KUWAIT 2009 NATIONAL TRADE ESTIMATE

UNCLAS KUWAIT 001128

SIPDIS

DEPT FOR NEA/ARP, EB/TPP/BTA
STATE PASS TO USTR BUNTIN AND BLUE

E.O. 12958: N/A
TAGS: ECON EFIN ETRD KU
SUBJECT: KUWAIT 2009 NATIONAL TRADE ESTIMATE

REF: SECSTATE 88685


1. (U) Post's update of the 2009 National Trade Estimate for Kuwait
is submitted below. It also has been transmitted to the United
States Trade Representative via email.


2. (U) KUWAIT NATIONAL TRADE ESTIMATE

TRADE SUMMARY

The U.S. goods trade deficit with Kuwait is $3 billion for the
period from January-July, 2008, an increase of $2 billion from
$0.958 billion for the same period in 2007. U.S. goods exports for
the same period in 2008 were $1.486 billion, up 11.73 percent from
the same period in the previous year. Corresponding U.S. imports
from Kuwait are $4.486 billion for the same period in 2008, up 96
percent. Kuwait is currently the 52nd largest export market for U.S.
goods.

U.S. foreign direct investment in Kuwait was $600 million in 2006
(latest data available).

The United States and Kuwait signed a Trade and Investment Framework
Agreement (TIFA) in February 2004, providing a forum to address U.S.
concerns and needed economic reforms.

IMPORT POLICIES

Tariffs

As a member of the Gulf Cooperation Council (GCC),Kuwait applies
the GCC common external tariff of 5 percent for most products, with
a limited number of GCC approved country specific exceptions.
Kuwait's exceptions include 417 food and agriculture items, which
remain duty free, as well as tobacco products, which are subject to
a 100 percent tariff.

Import Prohibitions and Licensing

Kuwait prohibits the importation of alcohol and pork products, and
requires a special import license for firearms. Used medical
equipment and automobiles over 5 years old cannot be imported. Also
prohibited are any books, periodicals, or movies that insult
religion and public morals, and all materials that promote political
ideology.

Kuwait continues to prohibit imports of live cattle from the State
of Alabama and beef from the State of Oklahoma. The U.S. government
has engaged local officials in an effort to encourage them to
recognize U.S. control measures and World Animal Health Organization
guidelines relative to Bovine Spongiform Encephalopathy.


Documentation Requirements

In Kuwait, the import clearing process has historically been
time-consuming, requiring large quantities of paperwork, and
numerous redundancies. However, the Customs Department is currently
undergoing a major privatization effort, contracting with a private
company to provide customs support services. The implementation of
a state-of-the-art computer system has made the import process less
complicated and more efficient. In October 2005, Customs began
implementation of the Micro-Clear system at the Kuwait airport and
completed implementation at all ports of entry in early 2006.


Customs Valuation

Kuwait began implementation of the WTO Customs Valuation Agreement
in September 2003.

Textiles and Apparel

Textiles and apparel products (dutiable at 5 percent) accounted for
approximately 6 percent of Kuwait's imports in 2006.


STANDARDS, TESTING, LABELING, AND CERTIFICATION

Standards

As part of the GCC Customs Union, the six Member States are working
toward unifying their standards and conformity assessment systems.
However, each member state currently continues to apply either its
own standard or a GCC standard, causing confusion among some U.S.
businesses. GCC Member States do not consistently send notification
of new measures to WTO Members or the WTO Committees on Sanitary and
Phytosanitary Measures (SPS) and Technical Barriers to Trade (TBT)
or allow WTO Members an opportunity to provide comments.

The GCC Standards Committee has recently approved two new standards

that will replace existing standards for the labeling and expiration
periods of food products. While the new standards appear to attempt
to incorporate international guidelines and address some
longstanding issues, particularly in relation to expiration periods,
some requirements that have previously complicated the import
process remain. Kuwait is in the process of adopting these new
standards as national standards.

