AMBASSADOR AND COMMERCE MINISTER DISCUSS TIFA,

C O N F I D E N T I A L SECTION 01 OF 03 KUWAIT 001712 SIPDIS STATE PLEASE PASS USTR JFENNERTY STATE PLEASE PASS DEPARTMENT OF ENERGY FOR IE STATE FOR NEA/ARPI, EB/CBA JFMERMOUD, WBEHRENS EB/ESC/IEC FOR GALLOGLY, DOWDY USDOC FOR 4520/ITA/MAC/AME, 3131/USFCS/OIO E.O. 12958: DECL: 04/26/2015 TAGS: ETRD PREL EPET EINV BEXP KU SUBJECT: AMBASSADOR AND COMMERCE MINISTER DISCUSS TIFA, PROJECT KUWAIT AND PEPSICO DISPUTE REF: A. KUWAIT 1295 ¶B. KUWAIT 936 ¶C. KUWAIT 729 Classified By: Ambassador Richard LeBaron, Reason 1.4(b) ¶1. (C) Summary. The Ambassador met Kuwaiti Minister of Commerce and Industry Abdullah Al-Taweel and staff on April 25 to discuss the status of the U.S.-Kuwait Trade and Investment Framework Agreement (TIFA),intellectual property rights (IPR),Project Kuwait, and the Pepsico tax dispute. The Ambassador noted his disappointment with the pace of TIFA negotiations, and underlined two ways in which Oman has successfully prepared for its FTA negotiations that Kuwait might consider emulating. The Ambassador also suggested that the Kuwaitis consider inviting the Omanis and Bahrainis to participate in a seminar on FTAs that the GOK is organizing; the seminar is scheduled for June 1. (Note. Post has asked USTR to consider sending someone to speak at this seminar.) The Minister said he also is disappointed with the slow pace, and claimed that while the Kuwaitis are fully committed to moving toward an FTA, the U.S. is sending mixed signals. He also asserted that the Kuwaiti TIFA committee is well coordinated by senior leaders, and that the GOK is well represented in the U.S. by its Embassy and its lawyers at Patton Boggs. Still, he acknowledged that making the necessary legislative changes for an FTA will take a long time, and said that changing the labor law specifically would take two to three years. ¶2. (C) The Minister and his team complained about a perceived breakdown in communications between the two sides, and the lack of a clear message from the U.S. about what Kuwait must do to move forward. The Ambassador suggested that the Kuwaitis consider sending a senior representative to the U.S. to meet with USTR and the relevant players on the U.S. side and bring focus to this process. On IPR, the Minister spoke about recent raids of businesses selling counterfeit auto parts. He also pointed out increased coordination among agencies on IPR, and said that he believes the new Minister of Information will cooperate more than his predecessor. The Minister acknowledged the negative effects of the ongoing Pepsico tax dispute, saying that he and the Kuwait Chamber of Commerce and Industry believe that the courts are improperly implementing Kuwait,s commercial law. He added that other companies, including Microsoft and Panasonic, are having similar problems. Finally, Al-Taweel said he has no doubt that Project Kuwait (to develop Kuwait's northern oilfields) will be approved by the National Assembly, hopefully before it recesses for the summer. End Summary. -------------- TIFA: Disappointing Pace -------------- ¶3. (C) The Ambassador met Kuwaiti Minister of Commerce and Industry Abdullah Al-Taweel on April 25 to discuss, among other issues, the status of the U.S.-Kuwait Trade and Investment Framework Agreement (TIFA). The Ambassador opened by noting his disappointment with the pace of TIFA negotiations, saying that he would like to determine why it was moving so slowly and whether the Kuwaitis were interested in trying to speed up the tempo. He cautioned that the GOK should put aside the notion that the U.S. has a priority list of GCC states with whom it would like to negotiate free trade agreements (FTAs),and rejected Kuwaiti thinking that political considerations are dictating the timing of negotiations with various prospective partners. Rather, the Ambassador said, USTR selects candidates for FTA talks by assessing which countries are poised to have the most productive negotiations; he added that since USTR has a small staff with heavy demands on their time, it must respond to the best available candidates for negotiations. ¶4. (C) In the Gulf, the Ambassador continued, Oman is doing very well in its preparations for an FTA. He explained that the reason for the Omanis' success is twofold: