Dubai: More Indian companies will be looking to set up production facilities in the UAE and Saudi Arabia if the US follows through on higher tariffs on direct imports from India. On Wednesday (August 6), US President Trump said India will face another 25% import duty for continuing to buy much of its oil needs from Russia.
As per the new US tariff regime, exports from the UAE and Saudi Arabia are pegged at 10%, which are seen as quite favourable for those businesses with significant trade exposure to the US markets. (Steel and aluminium exports to the US fall under the 50% duty category.)
This is what will interest Indian companies to set up direct production facilities in the UAE or Saudi Arabia and thus have a chance to reduce the high duty impact on Indian exports to the US. (For instance, Indian textile and garment makers with high export orders from the US – such as Kerala headquartered Kitex Garments – will find coping with the high US tariffs quite a burden.)
“No one believes tariffs on India will be at 50% – there is room for negotiation with the US,” said a top official with an Indian consumer goods company. “But even if the final tariff on India is at 15%-20%, Indian manufacturing companies with US clients have reasons to commit new investments in the UAE. And use those production for exports.”
Even before new US tariffs became a hot topic, many Indian businesses had announced investment commitments in the Gulf, with locations such as Dubai Industrial City and Kizad Industrial Zone being major beneficiaries. Now, with higher US tariffs for Indian exporters becoming a fact, those businesses launching production in lower tariff countries ‘becomes a necessity’.
Industry sources say that these production facilities in the UAE are mostly meant for export markets. With the US tariff situation, more companies from India will get the same idea.
Plus, for Indian businesses, there is also the benefits to be had from the CEPA (Comprehensive Economic Partnership Agreement) deal with the UAE.
“Indian businesses must recognize that the UAE’s import duty for Indian shipments in maximum cases is just 5%,” said Dr. Sahitya Chaturvedi, Secretary-General at Indian Business and Professional Council (IBPC Dubai) and Head of Internal Audit, Ajmal Perfumes
“For many commodities under CEPA coverage, including essential and fast-moving goods from India, it’s even 0%. When using UAE free zones for re-export, this duty can be entirely avoided.”
But other industry sources say that Indian businesses will be better off investing in future production in the UAE or Saudi Arabia rather than using these markets as transshipment hubs.
“The US will target transshipments at some point if these are seen as just to get away with lower tariff duties,” said an official with a free zone operator.
According to Krishnan Ramachandran, CEO of Barjeel Geojit Financial Services, “If the production base and value addition happens in the UAE, it (the US import duty) will be 10%.”
That should be what Indian manufacturing companies must target.
Exporting perfumes from UAE to US
“Current exports of perfumery products are proceeding smoothly under a 10% tariff rate. The market impact remains minimal at this stage. We are now preparing for the peak season from October to December.”
– Jimmy Chacko of Jimmy Aventus
