US embassy cable - 05KUWAIT113

UNCLAS SECTION 01 OF 08 KUWAIT 000113 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA 
STATE PLEASE PASS TO USTR 
STATE PLEASE PASS TO CIMS NTDB WASHDC 
 
E.O. 12958: N/A 
TAGS: ECON, KTDB, KU, OPIC, USTR 
SUBJECT: KUWAIT 2005 INVESTMENT CLIMATE STATEMENT 
 
REF: 2004 STATE 250356 
 
1. Per reftel, included below is the full text of Embassy 
Kuwait's 2005 Investment Climate Statement. 
 
2. 
---------------------------- 
INVESTMENT CLIMATE STATEMENT 
---------------------------- 
 
 
OPENNESS TO FOREIGN INVESTMENT 
------------------------------ 
 
The Council of Ministers approved the implementing 
regulations for its new Direct Foreign Capital Investment 
Law-Law No. 8/2001- passed by the National Assembly on March 
11, 2001, through Resolution No. 1006/1/2003 on November 1, 
2003. The legislation authorizes foreign-majority ownership 
and 100 percent foreign ownership in certain industries 
including: infrastructure projects (water, power, waste water 
treatment or communications); investment and exchange 
companies; insurance companies; information technology and 
software development; hospitals and pharmaceuticals; air, 
land and sea freight; tourism, hotels, and entertainment; 
housing projects and urban development.  Projects involving 
oil discovery or oil and gas production are not authorized 
for foreign investment and must be approved by a separate 
law. 
 
The Direct Foreign Capital Investment Law promotes foreign 
investment in Kuwait; authorizes tax holidays of up to ten 
years for new foreign investors; facilitates the entry of 
expatriate labor; authorizes land grants and duty-free import 
of equipment; provides guarantees against expropriation 
without compensation; ensures the right to repatriate 
profits; and protects the confidentiality of proprietary 
information in investment applications, with penalties for 
government officials who reveal such data to unauthorized 
persons.  New investors will be protected against any future 
changes to the law.  Full benefit of these incentives, 
however, will be linked to the percentage of Kuwaiti labor 
employed by the new venture.  The investor will also be 
obliged to preserve the safety of the environment, uphold 
public order and morals, and comply with instructions 
regarding security and public health.  While the Direct 
Foreign Capital Investment Law is on the books, foreign 
companies still report numerous delays in getting approval to 
operate in Kuwait and the law does not appear to have changed 
the investment climate all that much.  (The Minister of 
Finance did not renew the term of the Assistant 
Undersecretary who is in charge of the Direct Foreign 
Investment Office).  Some reports claim that the Minister 
will cancel or change it into an authority after a recent 
report by the Economic Reform Committee describing it as 
complete failure). 
 
Foreign firms still may not invest in the upstream petroleum 
sector, although they are permitted to invest in 
petrochemical joint ventures.  Implementing legislation 
brought before Parliament in January 2004 would allow for 
limited, controlled investment in the petroleum sector.  This 
law was submitted specifically to allow for investment in and 
development of Kuwait's northern oilfields, but may be used 
to allow for other investment in the petroleum sector in the 
future. 
 
Kuwait's economy has been dominated by the state and the 
nationalized oil industry since the early 1970s despite 
efforts by the government to divest.  The government acquired 
major holdings in private Kuwaiti firms -- particularly banks 
and insurance companies -- following stock market crashes in 
1979 and 1982.  After liberation from Iraq (early in 1991), 
the government passed a debt settlement law and purchased 
outstanding debts emanating from the stock market crashes and 
the Gulf War.  Between 1995 and 1998, the government 
successfully divested over 50 percent of its equity holdings 
in private firms by selling off its full holdings in 28 firms 
and portions of holdings in 17 other firms, earning some US 
$3.2 billion.  The program was suspended in 1998 because of 
weakness of the Kuwait Stock Exchange, but resumed in May 
2001 when the Kuwait Investment Authority sold 113 million 
shares (about 24 percent) of the Mobile Telecommunications 
Company (MTC).  There were six times as many prospective 
buyers as could be accommodated.  The sale fulfilled the 
government's intention to reduce its equity in MTC from 49 
percent to 25 percent. 
 
