulyanovsk, Altai and Krasnodar were discussed. The UAE side was furnished feasibility studies of the above projects for US million (including US million in Russian and foreign funds already invested).

A joint working group was formed headed by deputy president of Argostroiprombank and deputy director of Mashrek Bank for European countries, Hisham Husein (the fourth largest bank in the UAE; it belongs to Al-Gureir, the corporation head).

Prospects for a joint venture to manufacture block structures and build houses, as well as organise deliveries of timber, metal and construction material to the UAE, were discussed with the directors of the Star Trading Corporation.

Visit by a delegation from the Rostov Region. In April 1999, a delegation headed by Governor V.F. Chub visited Dubai to participate in the Gulf Connection '99 conference-seminar on trade and investment cooperation of the countries of Eastern Europe, Russia and the CIS with the Persian Gulf states.

Within the framework of this seminar and during meetings with UAE business circles, the delegation proposed several investment projects for the Rostov Region (reconstruction of the Rostov airport, two iron and steel plants, a helicopter plant, Atommash, the construction of a cement plant in Uglegorsk, the Sherlovskaya-Naklonnaya coal mine, and a water supply and pipeline system for the city of Rostov). The set of proposed projects was included in the investment register of the International Bank Consortium, the organiser of this kind of conference-seminars. It was also submitted for review to the representatives of the banking and financial groups and trading houses of Saudi Arabia, Kuwait, the UAE, including the Saudi Arabian Foundation, the Arabian Investment Company, the Kuwait Investment Fund, the Dubai Investment Fund, and the Habtur, Gureir and Oveis corporations.

A protocol was signed on cooperation between the Chambers of Industry and Commerce in Dubai and the Rostov Region. The investment projects submitted to the Chamber were included in the bulletin of economic and trade information for distribution among members of the Chamber of Commerce, Dubai business circles, and the Emirates as a whole. The UAE side announced its intention to participate in the annual autumn fairs and regular meetings of travel agency representatives organised in Rostov at the regional level. The delegation completed its visit with a trip to the Jabel Ali free economic zone.

A key point in contacts with business circles were the negotiations with the Al Gureir Corporation. Joint working groups were formed on the basis of the Emirates Trading Agency; for metal trade (chairman on the UAE side was manager of the department of minerals and ores, V. Tandun), for grain (manager of the agricultural production department, M. Mahbub), for coal (manager of the coal department, A. Ibrahim), for cement and clinker (manager of the cement department, M. Husein), for timber, lumber and construction (director of the Associated Constructions & Investments Company, S. Ismail).

The company management promised to send a delegation to Rostov to draw up the entire set of projects proposed for potential cooperation on the spot. Mr. Gureir personally clearly expressed the possibility of a gradual shift to investment cooperation (on the basis of Rostov's proposed set of investment projects) as positive experience is accumulated in trade. He also discussed the idea he proposed in general terms of cooperation in the construction or reconstruction of port facilities in the Sea of Azov basin to handle export trade of the Rostov Region throughout the entire Persian Gulf.

During negotiations between the general director of Taganrog (pipe-rolling) plant and the Scan International Company, an agreement was reached on cooperation in providing tender certification and licensing for the plant's products in the Emirates. There are plans to set up a representative office for the plant in Dubai in order to introduce its products onto the Emirates and Gulf markets. The UAE side suggested the idea of using the technology and expertise gained at the Taganrog plant to build a pipe-rolling plant in Saudi Arabia, of which Scan International is a share-holder.

Specific features of business relations with the Al Gureir Group. This group of companies is one of the largest corporations in the UAE with a multi-billion capital turnover. Its specialists have experience working on the world markets. Its sphere of business encompasses commerce, finance, construction, transportation, oil and agency services. It has representative offices in 22 countries and experience of doing business with Ukraine, Belorussia, Kirgizia, Azerbaijan, Uzbekistan, and several Russian organisations. Its sphere of relations includes import into the Emirates of wood pulp, metals, construction materials, coal, and grain. In turn, the corporation exports consumer and office electronics and equipment, foodstuffs and other types of consumer goods to these countries.

This corporation is particularly valued for its ability to resolve transportation problems, and its willingness to "pick up" goods at sea ports on Russian territory in contrast to most other companies which insist that deliveries be made to sea ports in the Emirates. Another plus is the group's willingness to pay for products in hard currency (and not by barter, as many western partners of Russian plants are inclined to do) and make partial prepayment to the if there is a reliable level of cooperation and guarantee.

Let us start with agreements based on developed, full-scale commercial proposals from the Russian side on the following deliveries to the UAE: construction metal, transformer steel, steel pipelines, pig aluminum, clinker from 100,000 tons, lumber and coal, including anthracite. The corporation is willing to deliver bauxite to Russian aluminum plants with subsequent purchase of the ready metal; it is willing to participate in investments in restoring and re-equipping manufacturing plants with which it has a cooperation agreement.

The Russian diaspora. The United Arab Emirates are still an extremely attractive state for a significant number of Russian citizens. Tourism has been maintained, including shuttle traders, although not on the former scale. In several Russian cities, the prices for many products traditionally imported from the Emirates have been reduced to the Dubai level due to the appearance of large wholesale shuttle companies which import, like residents of Emirates do, directly from the manufacturing countries (South, South-East and West Asia, China, Taiwan, Singapore, etc.), but this is still only characteristic of the capital and several other large Russian cities. The Russian provinces are organising their own regional charter flights of various degrees of regularity to the Emirates, where prices and other conditions for shopping and shopping-vacation combinations (sea, sun, cheap high-quality services and food) still successfully compete with many domestic and most other foreign vacation spots for Russians.

Since many small and medium Russian joint ventures in the Emirates have been closed, a certain consolidation of the capital of Russian citizens is being observed. New companies are still being founded in the Emirates, both joint ventures and those in which Russians simply are involved as employees.

The special features of the socioeconomic situation, tax and legal climate in Russia are prompting an increasing number of Russian businessmen to seek an outlet for their experience and financial potential in Dubai, where the economic system advantageously differs from the Russian, in that there are essentially no taxes or duties, and it has a free currency regime and sufficiently liberal visa regulation. In addition to the very cheap workforce (including qualified) from neighbouring and other Asian states, cheap electricity, and the privileges of several free zones, the local business support system creates favourable conditions for business, including for Russians. According to estimates, a certain number of foreign off-shore companies are moving to the Emirates. This process will apparently be accelerated in light of a law expected in Russia on restricting the transfer of payments from the Russian Federation to off-shore zones. The number of Russian citizens employed on contract in the Emirates amounts to 25,000-30,000. To those who have residential visas in the UAE can be added those who are there as tourists, but who have been renewing their visas every month for several years under the smooth-going and very popular change-visa-flight scheme (were more than 10,000 Russians).