US embassy cable - 05KUWAIT1712

C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 001712 
 
SIPDIS 
 
STATE PLEASE PASS USTR JFENNERTY 
STATE PLEASE PASS DEPARTMENT OF ENERGY FOR IE 
STATE FOR NEA/ARPI, EB/CBA JFMERMOUD, WBEHRENS 
EB/ESC/IEC FOR GALLOGLY, DOWDY 
USDOC FOR 4520/ITA/MAC/AME, 3131/USFCS/OIO 
 
E.O. 12958: DECL: 04/26/2015 
TAGS: ETRD, PREL, EPET, EINV, BEXP, KU, Trade Agreements 
SUBJECT: AMBASSADOR AND COMMERCE MINISTER DISCUSS TIFA, 
PROJECT KUWAIT AND PEPSICO DISPUTE 
 
REF: A. KUWAIT 1295 
 
     B. KUWAIT 936 
     C. KUWAIT 729 
 
Classified By: Ambassador Richard LeBaron, Reason 1.4(b) 
 
1.  (C) Summary.  The Ambassador met Kuwaiti Minister of 
Commerce and Industry Abdullah Al-Taweel and staff on April 
25 to discuss the status of the U.S.-Kuwait Trade and 
Investment Framework Agreement (TIFA), intellectual property 
rights (IPR), Project Kuwait, and the Pepsico tax dispute. 
The Ambassador noted his disappointment with the pace of TIFA 
negotiations, and underlined two ways in which Oman has 
successfully prepared for its FTA negotiations that Kuwait 
might consider emulating.  The Ambassador also suggested that 
the Kuwaitis consider inviting the Omanis and Bahrainis to 
participate in a seminar on FTAs that the GOK is organizing; 
the seminar is scheduled for June 1.  (Note.  Post has asked 
USTR to consider sending someone to speak at this seminar.) 
The Minister said he also is disappointed with the slow pace, 
and claimed that while the Kuwaitis are fully committed to 
moving toward an FTA, the U.S. is sending mixed signals.  He 
also asserted that the Kuwaiti TIFA committee is well 
coordinated by senior leaders, and that the GOK is well 
represented in the U.S. by its Embassy and its lawyers at 
Patton Boggs.  Still, he acknowledged that making the 
necessary legislative changes for an FTA will take a long 
time, and said that changing the labor law specifically would 
take two to three years. 
 
2.  (C) The Minister and his team complained about a 
perceived breakdown in communications between the two sides, 
and the lack of a clear message from the U.S. about what 
Kuwait must do to move forward.  The Ambassador suggested 
that the Kuwaitis consider sending a senior representative to 
the U.S. to meet with USTR and the relevant players on the 
U.S. side and bring focus to this process.   On IPR, the 
Minister spoke about recent raids of businesses selling 
counterfeit auto parts.  He also pointed out increased 
coordination among agencies on IPR, and said that he believes 
the new Minister of Information will cooperate more than his 
predecessor.   The Minister acknowledged the negative effects 
of the ongoing Pepsico tax dispute, saying that he and the 
Kuwait Chamber of Commerce and Industry believe that the 
courts are improperly implementing Kuwait,s commercial law. 
He added that other companies, including Microsoft and 
Panasonic, are having similar problems.  Finally, Al-Taweel 
said he has no doubt that Project Kuwait (to develop Kuwait's 
northern oilfields) will be approved by the National 
Assembly, hopefully before it recesses for the summer.  End 
Summary. 
 
------------------------- 
TIFA:  Disappointing Pace 
------------------------- 
 
3.  (C) The Ambassador met Kuwaiti Minister of Commerce and 
Industry Abdullah Al-Taweel on April 25 to discuss, among 
other issues, the status of the U.S.-Kuwait Trade and 
Investment Framework Agreement (TIFA).  The Ambassador opened 
by noting his disappointment with the pace of TIFA 
negotiations, saying that he would like to determine why it 
was moving so slowly and whether the Kuwaitis were interested 
in trying to speed up the tempo.  He cautioned that the GOK 
should put aside the notion that the U.S. has a priority list 
of GCC states with whom it would like to negotiate free trade 
agreements (FTAs), and rejected Kuwaiti thinking that 
political considerations are dictating the timing of 
negotiations with various prospective partners.  Rather, the 
Ambassador said, USTR selects candidates for FTA talks by 
assessing which countries are poised to have the most 
productive negotiations; he added that since USTR has a small 
staff with heavy demands on their time, it must respond to 
the best available candidates for negotiations. 
 
