TUNISIA: INVESTMENT CLIMATE STATEMENT 2007

UNCLAS SECTION 01 OF 04 TUNIS 000140

SIPDIS

SIPDIS

STATE FOR NEA/MAG (HARRIS) AND EB/IFD/OIA (HATCHER AND KAMBARA)
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: EINV EFIN ETRD ELAB KTDB OPIC USTR TS
SUBJECT: TUNISIA: INVESTMENT CLIMATE STATEMENT 2007

REF: 06 STATE 178303

PART I


1. Tunisia's 2007 Investment Climate Statement. Topics covered include:

Paragraph -- Topic
2 -- Openness to Foreign Investment
16 -- Conversion and Transfer Policies
21 -- Expropriation and Compensation
22 -- Dispute Settlement
26 -- Performance Requirements and Incentives
33 -- Right to Private Ownership and Establishment
36 -- Protection of Property Rights
39 -- Transparency of Regulatory System
41 -- Efficient Capital Markets and Portfolio Investment
48 -- Political Violence
49 -- Corruption
54 -- Bilateral Investment Agreements
56 -- OPIC and Other Investment Insurance Programs
57 -- Labor
60 -- Foreign Trade Zones/Free Trade Zones
63 -- Foreign Direct Investment Statistics

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Openness to Foreign Investment
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2. The Tunisian government actively encourages selected foreign direct
investment (FDI),particularly for export-oriented industries. It
screens potential FDI to minimize the impact of the investment on
domestic competitors and employment.


3. Total FDI in Tunisia is estimated at about US $19 billion. It has
contributed to the creation of over 2,765 companies and approximately
268,000 jobs. Foreign investment in manufacturing industries producing
for export has long been the major generator of jobs in Tunisia and has
attracted the bulk of FDI. In 2006, FDI totaled US $921 million,
compared to about 750 million in 2005.


4. Until recently the Government discouraged foreign investment in
service sectors such as restaurants, real estate, and retail
distribution, but there are signs of relaxation of this policy. In
particular, FDI in retail distribution is expanding rapidly. French
multinational retail chain Carrefour opened its first store in 2001,
followed by the entry of French retail company Geant in 2005. There
has also been major Persian Gulf investment in the real estate sector.
Tunisian law does not authorize franchising as the rule but it
tolerates, on case by case basis, labor intensive franchising projects
that could increase job creation.


5. The 2002 sale of the country?s first private GSM cell phone license
to Egypt's Orascom underlined Tunisia?s commitment to WTO to open up
telecommunications to foreign investment. In July 2006, TECOM
Investments and Dubai Investment Group (DIG) purchased a 35 per cent
stake, valued at US $2.25 billion, in state-owned Tunisie Telecom.
Major FDI has also entered the financial sector via the partial
privatization of the UIB (Union Internationale de Banques) in 2002,
when 52 percent of its capital was sold to France?s Societe Generale.
The privatization of Banque du Sud, recently renamed Attijari Bank, was
completed in late 2005. The Spanish/Moroccan consortium, which paid
approximately US $45 million for the state?s 34 percent share of the
bank?s capital, gained majority control of the bank when it also
purchased a 17 percent block of shares from a private Tunisian group.


6. Foreign investment in Tunisia is regulated by the Investment Code
Law No. 93-120, dating from December 1993. It covers investment in all
major sectors of economic activity except mining, energy, the financial
sector and domestic trade.


7. The Tunisian Investment Code divides potential investments into two
categories: (1) Offshore, in which foreign capital accounts for at
least 66 percent of equity and at least 80percent of production is
destined for the export market, and (2) On-shore, in which foreign
equity is limited to 49 percent in most non-industrial projects.

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(On-shore industrial investment can have up to 100 percent foreign
equity).


8. The legislation contains two major hurdles for potential FDI: (1)
Foreign investors are denied national treatment in the agriculture
sector. Foreign ownership of agricultural land is prohibited, although
land can be secured through long-term (up to 40 years) lease. However,
the Government actively promotes foreign investment in agricultural
export projects. (2) For onshore companies outside the tourism sector,
government authorization is required if the foreign capital share
exceeds 49 percent.


9. Investment in manufacturing industries, agriculture, agribusiness,
public works, and certain services requires only a simple declaration
of intent to invest. Other sectors can require a series of Government
of Tunisia authorizations.


10. FDI in certain state monopoly activities (electricity, water,
postal services) can be carried out following establishment of a
concession agreement. There are also certain restrictions on trade
activities. With few exceptions, domestic trading can only be carried
out by a company set up under Tunisian law, in which the majority of
the share capital is held by Tunisians and management is Tunisian. An
additional barrier to non-EU investment results from Tunisia?s
Association Agreement with the European Union. The EU is providing
significant funding to Tunisia for major investment but clauses in the
agreement prohibit non-EU member countries from participation in many
EU-funded projects.


11. A large share of Tunisia?s FDI in recent years has come from a
privatization program to sell off state-owned or state-controlled
enterprises. The program began in 1987 with the sale of the smallest
and least viable public sector enterprises, but has since included
major state assets. Enterprises currently involved in the
privatization process include Tunisie Telecom, the government
telecommunications service. Tenders have also been launched for the
partial sale of the national petroleum distribution company (SNDP) and
the state automobile manufacturer (STIA). The planned sale of a 76.3
percent stake in Magasin General, the Government of Tunisia?s 43-store
supermarket chain, is ongoing. As the Government of Tunisia?s
privatization program slows down, Tunisia will no longer receive large
amounts of FDI from the privatization of state assets and maintaining
current FDI levels may become a challenge.


