KuwaitWT/TPR/G/XX
Page 1
World Trade
Organization / RESTRICTED
WT/TPR/G/258
4January 2012
(12-0001)
Trade Policy Review Body / Original: English
TRADE POLICY REVIEW
Report by
THE STATE of KUWAIT
Pursuant to the Agreement Establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), the policy statement by The State of Kuwait is attached.

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 ofKuwait.

The State of KuwaitWT/TPR/G/258
Page 1

CONTENTS

Page

I.introduction5

II.Economic development5

(1)Economic Growth6

(2)Kuwait Vision 20357

(3)Economic Development Plan and Diversification of the Economy8

(4)Privatization11

(5)Investment Regime12

(6)Human Resource Development13

(7)Future Outlook14

III.Trade policy developments15

(1)Objectives of Trade Policy15

(2)Salient Features of Trade Policy15

(i)Tariff bindings16

(ii)Applied tariffs16

(3)Developments in Trade Policy18

(4)Growth and Diversification of Trade18

(5)Future Outlook19

IV.Regional Trade Agreements20

(1)Multilateralism and Regionalism20

(2)Regional Trade Agreements21

V.WTO and doha development agenda (DDA)23

(1)Kuwait and the WTO23

(2)Kuwait's Participation in Doha Development Agenda Negotiations23

ANNEXTechnical assistance needs OFKuwait25

KuwaitWT/TPR/G/XX
Page 1
The State of KuwaitWT/TPR/G/258
Page 1

I.introduction

  1. Kuwait gained independence on June 19, 1961. Merely six months after, the country became the first developing country to establish a Fund to provide economic assistance to fellow developing countries.
  2. In a visionary announcement on the occasion of launching of the Kuwait Fund for Arab Economic Development (since commonly known as the “Kuwait Fund”) on December 31, 1961, His Highness Sheikh Jaber Al-Ahmed Al-Jaber Al-Sabah, the late Amir of Kuwait declared that: “Here we are embarking on the tides of change, but we will not forget our friends in need”.
  3. It is a matter of satisfaction for Kuwait to recall that the late Mr. Robert McNamara, who served as President of the World Bank from 1968-1981, also hailed the country’s gesture in the following words: “When first established in 1961, the Kuwait Fund was without precedent. Here was Kuwait, a tiny country, until recently among the poorest places on earth, establishing a development fund in the year of its political independence. While welcoming its new-found prosperity it was declaring a willingness to share its future wealth with its Arab neighbours."
  4. Half a century since, the vision articulated by the late Amir continues to inform the nation’s approach to matters of international trade and development, indeed international relations in general. Kuwait believes that cooperation should be at the top of efforts for harnessing the fruits of globalisation and uplifting the lives of people around the world. The country follows this policy in letter and spirit.

II.Economic development

  1. Situated in the North-East of the Arabian Peninsula (on the North-Western edge of the Arabian Gulf), Kuwait is blessed with one of the world’s largest reserves of oil. Historically a centre of trade and commerce, it served as a hub of trade between India, the horn of Africa, the Western Middle East and the Eastern Mediterranean rim countries. Up until the advent of Japanese pearl farming, Kuwait had one of the largest sea fleets in the Gulf region and a flourishing pearling industry. Trade consisted mainly of pearls, wood, spices and dates.
  2. Since the discovery and development of oil and the Government’s egalitarian approach, in the short span of a few decades the country has been transformed into a confident and modern state with a strong and stable economy, high standards of living, and a young, thriving and progressive-looking population.
  3. A measure of the country’s confidence and its modern and progressive outlook is most clearly reflected in the fact that the Kuwait Fund extends grants and loans on concessionary terms to finance development projects in developing countries. The Fund also provides technical assistance to finance the costs of feasibility studies of projects, as well as the training of nationals of the borrowing countries. In addition, the Fund subscribes in the capital of international and regional development institutions. Kuwait sees the Fund as providing a bridge of friendship and solidarity between the state of Kuwait and the developing nations and a means of promoting sustainable development around the world.
  4. Although initially created to assist the Arab countries, the mandate and operations of the Fund were subsequently extended (as far back as July 1974) to include developing countries in general, i.e., not just the Arab developing countries. During 50 years of its operations, the Fund has provided loan and grant assistance to 102 beneficiary countries amounting to over $15 billion.
  5. According to the latest (2010) Human Development Report of the United Nations Development Programme, in terms of overall human development, Kuwait is ranked 47th among 169 countries covered by the 2010 Index of Human Development.
  6. Kuwait’s economy is fully integrated with the world economy. As a necessary consequence of this integration, any headwinds in the global economy produce an immediate impact on Kuwait’s fortunes. In a nutshell, Kuwaiti economy is subject to the influence of a host of factors, including any major developments in the world economy, shifts in demand for oil, or movements in exchange rates.
  7. According to the International Monetary Fund country report of July 2010[1], “The global financial crisis adversely affected Kuwait’s financial system, but the authorities have succeeded in preserving financial stability”.

