VZCZCXYZ0010
PP RUEHWEB

DE RUEHKU #1128/01 3171012
ZNR UUUUU ZZH
P 121012Z NOV 08
FM AMEMBASSY KUWAIT
TO SECSTATE WASHDC PRIORITY 2339

UNCLAS KUWAIT 001128 
 
SIPDIS 
 
DEPT FOR NEA/ARP, EB/TPP/BTA 
STATE PASS TO USTR BUNTIN AND BLUE 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ETRD KU
SUBJECT: KUWAIT 2009 NATIONAL TRADE ESTIMATE 
 
REF: SECSTATE 88685 
 
¶1. (U) Post's update of the 2009 National Trade Estimate for Kuwait 
is submitted below.  It also has been transmitted to the United 
States Trade Representative via email. 
 
¶2. (U) KUWAIT NATIONAL TRADE ESTIMATE 
 
TRADE SUMMARY 
 
The U.S. goods trade deficit with Kuwait is $3 billion for the 
period from January-July, 2008, an increase of $2 billion from 
$0.958 billion for the same period in 2007. U.S. goods exports for 
the same period in 2008 were $1.486 billion, up 11.73 percent from 
the same period in the previous year.  Corresponding U.S. imports 
from Kuwait are $4.486 billion for the same period in 2008, up 96 
percent. Kuwait is currently the 52nd largest export market for U.S. 
goods. 
 
U.S. foreign direct investment in Kuwait was $600 million in 2006 
(latest data available). 
 
The United States and Kuwait signed a Trade and Investment Framework 
Agreement (TIFA) in February 2004, providing a forum to address U.S. 
concerns and needed economic reforms. 
 
IMPORT POLICIES 
 
Tariffs 
 
As a member of the Gulf Cooperation Council (GCC), Kuwait applies 
the GCC common external tariff of 5 percent for most products, with 
a limited number of GCC approved country specific exceptions. 
Kuwait's exceptions include 417 food and agriculture items, which 
remain duty free, as well as tobacco products, which are subject to 
a 100 percent tariff. 
 
Import Prohibitions and Licensing 
 
Kuwait prohibits the importation of alcohol and pork products, and 
requires a special import license for firearms.  Used medical 
equipment and automobiles over 5 years old cannot be imported.  Also 
prohibited are any books, periodicals, or movies that insult 
religion and public morals, and all materials that promote political 
ideology. 
 
Kuwait continues to prohibit imports of live cattle from the State 
of Alabama and beef from the State of Oklahoma.  The U.S. government 
has engaged local officials in an effort to encourage them to 
recognize U.S. control measures and World Animal Health Organization 
guidelines relative to Bovine Spongiform Encephalopathy. 
 
 
Documentation Requirements 
 
In Kuwait, the import clearing process has historically been 
time-consuming, requiring large quantities of paperwork, and 
numerous redundancies.  However, the Customs Department is currently 
undergoing a major privatization effort, contracting with a private 
company to provide customs support services.  The implementation of 
a state-of-the-art computer system has made the import process less 
complicated and more efficient.  In October 2005, Customs began 
implementation of the Micro-Clear system at the Kuwait airport and 
completed implementation at all ports of entry in early 2006. 
 
 
Customs Valuation 
 
Kuwait began implementation of the WTO Customs Valuation Agreement 
in September 2003. 
 
Textiles and Apparel 
 
Textiles and apparel products (dutiable at 5 percent) accounted for 
approximately 6 percent of Kuwait's imports in 2006. 
 
 
STANDARDS, TESTING, LABELING, AND CERTIFICATION 
 
Standards 
 
As part of the GCC Customs Union, the six Member States are working 
toward unifying their standards and conformity assessment systems. 
However, each member state currently continues to apply either its 
own standard or a GCC standard, causing confusion among some U.S. 
businesses.  GCC Member States do not consistently send notification 
of new measures to WTO Members or the WTO Committees on Sanitary and 
Phytosanitary Measures (SPS) and Technical Barriers to Trade (TBT) 
or allow WTO Members an opportunity to provide comments. 
 
The GCC Standards Committee has recently approved two new standards 
 
that will replace existing standards for the labeling and expiration 
periods of food products.  While the new standards appear to attempt 
to incorporate international guidelines and address some 
longstanding issues, particularly in relation to expiration periods, 
some requirements that have previously complicated the import 
process remain.  Kuwait is in the process of adopting these new 
standards as national standards. 
 
