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PP RUEHBC RUEHDE RUEHKUK
DE RUEHKU #3392/01 2331349
ZNY SSSSS ZZH
P 211349Z AUG 06
FM AMEMBASSY KUWAIT
TO RUEHC/SECSTATE WASHDC PRIORITY 6365
INFO RUEHEE/ARAB LEAGUE COLLECTIVE PRIORITY

S E C R E T SECTION 01 OF 08 KUWAIT 003392 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
STATE FOR NEA/ARP, NSC FOR RAMCHAND 
 
E.O. 12958: DECL: 08/21/2016 
TAGS: PREL PGOV KU SCENESETTER
SUBJECT: KEY ISSUES FOR THE SEPTEMBER 5 VISIT OF KUWAITI 
AMIR SHAYKH SABAH AL-AHMED AL-SABAH 
 
REF: A. KUWAIT 3314 -- TAX PROBLEMS FOR U.S. COMPANIES 
     ¶B. KUWAIT 3309 -- KUWAIT AID TO LEBANON 
     ¶C. KUWAIT 3295 -- FM ON IRAQ IRAN AND LEBANON 
     ¶D. KUWAIT 3293 -- FM INFORMED OF ARB DETERMINATION 
     ¶E. KUWAIT 3274 -- KUWAIT SUPPORT FOR UNHRC CANDIDATE 
     ¶F. KUWAIT 3226 -- KUWAIT SUPPORT FOR GUATEMALA UNSC 
     ¶G. KUWAIT 3099 -- PARLIAMENT BACKLASH OVER QANA 
     ¶H. KUWAIT 3079 -- COURT RETURNS PENINSULA LIONS CASE 
     ¶I. KUWAIT 2883 -- PRO-HIZBALLAH PROTESTS 
     ¶J. KUWAIT 2776 -- IRAQI PM MALAKI VISIT TO KUWAIT 
     ¶K. KUWAIT 2118 -- GOK INVESTIGATION OF RIHS 
     ¶L. KUWAIT 1911 -- AL-SABAH ANNOYANCE AT U.S. MEDDLING 
     ¶M. KUWAIT 1790 -- COUNTERING IRAN THREAT 
     ¶N. KUWAIT 1687 -- TERRORIST FINANCING PRIORITIES 
     ¶O. KUWAIT 1594 -- APPEAL OF PENINSULA LIONS VERDICT 
     ¶P. KUWAIT 1529 -- REVOCATION OF PUBLIC GATHERINGS LAW 
     ¶Q. KUWAIT 768 -- PRESS AND PUBLICATIONS LAW PASSED 
     ¶R. 05 KUWAIT 2258 -- LEGAL FLAWS HAMPER JUSTICE 
 
Classified By: Ambassador Richard LeBaron for reasons 1.4 (b) and (d) 
 
¶1.  (S/NF) Status of Bilateral Relations: Amir Shaykh Sabah 
Al-Ahmed Al-Sabah's September visit is his first official 
U.S. trip since becoming Amir in January.  As Prime Minister, 
he last visited the United States in July 2005.  Kuwait, a 
major Non-NATO ally since 2004, has strongly supported 
coalition efforts to promote democracy and stability in Iraq 
and steadily increased its cooperation in the Global War on 
Terror.  The Kuwaiti government (GOK) has also provided 
generous assistance to reconstruction efforts in Iraq, 
Lebanon, and Afghanistan, as well as pledging $500 million to 
victims of Hurricane Katrina.  Kuwait's leadership welcomed 
recent U.S. initiatives, including a Gulf Security Dialogue 
(GSD), the Proliferation Security Initiative (PSI), and the 
Iraq Compact.  The GOK has both privately and publicly 
supported the U.S. in international fora, recently affirming 
it would vote for the U.S. candidate for the UN Human Rights 
Committee and for Guatemala's candidacy for a seat on the UN 
Security Council (refs E and F).  On the domestic front, 
Kuwait has made significant progress on reform since Shaykh 
Sabah became Amir in January.  A 27-year old law restricting 
public gatherings was repealed, women participated in 
parliamentary elections for the first time in Kuwait's 
history, and a new press and publications law and a key 
electoral reform proposal were approved.  Given its staunch 
support and progress on political reform, the Kuwaiti 
leadership sometimes feels taken for granted and its 
friendship undervalued by the U.S.  Some senior Al-Sabah also 
resent what they view as U.S. meddling in Kuwait's domestic 
affairs and fear the U.S. ultimately supports political 
reforms that would push them aside (ref L).  Kuwaiti 
officials are also frustrated that they have yet to obtain 
the release of the remaining six Kuwaiti nationals held at 
Guantanamo (ref D). 
 
