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