Kuwait

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Kuwait’s International Trading Policy Related to Crude Oil

Introduction Kuwait is a rich country with high per capita income of about 30,000 USD. Its GDP has experienced a growth rate of more than 20% during the past five years. The country has 9% of the world oil reserves. Kuwait is promoting to place itself as the entrance door to investors who want to work in the area. The public sector dominates the economy. It represents three fourths of GDP. The government is currently trying to transfer the 95% of Kuwaitis who work for the government from the public sector to the private sector. Kuwait was affected by the financial crisis of 2008 and the central bank had to provide its help to one of the main banks of Kuwait which was experiencing cash shortage. The country's income has also dropped at the end of 2008 due to the fall of oil prices. The country's most popular sectors have been hurt by this crisis too. Main industries Agriculture activity is very limited due to lack of water and arable land. Agriculture contributes less than 1% to GDP.Industry in Kuwait is based on oil exploitation: this sector represents more than half of GDP and more than 90% of exports. The non-oil sector is dominated by services. For further information, consult the "Doing Business in Kuwait" guide by the National Bank of Kuwait. Foreign trade overview Kuwait is highly dependent on foreign trade. The share of foreign trade in the country’s GDP is nearly 95%. The amount of Kuwait's imports totals 16 billion USD. The country depends heavily on imports in foodstuffs, consumer goods (40% of total) and intermediate products (38% of total). Kuwait’s largest suppliers are Germany, the United States and Saudi Arabia. Imports from other Gulf countries have increased since the introduction of the GCC (Gulf Cooperation Council). Kuwait’s exports represent 56 billion USD. Exports of crude oil and refined products account for 95% of total exports. The remaining consists of re-exports, mainly machinery and transportation equipment. The trade balance of Kuwait is largely positive due to the high prices of oil.

FDI Kuwait has always been a country open to foreign investment and with the introduction of new laws in recent years, the country is even more open to foreign capital and expertise. In early 2003, a new law for FDI came into force. It allows 100% foreign ownership in a number of sectors. This law also makes available a number of tax breaks and other benefits which can attract new investors who in return must guarantee a set of quotas regarding the employment of Kuwaiti nationals. The current policy to promote FDI focuses on a number of sectors which can benefit most from foreign investment and expertise. These include infrastructure investment such as water, waste-water treatment, power, and communications. Kuwait also tries to promote the investment in the banking and financial sectors: investment aid, insurance, information technology and software development. Investment in hospitals and pharmaceuticals is also placed forward. Authorities are also keen to attract foreign capital into other sectors such as land and sea freight, tourism, real estate and urban development. With the financial crisis of 2008-2009, the influx of foreign capital has decreased slightly. International Trade from Kuwait and the issue of trade is never far from my mind. Trade and finance are closely linked, and in our modern world they tend to determine a nation’s balance of payments and, therefore, its economic fortunes. These are momentous, crucial days for the country, and the outcome of the current efforts to enforce international legality in Kuwait will certainly have an impact on the flow of goods and services between the region and the rest of the world. Kuwait is notably Member of the following international and regional organizations The World Trade Organization (WTO) ; The United Nations Organization and its main specialized institutions (World Bank, IMF, etc...); The Organization of the Islamic Conference (OIC) ; The Gulf Cooperation Council (G.C.C) ; Arab League. Kuwait has also signed numerous economic and commercial or technical cooperation agreements with most of its trading partners of Europe, Asia, Africa and America. TRADE STRUCTURE: The main exported products: Crude oil; refined oil products; Natural gas.

The main imported products: Miscellaneous food products, Building materials, miscellaneous capital goods Trading partners: Main customers Japan South Korea India Taiwan Philippines Singapore Main suppliers United States of America Japan United Arab Emirates Germany England Saudi Arabia

FOREIGN TRADE CONTROL: Generally speaking, Kuwait practices a relatively liberal trade policy; its market is open and foreign trade policies are flexible. Imports regulations: Kuwait practically imposes no quantitative restrictions in the field of international trade; a few products only are prohibited for imports on health, security and moral grounds. To be allowed to undertake international trade exchanges, importers must On the one hand, have a Kuwaiti nationality, in other words, 51% at least of the capital of the importing company must be held by individuals of Kuwaiti nationality ; and to have themselves registered at the importers register Exports regulations: Taking account of the products concerned exports are not submitted to any particular restriction. Other formalities and documents: Some oil products imports are submitted to very strict provisions concerning, sales time limit and the marketing conditions in general; in this event, a sanitary certificate is often required for customs clearance. FINANCIAL REGULATIONS OF FOREIGN TRADE OPERATION: Banking system: The Kuwaiti Banking System is relatively of very large dimension comparatively with the country's area and the local population number. As a matter of fact owing especially financial resources yielded by oil, Kuwait owns a dozen commercial banks and a central bank entrusted with implementing the monetary policy of the country.

