KEY ISSUES FOR THE SEPTEMBER 5 VISIT OF KUWAITI

S E C R E T SECTION 01 OF 08 KUWAIT 003392 SIPDIS NOFORN SIPDIS STATE FOR NEA/ARP, NSC FOR RAMCHAND E.O. 12958: DECL: 08/21/2016 TAGS: PREL PGOV KU SCENESETTER SUBJECT: KEY ISSUES FOR THE SEPTEMBER 5 VISIT OF KUWAITI AMIR SHAYKH SABAH AL-AHMED AL-SABAH REF: A. KUWAIT 3314 -- TAX PROBLEMS FOR U.S. COMPANIES ¶B. KUWAIT 3309 -- KUWAIT AID TO LEBANON ¶C. KUWAIT 3295 -- FM ON IRAQ IRAN AND LEBANON ¶D. KUWAIT 3293 -- FM INFORMED OF ARB DETERMINATION ¶E. KUWAIT 3274 -- KUWAIT SUPPORT FOR UNHRC CANDIDATE ¶F. KUWAIT 3226 -- KUWAIT SUPPORT FOR GUATEMALA UNSC ¶G. KUWAIT 3099 -- PARLIAMENT BACKLASH OVER QANA ¶H. KUWAIT 3079 -- COURT RETURNS PENINSULA LIONS CASE ¶I. KUWAIT 2883 -- PRO-HIZBALLAH PROTESTS ¶J. KUWAIT 2776 -- IRAQI PM MALAKI VISIT TO KUWAIT ¶K. KUWAIT 2118 -- GOK INVESTIGATION OF RIHS ¶L. KUWAIT 1911 -- AL-SABAH ANNOYANCE AT U.S. MEDDLING ¶M. KUWAIT 1790 -- COUNTERING IRAN THREAT ¶N. KUWAIT 1687 -- TERRORIST FINANCING PRIORITIES ¶O. KUWAIT 1594 -- APPEAL OF PENINSULA LIONS VERDICT ¶P. KUWAIT 1529 -- REVOCATION OF PUBLIC GATHERINGS LAW ¶Q. KUWAIT 768 -- PRESS AND PUBLICATIONS LAW PASSED ¶R. 05 KUWAIT 2258 -- LEGAL FLAWS HAMPER JUSTICE Classified By: Ambassador Richard LeBaron for reasons 1.4 (b) and (d) ¶1. (S/NF) Status of Bilateral Relations: Amir Shaykh Sabah Al-Ahmed Al-Sabah's September visit is his first official U.S. trip since becoming Amir in January. As Prime Minister, he last visited the United States in July 2005. Kuwait, a major Non-NATO ally since 2004, has strongly supported coalition efforts to promote democracy and stability in Iraq and steadily increased its cooperation in the Global War on Terror. The Kuwaiti government (GOK) has also provided generous assistance to reconstruction efforts in Iraq, Lebanon, and Afghanistan, as well as pledging $500 million to victims of Hurricane Katrina. Kuwait's leadership welcomed recent U.S. initiatives, including a Gulf Security Dialogue (GSD),the Proliferation Security Initiative (PSI),and the Iraq Compact. The GOK has both privately and publicly supported the U.S. in international fora, recently affirming it would vote for the U.S. candidate for the UN Human Rights Committee and for Guatemala's candidacy for a seat on the UN Security Council (refs E and F). On the domestic front, Kuwait has made significant progress on reform since Shaykh Sabah became Amir in January. A 27-year old law restricting public gatherings was repealed, women participated in parliamentary elections for the first time in Kuwait's history, and a new press and publications law and a key electoral reform proposal were approved. Given its staunch support and progress on political reform, the Kuwaiti leadership sometimes feels taken for granted and its friendship undervalued by the U.S. Some senior Al-Sabah also resent what they view as U.S. meddling in Kuwait's domestic affairs and fear the U.S. ultimately supports political reforms that would push them aside (ref L). Kuwaiti officials are also frustrated that they have yet to obtain the release of the remaining six Kuwaiti nationals held at Guantanamo (ref D). ¶2. (S/NF) The Amir will want to discuss a wide range of issues with particular focus on Iraq, Iran, Lebanon, and the six remaining Kuwaiti detainees at Guantanamo. The Amir should be reassured of U.S. appreciation for Kuwait's unwavering support and advised that the strength of our bilateral relations permits frank exchanges on difficult topics such as progress on political reform, the fair treatment of expatriate labor, and the need for sustained CT efforts. He should further be advised that progress towards an FTA will lead to even stronger relations through economic and commercial ties. (Note: TIFA talks will be held in Washington on September 5. End note.) Background and key points on these issues are provided below. Iraq -------------- ¶3. (C/NF) Kuwait's leadership is increasingly concerned about ongoing violence and instability in Iraq, which the GOK fears could result in Iraq becoming a failed state or cause a flood of Shi'a refugees into Kuwait. Although there is little indication that sectarian violence in Iraq is negatively affecting Shi'a-Sunni relations in Kuwait, the GOK is also worried that prolonged conflict or civil war in Iraq could spill over into Kuwait. They also fear the emergence of a breakaway Shi'a entity on their northern border. The GOK wants to be assured that U.S. is committed to peace and