¶2.  (S/NF) The Amir will want to discuss a wide range of 
issues with particular focus on Iraq, Iran, Lebanon, and the 
six remaining Kuwaiti detainees at Guantanamo.  The Amir 
should be reassured of U.S. appreciation for Kuwait's 
unwavering support and advised that the strength of our 
bilateral relations permits frank exchanges on difficult 
topics such as progress on political reform, the fair 
treatment of expatriate labor, and the need for sustained CT 
efforts.  He should further be advised that progress towards 
an FTA will lead to even stronger relations through economic 
and commercial ties.  (Note: TIFA talks will be held in 
Washington on September 5.  End note.)  Background and key 
points on these issues are provided below. 
 
Iraq 
---- 
 
¶3.  (C/NF) Kuwait's leadership is increasingly concerned 
about ongoing violence and instability in Iraq, which the GOK 
fears could result in Iraq becoming a failed state or cause a 
flood of Shi'a refugees into Kuwait.  Although there is 
little indication that sectarian violence in Iraq is 
negatively affecting Shi'a-Sunni relations in Kuwait, the GOK 
is also worried that prolonged conflict or civil war in Iraq 
could spill over into Kuwait.  They also fear the emergence 
of a breakaway Shi'a entity on their northern border.  The 
GOK wants to be assured that U.S. is committed to peace and 
stability in Iraq, and while it Kuwait wants U.S. forces 
remain in Iraq for the foreseeable future, the Amir has 
repeatedly urged the U.S. to pull back from urban areas and 
turn security over to Iraqi forces. 
 
¶4.  (C/NF) Kuwait has strongly supported coalition efforts to 
promote democracy and stability in Iraq and has also provided 
 
KUWAIT 00003392  002 OF 008 
 
 
moral and financial support to the Iraqi Government (GOI). 
The GOK was one of the first countries to congratulate Iraqi 
PM Al-Maliki's formation of a new Cabinet and Kuwaiti 
officials described Al-Maliki's first visit to Kuwait in July 
as "very, very positive" (ref J).  During the visit, the Amir 
promised his "full support" for Al-Maliki's reconciliation 
efforts and proposed that Kuwait and Iraq establish a joint 
committee chaired by their Foreign Ministers to meet 
periodically and discuss bilateral issues.  The GOK and GOI 
have also agreed to the exchange of ambassadors.  The Iraqi 
embassy, refurbished at GOK expense, formally opened at the 
end of July and is currently headed by Iraq's charge 
d'affaires in Kuwait.  No Iraqi ambassador to Kuwait has been 
nominated.  Kuwait has nominated Humanitarian Operations 
Chief and retired Chief of Staff Lt. General Ali Al-Mu'min as 
its ambassador to Iraq, although we do not expect that he 
will take up residence in Baghdad soon due to security 
concerns. 
 
¶5.  (C/NF) Since the Madrid Conference, Kuwait has committed 
$575 million in aid to Iraq in the form of $135 million in 
grants and $440 million in soft loans to be administered by 
the Kuwait Fund for Arab Economic Development (KFAED).  Only 
$15 million of these funds has been dispersed so far, which 
Kuwaiti officials blame on the ongoing instability in Iraq 
and Iraqi delay in identifying viable development projects. 
Nevertheless, GOK officials are hopeful that construction on 
a $30 million school project will begin by year's end and the 
Kuwait Fund is currently considering a concessionary loan for 
power sector development in Iraq's north.  Kuwait has 
welcomed the Iraq Compact, which it views as a sound plan for 
Iraqi reconstruction and a means to limit corruption and 
graft.  Kuwait has also agreed to meet the Paris Club 
commitment of 80% debt reduction for the approximately $11 
billion in pre-Gulf War debt that Iraq owes Kuwait, but will 
need legislative approval for the debt relief, a politically 
charged issue.  Indeed, some parliamentarians recently 
announced their opposition to debt forgiveness or reduction 
unless outstanding compensation issues have been fully 
resolved.  Action on this issue is not expected before 
Parliament returns from summer recess on October 30. 
 
