VZCZCXRO2725
PP RUEHTRO
DE RUEHTU #0141/01 0301651
ZNR UUUUU ZZH
P 301651Z JAN 07
FM AMEMBASSY TUNIS
TO RUEHC/SECSTATE WASHDC PRIORITY 2595
INFO RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0844
RUEHAS/AMEMBASSY ALGIERS PRIORITY 7405
RUEHLO/AMEMBASSY LONDON PRIORITY 1250
RUEHNK/AMEMBASSY NOUAKCHOTT PRIORITY 0844
RUEHFR/AMEMBASSY PARIS PRIORITY 1709
RUEHRB/AMEMBASSY RABAT PRIORITY 8306
RUEHTRO/AMEMBASSY TRIPOLI PRIORITY 0037
RUEHCL/AMCONSUL CASABLANCA PRIORITY 4050
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/USDOC WASHDC PRIORITY
RUCPCIM/CIMS NTDB WASHDC PRIORITY

UNCLAS SECTION 01 OF 07 TUNIS 000141 
 
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 II OF TUNIS 140 
 
¶25. The Government of Tunisia has a good record in recent 
years of dealing with disputes involving US companies, 
although the government?s 1995 seizure of a US commercial 
consignment was eventually settled without compensation. 
In 1999 a Tunisian court ruling originally prevented a US 
investor from exercising his managerial authority as the 
majority shareholder in a Tunisian company, but this case 
was eventually settled in the Tunisian Supreme Court in 
favor of the US investor.  In 2001 a US company was awarded 
damages by a Tunisian court against its Tunisian 
representative for illegal registration of trademarks owned 
by the US manufacturer. 
 
--------------------------------------- 
Performance Requirements and Incentives 
--------------------------------------- 
¶26. Performance requirements are generally limited to 
investment in the petroleum sector or in the newer area of 
private sector infrastructure development.  These 
requirements tend to be specific to the concession or 
operating agreement (e.g., drilling a certain number of 
wells or producing a certain amount of electricity).  More 
broadly, the preferential status (offshore, free trade 
zone) conferred upon some investments is linked to both 
percentage of foreign corporate ownership and limits on 
production for the domestic market. 
 
¶27. The Tunisian Investment Code and subsequent amendments 
provide a broad range of incentives for foreign investors, 
including: Tax relief on reinvested revenues and profits; 
VAT limitation to 10 percent on many imported capital 
goods; Optional depreciation schedules for production 
equipment. 
 
¶28. Further benefits are available for investments of a 
specific nature.  For example, companies producing at least 
80 percent for the export market receive: Full tax 
exemption on profits for the first ten years and 50 percent 
reduction in taxes on profits thereafter; Full tax 
exemption on reinvested profits and revenue; Duty-free 
import of capital goods with no local equivalents; Full tax 
and duty exemption on raw materials and semi-finished goods 
and services necessary for the business. 
 
¶29. Large investments with high job creation potential may 
benefit, under certain conditions determined by the High 
Commission on Investment, from the use of state-owned land 
for a symbolic Tunisian dinar (less than one US dollar). 
Investors who purchase companies in financial difficulty 
may also benefit from certain clauses of the Investment 
Code; these advantages are determined on a case-by-case 
basis. 
 
¶30. Additional incentives are available to promote 
investment in designated regional investment zones in 
economically depressed areas of the country, and throughout 
the country in the following sectors: health, education, 
training, transportation, environmental protection, waste 
treatment, and research and development in technological 
fields. 
 
¶31. Foreign companies resident in Tunisia face a number of 
restrictions related to the employment and compensation of 
expatriate employees.  Tunisian law limits the number of 
expatriate employees allowed per company to four.  There 
are lengthy renewal procedures for annual work and 
residence permits.  Although rarely enforced, legislation 
limits expatriate work permit validity to a total of two 
years.  Central Bank regulations impose administrative 
 
TUNIS 00000141  002 OF 007 
 
 
burdens on companies seeking to pay for temporary 
expatriate technical assistance from local revenue.  For 
example, a foreign resident company that has brought in an 
accountant would have to document that the service was 
necessary, fairly valued, and unavailable in Tunisia before 
it could receive authorization to transfer payment from its 
operations in Tunisia.  This regulation prevents a foreign 
resident company from paying for services performed abroad. 
 
