Fiji: April 1997
Fiji's economy faces numerous challenges as it tries to diversify away from traditional exports, continue with its economic reforms and attract higher levels of foreign investment.
Fiji tries to diversify away from traditional exports and stimulate foreign investment
Fiji's economy faces numerous challenges as it tries to diversify away from traditional exports, continue with its economic reforms and attract higher levels of foreign investment. After introducing more market-oriented and outward-looking development strategies in the late 1980s, Fiji's economy made a short-term recovery - mainly because of increased revenue from sugar, clothing exports and tourism receipts - before slowing again in the 1990s. A new WTO Secretariat report on Fiji's trade policies and practices states that the recent economic downturn is mainly due to a lack of foreign investment and that Fiji is now trying to attract more foreign capital by streamlining procedures and granting tax incentives. The report notes that Fiji is also trying to rebuild the country's level of human capital and address problems related to the renewal of land leases in the sugar sector.
Fiji's sugar industry makes up 40 per cent of total merchandise exports and 11 per cent of the island's GDP. About 90 per cent of raw sugar production is exported with more than half sold under preferential agreements, mostly to the EU under the Lomé Convention and to Australia and New Zealand under the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA). Clothing constitutes the country's main manufacturing export (almost 30 per cent) with production increasing fivefold from 1986 to 1995. Assisted by Fiji's Tax Free Factory exemption scheme, which grants tax exemptions on income from exports totalling more than $6,600 a year, clothing exports have doubled since the late 1980s. The report notes that the preferential trade advantages Fiji has for its sugar and clothing exports are gradually being eroded as industrialized countries reduce their tariffs on these items. It notes that both sectors require efficiency gains to remain competitive.
The WTO report, which will be the subject of two days of discussion in the Trade Policy Review Body on 9 and 10 April 1997, states that Fiji's trade regime has been substantially simplified since 1989 and that most import license requirements have been removed. Subsidies for some primary commodities have been withdrawn and maximum tariffs on almost all lines have been reduced from 50 per cent in 1991 to 22.5 per cent. Fiji's current simple average most-favoured-nation tariff (excluding the effects of specific rates) in 1996 was 12.4 per cent. Border charges accounted for some 46 per cent of Fiji's revenue in 1995.
The report notes that Fiji has no local-content requirements for domestic production and it has not used safeguards, anti-dumping or countervailing duties. Licensing protecting the dairy industry
from international competition was removed and replaced by tariffs in 1993. The main government support measure for agriculture is tariff protection and exports of fruit and vegetables, including root crops, are subject to licensing. The State owns several agricultural trading companies of which the Fiji Sugar Corporation (FSC) is the sole buyer of sugar cane and manufacturer of raw sugar.
The report notes that services trade, especially tourism, plays an important role in Fiji's external accounts. Fiji's Schedule of Specific Commitments under the General Agreement on Trade in Services (GATS) includes tourism and travel-related services covering hotels, motels, other tourist accommodation and restaurants. In these areas, Fiji has bound itself not to limit market access or national treatment for cross-border supply, consumption abroad and commercial presence, although there are some limitations on commercial presence in market access. Fiji did not participate in the WTO negotiations on basic telecommunications or maritime transport.
The tourism sector, together with distribution, transport and communications, accounts for some 20 per cent of GDP. Projects for approved hotel buildings or expansion are eligible for an investment allowance. In regard to financial services, which account for 13 per cent of GDP, the report notes that banking and finance are regulated by the Reserve Bank. Only licensed financial institutions, comprising commercial banks and credit institutions, may engage in banking. While foreign insurance companies are not permitted to advertise or sell their activities, there is basically no limit to foreign ownership of financial services. However, the Reserve Bank encourages local participation in money and foreign exchange dealing for travel related purposes.
While there is no specific Competition Law in Fiji, some 35 per cent of products are still subject to price controls. Privatization of public enterprises remains at the planning stage. As for legislation concerning intellectual property rights, the report states that Fiji intends to ensure that its relevant legislation is consistent with the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights. At present, the provisions of the Agreement are under study to see whether changes are needed.
In its conclusions the report notes that the challenges facing Fiji and its attempts to diversify its economy away from traditional exports will depend on reviving sagging foreign investment. Expediting the pace of privatization will help Fiji to upgrade the efficiency of its economy as will its efforts to liberalize and deregulate its trade regime.
Note to Editors:
The WTO Secretariat's report, together with a report prepared by Fiji will be discussed by the WTO Trade Policy Review Body (TPRB) on 9 and 10 April 1997. The WTO's TPRB conducts a collective evaluation of the full range of trade policies practices of each WTO member at regular periodic intervals and monitors significant trends and developments which may have an impact on the global trading system. The two reports, together with a report of the TPRB's discussion and of the Chairman's summing up, will be published in due course as the complete Trade Policy Review of Fiji and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
The reports cover the development of all aspects of El Salvador's trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the "new areas" of services trade and trade-related aspects of intellectual property rights are also covered. Attached are the summary observations from the Secretariat and government reports. Full reports will be available for journalists from the WTO Secretariat on request.
Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991), Colombia (1990 & 1996), Costa Rica (1995), Côte d'Ivoire (1995), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993 & 1995), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 & 1995), Kenya (1993), Korea, Rep. of (1992 & 1996), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993), Morocco (1989 & 1996), New Zealand (1990 & 1996), Nigeria (1991), Norway (1991 & 1996), Pakistan (1995), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), South Africa (1993), Sri Lanka (1995), 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).
The Secretariats report: summary
TRADE POLICY REVIEW BODY: FIJI
Report by the Secretariat Summary Observations
Fiji is a small, island nation in the South-Pacific whose economy relies strongly on sugar, tourism and a newly emerged clothing sector. Since the late 1980s, Fiji has followed more outward-oriented polices, aimed at achieving stable, sustainable growth. Although important advances have been made there has been a certain delay in the implementation of some structural measures, including tariff reductions and public enterprise reform. Confidence does not appear to have fully recovered from the coups of 1987; private investment is still well below the level of the early 1980s, and growth and economic diversification remain somewhat hesitant.
Following its independence in 1970, Fiji pursued a strategy of import substitution, self-sufficiency and heavy involvement of Government in business. Initially, economic performance was favourable but, reflecting the distortions and rigidities induced by inward-looking policies, growth became sluggish in the decade to 1986. In 1987, the economy suffered a severe setback, largely in consequence of military coups; confidence deteriorated, there was a sharp increase in residents leaving Fiji and tourism was badly affected.
In late 1987, Fiji undertook an important change in policy direction toward a more market-oriented outward-looking development strategy. Trade liberalization, economic deregulation and investment promotion are important components of the new orientation. This contributed to a recovery in 1989 and 1990, led by sugar, tourism and clothing. However, with investment lagging, growth slowed during the 1990s, and real GDP increased at an average annual rate of about 2.5 per cent in the period 1991-95.
Fiji has sought to support its structural adjustment effort with improved macroeconomic management. The budget moved into surplus in 1990 but reverted to deficit until improved expenditure control and revenue collection brought it into approximate balance in 1995. Monetary growth has been disciplined and inflation was in the range of 5-8 per cent in the early 1990s, subsequently falling below 5 per cent. In consequence, the real effective exchange rate has been relatively constant, helping to maintain export competitiveness.
Fiji's growth prospects may be constrained by lingering political and land-tenure uncertainties, which play a rôle in the lower investment and continued emigration. The Government is attempting to address the investment issue through streamlining investment procedures and granting tax incentives; it also seeks to rebuild the level of human capital, aiming to phase in compulsory primary education by 2000. The renewal of land leases in the sugar sector is a political and economic issue which is affected by the relationship between the two principal population groups.
FIJI IN WORLD TRADE
Fiji's historical trade deficit has been largely offset by services receipts, particularly from tourism. The balance of payments has been in near balance, with reserves relatively stable at well over four months of imports since 1993.
Reflecting lower investment, the share of machinery in Fiji's total imports has recently decreased, but manufactures are up. In the 1990s, the share of food products in Fiji's exports has declined, while that of manufactures, led by clothing, has risen significantly. The share of sugar in Fiji's exports is close to 40 per cent, with about half going to markets with preferential access, mainly in the European Union.
Fiji's imports are mainly from Australia and New Zealand, with the share of the latter increasing significantly in recent years. About half of Fiji's exports go to Australia and the United Kingdom, with the share of the United States now also important.
LEGAL AND INSTITUTIONAL FRAMEWORK
Fiji is a multi-party Republic, with executive power vested in the President. The Prime Minister, appointed by the President, leads the Government; Cabinet formulates policies. The main Fijian Ministries in charge of issues relating to international trade are the Ministry of Commerce, Industry, Trade, and Public Enterprises (MCITPE) and the Ministry of Finance and Economic Development (MOFED). Except for tariffs, which are the charge of MOFED, MCITPE is directly responsible for Fiji's general merchandise trade policies, including any controls on exports and imports. The Customs and Excise Department (CED) in MOFED implements tariff policy. Service-related policies are under the purview of various Ministries, including MOFED and Tourism and Civil Aviation.
TRADE POLICY FEATURES AND TRENDS
Fiji became a member of the WTO in January 1996. It accords at least m.f.n. tariff treatment to all its trading partners. As part of its undertakings in the Uruguay Round, Fiji bound all its agricultural tariffs and some 43 per cent of its industrial lines. Under the General Agreement on Trade in Services (GATS), Fiji has scheduled commitments in tourism.
Fiji is a signatory to the Lomé Convention under which the European Union (EU) grants non-reciprocal trade preferences to countries in Africa, the Caribbean and the Pacific (ACP States). EU aid to Fiji in the period 1989-1995 totalled F$75.5 million. Fiji is party to the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA), a non-reciprocal preferential agreement covering the Forum Island Countries (FIC) and Australia and New Zealand, which aims to achieve progressively duty-free and unrestricted access for FIC in Australia and New Zealand. Fiji's export benefits under SPARTECA are mainly from manufactured goods such as clothing. Fiji is a beneficiary of the GSP schemes of 21 countries.
The Fijian authorities regard foreign direct investment (FDI) as a vital contributory factor to achieving faster economic growth. National treatment is the general principle and incentives are granted equally to foreign and domestic investors. To facilitate FDI inflows, the Fiji Trade and Investment Board (FTIB) is the "single window" for the promotion, regulation and control of foreign investment. The FDI approval process is discretionary, with decisions made under ministerial guidelines rather than the provisions of an Act. Foreign investors are generally discouraged from acquiring controlling interest in established, locally owned enterprises. If shares or other securities of businesses in Fiji are to be issued to a non-resident, prior approval must be obtained from the Reserve Bank of Fiji (RBF).
