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TRADE POLICY REVIEWS: FIRST PRESS RELEASE, SECRETARIAT AND GOVERNMENT SUMMARIES

PRESS RELEASE
PRESS/TPRB/156
21 February 2001
Madagascar: February 2001

A series of economic reforms (supported by international financial institutions) since 1982, and accelerated since 1998, have contributed to GDP growth of over 3.5% a year over the past few years, and higher growth rates are forecast through 2001, according to a WTO report on the trade policies and practices of Madagascar. Inflation has been reduced from an annual rate of 45% in 1995 to 7.6% in 1999, but the current account situation remains difficult, says the report.

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See also:

Second press release
Chairperson’s concluding remarks


Improvement of multilateral commitments would bolster confidence in Madagascar's economic reforms Back to top

The WTO Secretariat report, along with the policy statement by the Government of Madagascar will serve as a basis for the trade policy review of Madagascar by the Trade Policy Review Body of the WTO on 19 and 21 February 2001.

The report notes that agriculture (including fishing, livestock, and forestry) contributes some 30% to Madagascar's GDP, and accounts for about 40% of the value of merchandise exports. Manufacturing, dominated by light industries (e.g. food processing, textiles, clothing, footwear, and beverages), represents some 12% of GDP and nearly 60% of merchandise exports in value (mostly textiles and apparel goods). Development of the sector is constrained, inter alia, by poor infrastructure and high transportation costs. The mining sector, centered around chrome ore and graphite, is still underdeveloped despite its potential. The services sector accounts for around 52% of GDP, with large potential still unexploited in the tourism subsector. Madagascar is a net importer of services.
In addition to its WTO membership, Madagascar has increasingly participated in regional trade agreements. Madagascar's main trading partners are the European Union, the United States, and Japan Madagascar's exports are primarily agricultural commodities, mainly shrimps, coffee, vanilla, cloves and clove essence. Machinery, transport equipment, food, fuel, and chemicals are the major imported products. Due to the decline in agricultural production during the past few years, largely attributable to climatic conditions, food and foodstuffs imports have increased, says the report.

The report also notes that Madagascar has made considerable efforts to create an environment conducive to private investment, both domestic and foreign. With a few exceptions (including in real estate and areas still under State control), 100% foreign ownership is permitted in most economic activities.

Madagascar, the report says, has significantly liberalized its trade regime in recent years. Its present trade policy framework is essentially based on tariffs. MFN customs tariff rates have been organized into four bands ranging from zero to 30%. The simple average of applied MFN import duties (including an import tax also ranging up to 30%) is 16.2%; the duties average 17,7 % in agriculture, including fishing, livestock and forestry, and 16,2% in manufacturing. Tariff escalation in certain branches provides higher effective rates of protection to many processed products. Export restrictions have been eliminated, as have foreign exchange controls.

Madagascar has bound customs tariffs at 30%, and other duties and charges at 250%, on all agricultural products and on imports of chemical products. All quantitative restrictions on imports have been eliminated, except for prohibitions or prior authorization requirements maintained under international conventions for health, phytosanitary or security reasons, or on products deemed strategic by the Government (e.g. vanillin and precious stones). Madagascar does not have legislation on anti-dumping, countervailing or safeguard measures. The country is neither an observer nor signatory to the WTO Plurilateral Agreement on Government Procurement.

Several state-owned companies have been either privatized or liquidated under a program launched in 1996. In agriculture, most marketing boards have been liquidated and price controls abolished on virtually all products. Monopolies held or exclusive rights exercised by state-owned companies, which are still operating in the agriculture sector, have virtually been abolished. Companies such as HASYMA for cotton, and SIRAMA for sugar are to be privatized before the end of 2001. Nevertheless, the vacuum left by the boards has not been filled; this has limited the positive impact of the reforms on agricultural output.

The report notes that the implementation of the privatization program has contributed to significant liberalization of the services sector; the national carrier (Air Madagascar), the airport authority (ADEMA), and Telma (the incumbent supplier of basic telecommunications services, currently owned at 66% by the State), are among the companies earmarked for privatization before the end of 2001. Madagascar's commitments under the GATS, limited to certain business activities, do not reflect its liberalization efforts in the services sector. Steps have been taken, including enactment of new legislation, the report also says, to develop the mining sector.