The Kuwait Stock Exchange (KSE) is the second largest bourse 
in the Arab world after Saudi Arabia's NCFEI.  KSE lists 113 
Kuwaiti companies and 2 companies from other Gulf States.  It 
reopened in 1992 following the Gulf War and has a market 
capitalization of US $61 billion (KD21.745 billion) as of 
December 2004.  The index grew 389 percent between 1994-2003 
as the government divested itself of private holdings.  The 
National Assembly ratified the "Indirect Foreign Investment 
Law" in August 2000, allowing foreigners to own 100 percent 
of all listed shareholding companies, except banks.  Foreign 
investors require Central Bank's approval to own more than 
five percent of a Kuwaiti bank, and are limited to a maximum 
ownership of 49%.  The banking sector was opened under the 
Direct Foreign Investment Law and the Central Bank has 
already granted one foreign bank, BNP Paribas, a license to 
operate.  Other foreign banks have expressed interest and 
will likely apply for licenses in 2005. 
 
On July 9, 2001, the Kuwaiti government announced an 
ambitious five-year privatization program, which closely 
resembled past initiatives.  The plan outlined a wide range 
of activities, but with little detail.  The first year called 
for privatizing some gas station outlets and part or all of 
Kuwait Airways, which has operated at a loss since 2000. 
Year two initiated privatization of post office, telegraph, 
and telecommunication services.  Years three and four will 
complete the telecommunication privatization and initiate the 
privatization of the Ports Authority and Public Transport 
Company.  The fifth and final year targets the power and 
water sectors, as well as Kuwait's Petrochemical Industries 
Company (PIC).  Kuwait's National Assembly has made clear 
that any privatization program will have to insulate 
consumers from significant rate increases and protect the 
jobs of Kuwaiti employees.  Little of the 2001 five-year plan 
has been implemented.  Kuwait Airways is still operating at a 
significant loss and is still a government entity.  While 
both mobile telephone companies in Kuwait are private, none 
of the other communication services have yet been privatized, 
though talk is increasing of privatizing landlines.  The 
ports and transport sector have not been privatized either. 
The energy and power sector has seen the most progress in 
privatization.  Forty of the 120 government-owned gas 
stations have been privatized, with plans to privatize the 
rest in two additional rounds.  The outcome will be three 
competing gas station companies, with gas still subsidized by 
the government and set in a price range.  The 
government-owned lubrication oils plant was privatized in 
2004 as were the coke smelter operations.  Kuwait's PIC is 
now operating a joint private venture with Dow Chemicals 
called Equate, and the operation has proven to be a 
successful, profitable model of both privatization and 
foreign investment. 
 
Build, Operate and Transfer (BOT) projects are gaining 
increasing acceptance in Kuwait, with BOT projects proposed 
in the power, wastewater, real estate development and 
transport sectors.  After nearly four years of deliberation 
the Sulaibiya Waste Water Treatment BOT contract was signed 
in May 2001.  The winning consortium, which includes U.S. 
firms, projects revenues of US $390 million over 10 years. 
The project will process 50 million gallons of wastewater 
daily to be used for irrigation. 
 
There have also been selected real estate BOT projects by 
privately owned Kuwaiti companies.  The first-class US $132 
million Sharq Mall, owned by the National Real Estate 
Company, contains retail outlets, restaurants, theaters, and 
entertainment concessions.  More recently, the Fifth 
Waterfront Development Project constructed Marina Mall.  This 
US $162 million BOT is owned by the United Realty Company and 
features high-end retail, eating, and entertainment outlets. 
A future BOT is planned for a central incinerator in the 
Shuaiba Industrial Area, a project which stipulates foreign 
participation with at least 25 percent equity. 
 
Foreign-owned firms and the foreign-owned portions of joint 
ventures are the only businesses subject to corporate income 
tax, which applies to domestic and offshore income. 
Corporate tax rates can be as high as 55 percent of net 
profits, but the government has put forward legislation to 
reduce the maximum rate to 25 percent.  New foreign investors 
can be exempted from all taxes for up to 10 years under the 
new Direct Foreign Capital Investment Law.  As of January 
2004, the new draft taxation law lowering the corporate tax 
rate to 25% on all sectors was still held up in Parliament. 
 
