US embassy cable - 04KUWAIT4366

UNCLAS SECTION 01 OF 04 KUWAIT 004366 
 
SIPDIS 
 
STATE FOR EB/MTA/MST 
STATE PLEASE PASS USTR FOR G. BLUE 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, ETRD, KU 
SUBJECT: KUWAIT 2005 NATIONAL TRADE ESTIMATE REPORT 
 
REF: SECSTATE 240980 
 
1. Please find the 2005 National Trade Estimate Report for 
Kuwait below.  As requested reftel, the text has also been 
sent by email. 
 
2. BEGIN TEXT OF REPORT 
 
TRADE SUMMARY 
 
The U.S. trade deficit with Kuwait for the first ten months 
of 2004 was $1.25 billion.  U.S. exports to Kuwait were 
roughly the same over the first ten months of 2004 at $1.22 
billion, as compared to $1.23 billion during the same period 
in 2003.  At the same time, U.S. imports from Kuwait 
increased by 31 percent to $2.47 billion, up from $1.88 
billion from January through October 2003.  Kuwait imports 
more from the U.S. than from any other country. 
 
 
IMPORT POLICIES 
 
Tariffs 
 
At the December 2001 Summit, GCC Heads of State adopted an 
across-the-board common external tariff of five percent for 
most products to start in January 2003 as part of the Customs 
Union agreement.  The GCC states also agreed to develop a 
list of products to which a higher tariff will apply. 
Currently, some GCC countries maintain tariffs of 15 percent 
to 20 percent or higher on imported products.  However, 
tariffs on tobacco, pork, and alcohol products can exceed 100 
percent in countries where importation of such products is 
permitted. 
 
On September 1, 2003, Kuwait increased tariffs from 4 percent 
to 5 percent on the vast majority of imported goods. 
Exceptions include 417 food and agriculture items, which will 
remain free of duties, as well as tobacco products, on which 
tariffs will remain at 100 percent. 
 
Import Licensing 
 
Kuwait prohibits the importation of alcohol and pork 
products, and requires a special import license for firearms. 
 
Documentation Requirements 
 
In Kuwait, the clearing process can be manually intensive, 
requiring numerous transfers, vast paper work, and an array 
of duplications.  This process is prone to errors and fraud, 
since human judgment plays a major role in processing the 
transactions, especially auditing, valuation, and inspection. 
 In most instances, the same task is repeated two or more 
times at different stages of the process in order to capture 
customs-related data or to validate documentation.  However, 
the Customs Department is currently undergoing a major 
privatization effort.  Customs has contracted with a private 
company to manage customs services, including customs 
clearing.  The implementation of a state-of-the-art computer 
system should also make the import process less complicated. 
 
Customs Valuation 
 
Kuwait began implementation of the Agreement in September 
2003. 
 
Textiles 
 
Textiles accounted for approximately seven percent of 
Kuwait,s imports in 2003, and tariffs are five percent. 
 
STANDARDS, TESTING, LABELING AND CERTIFICATION 
 
As part of the GCC Customs Union, member countries are 
working toward unifying their standards and conformity 
assessment systems, and have progressed considerably toward 
the goal of a unified food standard, originally targeted for 
adoption by 2006.  However, each country currently applies 
either its own standard or a GCC standard, causing confusion 
among business. 
 
Kuwait maintains restrictive standards that impede the 
marketing of some exports.  Kuwait strictly enforces shelf 
life standards on 44 of 75 food products listed in Gulf 
Standard 150/1993, but recognizes the manufacturer,s set 
shelf life on all other food products.  Shelf life 
requirements for processed foods are far shorter than 
necessary to preserve freshness and result in those U.S. 
goods being non-competitive with products shipped from 
countries closer to Kuwait.  Meanwhile, standards for 
medical, telecommunications, and computer equipment tend to 
lag behind technological developments, with the result that 
government tenders frequently specify the purchase of 
obsolete, often more costly items. 
 
