India-UAE agreement not to impact steel trade

The recently-inked India-UAE Comprehensive Economic Partnership Agreement (CEPA) is not likely to have any significant impact on the steel trade between both countries, SteelMint understands.

Flat steel products attract an import duty of 5% in UAE. But if these are imported by large importers or end-users then there is an exemption of this duty. Thus, there will not be any impact on flat steel (hot rolled, cold rolled and galvanized) trade between UAE and India.

Rebar attracts 10% import duty but it is a 'stock-and-sell' product, with the end-buyer not likely to import. On the other hand, the stockist will not possibly import to avoid any issues with the local large mill. Moreover, since projects need quality certifications from the government most end-buyers prefer buying rebar locally rather than importing.

Moreover, at least 60% of Indian steel exports to UAE are to the free trade zones (FTZs) and as such they enjoy nil duty.

"The UAE has 5% duty on flat steel and 10% for rebar, applicable in Dubai and UAE mainland. However, the import duty is nil in (FTZs) within Dubai," said an industry source.

"Traders have to pay duty but if in free zone then they do not have to pay anything while importing," corroborated another source.

However, details are not yet clear on the duties that are being imposed or reduced, which may happen in phases.

The basic customs duty on steel imports into India is 7.5%.

Melt-and-pour clause

The 'melt-and-pour' clause is the key component for the steel trade in this CEPA. It is included for the first time in India's free trade agreement (FTA) history, SteelMint learnt.

Although details are not yet in the public domain, SteelMint understands this clause implies the finished steel items to be traded between India and UAE will have to be made from crude steel manufactured in the respective countries. As a result, steel not made in UAE cannot be imported into India and vice-versa. This clause prohibits routing of steel of other countries.

"The highlight of the India-UAE CEPA is the 'melt-and-pour' clause for steel, a condition that is being implemented for the first time in the Indian FTA history. This will prevent steel originating in China or Iran or any other country getting routed from the UAE to India. It will strengthen 'Make in UAE for UAE'. However, India is already following this vision on 'Make in India," said an industry source.

The India-UAE CEPA, which will come into effect after 50 days of its signing, "is a giant leap towards greater economic partnership between the two countries and will prove to be an important milestone", said an ISA source.

Fact sheet on steel trade between India and UAE:

• UAE's current steel manufacturing capacity is at 4.4 million tonnes (mnt).
  
  
• UAE's steel production was at 2.7 mnt in CY'20 and 3.3 mnt in CY'19.
  
  
• Exports of finished steel from UAE to India comprised 21000 tonnes in CY'20.
  
  
• Exports from India to UAE were at 8.3 lakh tonnes in FY'20 and 8.6 lakh tonnes in FY'19.
  
  
• UAE has 5% duty on flat steel and 10% for rebar, applicable in Dubai and UAE mainland. However, import duty is nil in Free Trade Zones (FTZ) within Dubai.
  
  
• Indian steel exports to UAE are at least 60% to FTZs and as such they enjoy nil duty. However, there is duty on transfers from one FTZ to the other within the Emirates i.e., Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al-Quwain, Fujairah, and Ras Al Khaimah.
  
  
• OEMs in UAE which have industrial license also enjoy nil duty up to certain agreed quotas.
  
  
• Duties on intra-movement among Gulf Cooperation Council (GCC) countries.