Key Points: 
 
--  Brief the Amir on security outlook in Iraq and coalition 
efforts. 
--  Thank Kuwait for its support of the GOI and coalition 
efforts in Iraq. 
--  Urge continued discussions with the GOI on allocation of 
aid money and debt relief. 
--  Encourage an active role in the implementation of the 
Iraq Compact. 
 
Iran 
---- 
 
¶6.  (C/NF) Kuwaiti officials are also very concerned about 
Iran's influence in the region and its continued progress in 
developing a nuclear program.  Kuwait has raised its concerns 
about Iran's nuclear activities with the Iranian government, 
most recently during the visit of Iranian Deputy Foreign 
Minister Mehdi Mostafavi in August (ref C), and encouraged 
Iran to respond to the P5 1 incentive package.  The GOK 
maintains that Iranian nuclear activity is a threat to both 
the environment and regional stability, and supports 
continued Iranian-European dialogue to resolve this issue. 
In addition, the presence of a large Shi'a minority in Kuwait 
(estimated at 30-35% of Kuwaiti citizens) is still a concern 
for Kuwait's ruling Sunni majority, who fear Iran may hold 
some sway over this portion of the Kuwaiti population. 
Recent protests in Kuwait in support of Hizballah were seen 
by many here as evidence that Iran was seeking to flex its 
muscle in Kuwait. 
 
¶7.  (C/NF) Kuwait has also played a regional leadership role 
in encouraging Iran to cooperate with the international 
community and the IAEA, and to cease interfering in the 
internal affairs of its neighbors.  Kuwait presented a 
strategic plan to the GCC at its May 6 consultative summit 
and proposed that an Oman-led GCC delegation travel to 
Tehran.  There has also been a steady stream of Iranian 
officials to Kuwait to whom GOK leaders have delivered clear 
messages that they should cooperate with the IAEA and EU on 
the nuclear issue and pressure Moqtada Al-Sadr and the Jaysh 
Al-Mahdi to prevent the disintegration of Iraq.  Despite GOK 
concerns about the Iranian threat to regional security, there 
are limits to how hard the GOK is willing to press its GCC 
partners and how far to go in discussions with the Iranian 
government whose meddling in Kuwait the GOK wants to limit 
 
KUWAIT 00003392  003 OF 008 
 
 
and with which the GOK wants to conclude bilateral agreements 
on the continental shelf and on gas exploration.  Like other 
GCC partners, the Kuwaitis fear yet another conflict in this 
region and the consequences to Kuwait that could be expected 
from an attack on Iranian nuclear facilities.  The GOK is 
also wary of UNSC sanctions and fears they would further 
antagonize Iran's unpredictable leadership.  The Kuwaitis 
also have genuine concerns about the environmental damage 
that could be caused by malfunctions at Iran's nuclear 
facility in Bushehr. 
 
Key Points: 
 
--  Share your concerns about Iran. 
--  Encourage Kuwaiti activism on the nuclear issue. 
--  Brief on next steps at the UNSC. 
 
