n a region as small as the Arabian Gulf, the fact that parallel imports in cars exist may not have come as a shock. But the announcement that such imports are widely spread did come as a surprise to many. Yet that is exactly what happened during the Standard Chartered Bank sponsored First Annual Auto Dealers' Conference at the Dubai World Trade Centre.

Held to coincide with the Third Middle East Motor Show in November 1995, the Conference was the first time that so many auto dealers in the region and the UAE in particular, had got together to discuss issues facing them. What it did achieve most successfully, was to highlight the problem of the parallel import of cars between the UAE and Oman and the increasing audacity with which this operation is carried out.

"This is not something new," said Colin Leitch, managing director of Al Futtaim Motors, the UAE distributor for Toyota. "If anything, this has been going on for around 18 years, at least as far as my company is concerned." And during this period, as most UAE distributors say, that the growth of parallel car imports from Oman into the UAE has increased in line with the growth of UAE-Oman trade.

Today, it is estimated that 1,500 cars enter the UAE from Oman every month this way and include brands such as Toyota, Nissan, Mitsubishi and Daewoo. More worrying for the UAE distributors is the fact that this parallel importation of cars have expanded to include these cars entering the lucrative re-export sector. More recently, spare parts have also become part of the inventory of such imports, amounting to around Dhs 51 million in 1994 compared to Dhs 13 million in 1991.

The logical question then is, how do these cars get across the border? Surprisingly, the entire process is quite simple. Our investigations revealed that the cars are shipped to Oman from the overseas manufacturer and listed as cars for re-export. With this listing, the cars do not pay the Omani customs tax; rather the importer must place a guarantee with customs until such time as the vehicles cross the Omani border.

Once in Oman, the cars are then driven or taken across the UAE-Oman border at any one of a number of places including Buraimi (the major entry point for such vehicles), Khor Fakkan and Kalba. The most interesting, not to mention controversial aspect here, is that while Oman maintains border check posts at most crossing points, the UAE Customs does not have any on its side. As a result, the vehicles pass quite freely into the Emirates, while collecting the re-export certificate from the Omani border control. With this certificate the Omani importer can reclaim his deposits from Oman Customs.

Once inside the UAE, the vehicles are sold to the general public through agents and automobile re-sellers, including second hand car dealers in various Emirates. What is perhaps more aggravating, for the official manufacturers agents in the UAE, is the fact that these imports are usually the high selling models. "These importers target best sellers like the Sunny and Patrol (Nissan) which eats into our sales figures," explained Michel Ayat, general manager of Arabian Automobiles, the agents for Nissan.

Over the years, a change has also come about in so much that such imports are now rarely sold through outlets in Dubai. Rather, such operations normally use Sharjah, some 20 kilometers from Dubai, and the licensed second hand car dealers there to sell their vehicles. More surprising is the quite uncooperative attitude of the manufacturers, who logic would dictate, stand to lose as well. "All they (manufacturers) care about is moving metal," said Colin Leitch at the conference. "They couldn't care less who sells it."

"It's amazing just how difficult it is to get the manufacturers to see that our problem is their problem as well," said one senior automobile executive. "They just can't seem to understand that we, the legal agents are not the only ones to lose out on such imports. Ultimately, the loss will reflect badly on the manufacturer in terms of reputation and goodwill lost through bad service and back up."

On the customs side in the UAE, the problem is somewhat more complex, especially since it is a political situation that is currently under negotiation. "We consider this (the UAE-Oman border) as an open boundary," said Dr. Obaid Saqer Busit, director general of the Dubai Ports & Customs and Chairman of the UAE Customs Council. "However, there is currently a proposal with Omani customs to have border checkposts and we hope to achieve this sometime this year. Also, there is some homework these agencies should do with their principals. They are the ones that can best control the whole problem." There is also the fact that in spite of the parallel imports, many officials would argue that the parallel importers can only play with around 4% of the selling price of the car (the duty payable to UAE customs which it loses from these cars).

The relatively hidden factor though, is the high overheads on the UAE agents in maintaining multi-million dollar showrooms, service centres and extensive spare parts inventories. All of which requires a certain level of sales. That said, the real difference in the cost of the parallel import vehicle and the authorised one is only around a couple of thousand dollars. Going by that figure and considering that the vehicle cost in the tens of thousands, it is surprising that customers, including fleet buyers, would risk their warranties and back-up for such relatively small amounts. "But that is exactly what many do," said one frustrated automobile executive. "Nobody likes considering the intangibles. And yet, it is the intangibles such as service and back up, that make all the difference."

Intangibles also include reputation and goodwill. This, say industry executives, takes years of hard work and perseverance to create and just one bad call to lose. "We are losing more than income," says Ayat. "It is also credibility. Customers don't seem to understand why our cars cost Dhs 3,000 or 4,000 more than the others when it's the same make." On the plus side, and perhaps realising the need to retain loyalty among customers, there has been a rapid growth in the service facilities of local agencies. Most major agencies have invested millions into building state-of-the-art service centres and extensive spares inventories. More importantly, they have also begun to emphasise the importance of such back-up.

Local agencies have become more aggressive in taking legal action, especially since the introduction of the copyright law and the better enforcement of the agencies law. But the spanner in the works however, is the fact that the firms who sell parallel imports are also licensed to sell automobiles. Thus, in essence, they are doing something they are legally permitted to do. Legal wrangles also take up time, as with any country. And when the country is a federation, the execution of an order in one emirate is sometimes difficult to enforce in another.

But there is positive news for the local agents. According to Michel Ayat of Arabian Automobiles, the number of parallel imports reduced in 1995. "I am optimistic that we (local agents) will win," he says. "The development of the market is the criteria and we are investing in customer education. Moreover, the economy itself is changing from a push to a pull economy." Meanwhile, the local agents are also attempting to create an association to tackle their various problems, not least of which are parallel imports. Whether such an association could solve the problems is another thing, but most industry executives expect that it will provide a formal platform to seek concerted action. "The association can make the manufacturers more aware of this problem," says Ayat. "Also, it could get statistics and information of various aspects and co-operate in providing information. We can upgrade standards through this process."

Among the suggestions made at the Conference to curb parallel imports was a stricter implementation of the Agency Law. Colin Leitch of Al Futtaim also proposed a much tougher system whereby cars could not be registered unless they had a clearance certificate from the authorised agent.

Meanwhile, trade between Oman and the UAE remains strong, with automobiles forming only one part of the business equation. "We are trying to create a economic free zone," explains Obaid Busit. "But this takes time. Look at the EC and how long they've been at it. We have only started recently." The problem of cars, stressed one official, is a complex one and will take time to resolve in the context of the larger picture of economic and political relations. From the government's side, it seems that there is the impetus to do something concrete; such as with the establishment of border posts. To be fair however, the efforts of the agencies and the government could prove less effective without the support of the manufacturers themselves.