US embassy cable - 05TUNIS898

UNCLAS SECTION 01 OF 03 TUNIS 000898 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB, NEA/MAG (LAWRENCE), AND NEA/PI (FRANCESKI) 
COMMERCE FOR CLDP (MARC TEJTEL), ITA/MAC/ONE (DAVID ROTH), 
AND ADVOCACY CENTER (CHRIS JAMES) 
CASABLANCA FOR FCS (GAIL DEL ROSAL) 
STATE PLEASE PASS USTR (DOUG BELL) 
 
E.O. 12958: N/A 
TAGS: ECON, EINV, EFIN, TS 
SUBJECT: FREE TRADE WITH THE U.S.: ARE THE TUNISIANS READY? 
 
REF: A. 04 TUNIS 2422 
     B. 05 TUNIS 00610 
     C. 04 TUNIS 872 
 
 1. (SBU) Summary.  Booz Allen Hamilton's Emad Tinawi visited 
Tunis April 4 ) 8, to consult with U.S. Embassy and GOT 
officials, private sector representatives, and academics on 
U.S.-Tunisian trade and investment issues.  Tinawi's visit, 
as a private sector consultant to the Department, aimed to 
assess Tunisia's "political will" regarding our Trade and 
Investment Framework Agreement (TIFA) and Tunisia's 
preparedness for the next TIFA Council.  Tinawi's visit 
reinforced our understanding that Tunisia is articulating its 
long-term desire to move ahead, but may not fully appreciate 
or be ready to undertake the magnitude of effort required to 
get there.  Tinawi's visit assisted Post with conveying the 
scale of further TIFA negotiations and with highlighting what 
more could be done proactively to address TIFA issues and to 
raise public awareness in support for freer trade.  USTR has 
tentatively agreed to convene a second TIFA Council in June 
2005.  End Summary. 
 
General Support for TIFA 
------------------------ 
2. (SBU) GOT interlocutors, including Secretary of State 
Lajimi from the Ministry of Development and International 
Cooperation (MDIC), on repeated occasions noted that the GOT 
possesses the necessary technical expertise and resources to 
handle major trade agreements.  (MDIC is the lead Ministry on 
TIFA issues.)  The GOT believes its Association Agreement 
with the European Union, which will eliminate trade tariffs 
by 2008, is bringing Tunisia up to international standards. 
The EU Association Agreement, however, excludes important 
sectors like  "agriculture" and "services", which are 
anticipated to be major issues in further U.S. negotiations. 
 
3. (SBU) We delivered the message that U.S. trade 
negotiations are comprehensive, and thus more demanding than 
WTO requirements, ratcheting up commitments based on other 
bilateral trade agreements.  Lajimi expressed a strong desire 
to see the U.S.-Tunisian dialogue jump-started and pointedly 
requested that the USG "put an FTA on the table." 
 
Financial Services and the Banking Sector 
----------------------------------------- 
4. (U) According to Tinawi, the banking sector and 
liberalization of Tunisia's financial services are strategic 
areas we can promote for advancing reform in Tunisia. 
Tunisia is engaged in significant, deliberate efforts to 
modernize its economy and to integrate into international 
financial systems.  A Ministry of Finance representative 
noted that helping banks handle international competition is 
a key prerequisite to further liberalization of the financial 
services sector; and clean-up of Tunisia's bad loans (See Ref 
A) is similarly a precondition to opening up the sector. 
Technical assistance in these and other areas is still 
required to upgrade Tunisia's economy and the GOT often 
requests such assistance of the Embassy to foster the TIFA 
process.  We are continuing to develop such programs under 
our Middle East Partnership Initiative agenda and appreciate 
the Department's support in this regard. 
 
5. (U) A representative from Tunisia's Central Bank 
reiterated these messages in another meeting:  Tunisia's 
ongoing policy is to clear its bad loans and to privatize 
banks to encourage foreign investors, capital.  (Comment: 
Post notes these as encouraging signs that bode well for 
continued liberalization in the short-to-medium term and 
which acknowledge required reforms.  End Comment.)  The 
Central Bank representative also noted that Tunisia's 
liberalization of exchange policy and movement toward 
convertibility of the dinar is similarly introducing 
competitive forces on a gradual basis.  (See Ref B for more 
on Tunisia's preparations for currency convertibility.) 
 
