On March 12, 2008, United Arab Emirates (UAE) vice president and prime minister and also ruler of Dubai, Sheikh Mohammed bin Rashid Al Maktoum, decided to temporarily suspend the UAE import duty on reinforcement steel bars with immediate effect. The decision came following numerous complaints from the country's construction sector and as an attempt to bring the rising domestic steel prices under control. Although, constructors and property owners will be able to import unlimited amounts of steel rebar following the new measure's implementation, many in the market believe that the decision to cancel the import duty on rebar will be of little help in the UAE attempt to combat rising steel prices.
The UAE is the largest consumer of steel in the Middle East, while Dubai is considered to be the largest single steel consuming city in the world. Due to its booming construction sector, the UAE consumes around five million metric tons of steel rebar annually, four million of which it imports - thus leaving it heavily dependent on imports of steel. Looking at the domestic market share, it can be said that domestic rebar production holds only a 25 percent share of the market, while 50 percent of all rebar consumed in the UAE is imported from Turkey, 20 percent from Qatar and Saudi Arabia, and the balance from China and Ukraine.
Taking the above numbers into consideration, one might think that the cancellation of the five percent duty will do some good for the stabilization of domestic rebar prices since about 60 percent of all rebar consumed in the UAE* have had to face customs charges. Yet, the reality is quite different. Since the UAE depends heavily on steel imports, major changes in steel prices in the local UAE market are directly dependent on changes in the international market. For instance, in line with the rise in the international market, prices for imported rebar increased in the local UAE market from AED 2,590-2,600/mt ($705-708/mt) quoted late December 2007 to AED 3,700-3,750/mt ($1,007-1,022/mt) registered in the second week of March 2008. In this case, the government's attempt to halt the increasing prices for construction supplies will only be successful after a slowdown is seen in the international rebar prices. This is not expected in the near future because of the soaring cost of raw materials worldwide.
In addition, even if the suspension of the five percent import duty on rebar helps the domestic market to reduce the price of imported rebar, domestic production rebar as well as rebar supplied from Qatar and Saudi Arabia will still continue to rise under the pressure of increasing international billet prices.
Although the UAE has registered success in the commencement of its own steel production, most of the mills located in the country are rolling mills, meaning that they are dependent on billets imports and therefore on changes in the international billet market. As prices rise in the international billet market, so also will the production costs of the UAE domestic producers and, thereby, the price of domestic origin rebar. As a consequence, prices for imported materials in the UAE domestic market will rise under the pressure of rising local prices.
Furthermore, even when the cancelled duty was in place, most rebar imports to the UAE were de facto exempted from it. This is because, in an attempt to help the local construction industry to meet domestic demand for steel products, the UAE allowed cut-and-bend factories to import rebar duty free for further reprocessing. Since most rebar imported into the UAE from third states are imported via cut-and-bend factories, most rebar were thus already entering the country duty free. Therefore, the exemption of rebar imports from the five percent import duty will change little as regards the situation of rising local prices.
As evident from the above, the exemption of steel rebar from the five percent import duty in the UAE will help little in the authorities' attempt to bring domestic steel prices under control and thereby to support the construction sector in coping with the increasing costs of construction materials. Rather, the cancellation of the five percent duty should be considered simply as the natural abolishment of an ineffective tariff. Meanwhile, the main proof of this claim is the continuation of the price rise trend for rebar imported into the UAE after the cancellation of the duty in question.
*- As the UAE has a customs union agreement with the GCC states, imports from Qatar and Saudi Arabia have not been subject to import duty.