Kuwait Investment Climate Statement

UNCLAS SECTION 01 OF 10 KUWAIT 002272

SIPDIS

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SUBJECT: Kuwait Investment Climate Statement
Appendix, 2004

REF: STATE 141379


1. Kuwait - July 2004 Appendix to 2003
Investment Climate Statement

a) This appendix serves as an update to the
2003 Investment Climate Statement for Kuwait.
It has been provided to assist investors in
the interim period resulting from the U.S.
Department of Commerce's decision to begin
publishing the Country Commercial Guide (of
which the Investment Climate Statement is a
chapter) on a calendar year basis, in January
instead of August.

The United States Government has reviewed the
2003 Investment Climate Statement for Kuwait
and has noted the following changes that have
occurred since its publication. In most
circumstances, if a portion of the 2003
Investment Climate Statement has not been
modified in this appendix, it is because the
U.S. Government is satisfied that it continues
to accurately reflect the state of affairs in
Kuwait as of July 2004. The most recent
changes are noted below (reftel para 5),
followed by the full text of the 2004
Investment Climate Statement.

b) Openness to Foreign Investment:

Council of Ministers approved the implementing
regulations for its new Direct Foreign Capital
Investment Law-Law No. 8/2001- passed by the
National Assembly on March 11, 2001, through
Resolution No. 1006/1/2003 on November 1,

2003. The legislation authorizes foreign-
majority ownership and 100 percent foreign
ownership in certain industries that include:
industries except for projects appertaining to
oil discovery or oil/gas production;
infrastructure projects (water, power, waste
water treatment or communications); banks,
investment and exchange companies; insurance
companies approved by the Ministry of Commerce
and Industry; IT and software development;
hospitals and pharmaceuticals; air, land and
sea freight; tourism, hotels, and
entertainment; integrated housing projects and
urban development; and real estate investment
through foreign investor's participation in
Kuwaiti shareholding companies as per
provisions of Law No.20/2000.

The Direct Foreign Capital Investment Law
promotes foreign investment in Kuwait;
authorizes tax holidays of up to ten years for
new foreign investors; facilitates the entry
of expatriate labor; authorize land grants and
duty-free import of equipment; provides
guarantees against expropriation without
compensation and the right to repatriate
profits; and protects the confidentiality of
proprietary information in investment
applications, with penalties for government
officials who reveal such data to unauthorized
persons. New investors will be protected
against any future changes to the law. Full
benefit of these incentives, however, will be
linked to the percentage of Kuwaiti labor
employed by the new venture. The investor
will also be obliged to preserve the safety of
the environment, uphold public order and
morals, and comply with instructions regarding
security and public health.

c) Conversion and Transfer Policies:

No significant change.

d) Expropriation and Compensation:

No significant change.

e) Dispute Settlement:

No significant change.

f) Performance Requirements and Incentives:
Government procurement rules prescribe a 15%
price advantage to local firms, an increase
from the 10% advantage identified in 2003.

g) Right to Private Ownership and
Establishment:

No significant change.

h) Transparency of the Regulatory System:

No significant change.
i) Efficient Capital Markets and Portfolio
Investment:

No significant change.

j) Political Violence:

No significant change.

k) Corruption:

No significant change.

l) Bilateral Investment Agreements:

Trade and Investment Framework Agreement

Kuwait signed a Trade and Investment Framework
Agreement (TIFA) with the United States in
March 2004. The TIFA is the first step in
developing economic reform and trade
liberalization criteria to strengthen the U.S.
-Kuwait economic relationship and to work
toward an eventual Free Trade Agreement. At
the first bilateral TIFA Council meeting, held
in May 2004 in Washington, D.C., it was agreed
that the TIFA process would provide for
periodic technical discussions. Several areas
in particular stand out as needing further
attention: intellectual property rights,
standards-related issues, and service and
investment requirements. The next Council
meeting is tentatively scheduled for September
2004 in Kuwait.

m) OPIC and Other Investment Insurance
Programs:

No significant change.

n) Labor:

The State Department's annual Human Rights
Report and Trafficking in Persons Report
released earlier this year highlighted the
vulnerability of domestic servants to
exploitation; they are not covered by the
labor law. The Ministry of Social Affairs and
Labor announced a draft law to give domestic
servants some of their rights like limited
number of weekly work hours, minimum salary,
and a weekly holiday.

o) Foreign Trade Zones and Free Ports:

No significant change.

p) Foreign Direct Investment Statistics:

Statistics will be updated in the next full
version of the Investment Climate Statement,
which will be published in January 2005.


