MIDDLE EAST TRADE INITIATIVE

1.(C) Embassy Kuwait will work enthusiastically to advance
the President's new Middle East Trade Initiative as outlined
in reftel. We noted two particular themes in the message: a)
countries will need to do some heavy lifting to benefit from
the initiative; and b) the Administration understands the
initiative is a long-term commitment, which will take years
to fully achieve.

2.(C) Kuwaiti businessmen, who have long lamented the
government's dominance of the local economy, often echo the
complaints of GOK technocrats charged with developing and
implementing economic reforms. We see Kuwait as a country
fully aware of its need for reform, fully aware of the kinds
of reforms needed, and fully capable of making the needed
reforms. The challenge here has been, and continues to be,
an unfortunate lack of political leadership; a lack of a
vision for the transformation of the Kuwaiti economy. While
the new Middle East Trade Initiative will likely receive a
warm welcome from Kuwaiti leaders, it will take sustained
prodding to overcome the current inertia in GOK policy
making. Characteristically, Embassy has received no/no
inquiries from GOK interlocutors about the initiative since
the President's May 9 announcement.

What's Attractive/What's Problematic


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3.(C) Kuwait will find the idea of closer ties to the U.S.
attractive, given concerns that their special relationship
with the U.S. will fade as Iraq grows in importance.
Further, the GOK has long been anxious to conclude a
Bilateral Investment Treaty with the U.S. (their main motive,
however, is preferential tax treatment for their financial
investments in the U.S., and they have thus far been
unwilling to relax restrictions on FDI into Kuwait). The GOK
will also welcome the offer of technical assistance to build
trade capabilities, particularly on WTO issues.

4.(C) Predictably, the suggestion of including Israel in the
FTA will be a significant hurdle for Kuwait. However, full
settlement of Israeli-Palestinian issues would help overcome
this. The GOK will likely have few other reservations about
the Initiative.

How Will Kuwait Participate


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5.(C) If past experience is a guide, we believe the GOK will
support the concept of the Initiative and applaud its
introduction. Mid- and senior-level officials and many
Kuwaiti businessmen will welcome U.S. pressure on the GOK to
finally implement deep and broad reforms, and urge us to do
even more. However, unless the senior leadership of Kuwait
embraces the initiative and gives it vocal support, Ministers
will take only half-steps, while looking over their shoulders
at a congenitally hostile National Assembly ready to punish
any misstep.

Comment


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6.(C) The GOK has preached reform since before Iraq's
invasion of the country, but frustratingly little has been
done since then. This argues for even greater U.S. pressure
on Kuwait than on other states in the region to reform and to
do it quickly. This initiative, with its long-term approach
and an expectation for countries to really do something to
take advantage of it, might actually bear some fruit provided
we spend enough time in the garden.
JONES