In October 2002, Kuwait announced it was considering adopting 
an import standards program similar to Saudi Arabia,s 
International Conformity Certification Program (ICCP).  The 
Kuwaiti government has said the program, which would apply to 
between 15 and 45 types of consumer products (primarily 
electrical goods and motor vehicle parts), was being 
implemented because Kuwait lacked laboratory facilities to 
properly conduct its own inspections.  In December 2002, 
Kuwait submitted a proposal for this program to the WTO. 
Kuwait implemented the ICCP on March 17, 2003, dividing 
imports under the program into five groups: (1) household 
appliances and electronics; (2) new and used cars and 
vehicles; (3) chemicals, including motor oil and paint; (4) 
building materials, including cement, gypsum, and bricks; and 
(5) paper and plastic items.  The Kuwaiti program, like that 
of Saudi Arabia, calls for required products to be tested and 
certified by a single private company before being exported 
to Kuwait. 
In July 2004, the regulatory authority responsible for the 
ICCP, the Public Authority for Industry (PAI), held a 
one-year review of the program.  At that time, the PAI said 
that that over 30,000 individual products had been issued 
ICCP certificates, and that it was considering expanding the 
types of products requiring certification.  Importers, 
representatives of foreign businesses and members of the 
diplomatic community all voiced serious concerns with the 
program.  Industry complaints about the program are often 
forwarded to the private testing company rather than handled 
by the PAI itself.  The United States, and many other WTO 
members, have raised concerns about the ICCP during WTO TBT 
Committee meetings. 
 
In November 2004 the PAI indicated that it would introduce 
changes to the ICCP and transition, over a period of 18 
months, to a new Kuwait Conformity Assessment Scheme (KCAS.) 
While the KCAS does ease some of the unnecessary burdens on 
exporters and works toward leveling the playing field with 
domestic manufacturers, the program does not appear to bring 
Kuwait into compliance with its TBT requirements and leaves 
the door open for arbitrary testing, inspection and 
certification requirements. 
 
 
GOVERNMENT PROCUREMENT 
 
Kuwait,s government procurement policies specify the 
purchase of local products when available and prescribe a 10 
percent price advantage for local firms in government 
tenders.   In 2004, the Council of Ministers agreed to 
increase this price advantage to 15 percent; implementation 
of this increase, however, would require amending the GGC 
countries, unified agreement. 
 
In January 2002, the Kuwaiti government transformed its 
offset program into the major vehicle for inducing foreign 
investment in Kuwait.  The offset requirements imposed an 
offset obligation on civilian contracts with the Kuwaiti 
Government of 10 million Kuwaiti dinar (approximately $33 
million) or more and on defense contracts of KD 1 million 
(approximately $3.3 million) or more.  The obligation 
amounted to 35 percent of the contract value, which had to be 
invested in an approved offset business venture.  A supplier 
had to sign a memorandum of agreement with the Offset Program 
Division at the Ministry of Finance before the contract is 
signed.  The supplier also had to present a bank guarantee 
totaling 6 percent of the value of the offset obligation. 
 
In September 2004, the Council of Ministers decided to 
suspend implementation of the offset program for all new 
government contracts in the military and civilian sectors 
pending further review by the Finance Ministry.  A six-month 
review of the program was to take place, at the end of which 
the offset program would either be modified, reinstated or 
discontinued.  No contracts awarded during the review period 
will carry an offset requirement. 
 
Kuwait is not a signatory to the WTO Agreement on Government 
Procurement. 
 
 
EXPORT SUBSIDIES 
 
The Industrial Bank of Kuwait offers below market rate loans 
to local industry.  Land is also provided at low cost. 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
 
The GCC Secretariat has declared protection of intellectual 
property to be a priority and is working to strengthen GCC 
laws in the six member states, particularly for patent 
protection.  In this respect, the GCC has adopted a unified 
patent law with the goal of creating a patent system for all 
member states.  However, concerns remain regarding the law 
relative to member states, obligations under the TRIPS 
Agreement.  The GCC patent office in Riyadh has received 
approximately 3,000 applications since it began accepting 
patent applications in October 1998, and issued its first 
patent certificates in late spring 2001.  Its third round of 
patents is expected in early 2004.  The GCC patent office 
plans to complete a review of all applications within two to 
three years of receipt.  According to GCC patent regulations, 
once the GCC patent office grants a patent, all GCC states 
automatically afford its owner protection.  The GCC has also 
indicated an interest in creating common trademark and 
copyright laws and regimes.  However, no progress has been 
made so far in these areas. 
 
