US embassy cable - 03KUWAIT673

C O N F I D E N T I A L SECTION 01 OF 02 KUWAIT 000673 
 
SIPDIS 
 
STATE FOR NEA/ARP AND EB 
STATE PASS USTR FOR JBUNTIN 
USDOC FOR 4520/ITA/MAC/ONE/DGUGLIELMI 
 
E.O. 12958: DECL: 02/23/2013 
TAGS: ECIN, ECON, KU 
SUBJECT: GOK FOOT DRAGGING ON CUSTOMS LAW 
 
REF: A. RIYADH 0130 
 
     B. KUWAIT 5543 
 
1. (C) SUMMARY AND COMMENT.  Common with Riyadh (Ref A), yet 
contrary to earlier assertions by Kuwaiti officials (Ref B), 
the GCC Customs Union that began ostensibly on January 1, 
2003, remains for Kuwait a union in name only.  While the GOK 
has enacted a common external tariff, as stipulated by the 
Customs Union, it has yet to pass a new customs law and 
continues to charge its standard 4 percent base rate on many 
goods entering the country, in addition to the 5 percent 
common tariff imposed on imports at the point of entry into 
the GCC.  One GOK official pointed out that "legally, Kuwait 
is not really in" the Customs Union, while another official 
admitted that "since January 1, nothing has changed."  As to 
when Kuwait will pass a new customs law and officially join 
the Union, given the typical pace of change in the country, 
"Allahu alam" (God only knows).  END SUMMARY. 
 
2. (U) Information for this cable, the second in a series 
tracking Kuwait's involvement in the Customs Union, was 
compiled from a variety of sources.  EconOff met with Mashaan 
Alsiady, a Land Port Supervisor at Kuwait's General 
Administration of Customs; Mona Essa Al-Qallaf, Head of the 
Kuwait Customs Legal Office; Ghazi Faisal Al-AbdulJalil, Head 
of Gulf Cooperation Affairs in Kuwait's Ministry of Finance; 
and James Piatt, the U.S. Customs Office representative in 
Kuwait. 
 
3. (C) DOUBLE-DIPPING: As part of its membership in the GCC 
Customs Union launched January 1, 2003, the GOK agreed to 
impose an across-the-board tariff of 5 percent on most 
imports.  According to Customs officials, however, as of 
February Kuwait continued to impose the 4 percent base rate 
in effect prior to the Customs Union on products entering by 
land, in addition to the 5 percent tariff levied at the point 
of entry into the GCC.  As the GOK officials explained, 
merchants shipping goods to Kuwait through Saudi Arabia must 
pay twice -- 5 percent at the point of entry and another 4 
percent at the Saudi-Kuwaiti border. 
 
4. (SBU) The Customs officials said that most merchants are 
aware of this issue and try to avoid the second charge by 
explaining their situation at the border.  When this fails, 
exporters are forced to recover their losses, either by 
charging higher prices, or by passing the additional fees 
onto the importer.  Importers can use a "drawback system" to 
try and recoup their losses, but often with much 
inconvenience and uncertainty.  In the example given, an 
importer would file with the Saudi Government to recover the 
5 percent fee, a procedure that takes time and involves 
administrative hoop-jumping, with no guarantee of success. 
 
5. (SBU) The Customs officials added that many shipments are 
still being inspected twice -- once upon entry into the GCC 
and again upon entry into Kuwait.  The Customs Union was 
intended to eliminate such duplication of efforts.  As one 
GOK official admitted, "Since January 1, nothing has changed. 
 The Customs Union has little impact at all in Kuwait."  When 
pressed, the official said that starting February 1 factories 
with products from the Gulf no longer needed to register with 
the GCC Secretariat, as before, but otherwise there was no 
difference. 
 
6. (C) LAW, WHAT LAW? The reason Kuwait can impose the 
additional fee is that the Customs Law issued by the GCC 
Council has never been passed by the GOK.  Kuwait is the lone 
GCC member not to formally agree on the legal side of the 
Customs Union.  Kuwait's National Assembly still must approve 
the draft law, then forward it to the Cabinet of Ministers 
for a second approval, before it reaches the Amir to be 
passed into law.  Until this happens, Kuwait will continue to 
operate as it did prior to the official launch of the GCC 
Customs Union, according to the Head of the Kuwait Customs 
Legal Office, who added that "legally, Kuwait is not really 
in" the Customs Union. 
 
