The Middle East is a lucrative market for U.S. products but is still largely untapped, possibly because of perceived cultural and linguistic barriers, as well as the region having a reputation for political instability. While this may be true in some countries, it is possible to conduct successful business with this part of the world.
The region has a large population that is eager to expand beyond the typical Asian and European imports that have been flooding their countries for decades. An aging and increasingly unhealthful population is forcing a revamp in the medical and healthcare industry, where U.S. suppliers can step in with medical products and the like. On the other hand, there is a huge youth population that is willing to spend large amounts on fashion and cosmetics. The possibilities of exporting to this region include everything in between as well.
WHERE SHOULD I START?
For an American business looking to get started in this region, an easier place to start is a country with which the United States has a free trade agreement. These include the two GCC, or Gulf Cooperation Council, countries of Oman and Bahrain. Further west in the region, the U.S. has free trade agreements with Jordan and Morocco. While these four are certainly not the only countries U.S. businesses should consider exporting to, they will face fewer barriers and red tape.
THE CHALLENGES ARE REAL
The challenges of exporting to the Middle East are real but not insurmountable. For example, businesses must be aware of economic sanctions and export controls the U.S. government has in place (and, of course, this does not only apply to the Middle East). For example, there are economic sanctions that are in place to counter narcotics trafficking, nuclear proliferation and terrorism, for countries such as Sudan, Iran and Syria. However, food, medicine and medical products can be sold with a license.
Furthermore, the U.S. government also has a list of individuals and entities identified by as Specially Designated Nationals, or SDN, which makes it illegal for U.S. companies to engage in business with them. And as the sanctions can be against any entity, even banks or shipping vessels, it is essential to check this list before exporting to avoid a quagmire. This is where it pays off to have an export compliance plan in place.
FREE TRADE AGREEMENTS CAN BENEFIT U.S. EXPORTERS
The free trade agreements with the countries mentioned above, not only remove tairiffs, but also remove other barriers of entry. For example, countries with which the U.S. has a free trade agreement, or an FTA, are required to protect intellectual property and the government must also not discriminate against U.S. companies in bidding and procurement. Furthermore, if an American company feels discriminated against in a government tender, with an FTA country, the company has the recourse of filing a complaint with the U.S. embassy.
THE PROCESS OF SELLING UNDER AN FTA
As with trade in general, in order to export into an FTA county, the product’s harmonized tariff code must be determined. You will need to use this code to determine what benefits you will get under the FTA. Finding product codes is not for the faint of heart or novices, so it is a smart idea to get professional help here.
Most FTA tariff rates are zero, but that is not always the case, are some are reduced to zero over time according to the tariff elimination schedule.
To qualify for the FTA, the product must meet the rules of origin. It is possible that the product is made entirely of U.S. origin, in which case the classification becomes easy. Most times, it is not that simple. Therefore, the substantial transformation or value added methods must be used to determine the origin of the product.
For the Middle East, a product qualifies if it is produced in the U.S. using foreign materials if they have gone substantial transformation, or if 35% of value is added in the U.S. Once again, for beginners, professional help will prove useful here.
When it comes to textiles, the rules are a bit different, with the country specific rules of origin. A legal professional can figure out a way to make the product a “substantial transformation” in order to sidestep some stringent textile rules.
Moreover, there is a direct transportation requirement which requires products to be shipped directly from the U.S. to the FTA country for FTA rules to apply.
Finally, it is important to keep careful records of all documents to support the FTA claim for up to seven years after the transaction. This is where a strong legal export compliance program can help avoid problems with the government later.
OVERSEAS HELP AND CONNECTIONS
With cultural and language difficulties in the Middle East, it is important for the exporter to establish some connections in the country of import in order to facilitate the trade process. It may be necessary to hire a local lawyer or other sort of business professional. Tradewinds Law can help businesses make that connection.