Lebanon 
------- 
 
¶8.  (C/NF) The GOK strongly supports UNSCR 1701 and the 
deployment of a more robust UNIFIL force to maintain the 
ceasefire.  Kuwait has pledged more than $800 million in aid 
to Lebanon: $500 million in the form of a direct grant 
deposited in the Lebanese Central Bank for Lebanese 
government (GOL) use and a $300 million cash grant, requiring 
parliamentary approval (ref B).  In private meetings, senior 
Kuwaiti officials blamed Hizballah and its sponsors, Syria 
and Iran, for sparking the conflict with Israel.  In a recent 
meeting with the Ambassador, Deputy Prime Minister and 
Foreign Minister Shaykh Dr. Mohammed stressed the need for 
continued international support for the GOL and called for 
neighboring countries to cease meddling in Lebanese affairs, 
but noted that Iraq and Iran presented greater threats to 
regional stability (ref C).  In public, the GOK has adopted a 
more measured approach, balancing its criticism of Hizballah 
by sharply condemning Israel for Lebanese civilian deaths and 
the destruction of Lebanon's infrastructure.  After the Qana 
bombing, Kuwait's Parliament lambasted the U.S. for 
supporting Israel and praised Hizballah resistance.  Some MPs 
called for a boycott of U.S. goods and the expulsion of the 
U.S. Ambassador to Kuwait (ref G).  A number of protests, in 
which several newly-elected MPs participated, were held in 
support of Hizballah, including two outside the U.S. Embassy 
(ref I).  Protesters carried Hizballah flags and pictures of 
Nasrallah, and burned U.S. and Israeli flags, an 
unprecedented act in Kuwait. 
 
Key Points: 
 
--  Thank Kuwait for its generous assistance to Lebanon and 
urge continued support for UNSCR 1701 and the GOL. 
--  Emphasize need to counter Syrian and Iranian efforts to 
spin conflict into Hizballah "victory." 
--  Ask for assessment of Al-Asad's relations with other Arab 
leaders. 
 
Leadership Issues 
----------------- 
 
¶9.  (S/NF) Former Prime Minister Shaykh Sabah became Amir on 
January 29 through a constitutional process in which 
Parliament declared then Crown Prince Shaykh Saad Al-Abdullah 
Al-Salem Al-Sabah medically unfit to hold the position.  In 
an uncharacteristically public dispute, several senior 
members of the ruling family tried to prevent Shaykh Sabah 
from becoming Amir, arguing that the position had 
historically alternated between the Jaber and Salem branches 
of the ruling family.  They were ultimately unsuccessful, 
however, and after becoming Amir Shaykh Sabah appointed his 
half-brother Shaykh Nawaf Al-Ahmed Al-Jaber Al-Sabah as Crown 
Prince and his nephew Shaykh Nasser Mohammed Al-Ahmed 
Al-Jaber Al-Sabah as Prime Minister, consolidating the Jaber 
branch's hold on power and marginalizing the Salem branch. 
The succession issue is likely to surface again in the 
not-too-distant future.  Shaykh Sabah (77) has a pacemaker 
and the Crown Prince (69) is relatively passive and plays 
almost no role in decision-making.  There is also rumored to 
be tension between the next generation of Shaykhs as they vie 
to position themselves to fill the country's top leadership 
positions. 
 
¶10.  (S/NF) As Amir, Shaykh Sabah has had a mixed record. 
Under his leadership, Kuwait has passed several important 
reforms and played a more active role in the region.  Shaykh 
Sabah has been criticized, however, for failing to outline a 
clear vision for Kuwait's future and for mismanaging 
relations with Parliament, which resulted in its May 
dissolution and a subsequent election victory for opposition 
 
KUWAIT 00003392  004 OF 008 
 
 
parliamentarians.  The past seven months have also seen some 
of the most strident criticism of the ruling family in 
Kuwait's history.  During the elections, a number of 
candidates blamed the country's failings directly on the 
Al-Sabah leadership and several pro-reform activists took the 
unprecedented step of publicly accusing some senior Al-Sabah 
members of corruption by name, among them Shaykh Ahmed 
Al-Fahd, former Minister of Energy and current President of 
the National Security Bureau, a key advisor to the Amir who 
will accompany him to Washington.  The Government has also 
waffled on a number of issues, such as electoral reform, 
changing its position several times before finally acceding 
to parliamentary and popular pressure.  Going forward, the 
challenge for Shaykh Sabah will be outlining a clear vision 
for Kuwait, controlling internal ruling family rivalries, and 
harnessing Kuwait's new political activism to achieve his 
objectives. 
 
