2007 KUWAIT INVESTMENT CLIMATE REPORT SUBMISSION

UNCLAS SECTION 01 OF 08 KUWAIT 000107

SIPDIS

SIPDIS

STATE FOR EB/IFD/OIA, STATE PASS TO USTR

E.O. 12958: N/A
TAGS: PGOV OPIC EINV KTDB USTR KU
SUBJECT: 2007 KUWAIT INVESTMENT CLIMATE REPORT SUBMISSION

REF: 06 STATE 178303


1. Per reftel instructions, the following is Post's
submission for the 2007 Kuwait Investment Climate Report:

OPENNESS TO FOREIGN INVESTMENT
--------------

The Council of Ministers approved the implementing
regulations for its current Direct Foreign Capital Investment
Law -- Law No. 8/2001, passed by the National Assembly on
March 11, 2001 --, through Resolution No. 1006/1/2003 on
November 1, 2003. The legislation authorizes foreign-majority
ownership and 100 percent foreign ownership in certain
industries including: infrastructure projects (water, power,
waste water treatment or communications); investment and
exchange companies; insurance companies; information
technology and software development; hospitals and
pharmaceuticals; air, land and sea freight; tourism, hotels,
and entertainment; housing projects and urban development.
Projects involving oil discovery or oil and gas production
are not authorized for foreign investment and must be
approved by a separate law.

The Direct Foreign Capital Investment Law promotes foreign
investment in Kuwait; authorizes tax holidays of up to ten
years for new foreign investors; facilitates the entry of
expatriate labor; authorizes land grants and duty-free import
of equipment; provides guarantees against expropriation
without compensation; ensures the right to repatriate
profits; and protects the confidentiality of proprietary
information in investment applications, with penalties for
government officials who reveal such data to unauthorized
persons. New investors will be protected against any future
changes to the law. Full benefit of these incentives,
however, will be linked to the percentage of Kuwaiti labor
employed by the new venture. The investor is also obliged to
preserve the safety of the environment, uphold public order
and morals, and comply with instructions regarding security
and public health. While the Direct Foreign Capital
Investment Law is on the books, foreign companies still
report numerous delays in getting approval to operate in
Kuwait, and the law does not appear to have changed the
investment climate in any significant way.

Foreign firms still may not invest in the upstream petroleum
sector, although they are permitted to invest in
petrochemical joint ventures; Dow Chemical, a partner in
EQUATE, is the only foreign company involved in a
petrochemical joint venture. Implementing legislation
brought before Parliament in January 2004 would allow for
limited, controlled investment in the petroleum sector. This
law was submitted specifically to allow for investment in and
development of Kuwait,s northern oilfields, but may be used
to allow for other investment in the petroleum sector in the
future. The legislation, however, is still pending and has
not been brought to a vote in Parliament.

Kuwait's economy has been dominated by the state and the
nationalized oil industry since the early 1970s despite
efforts by the government to diversify. The government
acquired major holdings in private Kuwaiti firms --
particularly banks and insurance companies -- following stock
market crashes in 1979 and 1982. After liberation from Iraq
(early in 1991),the government passed a debt settlement law
and purchased outstanding debts emanating from the stock
market crashes and the Gulf War. Between 1995 and 1998, the
government successfully divested over 50 percent of its
equity holdings in private firms by selling off its full
holdings in 28 firms and portions of holdings in 17 other
firms, earning some US $3.2 billion. The program was
suspended in 1998 because of the weakness of the Kuwait Stock
Exchange, but resumed in May 2001 when the Kuwait Investment
Authority sold 113 million shares (about 24 percent) of the
Mobile Telecommunications Company (MTC). There were six
times as many prospective buyers as could be accommodated.
The sale fulfilled the government's intention to reduce its
equity in MTC from 49 percent to 25 percent.

Established after the 1982 stock market crash, the Kuwait
Stock Exchange (KSE) is the second largest bourse in the Arab
world after Saudi Arabia's NCFEI. The KSE lists 161 Kuwaiti
companies and 18 companies from other Arab States, including
one Iraqi company. It reopened in 1992 following the Gulf
War and has a market capitalization of USD 131.2 billion (KD
38.2 billion) as of December 2006, an increase of 7% from

2005. KSE boasts the region,s first trading floor for women
and is in consultations with a British firm on establishing a

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Capital Markets Authority to serve as an independent
regulatory body similar to the U.S. Securities and Exchange
Commission.

