Free Trade Zones in Dubai - Research Paper Example

?Running Head: Free Trade Zones in Dubai Free Trade Zones in Dubai [Institute’s Free Trade Zones Introduction According to its definition, free trade zone (also known as foreign trade zone or export processing zone) is the region where trade can take place in the absence of any intervention from the part of custom authorities. Duties, tariffs, quotas, excises, subsidies, customs and other such concepts do not exist there and foreign investors have great deal of freedom to start up their business in these areas, often accompanied by tax breaks, less paperwork and few restrictions (Noack, 2007). In a free trade zone, all the imports are free from duties and all the exports from this region are free from restrictions but only when those goods reach to other destinations, they become subject to the local custom rules. Ireland was the first country to come up with this idea and the main purpose was to industrialize the rural areas of the country and attract foreign investment to induce the economy and provide better employment to the locals (Davidson, 2008). United States, China, Brazil, Indonesia, India, Malaysia, Philippines and many other countries have various free trade zones, all for the same purpose (Krane, 2009). United Arab Emirates is the recent addition to the list of the countries, which are looking for aggressive economic growth and one of the approaches taken for the same is setting up various free trade zones in order to encourage foreign direct investment (Oxford Business Group, 2010). The country has over 20 free trade zones and the paper is an attempt to shed some light on the free trade zones of Dubai Media City and Abu Dhabi Airport (Barrett, 2010). The paper will discuss their positive and negative contributions to the economy of UAE, benefits to investors and strategies for growth. Furthermore, the paper will also shed some light on the differences between employment rules in the free trade zones and other areas of the country. Discussion Dubai Media City It was in the year 2001 when the Dubai government launched Dubai Media City as a free trade zone that has now become the regional hub of media companies in the Middle Eastern regions. Reputable media companies such as CNN, BBC, GEO Tv, ARY Digital, Bloomberg, Cartoon Network, CCTV Orbit Showtime, CNBC and others have set up their regional headquarters and broadcasting centers in the city. Furthermore, Financial Times, The Sunday times, The Economist and other well known print media companies have their regional centers in the Dubai Media City. McGraw Hill, Forbes, ITP Publishing Group and other leading players in the publishing are also located in the city. On top of these, the city takes great pride in the fact that headquarters of the ICC (international Cricket Council, the supreme governing body of cricket worldwide) is located in Dubai Media City. Over 1400 companies are registered and operating in the Dubai Media city (Krane, 2009). Over the past decade of its existence, the Dubai Media City has been instrumental in boosting the economic growth of the country. Furthermore, not only it has helped to provide employment to the local people however as of today, Dubai Media City is the home to thousands of people skilled, trained, experienced and learned in media related jobs. Many foreign students come to Dubai for their media studies considering the exposure that they could get from Dubai Media City. Foreign Direct Investment has kept on increasing and the tourism and hospitality industry has received great deal of business (Kanna, 2011). The downside of all this economic growth is the fact that this economic growth cannot be termed as sustainable or long-term growth. Despite the fact that the GDP of the region and the country has increased greatly due to the presence of huge media companies, however, these companies have ended up with employing a significant majority of expatriates, non-locals and non-Emiratis (Oxford Business Group, 2010). These percentages range from 80 percent to 99 percent. The point here is that a huge portion of the income earned by these employees is not injected into the UAE economy for investment and spending but it ends it as remittances to other countries. Furthermore, the retained earnings by the companies also winds up into other countries because of the foreign nature of these companies with little or no local ownership (Tatchell, 2010). The Price Waterhouse Coopers and other leading experts have forecasted that the media region of Dubai will have a 16.5 percent compound annual growth rate in the next five years. This will not be the highest growth rate in region but also in the entire world. Great deal of spending is expected by industry players in the coming years to induce more growth in the region (Elsheshtawy, 2010). The overall strategy of the Dubai Media City has been of facilitating the investors to the utmost in order to woo them for their investments. Prior to the construction of the city, the officials had already built many skyscrapers, towers, roads, communication system, infrastructure and others in order to stage the perfect platform and basis for investment. Even as of today, the government is extremely attentive and responsive to the needs of investors (Ali, 2010). Abu Dhabi Airport Free trade Zone It was in the year 2007 when the decision was taken to make the Abu Dhabi Airport into a free trade zone. It was a part of the series of attempts made by the UAE government to strengthen its airlines industry and more specifically its local airlines. The