This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 06 KUWAIT 002486 
 
SIPDIS 
 
SENSITIVE 
 
STATE PLEASE PASS USTR JFENNERTY AND JBUNTIN 
AMMAN FOR GLAWLESS 
SINGAPORE FOR PHOROWITZ 
BAHRAIN FOR ALENK 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EINV PREL BEXP JO SN KU
SUBJECT: KUWAIT HOLDS SEMINAR ON POSSIBLE FTA WITH U.S. 
 
This cable is sensitive but unclassified; please protect 
accordingly.  Not for internet distribution. 
 
¶1.  (U) Summary.  In a June 4 seminar sponsored by 
American-Kuwaiti Alliance (AKA), the Kuwait Chamber of 
Commerce and Industry, the American Business Council of 
Kuwait and the Kuwait Economic Society, Kuwaiti, American, 
Jordanian and Singaporean speakers discussed the benefits of 
U.S. free trade agreements (FTA) and the ways to achieve 
them.  Minister of Commerce Abdullah Al-Taweel opened the 
conference, saying that Kuwait is entering a new period of 
economic openness and calling the TIFA a signal of Kuwait's 
desire to develop its economic relations with the U.S.  In 
his keynote address, the Ambassador defined TIFAs and FTAs 
and underscored the importance of WTO commitments.  He 
stressed that Kuwait must take concrete steps to translate 
its intent to reform into reality, and should focus on (among 
other things) improving Kuwait's IPR and labor records and 
eliminating its import testing program.  Although negotiating 
an FTA would be a challenging and possibly lengthy process, 
the Ambassador said, the economic advantages from an FTA 
could be significant, as evidenced by the Jordanian and 
Bahraini cases. 
 
¶2.  (U) The first roundtable discussion brought together a 
representative of the Business Council for International 
Understanding, a consultant to Kuwait's TIFA team, and 
officials from Jordan and Singapore who had been involved in 
negotiating their countries' FTAs with the U.S.  Several 
themes emerged from the session:  1) U.S. free trade 
agreements, which are based on WTO commitments, are more 
comprehensive than most FTAs; 2) countries must have a strong 
negotiating team that can work effectively with its 
government's agencies, as well as a dynamic, knowledgeable 
and hardworking staff at its embassy in Washington; and 3) 
negotiating an FTA is not easy, but it is worthwhile. 
 
¶3.  (U) The second session focused more closely on Kuwait, 
with presentations from two of Kuwait's TIFA committee 
members, a representative of the private sector, and a member 
of the American Business Council.  The TIFA committee members 
offered an overview of the U.S.-Kuwait TIFA's status, and 
spoke of the challenges they face.  The private sector 
participants said that they would strongly support a free 
trade agreement and the associated structural reforms it 
would bring, since they would improve the business climate in 
Kuwait. End Summary. 
 
¶4.  (SBU) Comment.  The observations made by the Jordanian 
and Singaporean negotiators mirrored almost exactly what post 
and USTR have been telling the Kuwaitis, and nicely echoed 
the points made by the Ambassador in his speech:  the road to 
an FTA is a difficult one and requires significant action. 
It is unfortunate that more of the Kuwaiti negotiators were 
not present to hear these remarks, although we hope that 
those who did will take what they heard to heart.  The 
contrast between the Jordanian and Singaporean speakers and 
the Kuwaiti negotiators was striking.  While the former were 
evidently experts in their field and presented strong cases 
in favor of free trade, the Kuwaiti negotiators were unable 
to answer questions from the audience about the benefits to 
Kuwait of an FTA, or how an FTA would affect certain sectors 
of the Kuwaiti economy.  It was disappointing, too, that they 
could not identify the areas that the U.S. has indicated are 
most important for the TIFA process, most notably improving 
IPR protection and enforcement.  We hope that the Kuwaitis 
will continue to engage with their Jordanian and Singaporean 
counterparts, as well as their colleague in Bahrain, to learn 
from them and benefit from their experiences in negotiating 
FTAs with the U.S.  Post would like to thank Embassies Amman, 
Manama and Singapore for their assistance in identifying 
participants for this seminar.  End Comment. 
 