(1)Economic Growth

  1. The growth rate of real GDP ranged from 3% in 2002 to 10.6% in 2005, 5.3% in 2006, 4.6% in 2007 and 5% in 2008. However, the GDP declined by 5% in 2009, and then increased by 3.3% in 2010.
  2. As to the sectoral composition of GDP, in current prices a mere 0.2% was contributed by agriculture and fishing in 2009, while the shares of industry and services were 51.7% % and 48.1% respectively.
  3. Analysing the composition of GDP further, at current purchasers’ value, the sectoral components of GDP in 2009 were: Extraction of oil and gas 45.2%; manufacturing 5.4%; finance, insurance, real estate and business services 19.4%; community, social and personal services 17.8%; transportation and communication 8.3%; retail and wholesale trade, hotels and restaurants 4.4% 0.8%; construction 1.9%; and electricity, gas and water 1.3%.
  4. The international financial crisis of the past couple of years has had a large negative impact on Kuwait’s economy. It was responsible for decline in export earnings, collapse of stock prices, decline in business confidence, reduction in the growth rate of national economy, and a large decline in the value of national financial assets invested abroad.
  5. The exchange rate regime in Kuwait is classified as a conventional peg to a basket of currencies. In its July 2010 country report, the IMF determined that according to the Fund’s staff assessment during its Article IV consultation with the country the real exchange rate was found broadly in line with fundamentals, and that the peg remained appropriate in the run up to the GCC monetary union.
  6. The medium term economic policy aims to achieve real yearly growth rate of GDP at 5.1% during the period 2011-2014, with the target for non-oil sectors at 7.5%. More on this in section 3below (relating to the economic development plan and the diversification of the economy).
  7. Of the total population of 3.58 million (2010), Kuwaiti nationals comprised only 32.1%, with the rest of 67.9% being non-Kuwaiti expatriates. In terms of employment, 76.6% of total national manpower of Kuwaiti workers was employed in the public sector. On the other hand, 91.1% of non-Kuwaiti residents (who are generally low skilled) were concentrated in the private and family sectors.

(2)Kuwait Vision 2035

  1. The Government is keenly aware of the perils of reliance on oil (an exhaustible resource) for sustainability of the country’s economy. It has therefore launched a long-term policy vision under the banner of “Kuwait Vision 2035”. The main planks of this vision can be summed up as follows:
  • Recovering the pioneering regional role of Kuwait and transforming it into a financial and trade center, attractive to investors, where (as in the pioneering periods of Kuwait’s past) private sector plays the lead role in economic activity creating competition and promoting efficiency; with supportive national governmental institutions providing adequate infrastructure, appropriate legislative framework and an inspiring business environment;
  • Providing climate for balanced human development, safeguarding social values and national identity, preserving the community’s values and its Arab and Islamic identity;
  • Strengthening the democratic system, respect for the constitution, and promotion of justice, political participation and freedom.
  • Within this vision, the 6-pronged strategic aims of development till 2035 are:

(i)Increasing the GDP and raising the citizens’ standard of living by:

(a)Increasing non-oil growth to improve citizens livelihood;

(b)Diversification of production base through financial, commercial and services sectors (in particular the transport sector), without neglecting the othersectors;

(c)Strengthening financial institutions’ competitiveness, diversifying investment and financial instruments of the capital market;

(d)Improving oil sector performance and increasing its interrelations in the national economy – particularly the petrochemical and technology industries of high added value;

(e)Reforming and developing general budget structure to promote non-oil deficit reduction;

(f)Maintain economic stability and justice in the distribution of national income.