2. Full text of Kuwait Investment Climate
Statement, 2004

INVESTMENT CLIMATE STATEMENT

OPENNESS TO FOREIGN INVESTMENT

Council of Ministers approved the implementing
regulations for its new Direct Foreign Capital
Investment Law-Law No. 8/2001- passed by the
National Assembly on March 11, 2001, through
Resolution No. 1006/1/2003 on November 1,

2003. The legislation authorizes foreign-
majority ownership and 100 percent foreign
ownership in certain industries that include:
industries except for projects appertaining to
oil discovery or oil/gas production;
infrastructure projects (water, power, waste
water treatment or communications); investment
and exchange companies; insurance companies
approved by the Ministry of Commerce and
Industry; IT and software development;
hospitals and pharmaceuticals; air, land and
sea freight; tourism, hotels, and
entertainment; integrated housing projects and
urban development; through foreign investor's
participation in Kuwaiti shareholding
companies as per provisions of Law No.20/2000.

The Direct Foreign Capital Investment Law
promotes foreign investment in Kuwait;
authorizes tax holidays of up to ten years for
new foreign investors; facilitates the entry
of expatriate labor; authorizes land grants
and duty-free import of equipment; provides
guarantees against expropriation without
compensation and the right to repatriate
profits; and protects the confidentiality of
proprietary information in investment
applications, with penalties for government
officials who reveal such data to unauthorized
persons. New investors will be protected
against any future changes to the law. Full
benefit of these incentives, however, will be
linked to the percentage of Kuwaiti labor
employed by the new venture. The investor
will also be obliged to preserve the safety of
the environment, uphold public order and
morals, and comply with instructions regarding
security and public health.

Foreign firms still may not invest in the
upstream petroleum sector, although they are
permitted to invest in petrochemical joint
ventures.

Kuwait's economy has been dominated by the
state and the nationalized oil industry since
the early 1970s despite efforts by the
government to divest. The government acquired
major holdings in private Kuwaiti firms --
particularly banks and insurance companies --
following stock market crashes in 1979 and

1982. After liberation from Iraq, the
government passed a debt settlement law and
purchased outstanding debts emanating from the
stock market crashes and the Gulf War.
Between 1995 and 1998, the government
successfully divested over 50 percent of its
equity holdings in private firms by selling
off its full holdings in 28 firms and portions
of holdings in 17 other firms, earning some US
$3.2 billion. The program was suspended in
1998 because of weakness of the Kuwait Stock
Exchange, but resumed in May 2001 when the
Kuwait Investment Authority sold 113 million
shares (about 24 percent) of the Mobile
Telecommunications Company (MTC). There were
six times as many prospective buyers as could
be accommodated. The sale fulfilled the
government's intention to reduce its equity in
MTC from 49 percent to 25 percent.

