US embassy cable - 05KUWAIT1295

C O N F I D E N T I A L SECTION 01 OF 07 KUWAIT 001295 
 
SIPDIS 
 
STATE PLEASE PASS USTR JFENNERTY 
 
E.O. 12958: DECL: 03/21/2015 
TAGS: ETRD, PREL, ECON, EINV, KU, Trade Agreements 
SUBJECT: U.S.-KUWAIT "MINI-TIFA" TALKS 
 
REF: A. KUWAIT 1172 
     B. KUWAIT 1146 
     C. KUWAIT 989 
     D. KUWAIT 900 
     E. KUWAIT 729 
     F. 04 KUWAIT 2010 
 
Classified By: Ambassador Richard LeBaron, Reason 1.4(b) 
 
1. (SBU) Summary and Comment.  On March 16-17, USTR's John 
Fennerty met with members of Kuwait's Trade and Investment 
Framework Agreement (TIFA) team (participant list in para 31) 
in a series of "mini-TIFA" meetings, to assess Kuwait's 
progress since the May 2004 inaugural TIFA Council meeting in 
Washington.  Fennerty complimented the TIFA team on leading 
reform efforts in Kuwait, and conveyed AUSTR Catherine 
Novelli,s regards to the Minister of Commerce. To deepen the 
Kuwaitis' understanding of what a free trade agreement (FTA) 
would entail, Fennerty described the general structure of an 
FTA and stressed that the minimum starting point of an FTA is 
WTO compliance, although FTA requirements would be above and 
beyond those commitments. Working TIFA Committee Chair Hamad 
Al-Ghanim reported that Kuwait had been trying to do its best 
this past year to press for changes, and noted that the 
Kuwaitis felt a little discouraged that the UAE and Oman have 
moved into FTA negotiations while Kuwait has had only one 
TIFA Council meeting. 
 
2. (SBU) On telecom, Fennerty received an overview of the 
ministry's plans to liberalize the sector, and learned that 
Kuwait will submit its plan to the WTO for approval within 
the year.  In discussing Kuwait's International Conformity 
Certification Program (ICCP), the Kuwaitis welcomed U.S. 
technical assistance to help devise an acceptable replacement 
for the ICCP.  With regard to intellectual property rights, 
the TIFA team said the GOK had created an interministerial 
IPR committee, but there had been no progress on legislation. 
 A Central Bank representative outlined new legislation that 
has opened up the banking sector to foreign banks and foreign 
investors.  The Kuwaitis also said they would submit a WTO 
services offer before May 2005.  On insurance, the Kuwaitis 
admitted that no changes have occurred since the last 
meeting, although the Ministry of Commerce is drafting new 
legislation.  The team had little new information on Kuwait's 
overly restrictive shelf-life regulations. 
 
3. (SBU) Concerning government procurement, the cabinet is 
drafting a new law that still has serious shortcomings, 
including national treatment concerns.  The Ministry of 
Finance would like Kuwait to accede to the WTO Government 
Procurement Agreement, but according to the Finance 
representative, there is a lack of political will within the 
GOK more broadly.  Kuwait's labor representative said that a 
new draft labor law is with the National Assembly, but he 
predicted it would not be debated until fall.  This law 
would, he said, bring Kuwait into conformity with ILO 
provisions.  Finally, a representative from Kuwait's Chamber 
of Commerce and Industry (KCCI) outlined new changes to 
encourage foreign investors, and said that KCCI had asked the 
Prime Minister to suspend Kuwait's 55 percent tax rate for 
foreign corporations until a new tax law is passed. 
 