Kuwaiti firms are not subject to the corporate income tax, 
but those registered on the Kuwait Stock Exchange 
(shareholding companies) are required to contribute 2.5 
percent of their national earnings to the Kuwait Foundation 
for the Advancement of Science (KFAS).  The National 
Employment Law levies an additional 2.5 percent tax that will 
fund a program granting Kuwaitis working in the private 
sector the same social and family allowances provided to 
Kuwait's government workers.  Kuwait levies no personal 
income tax. 
 
Tax exclusions -- besides those offered under the new Direct 
Foreign Capital Investment Law -- for business expenses are 
limited and Kuwait's tax code is often ambiguous.  For 
example, deductions are only three percent for agent 
commissions and head office expenses (mainly for turnkey 
supply and installation-type contracts). 
The licensing authority of the Ministry of Commerce and 
Industry screens all proposals for direct foreign investment. 
 In the past, this authority has encouraged high-tech 
industries over sectors viewed to be saturated, such as the 
hotel industry.  The Foreign Capital Investment Committee 
(FIC), chaired by the Minister of Commerce and Industry and 
including representatives from the private and public 
sectors, will authorize investment incentives put forth under 
the new Foreign Investment Law on a case-by-case basis. 
Foreign companies have reported numerous delays in gaining 
authorization, some waiting up to 18 months for approval. 
 
CONVERSION AND TRANSFER POLICIES 
-------------------------------- 
 
After 27 years of linking the Kuwaiti dinar (KD) exchange 
rate to a basket of currencies, Kuwait decided to peg the 
dinar to the US dollar under a flexible peg from the 
beginning of 2003. The move is in preparation for the 
adoption of a single GCC currency in 2010. The Central Bank 
of Kuwait (CBK) will retain a band of plus or minus 3.5 
percent in order to ensure a smooth evolution of the historic 
behavior of the KD that has traded within the specified band 
since liberation. Since 1997, the KD has fluctuated within a 
3 percent band against the dollar.  There are no restrictions 
on current or capital account transactions in Kuwait beyond 
the requirement that all foreign exchange purchases be made 
through a bank or licensed foreign exchange dealer.  Equity, 
loan capital, interest, dividends, profits, royalties, fees 
and personal savings can all be transferred in or out of 
Kuwait without hindrance.  Under the new Foreign Investment 
Law, investors are also permitted to transfer all or part of 
their investment to another foreign or domestic investor. 
 
*Source: National Bank of Kuwait Economic & Financial Review, 
June 2003. 
 
EXPROPRIATION AND COMPENSATION 
------------------------------ 
 
There have been no recent cases of expropriation or 
nationalization involving foreign investments in Kuwait. 
Nevertheless, as a safeguard, the new Direct Foreign Capital 
Investment Law guarantees against expropriation or 
nationalization except for the public benefit in accordance 
with existing laws; in this case, compensation will be 
provided without delay for the "real economic value of the 
project at the time of expropriation."  When foreign 
companies were nationalized in the past, as with Kuwait's oil 
industry in the 1970s, the foreign interests were compensated 
promptly and effectively. 
 
DISPUTE SETTLEMENT 
------------------ 
 
The Foreign Investment Law stipulates that Kuwaiti courts 
alone are responsible for adjudicating any disputes involving 
a foreign investor and other parties, although arbitration is 
permitted. Few contracts in Kuwait contain clauses specifying 
recourse to traditional commercial and political negotiation. 
 According to the Central Bank of Kuwait, the Kuwaiti 
judicial system recognizes and enforces foreign judgments 
only when reciprocal arrangements are in place. Kuwait is a 
signatory to the International Center for the Settlement of 
Investment Disputes (ICSID, i.e. the Washington Convention). 
There have been no investment disputes involving American 
firms in Kuwait in over five years; commercial disputes are 
more common.  In both cases, the slow pace of Kuwait's legal 
system often frustrates American claimants. 
 