TYPE AND INCIDENCE OF TRADE POLICY INSTRUMENTS
Since 1989, Fiji's trade régime has been liberalized and simplified. Measures have included the removal of licensing for most imports, the reduction of tariff rates, and a withdrawal of subsidies on some primary commodities.
Tariffs are now the main instrument of trade policy. The tariff structure has been simplified, with the maximum ad valorem tariff on almost all lines reduced from 50 per cent in 1991 to 22.5 per cent, still above the 20 per cent originally envisaged. Fiji's current simple average m.f.n. tariff (excluding the effects of specific rates) in 1996 was 12.4 per cent. Ad valorem tariffs are applied to about 96 per cent of lines; specific rates to 2 per cent, mainly on beverages, tobacco, mineral fuels, and fireworks; remaining lines, largely tires and vehicles, are subject to alternative rates. Border charges accounted for some 46 per cent of the Government's budgetary revenue in 1995.
Fiji's tariff shows escalation, with higher rates on processed items. Most agricultural tariffs are bound at ceiling rates of 40 per cent, except for rice, milk powder, alcohol and tobacco products; bound rates in industry are at 40 per cent. Most applied rates are well below the bound levels. Fiji accords tariff preferences to some of its imports from Tonga and Papua New Guinea under bilateral trade agreements, with rules of origin applying. In general, duty concessions are given to industry for the manufacture of raw materials and machinery.
Customs valuation in Fiji is, since 1 January 1997, in accord with the WTO's Customs Valuation Agreement. Fiji has certain import prohibitions and controls for environmental, health, public morals, and security reasons, and under international conventions. Specific import licence controls have largely been removed since 1989, and replaced by tariffs, except for items such as lubricating oil to ensure compliance with technical standards. There are no quantitative restrictions.
Fiji is in the early stage of developing its own standards. Policy governing quarantine, sanitary and phytosanitary regulations was recently changed from one of "zero-risk" to that of "minimal risk", to facilitate trade. In government procurement, all tenders above F$30,000 are under competitive tendering, with, in principle, no discrimination against foreign suppliers. Fiji has no local-content requirements for domestic production, and it has not used safeguards, anti-dumping or countervailing duties.
For revenue purposes, Fiji imposes modest export taxes on sugar and gold. Export controls are mainly applied for cultural, health, or environmental reasons or under international conventions. Specific licences are required for the export of some products, including sugar, wheat bran, copra meal, certain lumber, and selected animals. Fiji has no export quotas or voluntary export restraints, and according to the authorities, does not subsidize, within the meaning of WTO obligations, any exports of goods or services.
Duty drawback is available on the import component of exported manufactured goods if the domestic process changes the items' 4-digit HS classification. All exports from Fiji are zero-rated for VAT purposes. Firms are exempt from tax on income earned from exports, provided export value exceeds F$10,000 a year. The Tax Free Factory/Tax Free Zone (TFF/TFZ) scheme grants financial concessions to attract companies to establish operations in Fiji. Export-performance requirements are associated with the granting of TFF status. The concessions granted to the TFFs include the duty-free import of capital goods, equipment, components and raw materials used to establish them. The Export Credit Finance Facility assists exporters in obtaining pre- and post-shipment credit at concessional rates of interest.
There are no production subsidies in Fiji but a number of tax concessions are granted for investment and production. For companies deemed to be new industries, income tax exemptions are for up to eight years. Accelerated depreciation concessions provide benefits to all sectors other than agriculture. There is no specific Competition Law in Fiji. Some 35 per cent of products are still subject to price control. Privatization of public enterprises remains at the planning stage.
Fiji fully intends to assure that its relevant legislation on intellectual property rights is consistent with the WTO Agreement on the Trade-Related Aspects of Intellectual Property Rights. At present, the provisions of the Agreement are under study to see whether changes are needed.
Agriculture, forestry and fisheries together account for about 20 per cent of Fiji's GDP, and for more than half of its exports. Sugar production and subsistence agriculture are the dominant agricultural activities. The main government support measure for agriculture is tariff protection. Exports of fruit and vegetables, including root crops, are subject to licensing. Licences are granted for exports of specific commodities, subject to quarantine requirements and production line inspections. The State owns several agricultural trading companies. The Fiji Sugar Corporation (FSC) is the sole buyer of sugar cane and manufacturer of raw sugar.
The Government actively encourages the further processing of raw materials in agriculture. Individuals and companies engaged in designated agricultural enterprises are exempted from tax for five years, may offset losses against other profits and carry forward the losses indefinitely until completely set off against future profits. Land improvement costs may be fully written off in the year of expenditure, or over a period of five years. The Government supports the copra industry, which is an important source of exports, through a price stabilization fund. Fiji has no programmes providing direct income support for farmers or food subsidies to consumers.
The sugar industry accounts for about 40 per cent of total merchandise exports and 11 per cent of GDP in Fiji. Sugar production increased during the 1990s, although with considerable annual variations due to climate and disputes. About 90 per cent of raw sugar is exported; more than half is sold under preferential agreements, mostly to the EU.