4. (C) Comment.  Although in arguing for a second TIFA 
Council meeting the GOK contended it had made significant 
progress since the first meeting, it was clear following 
these discussions that little progress was achieved over the 
past year.  Many of the proposals the GOK has made to open 
its economy are still in the drafting stage with line 
ministries; other draft laws are sitting with a parliament 
that has shown little willingness to buy into the GOK's 
liberalization vision.  The Kuwaiti team also demonstrated 
that in some key areas, its technical expertise is rather 
thin; in others, the representatives gave incorrect or 
misleading information (notably on labor and insurance).  Its 
unwillingness to allow the U.S. or industry groups to review 
draft legislation before it is submitted to the National 
Assembly is problematic, as changing legislation once it is 
passed into law is a very time-consuming prospect in Kuwait. 
The Kuwaiti TIFA team (and Al-Ghanim particularly) seems to 
be laboring under the misimpression that Kuwait will be given 
an FTA even absent significant economic change because it is 
a key U.S. ally, despite Fennerty's -- and post's -- repeated 
representations to the contrary.  To help correct this, post 
will draft a presentation for the Ambassador, outlining the 
steps the GOK must take to move forward with the TIFA.  This 
speech, which we will clear with State and USTR, will then 
form the basis for additional public diplomacy efforts in 
support of the TIFA/FTA process.  End Summary and Comment. 
 
Introduction and Overview 
------------------------- 
 
5. (SBU) On March 16-17, USTR's John Fennerty met with 
members of Kuwait's Trade and Investment Framework Agreement 
(TIFA) team in a series of "mini-TIFA" meetings, to assess 
Kuwait's progress since the May 2004 inaugural TIFA Council 
meeting in Washington (participant list in para 31).  To 
deepen the Kuwaitis' understanding of what a free trade 
agreement (FTA) would entail, Fennerty described the 
agreement's general structure and stressed that the minimum 
starting point of an FTA is WTO compliance, although FTA 
requirements would be above and beyond those commitments. 
He explained that USTR's decision to begin negotiating 
bilateral FTAs in the Middle East and North Africa (MENA) was 
part of President Bush,s larger goal of a Middle East Free 
Trade Agreement (MEFTA) by 2013.  He emphasized that, 
contrary to some press reported claims that the U.S. is using 
bilateral FTAs to undermine the Gulf Cooperation Council 
(GCC), the U.S. very much supports the GCC and views regional 
integration as a key component/objective of MEFTA.  Finally, 
he illustrated the benefits of an FTA by citing the case of 
Jordan, whose exports to the U.S. have increased by more than 
a 1000 percent since signing the FTA in 2000. 
 
6. (SBU) Fennerty complimented the TIFA team on leading 
reform efforts, and praised Kuwait,s team in Washington.  He 
also conveyed AUSTR Catherine Novelli,s regards to the 
Minister of Commerce, explaining that although she was not 
able to visit Kuwait at this time due to other pressing 
commitments, she had asked Fennerty to come and review 
prgoress since the May 2004 TIFA Council meeting.  Fennerty 
added that USTR would like to continue information exchanges 
between U.S. and Kuwaiti experts to move the process forward. 
 On an administrative note, Fennerty said that the GOK's 
habit of transmitting documents in hard copy via its Embassy 
in Washington was slowing progress; he requested that the GOK 
provide documents in electronic format as much as possible, 
to facilitate dissemination among U.S. agencies. 
 
7. (SBU) As the working chair of the Kuwaiti TIFA committee, 
Ministry of Commerce and Industry Assistant Undersecretary 
for Foreign Trade Affairs Hamad Al-Ghanim welcomed Fennerty 
and reported that Kuwait had been doing its best this past 
year to press for changes.  He also noted, as he has in the 
past, that the Kuwaitis feel a bit discouraged that the UAE 
and Oman have moved into FTA negotiations (even though they 
signed their TIFAs after Kuwait did), while Kuwait has had 
only one TIFA Council meeting.  Fennerty explained that the 
U.S. has had TIFAs with some countries for many years without 
regular meetings:  it is the pace of progress on reforms that 
dictates the timing of meetings and FTA negotiations.  He 
also reiterated the importance of compliance with WTO 
commitments and urged the GOK to focus its efforts on this. 
A summary of the discussions by sector follows below. 
 
Telecommunications 
------------------ 
 
8. (SBU) Fennerty met with Ministry of Communications 
Undersecretary Hamad Khajah on March 16 to discuss the 
telecom chapter.  Fennerty expressed the U.S. government,s 
appreciation for the actions the ministry took to resolve its 
long-standing dispute with AT&T (ref F), saying that this 
showed that the ministry is serious about reform.  Such 
reforms would be key to an FTA, Fennerty added, since U.S. 
companies view telecommunications infrastructure as essential 
for doing business in a foreign country.  He also informed 
Khajah that there would be an e-commerce component of the 
FTA. Khajah provided Fennerty with an overview of the 
ministry's plans to liberalize the sector (reported in detail 
in ref B).  Khajah said that Kuwait planned to submit its 
plan to the WTO for approval within the year.  Fennerty noted 
that signing on to the WTO Basic Agreement and adopting 
reference paper commitments would send a strong signal of GOK 
commitment to liberalization.  Khajah commented that he 
believed that Kuwait should not wait for all GCC countries to 
submit their papers before doing so itself. 
 
