KUWAIT HOLDS SEMINAR ON POSSIBLE FTA WITH U.S.

UNCLAS SECTION 01 OF 06 KUWAIT 002486

SIPDIS

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STATE PLEASE PASS USTR JFENNERTY AND JBUNTIN
AMMAN FOR GLAWLESS
SINGAPORE FOR PHOROWITZ
BAHRAIN FOR ALENK

E.O. 12958: N/A
TAGS: ETRD ECON EINV PREL BEXP JO SN KU
SUBJECT: KUWAIT HOLDS SEMINAR ON POSSIBLE FTA WITH U.S.

This cable is sensitive but unclassified; please protect
accordingly. Not for internet distribution.


1. (U) Summary. In a June 4 seminar sponsored by
American-Kuwaiti Alliance (AKA),the Kuwait Chamber of
Commerce and Industry, the American Business Council of
Kuwait and the Kuwait Economic Society, Kuwaiti, American,
Jordanian and Singaporean speakers discussed the benefits of
U.S. free trade agreements (FTA) and the ways to achieve
them. Minister of Commerce Abdullah Al-Taweel opened the
conference, saying that Kuwait is entering a new period of
economic openness and calling the TIFA a signal of Kuwait's
desire to develop its economic relations with the U.S. In
his keynote address, the Ambassador defined TIFAs and FTAs
and underscored the importance of WTO commitments. He
stressed that Kuwait must take concrete steps to translate
its intent to reform into reality, and should focus on (among
other things) improving Kuwait's IPR and labor records and
eliminating its import testing program. Although negotiating
an FTA would be a challenging and possibly lengthy process,
the Ambassador said, the economic advantages from an FTA
could be significant, as evidenced by the Jordanian and
Bahraini cases.


2. (U) The first roundtable discussion brought together a
representative of the Business Council for International
Understanding, a consultant to Kuwait's TIFA team, and
officials from Jordan and Singapore who had been involved in
negotiating their countries' FTAs with the U.S. Several
themes emerged from the session: 1) U.S. free trade
agreements, which are based on WTO commitments, are more
comprehensive than most FTAs; 2) countries must have a strong
negotiating team that can work effectively with its
government's agencies, as well as a dynamic, knowledgeable
and hardworking staff at its embassy in Washington; and 3)
negotiating an FTA is not easy, but it is worthwhile.


3. (U) The second session focused more closely on Kuwait,
with presentations from two of Kuwait's TIFA committee
members, a representative of the private sector, and a member
of the American Business Council. The TIFA committee members
offered an overview of the U.S.-Kuwait TIFA's status, and
spoke of the challenges they face. The private sector
participants said that they would strongly support a free
trade agreement and the associated structural reforms it
would bring, since they would improve the business climate in
Kuwait. End Summary.


4. (SBU) Comment. The observations made by the Jordanian
and Singaporean negotiators mirrored almost exactly what post
and USTR have been telling the Kuwaitis, and nicely echoed
the points made by the Ambassador in his speech: the road to
an FTA is a difficult one and requires significant action.
It is unfortunate that more of the Kuwaiti negotiators were
not present to hear these remarks, although we hope that
those who did will take what they heard to heart. The
contrast between the Jordanian and Singaporean speakers and
the Kuwaiti negotiators was striking. While the former were
evidently experts in their field and presented strong cases
in favor of free trade, the Kuwaiti negotiators were unable
to answer questions from the audience about the benefits to
Kuwait of an FTA, or how an FTA would affect certain sectors
of the Kuwaiti economy. It was disappointing, too, that they
could not identify the areas that the U.S. has indicated are
most important for the TIFA process, most notably improving
IPR protection and enforcement. We hope that the Kuwaitis
will continue to engage with their Jordanian and Singaporean
counterparts, as well as their colleague in Bahrain, to learn
from them and benefit from their experiences in negotiating
FTAs with the U.S. Post would like to thank Embassies Amman,
Manama and Singapore for their assistance in identifying
participants for this seminar. End Comment.

