Trade & Export ME | October 2012 by Trade Export

ISSUE 10 | OCTOBER 2012

A practical guide to going global

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Get to know what has been Emirates SkyCargo’s mantra for success

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It is said that an entity is the sum of its parts. The same holds true for international trade. Cross border trade and investment would be meaningless if the essential parts that make it possible would be missing- and that is why it was fascinating to hear the story of Emirates SkyCargo and KIZAD – our two main features, which highlight the foresight and attention to detail by the UAE government to promote trade and investment.

Managing Director Richard Judd richard@cpidubai.com +971 4 440 9126 EDITORIAL Senior Editor Aparna Shivpuri Arya aparna@cpidubai.com +971 4 440 9133 Contributing Editor Mike Byrne mikeb@cpidubai.com +971 4 440 9105 ADVERTISING Sales Manager Sami Sabbah sami@cpidubai.com +971 4 440 9152 PRODUCTION AND DESIGN Production Manager James P Tharian james@cpidubai.com +971 4 440 9146 Database and Circulation Manager Rajeesh M rajeesh@cpidubai.com +971 4 440 9147 Design Director Ruth Sheehy ruth@cpidubai.com Head of Design Fahed Sabbagh fahed@cpidubai.com +971 4 440 9107 Designer Froilan A. Cosgafa IV froilan@cpidubai.com +971 4 440 9107 Photographer Jay Colina jay@cpidubai.com +971 4 440 9108 DIGITAL SERVICES www.tradeandexportme.com Digital Services Manager Tristan Troy Maagma Web Developer Abey Mascreen online@cpidubai.com +971 4 440 9100

Emirates SkyCargo leads by example and is one of the most successful cargo services in region, and it was interesting to know that it thrives on competition! On the other hand KIZAD, which recently opened, is the gateway to Abu Dhabi, and offers both local and foreign businesses the opportunity to succeed. We cannot even begin to imagine how much this will boost trade for the capital of the UAE. And this is just the beginning! Moving on, we bring you a very interesting article on factoring and its relevance for the businesses in the GCC. And that is followed by introducing you to the dispute resolution mechanism of the World Trade Organisation (WTO) - the body governing global trade. Our focus country this month is Germany and we have all the details on how to set up business there, the competition and IPR laws, visa regulations and so forth. We hope that after reading this you’ll be tempted to explore some business opportunities in Germany. And last of all- I hope you’ll like our cover for this month. We had a lot of fun designing it and it gives a very retro look to the meaning of “cross border” - just like it was in the good old days. As always, we look forward to hearing from you... Till then,

Published by

Aparna Shivpuri Arya, Senior Editor, Trade and Export Middle East 1013 Centre Road, New Castle County, Wilmington, Delaware, USA

Branch Office PO Box 13700 Dubai, UAE Tel: +971 4 440 9100 Fax: +971 4 447 2409 Printed by Printwell Printing Press © Copyright 2012 CPI All rights reserved While the publishers have made every effort to ensure the accuracy of all information in this magazine, they will not be held responsible for any errors therein.

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OCTOBER 2012

16 10

trade talk

OCTOBER 2012

updates

ISSUE 10

OCTOBER 2012

GLOBAL WATCH: International news and trends with domestic trading relevance.

REGIONAL TALK: A snapshot of the developments and trends in the Middle East region.

LOGISTICS: Emirates SkyCargo is renowned for maintaining a high standard of quality in supporting trade logistics. Aparna Shivpuri Arya met up with Ram Menen, DSVP Cargo, Emirates, to know what has been their modus operandi.

LEGAL: With the FIFA World Cup just a decade away, there has been an influx of people moving to Qatar. And therefore, we think, it’s the right time for the workers and employers to understand the immigration laws. Emma Higham, Senior Associate, Clyde &Co, gives us an overview of the rules in place.

BUSINESS SET UP: Aparna Shivpuri Arya caught up with Tony Douglas, CEO, Abu Dhabi Ports Company (ADPC), to know about the exciting times that await Abu Dhabi’s trade scene.

TECHNOLOGY: Dr. Ashraf Mahate, Head, Export Market and Intelligence, Dubai Exports and Vice Chair, Economic Policy Committee, DED, explains to us how SMEs can create opportunities through innovation.

CONTENTS

trade talk

WTO: Diego Ures, CEO, Eco Bliss Consultancy, focuses on the two final stages of a trade dispute and discusses the potential challenges and suitable approaches in the context of the UAE.

EXPORT: According to the latest update of the IMFâ&#x20AC;&#x2122;s World Economic Outlook, global recovery is still slow and downside risks continue to exist. In this situation, Teemu Puutio, ARTNet CENSUS Initiative Coordinator, UNESCAP, explains why taking advantage of the Asia Pacific growth could be a feasible way to promote growth in the Middle East as well.

FINANCE: Dilip Hiremath, Head, Trade and Supply Chain, Mashreq, tries to examine the somewhat step-motherly treatment given to trade on open account terms.

RISK MANAGEMENT: For part two of our research into UAEâ&#x20AC;&#x2122;s commodities and trade finance sector, we caught up with Paul Boots, Director, DMCC Tradeflow, to know more about risk mitigation tools.

INTERVIEW: Aparna Shivpuri Arya caught up with Dr. Peter Goepfrich, CEO, The German Emirati Joint Council for Industry & Commerce, to get an overview about the bilateral relations between the UAE and Germany.

TRADE RELATIONS: UAE is one of the most important trade partners for Germany in the Middle East and the trade relations have been growing from strength to strength. We take a look at some of the numbers.

INVESTMENT OPPORTUNITIES: As part of the country focus, we bring you details on how to set up business in Germany and the rules and regulations you need to be aware of.

INDUSTRY COFFEE: We look at the export and re-export opportunities that the coffee industry offers the businesses in Dubai.

community

focus

COUNTRY

EVENTS CALENDAR: A snapshot of exhibitions and conferences around the world and the region, which can help you spend less time planning and more time attending.

OCTOBER 2012

Updates global watch

Russia to increase oil and gas export to Asia Pacific

Russia would increase exports of oil and natural gas to the AsiaPacific to counterbalance instability in Middle East supplies, an APEC expert said.

The proposed increase was expected to account for between 22 and 25% of Russia’s total exports by 2020, Russian APEC Study Center deputy director Gleb Ivashentsov said at the 2012 AsiaPacific Economic Cooperation forum now underway in this Russian Far East city. Ivashentsov said Russia was ready to participate in the development of the Asian energy sector, including joint projects to build nuclear power plants. Russia’s contribution towards energy supplies in Asia Pacific would reduce the region’s reliance on hydrocarbon imports from the unstable Middle East, he said. But he said the problem with increased Russian exports of oil and gas to the Asia-Pacific market was that existing pipelines would carry supplies only to China and South Korea while the rest of Russian natural gas had to be transported by sea in the form of LNG. Ivashentsov, who served as Russian Ambassador to South Korea between 2005 and 2009, said earlier all the countries in the AsiaPacific region would have similar concerns in energy security and, by 2020, more than half the world’s energy demand would come from northeastern Asia.

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OCTOBER 2012

Healthcare sector’s supply chain woes Healthcare executives around the world are investing in their supply chains as they prepare for continued global growth in an increasingly complex and dynamic environment, according to data from the fifth annual UPS “Pain in the (Supply) Chain” healthcare survey. The top two planned investments for healthcare companies globally – as cited by 83% of decision-makers – are tapping into new global markets and investing in new technologies. Survey respondents plan to employ both strategies over the next three to five years to increase their competitiveness, maintain product integrity and gain efficiencies. The top four countries where companies will focus expansion efforts over the next three to five years are China, the United States, Brazil and India. While planning investments, healthcare decision-makers remain “cautious” on the state of the industry. They cite as challenges a difficult economic environment, pressures to reduce costs and struggles with increasing regulations and reform. The UPS “Pain in the (Supply) Chain” survey, conducted by TNS, reflects the views of senior-level healthcare supply chain decision makers in the pharmaceutical, biotech and medical device and supply companies in the U.S., Western Europe, Asia and Latin America. Despite signals of investing, barriers to global expansion remain with the top barrier being country regulations, cited by 46 % of executives. Country regulations have remained the top barrier to global expansion each of the past three years. Other barriers to expansion include intellectual property protection concerns and product quality and security concerns, cited by 33% and 27% of executives, respectively. “Healthcare companies are feeling the pressure to expand and drive new growth while containing costs and ensuring compliance around the globe,” said Bill

Hook, vice president, global strategy, UPS Healthcare Logistics. “That has only heightened the need to build more global flexibility, integration and transformation into the healthcare supply chain.”

supply chain issue, reported by 57%. In emerging markets, it is a more significant concern as it is ranked first or second by survey respondents.

Five-year trends Top business and supply chain concerns Globally, the top healthcare business concerns include increasing regulations – the top concern cited by 52% of executives – as well as healthcare reform and other changes in legislation, cited as a concern by 51%. Intellectual property protection ranks third on the list of top concerns, cited by 48% of respondents. Concerns around intellectual property protection are highest in the U.S and Asia. The No. 1 specific supply chain concern is regulatory compliance, cited by 65% of respondents. Cost management comes in second with 60% citing this as their top supply chain issue. Only 41% report success in managing their supply chain costs. In addition to regulatory compliance and managing supply chain costs, product security and product integrity have risen to the third most cited

Over the past five years, a top trend in the healthcare industry has been increasing global growth with companies ramping up expansion into new markets each year. With the rise of increasing globalisation, healthcare executives have reported growing concerns around the areas of product protection and intellectual property protection. Product protection concerns include both product security and the issue of product damage and spoilage. Concerns around intellectual property protection have grown every year for the past three years. The survey’s five-year data also illustrates the “constants” in the industry that have continued to challenge healthcare supply chain decision makers. Concerns around cost management and regulatory compliance top the list of industry constants over the past five years.

OCTOBER 2012

Updates REGIONAL TALK

Dubai Chamber’s mission to SMM successful

The Dubai Chamber of Commerce and Industry, at the successful completion of its trade mission’s participation in the 25th edition of the Shipbuilding, Machinery and Marine Technology (SMM 2012 Expo) in Hamburg, Germany, announced the hosting of the 4th Dubai Hamburg Business Forum to be held in Hamburg next year as continuation of their strategic partnership in various areas of cooperation including the maritime sector. The trade mission, which was led by H.E. Hisham Abdullah Al Shirawi, 2nd Vice Chairman, Dubai Chamber, met top officials of the Hamburg Chamber of Commerce to consolidate their partnership while also networked and discussed potential business synergies with leaders in Hamburg’s prosperous maritime industry.

The Dubai delegation comprising of top company officials and business leaders from the maritime industry grabbed the opportunity to enhance their trading ties while exchanging skills, innovations and expertise in various areas of joint cooperation in the maritime sector. As a positive outcome of the Dubai Chamber trade mission, the Drydocks World, signed an exclusive co-operation agreement with ABB to have a dedicated service point for ABB turbochargers at their facility in Dubai. The announcement of Hamburg hosting the 4th round of the Dubai Hamburg Business Forum reflects the strategic partnership existing between Dubai and Hamburg Chambers and will highlight cooperation in the areas of eco-friendly technology, financial services, logistics and maritime. Al Shirawi stated that the trade mission achieved its objective of promoting Dubai’s business potential and its strategic location as an international trade and trans-shipment hub in light of the emirate’s capability in providing complete solution to shipping and trade especially coupled with logistics, warehousing and land transport options as well as its world-class ports and container handling and ship repairing facilities to the global marine community. The 2nd Vice Chairman of Dubai Chamber further stressed that the trade mission has brought about a new era of stronger economic relations between the two strategic maritime cities due to the joint cooperation agreement, and exchange of experience and technical knowledge, as well as training of young workforce in the maintenance of ships and management of logistics solutions in the supply chain sector.

Indian and Qatar stock exchange explore co-operation opportunities The National Stock Exchange (NSE) and Qatar Exchange are exploring opportunities to enhance cooperation between the two bourses and also work out a business plan. Currently, Financial Technologies (FT), the promoter of the MCX group has a presence in the region through a 44 % stake in Dubai Gold and Commodity Exchange (DGCX), which is emerging as one of the key exchange platforms for

trading rupee-dollar contracts outside the country. NSE’s chief executive officer (CEO) Ravi Narain met top officials of Qatar Exchange and briefed them about facilities that the Indian bourse offers to foreign investors. The deputy CEO of Qatar Exchange, Rashid Bin Ali Al-Mansoori stressed on the desire of Qatar Exchange to enhance cooperation between the two bourses

OCTOBER 2012

through introducing appropriate mechanisms to provide local and foreign investors with better services in both markets, said officials present in the meeting. There is a race among Indian exchanges for global alliance, as all the top bourses are banking on over the counter derivatives market to be moved to the exchange platform in the next five years. The non-deliverable forward market for rupee-dollar

contracts alone is estimated to be more than USD 60-70 billion in Singapore, Europe and the US. In the meeting , Narain said he was confident that the ongoing bilateral relations will prove to be a useful instrument not only to further strengthen the level of cooperation between the two exchanges, but also to open new areas of business opportunities for the market participants, both in Qatar and in India.