9. (SBU) Khajah offered to meet with USTR experts for further 
discussions when he is in the U.S. in mid-April.  He frankly 
admitted that he has been trying to liberalize the telecom 
sector for three years, but has faced strong opposition in 
the National Assembly.  Now, Khajah said, he can use (and has 
done so successfully) the TIFA as leverage to force change. 
 
Technical Barriers to Trade 
--------------------------- 
 
10. (SBU) In his March 16 discussion with Public Authority 
for Industry (PAI) Director of Standards and Metrology Khaled 
Al-Fahad and Ministry of Commerce Assistant U/S Al-Ghanim, 
Fennerty discussed Kuwait's International Conformity 
Certification Program (ICCP), which the U.S. had long 
identified as a technical barrier to trade (TBT).   Fennerty 
said that, based on GOK coments over the past few week, he 
sensed that the GOK might benefit from some carefully 
targeted technical assistance from the U.S. on how to proceed 
(ref D).  He cautioned, however, that there are limits to 
technical assistance, and he asked that the Kuwaiti experts 
discuss further with U.S. TBT experts how best to target U.S. 
assistance.  Al-Fahad said that Kuwait would be happy to 
discuss technical assistance and what kind of program would 
be appropriate, given Kuwait's infrastructure. 
 
11. (SBU) Al-Fahad told Fennerty that the GCC Secretary 
General has commissioned a study to devise a conformity 
assessment program for the entire GCC, to go into effect 
within six months.   Since any modification to Kuwait,s 
scheme would need to conform to the GCC plan once the latter 
is implemented, Al-Fahad suggested that a U.S. TBT expert 
visit Kuwait within the next three months.  Fennerty said 
that the U.S. would consider it, but reiterated that U.S. and 
Kuwaiti experts must talk first.  Fennerty also emphasized 
the importance of GOK representatives attending WTO TBT 
workshops, so that they might have exchanges with other 
experts. 
 
12. (SBU) Fennerty stressed that the U.S. believes that when 
Kuwait reshapes its program, the base assumption should be 
that, in the absence of identifiable problems with imported 
U.S. goods (of which there has been none to date), there 
would be no need for regulation beyond market surveillance 
and spot checking.  If problems do emerge, then there might 
be a need for greater GOK intervention.  At present, however, 
Kuwait is insisting on conformity assessment for products 
that the GOK readily admits have presented no problems. 
 
Intellectual Property Rights 
---------------------------- 
 
13. (SBU) On March 17, Fennerty and USPTO copyright expert 
Jennifer Ness met with the remainder of the TIFA team in one 
long session to discuss progress in other sectors. (Ness 
later held a break-out session with Ministry of Information 
copyright expert Khaled Al-Hendi and Ministry of Commerce 
patent and trademark expert Nasser Al-Mubarak on the 
specifics of Kuwait's IPR legislation.)  The discussion began 
with intellectual property rights (IPR), which Fennerty 
characterized as one of the most important issues, since it 
affects many other chapters.  Fennerty complimented the 
Customs Service and the Ministries of Commerce and Education 
for their enforcement efforts, adding that industry believes 
Education has a model program for protecting textbook 
copyrights.  Kuwait's most serious enforcement problem, 
however, is the lack of deterrence resulting from low 
penalties and no threat of jail time for copyright and 
trademark violators.  In the U.S.,s experience, Fennerty 
said, the only way to reduce piracy is to make it more 
expensive. Fennerty reiterated that the base starting point 
in FTA negotiations is WTO compliance, but cautioned that on 
IPR, FTA requirements would be significantly more stringent 
than WTO commitments.  The first task for Kuwait, then, would 
be ensuring that its laws, regulations and enforcement are 
TRIPs-compliant.  Once that occurs, the U.S. and Kuwait may 
begin discussions of moving beyond TRIPs.  He urged the 
Kuwaitis to look at the U.S.,s FTAs with other countries to 
see what is required. 
 