U.S. Free Trade Agreement: Opportunities and Challenges
-------------- --------------


5. (U) In a one-day seminar sponsored by the
American-Kuwaiti Alliance (AKA),Kuwait Chamber of Commerce
and Industry, American Business Council of Kuwait and Kuwait
Economic Society, a variety of American, Kuwaiti, Jordanian
and Singaporean speakers discussed the benefits of U.S. free
trade agreements (FTA) and the way to achieve one. Kuwait's
Ministers of Foreign Affairs and Communication joined an
audience of about 60 for keynote speeches by the Minister of
Commerce, the Ambassador and a representative from AKA. Four
members of Kuwait's TIFA team attended throughout, including
two who spoke during the second roundtable session.

6. (U) Minister of Commerce Abdullah Al-Taweel opened the
June 4 conference, saying that Kuwait is entering a new
period of economic openness. He cited the Prime Minister's
2004 trips to the U.S. and East Asia, when economic topics
were of the highest priority, as evidence of the government's
new vision for Kuwait's economy. Al-Taweel called the TIFA a
clear signal of Kuwait's desire to develop its economic
relations with the U.S., and outlined the legislative changes
Kuwait has put into place to increase openness. According to
the minister, the National Assembly is currently debating a
draft law on government procurement and a new copyright law,
as well as legislation to open up Kuwait's northern
oilfields. (Note. The Ministry of Information's former
legal advisor, who is drafting the copyright law revisions,
told Econoff on May 30 that the amendments have not been
finalized or submitted to the National Assembly. End Note.)

Ambassador Discusses FTA Requirements
--------------


7. (U) In his speech, which was widely excerpted in the
local media, the Ambassador discussed what TIFAs and FTAs are
and how they fit into the U.S.'s broader policy of
encouraging economic openness (the text of the speech may be
found at http://kuwait.usembassy.gov/june 4 2005.html). He
stressed that the TIFA process is a necessary step toward an
FTA, and said Kuwait must take concrete actions to translate
its intent to reform into reality. This will be a
challenging and possibly lengthy process, the Ambassador
cautioned, but the economic advantages from an FTA could be
significant. As evidence, the Ambassador referred to the
specific benefits that have accrued to Jordan and Bahrain as
a result of their FTAs with the U.S.


8. (U) The Ambassador outlined the key elements of an FTA,
noting that the most important starting point is adherence to
WTO commitments. He also highlighted the requirements of
certain chapters, notably IPR, services, labor and
environment. Finally, the Ambassador specified some of the
actions Kuwait must take to move from a TIFA to an FTA. With
the caveat that the list was not comprehensive, he identified
Kuwait's IPR protection and enforcement record, its
WTO-inconsistent import inspection regime, and its weak labor
laws as areas in which Kuwait must show improvement. He
recommended that the GOK's experts establish close and
regular contact with their U.S. counterparts, and urged the
GOK to make TIFA reforms a governmental priority. These
recommendations were reported verbatim in most of Kuwait's
daily newspapers.

Session 1: Why FTAs?
--------------


9. (U) The first roundtable discussion brought together
officials from Jordan and Singapore who had been involved in
negotiating their countries' FTAs with the U.S.: Marwan
Al-Moasher, Minister of the Jordanian Royal Court and former
Ambassador to the U.S.; Jordanian Senator and chief FTA
negotiator Mohammad Al-Halaiqua; and the Deputy Director of
the Singaporean Ministry of Trade and Industry's Trade
Division and veteran FTA negotiator Minn Naing Oo. They
were joined by Jeff Donald, the Business Council for
International Understanding's Vice President for Washington
Operations (who previously worked in EB) and Fawzi Sultan,
the former president of the International Fund for
Agricultural Development who is now a consultant to Kuwait's
TIFA team. Several themes emerged from the session: 1) U.S.
free trade agreements, which are based on WTO commitments,
are more comprehensive than most FTAs; 2) countries must have
a strong negotiating team that can work effectively with its
government's agencies, as well as a dynamic, knowledgeable
and hardworking staff at its embassy in Washington; and 3)
negotiating an FTA is not easy, but it is worthwhile.

