MAINTAINING THE MOMENTUM FOR A 2008 TIFA COUNCIL

UNCLAS TUNIS 001521 SIPDIS SENSITIVE SIPDIS STATE FOR EEB (DIBBLE),NEA/MAG (HOPKINS AND HARRIS) STATE PASS USTR (DONNELLY AND BURKHEAD) AND USAID (MCCLOUD) USDOC FOR ITA/MAC/ONE (NATHAN MASON),ADVOCACY CTR (JAMES), AND CLDP (TEJTEL AND MCMANUS) USDOC PASS USPTO (ADAMS, BROWN AND MARSHALL) CASABLANCA FOR FCS (ORTIZ) CAIRO FOR FINANCIAL ATTACHE (SEVERENS) LONDON AND PARIS FOR NEA WATCHER E.O. 12958: N/A TAGS: ETRD EINV ECON BEXP TS SUBJECT: MAINTAINING THE MOMENTUM FOR A 2008 TIFA COUNCIL REF: A. TUNIS 1506 ¶B. STATE 153695 ¶C. TUNIS 1368 ¶D. TUNIS 1249 ¶E. TUNIS 1136 ¶F. TUNIS 959 ¶G. TUNIS 105 -------------- Summary -------------- ¶1. (U) After a recent series of government and private business delegations that have traveled between Tunis and Washington, it is time for a Trade and Investment Framework Agreement (TIFA) Council in early 2008. In order to be most effective, we believe such a meeting should be held in Tunisia, and that the four informal working groups agreed to by USTR and the GOT should begin informal discussions to set an agenda. From the American side, the most useful topics to address include services such as franchising and aviation, restrictions on foreign firms employing expatriates, and pharmaceutical company concerns with intellectual property rights (IPR). Rather than focusing on the end goal of an FTA, we suggest that the existing four working groups be used as platform to discuss the most pressing USG and GOT concerns. Emphasizing dialogue is also critical to avoiding Tunisian perceptions that an FTA is "one-size-fits-all" and that the United States does not consider Tunisia's specific concerns. End Summary. -------------- Moving Forward -------------- ¶2. (U) Both the USG and GOT are in agreement: it is time for a TIFA Council. September's interagency economic delegation visit (Ref D) led by State EEB PDAS Liz Dibble kicked off the discussions and highlighted USG interest in the bilateral economic relationship. Minister of Development and International Cooperation (MDIC) Mohamed Nouri Jouini's October visit to DC (Ref B) as well as the Tunisian-American Chamber of Commerce (TACC) Door Knock visit both signal renewed Tunisian -- government and private sector -- interest in strengthening the bilateral economic relationship. The November US Chamber of Commerce - Africa Society delegation visit to Tunisia (Ref A) has also helped to generate increased private sector interest among US businesses. ¶3. (SBU) We believe that a GOT-hosted Council would bring the greatest possibility for a productive meeting. It would encourage more robust Tunisian participation in the process, which will be critical in ensuring follow-up and follow-on. However, we understand that Minister Jouini has aQustanding invitation to visit the United States in January, which might make a Washington-based TIFA Council preferable. Now that Minister Jouini has agreed to hold a TIFA Council meeting in early 2008, it is time to set a date. As USTR has already named heads for the four working groups, we suggest that USTR and MDIC working groups begin informal discussions to set an agenda. The Embassy is actively working with MDIC to prepare them for substantive exchanges. As the four working groups begin to set an agenda for the Council, we suggest the following topics, which not only represent priority issues, but also areas in which we have the best chance for real progress. -------------- Services -------------- ¶4. (SBU) Franchising: GOT restrictions on franchising continue to act as a barrier to further US trade and investment. Minister Jouini told the Ambassador that Tunisia is prepared to permit franchising (Ref G) and the recent attendance of a Ministry of Commerce official and a Tunis Chamber of Commerce representative to a US-sponsored franchising conference in Cairo indicates GOT readiness to move forward on this issue. We believe that the time is right for substantive discussion on franchising. ¶5. (SBU) Open Skies: During an August 20 meeting with CODEL Costello, Minister of Transportation Abderrahim Zouari stated -------------- Investment -------------- ¶6. (SBU) Expat Employees: The restiction limiting the number of expatriates that my be employed by a foreign company continues to e a major concern for US investors. Although currently the limit is four expatriate employees, some companies have been able to negotiate exceptions to the rule. The case-by-case nature of these exceptions to the expatriate restriction is unpredictable; a clear and consistent policy allowing greater foreign managerial participation would