Licensing protecting the dairy industry from international competition was removed and replaced by tariffs in 1993. The fisheries sector holds about 1 per cent of GDP; tax concessions are generally available for deep-sea fishing. Canned tuna and chilled fresh fish are the main exports. The forestry sector adds 1 per cent of GDP. Exports are mainly of sawn timber; log exports are banned.
The mining sector accounts for between 2 to 3 per cent of GDP and 10 per cent of exports. Gold is the main mineral output. If a mining venture is deemed beneficial for the development of Fiji, the income derived from such activity may be tax exempt or taxed at a reduced rate for a specified period.
The manufacturing sector accounts for approximately 12 per cent of GDP. Sugar milling, food, beverage and tobacco production, and textiles and clothing are the principle manufacturing activities. The main government protection measure for manufacturing is the tariff. The major form of governmental support is through tax exemptions for TFFs satisfying export requirements.
Clothing is now Fiji's main manufacturing export. Some two thirds of employment comes from foreign firms. Clothing production increased fivefold between 1986 and 1995, assisted by the introduction of the TFF Scheme; exports have more than doubled since the late 1980s, and account for almost 30 per cent of merchandise exports. These exports receive preferential access to Australia and New Zealand under SPARTECA and to the EU under the Lomé Convention.
Services trade, especially tourism, plays an important rôle in Fiji's external accounts. Fiji's Schedule of Specific Commitments under GATS includes tourism and travel-related services covering hotels, motels, other tourist accommodation and restaurants. In these areas, Fiji has bound itself not to limit market access or national treatment for cross-border supply; consumption abroad; and commercial presence, although there are some limitations on commercial presence in market access. Fiji has not participated in the WTO negotiations on basic telecommunications or maritime transport.
The tourism sector, together with distribution, transport and communications, accounts for some 20 per cent of GDP. Projects for approved hotel buildings or expansion are eligible for an investment allowance. Various other incentives are also granted to tourism.
As an island nation, Fiji is heavily dependent on transportation services. The transport sector is subject to a high degree of regulation; in addition to technical and safety issues, prices are regulated in the bus, taxi, domestic aviation and inter-island freight industries. Route licensing applies to domestic aviation and bus services.
The Ministry of Information, Broadcasting, Television and Tele-communications issues telecommunication licences and frequencies and sets the regulatory environment. Domestic telecommunications and postal services are exclusively provided by Fiji Posts and Telecommunications Ltd. (FPTL), which is wholly owned by the Government. Fiji International Telecommunication (FINTEL), with 51 per cent of its shares held by the Government, has the exclusive right to provide international telecommunications services. In 1990, both FPTL and FINTEL were issued 25-years licences to operate as monopolies.
The financial services sector accounts for around 13 per cent of GDP. Banking and finance are regulated by the Reserve Bank. Only licensed financial institutions, comprising commercial banks and credit institutions, may engage in banking. Foreign insurance companies are not permitted to advertise or sell their activities in Fiji. There is basically no limit to foreign ownership of financial services in Fiji; however, the RBF encourages local participation in money and foreign exchange dealing for travel related purposes.
TRADE POLICIES AND FOREIGN TRADING PARTNERS
Under its reform programme, Fiji has taken the first substantial steps towards its integration into the world economy. Trade measures are applied on a non-discriminatory basis. Fiji's tariff bindings as a result of the Uruguay Round significantly increased the predictability of its trade régime.
Fiji's economy depends heavily on sugar, tourism and clothing. The need to lessen the dependence on the sugar industry may become more urgent as Fiji's preferential status in its sugar export markets is eroded in the long term. Similarly, the clothing sector, also facing an erosion of preferential access, could require efficiency gains to remain competitive. Diversification of the economy will, however, require attention to the problem of shortages of professional and technical personnel that have resulted from the high rates of emigration over the past decade. The results of the diversification attempt will also depend on the revival of sagging investment. Expediting the pace of privatization will be helpful in upgrading the efficiency of the economy, as will a continued liberalization and deregulation effort.Back to top
TRADE POLICY REVIEW BODY: FIJI
Report by the Government
The Fiji economy recorded a moderate growth of 1.4 per cent in 1995, mainly due to the downturn in its two major industries: sugar and tourism. Adverse weather affected the sugar cane harvest and tourist arrivals levelled off after a record 1994 season. The latest estimate indicates that the economy will rebound to about 4.4 per cent growth in 1996. Sugar and gold production are expected to increase. Tourist arrivals are projected to be higher than 1995. The medium term perspective projects a sustainable 3 per cent growth annually, over the next three years.
Fiji's economic growth in the last three years was achieved mainly through strong performance of the export sector. A favourable exchange rate, increase demand for our exports, secured export markets, increased production, as well as, our ability to consistently supply export products, have been some factors contributing to this growth. In addition, the Government policy of export development has expanded and diversified non-traditional exports through increased foreign and domestic investments under the tax free factory/tax free zone scheme. Globalization has assisted in diversifying markets.
The current account is expected to record surpluses in 1996 and the medium term. Fiji's foreign reserves position is comfortable at around five months of import cover. External debt is about 8.1 per cent of GDP, and external debt servicing, at 2.5 per cent, is relatively low and continues to decline. Inflation was at 3.2 per cent in February 1997 and broadly in line with those of Fiji's major trading partners.
