JEDDAH, 31 May  — Reduced customs tariffs will lead to substantial price cuts on consumer goods as traders seek to replenish their stocks with new imports, economists and businessmen said. Saudi authorities enforced a Cabinet decision to cut customs tariffs from 12 percent to 5 percent on imports from Tuesday.

Minister of Finance and National Economy Dr. Ibrahim Al-Assaf said the decision was intended to reduce the cost of living, increase trade flow and give the service sector a competitive edge.

The effect will be mostly felt on such items as high tech consumer goods, cars and spare parts. A wide range of consumer goods amounting to 79 percent of the import list will benefit from the decision taken by the Supreme Economic Council on Sunday and endorsed by the Cabinet the following day.

“The announcement was a welcome surprise. The application of the decision within 24 hours is an indication that goods imported on reduced tariffs will reach (the market) sooner than expected,” said Wahib Binzagr, a leading businessman and economist.

Some traders have huge stocks of goods imported at higher tariff rates. “Wise merchants will meet the surprise by moving immediately to reduce prices ... otherwise, they stand to lose the market for goods (imported) taking advantage of the (tariff) reduction,” said Binzagr.

He personally believes that a great number of traders will take such a step and said the wholesale and retail businesses that can afford to take this move should do it immediately. 

The government, however, stressed the need for maintaining protection of national industries at a maximum tariff of 20 percent. Some goods like tobacco, food items including wheat, flour, milk and dates will continue to have 100 percent tariff either for health or other considerations.

The electrical and electronic appliances sector is projected to witness the most visible trading given over the coming weeks during the summer festival. Jeddah residents predict that aside from the products becoming more affordable, the festival discounts would make them cheaper than before.

Welcoming the news T.H. Ryu, general manager of LG Electronics, said the move would help boost consumer demand allowing traders to sell more. “The benefit may not go to the consumer immediately until old stocks that have price tags based on the old 12 percent import duty are sold out. Eventually and once new stocks come into the market, consumers will start feeling the benefit.”

Omar M. Al-Saggaf, sales manager at Alzouman Trading Co. — agents for Swatch watches — described the move as good news. Another trader noted that “it is good for both traders and consumers because imported products will be cheaper and more affordable allowing traders to sell more.”

Muhammad Ali Bassurah, manager of Casio division at Mahmood Saleh Abbar Co., said the competition will be in favor of the consumer and traders will seek to dispose of their stocks even if this meant for them a marginal profit.

“For us, the stocks do not represent a major burden because usually our imports have been programmed to suit seasonal demand.”

He noted that the Western Region represents a major market given the estimated five million Haj and Umrah pilgrims who make Jeddah a major re-export center. “We believe the volume of our sales will increase as a result because Casio products of watches, calculators and digital cameras represent the ideal gift for the pilgrims to take home.” The move, he added, would help develop this area as a major free market competing with others like Dubai, Hong Kong and Singapore.

In the automobile sector, car executives said a genuine price difference might not be felt in the short term because the buying season is nearing its end and in a few months the new models will reach the market.

“The reduction of custom tariffs will definitely influence the car market and this will be followed by a reduction in prices. But it is only going to happen in the medium term because by the end of summer the new models will arrive. We have to note that prices of new models are usually higher than previous ones,” said Samir Shibaili, general manager of cars division at Zahid Tractor, agents for Daewoo and Volvo cars.

Shibaili said dealers who still hold stocks before the arrival of the new models will have to sell these at lower prices. “This could happen by the end of the model year but it is not going to be that big a cut.” He said the cost of new models is influenced by such factors as currency fluctuations.

Government officials say the move would lead to a substantial boost for the Saudi economy and help strengthen the competitive edge of exports. Dr. Ahmad Al-Bazie, deputy minister of finance and national economy, said the lowering of tariffs would help revive the re-export business with more products leaving the Kingdom to neighboring markets. This would be a step further toward the custom union among the six member countries of the Gulf Cooperation Council.

Analysts said the state would lose an estimated SR9.6 billion in customs revenues annually. Some estimates predict the figure could drop to SR5 billion.

According to Binzagr, though, the government will end up receiving more money because more goods and services will find their way to the market.

The decision brings customs tariffs to the same level as in other Gulf states and this will help increase the flow of goods from the Kingdom to other countries.

Binzagr said competition is a healthy phenomenon but the rules of the game should be the same for everybody. Lots of genuine and non-genuine goods enter the Kingdom through GCC states but this does not necessarily mean differences in aggressive attitudes and outlooks although the terms and conditions of trade vary.

He expressed the hope that the move would be followed by regulations at the right time to make competition a reality shared by all. This would help guard against unorthodox commercial practices illustrated in counterfeiting and imitation.