stability in Iraq, and while it Kuwait wants U.S. forces remain in Iraq for the foreseeable future, the Amir has repeatedly urged the U.S. to pull back from urban areas and turn security over to Iraqi forces. ¶4. (C/NF) Kuwait has strongly supported coalition efforts to promote democracy and stability in Iraq and has also provided KUWAIT 00003392 002 OF 008 moral and financial support to the Iraqi Government (GOI). The GOK was one of the first countries to congratulate Iraqi PM Al-Maliki's formation of a new Cabinet and Kuwaiti officials described Al-Maliki's first visit to Kuwait in July as "very, very positive" (ref J). During the visit, the Amir promised his "full support" for Al-Maliki's reconciliation efforts and proposed that Kuwait and Iraq establish a joint committee chaired by their Foreign Ministers to meet periodically and discuss bilateral issues. The GOK and GOI have also agreed to the exchange of ambassadors. The Iraqi embassy, refurbished at GOK expense, formally opened at the end of July and is currently headed by Iraq's charge d'affaires in Kuwait. No Iraqi ambassador to Kuwait has been nominated. Kuwait has nominated Humanitarian Operations Chief and retired Chief of Staff Lt. General Ali Al-Mu'min as its ambassador to Iraq, although we do not expect that he will take up residence in Baghdad soon due to security concerns. ¶5. (C/NF) Since the Madrid Conference, Kuwait has committed $575 million in aid to Iraq in the form of $135 million in grants and $440 million in soft loans to be administered by the Kuwait Fund for Arab Economic Development (KFAED). Only $15 million of these funds has been dispersed so far, which Kuwaiti officials blame on the ongoing instability in Iraq and Iraqi delay in identifying viable development projects. Nevertheless, GOK officials are hopeful that construction on a $30 million school project will begin by year's end and the Kuwait Fund is currently considering a concessionary loan for power sector development in Iraq's north. Kuwait has welcomed the Iraq Compact, which it views as a sound plan for Iraqi reconstruction and a means to limit corruption and graft. Kuwait has also agreed to meet the Paris Club commitment of 80% debt reduction for the approximately $11 billion in pre-Gulf War debt that Iraq owes Kuwait, but will need legislative approval for the debt relief, a politically charged issue. Indeed, some parliamentarians recently announced their opposition to debt forgiveness or reduction unless outstanding compensation issues have been fully resolved. Action on this issue is not expected before Parliament returns from summer recess on October 30. Key Points: -- Brief the Amir on security outlook in Iraq and coalition efforts. -- Thank Kuwait for its support of the GOI and coalition efforts in Iraq. -- Urge continued discussions with the GOI on allocation of aid money and debt relief. -- Encourage an active role in the implementation of the Iraq Compact. Iran -------------- ¶6. (C/NF) Kuwaiti officials are also very concerned about Iran's influence in the region and its continued progress in developing a nuclear program. Kuwait has raised its concerns about Iran's nuclear activities with the Iranian government, most recently during the visit of Iranian Deputy Foreign Minister Mehdi Mostafavi in August (ref C),and encouraged Iran to respond to the P5 1 incentive package. The GOK maintains that Iranian nuclear activity is a threat to both the environment and regional stability, and supports continued Iranian-European dialogue to resolve this issue. In addition, the presence of a large Shi'a minority in Kuwait (estimated at 30-35% of Kuwaiti citizens) is still a concern for Kuwait's ruling Sunni majority, who fear Iran may hold some sway over this portion of the Kuwaiti population. Recent protests in Kuwait in support of Hizballah were seen by many here as evidence that Iran was seeking to flex its muscle in Kuwait. ¶7. (C/NF) Kuwait has also played a regional leadership role in encouraging Iran to cooperate with the international community and the IAEA, and to cease interfering in the internal affairs of its neighbors. Kuwait presented a strategic plan to the GCC at its May 6 consultative summit and proposed that an Oman-led GCC delegation travel to Tehran. There has also been a steady stream of Iranian officials to Kuwait to whom GOK leaders have delivered clear messages that they should cooperate with the IAEA and EU on the nuclear issue and pressure