temporary movement of individual professionals (table 8, first and second columns, based on econometric work by Nguyen-Hong 2000).

A further potential reform would be for Tunisia to seek bilateral concessions in the context of its Association Agreement with the EU, in order to facilitate the outsourcing of back-office accounting and legal services to Tunisia, especially from France. Accordingly, Tunisia could allow up to 50 percent EU ownership of local accounting or law firms, to allow those companies some management control over the local firms undertaking the outsourcing activities. And it could seek a mutual recognition agreement with France, allowing French recognition of local Tunisian professional qualifications for the purposes of undertaking the back office activities, in exchange for the recognition of French qualifications in Tunisia. This latter move could further reduce the price impact of remaining restrictions on the supply of foreign professional services in Tunisia to 6.4 percent (bottom portion of table 8), with a corresponding improvement in the competitiveness of Tunisian suppliers into the EU market.

It is assumed here that in return for these unilateral and bilateral reforms, the EU would agree to remove its discriminatory restrictions on a preferential basis — not just granting Tunisian professionals mutual recognition, but also relaxing the investment restrictions, nationality requirements, hiring and other restrictions that apply in at least some professions, as they affect Tunisian suppliers. This would reduce the average price impact of remaining restrictions on the supply of Tunisia professional services into Europe from 9.5 percent to an estimated 5 percent (not shown in table 8).

Finally, the econometric work on which these estimates are based suggests that the unilateral and bilateral reductions in discrimination against foreign professionals would reduce prices by reducing price-cost margins. This is in contrast with the removal of nondiscriminatory restrictions on both domestic and foreign professionals, which could reduce prices by reducing real resource costs.

As noted, in _air passenger transport_ , Tunisia could seek an open skies agreement with the EU. The likely effects of this have been quantified in second-stage econometric work by Gonenc and Nicoletti (2000) and Doove et al. (2001). For the purposes of this paper, that work has been updated using more recent information about the content of air services agreements from ICAO (2004). The price impact of Tunisia’s current air services agreements with the EU has been quantified at 15.4 percent. This would drop to zero in a bilateral basis under an open skies agreement (table 9). As noted above, this price reduction is likely to come about through a reduction in price-costs margins rather than through a reduction in resource costs. Cost savings from achieving greater network economies would probably require a more extensive series of open skies agreements.

Furthermore, it is assumed that the open skies agreement extends to freight as well as passenger traffic. A freight agreement is likely to be less contentious, and could achieve similar benefits. Accordingly, the above estimated reduction in price-cost margins is applied to exports of the entire air transport industry, covering both freight and passengers.

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