The Kuwait Stock Exchange (KSE) is the second
largest bourse in the Arab world after Saudi
Arabia's NCFEI. KSE lists 95 Kuwaiti
companies and 11 companies from other Gulf
States. It reopened in 1992 following the
Gulf War and has a market capitalization of US
$61 billion (as of December 2003). The index
grew 389 percent between 1994-2003 as the
government divested itself of private
holdings. The National Assembly ratified the
"Indirect Foreign Investment Law" in August
2000, allowing foreigners to own 100 percent
of all listed shareholding companies, except
banks. Foreign investors require Central
Bank's approval to own more than five percent
of a Kuwaiti bank.
On July 9, 2001, the Kuwaiti government
announced an ambitious five-year privatization
program, which closely resembled past
initiatives. The plan outlined a wide range
of activities, but with little detail. The
first year called for privatizing some gas
station outlets and part or all of Kuwait
Airways, which operated at a loss in 2000.
Year two initiated privatization of post
office, telegraph, and telecommunication
services. Years three and four will complete
the telecommunication privatization and
initiate the privatization of the Ports
Authority and Public Transport Company. The
fifth and final year targets the power and
water sectors, as well as Kuwait's
Petrochemical Industries Company (PIC).
Kuwait's National Assembly has made clear that
any privatization program will have to
insulate consumers from significant rate
increases and protect the jobs of Kuwaiti
employees. Privatization of existing
government entities has not yet occurred.

After nearly four years of deliberation,
however, the Sulaibiya Waste Water Treatment
Build, Operate, Transfer (BOT) contract was
signed in May 2001. The winning consortium,
which includes U.S. firms, projects revenues
of US $390 million over 10 years. The project
will process 50 million gallons of wastewater
daily to be used for irrigation.

There have also been selected real estate BOT
projects by privately owned Kuwaiti companies.
The first-class US $132 million Sharq Mall,
owned by the National Real Estate Company,
contains retail outlets, restaurants,
theaters, and entertainment concessions. More
recently, the Fifth Waterfront Development
Project constructed Marina Mall. This US $162
million BOT is owned by the United Realty
Company and features high-end retail, eating,
and entertainment outlets. A future BOT is
planned for a central incinerator in the
Shuaiba Industrial Area, a project which
stipulates foreign participation with at least
25 percent equity.

Foreign-owned firms and the foreign-owned
portions of joint ventures are the only
businesses subject to corporate income tax,
which applies to domestic and offshore income.
Corporate tax rates can be as high as 55
percent of gross profits, but the government
has put forward legislation to reduce the
maximum rate to 25 percent. New foreign
investors can be exempted from all taxes for
up to 10 years under the new Direct Foreign
Capital Investment Law.

Kuwaiti firms are not subject to the corporate
income tax, but those registered on the Kuwait
Stock Exchange (shareholding companies) are
required to contribute 2.5 percent of their
national earnings to the Kuwait Foundation for
the Advancement of Science (KFAS). The
National Employment Law levies an additional
2.5 percent tax that will fund a program
granting Kuwaitis working in the private
sector the same social and family allowances
provided to Kuwait's government workers.
Kuwait levies no personal income tax.

Tax exclusions -- besides those offered under
the new Direct Foreign Capital Investment Law
-- for business expenses are limited and
Kuwait's tax code is often ambiguous. For
example, deductions are only three percent for
agent commissions and head office expenses
(mainly for turnkey supply and installation-
type contracts).

The licensing authority of the Ministry of
Commerce and Industry screens all proposals
for direct foreign investment. In the past,
this authority has encouraged high-tech
industries over sectors viewed to be
saturated, such as the hotel industry. The
Foreign Capital Investment Committee (FIC),
chaired by the Minister of Commerce and
Industry and including representatives from
the private and public sectors, will authorize
investment incentives put forth under the new
Foreign Investment Law on a case-by-case
basis.


CONVERSION AND TRANSFER POLICIES

After 27 years of linking the Kuwaiti dinar
(KD) exchange rate to a basket of currencies,
Kuwait decided to peg the dinar to the US
dollar under a flexible peg from the beginning
of 2003. The move is in preparation for the
adoption of a single GCC currency in 2010. The
Central Bank of Kuwait (CBK) will retain a
band of plus or minus 3.5 percent in order to
ensure a smooth evolution of the historic
behavior of the KD that has traded within the
specified band since liberation. For the last
six years, the KD has fluctuated within a 3
percent band against the dollar*. There are
no restrictions on current or capital account
transactions in Kuwait beyond the requirement
that all foreign exchange purchases be made
through a bank or licensed foreign exchange
dealer. Equity, loan capital, interest,
dividends, profits, royalties, fees and
personal savings can all be transferred in or
out of Kuwait without hindrance. Under the
new Foreign Investment Law, investors are also
permitted to transfer all or part of their
investment to another foreign or domestic
investor.

