- readlines() is redundant for filehandle objects, you can omit it.

- Prefer Python's string formatting operator. I even prefer the extended dict-compatible syntax.

- close() is called automatically when the filehandles are garbage-collected; you can usually omit it for tasks like this.

- ranges (like those in brackets) are exclusive, not inclusive. So I suspect you have an off-by-one error there.

Thus:

    in_file = open('c:/WVASA/original.txt', 'r')
    out_file = open('c:/WVASA/output.txt', 'w')

    template = '''
        <tr bgcolor="#006699">
            <td>%(country)s</td>
            <td>%(name)s</td>
            <td>%(street)s</td>
            <td>%(city)s</td>
            <td>%(zipcode)s</td>
            <td><a href="mailto:%(email)s">%(email)s</a></td>
        </tr>'''
    template = template.strip()

    for line in in_file:
        out_file.write(template % {
            'county': line[:12].rstrip(),
            'email': line[12:43].rstrip(),
            'name': line[43:73].rstrip(),
            'street': line[73:99].rstrip(),
            'city': line[99:118].rstrip(),
            'zipcode': line[118:].rstrip(),
        })