GCC Banks going from strength to strength The GCC banking sector continued to grow rapidly in the first half of 2012, according to QNB Group analysis. The collective assets of the largest 50 banks in the region increased by 7.7% reaching USD1.28 trn. Profits were also up by 5.4%, compared to the first half of 2011, reaching USD 12bn. While 76% of banks in the group were profitable, with average profit growth of 13%, only 11 out of 50 saw a decline and only one bank in the group recorded a net loss. GCC banks have benefited from the buoyant regional economy, supported by high oil prices and high levels of government spending. They have also avoided exposure to many of the problematic financial instruments, such as peripheral Eurozone debt and mortgagebacked securities, that have been weighing heavily on banks’ performance in Europe and the US. The banking sector is skewed towards the very largest banks, with the top 10 representing 50% of total assets. Saudi and Emirati banks make up the bulk of the top 50, in terms of both number—12 and 14 respectively—and aggregate assets, 33% and 28% respectively. Qatar is in third place, and eight of its banks are included in the group, representing 13.5% of total assets. 15 of the top 50 banks are Islamic and represent 19.5% of total assets. The strongest growth in assets was achieved in Qatar and Oman, by 20.1% and 19.0% respectively. The assets growth in Qatar was driven by QNB, which is the largest bank by assets in the GCC and achieved 25.5% growth in the year to 30 June 2012. The other 7 banks also averaged a strong growth rate of 14.7%, led by Qatar Islamic Bank and Masraf Al Rayan. Qatar’s nominal GDP grew at an annualised rate of 17% in the first quarter of the year, and booming economic activity usually contributes to strong bank asset growth. Only two Omani banks are included in the top 50, and both saw strong asset

growth—23.3% for National Bank of Oman and 17.6% for Bank Muscat. Regional assets growth was driven by an expansion in loan portfolios, which grew by 13.6% during the first half of the year. Growth was particularly strong in Qatar, where loans surged by 39.7%, largely due to a 55.9% increase at QNB, which was the most rapid for any bank in the region. QNB has the largest loan book in the region. When measured by profit growth, the Omani banks come out on top, with 19.0%, followed by Saudi banks which achieved aggregate growth of 17.1%. National Commercial Bank in Saudi Arabia saw the strongest growth among the ten largest banks with profits up 20.0%. QNB was in second place in terms of growth, with 17.1%, but achieved the highest level of profits, at USD 1.13bn. Al Rajhi of Saudi Arabia and National Bank of Abu Dhabi also achieved double-digit growth, while the other top ten banks grew more slowly or saw a fall in profits, due to a high level of provisions. Islamic banks saw their profits surge by 18.5%, on the back of growing customer demand for shariah finance across the region. Four of the top five banks in terms of profit growth were Islamic. Capital adequacy ratios (CARs) are generally high in the region and, with a

few exceptions, non-performing loans (NPLs) are low. This substantiates the impression of health in the sector. Details of mid-year NPLs and CARs are not available for all of the 50 banks. However, QNB’s estimate, based on the data that is available and earlier indicators for the other banks, is that the aggregate level of NPLs in the region is 4.8% of total loans. There is considerable variability in NPLs between countries, ranging from a low of 1.0% in Qatar to a high of 8.0% in the UAE. The UAE figure reflects the impact of recent regulatory changes in accounting for NPLs and exposure to the real estate sector, with Dubai-based banks being more impacted than banks in Abu Dhabi. Overall, the net impairment charge on the loan portfolio of the largest ten banks has stabilised, according to data for June 2012, compared to the same period last year, despite two of the largest ten banks taking much increased provisions. This, along with much improving growth in operating income, would allow increased profitability going forward. Overall, the GCC banking sector appears to be in good shape, according to QNB Group. High oil prices, rising consumer spending and major infrastructure projects should all contribute to continuing strong growth in the coming year.

OCTOBER 2012

TRADE TALK Logistics

Soaring in the skies Emirates SkyCargo is renowned for its high standards of product quality in supporting business logistics and achieving customer satisfaction through innovation and flexibility. Aparna Shivpuri Arya met up with Ram Menen, DSVP Cargo, Emirates, to know what has been their strategy for expansion.

am started by elaborating on how Emirates SkyCargo has beaten the general market situation. “Bucking the industry trend, the 201112 financial year has been a strong one for Emirates SkyCargo with revenues of AED 9.5 billion (USD 2.6 billion), an 8.4% increase on last year on account of an increase in freight tonnage and freight yield per Freight Tonne Kilometre (FTKM) which rose by 5.4%. The Indian sub continent and Africa has been strong. Outbound Europe has been strong. This year has been a major expansion year for 10

OCTOBER 2012

us. We are getting 31 passengers airplanes and 4 new freighters this fiscal year.” With the bulk of the cargo industry reporting downward tonnage, Emirates SkyCargo’s tonnage increase of 1.7% reaching 1,796 thousand tonnes showcases its persistence to grow revenues against the industry norm. Based out of Dubai International Airport, its USD 327million 43,600 square metre Cargo Mega Terminal is designed to handle 1.2 million tonnes of cargo a year. The airline’s freight division currently uses cargo hold capacity in Emirates’

passenger aircraft, plus eight freighters – four Boeing 777Fs, two 747-400Fs and two 747-400ERFs. Reflecting Emirates’ overall policy of excellence in every area of operation, Emirates SkyCargo has become a significant force in the global air cargo industry. This has been made possible by highly-qualified staff, the very latest information technology, the most efficient aircraft for its expanding route network and the finest ground handling facilities and equipment. The Emirates SkyCargo route network spans the globe, covering 122 destinations

in 72 countries on six continents. It has 11 cargo-only destinations: Erbil, Taipei, Eldoret, Lilongwe, Almaty, Gothenburg, Zaragoza, Viracopos, Bagram, Kabul and Liege. Elaborating on the services provided by Emirates SkyCargo and how it manages to be at the top of the game, Ram ticks of a lot of reasons. “Emirates SkyCargo currently employs more than 1880 staff members across the globe and is supported by numerous on-the-ground handling agencies and personnel. Advanced computerised reservations systems ensure immediate confirmation of space and up-to-the-minute advice about destination procedures and regulations. Real-time tracking of consignments monitors the progress of every shipment from booking through to final delivery.”

to individual handling at en-route transfer points and final destinations In 2008, Emirates SkyCargo moved its entire hub operations into the 43,600 square metre state-of-the-art Cargo Mega Terminal. Designed with its partners at the Dubai Civil Aviation Authority and Dubai Cargo Village, the hub has an annual capacity of 1.2 million tonnes. The Cargo Mega Terminal incorporates a mix of automation and flexibility, designed to help the hub expedite shipment process cycle times while drastically minimising warehouse discrepancies. An extensive handling area comprising a five-storey Automatic Storage & Retrieval System (ASRS) which has more than 10,000 loose cargo storage locations, and a sizeable seven-storey Pallet Container

There is also an extensive network of scheduled truck links between key hubs and off-line points ensure exceptional standards of service right through to local collection and delivery. Emirates SkyCargo’s products include: Priority, Dangerous Goods, Live Animals, Valuables, Vulnerable and Perishables. The new solutions embraced by the organisation include, Airport to Door, Integrated – Door to Airport, Integrated – Door to Door, Protect, Cool Chain, Animal Care, Charter services and Customer Partnerships. It also offers the expertise and equipment for specialised services such as transport and warehousing of livestock, perishable goods, temperature-controlled items, urgent and valuable deliveries, bulky loads and other unusual consignments. A series of priority advice signals alert staff

Handling System (PCHS) with a storage area for 2,500 Unit Load Devices (ULDs), 220 of which are dedicated positions for temperature-controlled ULDs, will significantly improve both the quality of shipment processing and flight handling. To ensure that cargo can be loaded, unloaded and transferred quickly and efficiently, the new facility has a large number of airside ULD entry and exit gates – some 78 in total. Within the terminal, there are 133 work stations for cargo build up and break down, with 14 of these stations specifically designated for perishable cargo. To ensure the swift acceptance and delivery of shipments, the Cargo Mega Terminal has a total of 46 truck docks for loose cargo, with 12 of these specifically for perishable cargo.

Ram Menen, DSVP Cargo, Emirates

The Cargo Mega Terminal is designed to cater for large numbers of temperaturesensitive shipments. Its temperaturecontrolled handling and storage area account for 7,000 square metres of the Terminal. Two large areas are kept at 5˚C and 15˚C respectively, and are complemented by a freezer set at -18˚C and a large number of cool storage cells with a range of possible temperature settings between 4˚C and 18˚C. According to Ram, Emirates SkyCargo has a dedicated team based at the Cargo Mega Terminal which is comprehensively trained in the cargo handling needs of a wide range of products. Authorities including Dubai Customs, the Department of Civil Aviation and the UAE Ministry of Agriculture & Fisheries are conveniently located in the same building, allowing for speedy export acceptance and import delivery. “Emirates SkyCargo’s SkyChain cargo management system, a comprehensive endto-end IT cargo management system, offers a wealth of advantages over existing cargo systems. Using the latest Java technology, SkyChain substantially improves business efficiencies across the air freight life cycle,” he added. SkyChain represents a step forward for the air cargo industry by providing a system that offers flexibility and allows OCTOBER 2012

TRADE TALK Logistics

users to move past the constraints and limitations of legacy technology. The SkyChain technology benefits includefast response time, low cost ownership, accessibility, among other benefits. Talking about technology needed, Ram remarked that SkyChain has been built using the latest in Java and Oracle technology platforms. It provides a flexible and adaptable technology platform for all future developments driven by Emirates’ business needs. Furthermore, IP (Internet Protocol) has been used as the simple and cost effective means of the global distribution and access of the system. When asked about how the global financial uncertainties have impacted business, Ram was quick to point out that usually, in the aviation sector, they are able to predict the market situation, 2-3 months in advance and therefore it is an indicator of the world economy. However, the last one year has been challenging to forecast because the world is constantly being battered by the unknowns. “Oil prices are affecting trade. The EU crisis is an ongoing issue and then there is the US election, which is the largest consumer market. Europe is more into marketing and services, Asia is where the factories are, but US is where the consumption happens. Therefore the socio-political situations, the Arab Spring, coupled with the financial crisis and

OCTOBER 2012

Emirates SkyCargo owes its ongoing success to two main business drivers – the continuous monitoring and redefining of existing facilities and the introduction of innovative products and services. Taking tremendous strides since its inception, these initiatives ensure that it will play a valuable role in the Emirates Group and a considerable one in the global cargo arena.

oil prices have made it very difficult to predict,” explained Ram. So what was has been their strategy in such uncertain times? “Like in any business, it’s a question of how agile you are. That at the end of the day dictates how you ride through the turbulence. For us it is a constant effort to have the right capacity at the right place. HK is one of our biggest operations and we haven’t changed our capacity there. China saw a reduction in freighters. Europe we had to adjust the capacity. We work with fuel efficient planes, which help us. Plus the geo-centricity we have in Dubai is pretty good. Trade between China and Africa has been very strong, which has been good for us,” remarked Ram. Acknowledging that there is competition in the region, Ram seemed quite unfazed about it. “Dont forget we were born to a deregulated market and competition is second nature

to us. We believe competition is healthy. We were never protected and having three airlines in the region, also has its positive sides, since it pulls a lot of traffic to the region and a lot of the countries around here, they re moving away from their dependency as oil based economy, and diversifying and that is creating a lot of demand.” “Sometimes, people think that we are overdoing our expansion plans. But if you look at the six hour flying range, we have 5.8 billion people; 14 hour flying distance about 6.2 billion people. India and China are also energising as major economies. Dubai and Singapore are the best airports to service India. The growth of these economies will be exponential and offer us a platform to service the market,” he added. Talking about Emirates SkyCargo’s mantra for success, Ram attributed it to being close to its customers. “We are in a very evolutionary era and customer’s business is changing by the day and what is important for us is have we changed our business model to their requirements. That’s where we tend to focus more.” Emirates SkyCargo owes its ongoing success to two main business drivers – the continuous monitoring and redefining of existing facilities and the introduction of innovative products and services. Taking tremendous strides since its inception, these initiatives ensure that it will play a valuable role in the Emirates Group and a considerable one in the global cargo arena. Contributing 16.2 % of Emirates’ total transport revenue Emirate SkyCargo continues to play an integral role in the company’s expanding operations.

TRADE TALK Legal

Know your rights Qatar is among one of the most prosperous countries in the world and one of the fastest growing economies in the Middle East. With the influx of people moving to Qatar it is important for workers and employers to understand the immigration laws. Emma Higham, Senior Associate, Clyde &Co, gives us an overview of the rules in place.

aw No (4) of 2009 sets out regulations under which expatriates may enter, exit, work and reside in Qatar. The Ministry of Interior and the Immigration and Labour Departments are the main agencies of administration. The law defines an “Expatriate” as any individual entering Qatar who is not a Qatari national. Unless an individual is a Gulf Cooperation Council (GCC) national he or she must be sponsored by either a Qatari national, an entity registered to undertake business in Qatar or a resident family member on which the individual is dependent. This arrangement does not lend itself to short term or casual employment arrangements. It is also important to note that there are laws and regulations in place to encourage the employment of nationals, known as Qatarisation. 14

OCTOBER 2012

Right of Entry There are three main ways for an individual to enter Qatar:

Tourist, visit or on-arrival visas Nationals of thirty-three countries can currently enter Qatar on tourist visit, or on-arrival visas issued for a fee at the Qatar International Airport. Gulf Cooperation Council nationals or holders of certain Gulf Cooperation Council resident’s permits can enter on this basis alone. The visas are issued for thirty days and can be extended for a further thirty days at the discretion of the immigration authorities. On the expiry of the initial or extended thirty day period an individual must leave Qatar but can then re-enter (same day if necessary) and be issued with a new visa. The visas may also be

applied for and obtained before entering Qatar.

Business visas Business visas must be applied for in advance of an individual entering Qatar and may only be obtained with a letter of support from a local “sponsor”, a Qatari national, an entity registered to undertake business in Qatar or a resident family member. Visas are normally issued for periods of one or three months, but can be extended by the immigration authorities by discretion.