The National Assembly ratified the "Indirect Foreign
Investment Law" in August 2000, allowing foreigners to own
100 percent of all listed shareholding companies, except
banks. The banking sector was opened under the Direct
Foreign Investment Law and the Central Bank has already
granted licenses to three foreign banks; BNP Paribas and
HSBC, both of which began operations in 2005, and Citibank,
which began operations in 2006. However, while foreign banks
may now operate in Kuwait, they are restricted to opening
only one branch and are prohibited from competing in the
retail banking sector. Kuwait,s banking sector is regulated
by the country's effective Central Bank and is comprised of
Islamic, specialized, and commercial banks. With the
conversion of Kuwait Real Estate Bank (KREB) in 2006, there
are now three Islamic banks including Kuwait Finance House
(1977) and Bubyan Bank (2004). KREB,s conversion leaves one
remaining specialized bank, the Industrial Bank of Kuwait.
The seven commercial banks include National Bank of Kuwait
(1952),Commercial Bank of Kuwait (1960),Gulf Bank (1960),
Al-Ahli Bank of Kuwait (1967),The Bank of Kuwait and the
Middle East (1971),Burgan Bank (1976) and Branch Bank of
Bahrain and Kuwait (1977).

On July 9, 2001, the Kuwaiti government announced an
ambitious five-year privatization program, which closely
resembled past initiatives. The plan outlined a wide range
of activities, but with little detail. The first year called
for privatizing some gas station outlets and part or all of
Kuwait Airways, which has operated at a loss since 2000.
Year two would initiate privatization of post office,
telegraph, and telecommunication services. Years three and
four would complete the telecommunication privatization and
initiate the privatization of the Ports Authority and Public
Transport Company. The fifth and final year targeted the
power and water sectors, as well as Kuwait's Petrochemical
Industries Company (PIC). Kuwait,s National Assembly has
made clear that any privatization program will have to
insulate consumers from significant rate increases and
protect the jobs of Kuwaiti employees. Little of the 2001
five-year plan has been implemented. Kuwait Airways, which
is still a government entity, continues to operate at a
significant loss and now faces direct local competition from
the new, private Jazeera Airways. Another private airline,
Al-Wataniya, was licensed and formed in 2005, but has not yet
begun operations. Both mobile telephone companies in Kuwait
are private, with the Government holding significant minority
interest, and the Ministry of Communication still sets
tariffs, which are high. None of the other communication
services have yet been privatized, though privatizing
landlines has been discussed for several years. The ports
and transport sector have not been privatized either. The
energy and power sector has seen the most progress in
privatization. Forty of the 120 government-owned gas
stations have been privatized, with plans to privatize the
rest in two additional rounds. The outcome will be three
competing gas station companies, with gas still subsidized by
the government and set in a price range. The
government-owned lubrication oils plant was privatized in
2004 as were the coke smelter operations. Kuwait,s PIC is
now operating a joint private venture with Dow Chemicals
called Equate, and the operation has proven to be a
successful, profitable model of both privatization and
foreign investment. On the heals of Equate,s success, Dow
and the Petrochemical Industries Corporation (PIC) have
formed two more ventures which have already been tendered: a
second olefins plant and an aromatics facility which are both
under construction and due to come on-line in 2008.

Build, Operate and Transfer (BOT) projects are gaining
increasing acceptance in Kuwait, with BOT projects proposed
in the power, wastewater, real estate development and
transport sectors. After nearly four years of deliberation,
the Sulaibiya Waste Water Treatment BOT contract was signed
in May 2001. The winning consortium, which included U.S.
firms, projected revenues of US $390 million over 10 years.
The project, which was commissioned in 2004, now processes 50
million gallons of wastewater daily to be used for
irrigation. BOT projects came under intense scrutiny by the
State Audit Bureau in late 2006 for alleged violations,
however, and several contracts were canceled.