Fiji recognizes the challenging tasks required to take full advantage of its full potentials for economic growth and social progress. In particular, the Government is aware of the potential threat that its rising fiscal deficit may have on reducing national savings, crowding out of private sector investments, inflation and international competitiveness. The deficit is expected to increase from less than 1 per cent of GDP in 1995 to over 7 per cent in 1996 and is further expected to increase over 8 per cent in 1997. However, the size of the deficit will be reduced, if not eliminated, in the medium term and debt will be brought down to a sustainable level. Ongoing effort will be required to achieve the Government's objective of balanced budget and manageable debt levels, in the medium term.
The Government will continue to facilitate and play a catalytic role in providing an environment that is conducive to private sector growth. In line with this objective, it will focus on the following issues: the development of its human resources, development and improvement of its infrastructure, and promotion of domestic and international competitiveness, through improved efficiency in its labour and services.
TRADE POLICIES AND PRACTICE
Trade liberalization, economic deregulation and investment promotion have since 1987 constituted key elements of Fiji's new development strategy. In 1989, the Government announced a comprehensive structural reform programme, aimed at improving the longer-term growth prospects. Toward this end, Fiji embarked on a phased programme for the elimination of quantitative import restrictions and the reduction of import tariffs; financial market deregulation; abolition of statutory wage guidelines; and promotion of enterprise-based wage bargaining; tax reform; public enterprise reform; and export promotion and development.
Fiji's trade policy objectives include progressive removal of licences and quantitative restrictions, trade liberalization, and trade promotion. Fiji encourages trade diversification by promoting the export of non-traditional goods and services. In recognizing private sector as the engine for economic growth, efforts are directed at creating a conducive environment for private sector growth. Toward this end, Fiji is in the process of putting in place clear and transparent investment policy statement and guidelines. Promotion of a fair trading environment is also high on the agenda.
Three important legislations are now in place. First, is the National Trade and Measurement Decree 1989, which ensures accurate packaging and labelling requirements of product contents. Secondly, the Fair Trading Decree 1992, aims to promote a trading environment for consumers and business in which all participants in the market place are treated fairly and equitably. Thirdly, the Trade Standards and Quality Control Decree 1992, ensures that goods and services imported manufactured and distributed in Fiji are of uniform standard.
In its policy statement, Fiji has emphasized the need to ensure and enhance Fiji products competitiveness in the international markets. To a large extent, the growth of non-traditional exports and the manufacturing sector are the result of the emphasis on export development. Fiji recognizes that the private sector operating in open markets will be the driving force of the economy. An efficient and expanding private sector will be the main creator of employment and rising incomes.
SECTORAL TRADE POLICY OBJECTIVES AND DEVELOPMENTS
Sugar industry dominates the agricultural sector and accounts for 82 per cent of total agricultural exports. It will remain the central pillar of the agricultural sector in the future. At the same time, the Government will also be focusing efforts over the coming years towards diversifying agricultural production into other export earning crops. Fiji has identified those non-sugar commodities in which it has a comparative advantage and which offer the greatest opportunity for export earnings. These are: coconuts and copra, ginger, dalo, yaqona, fresh fruit and vegetables. These crops will be the primary focus of the Government's efforts during 1997 and onwards. Whilst recognizing the importance of being export orientated, Fiji is mindful of the need for food security, especially, because of its proness to climatic and other natural disasters.
Fisheries exports are growing rapidly, especially in the area of fresh "sashimi" tuna, pearls and bech-de-mer. The primary objective of the Government's fisheries policy is to expand export-oriented production of all marine products, and at the same time ensure the long-term sustainability of its marine resources.
Fiji envisages timber export earnings to reach $100 million by the year 2000. Under the Government's reforestation programme, a total 50,800 hectares of hardwood plantation has been established and 85,000 hectares are targeted to be established by the year 2000. In line with the Government's public enterprises reform policy, a feasibility study to corporatize the hardwood plantations has been completed and is being examined by the Government. A Hardwood Plantation Management Company will be established to manage the forest and prepare for large scale harvesting, processing and exporting from the year 2000.
Fiji's manufacturing sector policies are designed to enhance factor market efficiency to attract foreign capital by overhauling the licensing system, improving the labour market through revised wage bargaining, and reducing trade and production distortions associated with excessive tariff and non-tariff barriers.
Fiji has made good progress in reducing non-tariff barriers and protective tariffs. The 1994 and 1995 budgets removed import licensing on all but one product - lubricating oil. Initially, high tariffs of between 50 per cent to 70 per cent replaced licences, to allow domestic producers time to adjust their operations to changing competitive conditions. The tariffs have since been gradually reduced in subsequent budgets. As a result, the standard fiscal tariffs fell to 25 per cent in 1993 and 22.5 per cent in 1995. In 1992, a Value Added Tax was introduced and levied on all goods and services. This was in line with the Government's tax reform measures that it introduced in 1993 to broaden the tax base.