¶32. In November 2006, Tunisian President Zine El Abidine 
Ben Ali announced that the tax on corporate profits will be 
decreased from 35 percent to 30 percent.  Additionally, the 
annual ceiling for foreign investments (without special 
authorization) will be raised from 300,000 TND (about US 
$234,000) to one million TND (about US $780,500).  For 
exporting companies, the cap will be three million TND 
(about US $2.34 million).   According to the recently 
announced measures, companies registered domestically will 
no longer need permission to increase their capital and 
non-residents will be allowed to freely manage their 
corporate accounts.  These measures have yet to go into 
effect. 
 
-------------------------------------------- 
Right to Private Ownership and Establishment 
-------------------------------------------- 
 
¶33. Tunisian government actions clearly demonstrate a 
strong preference for offshore, export-oriented FDI. 
Investors in that category are generally free to establish 
and own business enterprises and engage in most forms of 
remunerative activity.  Investment which competes with 
Tunisian firms or on the Tunisian market or which is seen 
as leading to a net outflow of foreign exchange may be 
discouraged or blocked. 
 
¶34. Acquisition and disposal of business enterprises can be 
complicated under Tunisian law and depend on the nature of 
the contract specific to the proposed transaction. 
 
¶35. Disposal of a business investment leading to reductions 
in the labor force may be challenged or subjected to 
substantial employee compensation requirements. 
Acquisition of an on-shore company may require special 
authority from the Government if it is an industry subject 
to limits on foreign equity shareholding (such as in the 
services sector). 
 
----------------------------- 
Protection of Property Rights 
----------------------------- 
 
¶36. Secured interests in property are both recognized and 
enforced in Tunisia. Mortgages and liens are in common use. 
Tunisia is a member of the World Intellectual Property 
Organization (WIPO) and has signed the United Nations 
(UNCTAD) Agreement on the Protection of Patents and 
Trademarks.  The agency responsible for patents and 
trademarks is the National Institute for Standardization 
and Industrial Property (INNORPI).  Foreign patents and 
trademarks should be registered with INNORPI. 
 
¶37. Tunisia's patent and trademark laws are designed to 
protect only owners duly registered in Tunisia.  In the 
area of patents, US businesses are guaranteed treatment 
equal to that afforded to Tunisian nationals.  Tunisia 
recently updated their legislation to meet the requirements 
of the WTO agreement on Trade-Related aspects of 
Intellectual Property (TRIPS).  Copyright protection is the 
responsibility of the Tunisian Copyright Protection 
Organization (OTPDA - Organisme Tunisien de Protection des 
Droits d'Auteur), which also represents foreign copyright 
organizations.  New legislation now permits customs 
 
TUNIS 00000141  003 OF 007 
 
 
officials to inspect and seize goods if copyright violation 
is suspected. 
 
¶38. Tunisian copyright law (No. 36/1994) has been updated 
to cover new technologies, but its application and 
enforcement have not always been consistent with foreign 
commercial expectations.  Print audio and video media are 
considered particularly susceptible to copyright 
infringement, and there is evidence of significant 
commercial sale of illegal products in these media. 
Illegal copying of software/CDs/DVDs is widespread.  Over 
the past year, the Government of Tunisia has begun to 
demonstrate a more proactive stance on IPR matters and has 
increased its enforcement efforts in this area.  For 
example, these efforts have led a major supermarket chain 
to halt the sale of pirated audio and video goods. 
 
--------------------------------- 
Transparency of Regulatory System 
--------------------------------- 
 
¶39. The Tunisian government has adopted policies designed 
to promote foreign investment and to prepare Tunisian 
industry for free competition with foreign markets. 
Although the 1994 Investment Code substantially improved, 
standardized, and codified incentives for foreign 
investors, some aspects of existing tax and labor laws 
remain impediments to efficient business operations. 
 