6. (U) Representatives from MDIC also noted that, although 
the U.S. and GOT have agreed to move forward on TIFA issues, 
no significant national debate or public/private sector 
dialogue has yet occurred and they recognized this as an area 
for further action.  We also suggested that acceleration of 
the process might occur if the GOT were to articulate further 
concrete action plans to address specific USG concerns, and 
that progress on certain issues would serve as a signal to 
USTR that the GOT is committed to greater economic 
cooperation and trade relations with the U.S. 
 
7. (U) Customs officials in separate meetings additionally 
noted that they are working on the complete dismantling of 
tariffs with Europe under the EU Association Agreement, as 
well as ongoing administrative issues, such as rules of 
origin and customs valuations.  Emboff raised a past issue 
with the GOT's valuation mechanisms (essentially a mark-up of 
25 percent for valuations for certain imported goods).  This 
issue has never been resolved (See Ref C) and will need 
addressing.  Customs officials did seem willing to engage on 
this and other issues.  (Comment:  There is no doubt that 
Customs has the ability to accommodate and implement new 
rules and procedures when required.  End Comment.)  Customs 
officials again requested USG technical assistance for better 
education on U.S. standards and practices, vice European ones. 
 
Intellectual Property Rights 
---------------------------- 
8. (U) IPR issues continue to complicate our commercial 
relationship and our commercial advocacy efforts here. 
According to representatives at OTPDA (Organisme Tunisien de 
Protection de Droits d'Auteurs), the body responsible for 
copyright protection, IPR enforcement still remains a 
challenge, and there needs to be a "mentality shift" on IPR 
issues.  OTPDA clearly notes that the "political will" exists 
to attack these problems because Tunisia wishes to create its 
own information society predicated on protection of 
intellectual wares.  OTPDA is taking a proactive approach and 
is creating formulaic contracts for artists to better enable 
them to protect their rights.  OTPDA has also taken the lead 
in establishing an interagency commission to undertake an 
"evaluation designed to assess IPR compliance in Tunisia and 
to propose a responsive action plan."  (Comment:  We will 
follow such developments closely and report activity septel. 
End Comment.) 
 
The Non-official View:  Very supportive 
--------------------------------------------- 
9. (U) University of Tunis Professor of International Finance 
Ben Marzouka believes that a comprehensive liberalized trade 
regime with the U.S. is feasible and desirable, given the 
positive experience of integration into the EU trading 
system.  Ben Marzouka noted several challenges that will need 
to be addressed directly in the course of discussions with 
U.S. counterparts.  Again, Ben Marzouka echoed a lack of 
modernization in the banking sector, possibly requiring 
technical assistance to upgrade competitiveness.  He also 
cited bad loans that will require "structural adjustments" 
and government buy-back of loans to resolve the "Resolution 
Trust-like Corporations" that each Tunisian bank has created 
and into which bad loans have been shifted.  Other barriers 
to progress in our trade negotiations with Tunisia will be 
resistance from some EU quarters to perceived U.S. 
competition, lack of general competitiveness in Tunisia, 
which may spawn protectionist tendencies, or force 
"transition-implementation" periods, and concerns about 
employment dislocation, social stability, and sovereignty 
regarding foreign ownership of national interests. 
 
10. (U) In another meeting, Tunisian-American Chamber of 
Commerce (TACC) representatives stated that TIFA (and an 
eventual Free Trade Agreement with the U.S.) are key 
priorities of their current membership.  TACC is currently 
conducting a membership survey to cull information on current 
perceived obstacles to achievement of greater economic 
cooperation with the U.S.  TACC has also recently submitted a 
small grant proposal under the Middle East Partnership 
Initiative (MEPI) to organize a conference and website 
dedicated to free trade with the U.S. 
 