Kuwait has a developed legal system and a strong trading 
history.  It has a civil code system influenced by Islamic 
law.  As a traditional trading nation, Kuwait's judiciary is 
familiar with international commercial laws.  Kuwait has been 
a GATT member since 1963 and has signed a WTO agreement. 
Kuwait, however, is not a signatory to the WTO Government 
Procurement Code. 
 
A feature of Kuwaiti law which U.S. business should be aware 
of is the application of travel bans which may be applied 
against individuals who have civil or criminal cases 
registered against them.  The ban prevents individuals from 
departing Kuwait until the pending matter is settled or 
acceptable guarantees are offered.  There have been 
indictments in which former Kuwaiti business partners have 
managed to have travel bans imposed on former U.S. partners 
for allegedly violating Kuwaiti civil law. Though very 
infrequent, such cases highlight the need to take extra care 
before entering into long-term business relationships in 
Kuwait. 
 
PERFORMANCE REQUIREMENTS/INCENTIVES 
----------------------------------- 
 
Government Procurement Requirements 
 
Law No. 37 of 1964 (Articles 43 and 44) specifies the use of 
local products when available and prescribes a 15 percent 
price advantage for local firms in government tenders. 
 
Boycotts 
 
Kuwait publicly announced in June 1993 the end of enforcement 
of the secondary and tertiary Arab League boycotts of Israel. 
 Although there are occasional reports that some tender 
requests contain boycott clauses reportable under U.S. 
anti-boycott laws, these usually result from clerical errors 
or the use of outdated forms.  Kuwait has stated that it will 
wait for Arab League action before eliminating the primary 
boycott of Israel. 
 
Shipping Requirements 
 
The Kuwaiti government has insisted that cargoes for 
government projects originating in U.S. ports will no longer 
be prevented access in favor of the United Arab Shipping 
Program. 
 
Participation In Research And Development 
 
There are no specific restrictions on foreign participation 
in government-financed or subsidized research and 
development, but little activity of this kind has occurred to 
date.  The Kuwait Institute for Scientific Research (KISR) 
has expressed interest in working with foreign firms.  The 
government would welcome programs that provide expertise 
unavailable locally, but these are likely to be evaluated on 
a case-by-case basis. 
 
Visa and Work Permit Requirements 
 
Kuwait has a stringent visa regime and most work permits 
require a local sponsor.  The Foreign Investment Law, 
however, may redress this problem for new investors. 
Reciprocal changes between the U.S. and Kuwait--particularly 
the introduction of a 10-year multiple entry visa--have 
benefited U.S. business travelers.  Visa requirements for 
citizens of 34 nations, including the United States, were 
relaxed in 2004 allowing for application for a visa at the 
airport upon arrival.  Foreign-born U.S. citizens, especially 
those of Middle Eastern descent, sometimes experience 
difficulties with visa and residency applications.  Any 
problems experienced by potential U.S. visitors should be 
referred to the American Embassy or to the Bureau of Consular 
Affairs, Department of State. 
 
RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT 
-------------------------------------------- 
 
Rights to private ownership and establishment are respected 
in Kuwait, although foreigners face selected restrictions. 
Licenses from the Ministry of Commerce and Industry are 
required for the establishment of all new companies, and 
government authorization is required for any incentives 
offered by the new Foreign Investment Law.  As stated above, 
foreign ownership is restricted or prohibited in some sectors 
of the economy, and non-GCC citizens may not own land in 
Kuwait. 
 
Kuwaiti law severely restricts the types of collateral to 
which creditors may have recourse in the event of default by 
a borrower.  Banks may not foreclose on residential real 
estate property or personal possessions in the event of 
default, although they may sue the borrower for the balance 
due under the loan contract.  Borrowers typically pledge a 
portion of their future severance benefits as collateral for 
a bank loan. 
 
