the Kuwaiti Dinar has closely followed the exchange rate fluctuations of the U.S. Dollar over the past year, as the Dollar makes up over half of the basket. 3. Structural Policies As a member of the Gulf Cooperation Council (GCC), Kuwait plays a part in GCC efforts to promote economic integration among its member states. In practice, this means duty free imports from other GCC states and adoption of some GCC product standards. There are three basic points worth noting about the government's structural policies in Kuwait. First, policies as a body tend to strongly favor Kuwaiti citizens and Kuwaiti-owned companies. Income taxes, for instance, are only levied on foreign corporations and foreign interests in Kuwaiti corporations, at rates that may range as high as 55 percent of all net income. Individuals are not subject to income taxes, which eliminates one government tool used in other countries to institute social or investment policies. Foreign investment, similarly, is welcome in Kuwait, but only in select sectors as minority partners and only on terms compatible with continued Kuwaiti control of all basic economic activities. Moreover, some sectors of the economy-including oil, banking, insurance and real estate have traditionally been closed to foreign investment. There are proposals to allow foreign equity participation in the banking sector (up to 40 percent) and in the upstream oil sector (terms still to be determined). Foreigners (with the exception of nationals from some GCC states) are forbidden to trade in Kuwaiti stocks on the Kuwaiti Stock Exchange except through the medium of unit trusts. Foreign nationals, who represent a majority of the population, are prohibited from having majority ownership in virtually every business other than certain small service-oriented businesses and may not own property (there are some exceptions for citizens of other GCC states). In past years, as part of its deliberate demographic policy to reduce the number of expatriates in the country, the government also made it difficult for foreign workers to sponsor their families for residency by installing high minimum wage requirements for the individual workers wishing to apply for family visas. Currently, third-country nationals employed in the private sector must earn approximately $2,000 a month, while public sector employees must earn $1,400 a month in order to sponsor their families in Kuwait. This is currently under review and the income levels may be reduced to permit more families to come to Kuwait. Families may elect to stay in their country of origin, however, since the cost of living is comparatively higher in Kuwait than in other Arab or South Asian countries. Finally, in labor markets, resident foreign nationals are subject to stringent visa requirements, special taxes and fees that are intended to both discourage their employ and limit their tenure in Kuwait. Biases are also in place in regard to trade. Government procurement policies, for instance, generally specify local products, when available, and prescribe a 10 percent price advantage for local companies on government tenders. There is also a blanket agency requirement, which requires all foreign companies trading in Kuwait to either engage a Kuwaiti agent or establish a Kuwaiti company with majority Kuwaiti ownership and management. Secondly, price signals are only partially operational in Kuwait. In many ways, Kuwait is still a welfare state in which many basic products and services are heavily subsidized. Water, electricity and motor gasoline are relatively inexpensive. Basic foods are subsidized. Local telephone calls are free (after payment of an annual subscription fee), as is public education and medical care. In most cases, these subsidies are available to all residents of Kuwait; in some cases, however, the so-called "first line commodities" (such as medical care overseas, free or cheap building lots and subsidized home mortgages) the subsidies are reserved for citizens of Kuwait. Finally, and perhaps most importantly of all, some major aspects of this system of preference and privilege may be under scrutiny. The budget deficit and Kuwait's share of the additional expenses of the October 1994 "Vigilant Warrior" exercise undertaken in response to Iraqi provocations has highlighted the need for Kuwait to contemplate the World Bank recommendations, particularly reduced subsidies, increased fees and possible taxes on Kuwaitis and expatriates. A proposal for a shortterm, emergency wage tax was quickly killed and replaced with a system of voluntary donations for the national defense. 4. Debt Management Policy Prior to the Gulf War, Kuwait was a significant creditor to the world economy, having amassed a foreign investment portfolio, under the auspices of the Kuwait Investment Authority, that variously have been valued at between USD 80 billion and USD 100 billion. A current reasonable estimate of the value of Kuwait's performing assets in the Future Generations Fund would be in the range of USD 35 to 39 billion. Kuwait owes a USD 5.5 billion jumbo loan to foreign banks and other amounts to official export credit agencies (EČA). According to Government of Kuwait officials, these obligations will be paid on schedule and according to terms. In 1995, Kuwait is scheduled to pay USD 2.486 billion which will increase to USD 3.298 billion in 1996. 