Democratic Reform 
----------------- 
 
¶11.  (C/NF) The Amir's visit comes at a particularly 
important moment in Kuwait's democratic development.  Earlier 
this year, the Constitutional Court repealed a 27-year old 
law restricting public gatherings (ref P) and Parliament 
passed a new press and publications law with Government 
support (ref Q).  In May, after the Government and Parliament 
reached an impasse over an important electoral reform 
proposal, Shaykh Sabah exercised his constitutional right to 
dissolve Parliament and call new elections, which were held 
on June 29.  The election was notable for the participation 
of women both as voters and candidates for the first time in 
Kuwait's history; the influential role played by a new, 
grassroots reform movement led by U.S.-educated youth 
activists; and the emergence of corruption as the dominant 
campaign issue.  Although none of the 27 female candidates 
was elected, women's participation shaped election issues and 
rhetoric and female voter turnout averaged 58 percent.  Seen 
by many as a referendum on reform in Kuwait, the election 
resulted in significant gains for pro-reform, opposition 
parliamentarians who won a two-seat majority (34) in the 
65-member Parliament.  Overall Islamist representation also 
increased from 15 to 18 seats.  (Note: The majority of 
Kuwaiti Islamists are very pragmatic and strongly support 
political reform.  They also accept, if not openly support, 
the U.S.-Kuwait strategic relationship and a continued U.S. 
military presence in Kuwait.  End note.)  Shortly after the 
elections, the Amir acquiesced to two of the reformers' key 
demands: excluding former Minister of Energy Shaykh Ahmed 
Al-Fahd Al-Sabah and former State Minister for 
Cabinet/National Assembly Affairs Mohammed Sharar from the 
new Cabinet, and approving an important electoral reform 
proposal to reduce the number of electoral constituencies 
from twenty-five to five.  Parliament is in recess until 
October 30. 
 
¶12.  (S/NF) Many Kuwaitis see electoral reform as the first 
step towards other important political reforms: official 
recognition of political parties, a Prime Minister selected 
by Parliament, and, ultimately, a true constitutional 
emirate.  While few Kuwaitis actually advocate removing the 
Al-Sabah family from power, calls for broader political 
reform have made some members of the ruling family nervous. 
Shaykh Mohammed Al-Abdullah Al-Sabah, an influential younger 
Shaykh who is close to the Amir and will accompany him to 
Washington, recently told the Ambassador that senior Al-Sabah 
family members were irritated by what they saw as U.S. 
meddling in Kuwait's internal affairs and asked outright if 
the U.S. supported Kuwait's transition to a constitutional 
emirate (ref L).  Kuwait's leadership may be more hesitant to 
adopt political reforms they believe will diminish their 
leadership role. 
 
Key Points: 
 
--  Congratulate Kuwait on the participation of women in the 
parliamentary elections. 
--  Praise the recent passage of electoral reform legislation. 
 
Military Cooperation: OIF and CENTCOM Presence 
--------------------------------------------- - 
 
¶13.  (C/NF) Because the GOK and the Kuwaiti people view the 
success of our operations in Iraq as intertwined with their 
own fate, Kuwait has been an indispensable ally in U.S. and 
coalition efforts to promote peace, stability and democracy 
in Iraq.  For Operation Iraqi Freedom (OIF), the GOK turned 
over more than two-thirds of its territory and all of its 
airspace to the coalition, diverted much of its commercial 
 
KUWAIT 00003392  005 OF 008 
 
 
shipping from the Port of Shuaiba, allowed the use of a large 
percentage of the country's sole commercial airport and three 
airbases, and permitted the construction of new desert bases. 
 It extended fuel pipelines to three facilities and continues 
to provide in excess of $100 million per month of fuel in 
assistance-in-kind.  From December 2002 - December 2004, 
Kuwait provided nearly $2 billion in free fuel for U.S. and 
Coalition Force use in Operation Iraqi Freedom (OIF) and as 
Assistance in Kind (AIK) for Kuwait-specific activities under 
the Defense Cooperation Agreement (DCA).  Through March 2004 
this assistance was permitted by GOK wartime appropriations, 
but since April 1, 2004, the Kuwait Petroleum Corporation 
(KPC) has covered the fuel deliveries with a no-cost contract 
retroactively signed in December 2004.  Subsequent to April 
1, 2004, Kuwait has been providing below market price fuel 
for use in OIF.  The GOK's support facilitates the U.S. 
military's mission in Iraq and Afghanistan, both of which are 
supported by U.S. forces and activities in Kuwait.  Kuwait 
currently hosts approximately 31,000 U.S. military and 
civilian contractors at bases around the country. 
 