TRANSPARENCY OF THE REGULATORY SYSTEM 
------------------------------------- 
 
Kuwait has not developed effective antitrust laws to foster 
competition, and its bureaucracy often resembles that of a 
developing country.  Kuwait's open economy has generally 
promoted a competitive market.  When government intervention 
occurs, however, it is usually to the benefit of Kuwaiti 
citizens and Kuwaiti-owned firms. 
EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT 
--------------------------------------------- ----- 
 
Kuwait has a free, but inefficient, capital market where 
credit is allocated on market terms.  Foreign investors can 
obtain credit through local banks.  With the help of 
government subsidies, the financial markets -- and 
particularly the commercial banks -- operated throughout the 
1980s primarily to collect funds for the re-lending to 
favored customers.  Payment discipline was lax and real 
economic losses common.  Under a bank stabilization program 
introduced in 1992, the Central Bank of Kuwait purchased all 
of the outstanding domestic credits of Kuwait's commercial 
banks while eliminating all guarantees for profits, equity, 
and liabilities other than the banks' deposit liabilities. 
Henceforth, all losses would stay with the banks, which would 
be responsible for the management of all their assets and 
liabilities.  In addition, the Central Bank improved bank 
supervision, resulting in a fairer and more efficient 
distribution of credit throughout the Kuwaiti banking system. 
 Each of Kuwait's six commercial banks reported continued 
earnings growth in 2002. 
 
BANK ASSETS 
----------- 
 
Kuwait's banks have not yet released their 2004 annual 
reports.  The assets of Kuwait's commercial banks on December 
31, 2003 were: (in '000s) 
 
 
BANK  KD    U.S. $ equivalent 
National Bank of Kuwait 5,439,105   18,190,987 
Gulf Bank   2,483,522   8,306,094 
Commercial Bank of Kuwait     2,198,250   7,352,006 
Al-Ahli Bank      1,480,077   4,950,090 
Burgan Bank 1,920,300   6,422,408 
Bank of Kuwait and the Middle East  1,495,447   5,001,495 
TOTAL 15,016,701  50,223,080 
 
(US $1 equals KD 0.291 as of Jan. 1st, 2005-CBK) 
 
 
The quality of local banks varies from blue chip, world-class 
to weak.  Some bank assets have been non-performing in the 
past.  The balance sheets of some local banks are heavily 
weighted toward lower-yielding government bonds.  Legal, 
regulatory, and accounting systems are opaque but are 
generally consistent with international norms.  The Central 
Bank of Kuwait requires annual reports from local banks to 
meet international accounting standards.  U.S. businesspeople 
are advised to seek local legal and financial advice for 
complicated investments and transactions. 
 
There are few defensive measures to protect against hostile 
takeovers, which are rare in Kuwait. There is no evidence of 
private sector or government efforts to restrict foreign 
participation in industry standards-setting consortia or 
organizations.  U.S. suppliers often have trouble, however, 
complying with specifications that are 
technologically-tailored to other (usually European, 
especially U.K.) suppliers.  In addition, American suppliers' 
preference for turnkey projects often does not mesh with 
Kuwait's preference to split projects into a series of 
separately-tendered smaller projects. 
 
Finally, U.S. investors should be aware that family, clan, 
and tribal ties throughout the business community and 
government can restrict foreign participation, investment, 
and control of domestic enterprises.  Kuwait is a very big 
small town. 
 
POLITICAL VIOLENCE 
------------------ 
 
Politically Motivated Damage to Projects and/or Installations 
The potential for terrorist actions throughout the Persian 
Gulf region remains high, and the Government of Kuwait 
continues to take aggressive steps to ensure domestic 
security.  Between October 2002 and January 2004, there were 
four terrorist attacks targeting Americans in Kuwait, killing 
two Americans and wounding four others.  There have been no 
incidents since. 
CORRUPTION 
---------- 
 
The often-lengthy procurement process in Kuwait occasionally 
results in accusations of attempted bribery or the offering 
of other inducements by foreign bidders.  This is a crime in 
Kuwait and there are currently several investigations and 
trials underway involving current or former government 
officials accused of malfeasance.  There have been no 
convictions for bribery, however, since the end of the Gulf 
War.  In 1996, the government passed Law No. 25, which 
requires all companies securing contracts with the government 
valued at KD 100,000 (US $336,000) or more to report all 
payments made to Kuwaiti agents or advisors while securing 
the contract.  The law similarly requires entities and 
individuals in Kuwait to report any payments they received as 
compensation for securing government contracts. 
 