U.S. Free Trade Agreements
--------------


10. (U) Both the Jordanians and the Singaporean commented
that U.S. FTAs are comprehensive documents. According to
Singapore's negotiator Minn Naing Oo, the U.S. FTA is seen as
the "gold standard" because of its depth and breadth. He
added that although Singapore had previously negotiated four
FTAs, the agreement with the U.S. was the most comprehensive
and the only one to take the "negative list" approach on
services. Oo noted that the Singaporean FTA with the U.S.
was "WTO-plus," based on WTO obligations but going even
farther on IPR, telecommunications, financial services and
government procurement requirements.


11. (U) Al-Halaiqua said that for trade in goods and
services, the U.S. FTA's reference point would be the WTO
principle of national treatment, and the services chapters
would be based on GATS. However, the U.S. would ask Kuwait
to open up more sectors to U.S. investors than are available
under the WTO. He also noted that during negotiations, the
U.S. objected to a Jordanian law preventing non-Jordanians
from owning more than 50% of local companies (a violation of
national treatment),and said the U.S. would push for
elimination of any similar laws in Kuwait.


12. (U) Al-Halaiqua commented that fully one-third of the
Jordanian FTA text was devoted to intellectual property
rights (IPR) issues, and counseled that the U.S. would
require Kuwait to have strong IPR legislation and enforcement
and join international IP conventions. He stressed that the
IP industry is very powerful in the U.S., and advised Kuwait
to talk to them and convince them of the GOK's commitment to
decreasing piracy and protecting patents, trademarks and
copyrights. Oo also said that IPR was an important
component of Singapore's FTA. But, he noted, Singapore
agreed to make IPR concessions to the U.S. because the
government wanted Singapore to develop a knowledge-based
economy, which required implementing strong IP safeguards.


13. (U) Indeed, all of the speakers stressed that an FTA
should fit into Kuwait's own plans for economic reform. As
Jeff Donald from the Business Council for International
Understanding pointed out, an FTA is a vehicle for economic
liberalization, not a destination. What is most important,
he added, is Kuwait's vision for what it would like to
accomplish; the FTA is a tool to bring that vision to
fruition.

Strong Teams Needed to Negotiate an FTA
--------------


14. (U) The three negotiators were unanimous in recognizing
the need for strong TIFA/FTA teams. Al-Halaiqua said that
Kuwait must have competent leaders on its negotiating team
(notably lawyers, since the issues are very technical),but
also in the embassy in Washington. Oo agreed, adding that
the Washington embassy team was not only an essential link
between the U.S. negotiators and negotiators at home, but
also would play a key role in lobbying U.S. industry to
support an FTA. Al-Moasher advised the Kuwaitis that working
only with the administration in Washington would be
insufficient for attaining an FTA; a country seeking an FTA
must also lobby members of Congress and industry.


15. (U) Al-Moasher strongly recommended that Kuwait establish
a robust connection between its embassy in Washington and
institutions in Kuwait. If all correspondence must go by
letter through the Ministry of Foreign Affairs, he warned,
the negotiations will go nowhere. Instead, he suggested,
Kuwait needs teams in both Kuwait and Washington who can move
quickly.


16. (U) Once Kuwait enters FTA negotiations with the U.S., Oo
said, it must be "absolutely prepared and have done its
homework." Specifically, the Kuwaiti political
establishment, government agencies and officials --
especially the negotiators -- must be aware of their own laws
and interests before the onset of negotiations. Both Oo and
Al-Halaiqa said that the government must develop a
partnership with the private sector and learn what industry's
interests are, so that sensitive areas can be protected.

FTAs Are Hard Work...
--------------


17. (U) Al-Halaiqua spoke of his "memories of hard work and
long hours" in negotiating the FTA, and stressed that both
sides would be required to expend a good deal of energy to
get the deal done. Oo agreed, and supported Ambassador
LeBaron's point that FTAs are not easy: Singapore's
negotiations with the U.S. lasted 11 rounds over four years,
he said, and required hours of work not just from the
negotiating team, but from other government agencies back
home. Oo added that the Singaporeans learned that negative
list FTA negotiations are particularly difficult, because
they require extensive consultation within the government and
with businesses to define what should and should not be
excluded. Oo said that Kuwait will learn much from the
intense negotiations process, not only about the U.S.'s
political and economic system, but about Kuwait's own
sensitivities.