¶14.  (S/NF) Since the 1991 liberation of Kuwait, military 
cooperation and relations between the U.S. and Kuwait have 
been very strong, but there are signs of wear.  For example, 
the Kuwaiti Chief of Staff refused the U.S. military's 
request to lengthen a ramp to accommodate C-17s at Ali 
Al-Salem airbase, the springboard for OIF flights, as well as 
to construct a Level 1 Trauma hospital at Ali Al-Salem, both 
at U.S. expense.  The COS told U.S. military officials that 
he wants to discuss these request in the context of total 
U.S. basing requests during the upcoming Joint Military 
Commission, currently planned for 22-24 January 2007. 
Nonetheless, Kuwait features prominently in CENTCOM's future 
basing plan for an expanded military presence with an opening 
OSD position that the GOK bear all expenses.  Officials in 
KMOD as well as other ministries who have heard of the plan 
have expressed concern that no final number of troops and the 
costs related to hosting them have been presented.  Some 
officials in the GOK have privately expressed concerns about 
comments from Washington on Iran and possible plans to use 
Kuwaiti bases as part of operations against Iran. 
 
Key Points: 
 
--  Thank Kuwait for its continuing strong support for OIF 
and cooperation with CENTCOM. 
 
Support for GSD and PSI 
----------------------- 
 
¶15.  (C/NF) Kuwait's senior leadership has welcomed the Gulf 
Security Dialogue with the U.S. to improve security 
cooperation.  The GOK would appreciate substantive U.S. 
suggestions on how to proceed.  Kuwait has also committed to 
endorsing the Proliferation Security Initiative (PSI) and has 
participated in the June meeting in Warsaw.  State Counselor 
Zelikow, U/S Joseph, and A/S Hillen have all recently 
traveled to Kuwait to engage the Government on U.S. interest 
in strengthening defense and counter-proliferation 
cooperation and working together to counter the regional 
threats (ref M).  The Kuwaitis may also propose a "strategic 
dialogue," loosely modeled on the U.S.-Saudi dialogue begun 
last year. 
 
Counterterrorism 
---------------- 
 
¶16.  (S/NF) The January 2005 discovery of an indigenous 
terrorist cell was a wake-up call for GOK leaders on domestic 
threats to both Kuwaiti and U.S. interests.  As a result, the 
GOK strengthened CT cooperation with the U.S., although 
coordination is not consistent.  Several members of the 
Peninsula Lions cell were sentenced to death, life in prison, 
or hard labor and the Constitutional Court recently upheld 
the constitutionality of the verdicts (refs O and H). 
Despite the harsh sentences for Peninsula Lions members, 
punishment for those who commit, assist, or finance terror 
activities is uneven, a result many lawyers say is due to 
inadequate laws (ref R).  In other efforts to combat 
terrorism, the GOK has arrested extremist foreign preachers 
and the Ministry of Awqaf and Religious Affairs has launched 
a moderation campaign and conferences on religious tolerance 
in Kuwait, London, and Washington, and sent religious leaders 
on International Visitor Leadership Programs.  Post provides 
training to the GOK through a variety of programs -- ATA, DIA 
training, and support to Kuwait's J2. 
 
¶17.  (C/NF) Kuwait's 2002 law criminalizing money-laundering 
falls short of criminalizing terrorist financing.  Legal 
 
KUWAIT 00003392  006 OF 008 
 
 
reform efforts, spearheaded by the Central Bank Governor, are 
underway to revise the 2002 law to ensure compliance with 
international TF/AML regulations and standards and a draft 
law is under review.  Charity oversight remains an important 
issue of concern, evidenced by Treasury Under Secretary 
Stuart Levey's April 29 visit and discussions centering on 
branches of the Kuwaiti-based organization Revival of the 
Islamic Heritage Society (RIHS) and their alleged ties to 
Islamic extremists in certain countries.  The GOK is looking 
into allegations against RIHS and Kuwaiti nationals suspected 
of financing terrorism (ref K).  The Ministry of Social 
Affairs and Labor (charity oversight lead) has taken tangible 
steps to strengthen charity oversight through more 
streamlined and transparent donation procedures.  More 
remains to be done by the GOK to ensure effective oversight 
of charities' accounting procedures and their activities 
abroad.  Post is continuing to explore technical assistance 
opportunities for the GOK in order to promote capacity 
building and strengthen Kuwait's CTF/AML regime. 
 