11. (U) According to TACC, differences of opinion on the 
benefits of freer trade with the U.S. do exist.  A number of 
sectors clearly desire greater access to U.S. markets, but 
other elements note that the EU will likely jealously guard 
its vested interests in Tunisia.  TACC also speculates that 
if trade does not liberalize more significantly with the 
U.S., then the EU's current 75 percent of Tunisian imports 
and exports, will very likely increase to 80 or 85 percent in 
the coming years. 
 
12. (SBU) Demographic Pressures.  TACC also noted that with 
economic growth correlating directly with job growth, 
Tunisia's growing demographic labor bubble will put strains 
on unemployment figures.  Estimates range from 70,000 to 
80,000 new jobs required annually to keep GDP growth at 
current 5 percent or higher. 
 
13. (U) Tunisian businesses are beginning to explore the U.S. 
market and many are doing so aggressively, according to TACC. 
 Nevertheless, concerns over consistency, quality, and 
competitiveness hinder the effort.  The intensely competitive 
U.S. corporate environment is also perceived as a threat to 
Tunisian companies, especially in the agricultural sector, 
which employs approximately 22 percent of Tunisia's labor 
force and indirectly affects a majority of Tunisian 
households.  Other barriers to a more advanced trade 
agreement with the U.S. are language, geography, business 
culture, and limited knowledge of U.S. regulations, 
especially those for U.S. Customs.  Increased awareness of 
the TIFA process and the benefits of liberalized trade will 
help advance the cause in Tunisia. 
 
14. (U) Tunisia's employer's union (UTICA), which represents 
80 per cent of Tunisia's industries numbering 200,000 
companies, also strongly supports greater trade 
liberalization, diversification, and cooperation with the 
U.S.  In fact, UTICA initiated with the GOT steps toward 
Tunisia's recent FTA with Turkey with the submission of a 
white-paper on the topic, later becoming a stakeholder on a 
Joint Commission organized to handle issues related to the 
FTA's negotiation and implementation.  UTICA hopes to be an 
active participant at the next U.S.-Tunisia TIFA Council and 
will likely be a key component in pushing any agreement 
through Tunisian approval and legislative processes. 
 
Comment 
------- 
15. (SBU) The Tunisians obviously desire the symbolic seal of 
approval of an FTA or at least to be seen as engaged with the 
U.S. on this level.  We should capitalize on their enthusiasm 
to move forward on trade and investment, as part of our 
broader reform agenda.  If not, we risk sending mixed signals 
regarding our commitment to reform.  The creation of 
incentives for new high-value-added jobs in a population of 
only 10 million will support our agenda in the direction of 
greater economic opportunity.  U.S. competitive advantages in 
high-tech sectors are already being leveraged in our MEPI 
assistance programming to positive effect here. 
Additionally, competitive tendencies among North 
African/Middle Eastern countries could also be emphasized as 
part of a chain-reaction of reform in the Middle East. 
Morocco beating Tunisia to the punch in achieving an FTA with 
the U.S. has left the Tunisians consciously envious of 
Morocco's enhanced status and desiring to join the club. 
 
16. (SBU) Tinawi's visit reaffirmed Post's position that our 
TIFA dialogue with the Tunisians is a positive relationship 
that also sends a broader message of economic reform 
throughout the region.  Tunisia has already embarked on an 
ambitious path of reform as part of its greater economic 
development plan in conjunction with the implementation of 
its Association Agreement with the European Union.  We 
encourage USTR to continue its engagement on our TIFA process 
so as not to lose forward momentum.  Open markets, greater 
transparency, job creation, and higher quality of life are 
the strongest reasons for using our TIFA agenda as incentives 
for bringing reform to the Arab world.  Failing to move 
forward with our TIFA dialogue at this juncture will risk 
sending precisely the opposite message, consequently 
fortifying those in the Arab world who seek to diminish 
economic ties with the U.S. and reduce our ability to 
influence political reform in the region.  We will need to 
guide them through further trade and investment negotiations 
in order to achieve our objectives. 
HUDSON