U.S. Free Trade Agreement:  Opportunities and Challenges 
--------------------------------------------- ----------- 
 
¶5.  (U) In a one-day seminar sponsored by the 
American-Kuwaiti Alliance (AKA), Kuwait Chamber of Commerce 
and Industry, American Business Council of Kuwait and Kuwait 
Economic Society, a variety of American, Kuwaiti, Jordanian 
and Singaporean speakers discussed the benefits of U.S. free 
trade agreements (FTA) and the way to achieve one.  Kuwait's 
Ministers of Foreign Affairs and Communication joined an 
audience of about 60 for keynote speeches by the Minister of 
Commerce, the Ambassador and a representative from AKA.  Four 
members of Kuwait's TIFA team attended throughout, including 
two who spoke during the second roundtable session. 
¶6.  (U) Minister of Commerce Abdullah Al-Taweel opened the 
June 4 conference, saying that Kuwait is entering a new 
period of economic openness.  He cited the Prime Minister's 
2004 trips to the U.S. and East Asia, when economic topics 
were of the highest priority, as evidence of the government's 
new vision for Kuwait's economy.  Al-Taweel called the TIFA a 
clear signal of Kuwait's desire to develop its economic 
relations with the U.S., and outlined the legislative changes 
Kuwait has put into place to increase openness.  According to 
the minister, the National Assembly is currently debating a 
draft law on government procurement and a new copyright law, 
as well as legislation to open up Kuwait's northern 
oilfields.  (Note.  The Ministry of Information's former 
legal advisor, who is drafting the copyright law revisions, 
told Econoff on May 30 that the amendments have not been 
finalized or submitted to the National Assembly.  End Note.) 
 
Ambassador Discusses FTA Requirements 
------------------------------------- 
 
¶7.  (U) In his speech, which was widely excerpted in the 
local media, the Ambassador discussed what TIFAs and FTAs are 
and how they fit into the U.S.'s broader policy of 
encouraging economic openness (the text of the speech may be 
found at http://kuwait.usembassy.gov/june 4 2005.html).  He 
stressed that the TIFA process is a necessary step toward an 
FTA, and said Kuwait must take concrete actions to translate 
its intent to reform into reality.  This will be a 
challenging and possibly lengthy process, the Ambassador 
cautioned, but the economic advantages from an FTA could be 
significant.  As evidence, the Ambassador referred to the 
specific benefits that have accrued to Jordan and Bahrain as 
a result of their FTAs with the U.S. 
 
¶8.  (U) The Ambassador outlined the key elements of an FTA, 
noting that the most important starting point is adherence to 
WTO commitments.  He also highlighted the requirements of 
certain chapters, notably IPR, services, labor and 
environment.  Finally, the Ambassador specified some of the 
actions Kuwait must take to move from a TIFA to an FTA.  With 
the caveat that the list was not comprehensive, he identified 
Kuwait's IPR protection and enforcement record, its 
WTO-inconsistent import inspection regime, and its weak labor 
laws as areas in which Kuwait must show improvement.  He 
recommended that the GOK's experts establish close and 
regular contact with their U.S. counterparts, and urged the 
GOK to make TIFA reforms a governmental priority.  These 
recommendations were reported verbatim in most of Kuwait's 
daily newspapers. 
 
Session 1:  Why FTAs? 
--------------------- 
 
¶9.  (U) The first roundtable discussion brought together 
officials from Jordan and Singapore who had been involved in 
negotiating their countries' FTAs with the U.S.:  Marwan 
Al-Moasher, Minister of the Jordanian Royal Court and former 
Ambassador to the U.S.; Jordanian Senator and chief FTA 
negotiator Mohammad Al-Halaiqua; and the Deputy Director of 
the Singaporean Ministry of Trade and Industry's Trade 
Division and veteran FTA negotiator Minn Naing Oo.   They 
were joined by Jeff Donald, the Business Council for 
International Understanding's Vice President for Washington 
Operations (who previously worked in EB) and Fawzi Sultan, 
the former president of the International Fund for 
Agricultural Development who is now a consultant to Kuwait's 
TIFA team.  Several themes emerged from the session:  1) U.S. 
free trade agreements, which are based on WTO commitments, 
are more comprehensive than most FTAs; 2) countries must have 
a strong negotiating team that can work effectively with its 
government's agencies, as well as a dynamic, knowledgeable 
and hardworking staff at its embassy in Washington; and 3) 
negotiating an FTA is not easy, but it is worthwhile. 
 
U.S. Free Trade Agreements 
-------------------------- 
 
¶10. (U) Both the Jordanians and the Singaporean commented 
that U.S. FTAs are comprehensive documents.  According to 
Singapore's negotiator Minn Naing Oo, the U.S. FTA is seen as 
the "gold standard" because of its depth and breadth.  He 
added that although Singapore had previously negotiated four 
FTAs, the agreement with the U.S. was the most comprehensive 
and the only one to take the "negative list" approach on 
services.  Oo noted that the Singaporean FTA with the U.S. 
was "WTO-plus," based on WTO obligations but going even 
farther on IPR, telecommunications, financial services and 
government procurement requirements. 
 