The report concludes that the reforms have fallen short of reducing poverty in Madagascar. Once completed, the ongoing implementation of the privatization programme will further liberalize the economy, including the services sector, and contribute to a better allocation of resources

Note to Editors

Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries' trade and related policies are examined and evaluated at regular intervals. Significant developments which may have an impact on the global trading system are also monitored. For each review, two documents are prepared: a policy statement by the government of the member under review, and a detailed report written independently by the WTO Secretariat. These two documents are then discussed by the WTO's full membership in the Trade Policy Review Body (TPRB). These documents and the proceedings of the TPRB's meetings are published shortly afterwards. Since 1995, when the WTO came into force, services and trade-related aspects of intellectual property rights have also been covered.

For this review, the WTO's Secretariat report, together with policy statements prepared by the Government of Madagascar will be discussed by the Trade Policy Review Body on 19 and 21 of February 2001. The Secretariat report covers the development of all aspects of Mozambique's trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector.

Attached to this press release is a summary of the observations in the Secretariat report and parts of the governments policy statements. The Secretariat report and the governments' policy statements are available for the press in the newsroom of the WTO internet site (www.wto.org). These three documents and the minutes of the TPRB's discussion and the Chairman's summing up, will be published in hardback in due course and will be available from the Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed: Argentina (1992 and 1999), Australia (1989, 1994 and 1998), Austria (1992), Bahrain (2000) Bangladesh (1992 and 2000), Benin (1997), Bolivia (1993 and 1999), Botswana (1998), Brazil (1992, 1996 and 2000), Burkina Faso (1998), Cameroon (1995), Canada (1990, 1992, 1994, 1996, 1998 and 2000), Chile (1991 and 1997), Colombia (1990 and 1996), Costa Rica (1995), Côte d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992 and 1999), El Salvador (1996), the European Communities (1991, 1993, 1995, 1997 and 2000), Fiji (1997), Finland (1992), Ghana (1992), Guinea (1999), Hong Kong (1990, 1994 and 1998), Hungary (1991 and 1998), Iceland (1994 and 2000), India (1993 and 1998), Indonesia (1991, 1994 and 1998), Israel (1994 and 1999), Jamaica (1998), Japan (1990, 1992, 1995,1998 and 2000), Kenya (1993 and 2000), Korea, Rep. of (1992, 1996 and 2000), Lesotho (1998), Macau (1994), Madagascar (2001), Malaysia (1993 and 1997), Mali (1998), Mauritius (1995), Mexico (1993 and 1997), Morocco (1989 and 1996), New Zealand (1990 and 1996), Namibia (1998), Nicaragua (1999), Nigeria (1991 and 1998), Norway (1991, 1996 and 2000), Pakistan (1995), Papua New Guinea (1999), Paraguay (1997), Peru (1994 and 2000), the Philippines (1993), Poland (1993), Romania (1992 and 1999), Senegal (1994), Singapore (1992, 1996 and 2000), Slovak Republic (1995), the Solomon Islands (1998), South Africa (1993 and 1998), Sri Lanka(1995), Swaziland (1998), Sweden (1990 and 1994), Switzerland (1991, 1996 and 2000 (jointly with Liechtenstein), Tanzania (2000), Thailand (1991, 1995 and 1999), Togo (1999), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 and 1998), the United States (1989, 1992, 1994, 1996 and 1999), Uganda (1995), Uruguay (1992 and 1998), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

  
  
The Secretariat’s report: summary  Back to top

TRADE POLICY REVIEW BODY: MADAGASCAR
Report by the Secretariat — Summary Observations

The economic environment

Madagascar is an island republic located in the Indian Ocean, off the east coast of Africa. With a GNP per capita of US$260 in 1998, Madagascar is a least developed country. Subsequent to independence in 1960, Madagascar followed a socialist model of economic development. The failure of this strategy has led to the implementation of a series of economic reforms (supported by international financial institutions) since 1982. The pace of reform has accelerated since 1998.