There have also been selected real estate BOT projects by
privately owned Kuwaiti companies. The first-class US $132
million Sharq Mall, owned by the National Real Estate

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Company, contains retail outlets, restaurants, theaters, and
entertainment concessions. More recently, the Fifth
Waterfront Development Project constructed Marina Mall. This
US $162 million BOT is owned by the United Realty Company and
features high-end retail, eating, and entertainment outlets.
A future BOT is planned for a central incinerator in the
Shuaiba Industrial Area, a project that stipulates foreign
participation with at least 25 percent equity.

Foreign-owned firms and the foreign-owned portions of joint
ventures are the only businesses subject to corporate income
tax, which applies to both domestic and offshore income.
Corporate tax rates can be as high as 55 percent of net
profits, but the government has drafted legislation to reduce
the maximum rate to 15 percent. New foreign investors can be
exempted from all taxes for up to 10 years under the new
Direct Foreign Capital Investment Law.

Kuwaiti firms are not subject to the corporate income tax,
but those registered on the Kuwait Stock Exchange
(shareholding companies) are required to contribute 2.5
percent of their national earnings to the Kuwait Foundation
for the Advancement of Science (KFAS). The National
Employment Law levies an additional 2.5 percent tax that will
fund a program granting Kuwaitis working in the private
sector the same social and family allowances provided to
Kuwait's government workers. Kuwait levies no personal
income tax.

Tax exclusions -- besides those offered under the new Direct
Foreign Capital Investment Law -- for business expenses are
limited, and Kuwait's tax code is often ambiguous. For
example, deductions are only three percent for agent
commissions and head office expenses (mainly for turnkey
supply and installation-type contracts). The most
significant tax ambiguity exists in terms of defining foreign
companies, taxable presence in Kuwait, and several foreign
firms are engaged in ongoing disputes over their tax
liabilities.

The licensing authority of the Ministry of Commerce and
Industry screens all proposals for direct foreign investment.
In the past, this authority has encouraged high-tech
industries over sectors viewed to be saturated, such as the
hotel industry. The Foreign Capital Investment Committee
(FIC),chaired by the Minister of Commerce and Industry and
including representatives from the private and public
sectors, will authorize investment incentives put forth under
the new Foreign Investment Law on a case-by-case basis.
Foreign companies have reported numerous delays in gaining
authorization, some waiting up to 18 months for approval.

CONVERSION AND TRANSFER POLICIES

After 27 years of linking the Kuwaiti dinar (KD) exchange
rate to a basket of currencies, Kuwait decided to peg the
dinar to the US dollar under a flexible peg from the
beginning of 2003. The move is in preparation for the
adoption of a single GCC currency in 2010. The Central Bank
of Kuwait (CBK) will retain a band of plus or minus 3.5
percent in order to ensure a smooth evolution of the historic
behavior of the KD that has traded within the specified band
since 1991. Since 1997, the KD has fluctuated within a 3
percent band against the dollar*. There are no restrictions
on current or capital account transactions in Kuwait beyond
the requirement that all foreign exchange purchases be made
through a bank or licensed foreign exchange dealer. Equity,
loan capital, interest, dividends, profits, royalties, fees
and personal savings can all be transferred in or out of
Kuwait without hindrance. Under the current Foreign
Investment Law, investors are also permitted to transfer all
or part of their investment to another foreign or domestic
investor.

*Source: National Bank of Kuwait Economic & Financial Review,
June 2003.

EXPROPRIATION AND COMPENSATION

There have been no recent cases of expropriation or
nationalization involving foreign investments in Kuwait.
Nevertheless, as a safeguard, the Direct Foreign Capital
Investment Law guarantees against expropriation or
nationalization except for the public benefit in accordance
with existing laws; in this case, compensation will be
provided without delay for the "real economic value of the
project at the time of expropriation." When foreign
companies were nationalized in the past, as with Kuwait's oil

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industry in the 1970s, foreign interests were compensated
promptly and effectively.

DISPUTE SETTLEMENT

The Foreign Investment Law stipulates that Kuwaiti courts
alone are responsible for adjudicating any disputes involving
a foreign investor and other parties, although arbitration is
permitted. Few contracts in Kuwait contain clauses specifying
recourse to traditional commercial and political arbitration.
According to the Central Bank of Kuwait, the Kuwaiti
judicial system recognizes and enforces foreign judgments
only when reciprocal arrangements are in place. Kuwait is a
signatory to the International Center for the Settlement of
Investment Disputes (ICSID, i.e. the Washington Convention).
There have been no investment disputes involving American
firms in Kuwait in over five years; commercial disputes are
more common. In both cases, the slow pace of Kuwait,s legal
system often frustrates American claimants.

