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.

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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.

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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.

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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).

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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.

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