18. (U) Each negotiator commented on the challenges presented
by U.S. domestic politics, and BCIU's Donald stressed that
the Kuwaitis must convince Congress that an FTA with Kuwait
is in the U.S. interest. According to Al-Moasher, the
Jordanians also had to work hard to persuade various U.S.
lobby groups to support the FTA, notably U.S. growers'
associations, labor and environment organizations. Oo
commented the Singaporeans were not prepared for U.S.
businesses' intense interest in FTAs, and industry's strong
relationship with USTR.


19. (U) Al-Halaiqua stressed that Kuwait needs a political
commitment in support of the FTA, saying that "there is no
way around that." But once that commitment is in place, he
added, Kuwait must do the hard work necessary, such as
amending laws and passing new legislation.

...But They Are Worthwhile
--------------


20. (U) Singapore's Oo repeated several times that although
the journey toward an FTA would be long, intense and full of
hard work, it would be worthwhile. According to him, trade
and investment in Singapore have both increased since it
signed an FTA with the U.S., and Singapore now has access to
the largest market in the world. He also noted that
Singapore pursued an FTA with the U.S. because it saw
political and strategic advantages to such an association
with the U.S., as well as economic ones.


21. (U) Both Al-Moasher and Al-Halaiqua echoed the
Ambassador's observations about the positive impact Jordan's
FTA has had on Jordanian exports to the U.S. (up 1400%) and
job creation (35,000 new positions). Al-Halaiqua said there
have also been some surprises. Jordan's information
technology sector has also taken off, with most major U.S. IT
companies now operating in Jordan and Jordan becoming a
software exporter. Additionally, Al-Halaiqua reported,
Jordan has now become a key exporter of stone and marble to
the U.S.; before the FTA, Jordan had never thought these
products would be important to their export market.


22. (U) The Jordanians disputed the notion that an FTA would
exacerbate the economic power imbalance between the U.S. (a
developed country) and Kuwait (a developing country).
Al-Halaiqua noted that the same question had been raised in
Jordan, but said that after the FTA, the U.S. has become the
only country with whom Jordan has a trade surplus. A country
should know where its competitive edge lies, he noted, since
comparative advantage is more important than size.
Al-Moasher agreed, adding that developing countries tend to
do better under FTAs than their developed partners.


23. (U) Even more important, Al-Moasher said, the FTA has
upgraded Jordan's investment climate and made it attractive
to investors from third countries. As a result, the current
investment rate in Jordan is unprecedented. He added that
the U.S. FTA was a strong vote of confidence in the stability
of Jordan's economy, and he urged the Kuwaitis to consider
the benefits of the U.S. bringing investment, technology and
management experience to Kuwait, all of which would occur
under an FTA.


24. (U) In the view of Fawzi Sultan, a consultant to Kuwait's
negotiating teams for the TIFA and the Singapore FTA, the
reforms mandated by an FTA are just what is needed to move
Kuwait ahead. Sultan's presentation demonstrated that the
Middle East and North Africa (MENA) is bucking global trends
toward greater trade integration and better governance.
While Kuwait is better governed than its regional partners,
Sultan showed that it is well below the good governance norm
for countries in the same income group, and has been
worsening over time.


25. (U) Sultan suggested that there are four keys to pulling
Kuwait out of its current state: 1) moving from a
public-sector led economy to one that is fueled by the
private sector; 2) switching from an oil-dominated economy to
a diversified one; 3) transitioning from public sector to
private sector employment (Note. 93% of Kuwaiti workers are
employed by the state. End Note.); and 4) shifting from
protected businesses to competitive ones. According to
Sultan, the goals of an FTA converge with the Prime Minister
vision of Kuwait as a trade, logistics and financial hub.
"We are late," Sultan concluded. "Why wait?"

Session II: The U.S.-Kuwait TIFA and the Utility of an FTA
-------------- --------------


26. (U) The seminar's second session focused more closely on
Kuwait, with presentations from the working chair of Kuwait's
TIFA committee, Ministry of Commerce Assistant Undersecretary
for Foreign Trade Affairs Hamad Al-Ghanim; Saad Al-Barrak,
Vice Chairman and Managing Director of MTC, a mobile
telephone company; Ministry of Communications Undersecretary
Hamed Khajah; and Johnnie Johnson, Secretary of the American
Business Council (ABC) in Kuwait. (Note. USPTO's Director
of Enforcement was scheduled to talk about IPR, but his
flight to Kuwait was cancelled at the last minute. End Note.)