In May and October 2007, respectively, Bahrain and Oman notified WTO 
Members of recently proposed procedures meant to harmonize food 
safety import requirements for all GCC member states.  The United 
States and other WTO Members provided comments outlining significant 
concerns with the procedures, which, as currently drafted, create 
unnecessary obstacles to trade and would substantially disrupt food 
exports to GCC member states from its trading partners.  The GCC 
member states are reportedly developing a response to these 
comments, and the United States has established a dialogue between 
U.S. and GCC technical experts to discuss the procedures and 
potential amendments to address the concerns raised. 
 
Kuwait maintains restrictive standards that impede the marketing of 
some products.  Standards for medical, telecommunications, and 
computer equipment tend to lag behind technological developments, 
with the result that government tenders frequently specify the 
purchase of obsolete, often more costly items. 
 
 
Conformity Assessment 
 
In March 2003, Kuwait implemented its International Conformity 
Certification Program (ICCP), a pre-shipment certification program 
requiring that covered products be tested and certified by a single 
private company before being imported into Kuwait.  The program 
applied to imports of: (1) household appliances and electronics; (2) 
new and used cars and other vehicles; (3) chemicals, including motor 
oil and paint; (4) building materials, including cement, gypsum, and 
bricks; and (5) paper and plastic items. 
 
In July 2004, the Public Authority for Industry (PAI) - the 
regulatory authority responsible for the ICCP - held a 1 year review 
of the program.  At that time, the PAI stated that over 30,000 
individual products had been issued ICCP certificates, and that PAI 
was considering expanding the types of products requiring 
certification.  Importers and representatives of foreign businesses 
voiced serious concerns with the program.  The United States and 
other WTO Members raised concerns about the ICCP directly with 
Kuwait and during meetings of the WTO TBT Committee. 
 
In November 2004, the PAI indicated that it would introduce changes 
to the ICCP and transition to a new Kuwait Conformity Assessment 
Scheme (KUCAS).  The KUCAS raises the same concerns as the ICCP 
raised. 
 
The GCC Standards Committee is currently developing a conformity 
assessment scheme to be adopted ultimately by each of the six Member 
States.  The United States is working to establish a dialogue 
between U.S. and GCC technical experts to discuss this proposed 
scheme with the goal of helping to ensure that it is developed, 
adopted, and applied in accordance with WTO rules. 
 
GOVERNMENT PROCUREMENT 
 
Kuwait's government procurement policies require the purchase of 
local products, where available, and prescribe a 10 percent price 
advantage for local firms in government tenders.  In 2004, the 
Council of Ministers agreed to increase this price advantage to 15 
percent.  However, the increase has not yet been implemented as it 
requires amendment of the GCC countries' unified agreement, which 
has not yet occurred. 
 
Procurement by the Kuwaiti Government and its agencies is regulated 
by Law No. 37 of 1964 (modified by Laws No. 13 and 31 of 1970 and 
1977, respectively) concerning Public Tenders (the "Public Tenders 
Law"), in which any procurement made by the Kuwait Government with a 
value in excess of KD 5,000 (approximately $18,500) must be 
conducted through the Central Tenders Committee (CTC). 
 
 
In 2002, the Kuwaiti government transformed its offset program into 
a mechanism for promoting foreign investment in Kuwait.  In 2006, 
Kuwait established the National Offset Company to manage, enforce, 
and review all offset proposals.  The company is designed to be a 
one-stop shop for all matters related to offsets.  In October 2007, 
the National Offset Company launched the Offset Fund with variable 
capital up to KD 1 billion ($3.7 billion). 
 
Offset obligations apply to military contracts with a value equal to 
or above KD3 million (about $11 million), civil government contracts 
with a value equal to or above KD10 million (about $37 million), and 
oil and gas contracts.  Oil and gas exploration and production 
contracts are excluded from the offset program.  Offset obligations 
amount to 35 percent of contract value with offset multipliers being 
established to target investment into specified sectors of the 
Kuwaiti economy.  Foreign contractors are subject to an 
unconditional financial guarantee equal to 6 percent of the contract 
value. 
 
Kuwait is not a signatory to the WTO Agreement on Government 
Procurement. 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
 
Kuwait's current intellectual property legislation regarding 
copyrights, data protection, geographical indications, trademarks, 
patents, and customs is not fully consistent with its obligations 
under the WTO TRIPS Agreement. 
 