(ii)Encouraging the private sector to play the lead role in national development, through stimulating mechanisms including the following:

(a)Diversification of property structure by gradually reducing the participation of public sector, encouraging increasing private sector role especially that of small and medium enterprises;

(b)Privatization of state-owned enterprises;

(c)Elimination/reduction of administrative and regulatory obstacles;

(d)Facilitation and simplification of investment procedures;

(e)Completion of on-going infrastructure projects, and realizing integration and cooperation of private sector for new projects by encouraging participation of small and medium enterprises;

(f)Creating an appropriate environment to attract foreign investment, including by encouraging participation between foreign and local companies.

(iii)Supporting human and social development through, inter alia, the following:

(a)Promotion of education and training, and research;

(b)Improving the quality and delivery of health services, with international benchmarks;

(c)Improvement of social services, empowerment of women, and up-gradation of care, cultural, information and religious services.

(iv)Promoting demographic policies, supportive of development strategy:

(a)Securing improvements in the demographic composition of the population;

(b)Improving skill levels of indigenous population;

(c)Securing improvement in the quality and productivity of expatriate workforce;

(d)Promoting the observance of human rights and, in this regard, preserving Kuwait’s reputation in adherence to relevant international conventions.

(v)Enhancing and improving theeffectiveness of government administration by:

(a)Increasing transparency, accountability and honesty of administration;

(b)Restructuring the administrative machinery and improving the delivery of public services including through electronic means;

(c)Modernizing the collection and dissemination of data and information, and supporting the development of information society.

(vi)Consolidating the Islamic and Arab identity:

(a)Preservation of Kuwait’s Islamic identity and the state’s Arab orientation, in accordance with the dictates of Kuwait’s constitution.