*Source: National Bank of Kuwait Economic &
Financial Review, June 2003.


EXPROPRIATION AND COMPENSATION

There have been no recent cases of
expropriation or nationalization involving
foreign investments in Kuwait. Nevertheless,
as a safeguard, the new Direct Foreign Capital
Investment Law guarantees against
expropriation or nationalization except for
the public benefit in accordance with existing
laws; in this case, compensation will be
provided without delay for the "real economic
value of the project at the time of
expropriation." When foreign companies were
nationalized in the past, as with Kuwait's oil
industry in the 1970s, the foreign interests
were compensated promptly and effectively.

DISPUTE SETTLEMENT

The Foreign Investment Law stipulates that
Kuwaiti courts alone are responsible for
adjudicating any disputes involving a foreign
investor and other parties, although
arbitration is permitted. Few contracts in
Kuwait contain clauses specifying recourse to
traditional commercial and political
negotiation. According to the Central Bank of
Kuwait, the Kuwaiti judicial system recognizes
and enforces foreign judgments only when
reciprocal arrangements are in place. Kuwait
is a signatory to the International Center for
the Settlement of Investment Disputes (ICSID,
i.e. the Washington Convention). There have
been no investment disputes involving American
firms in Kuwait in over five years; commercial
disputes are more common. In both cases, the
slow pace of Kuwait's legal system often
frustrates American claimants.

Kuwait has a developed legal system and a
strong trading history. It has a civil code
system influenced by Islamic law. As a
traditional trading nation, the judiciary is
familiar with international commercial laws.
Kuwait has been a GATT member since 1963 and
has signed a WTO agreement. Kuwait, however,
is not a signatory to the WTO Government
Procurement Code.
A feature of Kuwaiti law which U.S. business
should be aware of is the application of
travel bans which may be applied against
individuals who have civil or criminal cases
registered against them. The ban prevents
individuals from departing Kuwait until the
pending matter is settled or acceptable
guarantees are offered. There have been
indictments in which former Kuwaiti business
partners have managed to have travel bans
imposed on former U.S. partners for allegedly
violating Kuwaiti civil law. Though very
infrequent, such cases highlight the need to
take extra care before entering into long-term
business relationships in Kuwait.

PERFORMANCE REQUIREMENTS/INCENTIVES

Government Procurement Requirements

Law No. 37 of 1964 (Articles 43 and 44)
specifies the use of local products when
available and prescribes a 15 percent price
advantage for local firms in government
tenders.

Boycotts

Kuwait publicly announced in June 1993 the end
of enforcement of the secondary and tertiary
Arab League boycotts of Israel. Although
there are occasional reports that some tender
requests contain boycott clauses reportable
under U.S. anti-boycott laws, these usually
result from clerical errors or the use of
outdated forms. Kuwait has stated that it
will wait for Arab League action before
eliminating the primary boycott of Israel.


Shipping Requirements

The Kuwaiti government has insisted that
cargoes for government projects originating in
U.S. ports will no longer be prevented access
in favor of the United Arab Shipping Program.

Participation In Research And Development

There are no specific restrictions on foreign
participation in government-financed or
subsidized research and development, but
little activity of this kind has occurred to
date. The Kuwait Institute for Scientific
Research (KISR) has expressed interest in
working with foreign firms. More options may
become available for U.S. firms under Kuwait's
Counter-Trade Offset Program and its new
patent and trademark legislation (see below).
The government would welcome programs that
provide expertise unavailable locally, but
these are likely to be evaluated on a case-by-
case basis.

