KEY ISSUES FOR THE SEPTEMBER 5 VISIT OF KUWAITI

S E C R E T SECTION 01 OF 08 KUWAIT 003392

SIPDIS

NOFORN
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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

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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

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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

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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

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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

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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

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(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

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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