Kuwait has a developed legal system and a strong trading
history. It has a civil code system influenced by Islamic
law. As a traditional trading nation, Kuwait,s judiciary is
familiar with international commercial laws. Kuwait has been
a GATT member since 1963 and has signed the WTO agreement.
Kuwait, however, is not a signatory to the WTO Government
Procurement Code.

A feature of Kuwaiti law which U.S. business should be aware
of is the application of travel bans which may be applied
against individuals who have civil or criminal cases
registered against them. The ban prevents individuals from
departing Kuwait until the pending matter is settled or
acceptable guarantees are offered. Former Kuwaiti business
partners involved in disputes with U.S. businesses have
managed to have travel bans imposed on U.S. partners for
allegedly violating Kuwaiti civil law. Though very
infrequent, such cases highlight the need to take extra care
before entering into long-term business relationships in
Kuwait.

PERFORMANCE REQUIREMENTS/INCENTIVES

Government Procurement Requirements

Law No. 37 of 1964 (Articles 43 and 44) specifies the use of
local products when available and prescribes a 15 percent
price advantage for local firms in government tenders.

Boycotts

In June 1993, Kuwait publicly announced its decision to end
enforcement of the secondary and tertiary Arab League
boycotts of Israel. Although there are occasional reports
that some tender requests contain boycott clauses reportable
under U.S. anti-boycott laws, these usually result from
clerical errors or the use of outdated forms. Kuwait
maintains an open boycott office in its Customs Department,
and has stated that it will wait for Arab League action
before eliminating the primary boycott of Israeli-owned
companies and goods produced in Israel.

Shipping Requirements

The Kuwaiti government has insisted that cargoes for
government projects originating in U.S. ports will no longer
be prevented access in favor of the United Arab Shipping
Program.

Participation in Research and Development

There are no specific restrictions on foreign participation
in government-financed or subsidized research and
development, but little activity of this kind has occurred to
date. The Kuwait Institute for Scientific Research (KISR)
has expressed interest in working with foreign firms. The
government would welcome programs that provide expertise
unavailable locally, but these are likely to be evaluated on
a case-by-case basis.

Visa and Work Permit Requirements

Kuwait has a stringent visa regime and most work permits
require a local sponsor. The Foreign Investment Law,
however, may redress this problem for new investors.
Reciprocal changes between the U.S. and Kuwait--particularly
the introduction of a 10-year multiple entry visa--have
benefited U.S. business travelers. Visa requirements for

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citizens of 34 nations, including the United States, were
relaxed in 2004 allowing for application for a visa upon
arrival at the airport. However, investors should be aware
that as of August 2006, persons entering on tourist visas
will no longer be able to convert to work permits without
first leaving the country. Foreign-born U.S. citizens,
especially those of Middle Eastern descent, sometimes
experience difficulties with visa and residency applications.
Any problems experienced by potential U.S. visitors should
be referred to the American Embassy or to the Bureau of
Consular Affairs, Department of State.

RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT

Rights to private ownership and establishment are respected
in Kuwait, although foreigners face selected restrictions.
Licenses from the Ministry of Commerce and Industry are
required for the establishment of all new companies, and
government authorization is required for any incentives
offered by the new Foreign Investment Law. As stated above,
foreign ownership is restricted or prohibited in some sectors
of the economy, and non-GCC citizens may not own land in
Kuwait.

Kuwaiti law severely restricts the types of collateral to
which creditors may have recourse in the event of default by
a borrower. Banks may not foreclose on residential real
estate property or personal possessions in the event of
default, although they may sue the borrower for the balance
due under the loan contract. Borrowers typically pledge a
portion of their future severance benefits as collateral for
a bank loan.

TRANSPARENCY OF THE REGULATORY SYSTEM

Kuwait has not developed effective antitrust laws to foster
competition, and its bureaucracy often resembles that of a
developing country. Kuwait's open economy has generally
promoted a competitive market. When government intervention
occurs, however, it is usually to the benefit of Kuwaiti
citizens and Kuwaiti-owned firms.

EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT

Kuwait has a free, but inefficient, capital market where
credit is allocated on market terms. Foreign investors can
obtain credit through local banks. With the help of
government subsidies, the financial markets -- and
particularly the commercial banks -- operated throughout the
1980s primarily to collect funds for the re-lending to
favored customers. Payment discipline was lax and real
economic losses common. Under a bank stabilization program
introduced in 1992, the Central Bank of Kuwait purchased all
of the outstanding domestic credits of Kuwait's commercial
banks while eliminating all guarantees for profits, equity,
and liabilities other than the banks' deposit liabilities.
Henceforth, all losses would stay with the banks, which would
be responsible for the management of all their assets and
liabilities. In addition, the Central Bank improved bank
supervision, resulting in a fairer and more efficient
distribution of credit throughout the Kuwaiti banking system.
Each of Kuwait's six commercial banks reported continued
earnings growth in 2005.

BANK ASSETS
Kuwait,s banks have not yet released their 2006 annual
reports. The assets of Kuwait's commercial banks on December
31, 2005 were: (in '000s)

National Bank of Kuwait
KD 6,200,000 (USD $21,205,841)

Gulf Bank
KD 2,608,000 (USD $8,962,199)

Commercial Bank of Kuwait
KD 2,343,000 (USD $8,051,546)

Al-Ahli Bank
KD 2,008,000 (USD $6,900,343)

Burgan Bank
KD 2,297,000 (USD $7,893,470)

Bank of Kuwait and the Middle East
KD 1,884,000 (USD $6,474,226)

(US $1 equals KD 0.291 as of Jan. 1st, 2006-CBK)

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The quality of local banks varies from blue chip, world-class
to weak. Some bank assets have been non-performing in the
past. The balance sheets of some local banks are heavily
weighted toward lower-yielding government bonds. Legal,
regulatory, and accounting systems are opaque but are
generally consistent with international norms. The Central
Bank of Kuwait requires annual reports from local banks to
meet international accounting standards. U.S. businesspeople
are advised to seek local legal and financial advice for
complicated investments and transactions.

There are few defensive measures to protect against hostile
takeovers, which are rare in Kuwait. There is no evidence of
private sector or government efforts to restrict foreign
participation in industry standards-setting consortia or
organizations. U.S. suppliers often have trouble, however,
complying with specifications that are
technologically-tailored to other (usually European,
especially U.K.) suppliers. In addition, American suppliers'
preference for turnkey projects often does not mesh with
Kuwait's preference to split projects into a series of
separately-tendered smaller projects.

Finally, U.S. investors should be aware that family, clan,
and tribal ties throughout the business community and
government can restrict foreign participation, investment,
and control of domestic enterprises. Kuwait is a very big
small town.

POLITICAL VIOLENCE

Politically Motivated Damage to Projects and/or Installations

With the potential for terrorist actions throughout the
Persian Gulf region still high, the Government of Kuwait
continues to strengthen domestic counterterrorism measures.
There have not been any incidences of terrorism in Kuwait
since January 2004, and the government has aggressively
pursued convictions against members of a local terrorist cell
involved in confrontations with Kuwait security forces in
January 2005. Kuwait also significantly increased security
around key oil installations after Al-Qaeda threatened to
attack Gulf oil facilities.

CORRUPTION

The often-lengthy procurement process in Kuwait occasionally
results in accusations of attempted bribery or the offering
of other inducements by foreign bidders. This is a crime in
Kuwait and there are currently several investigations and
trials underway involving current or former government
officials accused of malfeasance. There have been no
convictions for bribery, however, since the end of the Gulf
War. In 1996, the government passed Law No. 25, which
requires all companies securing contracts with the government
valued at KD 100,000 (US $336,000) or more to report all
payments made to Kuwaiti agents or advisors while securing
the contract. The law similarly requires entities and
individuals in Kuwait to report any payments they received as
compensation for securing government contracts.