Moqtada Al-Sadr and the Jaysh Al-Mahdi to prevent the disintegration of Iraq. Despite GOK concerns about the Iranian threat to regional security, there are limits to how hard the GOK is willing to press its GCC partners and how far to go in discussions with the Iranian government whose meddling in Kuwait the GOK wants to limit KUWAIT 00003392 003 OF 008 and with which the GOK wants to conclude bilateral agreements on the continental shelf and on gas exploration. Like other GCC partners, the Kuwaitis fear yet another conflict in this region and the consequences to Kuwait that could be expected from an attack on Iranian nuclear facilities. The GOK is also wary of UNSC sanctions and fears they would further antagonize Iran's unpredictable leadership. The Kuwaitis also have genuine concerns about the environmental damage that could be caused by malfunctions at Iran's nuclear facility in Bushehr. Key Points: -- Share your concerns about Iran. -- Encourage Kuwaiti activism on the nuclear issue. -- Brief on next steps at the UNSC. Lebanon -------------- ¶8. (C/NF) The GOK strongly supports UNSCR 1701 and the deployment of a more robust UNIFIL force to maintain the ceasefire. Kuwait has pledged more than $800 million in aid to Lebanon: $500 million in the form of a direct grant deposited in the Lebanese Central Bank for Lebanese government (GOL) use and a $300 million cash grant, requiring parliamentary approval (ref B). In private meetings, senior Kuwaiti officials blamed Hizballah and its sponsors, Syria and Iran, for sparking the conflict with Israel. In a recent meeting with the Ambassador, Deputy Prime Minister and Foreign Minister Shaykh Dr. Mohammed stressed the need for continued international support for the GOL and called for neighboring countries to cease meddling in Lebanese affairs, but noted that Iraq and Iran presented greater threats to regional stability (ref C). In public, the GOK has adopted a more measured approach, balancing its criticism of Hizballah by sharply condemning Israel for Lebanese civilian deaths and the destruction of Lebanon's infrastructure. After the Qana bombing, Kuwait's Parliament lambasted the U.S. for supporting Israel and praised Hizballah resistance. Some MPs called for a boycott of U.S. goods and the expulsion of the U.S. Ambassador to Kuwait (ref G). A number of protests, in which several newly-elected MPs participated, were held in support of Hizballah, including two outside the U.S. Embassy (ref I). Protesters carried Hizballah flags and pictures of Nasrallah, and burned U.S. and Israeli flags, an unprecedented act in Kuwait. Key Points: -- Thank Kuwait for its generous assistance to Lebanon and urge continued support for UNSCR 1701 and the GOL. -- Emphasize need to counter Syrian and Iranian efforts to spin conflict into Hizballah "victory." -- Ask for assessment of Al-Asad's relations with other Arab leaders. Leadership Issues -------------- ¶9. (S/NF) Former Prime Minister Shaykh Sabah became Amir on January 29 through a constitutional process in which Parliament declared then Crown Prince Shaykh Saad Al-Abdullah Al-Salem Al-Sabah medically unfit to hold the position. In an uncharacteristically public dispute, several senior members of the ruling family tried to prevent Shaykh Sabah from becoming Amir, arguing that the position had historically alternated between the Jaber and Salem branches of the ruling family. They were ultimately unsuccessful, however, and after becoming Amir Shaykh Sabah appointed his half-brother Shaykh Nawaf Al-Ahmed Al-Jaber Al-Sabah as Crown Prince and his nephew Shaykh Nasser Mohammed Al-Ahmed Al-Jaber Al-Sabah as Prime Minister, consolidating the Jaber branch's hold on power and marginalizing the Salem branch. The succession issue is likely to surface again in the not-too-distant future. Shaykh Sabah (77) has a pacemaker and the Crown Prince (69) is relatively passive and plays almost no role in decision-making. There is also rumored to be tension between the next generation of Shaykhs as they vie to position themselves to fill the country's top leadership positions. ¶10. (S/NF) As Amir, Shaykh Sabah has had a mixed record. Under his leadership, Kuwait has passed several important reforms and played a more active role in the region. Shaykh Sabah has been criticized, however, for failing to outline a clear vision for Kuwait's future and for mismanaging relations with Parliament, which resulted in its May dissolution and a subsequent