free trade zone is built over an area of over 7 million square meters that aims to provide the investors with world class and best services all under one roof (Barrett, 2010). This step did only allow the airport to increase its annual passenger from 3 million in 1998 to 11 million in 2010 but at the same time, visitors and investors are spending great deal of money to boost the local economy. It is expected that the airport will be handling more than 20 million customers by the year 2016, primarily due to free trade zone and its aggressive expansion plans (Tatchell, 2010; Ramos, 2010). These free trade zones have seriously hurt the policy of UAE government to employ locals in their companies. The private companies and foreign investors claim that they are looking for specifically talented, skilled and experienced individuals and rarely any local fulfills the requirement. Despite the fact that these companies are contributing to the economic growth of UAE but their contribution to overall employment of the locals has been dismissive for the country’s policymakers. In fact, recently, the policymakers came up with a new classification of companies based on the percentage of locals that the company has employed. This will also apply on the free trade zone, the companies with the highest percentage of locals will receive many incentives, and tax breaks from the government of UAE (Greenaway, 2010). Investors reap many benefits by the choice of conducting business in the Abu Dhabi Airport free trade zone. Companies may enjoy 100 percent foreign ownership, 100 percent tax exemptions on all imports and exports, profits and capital investments can be taken back to the local country of foreign nationals, 100 exemption from all corporate taxes for 15 years and the option of renewing the same for another 15 years. On top of all these benefits, the investors also enjoy exemptions from all personal income taxes thus increasing their income (Kanna, 2011). The strategy used by the officials of Abu Dhabi Airport is of aggressive capital spending in order to make this location more feasible and viable to the investors. Over the years, the UAE government has gone to provide many exemptions and benefits to investors in the Abu Dhabi Airport and huge capital spending ensures that both the local and foreign employees get a continuous chance of employment (Kanna, 2011). Differences in Employment Rules The policy makers of UAE had decided that all companies operating in the UAE would have at least 51 percent of the ownership by the local Emiratis as an attempt to ensure that local people of the country could be promoted to leadership positions. However, these laws have been relaxed in the free trade zones and there are rarely any companies where the locals have been able to make it to the senior posts with a few exceptions (Barrett, 2010). Quite understandably, this fact is a negative reinforce for the locals who are seeking employment in these companies (Ramos, 2010). The labour laws in the free trade zones of UAE are very much in favor of the employer. The labour laws of UAE were made by keeping in mind the Islamic and Muslim traditions with holidays on Eids and other special occasions in Islam, working of around two hours per day during the Holy Month of Ramadan, Thursday and Friday being considered as the weekend, women not allowed to work during 10PM to 7AM and others. However, many of these laws have been relaxed in the free trade zones (Elsheshtawy, 2010). For example, the media companies, and specifically the broadcasting companies in UAE work accordingly to the time zones of European and American countries, thus forcing them to set these laws aside. The Article 9 and 10 of the labour laws of UAE clearly states that, “Work is a right of UAE nationals, and in case of non-availability of UAE nationals, the priority in employment will be given to Arab nationals and then workers of other nationalities”. However, foreign companies in the free trade zones have the power over employing whomever they want. Nevertheless, the government still forces these companies to consider the locals, a significant percentage of people employed in these companies are from non-locals and non-Arabs (Tatchell, 2010; Greenaway, 2010). Where the probation period of employment is not more than six months in other parts of UAE, employers in the free trade zone have the right to enjoy. This period is usually of 12 months as their probation period where they could end the employment without any prior notice and put an end to all benefits enjoyed by the employer (Oxford Business Group, 2010). References Ali, S. (2010). Dubai: gilded cage. Yale University Press. Barrett, R. (2010). Dubai dreams: inside the kingdom of bling. Nicholas Brealey Publishing. Davidson, C. M. (2008). Dubai: the vulnerability of success. Columbia University Press. Elsheshtawy, Y. (2010). Dubai: behind an urban spectacle. Routledge. Greenaway, D. (2010). The World Economy: Global Trade Policy 2009. John Wiley and Sons. Kanna, A. (2011). Dubai, the City as Corporation. University of Minnesota Press. Krane, J. (2009). City of gold: Dubai and the dream of capitalism. St. Martin's Press. Noack, S. (2007). Doing Business in Dubai and the United Arab Emirates. GRIN Verlag. Oxford Business Group. (2010). The Report: Abu Dhabi 2010. Oxford Business Group Publications. Ramos, S. J. (2010). Dubai Amplified: The Engineering of a Port Geography. Ashgate Publishing, Ltd. Tatchell, J. (2010). A Diamond in the Desert: Behind the Scenes in Abu Dhabi, the World's Richest City. Black Cat. Read More