Key Points: 
 
--  Appreciate the attention to CT: discovery of cells, 
arrests and stiffer penalties, stricter enforcement of laws. 
--  Training is key to capacity-building. 
--  U.S. prepared to assist through all appropriate channels. 
--  Hope we can make more progress on terror finance issues. 
 
Guantanamo Detainees 
-------------------- 
 
¶18.  (C/NF) Of the 12 Kuwaiti nationals detained at 
Guantanamo, six have been returned to Kuwait.  One was 
convicted and is serving a prison sentence.  The other five 
were recently acquitted and their cases will be appealed by 
the prosecutor.  The GOK has responded to an OSD request for 
stronger assurances that the remaining detainees, if returned 
to Kuwait, will be detained, prosecuted, and subject to 
surveillance and a travel ban.  The GOK was hopeful the 
detainees would be repatriated in advance of the Amir's 
visit, thus removing an irritant from the bilateral agenda. 
The GOK regularly questions why detainees have been returned 
to other countries but not to a close ally like Kuwait. The 
Kuwaiti government also receives regular criticism from 
Members of Parliament who question Kuwaiti support for U.S. 
policies when Kuwaiti nationals are detained. 
 
Hurricane Katrina Assistance 
---------------------------- 
 
¶19.  (C/NF) After Hurricane Katrina, the GOK demonstrated its 
friendship and its strong bond with the U.S. by becoming the 
largest donor in the world with a pledged gift of $500 
million in assistance.  Kuwait presented $25 million to the 
Bush-Clinton Katrina Fund and another $25 million to the 
American Red Cross through the Kuwaiti Red Crescent. 
 
Economic Issues 
--------------- 
 
¶20. (S/NF) Kuwait's economy continues to benefit from the oil 
boom largely responsible for the country's estimated $56 
billion GDP and its annual 8.5% growth rate.  Kuwait publicly 
claims to possess 105 billion barrels of crude reserves, or 
about 8 percent of the world's total.  However, in January 
2006, an oil industry publication challenged these estimates, 
placing Kuwait's reserves at 24 billion barrels of proven and 
24 billion barrels of non-proven reserves.  The GOK publicly 
denied these lower reserve estimates.  (Due to the impact on 
the world economy if reserves are much lower, Washington 
analysts will begin to perform an independent assessment in 
mid-September 2006 using technical data gathered from open 
source and sensitive reporting.)  In order to expand oil 
production, the GOK wants to bring in international oil 
companies (IOCs) in order to develop its northern oilfields 
and increase production from 450,000 bpd to 900,000 bpd. 
Pending parliamentary approval, the Kuwait Petroleum 
Corporation (KPC) will award the development project to one 
of three oil company consortia.  The GOK had hoped to pass 
the enabling law through the Parliament by the end of 2006, 
but progress on the initiative has already been delayed this 
year and resistance from an opposition-dominated Parliament 
may lead to further delays.  This USD 8.5 billion 
undertaking, known as "Project Kuwait," has been in the works 
for over ten years and oil companies are growing increasingly 
impatient. 
 