election victory for opposition KUWAIT 00003392 004 OF 008 parliamentarians. The past seven months have also seen some of the most strident criticism of the ruling family in Kuwait's history. During the elections, a number of candidates blamed the country's failings directly on the Al-Sabah leadership and several pro-reform activists took the unprecedented step of publicly accusing some senior Al-Sabah members of corruption by name, among them Shaykh Ahmed Al-Fahd, former Minister of Energy and current President of the National Security Bureau, a key advisor to the Amir who will accompany him to Washington. The Government has also waffled on a number of issues, such as electoral reform, changing its position several times before finally acceding to parliamentary and popular pressure. Going forward, the challenge for Shaykh Sabah will be outlining a clear vision for Kuwait, controlling internal ruling family rivalries, and harnessing Kuwait's new political activism to achieve his objectives. Democratic Reform -------------- ¶11. (C/NF) The Amir's visit comes at a particularly important moment in Kuwait's democratic development. Earlier this year, the Constitutional Court repealed a 27-year old law restricting public gatherings (ref P) and Parliament passed a new press and publications law with Government support (ref Q). In May, after the Government and Parliament reached an impasse over an important electoral reform proposal, Shaykh Sabah exercised his constitutional right to dissolve Parliament and call new elections, which were held on June 29. The election was notable for the participation of women both as voters and candidates for the first time in Kuwait's history; the influential role played by a new, grassroots reform movement led by U.S.-educated youth activists; and the emergence of corruption as the dominant campaign issue. Although none of the 27 female candidates was elected, women's participation shaped election issues and rhetoric and female voter turnout averaged 58 percent. Seen by many as a referendum on reform in Kuwait, the election resulted in significant gains for pro-reform, opposition parliamentarians who won a two-seat majority (34) in the 65-member Parliament. Overall Islamist representation also increased from 15 to 18 seats. (Note: The majority of Kuwaiti Islamists are very pragmatic and strongly support political reform. They also accept, if not openly support, the U.S.-Kuwait strategic relationship and a continued U.S. military presence in Kuwait. End note.) Shortly after the elections, the Amir acquiesced to two of the reformers' key demands: excluding former Minister of Energy Shaykh Ahmed Al-Fahd Al-Sabah and former State Minister for Cabinet/National Assembly Affairs Mohammed Sharar from the new Cabinet, and approving an important electoral reform proposal to reduce the number of electoral constituencies from twenty-five to five. Parliament is in recess until October 30. ¶12. (S/NF) Many Kuwaitis see electoral reform as the first step towards other important political reforms: official recognition of political parties, a Prime Minister selected by Parliament, and, ultimately, a true constitutional emirate. While few Kuwaitis actually advocate removing the Al-Sabah family from power, calls for broader political reform have made some members of the ruling family nervous. Shaykh Mohammed Al-Abdullah Al-Sabah, an influential younger Shaykh who is close to the Amir and will accompany him to Washington, recently told the Ambassador that senior Al-Sabah family members were irritated by what they saw as U.S. meddling in Kuwait's internal affairs and asked outright if the U.S. supported Kuwait's transition to a constitutional emirate (ref L). Kuwait's leadership may be more hesitant to adopt political reforms they believe will diminish their leadership role. Key Points: -- Congratulate Kuwait on the participation of women in the parliamentary elections. -- Praise the recent passage of electoral reform legislation. Military Cooperation: OIF and CENTCOM Presence -------------- - ¶13. (C/NF) Because the GOK and the Kuwaiti people view the success of our operations in Iraq as intertwined with their own fate, Kuwait has been an indispensable ally in U.S. and coalition efforts to promote peace, stability and democracy in Iraq. For Operation Iraqi Freedom (OIF),the GOK turned over more than two-thirds of its territory and all of its airspace to the coalition, diverted much of its