Trade liberalization has had mixed impact in the manufacturing sector. Some firms have experienced increased efficiency as a result of internal restructuring and introduction of new initiatives, such as investment in new technology, improved skills, new sourcing destinations and new export markets. Others increased their export orientation or adjusted their input mix to the changing price structure. Resource shifts have taken place, but most have been within enterprises, with little loss of employment. In the past local firms had over-diversified to capture a larger share of the Fijian market. After trade liberalization, they became more targeted and focused their operations on fewer activities. They focused their activities, especially, in those sectors where they could compete internationally.
To facilitate and increase the international competitiveness of industries, the Government has introduced and implemented new legislation on trade standards and quality control and encouraged firms to adopt the ISO 9000 accreditation. Whilst it is the long-term aim of the Government to create a competitive economy, in the shorter term, it considers necessary to provide export incentives to encourage the development of non-traditional exports.
Output in the mining sector is expected to increase by 23 per cent in 1997, with further increases projected in the medium term. With the formulation and implementation of a Minerals Policy and the release of a Promotional Document in 1997, the projected GDP contribution of the sector is expected to increase further as interest from mineral investors on mining prospects increase due to the provision of a clear and transparent policy guideline.
Import of petroleum products represents a significant slice of Fiji's energy bill. To improve efficiency in the power sector, Fiji Electricity Authority is currently undertaking an institutional strengthening exercise in preparation for the industry reconstructing. Corporatization of the FEA is to commence at the end of 1997. FEA is currently the natural monopoly producer of electricity. Some electricity is also generated by the Fiji Sugar Corporation. Part of the industry restructuring review will explore the possibilities of increasing competition in electricity generation. The transport sector is the largest consumer of imported petroleum products. Due to increasing economic activity, the import of petroleum products is likely to increase in future.
The power sector plays a critical role in the production of Fiji's exports. To improve efficiency in the power sector, a study is currently underway to examine institutional strengthening needs of the Fiji Electricity Authority (FEA), Fiji's sole producer and supplier of electricity. Further study will explore ways in which competition could be introduced in this sector before corporatization. The Government is committed to improving efficiency in this sector. Rural electrification continues to be given high priority so that it can assist in improving living conditions and enhancing socio-economic opportunities for the rural people.
In 1993, the Fiji Government endorsed and adopted the National Environment Strategy, a broad-based programme of action, intended to ensure that Fiji follows a path of sustainable development. The Sustainable Development Bill that will provide the legal framework for sound environmental management in all sectors of the economy, is currently being examined by the Government.
Regarding the industrial sector, the Government recognizes the need to involve the commercial industries in all aspects of environmental planning and management. In view of this objective the "polluter-pay" basis and "self-regulation" principles had formed the basis for the environmental management and pollution control regulatory framework that was established in the new legislation.
Fiji recognizes the importance of having in place an efficient services' sector for the development of its exports and implementation of its trade policies. In 1996, the sector accounted for approximately 70 per cent of GDP.
Tourism is Fiji's single largest export earner accounting for about 20 per cent of GDP. It is an important area for growth and efforts are underway to broaden the range of tourism services, including moving into areas such as eco-tourism and culture-tourism. The Government policy continues to emphasise private-sector participation and performance and is addressing issues, such as, air access, the structure of accommodation, expanding the tourism product, promoting Fiji in new and existing markets, and providing trained workers to meet the changing human-resource needs.
Significant progress has been made in the area of capital market development. The Capital Market Development Act will now regulate the market reform and co-ordinate further development. Trading at the stock exchange has increased. More companies are now listed on the exchange. An active capital market will raise the efficiency of intermediations, promote domestic savings and increase the effectiveness of the market-based implementation of monetary policy.
Air transport plays a vital role in the transportation of exports in agricultural products and other perishable items. Fiji recognizes that greater competition in international flights would provide a better foundation on which to base growth in trade, tourism and the domestic economy. Flight frequencies into Asia and North America have increased in the past two years. However, the challenge for the sector remains the further liberalization of access rights to encourage a broad base of carriers that would broaden market access into Asia and Europe.
Fiji exports more than 70 per cent of its exports by sea. The Government recognizes the important of having an efficient port service and is in the process of corporatizing the Ports Authority of Fiji, to improve the performance of port operations. Given Fiji's geographical structure, it is also important to have well-established domestic shipping services. Sea transport provides vital links to remote islands, and to improve services to the outer islands, the Government has introduced the shipping service franchise subsidy scheme. This scheme will provide a subsidy to the private shipping company that wins the tender, to service the otherwise unprofitable routes to outer islands.
Fiji currently has a well developed but largely monopolized telecommunications sector. A review of the sector undertaken in 1996 revealed that large efficiency gains could be achieved if the Government deregulated the sector to allow for competition. The Government is therefore pursuing the deregulation of the sector this year. Thus competition in the sector will encourage improved services and lower prices.
TRADE POLICY INSTITUTIONAL FRAMEWORK
Trade policy administration is the responsibility of several Ministries and Departments and government statutory bodies. This includes the Ministry of Commerce, Industry, Trade and Public Enterprises, the Ministry of Finance, and Economic Development, Department of Inland Revenue, Customs Department, the Fiji Trade and Investment Board and the Reserve Bank of Fiji.
Several domestic laws and regulations provide the legal framework for the implementation of trade policies. The Government is examining a new draft Copyright Act that would take into account changes to copyright matters in Fiji, over the past two decades, and ensure consistency with the WTO Agreement on the Trade-Related Aspects of Intellectual Property Rights. In the absence of an Anti-Dumping Legislation, the current Fair Trading Decree, will be modified to incorporate anti-dumping issues.