14. (SBU) Al-Ghanim gave a brief overview of some IPR 
developments, telling Fennerty that the GOK has decided to 
establish an interministerial committee on IPR including the 
Ministries of Information and Commerce, the Customs Service, 
and Kuwait municipality; this committee will act as a central 
data-collection body.  Fennerty asked whether the Ministry of 
Interior (MOI) would be included in the new committee.  The 
Kuwaitis said that the decision had been left to MOI, but 
remarked that they felt it was unnecessary since, they 
claimed, it is easier now to get MOI involved in IPR cases. 
Fennerty commented that the U.S. has found in other countries 
that involving MOI is key, because the police work 24 hours 
every day and can target pirates at their weakest times. 
When combined with harsher penalties, this would have a 
greater deterrent effect.  Al-Ghanim also noted that the GOK 
had issued a draft law on patents, which had been provided to 
the U.S. for comment.  Ministry of Information IPR Committee 
Chief and Legal Advisor to the Minister Khaled Al-Hendi said 
that his ministry had begun to increase enforcement during 
the past month under the leadership of new Assistant U/S 
Ibrahim Al-Nouh and in cooperation with industry.  He also 
noted that Information is seeking to have a formal 
relationship with Interior on IPR. 
 
Banking 
------- 
 
15. (SBU) Al-Ghanim said that under Ministerial Order 
28/2004, foreign banks may now open branches in Kuwait.  The 
Central Bank of Kuwait's (CBK) Basel Al-Haroon told Fennerty 
that BNP Paribas, the Abu Dhabi National Bank and HSBC have 
all been approved to open branches in Kuwait, and 
Citigroup,s application is currently under review.  Fennerty 
outlined what the U.S. would expect under an FTA.  With 
regard to financial services, national treatment would be 
very important:  foreign banks should be permitted to operate 
wholly owned subsidiaries in Kuwait and should be allowed 100 
percent ownership shares in Kuwaiti banks.  When Fennerty 
asked if foreign banks were limited to opening only one 
branch; Al-Haroon said that although that is not specified in 
the law, in practice it was true and was being done to 
determine the feasibility of foreign bank,s operations. 
Al-Haroon said that foreign ownership of local banks is 
limited to 49 percent, except with approval from CBK and the 
Council of Ministers.  Alternatively, an investor could go 
through the process outlined in Kuwait,s foreign investment 
law, which would allow for full foreign ownership.   (Note. 
This 2001 law authorizes foreign-majority and 100 percent 
foreign ownership in certain industries including 
infrastructure projects; 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.  However, implementing regulations 
were not passed until 2003, and representatives of the 
American Business Council complained to Fennerty that the 
process is overly cumbersome.  End Note.) 
 
16. (SBU) Fennerty asked if capitalization outside Kuwait was 
excluded when calculating capital requirements.  Al-Haroon 
concurred that it was, but said that the capital requirement 
for foreign banks is less than for local banks (15 million 
Kuwaiti dinar versus 75 million).  Fennerty then asked if 
Kuwait would put forward a WTO services offer before May 
2005; Al-Haroon said yes.  Fennerty asked for a copy of the 
offer, noting that in general, the U.S. is lacking up-to-date 
information from Kuwait across sectors. 
 
Insurance 
--------- 
 
17. (SBU) Faiez Al-Saiegh from the Ministry of Commerce and 
Industry told Fennerty that Kuwait opened its insurance 
sector to foreign companies in 2001.  He said foreign 
insurance companies may open a branch office in one of two 
ways:  first, through the process outlined in the foreign 
investment law, or second, by using a local agent.  If the 
foreign investment law requirements are met, the insurance 
company's application is forwarded to the Ministry of 
Commerce for approval.  Fennerty asked about foreign 
ownership of Kuwaiti insurance companies;  Al-Saiegh said it 
is limited to 40 percent for non-GCC foreign nationals, and 
49 percent for GCC nationals.  Fennerty pointed out that this 
is inconsistent with national treatment principles. 
Al-Saiegh hastily replied that foreign companies can apply 
for full ownership of Kuwaiti companies under the foreign 
investment law instead. 
 
