Transparency of the Regulatory System
Kuwait does not have a centralized online location where key regulatory actions are published akin to the Federal Register in the United States. The regulatory system does not require that regulations be made available for public comment. The government frequently passes draft regulations to interested parties in the private sector, such as the Kuwait Chamber of Commerce and Industry or the Bankers Association, for comment.
The State Audit Bureau reviews government contracts and audits contract performance, but does not publicly share its results.
Kuwait does not participate in the Extractive Industries Transparency Initiative (EITI), nor does it incorporate domestic transparency measures requiring the disclosure of payments made to other governments related to the commercial development of oil, natural gas, or mineral deposits. However, the Kuwait economy is almost wholly dependent upon oil, the extraction of which is deemed a responsibility of the government and that is subject to close National Assembly oversight.
International Regulatory Considerations
Kuwait joined the General Agreement on Tariffs and Trade (GATT) in 1963 and became a founding member of the WTO in 1995. However, Kuwait is not a signatory to every WTO plurilateral agreement, such as the Trade Facilitation Agreement and the Agreement on Government Procurement.
Kuwait has been part of the GCC since its formation in 1981. The GCC launched a common market in January 2008 and a customs union in 2015. The GCC continues to forge agreements on regional standards and coordinate trade and investment policies. American standards and internationally recognized standards are typically accepted. For more information regarding GCC standards and policies, please refer to the following website (link to GCC website): http://www.gcc-sg.org/en-us/Pages/default.aspx
Legal System and Judicial Independence
Kuwait has a developed civil legal system, based on Egyptian and French law and influenced by Islamic law. Having evolved in a historical and active trading nation, the court system in Kuwait is familiar with international commercial laws. Kuwait’s judiciary supports specialized courts, including a commercial court to adjudicate commercial law. Court decisions do not appear to be subject to government interference or biased against foreign investors or companies.
All those who have been charged with criminal offenses, placed under investigation, or involved in unresolved financial disputes with local business partners may be subjected to a travel ban. Travel bans prevent an individual from leaving Kuwait until a legal matter is resolved or a debt may remain in place for a substantial time while the case is investigated, resolved, and/or prosecuted. Failure to repay a debt can result in a prison term ranging from months to years, depending upon the amount owed.
U.S. firms are advised to consult with a Kuwaiti law firm or the local office of a foreign law firm before executing contracts with local parties. Fees for legal representation can be very high. 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 are subject to lengthy delays and can take years depending on the complexity of the issue and the parties involved. During these delays, U.S. citizens can be deprived of income streams related to their business venture and be forced to surrender assets and ownership rights before being allowed to depart the country. Sentences for drug-related convictions can include lengthy prison terms, life sentences, and even the death penalty.
Laws and Regulations on Foreign Direct Investment
In an attempt to diversify the economy by attracting foreign investment and growing private sector employment, Kuwait passed a new foreign direct investment law in 2013 permitting up to 100 percent foreign ownership of a business – if approved by the Kuwait Direct Investment Promotion Authority (KDIPA). Without KDIPA approval, all businesses incorporated in Kuwait must be 51 percent-owned by Kuwaiti or GCC citizens and seek licensing through the Ministry of Commerce and Industry. In reviewing applications from foreign investors, KDIPA places emphasis on creating jobs and the provision of training and education opportunities for Kuwaiti citizens, technology transfer, diversification of national income sources, increasing exports, support for local small- and medium-sized enterprises, and the utilization of Kuwaiti products and services. KDIPA has sponsored 16 foreign firms, including five U.S. companies. In addition to KDIPA assistance in navigating the bureaucracy, available investment incentives include tax benefits, customs duties relief, land and real estate allocations, and permission to recruit required foreign labor.
Other recent legal measures to facilitate foreign direct investment 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 created the Kuwait Authority for Partnership Projects [see: http://www.kapp.gov.kw/en/Home ]. Kuwait Authority for Partnership Projects expects to award many upcoming large infrastructure projects using the PPP framework.
Competition and Anti-Trust Laws
While Kuwait’s open economy has generally promoted a competitive market. In 2007, the government enacted the Protection of Competition Law No. 10 and by-laws in 2012 that facilitated the establishment of a Competition Protection Bureau to safeguard free commerce, ban monopolies, investigate complaints, and refer to prosecution acts determined to undermine competition, and supervise mergers and acquisitions. As of April 2018, the Competition Protection Bureau was close to becoming fully operational. U.S. investors have alleged only a few instances of discrimination.
The Commercial Agency Law No. 13 of 2016 removed exclusivity, enabling foreign firms to have multiple agents to market their products.
In 2016, the National Assembly passed a new Public Tenders Law No. 49. All bids on government-funded infrastructure projects (excluding military and security tenders) in excess of KD 75,000 (USD 250,000) must be submitted to the Central Agency for Public Tenders. The law requires that foreign contractors bidding on government contracts purchase at least 30 percent of their inputs locally and award at least 30 percent of the work to local contractors, where available. The law favors local sourcing by mandating a 15 percent price preference for locally produced items.
Expropriation and Compensation
Kuwait has had no recent cases of expropriation or nationalization involving foreign investments. The 2013 Foreign Direct Investment Law guarantees investors against expropriation or nationalization, except for the public benefit as prescribed by law. In such cases, investors should be compensated for the real value of their holdings at the time of expropriation. The last 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, 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, located at the Kuwait Chamber of Commerce and Industry. They also define regulations for international conventions, free trade agreements, and the just 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. While the 1980 law does not criminalize bankrupt individuals, indebtedness may result in incarceration, and a bankruptcy declaration limits political rights. 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 to recover from financial difficulties as an alternative to liquidation. As of December 2017, the Ministry of Commerce and Industry had referred this draft law to the Council of Ministers for comment and review.