commercial KUWAIT 00003392 005 OF 008 shipping from the Port of Shuaiba, allowed the use of a large percentage of the country's sole commercial airport and three airbases, and permitted the construction of new desert bases. It extended fuel pipelines to three facilities and continues to provide in excess of $100 million per month of fuel in assistance-in-kind. From December 2002 - December 2004, Kuwait provided nearly $2 billion in free fuel for U.S. and Coalition Force use in Operation Iraqi Freedom (OIF) and as Assistance in Kind (AIK) for Kuwait-specific activities under the Defense Cooperation Agreement (DCA). Through March 2004 this assistance was permitted by GOK wartime appropriations, but since April 1, 2004, the Kuwait Petroleum Corporation (KPC) has covered the fuel deliveries with a no-cost contract retroactively signed in December 2004. Subsequent to April 1, 2004, Kuwait has been providing below market price fuel for use in OIF. The GOK's support facilitates the U.S. military's mission in Iraq and Afghanistan, both of which are supported by U.S. forces and activities in Kuwait. Kuwait currently hosts approximately 31,000 U.S. military and civilian contractors at bases around the country. ¶14. (S/NF) Since the 1991 liberation of Kuwait, military cooperation and relations between the U.S. and Kuwait have been very strong, but there are signs of wear. For example, the Kuwaiti Chief of Staff refused the U.S. military's request to lengthen a ramp to accommodate C-17s at Ali Al-Salem airbase, the springboard for OIF flights, as well as to construct a Level 1 Trauma hospital at Ali Al-Salem, both at U.S. expense. The COS told U.S. military officials that he wants to discuss these request in the context of total U.S. basing requests during the upcoming Joint Military Commission, currently planned for 22-24 January 2007. Nonetheless, Kuwait features prominently in CENTCOM's future basing plan for an expanded military presence with an opening OSD position that the GOK bear all expenses. Officials in KMOD as well as other ministries who have heard of the plan have expressed concern that no final number of troops and the costs related to hosting them have been presented. Some officials in the GOK have privately expressed concerns about comments from Washington on Iran and possible plans to use Kuwaiti bases as part of operations against Iran. Key Points: -- Thank Kuwait for its continuing strong support for OIF and cooperation with CENTCOM. Support for GSD and PSI -------------- ¶15. (C/NF) Kuwait's senior leadership has welcomed the Gulf Security Dialogue with the U.S. to improve security cooperation. The GOK would appreciate substantive U.S. suggestions on how to proceed. Kuwait has also committed to endorsing the Proliferation Security Initiative (PSI) and has participated in the June meeting in Warsaw. State Counselor Zelikow, U/S Joseph, and A/S Hillen have all recently traveled to Kuwait to engage the Government on U.S. interest in strengthening defense and counter-proliferation cooperation and working together to counter the regional threats (ref M). The Kuwaitis may also propose a "strategic dialogue," loosely modeled on the U.S.-Saudi dialogue begun last year. Counterterrorism -------------- ¶16. (S/NF) The January 2005 discovery of an indigenous terrorist cell was a wake-up call for GOK leaders on domestic threats to both Kuwaiti and U.S. interests. As a result, the GOK strengthened CT cooperation with the U.S., although coordination is not consistent. Several members of the Peninsula Lions cell were sentenced to death, life in prison, or hard labor and the Constitutional Court recently upheld the constitutionality of the verdicts (refs O and H). Despite the harsh sentences for Peninsula Lions members, punishment for those who commit, assist, or finance terror activities is uneven, a result many lawyers say is due to inadequate laws (ref R). In other efforts to combat terrorism, the GOK has arrested extremist foreign preachers and the Ministry of Awqaf and Religious Affairs has launched a moderation campaign and conferences on religious tolerance in Kuwait, London, and Washington, and sent religious leaders on International Visitor Leadership Programs. Post provides training to the GOK through a variety of programs -- ATA, DIA training, and support to Kuwait's J2. ¶17. (C/NF) Kuwait's 2002 law criminalizing money-laundering falls short of criminalizing terrorist financing. Legal KUWAIT 00003392 