VZCZCXRO2717
PP RUEHTRO
DE RUEHTU #0140/01 0301645
ZNR UUUUU ZZH
P 301645Z JAN 07
FM AMEMBASSY TUNIS
TO RUEHC/SECSTATE WASHDC PRIORITY 2591
INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0840
RUEHAS/AMEMBASSY ALGIERS PRIORITY 7401
RUEHLO/AMEMBASSY LONDON PRIORITY 1246
RUEHNK/AMEMBASSY NOUAKCHOTT PRIORITY 0840
RUEHFR/AMEMBASSY PARIS PRIORITY 1705
RUEHRB/AMEMBASSY RABAT PRIORITY 8302
RUEHTRO/AMEMBASSY TRIPOLI PRIORITY 0033
RUEHCL/AMCONSUL CASABLANCA PRIORITY 4046
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RUCPCIM/CIMS NTDB WASHDC PRIORITY

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 
 
------------------------------ 
Openness to Foreign Investment 
------------------------------ 
 
¶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. 
 
TUNIS 00000140  002 OF 004 
 
 
(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 
 
TUNIS 00000140  003 OF 004 
 
 
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. 
 
-------------------------------- 
Conversion and Transfer Policies 
-------------------------------- 
 
¶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. 
 
------------------------------ 
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. 
 
------------------ 
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. 
 
TUNIS 00000140  004 OF 004 
 
 
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