2008 KUWAIT INVESTMENT CLIMATE STATEMENT SUBMISSION

UNCLAS SECTION 01 OF 09 KUWAIT 000064

SIPDIS

SIPDIS

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

E.O. 12958: N/A
TAGS: PGOV EINV KTDB USTR OPIC KU
SUBJECT: 2008 KUWAIT INVESTMENT CLIMATE STATEMENT SUBMISSION

REF: 07 SECSTATE 158802


1. Per reftel instructions, the following is Post's submission for
the 2008 Kuwait Investment Climate Statement:


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 are protected against any future changes to
the law. Full benefit of these incentives, however, is 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 181 Kuwaiti companies and 15
companies from other Arab States, including one Iraqi company. It
reopened in 1992 following the Gulf War and has a market
capitalization of US$ 142.36 billion (KD 39 billion) as estimated by
December 2007, an increase of 2.1% from 2006. KSE boasts the
region's first trading floor for women and is in consultations with
a British firm to establish a 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

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already granted licenses to six foreign banks. Five of them have
already opened branches: BNP Paribas and HSBC, both of which began
operations in 2005; Citibank and the National Bank of Abu Dhabi,
which began operations in 2006; and Qatar National Bank, which began
operations in 2007. Doha Bank has not yet opened a branch in
Kuwait. 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, which became
Kuwait International Bank (KIB),there are now three Islamic banks
including Kuwait Finance House (1977) and Boubyan Bank (2004).
KIB'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 Bank of Bahrain
and Kuwait (1977). Bank of Kuwait & Middle East has plans to
convert to an Islamic bank upon Central Bank approval.


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 (KAC),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 would target
the power and water sectors, as well as Kuwait's Petrochemical
Industries Company (PIC). Kuwait's National Assembly has made it
clear that any privatization program will have to insulate consumers
from significant rate increases and protect the jobs of Kuwaiti
citizens. Little of the 2001 five-year plan has been implemented.
A law to privatize KAC, which continues to operate at a significant
loss and now faces direct local competition from the new, private
Jazeera Airways, was finally approved by the Parliament in January

2008. Under the law, KAC will be transformed into a private company
within the next two years after two independent international
auditors have valued the company's assets. Thiry-five percent will
be sold to a core investor, which will be the local or foreign
company making the highest bid. Forty percent will be sold to
Kuwaiti citizens through an initial public offering, government
institutions will retain 20 percent, and 5 percent will be
distributed equally among KAC employees. Forty-two percent of the
new company's employees must be Kuwaitis whose minimum salaries will
be set by the government. 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. Qatar's state
owned Qtel purchased a majority stake on one of the two mobile phone
companies, Wataniya, in March 2007. In November 2007, the Kuwaiti
government granted a license for a third mobile telecommunications
company. The new company will be 26 percent owned by Saudi Telecom,
which was the highest bidder in a government auction. The
government will retain a 24 percent share, and the remaining 50
percent will be sold to Kuwaiti citizens in an initial public
offering expected in February 2008. 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. Eighty of the 120
government-owned gas stations have been privatized, with plans to
privatize the remaining forty. 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 Petrochemical Industries Corporation (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 heels of Equate's
success, Dow and 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 online in
2008 and 2009 respectively.

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

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irrigation.

A new BOT law was approved by the Parliament in January 2008 after
BOT projects came under intense scrutiny by the State Audit Bureau
in late 2006 for alleged violations and several contracts were
cancelled. The new law establishes a high commission for state
properties and bans any government institution from allocating state
land to any project without the approval of the new commission. It
also stipulates that new companies will be established to implement
major projects on state land with a 40 percent share sold in an
auction to an investor (presumably a local holding company),50
percent sold to Kuwaiti citizens in an IPO, and the remaining 10
percent sold to the local or foreign company implementing the
project. The law limits the term of BOT contracts to 30 years with
the exception of "special" projects, which can continue for up to 40
years.

There have been a number of real estate BOT projects by privately
owned Kuwaiti companies. The first-class US $132 million Sharq
Mall, owned by the National Real Estate Company, contains retail
outlets, restaurants, theaters, and entertainment concessions. More
recently, the Fifth Waterfront Development Project constructed
Marina Mall in 2002. 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. In December 2007,
Kuwait's Parliament approved a new tax law to reduce the tax rate on
foreign companies from 55 percent to 15 percent to attract more
foreign investment. The new 15 percent tax rate will be applied as
a flat tax on the annual net profits of foreign companies, unlike
the previous system which incorporated a series of tranches that
progressively reached a maximum of 55 percent. Capital gains on
stock market investments will be exempt as will the profits of
Kuwaiti distributors of foreign goods. 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.

On July 26, 1992, the Council of Ministers of the State of Kuwait
established the Counter Trade Offset Program through the issuance of
Decision No. 694, which stipulates that all Foreign Contractors who
meet certain criteria should participate in the Counter-Trade Offset
Program.