Work permit Work permits may only be applied for by an individual or entity registered with the employment authorities. These applicants are known as the workers’ sponsors. Sponsorship and Immigration are interlinked

in Qatar. Once a Qatari entity has been issued with an immigration card it may register with the Labour Department and submit block visa applications. A block visa application should state the gender, nationality and job title of the workers a Qatari entity wants to employ. Once the block visa allocation has been approved by the Labour Department passport copies and appropriate education certificates should be submitted to the Immigration Department in order for each worker to be issued with his or her work permit; then the worker can proceed for residency. Dual residency is permitted by discretion in Qatar, however it is difficult to obtain; individuals must hold senior positions in both sponsoring entities which should have the same name.

Right to work Holders of tourist visit or on-arrival visas may not work in Qatar. Business visas allow the holders to represent themselves or their companies, but not to work; only a holder of a valid work permit may work lawfully in Qatar. Holders of resident’s permits may work but only for their sponsors. Contract working is not permitted. Individuals holding family residencies must apply for, and be issued with, work permits to work, subject to some exceptions, for example, the Qatar Financial Centre (QFC). Part time workers can work, subject to the permission of their sponsor/ employer, for a Qatari national or an entity registered to undertake business in Qatar. Right to reside Resident’s permit Individuals who wish to work and reside in Qatar should apply for a resident’s permit. A work permit must have been granted to an individual before such an application can be made. It must be the worker’s sponsor who applies. It is usually issued for one year initially and then two years going forward. Family residency Where an individual holds a valid Qatari resident’s permit he or she can apply to sponsor their spouses and dependent family members. The resident will have to

ABOUT

Emma is a corporate and commercial lawyer with over nine year’s experience. Having been based in Qatar for nearly seven years, Emma incorporates her extensive knowledge of the local law when advising both local and international clients. She advises on a wide range of corporate and commercial matters, including local establishment by way of joint venture, banking and finance, and providing regulatory advice in relation to the establishment of businesses in the Qatar Financial Centre, advising on IPOs, pre IPO funding corporate restructuring and employment and immigration matters. Emma joined Clyde & Co in October 2007, having previously worked for another international law firm for six years, both in London and Qatar. Prior to that Emma worked for Price Waterhouse for eight years in both audit and corporate recovery.

demonstrate to the immigration authorities that he or she is appropriately employed with sufficient funds to do so.

Sponsorship transfer Residency may be transferred between sponsors, subject to the discretion of the immigration authority. In order to transfer sponsorship an individual must hold a resident’s permit which has been valid for more than 12 months, a sponsor’s letter of no objection (NOC) and a “clean” Police Report. Where no NOC is provided (there is no obligation to provide and no right of provision) an individual may not work in Qatar. On some rare occasions the Minister of Employment may waive this requirement. Where individuals do not have a resident’s permit which has been valid for more than 12 months, provided they hold an NOC, they must leave Qatar and re-enter on either a visit or business visa or a work permit in order for their new sponsors to be in a position to apply for a resident’s permit. Liability During the period in which the individual resides in Qatar, he or she will have a Sponsor for Residence (Sponsor) who will be legally responsible for them, including obtaining and renewing resident’s permits and associated registrations. A Sponsor will not be liable financially for any of the obligations of the individuals it sponsors, unless it specifically agrees to guarantee such obligations.

Right of exit Individuals entering Qatar other than on a tourist, visit or on-arrival visa must obtain an exit visa from their Qatari sponsor in order to leave. Business visa holders may require an exit visa for stays in excess of 14 days; in addition penalties are levied for over-stays. Workers require an exit permit to leave Qatar and unless a re-entry visa is obtained the work permit will cancel automatically on exit. The holders of resident’s permits may be issued with multi-exit visas at the sponsor’s discretion. In addition to the various processes and authorities referred to and mentioned, respectively, above, entrants to the Qatar job market should be aware that any additional documents, which may be requested from time to time will need to be notarised, legalised and authenticated in the originating country for use in Qatar. Qatar is not a signatory to the Hague Convention and so this process can be lengthy and expensive, especially where there is no Qatari Embassy in the country of origin. Note: Qatari Laws (save for those issued by the Qatar Financial Centre to regulate internal business) are issued in Arabic and there are no official translations, therefore for the purposes of drafting this article we have used our own translations and interpreted the same in the context of Qatari regulation and current market practice. * This article was first carried in our group publication, Private Sector Qatar.

OCTOBER 2012

TRADE TALK Free zones

The gateway to Abu Dhabi The Abu Dhabi Ports Company (ADPC) was set up by the Abu Dhabi government to boost the economy and work towards the Economic Vision 2030. Aparna Shivpuri Arya caught up with Tony Douglas, CEO, ADPC, to know more about the services being offered, and their flagship development, KIZAD.

employees. We strive to fulfil our role in the Abu Dhabi Economic Vision 2030 building and maintaining long-term relationships with local and international clients. ADPC contributes to the development of the Emirate on all levels, preserving its core values. It guarantees meeting stakeholders’ expectations. 2012 is a year of major growth for not only ADPC but also the Emirate. In the fourth quarter of the year, ADPC launched its megaproject at Taweelah, halfway between Abu Dhabi and Dubai. The ultra-modern Khalifa Port, the only semi-automated one in the region, and the adjacent Khalifa Industrial Zone Abu Dhabi (Kizad) have opened for business.

How important do you think trade is for Abu Dhabi? How much does it contribute to the GDP and how does it align to the Economic Vision 2030?

lease give us a brief background about the setup of ADPC-its vision and mission

Abu Dhabi Ports Company is an Emirati company specialising in developing ports and industrial zones. It was established in 2006 to boost economic diversification by helping to lay the firm foundations of modern infrastructure and the variety of services provided across the ports of the Emirate of Abu Dhabi. ADPC is tasked with facilitating trade and developing projects 16

OCTOBER 2012

across the Emirate to contribute to the national economy. ADPC also seeks to enrich the Emirate’s knowledge and skills base through interactions with international experts and leaders in industry. In addition, it provides talented Emiratis with beneficial employment opportunities under the company’s powerful “Tawteen” (Emiratisation) programme. ADPC’s vision lies is to be the ideal provider of worldclass integrated ports and industrial zones services - the first choice for talented

Abu Dhabi has for centuries been an Emirate devoted to trade, and has enjoyed great prosperity for the last fifty years following the discovery of some of the world’s largest oil and gas fields. The importance of trade in non-oil goods has not diminished. Within the Abu Dhabi Economic Vision 2030, the target for non-oil exports (trade) is 11% of the Emirate’s GDP. The Abu Dhabi Department of Economic Development (DED) is responsible for promoting and expanding the Emirate’s exports. ADPC has participated and supported the DED on many occasions in events where trade and business worldwide were deemed of great importance. For example, ADPC and

Kizad – its industrial zone at Taweelah, Khalifa Industrial Zone Abu Dhabi - have participated in events organised by the DED, such as investment forums and trade missions to India, Japan, China, Korea and the UK. The UAE has been highly dependent on oil revenues over the course of the past few decades and the government recognises that it must diversify the economy. Trade is a major pillar by which diversification can be achieved and ADPC promotes trade through its ports. Abu Dhabi is undergoing a number of massive developments which will diversify revenue streams as it moves away from its dependence on oil and gas income.

Who are the main trading partners of Abu Dhabi and in which products? Government figures show that Abu Dhabi spearheaded robust trading last year in the UAE which defied global downturns. The flow of goods in and out of the UAE surged 25% to a record high of AED 1 trillion (USD 272.24 billion). Economists report that demand for the country’s goods - including gold and plastics - also held up well as exports rose 36%. Analysts observe that last year’s rise means the value of non-oil trade has now passed the previous record of 2008 before the global financial crisis occurred. A big factor in last year’s rise was the strength of the UAE’s commercial links with the faster-growing economies of India, China, Hong Kong and Singapore, which account for more than half of trade. In short, the biggest trading partners of Abu Dhabi, and also the wider UAE, are India and China. The UAE and India are each other’s biggest trading partners, and bilateral trade between the two countries in 2011-12 was worth USD 67 billion (AED 246bn).

What facilities does ADPC provide for businesses wanting to trade and set up business in AUH?

ADPC’s Khalifa Industrial Zone Abu Dhabi (Kizad) which opened in September will grow in planned phases to become one of the world’s largest industrial zones. It has adopted a

clustering approach which enables companies in similar industries to benefit from each other’s expertise and services. Kizad is home to the world’s largest single-site aluminium smelter, Emirates Aluminium (Emal), located in the Aluminium Cluster. Emal supplies material to other aluminium manufacturing companies setting up in Kizad. Kizad offers many facilities to ensure the efficiency any business looks for. At the pre-built warehousing, Kizad provides businesses with a strategic location which offers quick access to modern transport networks. The warehouses are available in the free zone and the non-free zone and are

Tony Douglas, CEO, ADPC

The UAE has been highly dependent on oil revenues over the course of the past few decades and the government recognises that it must diversify the economy. Trade is a major pillar by which diversification can be achieved and ADPC promotes trade through its ports. Abu Dhabi is undergoing a number of massive developments which will diversify revenue streams as it moves away from its dependence on oil and gas income. designed to include different specifications and well-equipped to present high quality environments in which businesses can operate effectively. Moreover, Kizad recognises the importance of providing the employees and companies in the industrial zone with excellent social as well as business facilities and services. We have set the highest standards for an ideal industrial zone designed to serve the interest of everyone involved in business. As a demonstration of its commitment to customers, ADPC launched an innovative new Customer Online Portal for Kizad customers. A customised login section provides Kizad customers with access to some 300 services, such as concluding “Musataha” long-term lease agreements, company licensing and registration, visa and residency services, building permits, Emirates ID cards, labour cards, leasing pre-built warehouses, workforce accommodation and attestation

and public notary services. The portal will also allow Kizad customers to track the status of all their applications and service requests via a secure, efficient and effective communications channel.

How is Kizad different from other free zones? Are there any special benefits of setting up business in Kizad? Kizad enjoys both free zone and non-free zone status, but is largely a non-free zone. The cluster project in Kizad emphasises the integration and the synergy between suppliers and customers. Clusters make Kizad unique: they include Aluminium, Steel, Petrochemical and Chemicals, Paper, Printing and Packaging, Food, Pharmaceutical and healthcare equipment and so on. Kizad offers companies setting up business in Abu Dhabi an easy model of doing business, outstanding access to local and international markets, and low utility costs. OCTOBER 2012

TRADE TALK Free zones

What processes are required for foreign companies to set up shop in Kizad and to trade via Khalifa Port? Companies wishing to set up in Kizad are offered a one-stop-shop service whereby we offer full assistance and guidance in the process of setting up business. Companies are taken step by step through the process on an individual basis, and given all assistance in making the transition smooth. ADPC has developed close relationships with utility suppliers and prides itself in offering a comprehensive package that ensures minimal delay and maximum help for potential Kizad clients.

What rules and regulations govern the Port and Kizad?

Through its regulatory compliance teams, ADPC ensures both the company and its customers conform to applicable Federal and the Abu Dhabi Emirate’s laws consistent with delivering the highest international best practice standards. This is achieved through internal audit, and the implementation of a framework of ADPC rules and standards to control and guide customers in fulfilment of their statutory obligations. These apply, for example, to corporate governance (through ADPC’s Articles of Association), economic regulation, environmental control, planning policy, port security, financial prudence, duties of care with respect to the provision and maintenance of ports and ports services, and so on.

What advice would you give to foreign companies wanting to do business with Kizad and the Port? Are there any dos and don’ts?

The clear advice is - “come!” Kizad offers highly trained marketing staff that will make the entire process of setting up at the industrial zone considerably easier. Khalifa Port is the modern gateway to Abu Dhabi and will provide modern freight and logistics facilities that will facilitate the growth of the economy.

With advancement in technology, what developments do you see in the future, which will reduce the

OCTOBER 2012

ADPC’s Khalifa Industrial Zone Abu Dhabi (Kizad) is on schedule to open in Q4, 2012, and will grow in planned phases to become one of the world’s largest industrial zones. It has adopted a clustering approach which enables companies in similar industries to benefit from each other’s expertise and services.

time and cost of doing cross-border business? As part of continuing negotiations to facilitate trade between the UAE and the GCC, and other international partners, Abu Dhabi is promoting the most efficient measures available to make this happen. At Khalifa Port, for example, the latest technology is used to cut down delivery and loading times. The port is semi-automated, a first for the region, which means that high technology drives the entire process. Customs will operate a paper-free service, cutting down logistical delays. Throughout their visit to Khalifa Port, trucks are monitored by RFID (radio controlled tags) which boost ease of access and cut down waiting times. Release of containers to ADT (Abu Dhabi Terminals), which will manage the container terminal at the Port, will be done via hightech electronic messaging. This will facilitate the automated operation of the main gate. Our documentation centre at the new port speeds up the processes by using the latest technology. It’s a one stop service to ensure documents are in order. The aim is to have most documentation done on-line, thus reducing the time-consuming on-site paper processing. Working with Abu Dhabi Customs, we will install a new electronic service in Khalifa Port. Customs’ Computer System (Dhabi) linked to the port’s, will allow the electronic and automated clearance of goods. The Customs Inspection Station houses state of the art scanning technology, such as the container scanning facility (X-rays and radiation detection). As the truck moves through the Port Entrance Gate, security checks are begun by

Access Control and Gate Management. At the Gate, the active Radio Frequency Identification (RFID) tags are verified when they send a signal to the Terminal Operating System. To maintain safety and security, all of this is filmed. The truck drives via the causeway and bridge onto the Port Island, arriving at the Offshore / Terminal Gate Entrance. Khalifa Port will have a dedicated protected railway corridor connected by Etihad Rail that will ultimately connect to other networks across the GCC. In short, ADPC’s commitment to the latest technology means that goods are transited with maximum logistical efficiency which, in turn, aids cross border business.