(3)Economic Development Plan and Diversification of the Economy

  1. As noted earlier, the Government is aware of the country’s excessive reliance on oil and the other structural issues that have come to characterise the nation’s economy and life. It has undertaken a comprehensive analysis of these problems and has launched a multi-pronged plan aimed at addressing and correcting the imbalances, and diversifying the economy for long-term sustainability. In this context, the Medium-term Development Plan for 2010/2011–2013/2014[2] envisages quantitative and qualitative changes and improvements across a range of areas, grouped under three main headings: (i) economic development, (ii) human and social development, (iii) management, administration and planning. The central focus of the plan is on securing diversification of the economy and a quantum shift from public to the private sector with the aim of all round improvement in efficiency.
(a)Economic growth and development
  1. The main targets of the plan are:
  • To secure real annual growth rate of 5.1% in the GDP; with private sector activities securing an annual rate of 8.8%, non-oil public sector at 4.4% and oil public sector at 2%;
  • Average annual investment of KD 7393 million, with public sector (oil) at KD 1617 million, public sector (non-oil) at KD 2350 and private sector at KD 3426 million;
  • To secure reduction in the contribution of oil sector in GDP from 43% in the base year (2008/2009) to 39% by 2013/2014;
  • To secure increase of private sector share of non-oil GDP from 65% in the base year to 70% in the final year of the plan period;
  • To secure increase in private sector share of non-oil investment from 40% to 65%;
  • To secure increase in the share of non-oil revenue in total state revenue from 12% to 30%.
(b)Human and social development
  1. Some of the main quantitative targets for improvement in social sector indicators are:
  • To secure a shift in the demographic composition of population, through an increase in the percentage of population of Kuwaiti nationals in total population from 31.4% in 2008/2009 to 35% by the end of the plan period;
  • Reduction in average annual number of those newly employed in the Government sector from 15,000 in 2003-2008 to 8000 by the end of the plan period;
  • Shift in the orientation of secondary school students towards scientific studies from 36% in 2007-2008 to 50%;
  • Increase in enrolment in technical and scientific/professional colleges/universities from 39% in 2003-2008 to 55%;
  • Increase in the ratio of expenditure on scientific research from 0.2% of GDP to 1% of GDP;
  • Securing similar improvements in health care, care of the elderly and other community development indicators, including especially the establishment of 34 new centres for primary health care, 300 dental clinics (up from 194 in 2007) and 100% coverage for health insurance;
  • Construction of 48,117 new housing projects (32,199 new blocks, 12,653, houses, 3,265 apartments);
  • Establishment of new care centres for children, the disabled, and elderly.
(c)Management, administration and planning
  1. Likewise, to secure improvements in management (including transparency, accountability, and modernisation and delivery of services) the plan envisions far reaching changes. The main elements of these changes are:
  • To reform the Government apparatuses, decrease their size and to remove complexities in the existing structure;
  • To upgrade the quality of performance by simplification of procedures and updating the public services' guide;
  • To study privatization of some government services;
  • To complete projects of electronic government,to link the information systems of the Government sector via Kuwait information network, and to complete the construction of the National Data Center of the Government sector;
  • To activate and develop the legislative networks and institutional mechanisms to fight corruption and to enhance transparency;
  • To issue anti-corruption law and to establish an anti-corruption authority;
  • To enhance the role of civil society's organizations;
  • To establish units for planning in the Government apparatuses and to enhance the abilities of their strategic planning;
  • To encourage and support citizens participation in the development process;
  • To establish modern mechanisms for collection and dissemination of information;
  • To spread the culture of information and its application by collective programs between the Central Authority for Information Technologyand the Ministries of Education and Information and the concerned organizations of the civil society.
(d)Legislative requirements in the economic sector
  1. In order to underpin the reforms, the plan envisages enactment of new laws or amendments to existing laws and regulations. A complete list of legislative requirements has been identified for each of the three main areas of the plan. Thus it is proposed to upgrade the legislative framework by addressing a number of legal instruments. These include in particular the enactment (or amendment) of a privatization law, law on protection of competition, income tax law, value added tax law, a law to establish a capital market authority, labour law, environmental protection law, anti-corruption law, intellectual property law, and the like.

(4)Privatization

  1. In May, 2010, Kuwait’s parliament passed the law setting out the framework for a programme of privatization of state-owned enterprises.
  2. Kuwaiti economy has hitherto been dominated by the public sector, with a generous welfare system. Therefore, for the privatization initiative to succeed and bring on board the various stakeholders, it was imperative that the benefits of the programme were adequately explained to the population. It was also necessary to clearly define the objectives and the strategy of the programme. For instance, perceptions of loss of privileged relationships and special advantages enjoyed by customers and employees were bound to evoke resistance. Failure to deal effectively with the transition process could also damage the chances of the success of the programme. Not least among the issues was the need to resolve the question of jobs and employment.
  3. The law sets out the framework and related mechanics for the privatization process. It provides for the criteria and conditions to be satisfied before an asset can be privatized, namely:
  • Ensuring consumer protection and avoiding monopolistic practices; the privatized companies will be subject to regulatory and price control mechanism to ensure that these companies maintain minimum standards and do not exploit their prices;
  • Ensuring the availability and development of modern technology;
  • Ensuring commitment to protection of the environment;
  • To avoid conflicts of interest,potential owners ofthe privatized sector cannot becurrent owners of another businesswhose objectives are similar to theprivatized sector.
  • To address a widely-expressed concern that privatization would lead to the disposal of Kuwait's national wealth, the Law prohibits the privatization of oil and gas, oil refineries and health and educational services.
  • In order to carry out the privatization programme, the Privatization Law establishes a Higher Privatization Council consisting of nine members with the Prime Minister as head and five Ministers plus three specialists with competence in financial, economic, legal and technical issues relevant to the programme as members. The Council will be responsible for overseeing and regulating the sale of public services to the private sector. Moreover, the Council will have an ongoing obligation to report to the Council of Ministers every six months advising it of the performance of companies established in accordance with the Privatization Law.