TUNISIA: MINISTER TELLS A/S WELCH TUNISIA SERIOUS

C O N F I D E N T I A L TUNIS 000645 SIPDIS SIPDIS STATE FOR EB AND NEA/MAG (WLAWRENCE) PASS TO COMMERCE ITA/MAC/ONE (ROTH) AND CLDP (TEJTEL) PASS TO USTR (D.BELL) PASS TO USPTO (M.ADLIN) CASABLANCA FOR FCS (R.ORTIZ) E.O. 12958: DECL: 03/17/2016 TAGS: ECON ETRD EFTA PREL TS SUBJECT: TUNISIA: MINISTER TELLS A/S WELCH TUNISIA SERIOUS ABOUT TRADE TALKS Classified By: Ambassador William J. Hudson; Reasons 1.4 (b),(d) ¶1. (C) Summary. Minister of Development and International Cooperation Jouini told A/S Welch March 15 that job creation and boosting foreign investment were key challenges to Tunisia in the next ten years. Part of the strategy included diversifying trade exchanges, now primarily with the EU, to other partners, including the U.S. He said Tunisia was serious about the TIFA process and an eventual FTA, and when USTR was ready he could "mobilize the relevant ministries and the private sector." A/S Welch cautioned that internal developments in Tunisia were important regarding the salability of a proposed FTA in the USG. End Summary. ¶2. (SBU) In a March 15 meeting with A/S Welch, Minister of Development and International Cooperation Jouini described the future challenges to Tunisia's continued economic growth, focusing on job creation and increasing foreign investment. Jouini said that Tunisia faces a demographic bulge in the next 10 years which will increase the number of Tunisian university students to 500,000 by 2016, and boost demand for jobs by 10 percent. Although the bulge will be temporary (Tunisia's birth rate remains very low at 1 to 1.5 percent) these degree holders will need and expect employment. Jouini said that the GOT estimates it will need to increase its the GDP growth rate from an average 5 percent to at least 6 to 6.5 percent to ensure the level of job creation needed. ¶3. (C) Jouini said the GOT was pursuing various methods to boost economic growth. Increasing foreign investment was key. Although he acknowledged that the size of the Tunisian market was fairly limited, Jouini said Tunisia was becoming well integrated into the global economy and could usefully serve as a base for multinational enterprises. Responding to A/S Welch's question, he listed the key areas for investment as tourism and transport sectors (port development),health services, financial services, and telecommunications. He also said Tunisia's privatization of state owned industries (proceeding slowly but in the right direction) offered good opportunities for the private sector. He said one of the goals of his ministry was to increase the share of services as part of GDP to 60 percent by 2016, which would offer relatively well-educated Tunisians more attractive job options. Tunisia serious about TIFA and an FTA -------------- ¶4. (C) Jouini said that part of the growth strategy was to diversify Tunisia's trade exchange, now focused primarily (80 percent) on the EU. In this context, he told A/S Welch that Tunisia was serious about pursuing the Trade and Investment Framework Agreement (TIFA) process with the U.S., and ultimately negotiating an FTA. He said that Tunisia may proceed more deliberately than other Arab countries on trade issues, but its economy was much more complex. In addition, Tunisia's approach made the process more stable and predictable; when the GOT finally concludes an agreement it is "generally irreversible" Jouini said. He told A/S Welch that the GOT was ready to engage more deeply on TIFA issues (as identified by USTR in recent non-papers) but felt that USTR sometimes sent mixed signals about its desire to move ahead; it seemed to pay a lot of attention to Tunisia for a period, followed by a relative lull. (NB: The Ambassador, present at the meeting, explained this was mainly because other Arab states were more aggressive in pressing to move trade talks forward very quickly.) ¶5. (C) A/S Welch cautioned Jouini to observe what had happened to TIFA talks in Egypt; a TIFA process should not prompt automatic expectations of an FTA. It was important to remember that internal developments in Tunisia affected the salability of an FTA in the U.S. regardless of successful negotiations. Jouini had no specific response other than to reiterate his willingness to mobilize the relevant ministries and the private sector once USTR was ready. He also made a plea for continued technical assistance despite the lack of a structured AID program in Tunisia. Comment -------------- ¶6. (C) Although the GOT often professes its desire to diversify trade beyond its heavy EU-weighting, there has been virtually no diminishment of its Eurocentric profile in recent years. Tunisia's business culture, its inherited French administrative procedures, and its relatively small market make serious increases in trade with the U.S. probably overly-ambitious in the near-term, though we appreciate the GOT's official position and maintain the goal of an eventual Free Trade Agreement. We believe that the GOT will use the coming full implementation of its FTA with the EU (2008) as its primary litmus test, deciding seriously whether to tackle a more ambitious and comprehensive U.S. FTA only after this experience with the EU. We view Jouini's comments on USTR as illuminating, but mildly disingenuous. Engagement with USTR on theoretical divergence analyses is fine, but we fully understand USTR's need to see the GOT's real structural reform and economic opening before more serious negotiations at an increased pace are embraced. Like most things Tunisian, the GOT wants to appear not to rock the boat and to make its advances gradually and methodically. Trade relations with the U.S. are no exception to this norm. HUDSON