¶40. Bureaucratic procedures, while slowly improving in some 
areas, are cumbersome and time-consuming.  Foreign employee 
work permits, commercial operating license renewals, 
infrastructure-related services, and customs clearance for 
imported goods are usually cited as the lengthiest and most 
opaque procedures in the local business environment. 
Investors have commented on inconsistencies in the 
application of regulations.  These cumbersome procedures 
are not limited to foreign investment and also affect the 
domestic business sector. 
 
--------------------------------------------- ----- 
Efficient Capital Markets and Portfolio Investment 
--------------------------------------------- ----- 
 
¶41. The mobilization and allocation of investment capital 
are still hampered by the underdeveloped nature of the 
local financial system. Interest in stocks and bonds is 
flat and the stock market has difficulty attracting capital 
investment.  Capital controls are still in place.  Foreign 
investors are permitted to purchase shares in resident 
firms (through authorized brokers) or to purchase indirect 
investments through established mutual funds. 
 
¶42. The banking system is considered generally sound and is 
improving as the Central Bank has begun to enforce 
adherence to international norms for reserves and debt. 
Recent measures include actions to strengthen the 
reliability of financial statements, enhance bank credit 
risk management, and improve creditors? rights.  Revisions 
to banking laws tightened the rules on investments and bank 
licensing, and increased the minimum capital requirement. 
The required minimum risk-weighted capital/asset ratio has 
been raised to 8 percent, consistent with the Basel 
Committee capital adequacy recommendations.  Thirteen of 
the country?s fourteen banks conform to the ratio, compared 
with only two in 1993.  Despite the strict new 
requirements, many banks still have substantial amounts of 
non-performing or delinquent debt in their portfolios.  The 
Government has established debt recovery entities (societes 
de recouvrement de creances) to buy the non- or under- 
performing debt of commercial banks.  There is no 
information available on the success of this measure. 
 
 
TUNIS 00000141  004 OF 007 
 
 
¶43. In spite of recent bank privatizations, government 
presence remains dominant in the banking sector.  The 
government is the controlling shareholder in 11 of the 20 
commercial and development banks.  Out of 14 commercial 
banks, 9 are under private ownership, and 5 under 
government majority ownership, following the privatization 
of two banks in 2002 and 2005.  The estimated total assets 
of the country's five largest banks are about US $10 
billion.  Foreign participation in their capital has risen 
significantly and is now well over 20 percent. 
 
¶44. Consolidation activity is moving Tunisia closer to 
meeting its financial sector restructuring goals. 
Tunisia's leading commercial bank, STB (Societe Tunisienne 
de Banque), has merged with the Government of Tunisia?s 
economic and tourism development banks (BDET and BNDT) 
under the STB banner.  The UIB (Union International de 
Banques) was privatized in late 2002, when 52 percent of 
its capital was sold to France?s Societe Generale for US 
$72 million.  The 35 percent Government of Tunisia share of 
the Banque du Sud, now Attijari Bank, was sold to a 
Spanish/Moroccan consortium in late 2005.  At the same 
time, the consortium purchased a block of privately-owned 
stock and therefore gained control of the bank with a 52 
percent interest. 
 
¶45. Credit is available locally to foreign investors, but 
some industry observers assert that there exists a well- 
established collusion among the principal banks to set 
common interest rates. 
 
¶46. In the last five years regulatory and accounting 
systems have been brought more in line with required 
international standards.  Most of the major global 
accounting firms are represented in Tunisia.  Tunisian 
firms quoted on the stock exchange are required to publish 
semiannual corporate reports audited by a certified public 
accountant. 
 
¶47. In mid-2005 the Tunisian Central Bank issued a new 
Euro-denominated bond on the London financial market.  The 
issued totaled over US $496 million (400 million Euros) 
with a maturity of 15 years  In 2004 the Government of 
Tunisia sold a similar bond with a total value of nearly US 
$550 million and seven-year maturity. 
 