BILATERAL INVESTMENT AGREEMENTS

Kuwait has signed investment agreements with Germany, France,
Italy, Russia, China, Romania, Poland, Hungary, Turkey,
Malaysia, Pakistan, Switzerland, Malta, Finland, Ethiopia,
Croatia, Tajikistan, Austria, Bulgaria, Kazakhstan, Morocco,
Mongolia and the Czech Republic. In the past few years,
Kuwait has signed a bilateral investment agreement with
Pakistan and a free trade agreement (FTA) with Jordan.
Kuwait has initialed agreements on bilateral investment with
Denmark, Belgium, the Netherlands, Thailand, Ukraine, Latvia,
Lithuania, Lebanon, Bosnia/Herzegovina, and India. Kuwait
began talks with Singapore on a Free Trade Agreement in
December 2004.

Trade and Investment Framework Agreement

Kuwait signed a trade and Investment Framework Agreement
(TIFA) with the United States in February 2004. The TIFA is
the first step in developing economic reform and trade
liberalization criteria to strengthen the U.S. ) Kuwait
economic relationship and to work toward an eventual Free
Trade Agreement. At the first bilateral TIFA Council
meeting, held in May 2004 in Washington, D.C., it was agreed
that the TIFA process would provide for periodic technical
discussions. Several areas in particular stood out as

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needing further attention: intellectual property rights
(IPR),standards-related issues, taxation, and service and
investment requirements. Technical experts on both sides
continue to work on these areas. Technical discussions took
place in February 2006, followed by a formal TIFA Council
meeting in September 2006 in Washington, D.C. While Kuwait
has made notable progress on IPR protections (including an
upgrade to the Watchlist on the 2005 Special 301 Report),
Kuwait,s taxation practices and standards regime continue to
be significant problems.

OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS

In 1989, Kuwait concluded an agreement with the U.S. on
investment guaranty programs, which facilitated the extension
of programs from the Overseas Private Investment Corporation
(OPIC) to Kuwait. Kuwait is also a member of the
Multilateral Investment Guarantee Agency (MIGA). Currently
there are no OPIC programs in Kuwait.

LABOR

Kuwait has a diverse labor force. Kuwaiti nationals occupy
most of the top management positions in the private and
government sectors. Due to a welfare system that includes
guarantees for government jobs, unemployment among Kuwaitis
is less than two percent, but it is rising as a result of a
growing influx of young Kuwaitis into the labor force (20,000
to 25,000 annually). The new entrants are reluctant to enter
the private sector and cannot be absorbed by the government,
where underemployment remains a serious problem. Kuwaitis
are outnumbered in the work force by expatriate laborers of
diverse backgrounds. While there are a number of American
and Western European workers in Kuwait, particularly in
high-skilled positions, the vast majority of expatriate
workers are low paid laborers from other Middle Eastern
countries, South Asia, and the Philippines. Prior to the
Gulf War (1991),Palestinians occupied many of the country's
middle-management positions. Since the war, workers of other
nationalities, often Egyptians or South Asians, have filled
most of these positions. Since liberation, the Government of
Kuwait has adopted inconsistent policies intended to limit
and discourage growth of the resident expatriate population.
The government has instituted a quota system on work permits
designed to protect workers by preventing Kuwaitis from
importing unnecessary workers and then leaving those workers
on the street. Unskilled foreign workers are restricted from
transferring from one sponsor to another within the private
sector for a minimum of two years, but college graduates may
transfer after one year. The government has also levied new
fees on expatriate workers and their families in order to
raise the cost of employing foreign workers. At the same
time, however, the government has reduced the minimum salary
required for expatriates (in some business categories) to be
eligible to bring their dependents to Kuwait, lowering it
from 400 KD a month to 250 KD a month.

Kuwaiti workers have the right to organize and bargain
collectively, but Kuwaiti law prevents the establishment of
more than one union per functional area or more than one
general confederation. Foreign workers, who constitute the
vast majority of the work force, are permitted by law to join
unions only as non-voting members after five years of work in
the particular sector the union represents.. The right to
strike is also recognized for private sector workers,
although provisions calling for compulsory negotiation and
arbitration in the case of disputes limit that right.
Kuwaiti labor law prohibits anti-union discrimination.

