A cut in Saudi Arabia's customs duties from 12 to 5 per cent will have a major impact on Dubai's trade with the kingdom, particularly in IT and telecommunications, market sources said.

In particular, the role of Dubai middlemen selling to Saudi Arabia will be sharply eroded, they added. These operators have flourished on the large difference between UAE customs duties (four per cent) and those of Saudi Arabia, and the practice of under-invoicing of goods destined for the kingdom.

While a date has yet to be set on which the new duties will take effect, the sources said some shipments entering the kingdom last week were charged at 5 per cent.

"The cuts would have an impact on as much as 30-40 per cent of the trade in IT components in Dubai. Saudi Arabia constitutes one of the biggest re-export markets for IT components from here," said Dhruv Srivastava, business unit manager for PC components at Tech Data.

"We have had middlemen here under-invoicing and shipping consignments into the kingdom. So the duty cuts will squeeze out these operators and prove beneficial for authorised distributors such as us."

With Saudi PC demand estimated at 350,000 a year, demand from Dubai for components has been running high for several years. Monthly shipments of IT components in and out of Dubai average about Dh100 million.

M.P. Sharma, commercial director at Jumbo Group, said, "The bulk of consignments from here are IT and telecom related. That of consumer electronics is negligible since they use different specifications (220V/60MHz) from ours (220V/50Hz).

"The duty cuts, which should be formally implemented within a month or so, would not affect Dubai's hub status - goods will continue to go from here. "What it would do is cut into the practice of declaring lower value on shipments and bring in a degree of honesty."

According to P.A. Ibrahim Haji, chairman-emeritus of the Textiles Merchants Association (Texmas), "Dubai's textile trade should see a marginal improvement in offtake from Saudi Arabia.

Higher duties made the products expensive. Saudi Arabia accounts for over 50 per cent of textile re-exports from Dubai. Also, lower duties will drastically reduce the practice of suppressing the actual value."

But sources said they were unsure whether the cuts would extend to protected categories. The kingdom has higher duties, at 20 per cent, on those imported goods which are also manufactured domestically.

"Higher duties are charged even on those goods produced in the other Gulf states," said a senior official with a major food distributor.