006 OF 008 reform efforts, spearheaded by the Central Bank Governor, are underway to revise the 2002 law to ensure compliance with international TF/AML regulations and standards and a draft law is under review. Charity oversight remains an important issue of concern, evidenced by Treasury Under Secretary Stuart Levey's April 29 visit and discussions centering on branches of the Kuwaiti-based organization Revival of the Islamic Heritage Society (RIHS) and their alleged ties to Islamic extremists in certain countries. The GOK is looking into allegations against RIHS and Kuwaiti nationals suspected of financing terrorism (ref K). The Ministry of Social Affairs and Labor (charity oversight lead) has taken tangible steps to strengthen charity oversight through more streamlined and transparent donation procedures. More remains to be done by the GOK to ensure effective oversight of charities' accounting procedures and their activities abroad. Post is continuing to explore technical assistance opportunities for the GOK in order to promote capacity building and strengthen Kuwait's CTF/AML regime. Key Points: -- Appreciate the attention to CT: discovery of cells, arrests and stiffer penalties, stricter enforcement of laws. -- Training is key to capacity-building. -- U.S. prepared to assist through all appropriate channels. -- Hope we can make more progress on terror finance issues. Guantanamo Detainees -------------- ¶18. (C/NF) Of the 12 Kuwaiti nationals detained at Guantanamo, six have been returned to Kuwait. One was convicted and is serving a prison sentence. The other five were recently acquitted and their cases will be appealed by the prosecutor. The GOK has responded to an OSD request for stronger assurances that the remaining detainees, if returned to Kuwait, will be detained, prosecuted, and subject to surveillance and a travel ban. The GOK was hopeful the detainees would be repatriated in advance of the Amir's visit, thus removing an irritant from the bilateral agenda. The GOK regularly questions why detainees have been returned to other countries but not to a close ally like Kuwait. The Kuwaiti government also receives regular criticism from Members of Parliament who question Kuwaiti support for U.S. policies when Kuwaiti nationals are detained. Hurricane Katrina Assistance -------------- ¶19. (C/NF) After Hurricane Katrina, the GOK demonstrated its friendship and its strong bond with the U.S. by becoming the largest donor in the world with a pledged gift of $500 million in assistance. Kuwait presented $25 million to the Bush-Clinton Katrina Fund and another $25 million to the American Red Cross through the Kuwaiti Red Crescent. Economic Issues -------------- ¶20. (S/NF) Kuwait's economy continues to benefit from the oil boom largely responsible for the country's estimated $56 billion GDP and its annual 8.5% growth rate. Kuwait publicly claims to possess 105 billion barrels of crude reserves, or about 8 percent of the world's total. However, in January 2006, an oil industry publication challenged these estimates, placing Kuwait's reserves at 24 billion barrels of proven and 24 billion barrels of non-proven reserves. The GOK publicly denied these lower reserve estimates. (Due to the impact on the world economy if reserves are much lower, Washington analysts will begin to perform an independent assessment in mid-September 2006 using technical data gathered from open source and sensitive reporting.) In order to expand oil production, the GOK wants to bring in international oil companies (IOCs) in order to develop its northern oilfields and increase production from 450,000 bpd to 900,000 bpd. Pending parliamentary approval, the Kuwait Petroleum Corporation (KPC) will award the development project to one of three oil company consortia. The GOK had hoped to pass the enabling law through the Parliament by the end of 2006, but progress on the initiative has already been delayed this year and resistance from an opposition-dominated Parliament may lead to further delays. This USD 8.5 billion undertaking, known as "Project Kuwait," has been in the works for over ten years and oil companies are growing increasingly impatient. ¶21. (C/NF) Economic Reform and TIFA: The United States and Kuwait signed a Trade and Investment Framework Agreement KUWAIT 00003392 007 OF 008 (TIFA) in 2004 as a preliminary step towards a Free Trade Agreement. TIFA talks continue to progress, albeit slowly, and a formal TIFA Council