In January 2002, the Kuwaiti government transformed its offset
program into a mechanism for promoting foreign investment in Kuwait.
The program was briefly suspended in September 2004 in order to
study its effectiveness, but in August 2005 the Ministry of Finance
announced that Kuwait would reactivate its offset regime for both
civil and defense contracts. In April 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. On October 24, 2007, the Company
launched "Offset Fund", with variable capital up to KD 1 billion.


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Offset obligations are applied to military contracts of a value
equal to or above KD3 million (about $11 million),civil/government
contracts of a value equal to or above KD10 million (about $36.5
million) and oil/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 determined
sectors of the Kuwaiti economy. The foreign contractor will be
subject to an unconditional financial guarantee equal to 6 percent
of the contract value.


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 was
in preparation for the adoption of a single GCC currency in 2010.
On May 20, 2007, the Central Bank of Kuwait (CBK) announced that,
based on the Council of Ministers' approval, the determination of
the exchange rate of the Kuwaiti Dinar (KD) against the US Dollar
would be based on a basket of major world currencies reflecting the
foreign trade and financial relations of the State of Kuwait, and in
a similar way to the policy applied before January 5, 2003. GOK
cited inflationary pressures due to a weak dollar as the reason for
unpegging the Kuwaiti Dinar from the US 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: Central Bank of Kuwait, May 2007.


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 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


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Government Procurement Requirements

Law No. 37 of 1964 (Articles 43 and 44) specifies the use of local
products when available and prescribes a 10 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. Both KISR and the Ministry of
Health have entered into discussions with MIT, Harvard, and Johns
Hopkins about prospective research partnerships.

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 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 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


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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 ten commercial banks reported continued
earnings growth in 2007.

BANK ASSETS
Kuwait's banks have not yet released their 2007 annual reports. The
assets of Kuwait's commercial banks on December 31, 2006 were: (in
'000s)

BANKKD (million)U.S. $ equivalentNational Bank of
Kuwait7,898.30028,825.91Kuwait Finance
House6,313.79123,043.03Gulf Bank4,059.95114,817.34Commercial
Bank of Kuwait2,917.23310,646.84Al-Ahli
Bank2,424.5268,848.64Burgan Bank2,210.2158,066.48Bank of
Kuwait and the Middle East1,929.4067,041.63Bank of Kuwait &
Bahrain1,616.2585,898.75Kuwait International
Bank803.5572,932.69Boubyan
Bank504.3391,840.65TOTAL30,677.576111,961.96
(US $1 equals KD 0.274 as of December 11, 2007 - CBK)

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
uwait 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 2005, 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 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 $364,963.5) 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

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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, the Czech Republic, Japan,
UK, Egypt, Sudan and Syria. In the past few years, Kuwait has
signed a bilateral investment agreement with Pakistan and a free
trade agreement (FTA) with Jordan. Kuwait has initiated 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 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, and another round of technical discussions in
Washington in June 2007. While Kuwait has made notable progress on
IPR protections (including an upgrade to the Watch list 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 five 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

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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. Youth 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 (US $145.98)per month, in
the public sector the current effective minimum wage is KD 250 (US
$912.41) per month for Kuwaiti bachelors and KD 325 (US $1,186.13)
per month for married Kuwaitis, plus KD50 (US $182.48) for each
child--compared to KD 90 (US $328.47) 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 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 longstanding 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 awaits
parliamentary approval.

On June 12, 2007, National Assembly ratified a law that bans women
from working during the hours 20:00-0700, except for those working
in the medical sector. This law issued by Amiri Decree No. 52/2007,
effective June 15, 2007, with consensus approval from conservative
and Islamist MPs, exempts women working in hospitals, clinics,
private therapy clinics, and any other institutions approved by the
Minister of Social Affairs & Labor.

The law also bans women from working in jobs that are hazardous,
rough, and damaging to health. In addition, the law bans women from
working in "immoral jobs that abuse women's femininity" and in
places that exclusively serve men.

The Ministry of Social Affairs & Labor will assign officers to
enforce this law. These Officers will have the right to conduct
raids on public places and stores, seize violators, and report and
refer them to concerned authority.
The law stipulates a minimum penalty of 300 USD and a maximum
penalty of stated the following punishment applied to violators:
- USD300 to 1500
- Shutting down the store for one month period.

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.

On November 26, 2006, Cabinet Council issued Resolution No. 507/2006
terminating KNREC's contract and suspending all its activities at
the FTZ area. To date, KNREC is appealing this decision in Kuwaiti

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courts but has not received a judgment to revoke the said
resolution.

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. In
July 2007, the Finance Minister publicly announced that KIA's assets
under management were valued at $213 billion. Details about the
composition of both KIA and non-KIA investment portfolios, such as
Kuwait Petroleum Corporation's reserve fund, remain murky. The
holdings of private Kuwaitis, in both direct and portfolio
investments, are believed to exceed $100 billion.

Other major investors in Kuwait include 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
Chevron 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 due to expire in 2009.)