Although Kuwaiti officials, particularly Kuwait Customs, continue to 
make progress on copyright enforcement and pursue cases through the 
judicial process, the lack of deterrent criminal penalties in the 
copyright law limits their effectiveness.  Sales of pirated and 
counterfeit goods remain high in Kuwait, and the use of unauthorized 
computer software continues in private enterprises. 
 
As part of the GCC Customs Union, the six Member States are working 
toward unifying their IP regimes.  In this respect, the GCC has 
recently approved a common trademark law.  All six Member States are 
expected to adopt this law as national legislation in order to 
implement it.  The United States has outlined specific concerns with 
the trademark law and has established a dialogue between U.S. and 
GCC technical experts to ensure that the law complies with the 
Member States' international obligations. 
 
 
SERVICES BARRIERS 
 
Banking 
 
Foreign-owned banks are restricted to opening only one branch, can 
only offer investment banking services, and are prohibited from 
competing in the retail banking sector.  Furthermore, foreign banks 
are subject to a maximum credit concentration equivalent to less 
than half the limit of the largest local bank and are expressly 
prohibited from directing clients to borrow from external branches 
of the bank or taking any other measures or arrangements to 
facilitate such borrowing 
 
In August 2004, BNP Paribas was the first foreign bank granted a 
license to operate in Kuwait, followed by approvals in 2005 for HSBC 
and Citibank; HSBC opened its branch in October 2005, and Citibank 
in late 2006, Abu Dhabi National Bank in 2007, Qatar National Bank 
in 2007, and Doha Bank in 2008.  UAE's Al-Mashreq Bank, Al-Rajhi 
Bank, and Bank of Muscat have obtained a license from CBK, but have 
not opened their branches as of November 2008. 
 
 
Agent and Distributor Rules 
 
According to Kuwait's Commercial Agencies Law of 1964, only Kuwaiti 
nationals and corporations may act as agents and distributors for 
foreign companies and exporters. 
 
 
Telecommunications 
 
A U.S. trade association has expressed concern over actions by 
Kuwaiti government officials to prevent the use of Voice over 
Internet Protocol technology for the provision of telephone calls. 
The government has reportedly been blocking a number of websites 
offering Internet enabled voice services, denying consumers access 
to affordable long-distance calling. 
 
 
INVESTMENT BARRIERS 
 
Kuwait currently maintains a variety of restrictions on foreign 
direct investment and applies discriminatory taxation policies.  In 
May 2000, Kuwait's National Assembly approved legislation that 
allows foreign nationals to own up to 100 percent of all companies 
listed on Kuwait's stock exchange, except banks.  In January 2004, 
the National Assembly gave final approval to a bill permitting 100 
percent foreign ownership of banks. 
 
The foreign direct investment law that took effect in February 2003 
authorizes majority foreign ownership in new investment projects and 
100 percent foreign ownership in the following sectors: 
infrastructure projects such as water, power, waste water treatment, 
or communications; investment and exchange companies; insurance 
companies; information technology and software development; 
hospitals and pharmaceuticals; air, land, and sea freight; tourism, 
hotels, and entertainment; and housing projects and urban 
development.  The law also authorizes tax holidays of up to 10 years 
for new investors.  Despite the new law, foreign companies still 
report numerous delays in getting approval to operate in Kuwait and 
the law left in place several important investment restrictions. 
For example, foreign firms still may not invest in the upstream 
petroleum sector, although they are permitted to invest in 
petrochemical joint ventures.  Legislation introduced in Parliament 
in January 2004 would have allowed for limited, controlled 
investment in the petroleum sector, but the draft legislation has 
been shelved.  The legislation specifically authorizes investment 
in, and development of, Kuwait's northern oilfields, but, if 
enacted, it may cover other investment in the petroleum sector in 
the future. 
 
 
OTHER BARRIERS 
 
Corporate Tax Policies 
 
In 2005, a number of corporations received income tax bills from 
Kuwaiti tax authorities although the companies had no commercial 
presence in Kuwait.  Bills were typically sent to the companies' 
Kuwaiti distributors and often included years of back taxes.  Some 
companies have challenged the tax in court, and others are working 
with the U.S. and Kuwaiti governments to seek a legislative or 
regulatory solution.  Kuwaiti law and judicial decisions are 
ambiguous in defining what does or does not constitute taxable 
presence. 
 
On December 26, 2007, the Kuwaiti National Assembly passed 
legislation reducing the tax rate on foreign companies from 55 
percent to 15 percent. 
 
 
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For more reporting from Embassy Kuwait, visit: 
http://www.state.sgov.gov/p/nea/kuwait/cables  
 
Visit Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kusait/ 
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JONES