23 September 1998
POLICY REVIEW BODY: REVIEW OF THE SOLOMON ISLANDS
TPRB'S EVALUATION Back to top
Trade Policy Review Body of the World Trade Organization (WTO) concluded its first review
of the Solomon Islands' trade policies on 21 and 22 September 1998. The text of the
Chairperson's concluding remarks is attached as a summary of the salient points which
emerged during the discussion. The review enables the TPRB to conduct a collective
examination of the full range of trade policies and practices of each WTO member country
at regular periodic intervals to monitor significant trends and developments which may
have an impact on the global trading system.
The review is based on two
reports which are prepared respectively by the WTO Secretariat and the government under
review and which cover all aspects of the country's trade policies, including: its
domestic laws and regulations; the institutional framework; bilateral, regional and other
preferential agreements; the wider economic needs and the external environment. A record
of the discussion and the Chairperson's summing-up together with these two reports, will
be published in due course as the complete trade policy review of the Solomon Islands and
will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne,
1211 Geneva 21.
Since December 1989, the
following reports have been completed: Argentina
(1992), Australia (1989, 1994 & 1998), Austria (1992), Bangladesh (1992), Benin
(1997), Bolivia (1993), Botswana (1998), Brazil (1992 & 1996), Cameroon (1995), Canada
(1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa
Rica (1995), Côte d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the
Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities
(1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990
& 1994), Hungary (1991 & 1998), Iceland (1994), India (1993 & 1998), Indonesia
(1991 and 1994), Israel (1994), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea,
Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia (1993 & 1997),
Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990
& 1996), Namibia (1998), Nigeria (1991 & 1998), Norway (1991 & 1996), Pakistan
(1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania
(1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), the Solomon
Island (1998), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland (1998), Sweden
(1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia
(1994), Turkey (1994), the United States (1989, 1992, 1994 & 1996), Uganda (1995),
Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).
TRADE POLICY REVIEW BODY: REVIEW OF THE
CONCLUDING REMARKS BY THE CHAIRPERSON Back
The first Trade
Policy Review of the Solomon Islands was conducted by the Trade Policy Review Body on
21-22 September 1998. These remarks, prepared on my own responsibility, attempt to
summarize the salient points of the discussion. They are not intended as a full report;
details of the discussion will be reflected in the minutes.
The discussion developed
under the three main themes of: (i) background and current economic crisis, (ii) main
sectoral issues, and (iii) other specific issues related mainly to its membership of the
WTO. Section (iv) concludes by remarks.
Background and current economic crisis
Members recognized that the
Solomon Islands faced immense and numerous economic difficulties. Mismanagement by the
previous government had led to unsustainable levels of public debt, which could not be
repaid from exports at a sustainable level. Concentration of exports in three product
groups (timber, fisheries and copra) and two principal markets (Japan and the EU,
particularly the United Kingdom) meant that the economy was highly vulnerable to external
price developments. The effects of the Asian economic downturn had been particularly
severe for the timber sector, reducing world prices by two-thirds.
Members recognized the
dilemmas confronting the Solomon Islands' Government, in particular, the tension in
policy-making between environmental and trade considerations, given the need to service
the debt. They asked what routes the authorities considered possible to resume economic
growth and promote sustainable trade.
Members welcomed the efforts
being made by the Solomon Islands' Government in economic reform. They stressed the need
to continue the process, particularly in respect of taxation, in order to increase revenue
while promoting exports. Tariff rationalization was welcomed, although rates remained
relatively high and disparate, and a temporary tariff surcharge of 10 per cent had been
implemented in the 1998 Budget, with no time limits. The effectiveness of export taxes was
questioned and alternative means of increasing fiscal revenue (such as stumpage fees or
resource rent taxes) were suggested. Members emphasized the need to introduce a
transparent structure of taxation (including VAT) with minimal scope for Ministerial
discretion in application.
Questions were asked about
the Government's investment policies, including the utility of the negative list, and the
effectiveness of incentives. Clarification was sought on the development of investment in
particular sectors, including telecommunications and tourism.
In response, the
representative of the Solomon Islands outlined steps that the Government had taken to
address the twin problems of unsustainable debt burden, which it inherited upon coming to
power, and the continuing unsustainable exploitation of forestry. The Government had
succeeded in reducing outstanding government debt from SI$185 million to SI$140 million in
an attempt to restore fiscal balance. In addition, the Asian Development Bank had approved
a loan to assist the Government in meeting its objective of balancing the budget.
In order to avoid these
problems in the future, the Government intended to reduce its dependence on forestry and
to diversify into other activities, such as tourism, mining and the domestic processing of
raw materials; for example, all copra was now to be processed locally for export. As
regards exports of canned tuna, the delegation appealed to the EU to maintain existing
Lomé preferences so as to enable Solomon Islands' producers to compete with other
exporters. The delegation also appreciated the contribution of the STABEX programme to
agricultural development. The Government realised that it could not continue to rely on
trade taxes for revenues and was seriously considering progressively reducing such taxes
and their replacement by a VAT.
