Trump’s tariffs ‘potential catalyst’ for increased goods distribution to UAE and Saudi Arabia

Although the so-called “reciprocal tariffs” that were announced on 2 April have been “paused”, other than in relation to China, for 90 days, other tariff increases, including a 10% baseline tariff as well as 25% on steel and aluminium and automotive vehicles, remain.

“While many businesses are urgently re-assessing their supply chain arrangements, investment decisions and wider business plans and operations, one obvious unintended consequence of the hike in US tariffs is likely to be a shift in trade flows away from the US to alternative markets. This is likely to be particularly true in relation to Chinese goods,” said Dr Totis Kotsonis, trade law expert at Pinsent Masons.

Historically, both the UAE and KSA have been pivotal players in global trade, linking Asia, Europe and Africa. As the US tariffs lead to potentially higher production costs as well as rendering more costly imports into the US, international hubs like the UAE and KSA are likely to offer attractive alternative markets to global manufacturers and exporters as they seek to mitigate the damages caused and maintain profitability.

“Global companies may pivot their focus away from the US and toward countries like the UAE to benefit from their strategic locations, robust infrastructure, and growing consumer bases,” said Alexandra Aikman, Dubai-based commercial law expert at Pinsent Masons. “Changes to the UAE commercial agency law for example, which became effective in June 2023, have since encouraged foreign investment and international businesses to continue to move to and operate in the UAE.”

The UAE, with its world-class logistics hubs like the Jebel Ali Port, and KSA, with its ambitious Vision 2030 initiatives, may be attractive to global businesses looking to redirect their goods.

As exporters seek to distribute goods in the UAE and KSA, they may adopt different strategies. Some may choose to distribute their goods directly, without appointing a local agent, leveraging their own networks and infrastructure after establishing a corporate presence within the region. Others may appoint local distributors to benefit from their in-depth knowledge of the market, established networks, and cultural insights. Both approaches require a thorough understanding of local distribution and agency laws to ensure compliance and avoid potential disputes.

In the UAE and KSA distribution arrangements are governed by the respective Commercial Agencies Laws, which in some cases distinguish between registered relationships, being those registered with the relevant ministry, and unregistered agency relationships.

In the UAE for example, registered agreements, which must be exclusive and generally involve a UAE national or a company wholly or majority owned by UAE nationals, offer significant protections to local agents, including exclusivity rights and potential compensation for termination. Unregistered agreements, on the other hand, provide more flexibility but lack the statutory protections afforded to registered agents. Some categories of goods are required to be subject to registered agency status, whereas the status of others is often the subject of negotiation between the manufacturer or exporter and the local distributor. The type of distribution arrangement and the registration status should be agreed at the outset of any distribution relationship.