------------------ 
Political Violence 
------------------ 
 
¶48. Tunisia is a stable country and incidents involving 
politically-motivated damage to economic projects or 
infrastructure are extremely rare.  In April 2002 21 
people, 14 of them German tourists, were killed in an al- 
Qaeda-sponsored terrorist attack at a synagogue on the 
island of Djerba.  This resulted in a significant reduction 
in the number of European visitors in the immediate 
aftermath of the attack, but the sector has now recovered. 
In December 2006 and January 2007 the Government of Tunisia 
announced that Tunisian security forces engaged a terrorist 
group, killing or capturing many individuals who reportedly 
planned to carry out acts of violence in Tunisia.  The US 
Embassy in Tunis was reportedly among the group?s intended 
targets. 
 
---------- 
Corruption 
---------- 
 
¶49. Tunisia's penal code devotes eleven articles to 
defining and classifying corruption and to assigning 
corresponding penalties (including fines and imprisonment). 
Several other legal texts also address broader concepts of 
 
TUNIS 00000141  005 OF 007 
 
 
corruption including violations of the commercial or labor 
codes, which range from speculative financial practices to 
giving or accepting bribes.  Detailed information on the 
application of these laws or their effectiveness in 
combating corruption is not available.  There are no 
statistics specific to corruption.  The Tunisian Ministry 
of Commerce publishes information on cases involving the 
infringement of the commercial code, but these incidents 
range from non-conforming labeling procedures to 
price/supply speculation.  The print media report abuses of 
fiduciary authority by public officials only on rare 
occasions.  Anecdotal reports from the Tunisian business 
community and US businesses with regional experience 
suggest that corruption exists, but is not as pervasive as 
that found in neighboring countries.  After several years 
of steady improvement on Transparency International?s (TI) 
Corruption Index, Tunisia's ranking dropped from 43 to 51 
in 2006 with a score of 4.6.   According to the TI 
Corruption Index scale, a score of ten indicates extremely 
little corruption and a score of zero very serious 
corruption. 
 
¶50. Tunisian law prohibits either giving or receiving a 
bribe.  Penalties range from one to ten years imprisonment 
and fines up to twice the amount of the bribe.  (Members of 
the judiciary convicted of involvement in bribery can be 
imprisoned for 20 years.)  The prohibition extends to 
bribes to foreign officials.  Public tenders require 
bidders to provide a sworn statement that they have not and 
will not, either themselves or through a third party, make 
any promises or give gifts with a view to influencing the 
outcome of the tender and realization of the project. 
 
¶51. Most US firms involved in the Tunisian market have not 
identified corruption as a primary obstacle to foreign 
direct investment.  Some potential investors have asserted 
that unfair practices and corruption among prospective 
local partners have delayed or blocked specific investment 
proposals, or there has been an appearance that cronyism or 
influence peddling has affected some investment decisions. 
 
¶52. The government's recent efforts to combat corruption 
have concentrated upon ensuring that price controls are 
respected, enhancing commercial competition in the domestic 
market, and harmonizing Tunisian laws with their 
counterparts in the European Union.  The public sector is 
governed by a comprehensive 1989 law designed to regulate 
each phase of public procurement and established the 
Commission Superieure des Marches? (CSM - Higher Market 
Commission) to supervise the tender and award of major 
contracts.  The government publicly supports a policy of 
transparency and has called for it in the conduct of 
privatization operations.  The US government requires that 
American companies requesting US government advocacy 
support with foreign governments sign an undertaking not to 
participate in corrupt practices. 
 
¶53. The Ministry of Commerce's "Competitiveness Council" 
and its related regional branches (Brigades Economiques) 
have primary responsibility for identifying and reducing 
corruption.  A variety of other bodies exist within each 
institution of the government to oversee the execution of 
public sector contracts.  The value of the contract 
determines the level and identity of the responsible 
oversight committee, with the largest projects falling 
under the purview of the Higher Market Commission (CSM). 
This body reports directly to the Prime Minister. 
 
------------------------------- 
Bilateral Investment Agreements 
------------------------------- 
 
¶54. A Trade and Investment Framework Agreement (TIFA) 
 
TUNIS 00000141  006 OF 007 
 
 
between Tunisia and the United States was signed in 2002 
and two TIFA Council meetings have taken place.  A 
Bilateral Investment Treaty between Tunisia and the United 
States took effect in 1991.  A 1985 treaty (and 1989 
protocol) guarantees US firms freedom from double taxation. 
 