What are the future projects of ADPC?

ADPC is continuing with developing its wide portfolio of interests. Its principal task was to ensure the smooth launch and commercial operation of Khalifa Port and Kizad in Q4 this year. The AED 26.6 billion megaproject by then will have completed its first phase. But it is only the first phase of the development. The Port is scheduled to grow in size with more terminals, and Kizad is expected to grow over the next twenty years to 417 square kilometers – two thirds the size of Singapore. ADPC is fully committed to developing its entire range of smaller ports across the Emirate’s coastline – from Al Sila in the west, to Marfa, to Shahama and so on. Mina Zayed enters an exciting new year. Having served Abu Dhabi for 40 years, Mina Zayed sees its container traffic pass to Khalifa Port. Mina Zayed will look after the growing cruise liner business in Abu Dhabi in addition to the existing general cargo and RoRo activities.

TRADE TALK Technology

Open Innovation and SMEs The recent Apple case shows that patents, or more importantly research and development, is a valuable asset that can not only generate huge revenues but also act as a powerful barrier to entry. Dr. Ashraf Mahate, Head, Export Market and Intelligence, Dubai Exports and Vice Chair, Economic Policy Committee, Dubai Economic Department, explains to us how SMEs can create opportunities through innovation.

he court in the USA awarded Apple USD 1.05 and rejected all of Samsung’s countersuits. As such this verdict found that Samsung had infringed Apple’s patents but not the other way round. This legal victory by Apple has opened up a whole host of issues for businesses throughout the world. The first and perhaps the most important lesson is that taking a ‘short cut’ up the technology ladder has a high risk factor and the firm may end up paying a very heavy price. Soon after obtaining the court victory Apple sought to suspend sales of Samsung’s products that have infringed its patents, in the United States. Although, this verdict was a victory for Apple there were losers way beyond Samsung. One such loser is Google who developed the Android operating system that is widely used on Samsung SmartPhone devices. It is predicted that as a result of Apple’s victory companies, such as Goggle may need to work around the infringed patents. These changes in design will obviously take time but more importantly may considerably downgrade the software. 20

OCTOBER 2012

Apple’s competitors now need to have considerable resources if they are to develop a leading edge technology that is able to allow them to gain a competitive lead over Apple’s technology. This may not be a problem for cash rich companies, such as Samsung who have the ability to invest and to a certain extent the willingness. The real issue is for small and medium sized (SMEs) firms who lack the resources to invest in creating technology based barriers to entry. More importantly, even if SMEs do invest and find a technological breakthrough there are faced with psychological inertia on the part of consumers. On the other hand the ability to copy successful existing technology is reduced and with the recent court verdict firms will be reluctant to take this route. The question that arises from this is whether innovation is actually dead? The experience of the last few decades has shown that a considerable amount of innovation has taken place and more importantly by small startups. Closed vs. open innovation The traditional model was a closed innovation approach whereby all the activities in research

and development as well as manufacturing, distribution and so forth, were carried out internally within the firm. This approach called for large investment in resources and human talent to obtain the required payoffs. Over the last decade or so this conventional wisdom has been challenged and researchers are no longer working in company based research silos. Instead there has been a greater interaction between research staff as well as mobility and this has allowed knowledge to transfer from one organisation to another. Ironically, this has meant that the firm that invested in the initial research may not have benefitted from the final technological breakthrough. Also, the firm that did benefit from the technological breakthrough may not have invested in any new research and sought to rely on ‘free riding’. The new manner of innovation is ‘open’ and hence calls for firms to utilise both internal and external knowledge. In doing so innovative ideas are not restricted to those which are internally generated and can be from outside. As such open innovation is much broader than closed innovation and calls for the firm to be ‘inside-out” as well as “outside-in”. In the case of the former the firm

seeks to leverage its innovation outside the boundaries of the company while in the latter external sources of innovation are used to enhance current technological developments. An interesting aspect of open innovation is the idea that a company seeks to capitalise on its innovations but also generates revenue from the use by other firms. In other words the innovation does not need to be used by the firm or may need to be combined with some external patent in order to generate cash flows. The benefits of an open innovation system have been widely accepted and firms that have been traditionally closed are changing their research and developments systems. A typical example is Proctor and Gamble the major household goods firm which has had an excellent history of research and innovation. Despite its achievements the company has publicly stated that it is targeting half of its new innovations to be sourced outside the company. The open innovation approach has also allowed firms to specialise in a particular area of innovation rather than carry out the whole gambit of activities Challenges for SMEs Despite the huge potential of open innovation SMEs are still faced with various challenges most notably the ability to correctly identify identify, transfer and absorb external ideas and knowledge from outside into their firms and how they can add value to their current technology. In part this is due to the lack of resources or even networks to search promising technologies. Second, even if the technologies are identified they often need to be worked on in order to meet consumer needs. As such SMEs tend not to have the staff that is able to take external knowledge and modify it so that it can be commercialised. Third, even if external technology is internalised it will need to be protected through some form of intellectual property rights which requires quite a substantial investment. At the same time the enforcement costs of technology protection means that many SMEs choose not to pursue their claim hence reducing return from the innovation. More importantly, it discourages them from pursuing new innovation in the fear that larger

ABOUT

Dr. Mahate received his doctorate from Cass City University Business School in London (UK). He read Economics at University College London, followed by a Masters in International Economics and Banking at the University of Wales in Cardiff. Dr. Mahate is a professional educator and received his training at the Institute of Education (University of London). He is a member of the Chartered Institute of Managers (UK) and a Member of the Institute of Commercial Management (UK). He is also a member of the Association of Certified Anti-Money Laundering Specialists (ACAMS). He can be reached at ashraf.mahate@dedc.gov.ae. For more information on Dubai Exports, please visit: www.dedc.gov.ae.

companies can infringe their patents and due to lack of financial muscle they will not be able to take legal action. Finally, SMEs by their very nature are small firms who often tend to spend time firefighting daily problems instead of developing well-structured innovation processes and plan for the longer term. It is not all doom and gloom for SMEs and their smaller size can also be an advantage as far as open innovation is concerned. For instance, the smaller size and closer market interaction of SMEs imply that are more in tune with the needs of customers and can exploit consumer trends faster than larger firms. The next step The real issue for SMEs is not that they cannot be part of open innovation but more to do with how to do it. First, the SME needs to consider what and how much it wants to share with external parties. It is important for the SME to understand that if it is going to share ideas in an open platform than its competitors may also have access to them. Of course, non-disclosure agreements can be drawn so that information is not released outside the network. Second, the SME will need to ensure that intellectual property issues are determined in advance. A good lawyer can draw up contracts such as a disclaimer that gives the SME all rights to any ideas generated in any open innovation initiative. This is important where open innovation can involve the public through on-line and social media. In more focused research networks or collaborative groups some form of licensing or revenue model is normally applied.

The first step towards open innovation is identifying a few critical issues or consumer trends that the SME may wish to deal with. It is rather pointless for a resource – constrained SME to try and do everything. Once the three or four issues have been identified the SME needs to find out who are the entities researching or even working in these areas. An excellent mechanism is to tie up with a local university and utilise their staff or PhD students. Anecdotal evidence shows that SMEs can work with customers and suppliers to identify appropriate innovation. Customers tend to be willing to share ideas on how to make a product or service better but often lack the ability to explain how to do it. SMEs can also form alliances with other firms in the same or associated lines of business so as to share the research output. There is no reason as to why the alliances need to be in the same sector only that problems investigated need to be common. There are lots of examples where innovations in one sector have been commercialised by another. It’s important for SMEs to realise that markets are continuously changing and as such they need to move with the trends through the adoption of new technologies. In doing so the SME should continuously provide the customer with market – relevant unique – value propositions. However, the resource constraints of SMEs hinder large scale research and development to take place and therefore open innovation offers it a viable solution to compete and succeed in an ever changing marketplace. OCTOBER 2012

TRADE TALK WTO

Letâ&#x20AC;&#x2122;s not argue It is expected that every now and then there would be antagonism between trading partners, in the same way siblings might sometimes get into conflicts over who will have the last piece of candy. Countries are just like that â&#x20AC;&#x201C; a one big family. Diego Ures, CEO, Eco Bliss Consultancy, focuses on those two final stages of a trade dispute, and discusses the potential challenges and suitable approaches in the context of the UAE. 22

OCTOBER 2012

esolution structures set up within the World Trade Organisation (WTO) become alive whenever the Agreements, as interpreted by their rulings and recommendations, materialise in the form of industrial and commercial policies. For that to happen, the terms of “Compliance” and “Countermeasures” may appear in the discussions. Conceptually, the two terms, “Compliance” and “Countermeasures” – or “Retaliation”, refer to two of the last steps in a WTO proceeding before its Dispute Settlement Body, the DSB. Compliance refers to bringing the measure into conformity or eliminating it altogether, while Countermeasures take place in the case of non-compliance, or inappropriate one. Compliance After a DSB’s decision, the Member’s intentions of compliance versus such ruling must be assessed, i.e., the country must provide the WTO with status reports to be commented or challenged by other Members. In that stage, private stakeholders have an immense weight in guiding the governmental agencies, assimilate its recommendations, or monitor the retaliation when it becomes unavoidable. Affected sectors must keep clear in their minds some fundamental international law principles, though, in order to avoid frustrations in their attempt to fix or preserve the inconsistent measures: (i) no retroactivity in the findings, (ii) no cross-retaliation is accepted by default, and (iii) decisions must be limited to claims raised by the complainant. And, although the private sector must be thoroughly involved, it cannot act on its own will, at the risk of chaos, and immediate, superficial, non-strategic measures. Trade matters are complex, lasting, but they also overlap and have far-reaching consequences, so retaliatory measures must be crafted with the intelligence of the private sector, but under the coordination of the UAE’s

ABOUT

Diego Ures is an international trade economics consultant and an in-field expert. Diego is the CEO of Eco Bliss Consulting located in São Paulo, Brazil. Eco Bliss Consulting is a consulting firm which specialises in trade matters and business intelligence. Diego has obtained his degree in Economics from the University of South Carolina, in the USA and his Masters in International Law and Economics from the World Trade Institute at the University of Bern, in Switzerland. He can be contacted at diegoures@gmail.com

government, taking into consideration, above all, the public interest of the whole country in the long-run.

Retaliation With respect to retaliation, the Government of the UAE should understand, that, combative or not, it should not be viewed as a “declaration of war”, but rather as business as usual. Above all, dispute settlement mechanisms are in place to protect the UAE’ rights, either under the WTO, GAFTA or other Preferential Agreements, rather, they are tools, and have to be used with no political negative consequences or commercial veiled sanctions. Politics aside, it is true that, for smaller economies, it is always burdensome to bring in a case and to come out victorious, regardless of the forum. Nevertheless, it is not impossible and as it has been proven in more than one case – size is not the determining factor in the result of a case. A historic pattern of 83% of WTO Panel’s and Appellate Body’s reports were adopted and applied with success and without reasonable delay. Furthermore, international political pressure to adopt the rulings can be judged successful – 90% of the cases in which WTO Members have been found to be inconsistent have demonstrated the intention to bring their laws into compliance. Regardless of the outcome, the simple fact of bringing a well-played out complaint to the eyes of the international community shows to the world that the country would not forgo its rights,

and would take the necessary steps to protect its commercial interests. The confrontation and potential retaliation must represent a believable intimidation, in spite of the magnitude of the opponent, which should acknowledge that the country has actual means and intention to modify its legislation in order to embrace the countermeasures. That alone is a moral victory. In addition, it will earn not only valuable knowledge, but also the respect of other countries, a strength that comes in handy when diplomatic bargaining is necessary. At the same time, once a countermeasure is imminent, the UAE has to be extra-careful not to use such right as a trade-off tool before its counterpart recklessly. By being vigilant, the country will not jeopardise the entire system in exchange for a minor circumstantial gain. Not differently from the previous phases, these two stages also require series of preparations of logical, factual and legal arguments that, in most of the successful cases, are done in coordination among delegates in the capital and its mission in Geneva, the industry back home, and sometimes a team of either inhouse or external experts. Countermeasures have in its core three main possible objectives: first, induce compliance as fast as possible; second, to even out the obligations and rights among the countries; and third, to rebalancing the benefits impaired. How to be prepared? Looking at some of the biggest cases in WTO history, there are some main OCTOBER 2012

TRADE TALK WTO

strategic lessons the UAE’s government and private society could learn:

1. Before the UAE would even consider starting a trade dispute, the local industry, impacted by the measures in discussion, must organise its claims, collect documentation and assist the national government in understanding all the impacts. 2. Trade issues are complex and usually relevant to multiple stakeholders and might involve specificities not clear to the general public. Even in such a situation, the full and transparent participation of the private sector is imperative in building a national position. 3. Other sectors with stakes in the opposing party’s market, or interests against the retaliation, most likely will

the measure to its economy might be exponentially higher, demonstrating the need to proceed with retaliation. 5. All forms of countermeasures must be well crafted to consider that, once it is in force, and even if the Defendant does not comply with the recommendation or decision, the UAE would be prepared to face the worst-case scenario, accounting for extra costs to its industry and consumers. 6. When in the role of a complainant, the UAE should make sure that its claims to the WTO Panel are broad enough to cover future amendments. 7. The UAE should use, as much as possible, the twists and turns available in the domestic legislation, balancing the legislative and the executive powers, with the goal of better benefitting from the trade resolution, or, in the case

