With the lifting of the last remaining customs barriers, Tunisia’s free trade agreement with the European Union forcefully entered into effect on January 1, 2008, opening a range of prospects to the Tunisian economy. Public opinion, however, is proving mixed regarding its effects.
According to the terms of the agreement, Tunisia stands to benefit from importing products that are produced for less in Europe. In turn, Tunisia can concentrate its own production domains where it is more competitive, like olive oil. With this new partnership, the Tunisian government could also consider pressing for free circulation of workers between Tunisia and the EU.
The Tunisian Minister of Industry, Afif Chelbi, highlighted that with this FTA, “Tunisia becomes the first country of the southern shore of the Mediterranean to have finalized the various stages of setting up a free trade zone with the European Union.” In a press conference, Chelbi lauded the success of the gradual process of opening. This process was spread out over 12 years in conformity with the Agreement of Association concluded between the EU and Tunisia in 1995, which entered into effect in 1998. The cancellation of tariffs only concerns customs laws, whereas local taxes (consumption tax and VAT) are maintained.
Chelbi celebrated the historical achievement of modernization. This success is illustrated by the performance of two key sectors of the Tunisian economy: textiles and the mechanical and electrical industries. Textile exports increased from $1.7 billion to over $4.2 billion in 2007, while the revenues of the mechanic-electronic sector improved by 100%, reaching $4.4 billion in 2007.
Calling on these figures, the minister clarified that globally, Tunisia has quadrupled the value of its sales in Europe to $3.8 billion, even as imports of common products only tripled, meaning a reserve ratio of more than 98% in 2007. Furthermore, the volume of foreign direct investments was multiplied by seven, the number of businesses created in partnership with Europe increased from 40 to 160 per year, and more than 2,000 European companies are currently operating in Tunisia.
Tunisia’s competitive edge
Outsourcing EU businesses, prompted by fierce competition from Asia and rising production costs in Europe, are increasingly attracted to Tunisia citing high local potential and brief waiting periods as advantages in opening Tunisian operations, as well as geographical proximity to Europe. Customs duties erased by the agreement will be replaced with local taxes, and the minister indicated that the prices of imported goods from the EU will be maintained at the same level for Tunisian consumers.
Fatma Oueslati, director of European cooperation, indicated that a new politics of active macroeconomic accompaniment is being set up. The system of multi-sector reforms aims both to protect the country against potential risks and to maximize the benefits Tunisia will derive from the opportunities afforded by the new free trade zone of industrial products. Tunisia has also recently begun negotiations with the EU concerning the liberalization of agriculture and services.
Tunisia has enacted numerous accompanying programs to secure safe passage into the agreement, notably the National Plan for Upgrading Industry, the Plan for Industrial Modernization (PMI), and the Fund for Accessing Exterior Markets (FAMEX). These reforms have society-wide impact and touch all domains of economic activity, such as the progressive liberalization of commerce and foreign trade, fiscal reform, promoting communications and new technologies, and the modernization of ports and airports. Other modernization reforms include those introduced in the banking sector, universities, education and job training, transportation, and the setting up of regional business centers.
Some Tunisians, perceiving the FTA as a double-edged sword, are calling for caution. Monia Jeguirim Essaidi, Director of the Center for Young Leaders, noted that “Tunisian businesses may now underwrite the effective promotion of their products in Europe, but solely on the condition that they modernize their tools and their production processes.” Others see new horizons for growth and hope. The General Secretary of the Association of CEOs, Hedi Jilani, thinks that the country has crossed a new frontier, “full of challenges and rich in promises and ambitions.”
Yet, other politicians and executives do not share this optimism. Moncef Mouallehi, President Director General of a private business, warned that “this agreement is made to the detriment of the Tunisian labor market and the number of unemployed will increase.” The opposition Party of Democratic Union (Parti d’Union Democratique) is concerned that this agreement will only widen the economic chasm between Tunisia and the EU. “In the absence of protections, Tunisia and similar countries will content themselves with being consumption markets for products from the European industrial machine, for as long as citizens hold onto their purchasing power,” it noted.
Tunisia must allay these anxieties and reinforce its economic and commercial integration into the Euro-Mediterranean sphere of business and commerce. In order to successfully achieve these results, Tunisia will rely upon bilateral free-trade agreements signed with Morocco, Jordan, Turkey, the European Association of Free Trade (Norway, Switzerland, and Iceland) and the Agadir Agreement.
In this way, Tunisia can strategically assure its successful integration into regional and global economic domains, carrying the aspiration for qualitative advancement and for a market that is orchestrated around the best interests of the country’s development.