5. Significant Barriers to U.S. Exports There are few significant barriers to US. exports in Kuwait. Tariffs are low (currently, no higher than four percent on any product), although there are proposals to raise some tariffs on January 1, 1995, as part of a GCC "harmonization upward," which contradicts efforts in most other countries to lower tariffs. There are also revenue reasons for considering tariff increases. Kuwait is a Muslim country and does not permit the import of alcohol or pork from any country. It continues to participate in the Arab League primary boycott of Israel. Kuwait has renounced the secondary and tertiary boycotts of Israel. Boycott questions involving U.S. firms should be referred to the US. Embassy in Kuwait or to responsible U.S. Government agencies in the U.S. Finally, Kuwait has new offset program which will establish significant investment and/or countertrade obligations for all foreign suppliers in the case of all government contracts in excess of KD 1.0 million (USD 3.40 million). a 6. Export Subsidies Policies Kuwait does not directly subsidize any of its exports, which consist almost exclusively of crude oil, petroleum products and fertilizer. Almost 98 percent of Kuwait's food is imported. Small amounts of local vegetables are grown by farmers receiving government subsidies, and small amounts of these vegetables are sold to neighboring countries. However, not enough of these vegetables are grown or sold to make any significant impact on local or foreign agricultural markets. Periodically, Kuwait cracks down on the re-export of subsidized imports such as food and medicine. 7. Protection of U.S. Intellectual Property Kuwait is a founding member of the new World Trade Organization. In keeping with related obligations under the Uruguay Round/ Trade Related Intellectual Property Agreement (TRIPS) it will have to begin to implement laws and practices consistent with international conventions on intellectual property protection (notably the Berne Convention_for_the Protection of Literary and Artistic Works and the Paris Convention for the Protection of Industrial Property.) Currently, intellectual property rights protection is extremely minimal in Kuwait. Kuwait is not party to any worldwide conventions for the protection of intellectual property rights. Kuwait's laws do not address important areas of intellectual property and those areas which are addressed in law do not provide adequate deterrents to piracy. Kuwait has no copyright law, with the result that there is now a large, overt market for pirated software, cassettes and videotapes, as well as unauthorized Arabic translations of foreign language books. A draft copyright law being prepared by the Government of Kuwait was still not complete by the end of 1994. There is concern that the content of the draft may still not include adequate protection for foreign works, sound recordings or compilations of facts and data. The adequacy of terms of protection for various types of works and the need for deterrent penalties for infringement are also concerns the U.S. has raised with officials in the Kuwaiti gov ernment. Kuwait has had patent and trademark laws since 1962, but the penalties under both are so low (a maximum fine of USD 2,100) as to be effectively irrelevant in deterring illegal activities. The patent law excludes certain products such as chemical inventions involving foods, pharmaceuticals and other medicines, from protection. Among patentable products and processes it offers a term of protection of only 15 rather than the more conventional 20 years. It also contains extraordinary provisions for compulsory licensing whenever a patent is insufficiently used in Kuwait or is of “great importance to national industry." 8. Worker Rights a. The Right of Association.-Kuwait is a member of the International Labor Organization (ILO) and has ratified the 1948 ILO Convention 87 on Freedom of Asso ciation. Both Kuwaiti and non-Kuwaiti workers have the right to establish and join unions but the government restricts the right of association by limiting the number of unions which may be established. There are certain additional restrictions on non-Kuwaiti workers. In 1994, 28,400 workers in Kuwait were organized as union members; non-Kuwaitis constituted 33 percent of unionized workers. New unions must have at least 100 members, 15 of whom must be Kuwaiti. Expatriate workers, who comprise about 80 percent of the labor force in Kuwait, are allowed to join unions after five years residence, but only as nonvoting members. In practice, foreign workers can join unions after one year. One law requires that workers may establish only one union in any occupational trade, and that the unions may establish only one federation. Both the ILO and International Confederation of Free Trade Unions (ICFTU) have criticized this requirement since it discourages unions in sectors employing few Kuwaiti citizens (e.g. in construction). b. The Right to Organize and Bargain Collectively.—Although legally unions are independent organizations, in fact, the government maintains a large oversight role with regard to their financial records: 90 percent of union budgets are in the form of government subsidies. Unions must also follow a standard format for internal rules and constitutions, which includes prohibitions of any involvement in domestic political, religious, or sectarian issues. In practice, these limitations have not prevented unions from engaging in a wide range of activities. A court (under certain circumstances) or the Amir may dissolve a union. In practice, no union has been dissolved in either manner. Kuwaiti citizen union members have the right to elect representatives of their own choosing, provided the candidates are also Kuwaitis and can demonstrate that they have no criminal record. All but two unions, the Bank Workers Union and the Kuwait Airways Workers Union, are affiliated with the Kuwait Trade Union Federation (KTUF). The KTUF consists of nine civil service unions and three oil sector unions, but the oil unions have equal representation (36 members) in the 72-member KTUF Assembly. The KTUF belongs to the International Confederation of Arab Trade Unions and the formerly Soviet-controlled World Federation of Trade Unions. The KTUF opened an "Expatriate Labor Office," responsible for resolving problems between foreign workers and their employers in the private sector. The office is not connected with the government. It provides assistance to all foreign laborers, regardless of whether or not they are union members. The right to strike is recognized, but limited by Kuwait's labor law, which stipulates compulsory negotiation, followed by arbitration if a settlement cannot be reached between labor and management. There are no specific legal provisos to prohibit retribution against strikers and strike leaders. Despite limitations, strikes do occur. In 1994, one strike was called by cleaning personnel in Kuwaiti schools for a pay raise; the second, by security guards at the Social Welfare Home over unpaid wages. The majority of these workers were expatriates. The ILO has critized: Kuwait's prohibition on more than one trade union for a given field; the requirement that a new union must have at least 100 workers; the five-year residence requirement for foreign workers to join a trade union; the denial to foreign trade unionists voting rights and the right to be elected to union positions; 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. c. Prohibition of Forced or Compulsory Labor.