The formulation and review of trade policies is vested in the Ministry of Commerce, Industry, Trade and Public Enterprises. The Ministry carries out this task in consultation with other Ministries and Departments and statutory bodies that administer other aspects of trade policy. Given Fiji's push for greater private sector involvement, an increased emphasis is placed on consulting with private sector organizations and businesses.
The process of trade policy formulation involves Cabinet approval, publication of the bill, approval by Parliament, consent by the President and publication of the Act in the Government Gazette. The Judiciary is responsible for resolving all disputes related to trade.
In recognition of its open economy, Fiji has encouraged participation in trading arrangements to use these channels for securing and enhancing export markets and to ultimately foster international economic cooperation. Fiji is signatory to the bilateral trading arrangements with Papua New Guinea and Tonga, and is a member of the regional trading agreements SPARTECA and the EU/ACP - Lomé Convention. Besides being a member of the WTO, Fiji also uses the GSP schemes for a few resources based products. Fiji is also pursuing Bilateral Trading Agreements with other Forum Island Countries such as Vanuatu and Solomons and is also in the process of discussing one with the Australian Government.
TRADE POLICY IMPLEMENTATION
The progressive removal of substantial licensing requirements and quantitative restrictions has been a major component of Fiji's export-oriented trade policy reform. Whereas 46 items were under import licence control in 1988, by 1996 there was only one, lubricants and hydraulic fluids. Besides gold and sugar, an export licence, based on standards (minimum size), is required for unprocessed trochus shells, to avoid over-exploitation.
The Fiji customs tariff is a single-column tariff. With effect from 1 January 1989, Fiji fully implemented the 1983 Harmonized Commodity Description and Coding System (HS) of the Brussels Customs Co-operative Council (CEC), for the classification of its imports and exports. This system replaced, the old Nomenclature (CCCN). Currently, the level and dispersion of the customs duty rates, ranges from zero per cent to 35 per cent. Fiji grants tariff preferences to Tonga and Papua New Guinea under the Bilateral Trade Agreements. Fiji used the 1950 Brussels Definition of Value until 1 January 1997, when it converted to the GATT Valuation System. Until June 1992, there were two types of import duties: a variably-related fiscal duty levied for protection and revenue-raising purposes, and a flat-rate customs duty additionally levied for revenue-raising reasons. With effect from July 1992, the Customs Duty was dropped, and replaced by a 10 per cent Value-Added Tax (VAT). This VAT, introduced as part of a major tax reform package, was intended to broaden the taxation base, and to reduce the tax burden imposed on foreign trade flows. In doing so, the idea was to shift the focus from indirect tax collections to domestic consumption.
Fiji's exports are currently subject to the following rules of origin (ROO) provisions:
- Exports to EU: Lomé Convention ROO,
- Exports to GSP donor countries: GSP ROO;
- Exports to New Zealand and Australia: SPARTECA, ROO.
Fiji also applies rules of origin provisions in the following Bilateral Trade Agreements:
- Fiji and Tonga;
- Fiji and Papua New Guinea.
Trade liberalization reforms in Fiji, begun with the 1989 mini-budget, which promulgated the replacement of import licence requirements for 34 manufactured products with tariffs. Tariff rates were set between 50 and 70 per cent (fiscal and customs duties combined), to allow local producers time to adjust to the increasingly competitive market environment. Subsequent budgets stipulated the gradual reform of customs' tariffs. In terms of a reduction of tariff ceilings and the ensuing decline of average tariff levels.
The 1990 budget saw tariff reductions for textiles, motor vehicles and selected imports, required by the tourism industry. There also was a lowering of fiscal duty ceilings of 50 to 30 per cent on fruit, vegetables and juices. Fiscal duty on key industrial imports, such as computers, communication and transportation equipment was reduced from 30 per cent to 10 per cent. The 1991 budget announced a 50 to 40 per cent fiscal duty reduction for most products, freed from import licensing in 1989. There also was a proportional decline in fiscal duty, for the majority of goods in the tariff schedule.
Also, export duties levied on sugar, molasses and gold were reduced from 5 to 3 per cent. The 1995 budget further reduced the standard fiscal tariff duty by 2.5 per cent to 22.5 per cent. The 1996 and 1997 budgets have announced that there will be no further reduction in the standard fiscal tariffs until significant deregulation progress has been made in other areas, such as labour and financial sectors.
As indicated above, the Government is committed to its trade liberalization programme, and is monitoring closely the pace with which it will continue in future. In view of concerns raised by local producers affected by loss of protection the Government initiated studies in 1991, 1992 and 1994 to monitor the impact of trade liberalization. The Government has recently set up an independent panel, comprising private sector representatives to further review the impact of import deregulation.
ECONOMIC ENVIRONMENT AND FACTORS INFLUENCING TRADE
In 1989, the Government introduced key policy elements, to move towards sustainable economic growth. Along with those policies, a number of other policy measures have been implemented to achieve these objectives. Over the years, Fiji's exchange controls have been relaxed in areas, such as offshore investments, operating and capital profits, and retained foreign currency accounts sourced from export proceeds. Delegations of powers to commercial banks and the Customs and Excise Departments were also relaxed.