represent a vast improvement for American investors. ¶7. (SBU) Real Estate: Although foreign companies no longer require prior GOT authorization for purchasing property in tourist or industrial zones, the GOT continues to require authorization for selling the very same property. Exxonmobil has been waiting for such authorization for over four years, demonstrating that this formality can be a significant barrier to investment. The GOT has recently granted exceptions to this restriction, but American investors would benefit from an across-the-board exception to this legislation. --- IPR --- ¶8. (U) Although the GOT has taken positive steps to address IPR protection, more work remains to be done to prevent the retail sale of pirated optical disks and protect US pharmaceutical products. -- Correlation: In January 2007, the GOT suspended the "correlation system" which excluded drugs manufactured abroad in favor of locally produced generics; however, drugs placed on the list of correlated drugs prior to the suspension continue to be excluded from the marketplace. Removing US pharmaceutical products from this exclusionary list is our top IPR priority. -- Data Exclusivity: In addition, pharmaceutical companies have ongoing concerns that the GOT is not TRIPS-compliant on data exclusivity. The GOT asserts it is TRIPS-compliant, and Minister Jouini has indicated that if, in fact, the GOT is not compliant it will take steps to address the problem. The TIFA Council presents an opportunity to clarify whether TRIPS compliance is at issue. -------------- Market Access -------------- ¶9. (SBU) Tariff Reductions: Tariff reductions will be critical for many American companies to remain competitive after the Association Agreement with the European Union goes into effect January 1, 2008. Since 1996 the Association Agreement has gradually reduced tariffs on many EU imports and will completely eliminate tariffs on these goods beginning January 1. High tariffs, in some cases as high as 125 percent, constitute a significant disadvantage for many American firms already doing business in Tunisia and price many American exports out of the market. -------------- Potential Pitfalls and Tactics -------------- ¶10. (SBU) We provide the following examples of potential pitfalls and suggested tactics to avoid GOT sensitivities and get discussions started on the right foot. -- TIFA as Dialogue not FTA Negotiation: Although the GOT has stated its desire for an eventual Free Trade Agreement with the United States, it is clear that the the time is not right on either side to enter into FTA negotiations. Rather than focusing on the end goal of an FTA, we suggest that the existing four working groups be used as platform to discuss the most pressing USG and GOT concerns. Even though many of the topics for discussion would be part of any eventual FTA agreement, taking the focus off of the FTA will help. -- Focusing on Tunisia and Avoiding Comparisons: The GOT is quick to remind USG interlocutors that Tunisia is unique and that a "one-size-fits-all" approach will not work. While the very nature of US FTAs has created this perception, understanding this sensitivity and avoiding comparisons can help to allay this concern. Comparisons between Tunisia and countries such as Morocco and Jordan are often misinterpreted as signifying that the USG does not recognize the distinct and specific differences of Tunisia. -- Stressing Consultation Instead of Obligation: Following the 2005 Council, the presentation of USG papers outlining the requirements of an FTA became a source of misunderstanding on both sides and proved to be an ineffective tool to spur further discussion. The GOT did not appreciate use of "obligation" as it appeared one-sided and it also reinforced the "one-size-fits-all" misperception. While USG intentions were straightforward and the misunderstanding inadvertent, the working papers illustrate GOT sensitivity and suggest we should adopt a new approach. -------------- The Bottom Line -------------- ¶11. (SBU) Liberalization of the Tunisian economy is in Tunisia's best interest and will help attract the trade and investment necessary for the economy's continued growth. Although the United States can encourage increased US trade and investment, it is ultimately US companies who will make their own decisions about the the attractiveness of the Tunisian market. By taking concrete steps to improve the business climate for US investors, the GOT will send an important signal that Tunisia is open for business. Convening a TIFA Council in early 2008 will encourage the GOT to take the necessary next steps. GODEC