Visa and Work Permit Requirements

Kuwait has a stringent visa regime and most
work permits require a local sponsor. The
Foreign Investment Law, however, may redress
this problem for new investors. Reciprocal
changes between the U.S. and Kuwait--
particularly the introduction of a 10-year
multiple entry visa--have benefited U.S.
business travelers. Foreign-born U.S.
citizens, especially those of Middle Eastern
descent, sometimes experience difficulties
with visa and residency applications. Any
problems experienced by potential U.S.
visitors should be referred to the American
Embassy or to the Bureau of Consular Affairs,
Department of State.


RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT
Rights to private ownership and establishment
are respected in Kuwait, although foreigners
face selected restrictions. Licenses from the
Ministry of Commerce and Industry are required
for the establishment of all new companies,
and government authorization is required for
any incentives offered by the new Foreign
Investment Law. As stated above, foreign
ownership is restricted or prohibited in some
sectors of the economy, and non-GCC citizens
may not own land in Kuwait.

Kuwaiti law severely restricts the types of
collateral to which creditors may have
recourse in the event of default by a
borrower. Banks may not foreclose on
residential real estate property or personal
possessions in the event of default, although
they may sue the borrower for the balance due
under the loan contract. Borrowers typically
pledge a portion of their future severance
benefits as collateral for a bank loan.


TRANSPARENCY OF THE REGULATORY SYSTEM

Kuwait has not developed effective antitrust
laws to foster competition, and its
bureaucracy often resembles that of a
developing country. Kuwait's open economy has
generally promoted a competitive market. When
government intervention occurs, however, it is
usually to the benefit of Kuwaiti citizens and
Kuwaiti-owned firms.


EFFICIENT CAPITAL MARKETS AND PORTFOLIO
INVESTMENT

Kuwait has a free, but inefficient, capital
market where credit is allocated on market
terms. Foreign investors can obtain credit
through local banks. With the help of
government subsidies, the financial markets --
and particularly the commercial banks --
operated throughout the 1980s primarily to
collect funds for the re-lending to favored
customers. Payment discipline was lax and
real economic losses common. Under a bank
stabilization program introduced in 1992, the
Central Bank of Kuwait purchased all of the
outstanding domestic credits of Kuwait's
commercial banks while eliminating all
guarantees for profits, equity, and
liabilities other than the banks' deposit
liabilities. Henceforth, all losses would
stay with the banks, which would be
responsible for the management of all their
assets and liabilities. In addition, the
Central Bank improved bank supervision,
resulting in a fairer and more efficient
distribution of credit throughout the Kuwaiti
banking system. Each of Kuwait's six
commercial banks reported continued earnings
growth in 2002.

BANK ASSETS
The assets of Kuwait's commercial banks on
December 31, 2003 were: (in '000s)
(Chart included in Microsoft Word document.)

The quality of local banks varies from blue
chip, world-class to weak. Some bank assets
have been non-performing in the past. The
balance sheets of some local banks are heavily
weighted toward lower-yielding government
bonds. Legal, regulatory, and accounting
systems are opaque but are generally
consistent with international norms. The
Central Bank of Kuwait requires annual reports
from local banks to meet international
accounting standards. U.S. businesspeople are
advised to seek local legal and financial
advice for complicated investments and
transactions.

There are few defensive measures to protect
against hostile takeovers, which are rare in
Kuwait. There is no evidence of private sector
or government efforts to restrict foreign
participation in industry standards-setting
consortia or organizations. U.S. suppliers
often have trouble, however, complying with
specifications that are technologically-
tailored to other (usually European,
especially U.K.) suppliers. In addition,
American suppliers' preference for turnkey
projects often does not mesh with Kuwait's
preference to split projects into a series of
separately-tendered smaller projects.
Finally, U.S. investors should be aware that
family, clan, and tribal ties throughout the
business community and government can restrict
foreign participation, investment, and control
of domestic enterprises. Kuwait is a very big
small town.

POLITICAL VIOLENCE

Politically Motivated Damage to Projects
and/or Installations

The potential for terrorist actions throughout
the Persian Gulf region remains high, and the
Government of Kuwait continues to take
aggressive steps to ensure domestic security.
Between October 2002 and January 2004, there
were four terrorist attacks targeting
Americans in Kuwait, killing two Americans and
wounding four others.