In May and October 2007, respectively, Bahrain and Oman notified WTO
Members of recently proposed procedures meant to harmonize food
safety import requirements for all GCC member states. The United
States and other WTO Members provided comments outlining significant
concerns with the procedures, which, as currently drafted, create
unnecessary obstacles to trade and would substantially disrupt food
exports to GCC member states from its trading partners. The GCC
member states are reportedly developing a response to these
comments, and the United States has established a dialogue between
U.S. and GCC technical experts to discuss the procedures and
potential amendments to address the concerns raised.

Kuwait maintains restrictive standards that impede the marketing of
some products. Standards for medical, telecommunications, and
computer equipment tend to lag behind technological developments,
with the result that government tenders frequently specify the
purchase of obsolete, often more costly items.


Conformity Assessment

In March 2003, Kuwait implemented its International Conformity
Certification Program (ICCP),a pre-shipment certification program
requiring that covered products be tested and certified by a single
private company before being imported into Kuwait. The program
applied to imports of: (1) household appliances and electronics; (2)
new and used cars and other vehicles; (3) chemicals, including motor
oil and paint; (4) building materials, including cement, gypsum, and
bricks; and (5) paper and plastic items.

In July 2004, the Public Authority for Industry (PAI) - the
regulatory authority responsible for the ICCP - held a 1 year review
of the program. At that time, the PAI stated that over 30,000
individual products had been issued ICCP certificates, and that PAI
was considering expanding the types of products requiring
certification. Importers and representatives of foreign businesses
voiced serious concerns with the program. The United States and
other WTO Members raised concerns about the ICCP directly with
Kuwait and during meetings of the WTO TBT Committee.

In November 2004, the PAI indicated that it would introduce changes
to the ICCP and transition to a new Kuwait Conformity Assessment
Scheme (KUCAS). The KUCAS raises the same concerns as the ICCP
raised.

The GCC Standards Committee is currently developing a conformity
assessment scheme to be adopted ultimately by each of the six Member
States. The United States is working to establish a dialogue
between U.S. and GCC technical experts to discuss this proposed
scheme with the goal of helping to ensure that it is developed,
adopted, and applied in accordance with WTO rules.

GOVERNMENT PROCUREMENT

Kuwait's government procurement policies require the purchase of
local products, where available, and prescribe a 10 percent price
advantage for local firms in government tenders. In 2004, the
Council of Ministers agreed to increase this price advantage to 15
percent. However, the increase has not yet been implemented as it
requires amendment of the GCC countries' unified agreement, which
has not yet occurred.

Procurement by the Kuwaiti Government and its agencies is regulated
by Law No. 37 of 1964 (modified by Laws No. 13 and 31 of 1970 and
1977, respectively) concerning Public Tenders (the "Public Tenders
Law"),in which any procurement made by the Kuwait Government with a
value in excess of KD 5,000 (approximately $18,500) must be
conducted through the Central Tenders Committee (CTC).


In 2002, the Kuwaiti government transformed its offset program into
a mechanism for promoting foreign investment in Kuwait. In 2006,
Kuwait established the National Offset Company to manage, enforce,
and review all offset proposals. The company is designed to be a
one-stop shop for all matters related to offsets. In October 2007,
the National Offset Company launched the Offset Fund with variable
capital up to KD 1 billion ($3.7 billion).

Offset obligations apply to military contracts with a value equal to
or above KD3 million (about $11 million),civil government contracts
with a value equal to or above KD10 million (about $37 million),and
oil and gas contracts. Oil and gas exploration and production
contracts are excluded from the offset program. Offset obligations
amount to 35 percent of contract value with offset multipliers being
established to target investment into specified sectors of the
Kuwaiti economy. Foreign contractors are subject to an
unconditional financial guarantee equal to 6 percent of the contract
value.

Kuwait is not a signatory to the WTO Agreement on Government
Procurement.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION

Kuwait's current intellectual property legislation regarding
copyrights, data protection, geographical indications, trademarks,
patents, and customs is not fully consistent with its obligations
under the WTO TRIPS Agreement.