¶55. Tunisia has concluded bilateral trade agreements with 
approximately 60 countries. Tunisia has signed the 
Agreement on WTO, bilateral agreements with the Member 
States of the European Free Trade Association (EFTA), 
bilateral and multilateral agreements with the Arab League 
members, and a bilateral agreement with Turkey.  In 2008, 
Tunisia?s Association Agreement with the EU will go into 
effect creating a free trade zone between Tunisia and the 
EU member states.  In addition, Tunisia is signatory of the 
multilateral agreements with the Multilateral Investment 
Guarantee Agency (MIGA). 
 
-------------------------------------------- 
OPIC and Other Investment Insurance Programs 
-------------------------------------------- 
 
¶56. OPIC is active in the Tunisian market and provides 
political risk insurance and other services to a variety of 
US companies.  OPIC supports private US investment in 
Tunisia and has sponsored several reciprocal investment 
missions.  The 1963 OPIC agreement with Tunisia has been 
revised and was signed in February 2004. 
 
----- 
Labor 
----- 
 
¶57. Tunisian labor is readily available.  Tunisia has a 
labor force of approximately 3.5 million and a national 
literacy rate of about 75 percent.  About 90 percent of the 
work force under 35 is literate.  The official unemployment 
rate is under 14 percent (although this is considerably 
higher in some regions). The figure does not include many 
who are underemployed. 
 
¶58. Nearly 80,000 new jobs must be created each year to 
keep unemployment at current levels, while sustained annual 
GDP growth of about 7 percent would be required in order to 
make significant inroads into the chronic unemployment 
figure.  The structure of the workforce has remained stable 
over the past 20 years (19 percent agriculture, 32 percent 
industry, and 49 percent commerce and services). 
 
¶59. The right to form a labor union is protected by law. 
There is only one national labor confederation, the General 
Union of Tunisian Workers (UGTT - Union General des 
Travailleurs Tunisiens).  The UGTT claims about one third 
of the labor force as members, although more are covered by 
UGTT-negotiated contracts.  Wages and working conditions 
are established through triennial collective bargaining 
agreements between the UGTT, the national employers 
association (UTICA - Union Tunisienne de l?Industrie, du 
Commerce et de l'Artisanat), and the Government of Tunisia. 
These agreements set industry standards and generally apply 
to about 80 percent of the private sector labor force, 
whether or not individual companies are unionized.  The 
most recent wage agreements were completed in 2006 and are 
valid through 2008.   The official minimum monthly wage in 
the industrial sector is 200 TND (about US $156) for a 40 
hour week and 231 TND (about US $180) for a 48 hour week. 
 
------------------------------------ 
Foreign Trade Zones/Free Trade Zones 
------------------------------------ 
 
¶60. Tunisia has two free trade zones, one in the north at 
Bizerte, and the other in the south at Zarzis.  The land is 
 
TUNIS 00000141  007 OF 007 
 
 
state owned, but the zones are each managed by a private 
company.  Companies established in the free trade zones, 
officially known as ?Parcs d?Activites Economiques,? are 
exempt from most taxes and customs duties and benefit from 
special tax rates. 
 
¶61. Offshore enterprises operating outside these zones 
benefit from similar advantages.  Goods are allowed limited 
duty-free entry into Tunisia for transformation and re- 
export.  Factories are considered bonded warehouses and 
have their own assigned customs personnel. 
 
¶62. However, companies do not necessarily have to be 
located in one of the two designated free-trade zones to 
operate with this type of business structure.  In fact, the 
majority of off-shore enterprises are situated in various 
parts of the country.  Regulations are strict, and 
operators must comply with the 1993 Investment Code. 
 
------------------------------------ 
Foreign Direct Investment Statistics 
------------------------------------ 
 
¶63. 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 about 
US $921 million or US $3.07 billion including the receipts 
from the partial privatization of state-owned Tunisie 
Telecom. 
GODEC