CORRUPTION

The often-lengthy procurement process in
Kuwait occasionally results in accusations of
attempted bribery or the offering of other
inducements by foreign bidders. This is a
crime in Kuwait and there are currently
several investigations and trials underway
involving current or former government
officials accused of malfeasance. There have
been no convictions for bribery, however,
since the end of the Gulf War. In 1996, the
government passed Law No. 25, which requires
all companies securing contracts with the
government valued at KD 100,000 (US $336,000)
or more to report all payments made to Kuwaiti
agents or advisors while securing the
contract. The law similarly requires entities
and individuals in Kuwait to report any
payments they received as compensation for
securing government contracts.

BILATERAL INVESTMENT AGREEMENTS

Kuwait has signed investment agreements with
Germany, France, Italy, Russia, China,
Romania, Poland, Hungary, Turkey, Malaysia,
Pakistan, Switzerland, Malta, Finland,
Ethiopia, Croatia, Tajikistan, Austria,
Bulgaria, Kazakhstan, Morocco, Mongolia and
the Czech Republic. In 2002, Kuwait signed a
bilateral investment agreement with Pakistan
and a free trade agreement (FTA) with Jordan.
Kuwait has initialed agreements on bilateral
investment with Denmark, Belgium, the
Netherlands, Thailand, Ukraine, Latvia,
Lithuania, Lebanon, Bosnia/Herzegovina, and
India.

Trade and Investment Framework Agreement

Kuwait signed a trade and Investment Framework
Agreement (TIFA) with the United States in
March 2004. The TIFA is the first step in
developing economic reform and trade
liberalization criteria to strengthen the U.S.
-Kuwait economic relationship and to work
toward an eventual Free Trade Agreement. At
the first bilateral TIFA Council meeting, held
in May 2004 in Washington, D.C., it was agreed
that the TIFA process would provide for
periodic technical discussions. Several areas
in particular stand out as needing further
attention: intellectual property rights,
standards-related issues, and service and
investment requirements. The next Council
meeting is tentatively scheduled for September
2004 in Kuwait.

OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS

In 1989, Kuwait concluded an agreement with
the U.S. on investment guaranty programs,
which facilitated the extension of programs
from the Overseas Private Investment
Corporation (OPIC) to Kuwait. Kuwait is also
a member of the Multilateral Investment
Guarantee Agency (MIGA). Currently there are
no OPIC programs in Kuwait.

LABOR

Kuwait has a diverse labor force. Kuwaiti
nationals occupy most of the top management
positions in the private and government
sectors. Unemployment among Kuwaitis is less
than two percent, but is rising as a result of
a growing influx of young Kuwaitis into the
labor force (10,000 to 12,000 annually). The
new entrants are reluctant to enter the
private sector and cannot be absorbed by the
government, where underemployment remains a
serious problem. Kuwaitis are outnumbered in
the work force by expatriate laborers of
diverse backgrounds. While there are a number
of American and Western European workers in
Kuwait, particularly in high-skilled
positions, the vast majority of expatriate
workers are low paid laborers from other
Middle Eastern countries, South Asia, and the
Philippines. Prior to the Gulf War (1991),
Palestinians occupied many of the country's
middle-management positions. Since the war,
workers of other nationalities, often
Egyptians or South Asians, have filled most of
these positions. Since liberation, the
Government of Kuwait has adopted inconsistent
policies intended to limit and discourage the
resident expatriate population. The
government has instituted a quota system on
work permits, restricted the transfer of
workers from one sponsor to another within the
private sector, and levied new fees on
expatriate workers and their families in order
to raise the cost of employing foreign
workers. At the same time, however, the
government has reduced the minimum salary
required for expatriates to be eligible to
bring their families to Kuwait.

Kuwaiti workers have the right to organize and
bargain collectively, but Kuwaiti law prevents
the establishment of more than one union per
functional area or more than one general
confederation. Foreign workers, who
constitute the vast majority of the work
force, are permitted by law to join unions as
non-voting members after five years of
residence in Kuwait. The right to strike is
also recognized for private sector workers,
though that right is limited by provisions
calling for compulsory negotiation and
arbitration in the case of disputes. Kuwaiti
labor law prohibits anti-union discrimination.

