GOK FOOT DRAGGING ON CUSTOMS LAW

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