Kuwait,s copyright law must be amended to make it consistent 
with its obligations under the TRIPS Agreement.  The 
government is currently in the process of drafting these 
amendments, but has not yet set a date by which these will be 
submitted to the National Assembly.  Kuwait,s revised patent 
and trademark legislation took effect on January 14, 2001. 
Enforcement of these laws remains inadequate to prevent 
widespread marketing of pirated products. 
 
Following Kuwait,s elevation to the Special 301 Priority 
Watchlist in 2004, the Ministry of Commerce and the General 
Administration of Customs have redoubled their efforts to 
protect intellectual property rights.  Kuwait Customs has 
been notably successful in conducting raids and seizures. 
However, the Ministry of Information (which is statutorily 
responsible for ensuring intellectual property rights) is not 
fully engaged and the Ministry of Interior has declined to 
use its police resources for enforcement efforts. 
Consequently, sales of pirated goods remain high in Kuwait, 
and the use of unauthorized computer software continues in 
private enterprise.  Uncertain and slow judicial action 
remains a hurdle, and penalties, when imposed, are generally 
too weak to deter future crimes.  In August 2004, the 
government submitted a draft law to the National Assembly 
that would increase penalties for those convicted of 
violating intellectual property rights. 
 
SERVICES BARRIERS 
 
Insurance 
 
Pursuant to a November 2003 Council of Ministers resolution, 
foreign investors may establish insurance companies in Kuwait 
with the Ministry of Commerce and Industry,s approval. 
 
Banking 
 
Under Kuwait,s 2001 Foreign Direct Investment law, 
foreigners may own up to 100 percent of existing or newly 
formed Kuwaiti banks, subject to approval by the Central 
Bank.  In August 2004, BNP Paribas was the first foreign bank 
granted a license to operate in Kuwait; other foreign banks 
have submitted applications. 
 
Shipping 
 
Kuwait has prevented foreign shipping lines access to cargo 
for government projects by granting the United Arab Shipping 
Company the right of first refusal on all such cargoes. 
However, Kuwait no longer applies this requirement to 
shipments from U.S. ports. 
 
Agent and Distributor Rules 
 
According to Kuwait,s Commercial Agencies Law of 1964, only 
Kuwaiti nationals and corporations may act as agents and 
distributors for foreign companies and exporters. 
 
INVESTMENT BARRIERS 
 
Kuwait currently maintains restrictions on direct foreign 
investment and applies discriminatory taxation policies.  In 
May 2000, Kuwait,s National Assembly approved legislation 
that allows foreign nationals to own up to 100 percent of all 
listed companies on Kuwait,s stock exchange, except banks. 
Foreign-ownership in banks was limited to 40 percent with the 
additional restriction that any foreign-ownership above 5 
percent must be approved by Kuwait,s Central Bank. 
 
In March 2001, the National Assembly passed a direct foreign 
investment bill that authorizes majority foreign-ownership in 
new investment projects (up to 100 percent foreign-ownership 
in selected sectors).  The law also authorizes up to 10-year 
tax-holidays for new investors.  The law went into effect on 
February 23, 2003. 
 
ELECTRONIC COMMERCE 
 
Kuwait and the other GCC member states are currently 
negotiating a unified electronic commerce law. 
OTHER BARRIERS 
Corporate Tax Policies 
Kuwait taxes foreign companies but domestic entities are only 
required to pay zakat (a charitable donation).  Foreign firms 
are currently subject to a maximum income tax rate of 55 
percent, although the government is currently drafting a new 
tax law that would reduce the tax rate.  Kuwaiti-listed 
companies are not subject to income tax, but are required to 
make an annual contribution of 2.5 percent of their net 
profits to the Kuwait Foundation for the Advancement of 
Sciences (KFAS).  They must also contribute 2.5 percent of 
their net profits toward a National Labor Force Fund. 
 
END TEXT OF REPORT. 
 
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