RESTRICTED

WORLD TRADE WT/TPR/S/258

4 January 2012
ORGANIZATION
(12-0002)

Trade Policy Review Body

TRADE POLICY REVIEW

Report by the Secretariat

THE STATE OF KUWAIT

This report, prepared for the first Trade Policy Review of The State of Kuwait,
has been drawn up by the WTO Secretariat on its own responsibility. The
Secretariat has, as required by the Agreement establishing the Trade Policy
Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the
World Trade Organization), sought clarification from the State of Kuwait on its
trade policies and practices.

Any technical questions arising from this report may be addressed to

Mr. Richard Eglin (tel: 022 739 5148), Mr. Ricardo Barba (tel: 022 739 5088),
Mrs. Zheng Wang (022 739 5288) and Mrs. Mena Hassan (tel: 022 739 6522).

Document WT/TPR/G/258 contains the policy statement submitted by

The State of Kuwait.

Note: This report is subject to restricted circulation and press embargo until the end of the first
session of the meeting of the Trade Policy Review Body on The State of Kuwait.
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CONTENTS
Page

SUMMARY vii
(1) ECONOMIC ENVIRONMENT vii
(2) INSTITUTIONAL FRAMEWORK viii
(3) TRADE POLICY INSTRUMENTS ix
(4) SECTORAL POLICIES x

I. ECONOMIC ENVIRONMENT 1
(1) MAJOR FEATURES OF THE ECONOMY 1
(2) RECENT ECONOMIC DEVELOPMENTS 1
(3) TRADE PERFORMANCE AND INVESTMENT 4
(i) Trade in goods and services 4
(ii) Foreign direct investment 7
(4) OUTLOOK 9

II. TRADE AND INVESTMENT REGIMES 10

(1) GENERAL FRAMEWORK 10
(2) TRADE AGREEMENTS AND ARRANGEMENTS 11
(i) World Trade Organization 11
(ii) Regional trade agreements 12
(3) FOREIGN INVESTMENT REGIME 16
(i) Legislative and regulatory framework 17
(ii) Direct taxation and incentives for foreign investment 20
(iii) Incentives and institutional framework 21
(iv) Double taxation arrangements 22

III. TRADE POLICIES AND PRACTICES BY MEASURE 23

(1) MEASURES DIRECTLY AFFECTING IMPORTS 23
(i) Customs procedures 23
(ii) Tariffs 24
(iii) Other fees and charges 28
(iv) Free trade zones 29
(v) Import prohibitions, restrictions and licensing 29
(vi) Contingency measures 31
(vii) Standards and other technical requirements 34
(2) MEASURES DIRECTLY AFFECTING EXPORTS 39
(i) Procedures 39
(ii) Export prohibitions and licensing 39
(iii) Export duties, duty concessions, and subsidies 41
(iv) Export promotion and marketing assistance 41
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Page
(3) MEASURES AFFECTING PRODUCTION AND TRADE 42
(i) Taxation and subsidies 42
(ii) State trading, state-owned enterprises, and privatization 43
(iii) Government procurement 44
(iv) Competition law and price controls 48
(v) Intellectual property rights 49

IV. TRADE POLICIES BY SECTOR 54

(1) AGRICULTURE AND FISHERIES 54
(i) Main features 54
(ii) Policy developments 54
(2) ENERGY 57
(i) Petroleum 57
(ii) Natural gas 61
(iii) Petrochemicals 62
(iv) Electricity and water 64
(3) SERVICES 65
(i) Overview 65
(ii) Financial services 65
(iii) Telecommunications and postal services 71
(iv) Transport 73
(v) Foreign workers in Kuwait, and professional services 75

REFERENCES 77

APPENDIX TABLES 79

CHARTS

I. ECONOMIC ENVIRONMENT

I.1 Composition of merchandise trade, 2006 and 2009 5

I.2 Direction of merchandise trade, 2006 and 2010 6

III. TRADE POLICIES AND PRACTICES BY MEASURE

III.1 Breakdown of import duty rates, 2011 27

III.2 Tariff escalation by ISIC 2-digit industry, 2011 28

TABLES

I. ECONOMIC ENVIRONMENT

I.1 Selected economic indicators, 2006-11 3

I.2 Balance of payments, 2006-11 7
I.3 Foreign direction investment, 2006-10 8
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Page

II. TRADE AND INVESTMENT REGIME

II.1 Overview of Kuwait's regional trade agreements, October 2011 13

II.2 GAFTA trade 15
II.3 Requirements for establishing a foreign-invested company in Kuwait, 2010 18
II.4 FDI obstacles and proposed solutions, 2011 20
II.5 Proportional weight schedule for FDI, 2011 22