12. The Ministry of Development and International Cooperation and the
Foreign Investment Promotion Agency (FIPA) Tunisia hold an annual
investment promotion event, the Carthage Investment Forum, to introduce
the Tunisian investment environment and its business opportunities to
global investors. The 8th Forum was held on June 15-16, 2006.


13. There is no evidence of consistent discrimination against foreign
investors either at the time of initial investment or at a later stage.
The GOT?s investment promotion authorities have established a system
of regulations that has received favorable feed back from the US
companies it has assisted. A US investor in electricity production
successfully lobbied for a change in Government of Tunisia legislation
which permitted the investment to proceed. Another US investor
received Government of Tunisia support in a dispute over the
application of Investment Code incentives. A major ?greenfield?
investment in manufacturing has been completed and is operational. The
US investor has warmly praised FIPA for its continuing support from the
outset of the project.


14. Nevertheless, there are difficulties, particularly when US
companies have attempted to launch projects in sectors which the
Government of Tunisia does not actively promote.


15. Tunisia?s largest single foreign investor is British Gas, which has
developed the Miskar offshore gas field (US $650 million) and is
investing a further US $500 million for new development. Major foreign
presence in other key sectors include telecommunications and
electronics (Lucent, Alcatel, Ericsson, Siemens, Sony, Philips,
Thomson, Huwaei, ZTE),the automotive industry (Lear Corporation,
Isuzu, Pirelli, Fiat, Idec),and food products (Nestle, Danone,
Chambourcy). Major US company presence in Tunisia includes: Lear

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Corporation, Citibank, Exxon/Mobil, Pfizer, Merck, Microsoft, General
Motors, Coca-Cola, Ford, Sara Lee (represented in Tunisia under the
name of Essel Tunisie / DBA),Sylvania, Stream, Crown Can, Johnson
Controls, and Eurocast (a joint venture with Palmer). EVOL, originally
part of an Italian-owned group producing safety footwear for the export
market, was recently purchased by US investors and, with a staff of
4,000, is now the largest US employer in Tunisia. In 2006, a second US
shoemaker, ALTEK, opened a plant in Tunisia, and Hewlett Packard opened
a hardware support call center. US investors also recently purchased
the Lee Cooper jean manufacturing plants originally under UK/Tunisian
ownership.

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Conversion and Transfer Policies
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16. The Tunisian dinar is not a fully convertible currency, and it is
illegal to take dinars in or out of the country. Although it is
convertible for current account transactions (i.e. most bona fide trade
and investment operations),Central Bank authorization is needed for
some foreign exchange operations. The Government of Tunisia predicts
full convertibility of the dinar is not likely before 2009.


17. Nonresidents are exempt from most exchange regulations. Under
foreign currency regulations, nonresident companies are defined as
having: (1) Nonresident individuals who own at least 66 percent of the
capital, and (2) capital financed by imported foreign currency.


18. Foreign investors may transfer returns on direct or portfolio
investments at any time and without prior authorization. This applies
to both principal and capital in the form of dividends or interest. US
companies have praised the speed of transfers to outside Tunisia, but
lamented inexplicably long delays in some operations.


19. There is no limit to the amount of foreign currency that visitors
can bring into Tunisia and exchange for Tunisian dinars. Amounts
exceeding the equivalent of 1,000 Tunisian dinars (approximately US
$800) must be declared at the port of entry. The unused balance of
such foreign currency may be taken out of the country. Tunisian
customs authorities may require production of currency exchange
receipts on exit.


20. The dinar is traded on an intra-bank market. Trading operates
around a managed float established by the Central Bank (based upon a
basket of the Euro, the US dollar and the Japanese yen). The
dollar/dinar value fluctuates on a daily basis, with the dollar trading
most recently (December 2006) at approximately 1.3 TND. In 2006, the
TND appreciated roughly 4.4 percent against the US dollar and
depreciated 5.4 percent against the Euro.

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Expropriation and Compensation
--------------


21. The Tunisian government does expropriate property by eminent
domain; there is no evidence of consistent discrimination against US
and foreign companies or individuals. There are no outstanding
expropriation cases involving US interests and such cases are rare.
No policy changes on expropriation are anticipated in the coming year.

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Dispute Settlement
--------------


22. There is no pattern of significant investment disputes or
discrimination involving US or other foreign investors. However, to
avoid misunderstandings, contracts for trade and investment projects
should always contain a clause detailing how eventual disputes should
be handled and the applicable jurisdiction. Tunisia is a member of the
International Center for the Settlement of Investment Disputes and is a
signatory to the 1958 New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards.


23. The Tunisian legal system is based upon the French Napoleonic code.
There are adequate means to enforce property and contractual rights.

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Although the Tunisian constitution guarantees the independence of the
judiciary, the judiciary is not fully independent of the executive
branch. Local legal experts assert that courts are susceptible to
political pressure.


24. The Tunisian Code of Civil and Commercial Procedures does allow for
the enforcement of foreign court decisions under certain circumstances.
Commercial disputes involving US firms are relatively rare. Several
US firms have successfully sought patent and trademark protection
through the Tunisian courts. Although the concept and application of
intellectual property protection is still in the early stages, the
Government is making an effort to build awareness. A US
government-backed initiative, operated by the Department of Commerce in
conjunction with United States Patent and Trademark Office (USPTO) has
launched a program to train Tunisian decision makers in the field of
IPR regulation enforcement.

PART II continues with paragraph 25, septel
CODEC