18. (SBU) Fennerty asked if Kuwait's prohibition against 
foreign licenses was still in effect; Al-Saeigh asserted that 
it was not.  However, when asked what legal authority 
overrode the prohibition, Al-Saiegh admitted that this was a 
provision in a new draft law on insurance, which is not yet 
in effect.  Indeed, the legislation is still with the 
ministry, and has not yet been submitted to the cabinet for 
approval (which would be necessary before the legislation 
could be sent to the National Assembly for ratification). 
When asked what the timeline might be for approval, Al-Saiegh 
said that he had no idea.  Fennerty asked if the U.S. could 
see a copy of the draft legislation, to allow the U.S. to 
provide feedback; Al-Saiegh said that he would try to provide 
this. 
 
Agriculture 
----------- 
 
19. (SBU) Fennerty explained that in an FTA, agriculture 
would be included in the market access chapter.  He noted 
that, like textiles, this is often a sensitive chapter.  With 
regard to Kuwait specifically, Fennerty raised Kuwait's 
remaining ban on beef imports from Washington state (ref C). 
Ahmad Al-Oqab from the Public Authority for Agriculture 
Affairs and Fish Resources (PAAAFR) was not aware of any 
changes in the ban's status.  On shelf-life restrictions, 
Fennerty noted that the U.S. believes that such restrictions 
should be scientifically based, which Kuwait,s are currently 
not.  Al-Oqab promised to look into shelf-life restrictions. 
Fennerty also asked if Kuwait had considered joining the UPOV 
convention on protection of new varieties of plants; Al-Oqab 
confirmed that they had started the process. Al-Oqab 
requested that the U.S. provide technical assistance in areas 
such as agriculture, animal husbandry, and fisheries. 
Fennerty promised to talk to USDA about the request for 
technical assistance, perhaps using MEPI funds.  He added 
that it would be good for PAAAFR and U.S. experts to have a 
discussion on how best to target U.S. assistance. 
 
Government Procurement and Investment 
------------------------------------- 
 
20. (SBU) Ishaq Abdulkarim from the Ministry of Finance told 
Fennerty that a draft law on government procurement is in the 
works, but frankly admitted that there are still shortcomings 
(including national treatment concerns) that would require 
futher amendment before it could be submitted to the National 
Assembly.  Fennerty asked if the U.S. could see the draft 
law, to evaluate its conformity with FTA structural and 
market access requirements.  Specifically, he noted that 
offsets would not be permitted, regulations requiring local 
partners would not be acceptable, and bid protest procedures 
would need to be specified.  He also pointed out that it 
would be more difficult to correct deficiencies once the 
draft was passed into law.  Abdulkarim was reluctant to 
provide the draft, saying it was not normally permitted. 
Fennerty asked if Kuwait's government procurement process was 
on-line.  Abdulkarim said he had asked the cabinet about 
this, and was told there was a plan to do it in the future. 
Ness pointed out that a provision in the government 
procurement chapter requires governments to devise a software 
acquisition, use and monitoring policy for all ministries, 
and asked if Kuwait had one in place.  Abdulkarim said that 
the GOK does have such a policy; Ness requested that he 
provide a copy to the U.S. 
 
21. (SBU) Abdulkarim noted that the Ministry of Finance would 
like Kuwait to accede to the WTO Government Procurement 
Agreement.  However, he added, political will within the GOK 
would need to be forged before Finance would be authorized to 
proceed.  Abdulkarim also cautioned that the GOK is very 
worried about opening up the government procurement process. 
Fennerty replied that one benefit to Kuwait under an FTA 
would be the reciprocal government procurement obligations 
for the U.S., which would allow Kuwait access to the U.S. 
government procurement market and would require suspension of 
Buy America provisions. 
 
