There are various trade barriers in the food retail industry in the United Arab Emirates. Most of these trade barriers are usually directed to the foreign multinational companies trying to enter the market. The first barrier is the food standards set by the United Arab Emirates. In the year 2008, UAE joined the gulf standards, which is an organization that develops the various food standards (Anderson et al., 2010). The organizations set standards and rules relating to labelling standards and shelf life. These regulations are normally made possible through the various committees such as the organic food and biotechnology and the food products labelling committee as well as the food additives subcommittees which is headed by Saudi Arabia. This organization ensures that the various food products retailing in the UAE meet the necessary standards. An example of such standards is the halal standard, which is used to ascertain that the product is safe for consumption by the Muslim community (Trade Policy and Regulation, 2016).
The other trade barrier in the food industry in the UAE is the customs and the tariffs imposed by the country. The Gulf corporation standard imposes a tariff of 5% on all processed food comedies and other unprocessed food comedies like spices, seeds vegetable, fruits and sugars. Consequently, any food product entering the UAE, which a member of the Gulf Corporation council charges a duty at entry points and this mainly applies to containers that have not been opened (Boughanmi, 2008). There are also various procedures that have to be followed when making food imports. The main reason for this was to ensure congruency in the clearing of the various food consignment. The labelling standards are also a barrier to some extent in the Unites Arab emirates and this limits the various traders’ from easily moving products unless they are properly labeled (Trade Policy and Regulation, 2016).
Food products usually contain various food additives and preservatives that are added to them. In the United Arab Emirates, there are various standards that regulate the amount of food additives that can be used in the food products hence food selling firms are forced to adhere to these standards in order for them to be able to sell the various types of food products (Trade Policy and Regulation, 2016). There are also various standards that are set agriculture products in line with pesticides and other contaminants residues being found in the food products.
These trade barriers in the UAE have various implications on multinational companies. The halal standards limit the variety of food products they sell. Food products that are not halal certified are not likely to be accepted or bought by people in the United Arab Emirates. This limits the sales capacity of the multinational corporations dealing in food products. The pesticide and other contaminants standard have sometimes led to a huge loss for the multinational companies especially when they procure tons of food products which are in turn rejected (Anderson et al, 2010). The standards also prohibit the uses of certain pesticides which when used the agricultural food products become rejected. In addition, the various tariffs that are imposed on imported food products usually reduce the level of profits that are made by the multinational companies. In the UAE, the multinational firms are expected to pay about 5% on closed containers of imported food products. Most of the multinationals usually obtain their commodities from other countries, and import some of it in the UAE (Trade Policy and Regulation, 2016).
The labelling standard rules in terms of container labeling usually slow down the activities of the multinational corporations since the have to follow certain labelling rules. There are different rules concerning food additives and preservatives (Boughanmi, 2008). Multinational corporations obtain different food product from different countries and transport them into UAE. In some instance, multinational corporations are usually denied the chance to import such food products into the UAE and this limits the scope of their business and in some instances even incur huge losses. These barriers, therefore, hinder the food industry at large in the United Arab Emirates market. The various measure should, therefore, be taken to smoothen the flow of food commodities between countries and hence improve the earnings of the multinational companies (Anderson et al., 2010). The consumers in the UAE, therefore, have a limited variety of food products to choose from. The barrier increases the purchasing power of consumers, as there is a limited variety of food products to choose from.
The tariff is currently 5%. When the tariff changes to 10% the will pay more. Assume the firm exports $ 5,000,000 worth. The tariff will increase from $250,000 to $500,000
.
When the quota changes the amount food products imported also increases. Assume the quota of spices for a single corporation is $10,000,000. When the quota is increased to $20,000,000 the firm will be able to import more of the food products into the UAE.
When the government increases the subsidy the GDP is likely to increase as a result of increased economic activities. When the government decreases its subsidies the multinational companies will be expected to pay more and hence there will be reduced economic activities I the country. The GDP may likely decrease relatively.
It is, therefore, clear that the various trade restrictions have an impact on the performance of the multinational companies and on the general economy. When the barriers are reduced to a relatively low amount the level of economic activities is likely to increase and so is the level of profits for the various multinational corporations. The trade restrictions, however, cannot be completely removed to ensure some level of control on the economic activities.
References
Anderson, K., Anderson, K., Nelgen, S., & World Bank. (2010). Trade barrier volatility and domestic price stabilization: Evidence from agriculture. Washington, DC: The World Bank.
Boughanmi, H. (2008). The trade potential of the Arab Gulf Cooperation Countries (GCC): a gravity model approach. Journal of Economic Integration, 42-56.
Trade Policy and Regulations in the United Arab Emirates: UAE- Food and Agricultural Import Regulations. (2016). Retrieved from http://www.globaltrade.net/international-trade-import-exports/f/business/pdf/United-Arab-Emirates/Trade-Policy-UAE--Food-and-Agricultural-Import-Regulations.html