first, they have a very concentrated and coordinated negotiating strategy that is directed by senior officials with trade expertise and interministerial authority. Second, the Omanis are receiving good external advice. The Ambassador recommended that Al-Taweel talk to the Bahrainis and the Omanis to get a better idea about what the FTA process entails, emphasizing that these are open, transparent agreements that are more or less the same across countries. The Ambassador also suggested that the Kuwaitis consider inviting the Omanis and Bahrainis to participate in a seminar on FTAs that one of the Prime Minister's advisers is organizing; the seminar is scheduled for June 1. (Note. Post has asked USTR to consider sending someone to speak at this seminar.) ¶5. (C) Al-Taweel remarked that he, too, is disappointed with the TIFA negotiations' slow pace. In his view, the Kuwaitis are fully committed to moving toward an FTA. He said other countries jumped ahead of Kuwait in the negotiations and it is the GOK,s impression is that the U.S. will wrap up the Omani and Emirati FTAs first, and then come back to Kuwait. He disagreed with those who say that Kuwait does not need an FTA with the U.S., pointing out that Kuwait -- and not the U.S. -- asked for the FTA. In his opinion, an FTA would be essential to opening up Kuwait's market and forcing changes in its laws. ¶6. (C) Referring to the Ambassador's observations about the Omanis' coordinated FTA team, Al-Taweel asserted that the Kuwaiti committee is well coordinated by Fawzi Sultan and Ministry of Commerce Assistant Undersecretary for Foreign Trade Affairs Hamad Al-Ghanim. He added that the Kuwaitis are well represented in the U.S. by their Embassy and their lawyers at Patton Boggs, and asked rhetorically what more the Kuwaitis could do on their end. The Ambassador expressed surprise at the Minister,s comment about Sultan,s involvement in the TIFA process, noting that he had not yet met with Sultan on trade issues. (Note. Sultan was present at the first TIFA Council meeting in May 2004; since that time, however, he has not been in contact with the Embassy on trade matters, and he did not participate in the February "mini-TIFA" talks that USTR,s John Fennerty held in Kuwait (Ref A). Instead, the Ministry of Commerce's Al-Ghanim has acted as the primary TIFA interlocutor. End Note.) The Minister replied that Sultan participates in the GOK's biweekly TIFA committee meetings, and that he is very active. ¶7. (C) Al-Taweel acknowledged that making the necessary legislative changes for an FTA will take a long time, and said that changing the labor law specifically could take two to three years. He stressed, however, that the government would make the recommended changes not only to please the U.S., but because they are to Kuwait,s benefit. Al-Ghanim added that the government's intention to liberalize is clear. The Ambassador pointed out that intention is not sufficient, and he recommended again that the Kuwaitis look to the Omanis and Bahrainis for guidance on the FTA process. -------------- Failure to Communicate -------------- ¶8. (C) A consistent complaint raised by the Minister and his team during the meeting was a perceived breakdown in communications between the two sides. The Minister said that when the Ministry tries to contact its U.S. counterparts to move the TIFA process forward, there are "lots of excuses." Assistant Undersecretary Al-Ghanim, who acts as the working chair of the TIFA committee, cited as an example an earlier attempt to set up a digital videoconference (DVC) on telecommunications, which had to be scrapped because of technical difficulties. The Minister confirmed that Kuwait would like to sign an FTA, is fully committed to the process, and would like a second TIFA council meeting. But, he pointedly noted, the message from the U.S. side is not clear. According to Al-Taweel, the Kuwaitis are hearing completely different messages from their Embassy, USTR and Patton Boggs. Both he and Al-Ghanim commented on what they view as contradictory assessments of Fennerty's visit in February: according to them, the U.S. side was complimentary during the talks about the Kuwaitis' progress, but presented a different assessment of the visit to the Kuwaiti Embassy in Washington. The Ambassador