22. (SBU) Turning to investment, Abdulkarim asked if a 
bilateral investment treaty (BIT) was included in an FTA. 
Fennerty said that a country without a BIT with the U.S. 
would have an investment chapter in its FTA.  Abdulkarim then 
indicated that the Ministry of Finance would like a separate 
investment agreement, as Bahrain has.  Fennerty pointed out 
that the U.S. and Bahrain already had a BIT before 
negotiating the FTA.  A further advantage of including 
investment as a chapter in an FTA, Fennerty added, is that 
the U.S. Congress either approves or rejects the agreement in 
whole.  Al-Ghanim complained that Kuwait,s investments in 
the U.S. are highly taxed, and Abdulkarim raised the issue of 
double taxation. (Note.  The U.S. and Kuwait do not have tax 
treaty.  End Note)  Fennerty said that these would not be 
part of an FTA, but would have to be covered under a separate 
treaty negotiated by the Treasury Department.  Abdulkarim 
asked if Fennerty could convey the GOK,s desire for such a 
treaty. 
 
Environment 
----------- 
 
23. (SBU) Fennerty explained that environment is one of two 
FTA chapters mandated by Congress (labor is the other), with 
the core principle being high-level environmental protection. 
 Shaker Madi from the Environment Public Authority, who is 
acting as the GOK's lead on environment, told Fennerty that 
he met with USTR's Jennifer Prescott in November in Geneva, 
and passed her documents on Kuwait's environmental 
regulations.  Fennerty provided Madi with additional written 
questions from Prescott, noting that our impression is that, 
although Kuwait has some environmental laws in place, it is 
in the early stages of developing implementing regulations. 
Madi disputed this, saying that environmental standards are 
guaranteed by Kuwait,s Environment Council, and asserting 
that inspectors are authorized to issue violations and shut 
down facilities.  Fennerty asked if Madi could provide him 
with the technical regulations, which Madi said were 
available on EPA,s website. (Note.  Only the agency's 
lengthy 2001 by-laws, which include environmental 
regulations, are posted at www.epa.org.kw.  End Note.) 
 
24. (SBU) Madi outlined Kuwait,s history of cooperative work 
with U.S. environmental agencies and individuals, and 
Fennerty suggested that these contacts be expanded.  He also 
said that the experts should try to identify specific areas 
in which the U.S. could provide technical assistance 
(fisheries development, for example).  Fennerty cautioned, 
though, that it would be important for the GOK to prioritize 
where it would like assistance to be targeted. Fennerty 
concluded by saying that Prescott is ready to continue her 
dialogue with Kuwait's environmental experts, and said the 
U.S. was prepared to pay for two Kuwaitis to attend 
environmental workshops in the U.S.  Al-Ghanim asked Fennerty 
to provide him with more information on the workshop. 
 
Labor 
----- 
25. (SBU) Fennerty opened by noting that there is significant 
U.S. domestic interest in labor, a sensitive and 
Congressionally mandated chapter of the FTA.  Before any FTA 
is submitted to Congress, Fennerty explained, Kuwait would 
need to demonstrate that implementation of its labor laws was 
underway and these laws were consistent with ILO provisions. 
 Adnan Al-Omar from the Ministry of Social Affairs and Labor 
said that a draft labor law that would increase labor 
protections and result in ratification of ILO conventions was 
currently with the National Assembly.  (Note.  At the May 
2004 TIFA Council meeting in Washington, Al-Omar vigorously 
asserted -- incorrectly -- that Kuwait had ratified all ILO 
conventions.  End Note.)  Fennerty asked if the new labor law 
included protection for foreign laborers, which Al-Omar 
confirmed.  He guessed that the legislation might be passed 
in September or October, but not during the National 
Assembly's current session.  He added that he would be 
meeting with the Minister of Social Affairs and Labor after 
his meeting with Fennerty, and would use the TIFA meeting to 
prod the minister to encourage the National Assembly to act. 
 
26. (SBU) Fennerty asked if child camel jockeys were a 
problem in Kuwait.  Al-Omar played down the extent of the 
problem, saying that Kuwait was only "at 10% of the level of 
the UAE," and claimed that violators of the Council of 
Ministers decree prohibiting child jockeys were currently 
being prosecuted.  Fennerty then inquired about the right to 
strike, which Al-Omar said is permitted (both for Kuwaitis 
and foreign nationals).  Al-Omar acknowledged that foreign 
workers do not have the right to be officers in unions, 
contending that foreign workers' lack of connections in 
Kuwaiti society would render them unable to solve problems 
even if they were elected.  Fennerty asked if the government 
may dissolve unions; Al-Omar said it may do so through the 
courts for reasons of national security or national interest. 
 