In recognition of the fact
that the private sector must be the engine of growth in the economy, the Government had
involved the Chamber of Commerce in its reform programme. It also recognized weaknesses in
the administration of the Investment Act and was taking steps to increase its
transparency. In addition, the Government was evaluating the role of investment incentives
in the Act with a view to rationalising their use and removing discretion in their
administration. The negative list was not at present in application.
Main sectoral issues
Members commented on the
heavy reliance of the economy on a few sectors, namely timber, fish and copra. Questions
were raised on sustainable management of timber resources, and how the current
"break" from logging brought about following the collapse in timber prices could
be used by the Government to implement such policies. In this connection, Members also
raised questions on the Government's views on the allocation of logging and fishing
licences, including the auctioning and under-utilization of such licences. The need to
maintain international competitiveness in timber and fish in the face of the erosion of
market access to the EU market under Lomé tariff preferences and reduced timber prices,
were also matters of concern. The Government referred to rules-of-origin restrictions
imposed under the Lomé arrangements for preferences as limiting the development of their
The role of downstream
processing of fish and timber was discussed. Some members saw adverse effects on
developing efficient processing industries from export taxes on unprocessed resources.
Members requested clarification on the government's intention to prohibit round log
exports in 1999. The Government indicated its commitment to promoting downstream
processing as a way of improving the economy's resilience and development. In its view,
export taxes on unprocessed products can play a useful role in this regard.
Some members agreed with the
Solomon Islands that the vulnerability of the economy to world price changes, especially
for copra, was worsened by the effects of export subsidies by some WTO members on edible
oilseeds. Members from the Cairns Group emphasized their aim to obtain strengthened
multilateral disciplines on the use of such trade-distorting policies.
The Government raised the
possibility of its multilateral partners organizing a debt-environment swap as a means of
enabling the Government to service its debt while at the same time implementing
sustainable forest management.
Other specific issues
Members welcomed intentions
by the Government to review its legislation and to bring its policies into conformity with
its WTO obligations, and saw achievement of these multilateral obligations as making an
important contribution to its reform efforts. Members requested additional information on
steps to be taken in areas, such as TRIPs, customs valuation, preshipment inspection,
standards and state trading. Members asked the Solomon Islands whether there were any
impediments to implementing such consistent policies.
The Government reiterated
its commitment to meeting its WTO obligations with the aid of technical assistance. A
number of members offered the possibility of providing such assistance. The Government was
urged to accelerate WTO adherence if possible.
Members referred to the
Solomon islands' membership of regional arrangements, such as the Melanesian Spearhead
Group, and asked that it further explain its view on their usefulness. The delegation
reaffirmed its support for the closer integration of the Pacific Island countries, in
particular through the Melanesian Spearhead Group, and a wider regional free trade area.
A number of Members raised
the need for the Solomons to improve efficient delivery of basic service inputs, such as
telecommunications and transportation. They saw additional GATS commitments in services
such as telecommunications as playing an important role in this context, and asked the
Government for its views and policies towards liberalising services and expanding its
multilateral commitments in the coming round of negotiations. Members also encouraged the
Solomons to implement policies aimed at deregulation and privatization of key service
The Government indicated its
intention to proceed with divesting its ownership in Solomons Telekom within the next
couple of months, and the possibility of allowing new entrants.
Conclusions Back to top
The Chair felt this was a
particularly interesting review in that it has brought into focus some key issues with
wider applicability: in particular, how to reconcile policies of environmental
sustainability and the steps necessary to generate foreign earnings (especially in
circumstances where a government is coping with significant debt servicing burdens), and
also the question of how small economies heavily reliant on a very limited number of
products can maximize returns on production.
The review has shown very
clearly the serious difficulties faced by the Solomon Islands, as a small,
least-developed, island economy with a limited resource base. Some of these are inherited
from previous economic mismanagement; others are due to external problems, including the
dramatic results of the Asian crisis, erosion of preferences and the effects of
subsidization of competing products.
We have also had a
substantial discussion on the vulnerability of an undiversified economy to both commodity
booms and external shocks. A number of delegations have addressed issues of
diversification, sustainability and resource conservation, the role of export taxation;
the effects of Lomé preferences; and the prospects for establishing efficient downstream
processing. We hope that the signals given by Members will help the Solomon Islands in
establishing a more viable economic base. One issue of overwhelming importance is the
creation of a stable environment for future trade and investment, with minimal scope for
discretion. Tariff reforms have already begun and, again, a stable basis for trade is
The present Government has
underlined its commitment to economic reforms and the Trade Policy Review Body has given
its strong encouragement to the process. We hope that the Solomon Islands Government will,
as a follow-up to this review, be able to benefit from the technical cooperation
opportunities that are being offered to it and will thereby be able to participate more
effectively in the WTO Agreements and benefit from the multilateral system. We wish the
Solomon Islands well in coping with the present difficulties and promoting its economic
recovery and future development.