III. TRADE POLICIES AND PRACTICES BY MEASURE

III.1 Kuwait's preferential rules of origin, 2011 24

III.2 Summary analysis of the MFN tariff, 2003, 2007, 2011 25
III.3 Customs duty and fees, 2003-10 28
III.4 Import licences, 2004-10 30
III.5 Imports requiring special permission 30
III.6 Notifications on sanitary and phytosanitary measures, 13 October 2011 38
III.7 Products banned from exportation, 2011 39
III.8 Export licensing 40
III.9 Tax revenue and percentage in total taxes, 2006-10 42
III.10 Selected SOEs, 2011 43
III.11 Public and private sectors in the economy, 2009-12 44
III.12 Government procurement methods and corresponding legislation 45
III.13 Government procurement value, 2009-11 46
III.14 IPR legal framework 49
III.15 Trade marks, 2008-10 52
III.16 Intellectual property rights application, 2001-10 53

IV. TRADE POLICIES BY SECTOR

IV.1 Subsidiaries of the Kuwait Petroleum Corporation (KPC) 58

IV.2 Exports of crude oil, and refined products, by region, 2009-10 59
IV.3 Regulated prices of refined petroleum and gas products, 2011 60
IV.4 Gas production and utilization, 2005-10 61
IV.5 Kuwait's production capacity of petrochemical products, 2010 62
IV.6 Kuwait's petrochemical companies, 2011 63
IV.7 Banks, 2011 67
IV.8 Securities 69
IV.9 Telecommunication statistics, 2000-September 2011 71
IV.10 Telecom services providers, 2011 72
IV.11 Shipping and maritime transport services, 2010 74

APPENDIX TABLES

II. TRADE AND INVESTMENT REGIME

AII.1 Main trade-related laws, 2011 81

AII.2 Main departments/agencies involved in trade policy implementation, 2011 83
AII.3 Notifications under WTO Agreements, October 2011 84
AII.4 Bilateral economic and commercial agreements, other than investment and
DTA agreements, 2011 87
AII.5 Bilateral investment agreements and double taxation avoidance agreements, 2011 90
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III. TRADE POLICIES AND PRACTICES BY MEASURE

AIII.1 Applied MFN tariff averages by HS2, 2011 94

AIII.2 Import prohibitions, 2011 97
AIII.3 Productions subject to technical regulations ("regulated products"), 2011 99

IV. TRADE POLICIES BY SECTOR

AIV.1 Bilateral civil aviation agreements, 2011 101

AIV.2 Summary of Kuwait's specific commitments in services 104
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SUMMARY

1. The State of Kuwait is implementing a new development strategy centred on a liberal trade
regime with the objective of reducing the economy's high dependence on crude oil and natural gas,
which accounts for nearly half of GDP, 95% of export revenues, and more than 80% of government
income. To this end, steps are being taken to improve the country's business environment, increase
productivity growth of the non-energy sectors, and increase the participation of the private sector
(local and foreign) in the economy from its current low level of about 25%.

2. Kuwait also needs to further improve its infrastructure and logistics, reduce the State's heavy
involvement in many economic activities, make the leasing of land more predictable over the long-
term, and facilitate the establishment of new businesses in order to achieve its goal of becoming the
international trade, logistical, energy, and financial services hub in the Northern Gulf region.

(1) ECONOMIC ENVIRONMENT

3. Reflecting developments in world oil markets, Kuwait's real GDP grew at an annual average
rate of 5% during 2006-08, contracted in 2009 due to the impact of the global economic crisis, and
resumed growth in 2010-11 at about 4.5%.

4. Large fiscal surpluses, accumulated over the years from government ownership of the energy
sector, reached a record of 40% of GDP in 2007. This has largely obviated the need to levy taxes,
although a new comprehensive income tax law is in preparation and the introduction of a VAT by
2014 is under consideration. The fiscal surpluses have been used, in part, to finance social welfare
policies including subsidized public utilities and housing. There are concerns that pricing policy for
public services reduces incentives to introduce efficiencies and cut waste, and promotes higher
consumption than would otherwise be the case. Gradual phasing-out of such high government
subsidies would be beneficial in the context of encouraging a more diversified and energy-efficient
economy.

5. Kuwait has established reserve funds to ensure inter-generational economic equity in the
exploitation of its non-renewable resources.

6. The Kuwaiti dinar is pegged to an undisclosed currency basket (between 2003 and May 2007
it was pegged to the U.S. dollar). In December 2009, Bahrain, Kuwait, Qatar and Saudi Arabia
ratified an agreement to establish a monetary union. The date to achieve a single currency is yet to be
determined.