 
Views from the Private Sector 
----------------------------- 
 
27. (SBU) Salah Al-Marzouk, a member of the Kuwait Chamber of 
Commerce and Industry's (KCCI) board of directors, offered a 
view from the private sector.  According to Al-Marzouk, 
Kuwait's economy was opening up substantially as a result of 
the GOK's initiatives.  He noted that the GOK had decided to 
provide visas on arrival for some nationalities, and said 
that a number of draft laws had been submitted to the 
National Assembly to liberalize the economy.  He said that 
KCCI had held a fruitful discussion with the National 
Assembly,s Economic and Finance Committee about the draft 
tax law, which will revise Kuwait's 1955 tax law that imposes 
a 55 percent tax on foreign corporations' profits.  According 
to Al-Marzouk, although the GOK "never imposes the 55 percent 
tax obligation on foreign corporations," KCCI has asked the 
Prime Minister to suspend the 1955 law until a new one is 
passed. 
 
28. (SBU) Fennerty asked about the draft tax law,s 
provisions.  Al-Marzouk said that it would provide for a 
10-15 percent corporate tax rate and would offer a tax 
holiday.  He said that KCCI would like involve the private 
sector more in economic reform.  He noted that the stock 
exchange has been booming, with $26 billion in total market 
capitalization.  He also pointed out that KCCI has been 
receiving trade and investment delegations from all over the 
world.  Fennerty said that the U.S. consults regularly with 
the private sector, and would encourage KCCI to keep in touch 
with U.S. companies.  He cited the Pepsico tax dispute (ref 
E) as a classic case that discourages U.S. businesses from 
working in Kuwait.  According to Al-Marzouk, the Prime 
Minister has promised that this case would be solved. 
 
29. (SBU) Fennerty asked for an overview of key changes in 
the draft commercial law.  Al-Marzouk said that the goal is 
to facilitate investment and give investors more flexibility. 
 Al-Ghanim added that this legislation, which is already with 
the National Assembly, will be similar to the foreign 
investment law.  Fennerty asked when it would be passed; 
Al-Marouk said it would not be debated until after the 
women's rights issue is resolved. 
 
30. (SBU) Fennerty then outlined the six core FTA provisions 
regarding investment:  1) respect for national treatment 
requirements; 2) no performance requirements; 3) guarantees 
that companies may choose their top management (from among 
all nationalities); 4) compensation for expropriation; 5) no 
delays in transferring profits out of the country; and 6) 
resolution of disputes through international arbitration. 
Regarding the final point, Al-Marzouk said it would depend on 
the magnitude of the dispute.  He claimed that Kuwait,s 
arbitration center has a clean record going back more than 40 
years, and that discretion is given to companies to choose 
the route of dispute resolution. 
 
Participants 
------------ 
31. (U) Ministry of Commerce:  Hamad Al-Ghanim (chair), Asst. 
U/S for Foreign Trade; Khaled Al-Azemi, Foreign Relations 
Controller; Nefal Al-Doeseri, International Organizations 
Director; Faiez Al-Saiegh, Insurance Department Director; 
Nasser Al-Mubarak, Patents and Trademarks Director 
Ministry of Communications:  Hamad Khajah, U/S 
Public Authority for Industry:  Khaled Al-Fahad, Standards 
and Metrology, Director 
Public Authority for Agriculture Affairs and Fish Resources: 
Ahmed Al-Ogab, Asst U/S 
Kuwait Chamber of Commerce and Industry: Salah Marzouk, Board 
Member 
Ministry of Information: Khaled Al-Hendi, IPR Committee Chief 
Ministry of Finance:  Ishaq Abdulkarim, International 
Economic Cooperation Director 
Central Bank of Kuwait:  Basel Al-Haroon, Offsite Supervision 
Department Manager 
Environment Public Authority: Shaker Madi, Information 
Systems Center Director 
Ministry of Social Affairs and Labor:  Adnan Al-Omar, 
Assistant U/S 
 
32.  (U) USTR's John Fennerty cleared this cable. 
LEBARON