4.  (C) In the Gulf, the Ambassador continued, Oman is doing 
very well in its preparations for an FTA.  He explained that 
the reason for the Omanis' success is twofold:  first, they 
have a very concentrated and coordinated negotiating strategy 
that is directed by senior officials with trade expertise and 
interministerial authority.  Second, the Omanis are receiving 
good external advice.  The Ambassador recommended that 
Al-Taweel talk to the Bahrainis and the Omanis to get a 
better idea about what the FTA process entails, emphasizing 
that these are open, transparent agreements that are more or 
less the same across countries.  The Ambassador also 
suggested that the Kuwaitis consider inviting the Omanis and 
Bahrainis to participate in a seminar on FTAs that one of the 
Prime Minister's advisers is organizing; the seminar is 
scheduled for June 1.  (Note.  Post has asked USTR to 
consider sending someone to speak at this seminar.) 
 
5.  (C) Al-Taweel remarked that he, too, is disappointed with 
the TIFA negotiations' slow pace.  In his view, the Kuwaitis 
are fully committed to moving toward an FTA.  He said other 
countries jumped ahead of Kuwait in the negotiations and it 
is the GOK,s impression is that the U.S. will wrap up the 
Omani and Emirati FTAs first, and then come back to Kuwait. 
He disagreed with those who say that Kuwait does not need an 
FTA with the U.S., pointing out that Kuwait -- and not the 
U.S. -- asked for the FTA.  In his opinion, an FTA would be 
essential to opening up Kuwait's market and forcing changes 
in its laws. 
 
6.  (C) Referring to the Ambassador's observations about the 
Omanis' coordinated FTA team, Al-Taweel asserted that the 
Kuwaiti committee is well coordinated by Fawzi Sultan and 
Ministry of Commerce Assistant Undersecretary for Foreign 
Trade Affairs Hamad Al-Ghanim.   He added that the Kuwaitis 
are well represented in the U.S. by their Embassy and their 
lawyers at Patton Boggs, and asked rhetorically what more the 
Kuwaitis could do on their end.  The Ambassador expressed 
surprise at the Minister,s comment about Sultan,s 
involvement in the TIFA process, noting that he had not yet 
met with Sultan on trade issues.  (Note.  Sultan was present 
at the first TIFA Council meeting in May 2004; since that 
time, however, he has not been in contact with the Embassy on 
trade matters, and he did not participate in the February 
"mini-TIFA" talks that USTR,s John Fennerty held in Kuwait 
(Ref A).  Instead, the Ministry of Commerce's Al-Ghanim has 
acted as the primary TIFA interlocutor.  End Note.)  The 
Minister replied that Sultan participates in the GOK's 
biweekly TIFA committee meetings, and that he is very active. 
 
7.  (C) Al-Taweel acknowledged that making the necessary 
legislative changes for an FTA will take a long time, and 
said that changing the labor law specifically could take two 
to three years.  He stressed, however, that the government 
would make the recommended changes not only to please the 
U.S., but because they are to Kuwait,s benefit.  Al-Ghanim 
added that the government's intention to liberalize is clear. 
 The Ambassador pointed out that intention is not sufficient, 
and he recommended again that the Kuwaitis look to the Omanis 
and Bahrainis for guidance on the FTA process. 
 
---------------------- 
Failure to Communicate 
---------------------- 
 
8.  (C) A consistent complaint raised by the Minister and his 
team during the meeting was a perceived breakdown in 
communications between the two sides.  The Minister said that 
when the Ministry tries to contact its U.S. counterparts to 
move the TIFA process forward, there are "lots of excuses." 
Assistant Undersecretary Al-Ghanim, who acts as the working 
chair of the TIFA committee, cited as an example an earlier 
attempt to set up a digital videoconference (DVC) on 
telecommunications, which had to be scrapped because of 
technical difficulties.  The Minister confirmed that Kuwait 
would like to sign an FTA, is fully committed to the process, 
and would like a second TIFA council meeting.  But, he 
pointedly noted, the message from the U.S. side is not clear. 
  According to Al-Taweel, the Kuwaitis are hearing completely 
different messages from their Embassy, USTR and Patton Boggs. 
 Both he and Al-Ghanim commented on what they view as 
contradictory assessments of Fennerty's visit in February: 
according to them, the U.S. side was complimentary during the 
talks about the Kuwaitis' progress, but presented a different 
assessment of the visit to the Kuwaiti Embassy in Washington. 
 The Ambassador pointed out that Fennerty wanted to maintain 
a positive tone while stressing that there were serious 
issues that need resolution (such as technical barriers to 
trade, Kuwait,s laws on intellectual property rights, and 
its weak labor protections). 
 