¶11. (U) Al-Halaiqua said that for trade in goods and 
services, the U.S. FTA's reference point would be the WTO 
principle of national treatment, and the services chapters 
would be based on GATS.  However, the U.S. would ask Kuwait 
to open up more sectors to U.S. investors than are available 
under the WTO.  He also noted that during negotiations, the 
U.S. objected to a Jordanian law preventing non-Jordanians 
from owning more than 50% of local companies (a violation of 
national treatment), and said the U.S. would push for 
elimination of any similar laws in Kuwait. 
 
¶12. (U) Al-Halaiqua commented that fully one-third of the 
Jordanian FTA text was devoted to intellectual property 
rights (IPR) issues, and counseled that the U.S. would 
require Kuwait to have strong IPR legislation and enforcement 
and join international IP conventions.  He stressed that the 
IP industry is very powerful in the U.S., and advised Kuwait 
to talk to them and convince them of the GOK's commitment to 
decreasing piracy and protecting patents, trademarks and 
copyrights.   Oo also said that IPR was an important 
component of Singapore's FTA.  But, he noted, Singapore 
agreed to make IPR concessions to the U.S. because the 
government wanted Singapore to develop a knowledge-based 
economy, which required implementing strong IP safeguards. 
 
¶13. (U) Indeed, all of the speakers stressed that an FTA 
should fit into Kuwait's own plans for economic reform.  As 
Jeff Donald from the Business Council for International 
Understanding pointed out, an FTA is a vehicle for economic 
liberalization, not a destination.  What is most important, 
he added, is Kuwait's vision for what it would like to 
accomplish; the FTA is a tool to bring that vision to 
fruition. 
 
Strong Teams Needed to Negotiate an FTA 
---------------------------------------- 
 
¶14. (U) The three negotiators were unanimous in recognizing 
the need for strong TIFA/FTA teams.  Al-Halaiqua said that 
Kuwait must have competent leaders on its negotiating team 
(notably lawyers, since the issues are very technical), but 
also in the embassy in Washington.  Oo agreed, adding that 
the Washington embassy team was not only an essential link 
between the U.S. negotiators and negotiators at home, but 
also would play a key role in lobbying U.S. industry to 
support an FTA.  Al-Moasher advised the Kuwaitis that working 
only with the administration in Washington would be 
insufficient for attaining an FTA; a country seeking an FTA 
must also lobby members of Congress and industry. 
 
¶15. (U) Al-Moasher strongly recommended that Kuwait establish 
a robust connection between its embassy in Washington and 
institutions in Kuwait.  If all correspondence must go by 
letter through the Ministry of Foreign Affairs, he warned, 
the negotiations will go nowhere.  Instead, he suggested, 
Kuwait needs teams in both Kuwait and Washington who can move 
quickly. 
 
¶16. (U) Once Kuwait enters FTA negotiations with the U.S., Oo 
said, it must be "absolutely prepared and have done its 
homework."  Specifically, the Kuwaiti political 
establishment, government agencies and officials -- 
especially the negotiators -- must be aware of their own laws 
and interests before the onset of negotiations.  Both Oo and 
Al-Halaiqa said that the government must develop a 
partnership with the private sector and learn what industry's 
interests are, so that sensitive areas can be protected. 
 
FTAs Are Hard Work... 
--------------------- 
 
¶17. (U) Al-Halaiqua spoke of his "memories of hard work and 
long hours" in negotiating the FTA, and stressed that both 
sides would be required to expend a good deal of energy to 
get the deal done.  Oo agreed, and supported Ambassador 
LeBaron's point that FTAs are not easy:  Singapore's 
negotiations with the U.S. lasted 11 rounds over four years, 
he said, and required hours of work not just from the 
negotiating team, but from other government agencies back 
home.  Oo added that the Singaporeans learned that negative 
list FTA negotiations are particularly difficult, because 
they require extensive consultation within the government and 
with businesses to define what should and should not be 
excluded.   Oo said that Kuwait will learn much from the 
intense negotiations process, not only about the U.S.'s 
political and economic system, but about Kuwait's own 
sensitivities. 
 