meeting is scheduled for September 5 on the margins of the Amir's visit. Economic reforms remain stagnant, due in large part to the country's economic boom and the lack of political incentive to enact timely reforms. Post continues to engage the GOK on IPR enforcement (recently upgraded to the Watch List on the 2006 Special 301 report),standards and import inspection, and labor protections. Of particular concern are the uncertainties faced by U.S. companies with respect to tax liability (ref A). The inconsistent application of Kuwait's tax law has resulted in American firms receiving tax bills for the profits of their local Kuwaiti agents; profits for which these firms would not be liable under internationally accepted norms. A new draft tax law that would reduce the rate from 55% to 15% is under consideration in the Parliament, but the GOK has not shown a willingness to address the basic problem of defining tax liability. An Open Skies Agreement is scheduled to be signed soon and United Airlines will begin operating direct flights to the U.S. on October 28, the first U.S. carrier to operate out of the Gulf since 9/11. ¶22. (C/NF) Refinery Project: Kuwait Petroleum Corporation's (KPC) international operations subsidiary is evaluating several options for refinery investment in North America. The GOK is eager to create "guaranteed markets" for the heavy crude which it expects to make up most of Kuwait's crude exports after 2010, and plans to invest in a joint venture to either build a new refinery or significantly expand an existing refinery. In either case, Kuwait will insist that most if not all of the oil processed be Kuwaiti crude. KPC has concluded preliminary economic analyses of several sites including Eastern Canada, Louisiana, Mississippi, Arizona, and Aruba. Shaykh Ahmed Al-Fahd, the former Minister of Energy and current President of the National Security Bureau, recently told the Ambassador that discussions on building the refinery in the U.S. had stalled, which he blamed on American companies' lack of response, and noted that that the most promising location was Eastern Canada. Promoting Study in the U.S. -------------- ¶23. (SBU) There has been a marked decline in the number of Kuwaitis studying in the U.S. since 9/11. To counter this decline, post formed a working group to coordinate activities to increase the number of Kuwaiti students in the U.S., and the Consular Section designated an officer for engage in local outreach. Student visa applicants are given priority for nonimmigrant visa application interview appointments. Two-way exchanges between the U.S. and Kuwait are extremely popular, and demand from Kuwaiti youth, students, and professionals currently exceed what we can provide. Any increase in exchange opportunities -- short International Visitor-style programs, summer programs for youth, or year-long academic exchanges -- would be well received and effective in increasing mutual understanding. Key Points: -- Encourage GOK to increase number of scholarships for study in the U.S. Trafficking in Persons -------------- ¶24. (C/NF) Kuwait was upgraded from a Tier 3 to Tier 2 Watch List ranking in the 2006 Trafficking in Persons report due to moderate improvements in protections for foreign laborers in Kuwait and enforcement of a ban on underage camel jockeys. Kuwaiti officials recognize, however, that problems of domestic labor exploitation and trafficking still exist and have promised to implement stronger preventative measures. The GOK is working to standardize employment contracts, guaranteeing health care, minimum wage, and vacation time to employees. The Ministry of Social Affairs and Labor is also working on a public awareness campaign and will host a regional conference on labor issues. The new Minister of Social Affairs and Labor recently told the Ambassador that passage of a new labor law, which unfortunately does not cover domestic workers, was one of his top priorities. Key Points: -- Acknowledge the recent steps positive steps taken to protect expatriate laborers. -- Emphasize the importance of legal protections for KUWAIT 00003392 008 OF 008 domestic workers. -- Kuwait should play regional leadership role. ********************************************* * For more reporting from Embassy Kuwait, visit: http://www.state.sgov.gov/p/nea/kuwait/?cable s Visit Kuwait's Classified Website: http://www.state.sgov.gov/p/nea/kuwait/ ********************************************* * LeBaron