The reforms have contributed to GDP growth of over 3.5% a year over the past few years, and higher growth rates are forecast through 2001. Inflation has been reduced from an annual rate of 45% in 1995 to 7.6% in 1999, but the current account situation remains difficult, with deficits close to SDR 200 million a year since 1995. Madagascar is heavily indebted and its debt service limits financing for development. Madagascar is in line to receive debt relief under the IMF and World Bank Heavily Indebted Poor Countries (HIPC) Initiative.

Agriculture (including fishing, livestock, and forestry) contributes some 30% to Madagascar's GDP, and accounts for about 40% of the value of merchandise exports. Climatic conditions have made agricultural production unpredictable; they have contributed to fluctuations of export earnings, and to food shortages, in recent years. Manufacturing, dominated by light industries (e.g. food processing, textiles, clothing, footwear, and beverages), represents some 12% of GDP and nearly 60% of merchandise exports in value (mostly textiles and apparel goods). Development of the sector is constrained, inter alia, by poor infrastructure and high transportation costs. The mining sector, centered around chrome ore and graphite, is still underdeveloped despite its potential. The services sector accounts for around 52% of GDP, with large potential still unexploited in the tourism subsector. Madagascar is a net importer of services.

Madagascar's main trading partners are the European Union, the United States, and Japan. Madagascar's exports are primarily agricultural commodities, mainly shrimps, coffee, vanilla, cloves and clove essence. Machinery, transport equipment, food, fuel, and chemicals are the major imported products. Due to the decline in agricultural production during the past few years, largely attributable to climatic conditions, food and foodstuffs imports have increased.

Institutional Framework

The 1998 Constitution of the Republic of Madagascar calls for a parliamentary regime with a separation of powers among the executive and legislative bodies. Madagascar's President and members of the National Assembly are elected by direct popular vote; the President is elected for a five-year term renewable only once, and the Assembly Deputies for four-year terms. The President serves as Head of State, and appoints a Prime Minister, who, with the consent and approval of the President, appoints a Cabinet. The Prime Minister and the Cabinet constitute the Council of Government, which is responsible for government policy and its formulation. The National Assembly exercises legislative power. It will become a bicameral body; the Senate has yet to be put into place.

Madagascar has a body of statutes that govern import procedures, computation of customs duties, foreign investment, business licensing, intellectual property, competition policy, and other related matters.

Madagascar has made considerable efforts to create an environment conducive to private investment, both domestic and foreign. Foreign direct investment has been liberalized since 1995. With a few exceptions (including in real estate and areas still under State control), 100% foreign ownership is permitted in most economic activities. Incentive schemes are available for investment, mainly in export-oriented activities.

Madagascar became a member of the WTO on 17 November 1995, having signed the Final Act of the Uruguay Round and the Marrakech Agreement on 15 April 1994. Madagascar grants at least MFN treatment to all its trading partners. As with other WTO Members, Madagascar has adopted in their entirety the results of the Uruguay Round. As a least developed country, Madagascar benefits from the special and differential treatment afforded developing countries in the form of exemptions or delayed implementation of certain provisions. Madagascar is not currently involved in any dispute settlement proceeding under the WTO.

Madagascar has participated in the Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries (IF) by preparing an assessment of its needs for trade-related assistance. Under the IF, it has already received technical assistance from international organizations, including the WTO. Madagascar is still in need of substantial technical assistance in a wide range of trade-related areas.

Madagascar is a member of the Common Market for Eastern and Southern Africa (COMESA), the Cross-Border Initiative (CBI), and the Indian Ocean Commission (IOC). Under the Cotonou Agreement (successor to the Lomé Convention), many Malagasy exports to the EU enjoy non-reciprocal preferential treatment in the form of exemption from import duties. Other developed countries grant Madagascar's goods non-reciprocal preferential access to their markets through the Generalized System of Preferences. Due to its narrow export base, the benefits that Madagascar reaps from these preferential arrangements have been minimal.

Trade Policy Instruments

Madagascar has significantly liberalized its trade regime in recent years. Its present trade policy framework is essentially based on tariffs. Export restrictions have been eliminated, as have foreign exchange controls. The Government has placed emphasis on export promotion, but limited capacity has constrained any significant export-led growth.

