the exception of wholly exporting enterprises that can recruit up to four executives and managers of foreign nationality.

It is not clear whether Tunisia will significantly increase its commitments at the end of the ongoing Doha Round. In its conditional Doha offer of 2005, Tunisia maintained some restrictive horizontal commitments. For instance, freedom of investment would be guaranteed only to ‘wholly exporting’ firms and a nationality condition would be attached to the exercise of commercial activities (whole and retail trade) in Tunisia. In terms of sectoral coverage, five sectors were included in the conditional offer (out of eleven possible): telecommunications, environmental services, financial services, health services and tourism and travel.1 In a recent unilateral move, however, a new global telecom license (fixed, mobile and VSAT) has been granted to a new operator that started operations in April 2010.

Tunisia started a process of negotiations for a services trade agreement with the EU in March 2006 in the Euro-Med context. Discussions on the general provisions of the agreements have started. These will be followed by bilateral negotiations on market access commitments. For Tunisia, mode 4 (temporary movement of professional services providers) and mode 2 in the area of health services represent two big areas of interest. These negotiations are crucial to secure better market access for its services providers to Europe, which would require a relaxing of restrictions in obtaining visas and mutual recognition agreements for diplomas and professional qualifications with some EU countries.

To our knowledge, the only quantitative analysis of the impact of services trade liberalization for Tunisia is Konan and Maskus (2006). An earlier quantitative analysis of potential impacts of Tunisia-EU Association Agreement by Brown et al. (1997) did not include services sectors. Konan and Maskus used a computable general equilibrium model with multiple products, services and trading partners and found that reducing services barriers would generate relatively large welfare gains and low adjustment costs. However, their benchmark data and Social Accounting Matrix are dated 1995, which no longer reflect the current situation. Moreover, a strong assumption made in their paper is that barriers to foreign direct investment were half rent-creating and half cost-escalating. As is well-known, the results of reform simulations are very sensitive to those assumptions. In the current paper, the treatment of barriers is based on empirical evidence, where available, rather than assumption.

The purpose of this paper is to: (i) benchmark Tunisia against other emerging economies in terms of the regulatory barriers affecting its services trade; (ii) assess the economywide effects of further liberalizing services trade restrictions in particular sectors, either regionally or unilaterally; (iii) compare this with the effects of further liberalizing Tunisia’s agricultural and manufacturing trade in the context of its Association

> 1 Environment services relate to the management of solid waste, dangerous waste and sanitation. Foreign firms can enter the market but face a majority holding restriction (they can own up to 49 per cent of the capital) and they should agree to transfer technologies, recruit local staff and train staff locally. In the health sector, establishment is free without limit imposed on the capital for a list of medical fields where Tunisia has an export potential.

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