¶18. (U) Each negotiator commented on the challenges presented 
by U.S. domestic politics, and BCIU's Donald stressed that 
the Kuwaitis must convince Congress that an FTA with Kuwait 
is in the U.S. interest.  According to Al-Moasher, the 
Jordanians also had to work hard to persuade various U.S. 
lobby groups to support the FTA, notably U.S. growers' 
associations, labor and environment organizations.  Oo 
commented the Singaporeans were not prepared for U.S. 
businesses' intense interest in FTAs, and industry's strong 
relationship with USTR. 
 
¶19. (U) Al-Halaiqua stressed that Kuwait needs a political 
commitment in support of the FTA, saying that "there is no 
way around that."   But once that commitment is in place, he 
added, Kuwait must do the hard work necessary, such as 
amending laws and passing new legislation. 
 
...But They Are Worthwhile 
--------------------------- 
 
¶20. (U) Singapore's Oo repeated several times that although 
the journey toward an FTA would be long, intense and full of 
hard work, it would be worthwhile.   According to him, trade 
and investment in Singapore have both increased since it 
signed an FTA with the U.S., and Singapore now has access to 
the largest market in the world.  He also noted that 
Singapore pursued an FTA with the U.S. because it saw 
political and strategic advantages to such an association 
with the U.S., as well as economic ones. 
 
¶21. (U) Both Al-Moasher and Al-Halaiqua echoed the 
Ambassador's observations about the positive impact Jordan's 
FTA has had on Jordanian exports to the U.S. (up 1400%) and 
job creation (35,000 new positions).  Al-Halaiqua said there 
have also been some surprises.  Jordan's information 
technology sector has also taken off, with most major U.S. IT 
companies now operating in Jordan and Jordan becoming a 
software exporter.  Additionally, Al-Halaiqua reported, 
Jordan has now become a key exporter of stone and marble to 
the U.S.; before the FTA, Jordan had never thought these 
products would be important to their export market. 
 
¶22. (U) The Jordanians disputed the notion that an FTA would 
exacerbate the economic power imbalance between the U.S. (a 
developed country) and Kuwait (a developing country). 
Al-Halaiqua noted that the same question had been raised in 
Jordan, but said that after the FTA, the U.S. has become the 
only country with whom Jordan has a trade surplus.  A country 
should know where its competitive edge lies, he noted, since 
comparative advantage is more important than size. 
Al-Moasher agreed, adding that developing countries tend to 
do better under FTAs than their developed partners. 
 
¶23. (U) Even more important, Al-Moasher said, the FTA has 
upgraded Jordan's investment climate and made it attractive 
to investors from third countries.  As a result, the current 
investment rate in Jordan is unprecedented.  He added that 
the U.S. FTA was a strong vote of confidence in the stability 
of Jordan's economy, and he urged the Kuwaitis to consider 
the benefits of the U.S. bringing investment, technology and 
management experience to Kuwait, all of which would occur 
under an FTA. 
 
¶24. (U) In the view of Fawzi Sultan, a consultant to Kuwait's 
negotiating teams for the TIFA and the Singapore FTA, the 
reforms mandated by an FTA are just what is needed to move 
Kuwait ahead.  Sultan's presentation demonstrated that the 
Middle East and North Africa (MENA) is bucking global trends 
toward greater trade integration and better governance. 
While Kuwait is better governed than its regional partners, 
Sultan showed that it is well below the good governance norm 
for countries in the same income group, and has been 
worsening over time. 
 
¶25. (U) Sultan suggested that there are four keys to pulling 
Kuwait out of its current state:  1) moving from a 
public-sector led economy to one that is fueled by the 
private sector; 2) switching from an oil-dominated economy to 
a diversified one; 3) transitioning from public sector to 
private sector employment (Note.  93% of Kuwaiti workers are 
employed by the state.  End Note.); and 4) shifting from 
protected businesses to competitive ones.  According to 
Sultan, the goals of an FTA converge with the Prime Minister 
vision of Kuwait as a trade, logistics and financial hub. 
"We are late," Sultan concluded.  "Why wait?" 
 
Session II:  The U.S.-Kuwait TIFA and the Utility of an FTA 
--------------------------------------------- -------------- 
 
¶26. (U) The seminar's second session focused more closely on 
Kuwait, with presentations from the working chair of Kuwait's 
TIFA committee, Ministry of Commerce Assistant Undersecretary 
for Foreign Trade Affairs Hamad Al-Ghanim;  Saad Al-Barrak, 
Vice Chairman and Managing Director of MTC, a mobile 
telephone company; Ministry of Communications Undersecretary 
Hamed Khajah; and Johnnie Johnson, Secretary of the American 
Business Council (ABC) in Kuwait.  (Note.  USPTO's Director 
of Enforcement was scheduled to talk about IPR, but his 
flight to Kuwait was cancelled at the last minute.  End Note.) 
 