BILATERAL INVESTMENT AGREEMENTS 
------------------------------- 
 
Kuwait has signed investment agreements with Germany, France, 
Italy, Russia, China, Romania, Poland, Hungary, Turkey, 
Malaysia, Pakistan, Switzerland, Malta, Finland, Ethiopia, 
Croatia, Tajikistan, Austria, Bulgaria, Kazakhstan, Morocco, 
Mongolia and the Czech Republic.  In the past few years, 
Kuwait has signed a bilateral investment agreement with 
Pakistan and a free trade agreement (FTA) with Jordan. 
Kuwait has initialed agreements on bilateral investment with 
Denmark, Belgium, the Netherlands, Thailand, Ukraine, Latvia, 
Lithuania, Lebanon, Bosnia/Herzegovina, and India.  Kuwait 
began talks with Singapore on a Free Trade Agreement in 
December 2004. 
 
Trade and Investment Framework Agreement 
 
Kuwait signed a trade and Investment Framework Agreement 
(TIFA) with the United States in February 2004.  The TIFA is 
the first step in developing economic reform and trade 
liberalization criteria to strengthen the U.S. - Kuwait 
economic relationship and to work toward an eventual Free 
Trade Agreement.  At the first bilateral TIFA Council 
meeting, held in May 2004 in Washington, D.C., it was agreed 
that the TIFA process would provide for periodic technical 
discussions.  Several areas in particular stand out as 
needing further attention:  intellectual property rights, 
standards-related issues, and service and investment 
requirements.  Technical experts on both sides continue to 
work on these areas.  The U.S. Embassy in Kuwait, the Kuwaiti 
Embassy in Washington, the USTR, and the Kuwaiti Ministry of 
Commerce and Industry are working on bringing all sides 
together for the next TIFA Council Meeting in the first half 
of 2005. 
 
OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS 
-------------------------------------------- 
 
In 1989, Kuwait concluded an agreement with the U.S. on 
investment guaranty programs, which facilitated the extension 
of programs from the Overseas Private Investment Corporation 
(OPIC) to Kuwait.  Kuwait is also a member of the 
Multilateral Investment Guarantee Agency (MIGA).  Currently 
there are no OPIC programs in Kuwait. 
 
LABOR 
----- 
 
Kuwait has a diverse labor force.  Kuwaiti nationals occupy 
most of the top management positions in the private and 
government sectors.  Unemployment among Kuwaitis is less than 
two percent, but is rising as a result of a growing influx of 
young Kuwaitis into the labor force (20,000 to 25,000 
annually).  The new entrants are reluctant to enter the 
private sector and cannot be absorbed by the government, 
where underemployment remains a serious problem.  Kuwaitis 
are outnumbered in the work force by expatriate laborers of 
diverse backgrounds.  While there are a number of American 
and Western European workers in Kuwait, particularly in 
high-skilled positions, the vast majority of expatriate 
workers are low paid laborers from other Middle Eastern 
countries, South Asia, and the Philippines.  Prior to the 
Gulf War (1991), Palestinians occupied many of the country's 
middle-management positions.  Since the war, workers of other 
nationalities, often Egyptians or South Asians, have filled 
most of these positions. Since liberation, the Government of 
Kuwait has adopted inconsistent policies intended to limit 
and discourage the resident expatriate population.  The 
government has instituted a quota system on work permits, 
restricted the transfer of workers from one sponsor to 
another within the private sector, and levied new fees on 
expatriate workers and their families in order to raise the 
cost of employing foreign workers.  At the same time, 
however, the government has reduced the minimum salary 
required for expatriates (in some business categories) to be 
eligible to bring their families to Kuwait, lowering it from 
400 KD a month to 250 KD a month. 
 
Kuwaiti workers have the right to organize and bargain 
collectively, but Kuwaiti law prevents the establishment of 
more than one union per functional area or more than one 
general confederation.  Foreign workers, who constitute the 
vast majority of the work force, are permitted by law to join 
unions as non-voting members after five years of residence in 
Kuwait.  The right to strike is also recognized for private 
sector workers, though that right is limited by provisions 
calling for compulsory negotiation and arbitration in the 
case of disputes.  Kuwaiti labor law prohibits anti-union 
discrimination. 
 