Separate Kuwaiti labor laws set work
conditions in the public and private sectors,
with the oil industry treated separately.
Forced labor is prohibited and the minimum age
for employment is 18 years. Youths as young
as 14, however, may work part-time in some non-
industrial positions. A two-tiered labor
market ensures high wages for Kuwaiti
employees while foreign workers, particularly
unskilled laborers, receive substantially
lower wages. There is no minimum wage for the
private sector; in the public sector, the
current effective minimum wage is KD 226 (US
$741) per month for Kuwaiti bachelors and KD
301 (US $987) per month for married Kuwaitis--
compared to KD 90 (US $295) for non-Kuwaitis.
The basic labor law also limits the workweek
to 48 hours, provides for a minimum of 14 days
of leave per year, and establishes a
compensation schedule for industrial
accidents. Current labor laws do not apply to
domestic servants. The State Department's
annual Human Rights Report and Trafficking in
Persons Report highlighted the vulnerability
of domestic servants to exploitation. . The
Ministry of Social Affairs and Labor announced
a draft law to give domestic servants some of
their rights like limited number of weekly
work hours, minimum salary, and a weekly
holiday.

The International Labor Organization's (ILO)
Committee of Experts has reiterated its
longstanding criticisms of the discrepancies
between the Kuwaiti Labor Code and ILO
Conventions 1, 30, and 87 regarding hours of
work and freedom of association. Areas
criticized by the ILO include the prohibition
to establish more than one trade union for a
given field; the requirement that a new union
have at least 100 workers; the regulation that
workers must reside in Kuwait for five years
before joining a trade union; the denial of
the right to vote and to be elected for
foreign trade unionists; the prohibition
against trade unions engaging in any political
or religious activity; and the reversion of
trade union assets to the Ministry of Social
Affairs and Labor in the event of dissolution.
A new labor law has been under consideration
for over 10 years.

FOREIGN TRADE ZONES AND FREE PORTS

In July 1995, the National Assembly passed Law
No. 26 authorizing the Ministry of Commerce
and Industry to establish free trade zones in
Kuwait. In May 1998, the privately-owned
National Real Estate Company signed a contract
with the Ministry to operate, manage, and
market the 50 square-kilometer Kuwait Free
Trade Zone (KFTZ) at Shuwaikh port, which was
inaugurated in November 1999. Many
restrictions faced by foreign firms, such as
corporate taxes, do not apply to offices or
plants within the KFTZ. Some 90 percent of
space within the KFTZ has been leased; the
majority of firms operating in the zone are
Kuwaiti.

FOREIGN DIRECT INVESTMENT STATISTICS

Kuwaiti public investments abroad consist of
portfolio investments held by the Kuwait
Investment Authority, direct investments of
other government entities, as well as those
held by private Kuwaitis. The amount of
investments of the KIA is a state secret, but
is estimated at more than US $80 billion.
Details about non-KIA investments -- such as
the Kuwait Petroleum Corporation's interests
in oil production, refining, and distribution
-- are equally murky. The holdings of private
Kuwaitis, in both direct and portfolio
investments, are believed to be some US $100
billion. Other major investors in Kuwait
include the Japanese-owned Arabian Oil Company
which holds the Kuwaiti offshore concession in
the Partitioned Neutral Zone (PNZ),and Dow
Chemical which has a 45 percent stake in the
US $2 billion Equate project, a petrochemical
joint venture with the Petrochemical
Industries Company (PIC) that began operation
in 1997. (Although the U.S.-owned Saudi
Arabian Texaco is headquartered on the Kuwait
side of the PNZ, it operates under a Saudi
concession for Saudi Arabia's share of the
onshore oil resources in the PNZ.) Other
joint ventures in Kuwait are often the result
of the government's offset requirements.

JONES