Interest rates have been deregulated since 1987 and market conditions prevail in the determination of all rates in Fiji. Injecting fiscal discipline through reductions in public sector expenditure and deficits is a priority policy move by the Government to increase and sustain economic growth. In addition, the Government will further develop and implement a broad base low rate tax system, that will ensure that revenue keeps pace with the growth in the economy. Practically this will mean improving VAT compliance and re-examining the costs and benefits of the existing tax incentives.
On balance of payments, Fiji's overall position has been in a surplus position for the last few years. Much of this is attributed to healthy receipts from tourism and the export sector. The current account has also posted positive balances and this trend will continue. The current account balance in 1996 is estimated at 20 per cent of GDP. The merchandise account is expected to deteriorate. Fiji's capital account will turnaround to a deficit from 1997, accounting for about 1-2 per cent of GDP. The level of foreign reserves is expected to increase. In 1996, the level of reserves was equivalent to over six months of imports, much higher than the target of five months.
Parliament enacted the Public Enterprise Act at the end of 1996. This Act provides the legal framework for the reform of the Government's commercial enterprises. In 1997, the Government will be pursuing the implementation of its public enterprise reform policies focusing on public enterprises involved in the provision of infrastructure such as ports, water, electricity and telecommunications -improving the inputs to the private sector in Fiji and lowering the costs of doing business. One of the crucial aspects of the reforms is industry restructuring to remove barriers to competition and create a level playing field between private and public sector.
On investment, total gross fixed investment as a percentage of GDP has been low for the last few years, bordering around 13 per cent for the last two years. Much of the decline in Gross Fixed Investment in recent years reflects low levels of private sector investments. In 1996, Cabinet endorsed an Investment Policy Statement for Fiji that aims to make the present investment approval system more investor friendly. The Investment Policy is based on principles of transparency and is market driven, rather than, regulatory in nature.
In 1996, the overall objective of the Government's export-led growth strategy was to generate adequate growth to allow for the absorption of the high number of new entrants into our labour market, and to achieve an improvement in the standard of living. One of the fundament requirements to achieve sustained level of economic growth is to have a flexible and competitive labour market.
There have been encouraging signs to promote wage settlements based on productivity and performance through collective bargaining at the enterprise level. Some organisations in the private sector are taking this initiative. The Public Service has reached agreement with the public sector unions to base wage settlements on performance starting from 1996.
As a small open economy dependent on only a couple of major exports Fiji is vulnerable to changes in the international trading area. Of all the changes in global economic environment that affect Fiji's trade prospects and opportunities, the two most important are:
- The WTO Agreement, which could lead to lower sugar prices and the erosion of preferential margins under the Lomé Convention. The ACP Group however will still negotiate to retain as much of the trade preferences as possible into the market.
- Increasing international competition in garment industries because of continued erosion of tariff preferences into Australia and New Zealand under SPARTECA, and eventual abolition of the Multi-fibre Agreement and import quotas.
- More generally, initiatives such as NAFTA, the Closer Economic Relationships (CER) between Australia and New Zealand, and the recent commitment by the APEC Group to attain free trade by the year 2020, will lead to major changes in production and trade patterns. Small economies such as Fiji will be profoundly affected regardless of whether it chooses to participate actively or not.
At the national level, attaining international competitive quality and standards is a major obstacle to Fiji exporters. In addition, expertise and marketing skills is a constraint to the penetration of new and unknown markets. Distance to markets and vulnerability of small-island economies remain a consistent constraint to trade.
CONCLUDING REMARKS Back to top
Whilst the Government is committed to its trade liberalization policy measures, it has now reached a stage where it needs to carefully monitor the pace of import liberalization, in order to find the balance where Fiji reduces protection only to the point to which it continues to spur local efficiency, productivity, and competitiveness without sacrificing large parts of local business. With this in mind, the Government will adopt a gradual approach to further liberalization in future, whilst it takes a broader look at its deregulation policy, with the view to reducing existing high cost structure of business.
Legal frameworks to accommodate policy changes and facilitate private sector development will be an important area of focus by the Government. To provide greater transparency, harmonization of tariffs, quarantine regulations, and standards will continue to be encouraged.
The Services Sector will be an important area to be developed for export in the future, and the Government is currently in the process of formulating a Services Sector Policy that would facilitate this move, and provide greater transparency in the regulations and policies governing sector. Fiji is committed to and will continue to provide support to the private sector in the future through provision of competitive enterprise environment, improvement in economic infrastructure, and development of human resources.
In recognition of the openness of its economy Fiji has joined and participated actively in the various regional and international forums. Since its accession to the World Trade Organization on 16 January 1996, and, despite the scope and complexity of the work involved, Fiji has continued to make modifications to existing regulations and legislations, update its notification requirements, and implement various measures in compliance with its commitments in the WTO. The preparatory work for Fiji's first Trade Policy Review has taught us many lessons. It will now enable us, with the assistance of the very comprehensive Secretariat Report, to audit our trade policies and trading environment to ensure that we get maximum economic benefits from the various changes to our trade development policies. Fiji has realised the importance of free and open trade, and will, therefore, continue to conduct its trade policy in a transparent and fair manner. Back to top