Trade matters are complex, lasting, but they also overlap and have far-reaching consequences, so retaliatory measures must be crafted with the intelligence of the private sector, but under the coordination of the UAE’s government, taking into consideration, above all, the public interest of the whole country in the long-run.

pressure the government, but decisionmakers have to keep their eyes on the prize – the long-term public interest. 4. An exhaustive filter to test the validity of the retaliation must be used before starting this stage, in order not to waste political and financial resources. The Government, together with the affected domestic industry, should upfront define (i) the objective and (ii) the economic incentive in the possible favourable solution to the case. Above all, when evaluating the cost of a possible litigation process, it is important for the UAE to do a cost-benefit analysis, by looking at the impacts it might have both in the affected-sector and in the economy as a whole. Even though initial costs may seem high, the cost of 24

OCTOBER 2012

of a defeat, minimising the adverse consequences to the affected sectors in the economy, when it has to absorb the DSB’s decision. 8. In order to support an initiative before the relevant trade forum, the private sector concerned by the challenged measure will most likely demand practical, concrete, and positive repercussions, as well as effective solutions. The government may request the support of the private industry, with intelligence and financial resources, for a more successful litigation. 9. The financial costs related to a trade defence may be high, but not necessarily. Countries have to be sure to select the right professional assistance and arm itself with the best legal and economic

ammunition. Preparations must result in proficiency not only in the WTO system, but, more importantly, on the confronted legal system and specific measure under discussion. 10.The participation of the UAE as third parties with the excuse of “systemic interest” is an excellent way to gain expertise without much (financial and political) costs or having too much at risk. Defending oneself in a trade dispute should be a constant learning process, regardless of how experienced the country is. These lessons apply to the two opposing situations: the one of the UAE is forced to bringing its measures into compliance, as well as when being victorious, needing to evaluate in full or partial compliance, and deciding on potential countermeasures. An internal adjustment is normally required once a ruling has been reached by dispute settlement authorities. Trade matters, once resolved, will most likely create the need for legislative or administrative amendments to bring the losing party’s system into compliance or for the adoption of countermeasures by the Complainant to encourage compliance by its counterpart. The UAE must coordinate among the legislative, executive and judicial governmental bodies involved in the policy reform, and with regional and multilateral trading partners abroad. It might also need to coordinate local governments, and, last but not least, with the domestic industries affected by the rulings. Consequently, the UAE should identify product groups to be targeted in retaliation proceedings in cooperation with the private sector, and take the necessary steps to put retaliation into practice. Compliance with trade commitments after the relevant dispute settlement tribunals’ decisions is crucial for any attempt of maintaining a multilateral legal order. However, retaliation rights, if not structured carefully, may be the ultimate unwelcome gift, with severe and irreparable repercussions to relatively more vulnerable nations.

TRADE TALK Export

Trade with the Asia-Pacific According to the latest update of the IMFâ&#x20AC;&#x2122;s World Economic Outlook global recovery is still slow and downside risks continue to exist. Whereas weakened growth estimates affect Asia-Pacific as well, the region is still projected to grow at a higher pace than other regions. Teemu Puutio, ARTNeT CENSUS Initiative Coordinator, UNESCAP, explains why taking advantage of the AsiaPacific growth by strengthening trade relations with the members of the region could be a feasible way to promote growth in the Middle East as well.

he growth in the Asia-Pacific, which in the case of countries belonging to the so-called developing Asia, is projected to be around 7.1% in 2012, has been spurred by an unexpectedly perky rebound in industrial production which was negatively affected by the 2011 floods in Thailand. 26

OCTOBER 2012

The Asia-Pacific region has secured a significant position as a trading partner and destination for exports from Middle Eastern countries. The share of AsiaPacific in the total trade of Middle Eastern countries has been around 30% during the last decade and in general Middle-Eastern exports to Asia-Pacific countries were on

an upward trend until 2008, after which they decreased in 2009 due mainly to the global economic crisis. Regarding individual countries, there are striking differences in export patterns and trends concerning trade however (please see the graphs). In addition, Middle Eastern countries are trading with the Asia-Pacific region with

Growth of exports to Asia-Pacific Countries 2005-2010 from selected Middle East countries

Average percentage change per year

15 11%

11%

10 7% 5%

0 Qatar* until 2009

Bahrain

Oman

United Arab Emirates

Asia-Pacificâ&#x20AC;&#x2122;s share of total exports in 2010 to selected Middle East countries 100

80 Share of total exports

ABOUT

This article is written by Teemu Puutio, LL.M, and based on the work of the Asia-Pacific Research and Training Network on Trade, ARTNeTâ&#x20AC;&#x2122;s secretariat and staff. ARTNeT is strongly committed to facilitate Asia-Pacific capacity to conduct research on trade. Please see www.artnetontrade.org for more information.

11%

20 5.5%

9.7%

Bahrain

Oman

7.2%

has shown signs of recovery with incoming tourists after the political instabilities caused a significant drop in inbound tourism in 2011. Access to Asian markets and even the movement of people could be facilitated by the strategic use of trade agreements. In fact, the Gulf Cooperation Council (GCC), consisting of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates, has been actively seeking out such possibilities leading to the successful signing of free trade agreements with Singapore and India. Even though the GCC has paused its trade negotiations with countries such as China, Japan, the Republic of Korea, New Zealand and Australia in order to thoroughly review

Teemu Puutio, ARTNeT CENSUS Initiative Coordinator, UNESCAP

Access to Asian markets and even the movement of people could be facilitated by the strategic use of trade agreements.

0 Qatar* until 2009

United Arab Emirates

Source: UN Comtrade

largely varying outcomes in terms of trade balances (see graph 3). In order to address trade deficits and to spur domestic growth Middle Eastern countries, often exporting similar goods such as petroleum oils, should explore other opportunities in trade with the AsiaPacific region. Taking advantage of the globalisation of supply chains with a wider array of exports of petrochemical products, such as plastics, could be one such opportunity, while capturing sales in the Asian region by deeper integration into the supply chains is another. Interestingly, inbound tourism from the Asian region could also be tapped into as a driver for economic growth. As the UNWTO reports in its latest press release the Middle East

its trade agreement policy it is evident that GCC is securing a solid foothold in the more developed part of the Asia-Pacific region. Negotiating free trade agreements with countries in more varied stages

of development like Thailand or with emerging markets like Viet Nam could be a worthwhile strategy in order to tap into the growth potential of the potential Asian Tigers of the future.

Trade balance of selected Middle East countries within Asia-Pacific Country

Developed AsiaPacific countries

Eastern Asia

Western Asia

Southern Asia

Qatar

Surplus

Deficit

Surplus

Oman

Deficit

Surplus

Bahrain

Deficit

Surplus

Deficit

UAE

Deficit

Surplus

KSA

Deficit

Surplus

Deficit

Regional groupings used herein are available at: http://unstats.un.org/unsd/mdg/Host.aspx?Content=Data/RegionalGroupings.htm

OCTOBER 2012

TRADE TALK Finance

Factoring – More traction needed in the GCC While documentary trade is quite robustly facilitated by most trade banks, there appears to be a large gap in the facilitation of trade on open account terms. Dilip Hiremath, Head, Trade and Supply Chain, Mashreq, tries to examine some of the issues relating to the somewhat step-motherly treatment towards such facilities, the work done so far and a glimpse at the possible way forward.

n most parts of the GCC, trade conducted under DCs (Documentary Credit or LCs (Letters of Credit) is still the more dominant mode of conducting business , ranging from approximately 50% which is possibly conservative, to a high of 60% - depending on the source of data. Nevertheless, the important counter-point to this is that there still remains a whopping 40-50% of trade which is conducted on ‘open account’ credit terms.

Hurdles to Factoring Taking cues from the more-developed economies in the Western world, where the most popular product offering in open account facilitation is factoring, a logical place to start is to examine the hurdles and pitfalls that have prevented the same momentum of growth for this product in the GCC. Some of these are highlighted as follows -

Assignment laws – largely untested While it is heartening to note that in most of the GCC countries there are laws in place which makes factoring feasible (KSA may be an exception, where the enforceability of assignment laws might be too onerous to be practicable), there still exists a large degree of diffidence on the part of banks to develop products around this. This is justifiably so, because the enforceability 28

OCTOBER 2012

of these laws have not been tested in large enough numbers to give maximum comfort. Moreover only a few banks in the region have made the effort to actually analyse past cases/judgments and suitably align their assignment procedures to have maximum impact. Well established credit rating agency – still evolving Most factoring models in the West are modelled with the cornerstone of a rating agency. All over the Middle East there have been some positive developments on rating initiatives but these are still evolving and do not appear to have matured to a level where models can be built around them. Banks have to therefore build a work-around this gap, until the rating agencies mature further, build up large enough data bases and ‘come to speed’. Lack of bankruptcy laws – a hindrance Most of the GCC countries are characterised by an absence of strong bankruptcy/ insolvency laws. Accordingly there is an ever-present risk of a buyer being forced to ‘run away’. This is primarily prompted by the fact that creditors present cheques drawn by a company, and the dishonouring of this is treated in some countries as a criminal offense. There have been enough instances of such ‘run-away’ in the past to create a well founded fear of such a possibility and this is obviously a hindrance to open account trade facilitation.

Paucity of factoring expertise While there is a crying need for factoring expertise, the simple fact is that it is not easy to recruit the right professional. Many of the factoring professionals from the western world, lack factoring knowledge or skill of a ‘holistic’ nature; most factoring experts from the West specialise in a particular aspect of factoring – marketing, legal, risk management or audit/survey functions. Furthermore the importance of ‘local experience’ cannot be discounted. A factoring model borrowed from a developed factoring environment without building in the differentiating variables for a regional

ABOUT

Dilip Hiremath heads the trade and supply chain business for Mashreq. Dilip’s specialisation is in the area of ‘open account trade’. He has been a pioneer for open account trade in the region and spearheaded two very successful factoring start-ups in the UAE, - first for HSBC and subsequently for Mashreq. Mashreq is a leading commercial bank and facilitation of trade forms an important cornerstone of its commercial activity. Mashreq has a full fledged factoring department. Dilip has also done an MBA with specialisations in Marketing and Finance. He has 25 years of work experience which includes over two decades of varied banking roles in the UAE.

country specific environment would be a recipe for disaster. Thus a shortage of suitable factoring skill is certainly an important reason for holding back the growth of factoring in banks in the region.

Unfamiliarity with the product It is unfortunate to see the frequency with which many seasoned bankers often dismiss factoring with a remark on the lines of - ‘we do invoice discounting’. Healthy factoring norms, such as factoring

of goods or services. In some countries banks in turn have typically got the PDCs endorsed to themselves and extended finance to the seller for the period until maturity of the cheque. So far so good, but in reality there are many pitfalls – In the first instance, the more established buyers rarely agree to issue PDCs and not surprisingly these form the larger component of purchases. Some companies try to cover the gap in funding by resorting to unsavoury

Most of the GCC countries are characterised by an absence of strong bankruptcy or insolvency laws. Accordingly there is an ever-present risk of a buyer being forced to ‘run away’.

field audits, robust dunning practices, parallel ledgering, ‘dilution identification’ methodologies, assignment perfection, specialised software with ‘sounding alerts’ and other important differentiators that make the critical difference - are unfortunately ignored or even more unfortunate – unknown!

Historical dependence on Post dated Cheque (PDC) Discounting In some countries of the GCC – UAE a notable example, a popular mode of ‘payment security’ and mode of settlement of sales, especially in the case of domestic or non-cross border trade, has been the issuance of post dated cheques by buyers

practices of ‘swapping PDCs’ with their associates – with no underlying transactions to back it. Often this is a chain reaction and a default by any one party in the link tends to have a knock on effect, on all the ‘players’ in the chain. Appropriate timing There is no getting away from the fact that banks need to take a closer look to launching or sprucing up their factoring offerings – depending on which part of the development scale they are presently at. This is borne by the fact that there are several developments currently that are critical drivers for this business. Some of these areOCTOBER 2012

TRADE TALK Finance

It is pertinent to note that there is a proliferation of factoring companies in China with the sole intention of cross-border, open account trade facilitation. India too, has recently mooted laws to encourage the growth of factoring – most notably being the dispensation of using ‘stamp paper’ for assignment to be legally enforceable. The GCC can benefit greatly with capture of open account trade flows from these as well as other Asian countries.

A focus on SMEs There is an increasing acceptance of the fact by several experts and thinkers that the economic recuperation after the turbulence of the last few years is going to be driven by SMEs which will play an increasingly important role. It is heartening to note that there are various initiatives taken at government, quasigovernment as well as by the private sector that are directed to encouraging the growth and development of the SME sector. Factoring can play a big part in giving an impetus to this. Banks which view SME as a ‘riskier’ sector can be comforted by the in-built controls and additional recourses that factoring affords, not to mention the spreading of risk on more well established debtors. Growth of factoring in Asia There is a shift in emphasis on trading partners in the recent past and a large component of trade which was traditionally conducted with USA and Europe has been substituted with a predominance of trade with India and China. It is pertinent to note that there is a proliferation of factoring companies in China with the sole intention of crossborder, open account trade facilitation. India too, has recently mooted laws to encourage the growth of factoring – most notably being the dispensation of using ‘stamp paper’ for assignment to be legally enforceable. The GCC can benefit greatly with capture of open account trade flows from these as well as other Asian countries. 30

OCTOBER 2012

Economic exigencies – prompting a re-look The climate of financial uncertainty of the last few years – post 2008 – has forced businesses to focus among other issues, also on counter-party risks and financial risks along the entire supply chain. While this may have prompted a greater reliance on documentary trade in some sectors, in other sectors it has led to increased interest in making the open account trade ‘safer’ – enter factoring! Growth of receivables insurance Until recently, local insurance providers were not active in providing credit cover or receivables insurance. The increased activity and regional focus of multinational insurance providers has strengthened the offering of open account trade. Today the GCC boasts of local presence of insurance giants in this sphere such as Euler Hermes, Coface and Atradius, among others.

