Tunisia negotiating to abolish import quotas

As with many other emerging markets in North Africa, Tunisia has long operated a quota system for imports of certain designated goods, both processed and unprocessed. Such measures are generally introduced in large part to reduce pressure on a country’s trade deficit, and in some cases, support the development of local industries. Tunisia saw the rollout of several of these measures under former President Zine El Abidine Ben Ali, and while the objectives of the policies were ostensibly to reduce import demand, they also distorted competition in the market and led to an increase in parallel activity. However, the government and the private sector began negotiations late 2015 to gradually abolish the system in segments including automobile imports.

Quota System

The gradual dismantling of the import system will have a number of benefits for the local economy, given the rigidity of the existing quotas. This can be seen most clearly with the quota on automotive imports. Tunisia has a long-standing system of quotas for vehicle imports, consisting of an annual limit on the number of vehicles that can be brought into the country that is in turn broken down into quotas of varying sizes allocated to individual car dealerships. There are 19 such dealerships in the country, representing 30 brands and with an annual turnover of TD2bn (€917.2m). Four dealers dominate the market with a combined market share of 50%.

The import limit is 55,000 – though in practice sales of new cars tend to be higher than the quota due to factors such as imports via the parallel market. This figure represents an increase, having been raised as a result of an agreement between the government and car dealers in 2015 following a decision to reduce the limit by 10% in 2014. In August 2015 the Ministry of Commerce said it was lowering the quotas due to the country’s worsening trade balance. The value of passenger car imports in 2015 stood at TD1.51bn (€692.5m), up from TD1.34bn (€614.5m) in 2014.

Impact

The quota system aims to limit the impact of vehicle imports on the country’s trade deficit and to stimulate demand for locally produced vehicle components. Dealers’ quotas are based in part on the value of purchases by the car brands they represent from Tunisian automotive part manufacturers. However, the quotas are widely thought to have also been aimed in part at limiting competition in the industry. The World Bank in its 2014 report on Tunisia entitled “The Unfinished Revolution” said that such quotas “entailed huge rents to those who were granted the import licences” and acted as a major constraint on competition and economic development.

The bank also noted that implicit restrictions on imports such as car quotas should be seen as an element of a wider series of complex regulations that “create market distortions, increase costs to Tunisian consumers and firms and create opportunities for non-transparent rents and the abuse of regulations”. The existence of a system of grey-market parallel imports, which has arisen due to the quota system, also deprives the government of tax revenues from car sales, and the dealership sector argues that the benefits of abolishing the quotas would outweigh any slight increase in the trade deficit, for example by boosting taxes and employment.

Reform Plans

The system now appears set for reform. The import of vans has been deregulated, and the authorities moved to further reform the system in September 2015 by redistributing unused quota shares from dealers that had not imported their full allowance (amounting to 4000 vehicles) to other dealers that exhausted theirs. In October 2015 negotiations over the dismantlement of the quota system began between government and the association of car dealers, which had been threatening to take the authorities to court over the issue – though in February 2016 the authorities indicated that the abolition of the system would not take place in this year.

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The Report: Tunisia 2016

Economy chapter from The Report: Tunisia 2016

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