Separate Kuwaiti labor laws set work conditions in the public 
and private sectors, with the oil industry treated 
separately.  Forced labor is prohibited and the minimum age 
for employment is 18 years.  Youths as young as 14, however, 
may work part-time in some non-industrial positions.  A 
two-tiered labor market ensures high wages for Kuwaiti 
employees while foreign workers, particularly unskilled 
laborers, receive substantially lower wages.  There is no 
minimum wage for the private sector; in the public sector, 
the current effective minimum wage is KD 226 (US $741) per 
month for Kuwaiti bachelors and KD 301 (US $987) per month 
for married Kuwaitis--compared to KD 90 (US $295) for 
non-Kuwaitis.  The basic labor law also limits the workweek 
to 48 hours, provides for a minimum of 14 days of leave per 
year, and establishes a compensation schedule for industrial 
accidents.  Current labor laws do not apply to domestic 
servants. The State Department's annual Human Rights Report 
and Trafficking in Persons Report highlight the vulnerability 
of domestic servants to exploitation.  The Ministry of Social 
Affairs and Labor announced a draft law to give domestic 
servants some of their rights like limited number of weekly 
work hours, minimum salary, and a weekly holiday. 
 
The International Labor Organization's (ILO) Committee of 
Experts has reiterated its long-standing criticisms of the 
discrepancies between the Kuwaiti Labor Code and ILO 
Conventions 1, 30, and 87 regarding hours of work and freedom 
of association.  Areas criticized by the ILO include the 
prohibition to establish more than one trade union for a 
given field; the requirement that a new union have at least 
100 workers; the regulation that workers must reside in 
Kuwait for five years before joining a trade union; the 
denial of the right to vote and to be elected for foreign 
trade unionists; the prohibition against trade unions 
engaging in any political or religious activity; and the 
reversion of trade union assets to the Ministry of Social 
Affairs and Labor in the event of dissolution.  A new labor 
law has been under consideration for over 10 years. 
 
FOREIGN TRADE ZONES AND FREE PORTS 
---------------------------------- 
 
In July 1995, the National Assembly passed Law No. 26 
authorizing the Ministry of Commerce and Industry to 
establish free trade zones in Kuwait.  In May 1998, the 
privately-owned National Real Estate Company signed a 
contract with the Ministry to operate, manage, and market the 
50 square-kilometer Kuwait Free Trade Zone (KFTZ) at Shuwaikh 
port, which was inaugurated in November 1999.  Many 
restrictions faced by foreign firms, such as corporate taxes, 
do not apply to offices or plants within the KFTZ.  Some 90 
percent of space within the KFTZ has been leased; the 
majority of firms operating in the zone are Kuwaiti. 
 
FOREIGN DIRECT INVESTMENT STATISTICS 
------------------------------------ 
 
Kuwaiti public investments abroad consist of portfolio 
investments held by the Kuwait Investment Authority, direct 
investments of other government entities, as well as those 
held by private Kuwaitis.  The amount of investments of the 
KIA is a state secret, but is estimated at more than US $80 
billion.  Details about non-KIA investments -- such as the 
Kuwait Petroleum Corporation's interests in oil production, 
refining, and distribution -- are equally murky.  The 
holdings of private Kuwaitis, in both direct and portfolio 
investments, are believed to be some US $100 billion. Other 
major investors in Kuwait include the Japanese-owned Arabian 
Oil Company which holds the Kuwaiti offshore concession in 
the Partitioned Neutral Zone (PNZ), and Dow Chemical which 
has a 45 percent stake in the US $2 billion Equate project, a 
petrochemical joint venture with the Petrochemical Industries 
Company (PIC) that began operation in 1997.  (Although the 
U.S.-owned Saudi Arabian Texaco is headquartered on the 
Kuwait side of the PNZ, it operates under a Saudi concession 
for Saudi Arabia's share of the onshore oil resources in the 
PNZ.) 
LEBARON