FUTURE TRENDS Political tumult has marked the MENA region from late 2010/early 2011. While it would be premature to hazard a guess about the full impact of the associated developments, a large number of experts believe that the Arab Spring will have at the least some positive benefits for the GCC. Also the favourable oil prices and the increase revenues are expected to provide further impetus to the infrastructural projects in the GCC. Greater economic activity is also expected from the large outlays planned by Qatar in preparation for the FIFA 2022.

It is expected that the political and economic turbulence experienced both regionally and globally will lead to improvements in governance as well as more transparent social commercial and economic regulations. From a factoring perspective, some of these are hoped to lead to an introduction of bankruptcy laws, improved assignment norms, more robust activities of insurance and rating agencies. It is understood that the GCC has been a ‘feeder’ of sort for a large part of the MENA with increased trade to Africa. To fully capture the open account component of this as well as exploit the entire potential, there is a requirement of correspondent factors in Africa which has been hitherto absent. It is heartening to note that a bank with a pretty large footprint (Ecobank), is expected to enter this area shortly and it is anticipated this will also assist open account trade in this important region. Last and most important, a few banks in various parts of the GCC have begun to increasingly appreciate the importance of this trade offering and these have geared up their efforts to fill the lacuna that still exists. While this is very encouraging, it is disappointing to note that a surprisingly large number of banks purport to offer factoring but have not made the necessary investment in skill, expertise, software and processes. The faster it is appreciated that shortcuts not only limit their own offering but also harms the overall industry, the better it would be for all concerned. In the meantime the handful of banks that have made the leap are reaping the benefits and it is hoped that in time other banks will also follow suit. In summary, factoring is an important parallel form of financing aimed at the open account sphere of trading activity and at present there are compelling drivers to give this further impetus. Some of the GCC based banks have made positive steps towards adoption of this facility and there are all indications that the momentum will pick up pace in the short term future. For those interested - watch this space!

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TRADE TALK Risk management

Providing a safety net For part two of our research into the UAEâ&#x20AC;&#x2122;s commodities and trade finance sector, we interviewed Paul Boots, Director, DMCC Tradeflow, who was instrumental in launching their risk mitigation tool in February 2012. 32

OCTOBER 2012

hat is DMCC Tradeflow?

DMCC first launched its global commodities receipt (GMR) platform as a commodity risk mitigation tool in 2004 and then developed it further in the wake of the financial crisis. As one of the regionâ&#x20AC;&#x2122;s leading commodity centre, DMCC took the new financial reality as the opportunity to reflect on its role within the industry. In response to real market needs, primarily on the issue of creating greater liquidity for commodity traders, the DMCC Tradeflow was launched in February 2012. DMCC Tradeflow is an electronic interface that provides access to the central registry of ownership for commodities stored in Dubai. Through the platform, electronic documents of the title (DMCC Tradeflow Warrants) are issued by warehouse companies and collateral managers on behalf of the owners that have stored goods in their warehouse. The platform allows financiers from around the world to reduce their lending risk by taking commodities that are stored in Dubai as collateral for working capital loans. Thus, DMCC acts as the registrar and legally registers the beneficial ownership of these goods, allowing for fully enforceable pledges to be created in favour of the lender. To summarise, DMCC Tradeflow is a Dubai-government initiative which stimulates commodity trades by reducing risk for all parties involved in commodities trade, storage and finance.

You mention storage â&#x20AC;&#x201C; why is that important?

In order to ensure that commodities that are pledged to a bank exist, the financiers rely on third-party confirmation of the goods. Goods that are stored in the warehouse are under the control of the warehouse keeper, which reduces the risk of flight as the lender is not in control of his goods.

How do financiers identify potential risks related to the warehouse or storage facility? Your question is a pertinent one and during our market research, the financing

ABOUT

Visit www.dmcc.ae for further information about the Jumeirah Lakes Towers Free Zone

community clearly indicated that they are seeking a cost effective way to identify risks related to storage of goods. In response to this need, the DMCC implemented a formal warehouse qualification and inspection programme as part of the DMCC Tradeflow offering. Unlike any other commodity trading platform, the DMCC not only approves warehouses to be used as part of the platform, but goes one step further by providing banks a measure of granularity with regards to the quality of service and amount of risk one can expect for each of the warehouses on the system. The programme provides a warehouse rating against a detailed statement of obligation set out by DMCC, providing financiers a level of assurances and allows them to improve their offers to clients who are using higher-rated facilities. The programme has been structured to ensure that it covers all applicable standards for best quality warehouse setup, organisations, system, security and service. It adopts a star-rating model where the warehouses are awarded one to five stars, depending on the outcome of inspections. As this levelled-rating model, a warehouse will not be able to achieve the next rating unless they complete the requirement of the previous level. The missing requirements to achieve the next level are shared with the warehouses and DMCC

Paul Boots, Director, DMCC Tradeflow

works with them to offer the opportunity to improve their rating. In short, this disciplined, warehouse structure offers the much needed transparency and credibility to traders and financiers who have a vested interest in goods stored in Dubai.

So how has the take up been?

The financing community appreciated the greater transparency. As for the warehousing community, they have been eager to get rated and started using the warehouse rating programme to enhance their credibility and as part of their marketing efforts.

DMCC Tradeflow is an electronic interface that provides access to the central registry of ownership for commodities stored in Dubai. Through the platform, electronic documents of title (DMCC Tradeflow Warrants) are issued by warehouse companies and collateral managers on behalf of the owners that have stored goods in their warehouse.

OCTOBER 2012

TRADE TALK Risk management

The platform allows financiers from around the world to reduce their lending risk by taking commodities that are stored in Dubai as collateral for working capital loans. Thus, DMCC acts as the registrar and legally registers the beneficial ownership of these goods, allowing for fully enforceable pledges to be created in favour of the lender.

Having explained DMCC Tradeflow and the importance of warehousing, can you give us an example of how it all comes together? For example, Company A has purchased 50 tonnes of steel to be delivered to Dubai. Once the goods arrive in Dubai, Company A will deliver it to a rated-warehouse of their choosing. Simultaneously, Company A goes on to the DMCC Tradeflow platform to create an inventory record. Through the platform, Company A will then request the warehouse keeper to confirm that the goods have arrived in the warehouse and are now stored. Once this confirmation 34

OCTOBER 2012

has been received, Company A will request for a warrant to be issued by the warehouse keeper. Once the warrant is issued, Company A can pledge the beneficial ownership of his goods to a bank in return for working capital. Once Company A repays his loan, he can request the bank to release the pledge, handing back full control of the 50 tonnes of steel.

Knowing all of this, what are the real benefits for each participant (owner, financier and warehouse owner)? Firstly, for owners, DMCC Tradeflow allows commodity traders from around the world

a legal representation of ownership of commodities they have stored in Dubai and offers them a different avenue to access trade finance. Secondly, for financiers, the platform helps identify and mitigate risks related to commodity trade finance. The standardised contractual framework that has been created as part of the platform saves costs and provides assurances in case of default. Lastly, warehouses benefit from the rating programme implemented and administered by DMCC and are using the credibility that comes with that to attract new business.

Lastly, what has been the market response since the launch in February?

This uplift in trade through Dubai has resulted in ever growing demand for working capital to finance the process. We are seeing the proof of this in the number of pledges that are being registered but even more so, we are witnessing increased trust of financiers in our service as the values of individual pledges continue to rise.

country

FOCUS

GERMANY

BILATERAL TRADE

INVESTMENT OPPORTUNITIES

DOING BUSINESS

OCTOBER 2012

FOCUS Interview

Look west! Economic ties with Germany and the UAE have witnessed steady progress, with Germany being UAE’s 3rd largest trade partner. We caught up with Dr. Peter Goepfrich, CEO, The German Emirati Joint Council for Industry & Commerce, to get this viewpoint on where the relations are headed.

lease give us a brief background on the trade relations between the UAE and Germany

Since a strategic partnership between the German and the UAE government was established in the year 2004, the UAE have become the top market for German exports and investment within the MENA-Region, with German exports to the UAE reaching a yearly amount of more than AED 25 million. Vice versa the UAE have become an important investor in Germany, with the highlights of a share in the famous car brand MERCEDES as well as having established a solar panel production plant in East of Germany by Mubadala, technical investment arm of ADIA.

What are the main products exported and imported between the two countries?

The main export products of Germany to the UAE are cars and trucks, machinery as well as electrical and chemical products and pre-products. Germany, albeit on a far smaller scale, imports from the UAE petrochemical products, ceramic tiles, recently also some kind of processed foodstuff. Germany is investing in the Downstream – and petrochemical industry as well as into the construction- and building materials sector.

How has the trade relation evolved over the decades? The trade relations have been continuously improving with about 1000 subsidiaries of German parent companies having set up in the UAE. Many of these are in the freezones in the several Emirates using the 36

OCTOBER 2012

secondly to get a grip on the technological innovation, prevailing in these companies.

Are there any issues that foreign companies need to be aware of when they decide to set shop in Germany?

Dr. Peter Goepfrich, CEO, The German Emirati Joint Council for Industry & Commerce

UAE as a trade – and distribution hub for serving the surrounding regional markets in the GCC, Asia or in Africa. Nevertheless there are an increasing number of Emirati companies and natural persons, using Germany as the gateway to Europe, many of them are also buying property there, especially in Munich and around.

For Middle Eastern companies, keen on investing in Germany- what advice would you like to give them? Germany is the largest and strongest market within the European Union and it has a very sophisticated and robust, innovative and varied industrial sector. The backbone of the German economy is small- and medium-sized companies (SME’s), many of them still family – owned and most of them world market leaders (hidden champions) in the special field. It is advisable to try to invest in such companies, firstly to get a solid partnership and a solid return, but also

Germany is a rather liberal country with a comparatively attractive package for foreign investors. Germany is a federal state, the incentive packages offered to potential investors vary from state to state, so it might be useful to study, in which federal state should you go.

Which sectors offer potential for German companies in the UAE and for Middle Eastern business in Germany?

There is a lot of potential in the energy sector, especially with regard to renewable energy technologies as well as in other sectors such as environmental technology, waste treatment, food processing and so forth. As for Middle Eastern business in Germany, there are opportunities in various fields, be it investments in large brands as well as SME’s in various industrial sectors.

How do you see the bilateral economic relation evolving in the coming years?

The UAE will be at the forefront of German business interests in the Middle East as Germany will be in the core of the UAE business interests in Europe, though competition for both sides from business opportunities in Asia will put a test for the sustainability and the good will of the strategic partnership.

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FOCUS Bilateral trade

A steady partner UAE is one of the most significant trade partners for Germany in the Middle East, and the robust trade growth is visible with the German exports to the UAE being close to 8 billion Euros in 2011. We take a look at some numbers to understand the trade relations between the two countries. 38

OCTOBER 2012

n 2010 the UAE was the largest buyer of German products in the Arab world, thus making Germany its fourth largest trading partner. A testimony of the growing bilateral ties, is the increase in the number of German companies established in the UAE. Statistics indicate there are over 1,000 German companies and close to 9,000 German nationals in the UAE, with Dubai accounting for around three-fourth of these.

Bilateral trade between the UAE and Germany 2000-2011

German imports from the UAE

http://vae.ahk.de/en/united-arab-emirates/information/bilateral-relations-germany-uae/

As we can see from the table above, the German imports from the UAE have gone up. The top five products were: • Aluminum and aluminum alloyed waste and scrap • Petroleum and natural gas • Return material • Synthetic goods • Finished products

On the other hand, exports to the UAE have been quite high but dropped a bit in 2011.

German exports to the UAE

The top five products exported to the UAE from Germany were: • Aircraft • Automotive • Equipment for electricity generation and distribution • Telecommunication devices • Machines

In terms of overall bilateral economic relations, the UAE is Germany’s most important trading partner in the Arab world. In terms of the volume of trade, the UAE’s importance as a market for German exports is comparable with that of India, Hong Kong or Singapore. Even in post-crisis year 2011, bilateral trade was substantial. German exports to the UAE still stood at EUR 7.5 billion, 1% less than in 2010, while German imports from the UAE were worth approximately EUR 1 billion. Germany thus remained the UAE’s fourth largest trading partner, after India, China and the USA and ahead of Japan. Its principal exports to the UAE are aircraft, cars, machinery, electrical equipment, pharmaceuticals and energy technology. In 2009, the Emirate of Abu Dhabi in particular made significant investments in Germany (in companies like Daimler, Global Foundries in Dresden and in Thuringia’s photovoltaics industry). Conversely, the UAE is, for its part, hoping to see an increase in German investment in the country. All the instruments for promoting German foreign trade are available in the UAE. The

German Embassy in Abu Dhabi and the German Consulate General in Dubai provide advice and political support; correspondents of Germany Trade & Invest (GTAI) in Dubai draw up sectoral analyses and evaluate calls for tenders. In addition, the German-Emirati Joint Council for Industry and Commerce (AHK) was set up in 2009, making Germany the first country to open a bilateral chamber of industry and commerce in the UAE. Its job is to further intensify bilateral trade and improve German companies’ access to markets in the UAE. There are as many as 1,000 German companies operating in the UAE, most of them in Dubai and Abu Dhabi and a far smaller number in the five Northern Emirates. There are some 10,000 German nationals living in the UAE, most of them in Dubai. Agreements between Germany and the UAE include an air transport agreement, an investment promotion and protection agreement and a new double taxation agreement that took retrospective effect as of 1 January 2009 after being ratified in mid-2011.