MFN customs tariff rates have been organized into four bands ranging from zero to 30%. The tariff structure is somewhat escalatory (in certain branches) with many processed products accorded a higher effective rate of protection along the processing chain. The simple average of applied MFN import duties (including an import tax also ranging up to 30%) is 16.2%. An import statistics tax of 2% and a customs stamp duty of 1% also apply to imports. An excise duty ranging to over 100% is levied on petroleum, alcoholic and non-alcoholic beverages, and tobacco products. A value-added tax of 20% is also collected. Import duties and taxes continue to constitute a significant source of government revenue.

Madagascar has bound customs tariffs at 30%, and other duties and charges at 250%, on all agricultural products (WTO definition) and on imports of chemical products (HS Chapters 28 and 29). The Malagasy authorities have a preshipment inspection contract (which will expire in April 2001) with Bureau Veritas Corporation. Bureau Veritas is responsible for inspecting all imports worth US$1,000 or more. Madagascar still uses the Brussels Definition of Value (BDV). Madagascar intends soon to adopt the transaction value in its customs valuation.

All quantitative restrictions on imports have been eliminated, except for prohibitions or prior authorization requirements maintained under international conventions for health, phytosanitary or security reasons or on products deemed strategic by the Government (e.g. vanillin and precious stones). Madagascar has 63 official product standards. Most Malagasy standards are voluntary and are based on either European or international norms. The Malagasy Bureau of Standards (MBS) is responsible for issues related to standards. The Ministry of Trade, with the assistance of economic partners and in collaboration with national technical committees established under the Madagascar Bureau of Standards, is developing national standards for export goods.

Madagascar does not have legislation on anti-dumping, countervailing or safeguard measures. Its competition legislation dates from the 1970s; two bills are to be adopted to revise this legislation. Madagascar is neither an observer nor signatory to the WTO Plurilateral Agreement on Government Procurement. Ministries are responsible for their own procurement, subject to regulations issued by the Ministry of Economy and Finance. In general, tenders are either open or selective; single tenders are limited to emergency situations. Preferential margins may be granted to local tenderers under credit agreements concluded between the Government and donors.

Several state-owned companies have been either privatized or liquidated under a program launched in 1996. Certain companies supplying services (e.g. air transport and telecommunications services) or operating in the agriculture sector are to be privatized before the end of 2001. Almost all sectors of the economy are covered by the program.

In Madagascar, intellectual property right protection is shared by the Office Malagasy du Droit d'Auteur (OMDA), which is responsible for copyrights, and the Office Malgache de la Propriété Industrielle (OMAPI), which is responsible for industrial property rights. Madagascar is a member of the World Intellectual Property Organization (WIPO), and a signatory to several international conventions on intellectual property. Madagascar is revising its legislation to meet its obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) by 2006.

Sectoral Trade Policy Developments

The Malagasy Government has been liberalizing most economic sectors since the mid 1990s. In agriculture, most marketing boards have been liquidated and price controls abolished on virtually all products. Monopolies held or exclusive rights exercised by state-owned companies, which are still operating in the agriculture sector, have virtually been abolished. These companies (HASYMA for cotton, and SIRAMA for sugar) are to be privatized before the end of 2001. Nevertheless, the vacuum left by the boards has not been filled; this has limited the positive impact of the reforms on agricultural output. Tariff protection in agriculture (including fishing, livestock, and forestry) averages 17.7%.

Government policy in manufacturing is primarily based on incentives provided under the export-processing-zone regime, and therefore intends to make the sector export-oriented. Customs duties on manufactured imports average 16.2%, and are escalatory in the main branches of the sector, including textiles and leather products.

Steps have been taken, including enactment of new legislation, to develop the mining sector. Furthermore, the implementation of the privatization program has contributed to significant liberalization of the services sector; the national carrier (Air Madagascar), the airport authority (ADEMA), and Telma (the incumbent supplier of basic telecommunications services, currently owned at 66% by the State), are among the companies earmarked for privatization before the end of 2001. Madagascar's commitments under the GATS, limited to certain business activities, do not reflect its liberalization efforts in the services sector.