-The Kuwaiti Constitution prohibits forced labor "except in the cases specified by law for national emergencies and with just remuneration." Nonetheless, there continue to be credible reports that foreign nationals employed as domestic servants have been denied exit visas absent their employers' consent. Kuwaiti sponsorship is necessary in order to obtain a residence permit and foreign workers cannot change their employment without permission from their original sponsors. Domestic servants are particularly vulnerable to abuses from this practice because they are not protected by Kuwaiti labor law. In addition, domestic servants who run away from their employers can be treated as criminals under Kuwaiti law for violations of their work and residence permits, especially if they attempt to work for a new employer without permits. Sponsors frequently hesitate to grant their servants permission to change jobs because of the financial investment (travel, medical examinations and visas) made before they even arrive in Kuwait (often USD 700-1,000). In many cases, employers can exercise control over servants by holding their passports. The practice is prohibited, however, and the government has acted to retrieve passports of maids involved in work disputes. There are some reports employers illegally withheld wages from domestic servants to cover the costs involved in bringing them to Kuwait. The government has done little, if anything, to protect domestics in such cases. d. Minimum Age for Employment of Children.-Under Kuwaiti law, the minimum employment age is 18 years for all forms of work, both full- and part-time. Compulsory education laws exist for children between the ages of 6 and 15. The Minister of Social Affairs and Labor is charged with enforcing minimum age regulations. The laws are not fully observed in the nonindustrial sector, although no instances involv ing Kuwaiti children have been alleged. Children may be employed part time in small family businesses. There have been unconfirmed reports of some South Asian domestics under 18 who falsified their age to enter Kuwait. Employers may obtain Ministry permits to employ juveniles (14 18 years old) in certain trades. Juveniles may work a maximum of six hours daily, provided they work no more than four consecutive hours followed by at least an hour of rest e. Acceptable Conditions of Work.-The Ministry of Social Affairs and Labor is responsible for enforcing all labor laws. A two-tiered labor market ensures high wages for Kuwaiti employees while foreign workers, particularly unskilled laborers, receive substantially lower wages. In 1993, the minimum wage in the public sector, set by the government, was appropriately USD 630 a month (180 Kuwaiti Dinars) for Kuwaitis and approximately USD 315 a month (90 Kuwaiti Dinars) for non-Kuwaitis. There is no legal minimum wage in the private sector although occasionally it has been suggested. The labor law establishes general conditions of work for both the public and the private sectors, with the oil industry treated separately. Women are permitted to work throughout the oil industry, except in hazardous areas and activities, with equal pay for equal work. The civil service law prescribes additional conditions for the public sector. It limits the standard workweek to 48 hours with one full day of rest per week, provides for a minimum of 14 days of leave annually, and establishes a compensation schedule for industrial accidents. Foreign laborers frequently face contractual disputes, poor working conditions and, in some cases, physical abuse. Domestic servants, excluded from the purview of Kuwait's labor laws, frequently work hours greatly in excess of 48 hours. Recourse is uneven. Domestic servants from Asian countries have complained in some cases of the lack of assistance from their embassies. In other cases, embassies have founded shelters for abused domestics and worked with the Kuwaiti government to repatriate workers who wished to return home. The ILO has urged Kuwait to guarantee the weekly 24-consecutive-hour rest period to temporary workers employed for a period of less than six months and workers in enterprises employing fewer than five persons. In November 1994, the government received an ILO Expert Delegation for consultations on possible labor reform. Laws and regulations do exist on health and safety, medical care and compensation. However, compliance and enforcement appear poor, especially regarding unskilled foreign laborers. While Kuwaiti employers have been known to exploit workers' willingness to accept substandard conditions, workers can remove themselves from hazardous work situations without jeopardizing their jobs, and legal protections exist for workers who file complaints. The government periodically inspects installations to raise awareness among workers and employers and ensure that they abide by the rules. f. Rights in Sectors With U.S. Investment.-The only significant U.S. investment in Kuwait is in the divided zone between Kuwait and Saudi Arabia, where one U.S. oil company, working under a Saudi concession, operates under and in full compliance with the Kuwaiti labor law that applies to the oil sector. Extent of U.S. Investment in Selected Industries.-U.S. Direct Investment Position Abroad on an Historical Cost Basis-1993 |