9.  (C) In Al-Taweel's opinion, the two sides need to sit 
down and talk so that everyone is on the same page.  If the 
Kuwaitis need to move faster, he said, they will, but they 
need to know with whom to talk.  The Ambassador suggested 
that the Kuwaitis consider sending a senior, experienced 
person like Sultan to the U.S. to meet with USTR and the 
relevant players on the U.S. side.  The Minister reiterated 
that Sultan is the person on whom he depends, adding that 
Sultan is also on the Singapore FTA committee.  For this 
reason, the Ambassador said, it would be important to send 
someone like him to bring focus to this process. 
 
-------------------- 
IPR:  Raids Continue 
-------------------- 
 
10.  (C) The Ambassador congratulated the Minister on his 
team,s recent raids of businesses selling counterfeit auto 
parts.  The Minister said that his ministry was continuing 
its raids on shops selling counterfeit clothing, spare parts, 
movies and other consumer goods, and noted that he had 
counseled his staff to publicize their "non-stop" efforts to 
take out the main suppliers in a market that is "saturated" 
with counterfeits.  He added that the fake auto parts dealer 
who was the subject of these recent raids had been targeted 
twice before.  Since these counterfeits -- brake pads, 
windshields, and other critical parts -- pose such a serious 
threat to Kuwaiti consumers, the Minister vowed to continue 
to raid these shops as many times as necessary to put them 
out of businesses.  To do so, he has increased the number of 
ministry employees working on IPR issues, stepped up the 
number of hours worked during nights and weekends, and raised 
their salaries. 
 
11. (C) Al-Taweel said that Commerce is working in 
coordination with the Ministry of Interior and the Criminal 
Investigation Division, and has approached the Minister of 
Interior about involving his personnel resources in IPR 
enforcement efforts more generally.  He also noted that 
Kuwait Customs is helping out a great deal, and he praised 
the new Minister of Information, who Al-Taweel believes will 
cooperate more than his predecessor (the two ministries have 
begun discussing the possibility of conducting joint raids). 
 
------------------- 
Pepsico Tax Dispute 
------------------- 
 
12.  (C) The Ambassador raised Pepsico,s ongoing tax dispute 
(Ref C), and while noting that he was not asking the GOK to 
intervene with the courts, pointed out that this case was 
being closely followed by many observers.  The Minister 
replied that he hoped that court would not rule against 
Pepsi.  He added that the Kuwait Chamber of Commerce and 
Industry (KCCI) was studying the case, and believes that the 
courts are improperly implementing Kuwait,s commercial law 
in deciding against Pepsico.  Al-Taweel agreed that this case 
is having a serious negative effect, and added that other 
companies including Microsoft and Panasonic are having 
similar problems (unlike Pepsico, they have not yet resorted 
to the courts).  The Minister said he had consulted with the 
Minister of Finance on legislation to reduce the tax rate for 
foreign corporations, which is ready to be submitted to the 
National Assembly. 
 
------------------- 
Northern Oilfields 
------------------- 
 
13.  (C) The Minister said he has no doubt that Project 
Kuwait (Ref B) will be approved by the National Assembly, 
hopefully before it recesses for the summer.  (This project 
envisions bringing in a major foreign consortium to develop 
hard-to-exploit oil in Kuwait's northern fields. 
ChevronTexaco, ExxonMobil, and Occidental are the U.S. majors 
that seek to participate.) The Minister praised the Minister 
of Energy for "playing cool" in the face of parliamentary 
opposition, and praised his efforts in pushing the issue 
forward.  Although some parliamentarians will "shout" about 
the project, Al-Taweel predicted it will move forward. 
 
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