Trade Policies and Trading Partners

Trade liberalization has been central to the economic reforms implemented by Madagascar since 1982; this indicates Madagascar's confidence in competitive markets. In addition to its WTO membership, Madagascar has increasingly participated in regional trade agreements with a view to increasing trade flows and better exploiting its comparative advantages. Overall, the reforms have fallen short of reducing poverty in Madagascar.

Once completed, the ongoing implementation of the privatization programme will further liberalize the economy, including the services sector, and contribute to a better allocation of resources
and improvement of international competitiveness of Malagasy products. The competition policy may need to be adapted to the new economic environment through the enactment of the two bills that have been awaiting adoption for some years. This will ensure that privatization does not result in the transfer of monopolies originally held by state-owned companies to private enterprises.

Improvement of the low level of Madagascar's multilateral commitments, mainly under the GATS, would create confidence in the irreversibility of the reforms, render them more credible, and enhance Madagascar's adherence to the WTO principles. Madagascar would appreciate technical assistance to make the WTO rules more widely known domestically.

  
  
Government report Back to top

TRADE POLICY REVIEW BODY: MADAGASCAR
Report by the Government — Part II

General economic and trade policy objectives

1 General economic policy objectives

1. In the context of its structural adjustment programme, Madagascar has applied a controlled budgetary policy (reduction of the budget deficit), a cautious financial policy (control of inflation and of the expansion of the money supply) and sectoral reforms (privatization, liberalization, independence of the Central Bank), which have led to an increase in private savings and credit to the economy and, consequently, to a growth in investment. In Madagascar, the interest rate is a monetary policy instrument in the hands of the Central Bank and it is therefore flexible.

2. In 1997, economic growth outstripped the population growth, of 2.8 per cent, reaching 4 per cent in 1988 owing to an increase in property investments and a substantial growth in trade, in service sectors, such as telecommunications and tourism, and in the industrial free zones.

3. The State has withdrawn from the production and distribution sector in order to devote itself more to its supervisory role, thereby attaching greater importance to the social field and putting in place infrastructures that are needed for the development of the private sector.

4. To this end, it will continue to support the State private sector cooperation platforms and will create a favourable environment for investment and trade.

5. The Government, through the Technical Committee for Public Sector Reform (CTRP), has reformed the civil service and initiated efforts for improving the quality of the public sector.

11. In order to improve the quality of the local workforce, the Government has set up a ministry responsible for vocational training and technical education.

12. The Government has removed all barriers to the setting up of a healthy and fair competitive environment. It will ensure that there is equality of opportunity for all players involved in economic activity and will establish a structure to settle trade disputes. A more liberal property policy is also being introduced. Finally, the protection of property and persons is one of the State's priorities.

13. In order to improve tax revenue and progressively reduce the dependence on customs revenue, the administration has adopted a number of measures such as broadening the VAT base while controlling inflation, introducing excise duty, restricting exemptions, increasing controls in the granting of special tax and customs regimes and reorganizing the tax and customs administration in order to increase the tax ratio by three GDP percentage points.

14. After a substantial depreciation in the Malagasy franc following the floating of the currency in 1994, relative exchange rate stability has been established since 1995. This rate is freely determined by the market (Interbank Foreign Exchange Market-MID). The Central Bank may intervene in this market with the sole aim of smoothing any fluctuations in the Malagasy franc. All restrictions on exchange and on current external transactions have been abolished. The opening of foreign currency accounts is authorized, as are foreign currency loans.

15. The free floating of the Malagasy currency enabled exports to grow and imports to be kept under control, thereby reducing the external current account deficit. In order to support exports, the installation of industrial zones and free zones has been encouraged. Air transport has also been liberalized.


2. General trade policy objectives

16. Madagascar's new trade policy is oriented towards the implementation of the liberal policy adopted by the Government.

17. In this context, the objectives are as follows:

  • The establishment of healthy and fair competition;

  • consumer protection;

  • the promotion of international trade with particular emphasis on export activities ("Made in Madagascar") through diversification of products and export markets;

  • the exploitation of possibilities offered by regional and international organizations;

  • the broadening of the platform for ongoing collaboration with the private sector; and

  • making commercial activities more professional.

18. In general, the chief objective of the trade policy of the Republic of Madagascar is to contribute to poverty reduction: to allow the commercial and private sectors to be the driving force in economic growth.