Update on the U.S.-Kuwait TIFA
--------------


27. (U) The working chair of Kuwait's TIFA committee, Hamad
Al-Ghanim, opened the session by reviewing the status of the
U.S.-Kuwait TIFA. According to him, most of the members of
Kuwait's TIFA committee "have doubts" about going into
negotiations. Nevertheless, he said, they have worked hard
to establish a good council of experts who can advise them on
how to move ahead. He said that Kuwait is a member of the
WTO and most of its associated agreements, and has no
problems with signing any other related agreements.
Al-Ghanim complained that there had been only one TIFA
Council meeting with the U.S., but said that the GOK hoped to
have a second one in Kuwait by year's end.


28. (U) Al-Ghanim then turned to what he saw as the most
important issues in the U.S.-Kuwait TIFA talks. First, he
said, was government procurement. (Note. Although
government procurement is one of many issues that USTR has
raised with the GOK, it has not been identified as one of the
key issues at this stage. End Note.) Al-Ghanim said that a
draft government procurement law was currently with the
National Assembly, and he hoped it would be forwarded to the
Council of Ministers for approval soon. Second, Al-Ghanim
said that a new labor law was in the final stages and
hopefully would be finished shortly, thus eliminating another
area of concern. Third, Al-Ghanim identified
telecommunications as a key point of discussion. Finally,
Al-Ghanim said, the U.S. was pushing for elimination of
Kuwait's International Conformity Certification Program
(ICCP). According to Al-Ghanim, the Public Authority for
Industry (which controls the program) has been instructed to
change it by the end of the year; he did not say, however,
what changes would be made.


29. (U) Ministry of Communications Undersecretary Hamed
Khajah, also a member of Kuwait's TIFA team, acknowledged
that one of the challenges the TIFA committee faced was a
lack of knowledge about Kuwait's rights and obligations in
TIFA/FTA negotiations. He also said that the team does not
"know how to arrange ourselves," and regretted that the
governmental sectors involved do not have the proper
knowledge of what needs to be done.

Views from the Private Sector
--------------


30. (U) Finally, two representatives of the private sector
offered their views of a possible FTA. Saad Al-Barrak from
the mobile telephone company MTC, one of the more successful
Kuwaiti businesses, welcomed a trade agreement with the U.S.
and any competition that might arise, saying he was confident
that his company could compete if the right institutions and
regulatory infrastructure were in place. Johnnie Johnson
from the American Business Council (ABC) in Kuwait also threw
his organization's support behind the TIFA. He noted that
that many of the companies (foreign and Kuwaiti) who are
working in Iraq and should be operating out of Kuwait are
going to Jordan instead, because the business climate in
Jordan is better. To create an environment where business
can thrive, Johnson contended, the Kuwaitis must eliminate
the current ownership requirements that force foreign
businesses to have an agent or sponsor; change the corporate
tax regime (which levies taxes of up to 55% on foreign
companies' profits, while not taxing Kuwaiti companies at
all); and improve the legal structure to improve transparency
and eliminate bureaucratic red tape.


31. (U) Johnson stressed that the GOK must go beyond lip
service and do more than simply pass laws: it must enforce
the laws to make them effective. He cited as an example
Kuwait's foreign investment law which, although passed more
than three years ago, is almost incomprehensible and rarely
applied. Once an FTA is negotiated, Johnson strongly urged
the GOK to establish a reasonable timeframe for ratification,
to avoid having it languish for years. Finally, Johnson
advocated that the GOK be realistic about "Kuwaitization"
policies. While he agreed that greater employment of
Kuwaitis is necessary during a transition from public
sector-led employment to private sector employment, he noted
that there are only limited numbers of specialists in
technical areas. U.S. businesses would prefer to hire
locally, but should not have to hire Kuwaiti staff who can do
nothing but fill a quota.
LEBARON