Even in post-crisis year 2011, bilateral trade was substantial: German exports to the UAE still stood at EUR 7.5 billion, 1% less than in 2010, while German imports from the VAE were worth approximately EUR 1 billion.

OCTOBER 2012

FOCUS GERMANY

Investing in Germany made easy As part of the country focus, we bring you details about how to set up business in Germany and the rules and regulations you need to be aware of.

he United Kingdom, France and Germany did not have to control foreign investment until the Second World War, as they were capital-exporting countries before that. However, when they were faced with the challenge of upsurge in American investment after the Second World War, they used a number of formal and informal mechanisms to ensure that their national interests are not hurt. Formal mechanisms included foreign exchange control and regulations against foreign investment in sensitive sectors like defense or cultural industries. At the informal

OCTOBER 2012

level, they used mechanisms like the SOEs (small-order execution system, which was implemented to provide automatic order execution for individual traders with orders less than or equals to 1000 shares), restrictions on take-over and “undertakings” or “voluntary restrictions” by MNCs in order to restrict foreign investment and impose performance requirements. Recent changes to foreign investment laws and policies have in some cases subjected foreign investment to greater scrutiny. Specifically Western countries,

as Germany, have changed or considered changing their foreign investment laws – policies or processes in the last years; many of the changes demonstrate an increased emphasis on national security concerns. Foreign Investment Regulation Foreign direct investment is defined as the purchase of real assets abroad for the purpose of acquiring a lasting interest in an enterprise and exerting a degree of influence on that enterprise’s operations. There are several different kinds of

foreign direct investment, including the following:

1. Greenfield investments: A Greenfield investment is the investment in a physical structure in an area where no corporate facilities previously existed. It normally entails complete ownership and therefore full control over management. 2. Strategic partnerships: A strategic partnership is a formal alliance (joint venture, licensing agreement, distributorship, or agency contract) between two commercial enterprises, usually formalized by one or more business contracts, where they mutually participate in certain activities (advertising, branding, product development, and so forth).

3. Mergers and acquisitions: A merger is a business event wherein two or more companies decide to pool their assets to form a single new company. In the course of this transaction, one of the previously existing companies ceases to exist. An acquisition does not necessarily constitute a merger if the pre-existing companies continue to exist. Both of these business transactions can result in a foreign entity gaining a portion of a domestic entity. Customs and tariffs Single Customs Tariff in the EU Import duty is stipulated by the Common Customs Tariff (CCT) and import duty tariffs are the same for all member states. The applicable tariff rate can be researched at the EU’s TARIC (Integrated Tariff of the European Union) database. The nomenclature of the EU customs tariff is based on the Harmonised Commodity Description and Coding System (HS) of the World Customs Organisation (WCO). Through the regulations defined in the system, every single commodity can be classified according to the nomenclature and allocated a commodity number (the “goods code”). The vast majority of tariff rates are

Import duty is stipulated by the Common Customs Tariff (CCT) and import duty tariffs are the same for all member states. The applicable tariff rate can be researched at the EU’s TARIC (Integrated Tariff of the European Union) database.

stated as ad valorem values. The basis for their calculation is the customs value of the goods. This is defined in accordance with the GATT (General Agreement on Tariffs and Trade) customs valuation code - the basis for assessment of customs values valid worldwide. According to this code, the customs value of imported goods is usually the so-called “transaction value,” in other words, the value of the consignment according to the commercial invoice not including any adjustments such as transport and insurance costs up to the EU border. The European Customs Union All member states of the European Union (EU), including Germany, form a customs territory (the European Customs Union) where unified customs arrangements apply. Goods imported into the EU are subject to EU-wide import regulations, customs tariffs and customs procedures. This means that customs duties are only levied when the goods are imported into the EU. Once goods have been imported into the EU, no further customs duties must be paid within the customs territory - even if the goods cross internal borders of member states. Customs procedures Goods in the customs territory of the EU either have the status of Community goods (goods manufactured or obtained in the EU or “goods released for free circulation”) or of non-Community goods (all goods which do not comply with the criteria of Community goods). Importers may only be in possession of a limited amount of noncommunity goods, or in some cases none at all, according to the amounts permitted by the customs administration.

Overview of different customs procedures Different customs procedures apply, subject to the reasons why goods are imported. Goods may be imported to be sold, repaired, temporarily stored or used in the production of other products for re-exportation. In total, the Community Customs Code stipulates eight different customs procedures (including export procedures which are not detailed here). The intended use of the goods determines which customs procedure is applied.

Customs declaration The presented goods are then declared for a customs procedure. In order for this to happen, a customs declaration must be submitted. This can either be submitted in writing as a customs declaration form (single administrative document) or electronically via the ATLAS procedure. Information about the procedure can be found at the website of the German Customs Administration. Declaration formalities must be carried out by a company registered in the EU. Submission of the customs declaration by a representative, such as a forwarding agent, is permitted. In the case of regular imports, there is also a possibility of simplified customs declarations where certain details can be skipped. These details must then be submitted in the form of a supplementary declaration within a period of 20 days (45 days in the case of maritime transport). Customs number All companies which submit customs declarations more than three times a OCTOBER 2012

FOCUS GERMANY

year must include a customs number in the respective customs declarations. This number is issued by the customs administration on request and serves as an identification and reference number under which all addressees of consignments and all authorisations issued by the customs administration are gathered. All companies registered in the EU can apply for certification as an Authorised Economic Operator (AEO) from the respective Head Customs Office.

Customs declaration documentation As well as the customs declaration, a number of other documents usually have to be presented when releasing goods for free circulation: • Declaration of customs value (with value of goods greater than EUR10,000) (or: with goods valued more than EUR 10,000) • Commercial invoice or proof of value • Transport documents (such as CMR form, air waybill or bill of lading)

Depending on the goods, other documents may also be required, including: • Certificate of origin/declarations of origin/movement certificates (such as in the case of the utilisation of benefits from free trade agreements, preferential agreements, cooperation agreements and association agreements) • Import permits/import licences and surveillance documents • International import permit/delivery verification certificate (such as in the case of goods and technology with strategic importance)

Double Tax Agreement There is a new Double Tax Agreement between Germany and the UAE, which was signed on 1st July 2010 and came into effect on 14th July 2011. It applies retroactively from 1st January 2009. The most important change is the changeover from the exemption method (Freistellungs methode) to the credit method (Anrechnungs methode), i.e.

OCTOBER 2012

• A German company’s subsidiary (branch or representative office)in the UAE is not subject to income tax unless the company belongs to one of the following branches: banks, petroleum and natural gas engineering, petrochemical industry for which a tax rate of up to 55% applies. • In Germany according to §8b I, 5 KStG, up to 95% of the distribution of profits between a mother company and a daughter company is not subject to taxation. • Only the distribution of profits to the shareholders of the German parent company is subject to taxation – either within the scope of the partial income method (Teileinkünfteverfahren) or within the scope of the flat rate

Government would not interfere with. The new agreement however, introduces a system where any paid taxes in the UAE are to be set off against the otherwise payable taxes in Germany. Given the fact the UAE does not collect neither income nor corporate tax at all, it means that a German company operating in the UAE is now liable for paying taxes in Germany on the full amount of the income or profit they make in the UAE. This regulation apply for non-independent companies such as branch or representative office of German companies but does not apply however for German owned LLC’s set up in Dubai since they are considered UAE companies.

In short it means that, the previous agreement allowed for an exemption from German tax duties if a German company was operating in the UAE. Practically that insured a German subsidiary a tax free status under UAE law that the German Government would not interfere with. The new agreement however, introduces a system where any paid taxes in the UAE are to be set off against the otherwise payable taxes in Germany. withholding tax (Abgeltungssteuer). • In the UAE, the business premises of a German company (joint-stock company) are not subject to the corporate income tax (Körperschaftssteuer). Contrary to the usual practice, the Double Tax Agreement does not provide for an exemption of the profits out of the foreign business premises. These profits belong to the assessment basis of the German corporate income tax but do not belong to the assessment basis of the trade tax (Gewerbesteuer) (§ 9 Nr. 3 in conjunction with § 21 GEWStG). In short it means that, the previous agreement allowed for an exemption from German tax duties if a German company was operating in the UAE. Practically that insured a German subsidiary a tax free status under UAE law that the German

The new regulations have an impact also on German individuals working in the UAE. If a natural person maintains his or her place of residence in Germany, s/he is subject to the German tax law and thus pays in Germany the due taxation amount on his or her worldwide income. Since there is no tax liability in the UAE, the allowance of foreign taxes is omitted. Mergers and acquisitions law in Germany Until 2004, Germany had no special legislation restricting foreign direct investment beyond general restrictions such as the need for antitrust clearance or regulatory requirements for investments in financial institutions which equally apply to investors from Germany, the European Union and elsewhere. In 2004, it was introduced that investors from

issuance of such clearance certificate, and it must issue it if the proposed transaction would not threaten the public order or security. Such instrument provides some compensation for the level of uncertainty that the flexibility of the term “public order and security” involves.

countries other than the member states of the European Union (EU) and the European Free Trade Association (EFTA, i.e., Liechtenstein, Iceland, Norway and Switzerland) would need to notify the acquisition of a business manufacturing or developing war weapons or armaments or producing crypto systems admitted for the transfer of state secrets, unless the investor directly or indirectly acquires less than 25 per cent of the voting rights. The German government is authorised to restrict or prohibit the acquisition if it would affect significant security interests of the Federal Republic of Germany. The German Foreign Investment Act was amended in 2009. Since, the government may also restrict or prohibit acquisitions by investors from outside the European Union and the EFTA if the acquisition “jeopardises the public order or security” which shall require an “actual and sufficiently serious threat that affects a fundamental interest of the society”. At the same time, the ECJ has pointed out that purely economic objectives or industrial policy would not qualify to pose a serious threat to the public order and security, and it would therefore not be sufficient to justify any restrictions with • the restructuring of certain sectors; • the enhancement of competitiveness of businesses or sectors; • monetary interests of the government including the reduction of public debt; 44

OCTOBER 2012

• the support and development of capital markets and the desire to enhance individual ownership in stock of listed companies; or • the general modernisation of the economy and the increase of productivity. Apart from these guidelines, relevant factors are the person of the acquirer, its home country, its current business and future intentions. It may, for example, be a criterion if the investor’s home country is subject to an embargo or if the investor in its home country is engaged in the defence industry even if the proposed investment is in an unrelated sector. Another item to be considered is the competitive situation on the market in which the target business operates. The less competitive, the more likely it is that an investor could influence the supply with the relevant products or services. In principle, the government has three months from the signing of a binding agreement on the acquisition to inform the acquirer that it wishes to commence investigations, and may within two months from receipt of all relevant information requested from the acquirer prohibit or restrict the transaction. In parallel, the Foreign Investment Act expressly enables an investor to apply for a clearance certificate by filing a description of the proposed investment, the acquirer and its business. Upon filing, the government has one month to decide on the

Competition Law and Intellectual Property Rights Laws Intellectual Property Rights Laws • Intellectual property rights enjoy a high level of protection in Germany. For technical and commercial innovations, property rights can be registered in the form of patents, utility models, trademarks, and designs. The same conditions apply to foreigners and German nationals when registering property rights. In fact, Germany occupied the top spot in the “intellectual property” category of the study mentioned above • Trademarks and patents are well protected in Germany. When establishing a company, you should remember to protect your company’s intellectual property by means of registration. Conversely, you should ensure that your company and products do not infringe on existing intellectual property rights that have already been established in the German market. A mark can be protected as a trademark by recording it in the register kept at the German Patent and Trade Mark Office (DPMA). As with patents, an application must be filed at the DPMA. For more information, please refer to the “Information for Trade Mark Applicants” fact sheet available at the DPMA website. • Foreigners may register patents subject to exactly the same terms as German nationals (this is also the case with trademarks). However, applicants having neither a domicile nor an establishment in Germany must appoint a patent attorney in Germany as a representative filing the patent application. • At present, the fee for trademark registration application and entry in the

FOCUS GERMANY

trademark register is around EUR 300. • Once trademark protection has been obtained, the owner of a trademark has an exclusive right to use the respective trademark. If the trademark has been registered, the owner can indicate this by placing ® (registered trademark) after the trademark. Protection is valid for a period of ten years and can then be extended for another ten years • License: The right to use a patent or a trademark may be subject to either an exclusive or a general license. By granting a third party a license, the owner of a patent or trademark entitles a third party to use or exploit the right in question without ceding ownership • An exclusive license entitles only the licensee (i.e. the person that has been granted the right of usage) to exploit the right, usually within a certain territory. General licensing or non-exclusive licensing enables various licensees to use a right in the same territory at the same time

Competition Law Unfair Commercial Practices instead of competing activity The term “competing activity” is replaced by the term “Commercial Practices” in the new Competition Law, which is valid in Germany since December 2008. This renaming was necessary because competition should no longer be the only purpose, but also consumer protection an issue. The new term covers every activity, default, mode of behavior or statement, commercial note including advertising and marketing of tradesmen, who are directly responsible for merchandising, sales or delivery of products to consumers. The German Act against Unfair Competition (Gesetz gegen den unlauteren Wettbewerb, UWG) prohibits certain trade practices, which are considered unfair, excluding cartel law and merger control, which are governed by a separate Act (Gesetz gegen Wettbewerbsbeschränkungen, GWB). The Act against Unfair Competition has been thoroughly revised with the aim of modernizing German law against unfair 46

OCTOBER 2012

competition and bringing it into line with developments in EU law. The stated aims of the revision are to increase consumer protection, to provide greater transparency of the rules relating to unfair competition, particularly for non-lawyers, and to provide more freedom to businesses.