Separate Kuwaiti labor laws set work conditions in the public
and private sectors, with the oil industry treated
separately. Forced labor is prohibited and the minimum age
for employment is 18 years in industrial or dangerous jobs..
Youths as young as 14, however, may work part-time in some
non-industrial positions, and are allocated more breaks than
adults. A two-tiered labor market ensures high wages for
Kuwaiti employees while foreign workers, particularly
unskilled laborers, receive substantially lower wages. In
the private sector, the minimum wage is 40 KD per month;; in
the public sector, the current effective minimum wage is KD
226 (US $741) per month for Kuwaiti bachelors and KD 301 (US
$987) per month for married Kuwaitis--compared to KD 90 (US
$295) for non-Kuwaitis. The basic labor law also limits the
workweek to 48 hours, provides for a minimum of 14 days of
leave per year, which increases to 21 days after five years
in the same job, and establishes a compensation schedule for
industrial accidents. However, the law is inconsistently
enforced and disputes over the payment of salaries and

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contract-switching are common, especially among unskilled
workers. Current labor laws do not apply to domestic
servants. The State Department's annual Human Rights Report
and Trafficking in Persons Report highlight the vulnerability
of domestic servants to exploitation. In 2006, the Ministry
of Interior implemented a new mandatory contract for all
domestic workers that specifies daily, weekly, and annual
rest periods, although it does not specifically limit working
hours. New regulations also outlaw the passing
administrative fees to workers. These new rules became
effective October 1, 2006, so effective enforcement is still
an open question.

The International Labor Organization's (ILO) Committee of
Experts has reiterated its long-standing criticisms of the
discrepancies between the Kuwaiti Labor Code and ILO
Conventions 1, 30, and 87 regarding hours of work and freedom
of association. Areas criticized by the ILO include the
prohibition to establish more than one trade union for a
given field; the requirement that a new union have at least
100 workers; the regulation that workers must reside in
Kuwait for five years before joining a trade union; the
denial of the right to vote and to be elected for foreign
trade unionists; the prohibition against trade unions
engaging in any political or religious activity; and the
reversion of trade union assets to the Ministry of Social
Affairs and Labor in the event of dissolution. A new labor
law, which would award private sector workers more benefits,
establish a minimum wage, and broaden rights to establish
unions has been endorsed by the Council of Ministers but has
not yet been referred to the Parliament for approval.

FOREIGN TRADE ZONES AND FREE PORTS

In July 1995, the National Assembly passed Law No. 26
authorizing the Ministry of Commerce and Industry to
establish free trade zones in Kuwait. In May 1998, the
privately-owned National Real Estate Company signed a
contract with the Ministry to operate, manage, and market the
50 square-kilometer Kuwait Free Trade Zone (KFTZ) at Shuwaikh
port, which was inaugurated in November 1999. Many
restrictions faced by foreign firms, such as corporate taxes,
do not apply to offices or plants within the KFTZ. Some 90
percent of space within the KFTZ has been leased; the
majority of firms operating in the zone are Kuwaiti.

FOREIGN DIRECT INVESTMENT STATISTICS

Kuwaiti public investments abroad consist of portfolio
investments held by the Kuwait Investment Authority, direct
investments of other government entities, as well as those
held by private Kuwaitis. The amount of investments of the
KIA is a state secret, but is estimated at more than US $80
billion. Details about non-KIA investments -- such as the
Kuwait Petroleum Corporation's interests in oil production,
refining, and distribution -- are equally opaque. The
holdings of private Kuwaitis, in both direct and portfolio
investments, are believed to approximate US $100 billion.
Other major investors in Kuwait include the Japanese-owned
Arabian Oil Company, which holds the Kuwaiti offshore
concession in the Partitioned Neutral Zone (PNZ),and Dow
Chemical, which has a 45 percent stake in the US $2 billion
EQUATE project, a petrochemical joint venture with the
Petrochemical Industries Company (PIC) that began operation
in 1997. (Although the U.S.-owned Saudi Arabian Texaco is
headquartered on the Kuwait side of the PNZ, it operates
under a Saudi concession for Saudi Arabia's share of the
onshore oil resources in the PNZ.)

********************************************* *
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http://www.state.sgov.gov/p/nea/kuwait/?cable s
Visit Kuwait's Classified Website:
http://www.state.sgov.gov/p/nea/kuwait/
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LEBARON