7. Kuwait's external accounts reflect the dominance of energy exports and display the volatility
created by its reliance on world oil markets. It had large and sustained current account surpluses of
between 24% and 45% of GDP during the period under review. The economy is highly dependent on
international trade, with the ratio of merchandise and services trade to GDP averaging almost 90%
during 2007-09. Kuwait is a net importer of services, with a deficit that rose from about
US$2.2 billion in 2006 to an estimated US$5.9 billion in 2010.
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8. During the last few years, Kuwait has increased its investment abroad; annual FDI outflows
averaged some US$7.5 billion in 2006-10. FDI inflows, on the other hand, are still relatively low.
This is explained by strict limitations in the past on the sectors in which foreigners could invest, a
relatively complex business environment (e.g. extensive licencing procedures, red tape, and out-of-
date laws and regulations), and by corporate income tax that is applied only on profits made by
foreign companies. Thus, a possible amendment to its 2001 Foreign Investment Law is being
evaluated, inter alia, to set up a "one-stop shop" for foreign investors. The Government's intention to
encourage more foreign investment is demonstrated by the recent decision to allow foreign
partnership, for the first time, in the development of Kuwait's energy resources, specifically natural
gas production, which aims to facilitate the acquisition of the technology and know-how necessary to
exploit these resources more effectively.

9. An important economic and social challenge, according to the authorities, is for Kuwait to
provide more employment opportunities for its citizens. The "Kuwaitization" programme is being
implemented to help scale-back reliance on the public sector to absorb domestic labour and encourage
more Kuwaitis to seek and find employment opportunities in the private sector. Nonetheless, public
sector wages and benefits remain very attractive.

(2) INSTITUTIONAL FRAMEWORK

10. Formulation and implementation of Kuwait's trade policy is the responsibility of the Ministry
of Commerce and Industry (MCI), in coordination with other ministries. The private sector
participates in trade policy formulation mainly through the Kuwait Chamber of Commerce and
Industry.

11. The public sector is the largest employer in Kuwait, and the State has direct and strong
influence in the economy. In 2010, a new privatization law was passed based on a process of
transferring ownership to the private sector (build-operate-transfer schemes) by identifying suitable
partners from home and abroad and issuing shares through initial public offerings. However, a
number of amendments to the law might reduce its impact since the healthcare, education, and energy
sectors have been excluded. The Government is to retain an important share in all newly privatized
companies, and the sale of major stakes in public holdings is expected to take place only slowly.

12. Meeting the objectives of Kuwait Vision 2035 and the Medium-term Development Plan
(2010-14), in particular expanding the role of the private sector and attracting foreign investment, will
require the Kuwait Government to speed-up the promulgation of new laws to modernize the business
environment; and to start tackling excessive administrative and procedural obstacles to doing
business, while increasing the transparency, accountability, and effectiveness of government
administration.

13. Kuwait became a GATT signatory in 1963 and has been a WTO Member since 1995. It is a
signatory to the WTO Information Technology Agreement. Kuwait has participated, as a third party,
in one case under the WTO Dispute Settlement Mechanism. Kuwait lowered its outstanding
notifications from 44 at the end of March 2011 to 22 by the end of June 2011 as part of its
preparations for this first Trade Policy Review.
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14. Kuwait participates in two overlapping regional trade agreements, the GCC, and the Greater-
Arab Free Trade Area (GAFTA) in which all six states of the GCC participate. Kuwait has been
harmonizing trade policies and practices under the GCC. GCC citizens and companies are allowed to
exercise all economic activities and occupations in Kuwait as Kuwaiti nationals, with a few
exceptions. As a group, the GCC has concluded FTAs with the EFTA states and Singapore, which
are in the process of ratification. The GCC is also involved in trade negotiations with Australia,
China, EU, India, Iran, Japan, Jordan, Korea, MERCOSUR, New Zealand, Pakistan, and Turkey. In
most cases, the GCC is negotiating these FTAs as a group. Nonetheless, some GCC members (e.g.
Bahrain and Oman) have also agreed FTAs on an individual basis, notably with the United States.

(3) TRADE POLICY INSTRUMENTS

15. Goods imported are subject only to customs tariffs, since Kuwait does not impose VAT,
excise duties or any other internal tax or charge on either domestically produced or imported products.
Kuwait started applying the GCC common external tariff in 2003. As a result, the simple average
MFN applied tariff declined from 7.7% in 2002 to 4.8% in 2011. On the basis of the WTO definition,
tariffs average 5.7% on agricultural products and 4.6% on non-agricultural products; 98.6% of all
tariff lines are ad valorem, with 19 mixed tariff lines on tobacco and tobacco products. Kuwait bound
all tariff lines, except on oil, petroleum, and petrochemicals. All bound rates are at 100%. Of total tax
revenue (about 2% of government revenue), the customs tariff accounts for more than 60%.

