The UAE is a federation of 7 tribally-based emirates (Arab royal houses): Abu Dhabi, Dubai, Sharjah, Ras al-Khaimah, Ajman, Fujairah, and Umm al-Qawain. Even though it has a central government based in Abu Dhabi, each emirate controls its own economy and retains broad autonomy. The federation's highest constitutional authority, the UAE Supreme Council of Ministers, is composed of the 7 emirate rulers; it establishes federal policies and sanctions legislation. Most council decisions are reached through a consensus of the emirates' rulers and leading families. Since the council meets 4 times a year, the UAE cabinet runs the day-to-day affairs of the federation. Through an informal agreement, the ruler of Abu Dhabi serves as president, and the ruler of Dubai serves as vice president and prime minister. The president chooses the cabinet and members of the federal judiciary. The Federal National Council, composed of representatives appointed by the ruler of each emirate, can comment on legislation proposed by the UAE cabinet. There is also a UAE Supreme Court composed of 5 judges that carries out 3 functions: it settles disputes between different emirates, settles disputes between individual emi-rates and the federal government, and decides on the constitutionality of federal laws.
Throughout the UAE's 3 decades of existence, the Ruler of Abu Dhabi, Shaykh Zayid al-Nahyan, has served as the federation's president and worked to unite the emi-rates, which had previously been virtual protectorates of Britain (the so-called Trucial States) from the 1820s until the 1970s. Zayid has used his political skills and Abu Dhabi's oil wealth to keep the federation together through times of crisis which strained the sometimes tenuous ties of the 7 emirates. Zayid has been most successful in mediating Abu Dhabi's rivalry with Dubai and convincing Dubai's ruling family to take on key positions in the UAE federal government. In recent years, however, Zayid's advanced age and poor health have forced him to delegate greater responsibility to his eldest son, Shaykh Khalifa. While it is certain that Khalifa will succeed Zayid as UAE president and ruler of Abu Dhabi, it is not clear how strong of a ruler he will be because of his fierce rivalry with his half brother, Shaykh Muhammad, the chief of staff of the UAE army.
Though the UAE's permanent constitution stipulates that each emirate provide half of its revenues to the federal government, Abu Dhabi annually uses the proceeds from its oil sales to provide between 60 percent to 90 percent of the UAE's federal budget. Dubai and revenues from the UAE ministries generally have covered the remainder. These revenues come from the 20 percent surcharge foreign banks pay on their profits, taxes and royalties from the proceeds on foreign oil companies, and a 4 percent customs duty on all imported products except tobacco and alcoholic beverages. Another key problem is the fact that there is little transparency in UAE budgets, and it is estimated that as much as a third of UAE's oil revenues do not appear on national accounts. Over the last 4 years, the UAE budget has been US$7 to US$8 billion in deficit, but this is not considered a great problem because the income from Abu Dhabi's US$150 billion in overseas investments more than covers budget deficits of that size. In addition, the UAE government maintains an extensive cradle-to-grave social welfare system . There are no income or consumption taxes within the UAE.