US COMPANIES BEMOAN COMPLEX REGULATIONS, BUT ARE

UNCLAS SECTION 01 OF 03 TUNIS 000120

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/MAG (HARRIS AND HOPKINS) AND EB/CIP
STATE PASS USTR (BELL),USPTO (ADLIN AND ADAMS),USAID
(MCCLOUD)
USDOC FOR ITA/MAC/ONE (NATHAN MASON),ADVOCACY CTR (JAMES),
AND CLDP (TEJTEL)
CASABLANCA FOR FCS (ORTIZ)
LONDON AND PARIS FOR NEA WATCHER

E.O. 12958: N/A
TAGS: BEXP ETRD EINV ECPS EINT KIPR TS
SUBJECT: US COMPANIES BEMOAN COMPLEX REGULATIONS, BUT ARE
STILL HAPPY IN TUNISIA

REF: A. TUNIS 119

B. TUNIS 105

C. TUNIS 67 AND PREVIOUS NOTAL

D. 06 TUNIS 629

E. 06 TUNIS 429

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Summary
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1. (U) During a January roundtable hosted by Ambassador,
representatives of US companies in Tunisia highlighted a wide
range of issues related to doing business in Tunisia. Common
complaints included Tunisia's complex regulatory environment,
excessive restrictions on importation, and poor
telecommunications infrastructure. Despite the myriad
challenges facing US companies, most representatives
emphasized that their businesses were healthy and that they
were satisfied that they invested in Tunisia. Ambassador
stressed USG support for American business in Tunisia and
has subsequently raised US company concerns with several GOT
ministers. End Summary.

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Red Tape
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2. (SBU) The most common, and passionate, complaint voiced by
US companies was the complexity of Tunisian regulations
governing trade and commerce and the slow pace of the GOT
bureaucracy. ExxonMobil Tunisia Director General Arnaud
Blouin noted that he had been trying to get permission from
the GOT to sell a property for over three years, despite the
fact he had already negotiated the terms of the sale with the
buyer. Blouin stated that examples such as this make it
difficult to justify acquisitions of new property and
investments as there is no guarantee the asset could be
divested in a timely manner. Central Bank control over
exchange operations, customs delays, and Ministry of Finance
regulations also slow international commerce. Crown Maghreb
Director General Aidan Sanderson noted that the Ministry of
Finance had yet to refund the (recoverable) 18 percent
value-added tax (VAT) the company paid for imported
equipment. Crown submitted its refund request in May 2006
and has only recovered 3.1 million Tunisian dinars (2.4
million USD) of the total 9 million dinars (6.9 million USD)
claimed. The onerous recovery procedures and long wait-times
hinder the efficient flow of capital, preventing resources
from being allocated to further investment.

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Telecommunications
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3. (SBU) While all participants acknowledged the excellence
of Tunisian electric and water utilities, Tunisie Telecom
services were widely panned for the time required to
establish a connection and the quality of the connection
itself. Although there are multiple Internet service
providers, Tunisie Telecom maintains a monopoly on fixed line
services. Prior to establishing a high-speed Internet
connection, Tunisie Telecom must install a high bandwith
line. Anecdotal reports from Tunisians and EmbOffs show
waits of several months to receive the necessary Tunisie
Telecom line; the US company representatives present
complained that they are subject to similar wait times.
Moreover, Internet connection speed and quality were critized
as subpar. For multinational companies high-speed
telecommunications are critical, and those present expressed
their frustration that Tunisia's telecom infrastructure
remains inadequate compared to its otherwise excellent
utility and transportation infrastructure. A British Gas
representative recently told EconOff that his company had

TUNIS 00000120 002 OF 003


taken matters into its own hands by laying telecommunications
cables to ensure high-speed connectivity.

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IPR
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4. (SBU) Although noting continuing concerns with
intellectual property rights (IPR),particularly in the
pharmaceutical industry, Pfizer representative Amelle Gaddes
expressed relief over the recent decision by the GOT to end
its practice of "correlation." Prior to December 31, 2006,
the GOT prohibited the importation of foreign pharmaceutical
equivalents if the drug was produced locally, preventing
brand names such as Pfizer from importing certain
pharmaceutical products (ref D). While pleased that
"correlation" has come to an end, Gaddes noted that the
decision was not retroactive and that drugs placed on the
banned list prior to decision will continue to be blocked
from importation. Gaddes informed Econ/CommercialOff that in
the days prior to the decision 150 new pharmaceutical
products, including four Pfizer products, were quickly added
to the list of correlated products that could not be
imported. (Note: Ambassador subsequently raised this issue
with the Minister of Health (septel). End Note.)

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Export Orientation
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5. (SBU) Several of the representatives lamented the GOT
focus on exports and noted that, from an economic policy
perspective, the emphasis is excessive and counterproductive.
In order to encourage exports, companies that export over 70
percent benefit from a wide range of tax and financial
incentives, including exemption from certain import duties.
Crown's Sanderson, exasperated, commented that the focus on
exports and incentives provided to exporting companies
adversely affects Tunisian commerce. From an entrepreneurial
standpoint, an export-oriented business is the most difficult
to launch; Tunisian businesses would be more successful if
they started to produce for the domestic market before trying
to export. Sanderson complained of the 43 percent duty he
had to pay on imported spare parts. As his EU competitors
only pay a 7.5 percent duty for the same parts, it is
difficult for Crown to remain competitive. Following the
full implementation of the EU Association Agreement, set for
2008, EU companies will pay zero duty, creating an even
larger gap between US and EU companies. In a telling, but
frustrating, example of the effect of the excessive stress on
exportation, Sanderson noted that his company was forced to
import the safety boots for his factory's employees even as
EVOL's Managing Director Daniele Fogagnolo revealed that EVOL
is producing the very same boots for export right in Tunisia.


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Still Happy in Tunisia
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6. (U) Despite the regulatory headaches, most representatives
indicated that their businesses were doing well and that they
were satisfied to have chosen to do business in Tunisia.
Even after the recent security-related incidents on December
23 and January 3 (ref C),all of the representatives
expressed that they continue to feel safe in Tunisia.
Although the companies complained about the slow pace of GOT
economic reforms, those present believed that the climate for
business in Tunisia was generally improving. They expressed
the belief that the higher levels of the GOT, and Minister
for Development and International Cooperation (MDIC) Jouini
in particular, understand what reforms need to take place; it
is the lower level bureaucrats that fail to see the bigger

TUNIS 00000120 003 OF 003


picture.

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Comment
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7. (SBU) The opinions expressed by the US company
representatives echo complaints made by other foreign
companies and even by Tunisian business people. Excessive,
and sometimes confusing, GOT commercial regulations hamper
not only American investment, but Tunisian entrepreneurship
as well. Similarly, poor telecommunications infrastructure
serves as a drag on the Tunisian economy as a whole, which is
surprising given the strong emphasis on ICT sector
development by the GOT. Although the entry of a second
mobile operator and the partial privatization of Tunisie
Telecom (ref E) have had a moderately positive impact on
Tunisie Telecom operations, the plans to privatize the
remaining 65 percent stake of Tunisie Telecom and license a
second fixed line carrier (ref A) would be welcome steps to
spur upgrades to Tunisia's telecom infrastructure. Yet, as
the representatives noted, the problem is not that the GOT
does not understand what reforms are necessary, but that the
GOT appears to be in no rush to implement them. Ambassador
has raised US firms' concerns with the Minister for
Development and International Cooperation Jouini (ref B) and
Minister for Communications Technology Ouaili (ref A) and
will continue to raise these issues with GOT officials as
appropriate. End Comment.
GODEC