pointed out that Fennerty wanted to maintain a positive tone while stressing that there were serious issues that need resolution (such as technical barriers to trade, Kuwait,s laws on intellectual property rights, and its weak labor protections). ¶9. (C) In Al-Taweel's opinion, the two sides need to sit down and talk so that everyone is on the same page. If the Kuwaitis need to move faster, he said, they will, but they need to know with whom to talk. The Ambassador suggested that the Kuwaitis consider sending a senior, experienced person like Sultan to the U.S. to meet with USTR and the relevant players on the U.S. side. The Minister reiterated that Sultan is the person on whom he depends, adding that Sultan is also on the Singapore FTA committee. For this reason, the Ambassador said, it would be important to send someone like him to bring focus to this process. -------------- IPR: Raids Continue -------------- ¶10. (C) The Ambassador congratulated the Minister on his team,s recent raids of businesses selling counterfeit auto parts. The Minister said that his ministry was continuing its raids on shops selling counterfeit clothing, spare parts, movies and other consumer goods, and noted that he had counseled his staff to publicize their "non-stop" efforts to take out the main suppliers in a market that is "saturated" with counterfeits. He added that the fake auto parts dealer who was the subject of these recent raids had been targeted twice before. Since these counterfeits -- brake pads, windshields, and other critical parts -- pose such a serious threat to Kuwaiti consumers, the Minister vowed to continue to raid these shops as many times as necessary to put them out of businesses. To do so, he has increased the number of ministry employees working on IPR issues, stepped up the number of hours worked during nights and weekends, and raised their salaries. ¶11. (C) Al-Taweel said that Commerce is working in coordination with the Ministry of Interior and the Criminal Investigation Division, and has approached the Minister of Interior about involving his personnel resources in IPR enforcement efforts more generally. He also noted that Kuwait Customs is helping out a great deal, and he praised the new Minister of Information, who Al-Taweel believes will cooperate more than his predecessor (the two ministries have begun discussing the possibility of conducting joint raids). -------------- Pepsico Tax Dispute -------------- ¶12. (C) The Ambassador raised Pepsico,s ongoing tax dispute (Ref C),and while noting that he was not asking the GOK to intervene with the courts, pointed out that this case was being closely followed by many observers. The Minister replied that he hoped that court would not rule against Pepsi. He added that the Kuwait Chamber of Commerce and Industry (KCCI) was studying the case, and believes that the courts are improperly implementing Kuwait,s commercial law in deciding against Pepsico. Al-Taweel agreed that this case is having a serious negative effect, and added that other companies including Microsoft and Panasonic are having similar problems (unlike Pepsico, they have not yet resorted to the courts). The Minister said he had consulted with the Minister of Finance on legislation to reduce the tax rate for foreign corporations, which is ready to be submitted to the National Assembly. -------------- Northern Oilfields -------------- ¶13. (C) The Minister said he has no doubt that Project Kuwait (Ref B) will be approved by the National Assembly, hopefully before it recesses for the summer. (This project envisions bringing in a major foreign consortium to develop hard-to-exploit oil in Kuwait's northern fields. ChevronTexaco, ExxonMobil, and Occidental are the U.S. majors that seek to participate.) The Minister praised the Minister of Energy for "playing cool" in the face of parliamentary opposition, and praised his efforts in pushing the issue forward. Although some parliamentarians will "shout" about the project, Al-Taweel predicted it will move forward. ********************************************* Visit Embassy Kuwait's Classified Website: http://www.state.sgov.gov/p/nea/kuwait/ You can also access this site through the State Department's Classified SIPRNET website ********************************************* LEBARON