¶21.  (C/NF) Economic Reform and TIFA:  The United States and 
Kuwait signed a Trade and Investment Framework Agreement 
 
KUWAIT 00003392  007 OF 008 
 
 
(TIFA) in 2004 as a preliminary step towards a Free Trade 
Agreement.  TIFA talks continue to progress, albeit slowly, 
and a formal TIFA Council meeting is scheduled for September 
5 on the margins of the Amir's visit.  Economic reforms 
remain stagnant, due in large part to the country's economic 
boom and the lack of political incentive to enact timely 
reforms.  Post continues to engage the GOK on IPR enforcement 
(recently upgraded to the Watch List on the 2006 Special 301 
report), standards and import inspection, and labor 
protections.  Of particular concern are the uncertainties 
faced by U.S. companies with respect to tax liability (ref 
A).  The inconsistent application of Kuwait's tax law has 
resulted in American firms receiving tax bills for the 
profits of their local Kuwaiti agents; profits for which 
these firms would not be liable under internationally 
accepted norms.  A new draft tax law that would reduce the 
rate from 55% to 15% is under consideration in the 
Parliament, but the GOK has not shown a willingness to 
address the basic problem of defining tax liability.  An Open 
Skies Agreement is scheduled to be signed soon and United 
Airlines will begin operating direct flights to the U.S. on 
October 28, the first U.S. carrier to operate out of the Gulf 
since 9/11. 
 
¶22.  (C/NF) Refinery Project: Kuwait Petroleum Corporation's 
(KPC) international operations subsidiary is evaluating 
several options for refinery investment in North America. 
The GOK is eager to create "guaranteed markets" for the heavy 
crude which it expects to make up most of Kuwait's crude 
exports after 2010, and plans to invest in a joint venture to 
either build a new refinery or significantly expand an 
existing refinery.  In either case, Kuwait will insist that 
most if not all of the oil processed be Kuwaiti crude.  KPC 
has concluded preliminary economic analyses of several sites 
including Eastern Canada, Louisiana, Mississippi, Arizona, 
and Aruba.  Shaykh Ahmed Al-Fahd, the former Minister of 
Energy and current President of the National Security Bureau, 
recently told the Ambassador that discussions on building the 
refinery in the U.S. had stalled, which he blamed on American 
companies' lack of response, and noted that that the most 
promising location was Eastern Canada. 
 
Promoting Study in the U.S. 
--------------------------- 
 
¶23.  (SBU) There has been a marked decline in the number of 
Kuwaitis studying in the U.S. since 9/11.  To counter this 
decline, post formed a working group to coordinate activities 
to increase the number of Kuwaiti students in the U.S., and 
the Consular Section designated an officer for engage in 
local outreach.  Student visa applicants are given priority 
for nonimmigrant visa application interview appointments. 
Two-way exchanges between the U.S. and Kuwait are extremely 
popular, and demand from Kuwaiti youth, students, and 
professionals currently exceed what we can provide.  Any 
increase in exchange opportunities -- short International 
Visitor-style programs, summer programs for youth, or 
year-long academic exchanges -- would be well received and 
effective in increasing mutual understanding. 
 
Key Points: 
 
--  Encourage GOK to increase number of scholarships for 
study in the U.S. 
 
Trafficking in Persons 
---------------------- 
 
¶24.  (C/NF) Kuwait was upgraded from a Tier 3 to Tier 2 Watch 
List ranking in the 2006 Trafficking in Persons report due to 
moderate improvements in protections for foreign laborers in 
Kuwait and enforcement of a ban on underage camel jockeys. 
Kuwaiti officials recognize, however, that problems of 
domestic labor exploitation and trafficking still exist and 
have promised to implement stronger preventative measures. 
The GOK is working to standardize employment contracts, 
guaranteeing health care, minimum wage, and vacation time to 
employees.  The Ministry of Social Affairs and Labor is also 
working on a public awareness campaign and will host a 
regional conference on labor issues.  The new Minister of 
Social Affairs and Labor recently told the Ambassador that 
passage of a new labor law, which unfortunately does not 
cover domestic workers, was one of his top priorities. 
 
Key Points: 
 
--  Acknowledge the recent steps positive steps taken to 
protect expatriate laborers. 
--  Emphasize the importance of legal protections for 
 
KUWAIT 00003392  008 OF 008 
 
 
domestic workers. 
--  Kuwait should play regional leadership role. 
 
********************************************* * 
For more reporting from Embassy Kuwait, visit: 
http://www.state.sgov.gov/p/nea/kuwait/?cable s 
 
Visit Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kuwait/ 
********************************************* * 
LeBaron