16. Kuwait applies the GCC common laws on customs procedures and valuation. It requires
documents to be authenticated, and charges consular fees on commercial invoices, certificates of
origin, health and halal meat certificates, and manifests for all imports. A "general" import licence is
required for all imports from all sources, and special permission from competent authorities is
required for specific goods. Kuwait prohibits certain imports for security, health, safety, or religious
reasons, or to meet the requirements of international conventions.

17. Kuwait has adopted the GCC Treaty provisions on contingency trade remedies, and notified
the WTO that these were amended in December 2010. Kuwait has never imposed any anti-dumping,
countervailing or safeguard measures. The GCC Ministerial Committee has not applied any trade
remedy measures, although it initiated two safeguard investigations, which were terminated due to
lack of injury in both cases.

18. Kuwait and other GCC countries are developing common GCC standards and technical
regulations, which will replace the standards and technical regulations of individual GCC member
countries. Kuwait standards are based on international standards with limited deviations due to
climatic, geographical, and infrastructural conditions.

19. Export procedures are simple, and any natural persons or companies (including foreign ones)
may export in Kuwait. Some goods are prohibited from exportation, while other are restricted and
require a licence from the competent authority. Kuwait applies no export taxes, charges or levies.

20. In 2010, government procurement accounted for about 12% of GDP. Kuwait's procurement
regime allows for a price preference of 10% for local products and 5% for GCC products. Persons
who wish to submit tenders must be either Kuwaiti suppliers, or foreign suppliers with a Kuwaiti
partner or agent. Also, an offset programme requires foreign firms that win government contracts
above certain thresholds to make an investment that will add value to the Kuwaiti economy. Kuwait
is not a party or an observer to the WTO Plurilateral Agreement on Government Procurement.
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21. Kuwait's competition legislation was approved by the National Assembly in 2007. The
Government is preparing its by law, and to set up a Competition Protection Authority. However, the
competition legislation does not apply to facilities and projects owned and managed by the State.

22. Kuwait has national laws on some IPRs, while at the GCC-level there is a law on patents and
a law on trade marks is in the pipeline. Once the GCC trade mark law is implemented, it will replace
the Kuwait national law on trade marks. Both GCC-legislation and Kuwaiti legislation on patents are
effective; dual protection is allowed.

(4) SECTORAL POLICIES

23. The oil and gas sector has underpinned Kuwait's economic development. Kuwait is the
world's 9th-largest crude oil producer, has almost 8% of the world's proven crude oil reserves, and
ranks 18th in global natural gas reserves. The MFN applied tariff on oil, gas, and petroleum products
is 5%. Foreign investors may carry out economic activities in industries other than oil and gas
exploration and production. Kuwait aims to become a key world player in petrochemicals on the
basis of its comparative advantage in natural gas and through joint-ventures with foreign enterprises.
The fully state-owned Kuwait Petroleum Corporation (KPC) and its subsidiaries benefit from certain
concessionary rights and privileges with respect to oil and gas.

24. Electricity is highly subsidized by the Government. A newly promulgated law allows foreign
investment in the electricity and water sectors, through public-private partnership whereby
independent water and power projects (IWPP) will be established. Under the IWPPs, private
companies may generate electricity and water and sell to the Ministry, which will then sell to
consumers. Foreign investors are allowed up to 26% ownership of the projects. The first IWPP is
under way.

25. Services is the largest non-oil sector in the economy, accounting for about half of GDP and over
80% of total employment. The sector is dominated by several state-owned enterprises, and in some
activities, for example fixed-line telephony, there are state monopolies. Kuwait has opened some
services subsectors to foreign investment, including financial services, air transport, mobile telephone
services, and professional services.

26. Under the GATS, Kuwait scheduled commitments in 61 subsectors and 8 main sectors:
business; construction and related engineering services; distribution; environmental services;
health-related and social services; tourism and travel-related services; recreational and sporting
services; and financial services. It maintains MFN exemptions under Article II of the GATS on air
transport services and the promotion and protection of investment.

27. Despite the presence of a significant foreign working population (over 60% of the population
are non-Kuwaitis), Kuwait made no commitments on the movement of natural persons under the
GATS, except for entry and temporary stay of managers, specialists, and skilled technicians.

28. Although the share of agriculture and fisheries to GDP is very small and continues to
decrease, the sector is important for the economy because of Kuwait's food security objective.
Kuwait is a net importer of agricultural products, and food security is mainly promoted through
relatively low applied MFN tariffs (3.2%), while private companies are being encouraged to invest in
farm projects abroad. Government assistance in agriculture and fisheries is mainly provided through
domestic support, such as subsidies and low cost credits to domestic producers.