Exchange system: The exchange regulations of Kuwait do not impose any particular restriction. At international level, provisions in this field allow both a free convertibility and a total transferability. Methods and means for international payment: Broadly speaking, Kuwaiti foreign trade operators are solvent and rarely have any disputes with their foreign partners the payment means that are most used in Kuwait is the irrevocable and confirmed documentary credit. The other payment means, such as documentary remittance or international transfer (Swift) are utilized only in the event of trustworthy relationships between seller and buyer. CUSTOMS TAXATION: After its adhesion to the GATT and the inception of the Gulf Cooperation Council, Kuwait has considerably reduced its tariff barriers with the member Countries of these two organizations. Customs tariff: Imported good are in general submitted to a customs duty of 4%, calculated on coast insurance freight basis. However, some goods that are at the same time produced by local industries can be subjected to higher customs duties in keeping with tariff protection policy of domestic industries. Special provisions: Within the framework of the policy aiming at promoting the domestic market investments and supplies in raw materials and staple commodities, some equipment, spare parts, food products and raw materials are exempted from customs duties. FOREIGN TRADE LOGISTIC: International Transports: Kuwait gives special attention to road infrastructure. As matter of fact, the road network plays a quasi-exclusive role in the field of goods transports between the main cities of the country: Kuwait, Jarhead, Hawalli, All Ahmadi and Farawania. In the area of maritime transport, Kuwait is provided with three large trading ports which play a pivotal role in foreign trade operation, these are: Shuwaikh, Shuaiba and Doha. Kuwait is also provided with a relatively important merchant fleet: 88 ships, 50 of which are national. In addition to oil ships, Kuwait is also endowed with numerous container ships. As concerns air transport, the major part of air traffic is ensured by Kuwait International airport. Telecommunication: Kuwait is provided with a performing and modern communications network; automatic telephone, telex, mobile telecommunications etc... At international level Kuwait has direct links with its trading partners of Europe, Africa, Asia and America... Distribution System:

In Kuwait, foreign products distribution can be carried out: Either by direct sales to domestic traders On the whole, Kuwait owns twenty import-Export companies Kuwait’s issue regarding crude oil over the years Kuwait's troubled relationship with neighboring Iraq formed the core of its foreign policy from late 1980s onwards. Its first major foreign policy problem arose when Iraq claimed Kuwaiti territory. Iraq threatened invasion, but was dissuaded by the United Kingdom's ready response to the Air’s request for assistance. Kuwait presented its case before the United Nations and successfully preserved its sovereignty. UK forces were later withdrawn and replaced by troops from Arab League nations, which were withdrawn in 1963 at Kuwait's request. On August 2, 1990, Iraq invaded and occupied Kuwait. Largely through the efforts of King Fahd bin Abdul Aziz of Saudi Arabia who was instrumental in obtaining the help of the U.S., a multinational coalition was assembled, and, under UN auspices, initiated military action against Iraq to liberate Kuwait. Arab states, especially the other five members of the Gulf Cooperation Council (Saudi Arabia, Bahrain, Qatar, Oman, and the United Arab Emirates), Egypt, and Syria, supported Kuwait by sending troops to fight with the coalition. Many European and East Asian states sent troops, equipment, and/or financial support. After its liberation, Kuwait largely directed its diplomatic and cooperative efforts toward states that had participated in the multinational coalition. Notably, many of these states were given key roles in the reconstruction of Kuwait. Conversely, Kuwait's relations with nations that had supported Iraq, among them Jordan, Sudan, Yemen, and Cuba, have proved to be either strained or nonexistent. Since the conclusion of the Gulf War, Kuwait has made efforts to secure allies throughout the world, particularly United Nations Security Council members. In addition to the United States, defense arrangements have been concluded with the United Kingdom, Russia, and France. Close ties to other key Arab members of the Gulf War coalition — Egypt and Syria — also have been sustained. Kuwait's foreign policy has been dominated for some time by its economic dependence on oil and natural gas. As a developing nation, its various economies are insufficient to independently support it. As a result, Kuwait has directed considerable attention toward oil or natural gas related issues. With the outbreak of the War on Iraq, Kuwait has taken a strongly pro-U.S. stance, having been the nation from which the war was actually launched. It supported the Coalition Provisional Authority, with particular stress upon strict border controls and adequate U.S. troop presence. Kuwait is a member of the UN and some of its specialized and related agencies, including the World Bank (IBRD), International Monetary Fund (IMF), World