7. (SBU) The GCC Customs Law is the same for all GCC 
countries.  Kuwait's Amir has agreed to the law in principle, 
but the law has not been formally passed.  Kuwait's Cabinet 
of Ministers can apply the law, even before its formal 
ratification, but according the Customs officials this 
application has not yet occurred.  The law was to have been 
passed in April 2002, well ahead of the official launch, but 
the National Assembly said it needed more time to consider 
recommendations.  The draft law has since floundered in the 
National Assembly, pushed aside by other matters deemed more 
important. 
 
8. (SBU) In January 2003, Director General of the Customs 
Office Ibrahim Al-Ghanim met with the National Assembly's 
Finance Committee to discuss details of the customs law, in 
an effort to move it forward in the wake of the new Customs 
Union.  Al-Ghanim held a second meeting later that month with 
legal experts to explain technical aspects of the law.  A 
draft was issued, but according to Al-Ghanim the unified GCC 
Customs Law has not been implemented because the National 
Assembly has failed to make a formal decision. 
 
9. (C) In early January, Minister of Finance, Planning and 
Development Dr. Yousef Al-Ibrahim pressed National Assembly 
Speaker Jassem Al-Khorafi to place this issue before the 
National Assembly, but again to no avail.  According to 
Ministry of Finance official AbdulJalil, there is no telling 
when the law will be passed.  He said the GOK told the GCC 
Secretariat it would do so no later than April, but this 
 
SIPDIS 
deadline was offered to appease the GCC and does not apply to 
the National Assembly.  Given present regional concerns, new 
National Assembly elections planned for some time later this 
year, and the torrid summer that routinely drives most 
Kuwaitis out of the country, the law may have to wait until 
fall, AbdulJalil said. 
 
10. (SBU) INTERIM SOLUTIONS: With this in mind, Al-Ghanim 
sent a letter to the head of Saudi Customs in January asking 
if products entering Kuwait could be treated as "transit" and 
not incur the initial 5 percent tariff.  Under this system, 
products entering Saudi Arabia from outside the GCC on their 
way to Kuwait would only be charged once, when crossing into 
Kuwait, yet imports originating within the GCC might still 
incur two tariffs.  For example, if a car bought in the 
United States was shipped to Kuwait through Qatar, it would 
be charged the 5 percent unified tariff upon arrival, could 
then pass free of charge through Saudi Arabia as "transit," 
only to be charged another 4 percent tariff when entering 
Kuwait.  While the Saudis reportedly agreed to this scheme, 
the arrangement continues to cause confusion between 
merchants and officials. 
 
11. (SBU)  Another problem presented by the fledgling Customs 
Union is that Kuwait remains the only GCC country without a 
compatible computer system for its customs operations.  For 
now, the GOK is filling in computer forms by hand or using 
manual forms, which could cause problems with year end 
accounting reports.  Technical specialists have been visiting 
other GCC countries to examine their systems, and Kuwait 
hopes to have its own system in place by the end of summer. 
 
12. (SBU) On a more positive note, the GOK is encouraged by a 
new hotline system that enables border officials to call each 
other and GCC directors to work out problems as they arise. 
The Customs officers said that so far there have not been any 
major disputes, and this system has provided a good exchange 
of information and opportunities for the border workers to 
learn from each other. 
 
13.  (C) COMMENT:  The GOK, in its public pronouncements, 
continues to declare that the new  Customs Union is marching 
along in Kuwait, whereas those on the ground realize it is 
stumbling awkwardly at best.  Confusion and misunderstanding 
exist at all levels, from members of the National Assembly to 
border officers and merchants doing business in the country. 
Lack of a new customs law signals lack of commitment on the 
part of the GOK.  And while some government officials at 
least seem cognizant of the problems, like so many issues in 
Kuwait change will have to wait until "bukra inshallah" 
(tomorrow, should God will it). 
JONES