Transparency of the Regulatory System
While Kuwait’s open economy has generally promoted a competitive market, Kuwait has not developed effective antitrust laws to foster competition. When government intervention occurs, it is most frequently to the benefit of Kuwaiti citizens and Kuwaiti-owned firms. Nonetheless, U.S. investors have not alleged discrimination. The State Audit Bureau reviews government contracts and accounting, but does not share the results transparently. Kuwait does not have a centralized online location where key regulatory actions are published similar to the Federal Register in the United States.
Kuwait does not participate in the Extractive Industries Transparency Initiative (EITI); neither does it have any domestic transparency measures requiring the disclosure of payments made to governments for projects related to the commercial development of oil, natural gas, or minerals.
International Regulatory Considerations
Kuwait has been part of the GCC since its formation in 1981. The GCC common market began in January 2008. The customs union became operational in 2015. National norms still predominate. American standards and internationally recognized standards are typically used.
Legal System and Judicial Independence
Kuwait has a developed civil legal system, based in Egyptian and French law, that is influenced by Islamic law. As a traditional trading nation, the judiciary is familiar with international commercial laws. Kuwait has been a member of the General Agreement on Tariffs and Trade (GATT) since 1963 and joined the WTO in January 1995; it is not a signatory to the WTO Government Procurement Code. There are specialized courts, including a commercial court to adjudicate commercial law.
Kuwaitis and non-Kuwaitis, including U.S. citizens, who have been charged with criminal offenses, placed under investigation, or are involved in unresolved financial disputes with local business partners, can be subject to travel bans. These bans are rigidly enforced and prevent the individual from leaving Kuwait until the matter is resolved. Travel bans can be initiated by requests for legal action and may remain in place for a substantial period while the case is being investigated.
To protect their interests, U.S. firms are advised to consult with a Kuwaiti or locally based foreign law firm when executing contracts with local parties. Contracts between local and foreign parties serve as the basis for resolving any future commercial disputes. The process of resolving disputes in the Kuwaiti legal system can take years depending on complexity and the parties involved.
Laws and Regulations on Foreign Direct Investment
The 2013 FDI Law replaced the 2001 Direct Investment Promotion Law, as part of the Kuwait Development Plan (KDP). Spanning 2009 to 2035, the KDP aims to reduce oil dependence by transforming the economy into a diversified commercial and financial hub. The KDP comprises five separate five-year plans; the current plan provides USD 116 billion for a broad range of projects, including 45,000 new housing units, metro and railway systems, and a new refinery. In the KDP, Kuwait is seeking to propel the private sector’s share of the economy to 41.9 percent, from its current level of 26.4 percent.
In April 2015, IBM received KDIPA’s first investment license, allowing the company to establish a 100 percent foreign-owned company in Kuwait and to benefit from the incentives and exemptions granted under the new law. Since IBM, KDIPA has granted foreign ownership licenses to 13 additional foreign firms, including U.S. companies GE, Berkeley Research Group, Malka Communications, and Maltbie.
Other recent legal measures to facilitate FDI and economic growth include Law No. 116 of 2014 regarding public-private partnerships (PPP), and a new Companies Law No. 1 of 2016. The PPP law changed the Partnerships Technical Bureau to the Kuwait Authority for Partnership Projects (KAPP) [http://www.ptb.gov.kw/en/Home ]. KAPP expects to award many of the upcoming large infrastructure projects using the PPP framework. The Commercial Agency Law (CAL), Law No. 13 of 2016 removes exclusivity, enabling foreign firms to have multiple agents to promote their products.
The court system does not appear to be subject to executive or other interference against foreign investors or companies. Nonetheless, the business climate favors Kuwaiti- and GCC-owned enterprises.
Competition and Anti-Trust Laws
Kuwait lacks comprehensive competition protection mechanisms. The government passed Protection of Competition Law No. 10 in 2007. It enacted by-laws in 2012 through the establishment of a Competition Protection Bureau (CPB) intended to safeguard free commerce, bar monopolies, investigate complaints, and refer to prosecution acts determined to undermine competition, supervise mergers and acquisitions, and fix commodity prices. As of April 2017, however, the CPB was not yet fully functional. The World Bank is working with Kuwait to amend the law and redefine the CPB’s mission.
The National Assembly passed a new Public Tenders Law No. 49 of 2016. All bids for government-funded infrastructure projects (excluding military and security programs) in excess of KD 75,000 (USD 246,000) must be submitted to the Central Tenders Committee (CTC). A major change allows foreign companies to bid on some projects provided at least 30 percent of the products used are of national origin and 30 percent of the work is awarded to local subcontractors.
Expropriation and Compensation
Kuwait has had no recent cases of expropriation or nationalization involving foreign investments. As a safeguard, the FDI law guarantees against expropriation or nationalization, except for the public benefit, in accordance with existing laws. In such cases, Kuwait would compensate for the real economic value of the project at the time of expropriation. The last case of nationalization occurred in 1974.
ICSID Convention and New York Convention
Kuwait is a signatory to the International Center for the Settlement of Investment Disputes (ICSID Convention) and to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Investor-State Dispute Settlement
The FDI 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 contain clauses specifying recourse to traditional commercial arbitration. The Kuwaiti judicial system recognizes and enforces foreign judgments only when reciprocal arrangements are in place.
International Commercial Arbitration and Foreign Courts
The recognition and enforcement of foreign arbitral awards occurs more expeditiously than the enforcement of foreign judgments. Enforcement of the former, however, must meet with the same reciprocity and procedural criteria of enforcing foreign judgments under Articles 199 and 200 of the Civil and Commercial Procedure Code No. 38 of 1980. Accordingly, an award passed by a foreign arbitral panel or tribunal may be enforced in Kuwait provided that: A) the country where the award has been rendered is a member of the New York Convention; B) the foreign award is rendered by a competent arbitrator in accordance with the laws if the country in which it was awarded; C) the parties have been promptly summoned to appear and duly represented before the arbitral tribunal; D) the award must become a res judicata according to the laws of the country in which it was awarded; and E) the award must not be in conflict with an order judgment that has been rendered by a local court in Kuwait and additionally does not contradict mandatory provisions or constitutes a criminal conduct, or violations to morality or public policy, under Kuwaiti Laws.
Alternative Dispute Resolution (ADR) mechanisms include conciliation, negotiation, and mediation. These mechanisms depend on the parties’ goodwill to settle their disputes with or without the help of a third party.
Law No. 11 of 1995 on Judicial Arbitration for Civil and Commercial Articles, the relevant organizing and explanatory Ministerial Resolutions thereof, and Civil and Commercial Procedure Code No. 38 of 1980 outline the formation, operation, jurisdiction, and procedures of the arbitral panel, and the issuance of arbitral awards, through the Kuwait Arbitration Center. They also define regulations for international conventions, free trade agreements, and the due application of the reciprocal clause between parties.
Bankruptcy is still governed under Law No. 68 of 1980, which does not meet international standards in covering the full range of companies, or in restructuring debt. The 1980 law does not criminalize bankrupt individuals, but their political rights become limited upon a proclamation of bankruptcy. A bankrupt individual may not serve as a candidate or elector in any political position, be appointed to a public post or assignment, or serve as director or chairman in any company until the individual’s rights are reinstated in accordance with law. Kuwait is working with the World Bank to draft bankruptcy legislation designed to assist businesses in recovering from financial difficulties rather than being liquidated. As of April 2017, the Ministry of Finance had referred this draft law to the Council of Ministers for its review. Recently, the KIA had 22 remarks to enhance the pending law.