Trade Organization (WTO), General Agreement on Tariffs and Trade (GATT); African Development Bank (AFDB), Arab Fund for Economic and Social Development (AFESD), Arab League, Arab Monetary Fund (AMF), Council of Arab Economic Unity (CAEU),Economic and Social Commission for Western Asia (ESCWA), Group of 77 (G-77), Gulf Cooperation Council (GCC), INMARSAT,International Development Association (IDA), International Finance Corporation, International Fund for Agricultural Development, International Labour Organization (ILO), International Marine Organization, Interpol, IOC, Islamic Development Bank (IDB), League of Red Cross and Red Crescent Societies (LORCS), Non-Aligned Movement, Organization of Arab Petroleum Exporting Countries (OAPEC), Organization of the Islamic Conference (OIC), Organization of Petroleum Exporting Countries (OPEC), and the International Atomic Energy Agency (IAEA). International disputes In November 1994, Iraq formally accepted the UN-demarcated border with Kuwait which had been spelled out in Security Council Resolutions687 (1991), 773 (1992), and 883 (1993); this formally ends earlier claims to Kuwait and to Bubiyan and Warbah islands; ownership of Qurush and Umm al Maradim islands disputed by Saudi Arabia. Kuwait and Saudi Arabia continue negotiating a joint maritime boundary with Iran; no maritime boundary exists with Iraq in the Persian Gulf. There have been disagreements between the less-developed countries and the industrial countries about market accessibility. The importance of this dispute is reflected in its recurrence throughout most international and regional Economic forums. In recent years, the issues of free trade, protectionism, and export subsidization have become major points of contention among the leading industrial countries. The growths of trade, current account imbalances among the major economies, and shifts in unemployment trends, have contributed to the resurrection of trade as an issue of disagreement among these economies. In spite of disagreements about the flow of trade, the total exports of the industrial countries have expanded rapidly during the past few years, from $1236 billion in 1985 to over $2000 billion in 1989, i.e. an increase of 61% within five years. Another important shift in world trade has been in the currency composition of trade, as the US dollar has expanded its role in trade finance over the past few decades, to become the predominant currency. Of course, the use of the dollar as the unit of pricing or valua-4tion for crude oil, and as a means of actual payment for oil transactions, has enhanced its role in trade finance. The member countries of the Gulf Cooperation Council (GCC), of which Kuwait is a member, represent the most open and trade dependent economies in the Arab World. The characteristics of the GCC domestic markets and the pattern of resource endowment, in addition to a commitment to open markets that goes back into history, have made our region a strong adherent of the concept of free trade. The

exports of this group of countries have been very unstable over the last two decades. This instability has been due to shifts in the 6world demand for our predominant export, crude oil, and to changes in its price. Some members of this group, including Kuwait, have been seeking to stabilize their economies through diversification of the economic base, and through expansion into downstream oil activities in various parts of the world. A Kuwaiti Perspective on Trade Foreign trade has always been an important element in Kuwait’s economic life. During the pre-oil era, Kuwait developed into a regional trade centre, based on its geographical location and its large fleet of pearl-diving and trading ships. The Second World War led to a prolonged interruption of trade, but the commencement of oil exports in 1947 fundamentally altered the structure of Kuwait’s foreign trade, and indeed its whole economy. On the export side, oil has since been predominant, forming about 90% of total exports. The oil trade also created conditions that have changed the structure of Kuwait’s imports. Increased oil revenues created a boom economy, with higher consumer purchasing power, and a rush to build 8and adequate infrastructure for development. Conclusion: However, there are certain given fixed factors that ensure that Kuwait will quickly resume its traditional role as a regional financial and trade centre, in spite of the present interruption of external trade. First, Kuwait has been, and will become again, a surplus economy. Although our trade surplus declined in the middle 1980s to $1.98 billion in 1986, our estimates indicate that it grew to about $ 4.9 billion in 1989. Second, Kuwait has had a long and consistent tradition of economic freedom with minimal restrictions on external trade. This tradition will certainly continue, and the usual openness and the competitiveness of the economy will enhance trade in the near future. Third, the Kuwaiti private sector had accumulated decades of experience in trade and finance even before the oil period. The imports not only met domestic demand, but were also actively reexporting to neighbouring countries. This experience will be very helpful in the post-reconstruction period. They are confident that their commitment to free international trade will continue into the future. Their strong commercial and financial relations with the rest of the world will resume, for the mutual benefit of all parties. However, the events of the past few months have severely undermined the stability of our region as a whole. We all know that stability is of the utmost importance in creating the proper environment for the growth of trade and finance, which are closely interlinked. It is therefore of paramount importance to ensure that stability prevails in the future in the Gulf and the Arab World. Such stability will depend on the close

cooperation of all countries in the region and the support of the international community Bottom of Form

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