Advertisements with implicitness on the Internet On the Internet, indicating that a legal right is something special of a particular offer will be considered as unfair. That means, that a trader can still indicate the warranty rights for example within the context of the general terms and conditions, however, it is forbidden to have a prominent advertisement on the homepage for warranty. If the general terms and conditions mention warranty rights for consumers, it must be correct. If the general terms and conditions are wrong with regard to warranty rights, this is unfair within the meaning of § 5 par. 1 No. 7 UWG (Unfair Competition Act).

Information Referring to the German Remote-Purchase Law (Fernabsatzrecht), the enhanced UWG (Unfair Competition Act) demands further information obligation. Thus, always necessary information for specific offers is the identity and address of the businessman on behalf of whom he is acting. This obligation to disclosure of the persons behind the business goes far beyond the so far demanded indication to agents.

The new black list An important component of the new UWG is the “black list”. The black list refers to activities that are uniformly prohibited across the entire European Union without any room for interpretation. It encompasses in total 30 statements of facts which are to be sanctioned. § 3 par. 3 UWG defines all these illegitimate business activities including for example advertisement for children. It also regulates chances of winning in lotteries, which may not increase by purchase of goods or statements claiming that the employment or livelihood

of the businessman is endangered if the consumer does not purchase the goods.

Employment Law – visa requirements • Citizens of non-EU countries generally require a visa to enter and stay in Germany • For short-term stays in Germany (stays not exceeding 90 days per six-month period starting from the inital date of arrival) a Schengen visa is needed which is generally sufficient for most steps required to establish a business in Germany • Is the duration of the stay exceeding 90 days (per six-month period) or is a (self-employed or gainful) occupation taken up, all non-EU citizens require a residence permit (Aufenthaltserlaubnis) or settlement permit (Niederlassungserlaubnis). The respective German embassy initially issues a national visa for entry into Germany. The national visa is converted into a residence or settlement permit by the local immigration office (Ausländerbehörde) in Germany

Visa for Employee • Employees who are from non-EU countries and who are employed in a new subsidiary company in Germany require a residence permit for the purpose of taking up employment (Aufenthaltserlaubnis für abhängige Beschäftigung) in Germany • The residence permit for the purpose of taking up employment contains both – the permit to stay and the permit to work in Germany. Foreign nationals do not have to apply separately for a work permit. The residence permit for the purpose of taking up employment contains a statement as to whether and to what extent work will be permitted • As with a residence permit for selfemployment, a residence permit is issued to employees for up to three years. As a rule, the residence permit can be extended without any problems. After five years a permanent settlement permit is issued in most cases.

INDUSTRY FOCUS COFFEE

What’s brewing? The Dubai Chambers of Commerce and Industry, examines the business prospects for the UAE coffee industry given chances of increased long run demand from potential foreign markets.

he UAE coffee industry is part of the food and beverage sub-sector. Food and beverage is a vibrant sub-sector of the economy with activities covering manufacturing, processing, wholesale and retail trade, import and re-export of coffee beans and selling of instant as well as brewed coffee at retail stores. While per-capita consumption of coffee has been high in developed economies, especially those with colder climates, growth of population and incomes and urbanisation in emerging markets in the Middle East and North Africa (MENA) region have also led to growth in demand for products such as coffee in the region. This is a trend that UAE based traders of coffee have used to increase coffee re-exports. According to the UAE Ministry of Foreign Trade, the UAE has been one of the major five coffee re-exporting countries in the world during the period 2005 to 2008. Coffee is therefore becoming a more important commodity for the UAE not only for domestic consumption 48

OCTOBER 2012

as the population grows but as a lucrative commodity for re-exports.

UAE Coffee Industry overview The growth of Dubai’s population and increase in income over the years has resulted in the growth of coffee shops, which have registered an increase every year. Dubai’s evolution as an important re-exporter of coffee has also resulted in a consistent year on year increase in the number of coffee trading companies. Important sources of coffee imports for the UAE in 2011 included Brazil, Italy, Switzerland and Germany. According to the International Coffee Organization (ICO) the top three countries with the most exportable surplus in the world in crop years 2011/2012 included Brazil, Vietnam and Colombia. In the future these countries with large exportable surpluses could also be analysed for their potential to supply the UAE with quality coffee for domestic use and reexports. According to the ICO the two main

kinds of coffee classification are Arabica, which accounts for over 60% of world production and the somewhat bitter Robusta type. Overtime more sophisticated blends have also emerged such as Colombian and Jamaican blends. Also increased awareness of sustainability among consumers has helped in the emergence of coffee certified as grown through socially responsible practices. Opportunities for the UAE Coffee industry The ability of UAE traders to effectively intermediate between the major producers of coffee and importing markets is what has led to the UAE becoming a major reexporter of coffee. The opportunities which could help UAE traders an important consideration when re-exporting a commodity is the difference between the price paid for imports and the prices received for re-exports. Therefore countries willing to pay higher prices per unit of imports are important potential

markets. The table highlights some selected markets, ranked by high import prices, which saw growth in the value of coffee imported from the world between the years 2006 to 2011 and where importers on average paid a more lucrative price as compared to importers from other countries. The markets selected above are also those in which the annual value of imports is in the millions and sometimes more than a hundred million dollars. Another point to note is that many of these countries, such as Greenland, Lithuania, Latvia and Austria are located in Central and Northern Europe. According to the International Coffee Organization (ICO) countries in Northern and Central Europe such as Finland, Denmark and Austria have high per capita consumption of coffee. The colder climates of these countries coupled with the affluence of their populations could be one reason why there

Challenges for the UAE Coffee industry The increased demand for coffee also causes some challenges. For example, as demand has continued to increase, the price of coffee has also generally increased from around the year 2002 to present Rising international prices of coffee can be a challenge for businesses. Furthermore, coffee prices can sometimes be volatile and can experience falls. This happens from time to time and occurred recently. For example, according to the ICO,

is a high need to import coffee and also a willingness to pay relatively higher prices. Consumers in these markets may also want better quality brands of coffee. Interested re-exporters of coffee from the UAE should therefore conduct further market research in these target markets, to secure potentially lucrative re-export opportunities. The countries highlighted are some examples of potential markets. In fact much of the growth in coffee consumption has been in emerging markets. For example, according to the ICO from 1990 to 2011, the consumption of coffee has increased the most in emerging markets, growing by a total of about 118% during this period. Growing populations coupled with growing income are some of the reasons for this increased demand.

the average monthly price of Robusta coffee has fallen from about 121.98 US cents per pound in May 2011 to about 106.88 US cent per pound in May 2012. While UAE business should do their own analysis, locking into low prices using long-term supply contracts at times when coffee prices register large falls can potentially be one way to mitigate the impact of a period of rising international coffee prices. Because of the different kind of coffee types, there is also a need to maintain quality control to ensure the purchase of high quality coffee. Sourcing quality blends could also give UAE businesses an advantage as the quality of the blend impacts taste and therefore a customerâ&#x20AC;&#x2122;s willingness to pay. Another challenge includes customer awareness both in domestic and foreign

Coffee traders wanting to re-export to other markets in the MENA region have historically used the UAE as a re-export hub. The UAE has therefore emerged as an important re-exporter of coffee to markets that are geographically close.please.

Selected potential coffee re-exports markets

markets about the need to buy coffee from sources using sustainable farming practices. UAE businesses could turn this to their advantage by importing coffee from sustainable sources and thereby differentiating their products.

Conclusion Coffee traders wanting to re-export to other markets in the MENA region have historically used the UAE as a re-export hub. The UAE has therefore emerged as an important re-exporter of coffee to markets that are geographically close. In the future, emerging markets and countries with high per capita coffee consumption seem to have potential for growth of coffee re-exports from the UAE. As demand for coffee in emerging markets grows, while per capita consumption in colder climates in wealthy countries remains high, UAE traders can take the next step in exploring opportunities in both kinds of markets. Targeting wealthy consumers in these markets with sales of differentiated coffee brands could help UAE business increase their sales while better prices could improve profit margins. Furthermore, selling coffee sourced from sustainable sources could also help increase sales, as customers become more socially responsible. Vertical integration by setting up outlets selling coffee and related products in countries with growing demand could also help UAE businesses increase their share of these markets. These measures could help the UAE become the hub for coffee trading for the emerging markets of the MENA region, South Asia and Africa. * The article has been taken from the economic bulletin prepared by the Dubai Chamber of Commerce and Industry (www.dubaichamber.com)

OCTOBER 2012

Community events calendar

Save the date!

EXHIBITION

DATE

PROMAT

21st - 24th

LOCATION USA

Trans Oman

28th - 30th

Oman

The NAFEM Show 2013

1st

USA

Printpack India

5th - 10th

India

February 2013

We know that you are a busy trader with a demanding events diary. Therefore, we are providing you with a snapshot of exhibitions and conferences in the region and around the world, so you spend less time planning and more time attending.

EXHIBITION

DATE

Regional Consumer Goods

15th - 17th

Germany

IDEX 2013

17th - 21st

UAE

Australian Oil and Gas Exhibition

20th - 22nd

Australia

CeBIT 2013 (IT)

5th - 9th

Germany

Propak Africa

12th - 15th

South Africa

LOCATION

EXHIBITION

DATE

LOCATION

October 2012 TOC Container Supply Chain

1st - 3rd

UAE

Koplas

12th - 16th

Korea

Centrallia

10th - 12th

Canada

Transinfra

13th - 15th

Switzerland

GITEX

14th - 18th

UAE

Motortec

13th - 16th

Spain

SCM Logistics World 2012

16th - 19th

Singapore

April 2013

Paper Recycling Conference & Trade Show

23rd - 25th

USA

SMM India 2013

1st April

India

Geosynthetics

1st-4th

United States

November 2012 2011 UFI Congress

1st

UAE

Brasilplast 2013

1st

Brazil

AutoRomania

1st

Romania

EMAQH 2013

1st-13th

Argentina

Oil & Gas Ukraine

1st - 3rd

Ukraine

Aluminium Dubai 2013

1st

UAE

Abu Dhabi International Petroleum Exhibition

5th - 8th

UAE

Intermodal South America

2nd-4th

Brazil

World Hospital Congress

8th - 10th

UAE

Building Material and Equipment

2nd-5th

Russia

Dubai International Jewellery Week Exhibition

10th - 13th

UAE

International ICT Expo

13th-16th

Hong Kong

Dubai International Motor Show

10th - 14th

UAE

May 2013

Dubai Air Show

13th - 17th

UAE

Del Mar Electronics and Design Show

1st-2nd

USA

International Tourism Exhibition (ITE)

14th - 16th

UAE

Business4Better

1st-2nd

USA

Roadex/Railex 2011

18th - 20th

UAE

India Warehousing Show

2nd-4th

India

2011 World Robot Olympiad UAE

18th - 20th

UAE

Arabian Travel Market

6th-9th

UAE

The Middle East HR Summit And Expo 2011

20th - 24th

UAE

Project Qatar

6th-9th

Qatar

HR Best Practices in Oil, Gas and Petrochemicals

21st - 22nd

Kuwait

Hofex

7th-10th

China

Gulf a la Carte 2011

21st - 23rd

UAE

WEPower

12th-14th

KSA

SIAL Middle East 2011

21st - 23rd

UAE

Power Gen India and Central Asia

13th-11th

India

FM Expo + Big 5 Show

21st - 24th

UAE

Cards and Payment Middle East

14th-15th

UAE

Milipol

26th

Qatar

Instal Middle East

14th-16th

UAE

Middle East Manufacturing Exhibition 2011

28th - 30th

UAE

Distree Middle East

14th-16th

UAE

SIM - Signage, Imaging & Media Show 2011

28th - 30th

UAE

PALME Middle East

14th-16th

UAE

Airport Exchange 2011

29th - 30th

UAE

Aquatech India

14th-16th

India

Global Water and Beverage Technology Congress

29th - 1st Dec

UAE

Saudi Food, Hotel and Hospitality Arabia

19th-22nd

KSA

Middle East Event Show

21st-23rd

UAE

December 2012 World SME Expo

1st - 3rd

Hong Kong

Cityscape Qatar

22nd-24th

Qatar

“China Import & Export Commodities Exhibition“

1st - 4th

Malaysia

Trans Middle East Beirut Exhibition and Conference

29th-30th

Lebanon

World Green Tourism 2011

5th - 7th

UAE

June 2013

Middle East Natural & Organic Products Exp

5th - 7th

UAE

Premiere Orlando

1st-3rd

USA

National Exhibition for Small & Medium Enterprises

5th - 8th

UAE

Aluminium China 2013

2nd-6th

China

International Real Estate & Investment Show

7th - 10th

UAE

International Operating Conference and Trade Show

3rd-5th

USA

Airport Suppliers Conference

11th - 12th

UAE

Hospital Build Middle East

3rd-5th

UAE

Abu Dhabi International Motor Show

19th - 23rd

UAE

Automotive Interior Expo

4th-6th

Germany

Energy Lebanon 2013

4th-7th

Lebanon

Tekno Tube Arabia

7th - 10th

UAE

Transport Logistics

4th-7th

Germany

Arab Plast

7th - 10th

UAE

Go Expo- Gas and Oil Exposition

11th-13th

Canada

Domotex Hannover

12th - 15th

Germany

Beirut International MediPharma Fair

13th-15th

Lebanon

Offshore Middle East

21st - 23rd

Qatar

Road Trans Africa

24th-25th

South Africa

January 2013

OCTOBER 2012

Get in touch! Would you like to list your event here? Or better still, list your detailed event profile? If yes, then please contact: aparna@cpidubai.com

March 2013

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