Although Kuwaiti officials, particularly Kuwait Customs, continue to
make progress on copyright enforcement and pursue cases through the
judicial process, the lack of deterrent criminal penalties in the
copyright law limits their effectiveness. Sales of pirated and
counterfeit goods remain high in Kuwait, and the use of unauthorized
computer software continues in private enterprises.

As part of the GCC Customs Union, the six Member States are working
toward unifying their IP regimes. In this respect, the GCC has
recently approved a common trademark law. All six Member States are
expected to adopt this law as national legislation in order to
implement it. The United States has outlined specific concerns with
the trademark law and has established a dialogue between U.S. and
GCC technical experts to ensure that the law complies with the
Member States' international obligations.


SERVICES BARRIERS

Banking

Foreign-owned banks are restricted to opening only one branch, can
only offer investment banking services, and are prohibited from
competing in the retail banking sector. Furthermore, foreign banks
are subject to a maximum credit concentration equivalent to less
than half the limit of the largest local bank and are expressly
prohibited from directing clients to borrow from external branches
of the bank or taking any other measures or arrangements to
facilitate such borrowing

In August 2004, BNP Paribas was the first foreign bank granted a
license to operate in Kuwait, followed by approvals in 2005 for HSBC
and Citibank; HSBC opened its branch in October 2005, and Citibank
in late 2006, Abu Dhabi National Bank in 2007, Qatar National Bank
in 2007, and Doha Bank in 2008. UAE's Al-Mashreq Bank, Al-Rajhi
Bank, and Bank of Muscat have obtained a license from CBK, but have
not opened their branches as of November 2008.


Agent and Distributor Rules

According to Kuwait's Commercial Agencies Law of 1964, only Kuwaiti
nationals and corporations may act as agents and distributors for
foreign companies and exporters.


Telecommunications

A U.S. trade association has expressed concern over actions by
Kuwaiti government officials to prevent the use of Voice over
Internet Protocol technology for the provision of telephone calls.
The government has reportedly been blocking a number of websites
offering Internet enabled voice services, denying consumers access
to affordable long-distance calling.


INVESTMENT BARRIERS

Kuwait currently maintains a variety of restrictions on foreign
direct investment and applies discriminatory taxation policies. In
May 2000, Kuwait's National Assembly approved legislation that
allows foreign nationals to own up to 100 percent of all companies
listed on Kuwait's stock exchange, except banks. In January 2004,
the National Assembly gave final approval to a bill permitting 100
percent foreign ownership of banks.

The foreign direct investment law that took effect in February 2003
authorizes majority foreign ownership in new investment projects and
100 percent foreign ownership in the following sectors:
infrastructure projects such as 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; and housing projects and urban
development. The law also authorizes tax holidays of up to 10 years
for new investors. Despite the new law, foreign companies still
report numerous delays in getting approval to operate in Kuwait and
the law left in place several important investment restrictions.
For example, foreign firms still may not invest in the upstream
petroleum sector, although they are permitted to invest in
petrochemical joint ventures. Legislation introduced in Parliament
in January 2004 would have allowed for limited, controlled
investment in the petroleum sector, but the draft legislation has
been shelved. The legislation specifically authorizes investment
in, and development of, Kuwait's northern oilfields, but, if
enacted, it may cover other investment in the petroleum sector in
the future.


OTHER BARRIERS

Corporate Tax Policies

In 2005, a number of corporations received income tax bills from
Kuwaiti tax authorities although the companies had no commercial
presence in Kuwait. Bills were typically sent to the companies'
Kuwaiti distributors and often included years of back taxes. Some
companies have challenged the tax in court, and others are working
with the U.S. and Kuwaiti governments to seek a legislative or
regulatory solution. Kuwaiti law and judicial decisions are
ambiguous in defining what does or does not constitute taxable
presence.

On December 26, 2007, the Kuwaiti National Assembly passed
legislation reducing the tax rate on foreign companies from 55
percent to 15 percent.


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For more reporting from Embassy Kuwait, visit:
http://www.state.sgov.gov/p/nea/kuwait/cables

Visit Kuwait's Classified Website:
http://www.state.sgov.gov/p/nea/kusait/
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JONES