Update on the U.S.-Kuwait TIFA 
------------------------------ 
 
¶27. (U) The working chair of Kuwait's TIFA committee, Hamad 
Al-Ghanim, opened the session by reviewing the status of the 
U.S.-Kuwait TIFA.  According to him, most of the members of 
Kuwait's TIFA committee "have doubts" about going into 
negotiations.  Nevertheless, he said, they have worked hard 
to establish a good council of experts who can advise them on 
how to move ahead.  He said that Kuwait is a member of the 
WTO and most of its associated agreements, and has no 
problems with signing any other related agreements. 
Al-Ghanim complained that there had been only one TIFA 
Council meeting with the U.S., but said that the GOK hoped to 
have a second one in Kuwait by year's end. 
 
¶28. (U) Al-Ghanim then turned to what he saw as the most 
important issues in the U.S.-Kuwait TIFA talks.  First, he 
said, was government procurement.  (Note.  Although 
government procurement is one of many issues that USTR has 
raised with the GOK, it has not been identified as one of the 
key issues at this stage.  End Note.)  Al-Ghanim said that a 
draft government procurement law was currently with the 
National Assembly, and he hoped it would be forwarded to the 
Council of Ministers for approval soon.  Second, Al-Ghanim 
said that a new labor law was in the final stages and 
hopefully would be finished shortly, thus eliminating another 
area of concern.  Third, Al-Ghanim identified 
telecommunications as a key point of discussion.  Finally, 
Al-Ghanim said, the U.S. was pushing for elimination of 
Kuwait's International Conformity Certification Program 
(ICCP).  According to Al-Ghanim, the Public Authority for 
Industry (which controls the program) has been instructed to 
change it by the end of the year; he did not say, however, 
what changes would be made. 
 
¶29. (U) Ministry of Communications Undersecretary Hamed 
Khajah, also a member of Kuwait's TIFA team, acknowledged 
that one of the challenges the TIFA committee faced was a 
lack of knowledge about Kuwait's rights and obligations in 
TIFA/FTA negotiations.  He also said that the team does not 
"know how to arrange ourselves," and regretted that the 
governmental sectors involved do not have the proper 
knowledge of what needs to be done. 
 
Views from the Private Sector 
----------------------------- 
 
¶30. (U) Finally, two representatives of the private sector 
offered their views of a possible FTA.  Saad Al-Barrak from 
the mobile telephone company MTC, one of the more successful 
Kuwaiti businesses, welcomed a trade agreement with the U.S. 
and any competition that might arise, saying he was confident 
that his company could compete if the right institutions and 
regulatory infrastructure were in place.  Johnnie Johnson 
from the American Business Council (ABC) in Kuwait also threw 
his organization's support behind the TIFA.  He noted that 
that many of the companies (foreign and Kuwaiti) who are 
working in Iraq and should be operating out of Kuwait are 
going to Jordan instead, because the business climate in 
Jordan is better.  To create an environment where business 
can thrive, Johnson contended, the Kuwaitis must eliminate 
the current ownership requirements that force foreign 
businesses to have an agent or sponsor; change the corporate 
tax regime (which levies taxes of up to 55% on foreign 
companies' profits, while not taxing Kuwaiti companies at 
all); and improve the legal structure to improve transparency 
and eliminate bureaucratic red tape. 
 
¶31. (U) Johnson stressed that the GOK must go beyond lip 
service and do more than simply pass laws:  it must enforce 
the laws to make them effective.  He cited as an example 
Kuwait's foreign investment law which, although passed more 
than three years ago, is almost incomprehensible and rarely 
applied. Once an FTA is negotiated, Johnson strongly urged 
the GOK to establish a reasonable timeframe for ratification, 
to avoid having it languish for years.  Finally, Johnson 
advocated that the GOK be realistic about "Kuwaitization" 
policies.  While he agreed that greater employment of 
Kuwaitis is necessary during a transition from public 
sector-led employment to private sector employment, he noted 
that there are only limited numbers of specialists in 
technical areas.  U.S. businesses would prefer to hire 
locally, but should not have to hire Kuwaiti staff who can do 
nothing but fill a quota. 
LEBARON