Trinidad and Tobago: November 1998
Trinidad and Tobago should reduce its excessive dependence on the production and export of fuels which makes it vulnerable to world market prices.
Trinidad and Tobago should diversify exports away from oil to ensure economic stabilty
Trinidad and Tobago should reduce its excessive dependence on the production and export of fuels which makes it vulnerable to world market prices. A new WTO report and the first on Trinidad and Tobago's trade policies and practices praises the country's liberalization and deregulation since the mid 1980s but warns that the annual economic growth of more than 3 percent between 1994 and 1997 could slow given forecasts for lower oil prices in the medium-to-long term.
The WTO Secretariat report and a policy statement prepared by the Government of Trinidad and Tobago will provide the basis for a discussion at the WTO on 12 and 13 November 1998.
The WTO report notes that Trinidad and Tobago's economy grew rapidly between 1973 and 1982, mainly thanks to high oil prices and increased foreign investment and consumption. However, falling oil prices, thereafter, resulted in contracting output, declining per capita income, high unemployment, rising current account deficits and loss of foreign exchange reserves. In response, Trinidad and Tobago introduced in 1988 a programme of structural reform and liberalization, which was further strengthened in the 1990s. As a result, numerous restrictions to trade were eliminated and the overall average level of tariff protection was reduced.
According to the WTO's report, Trinidad and Tobago derives most of its income from oil and oil-based products and petrochemicals, with exports of fuel accounting for over 20% of GDP and 73% of foreign exchange earnings. Most of Trinidad and Tobago's fuel goes to the United States. Concerned by its strong dependence on a single product and market, Trinidad and Tobago is acting to diversify its economy away from the petroleum sector, by developing non-oil manufacturing activities as well as services, such as trans-shipment and trading.
The oil and gas sector attracts the most foreign investment. Currently, more than half of foreign investment is in the energy sector and related downstream activities, with the United States being the largest foreign investor. In order to increase and diversify its level of foreign and domestic investment, the Government of Trinidad and Tobago is actively working on a new, more efficient and transparent way of attracting investment.
The trade surplus enjoyed by Trinidad and Tobago throughout the first half of the 1990s is giving way to a trade deficit. In the last two years, imports grew faster than exports and were fuelled by rapid increases in consumer and capital goods as the economy has expanded and the local currency appreciated in real terms. Between 1993 and 1997, imports more than doubled, while exports increased by around 50%. In 1997 the trade deficit totaled US$610 million. This is set to decrease slightly in 1998.
The report notes that Trinidad and Tobago is a founding member of the Caribbean Community and Common Market (CARICOM) and as such adopted CARICOM's Common External Tariff (CET) in 1991 and implemented between 1995 and 1 July 1998 the four-phase schedule of CET reductions. As a result of this implementation, Trinidad and Tobago lowered its maximum tariff on industrial goods from 35 to 20%. In the case of agricultural goods, CET rates now range between 0 and 40%. The average applied CET Most-Favoured-Nation (MFN) tariff is currently 9.1%, down from 11.2% in 1997. For agriculture, the average is 19.1% (down from 19.6%) and for industry, 7% (down from 9%). In general, the tariff structure offers higher protection to final consumption goods and agricultural products than to inputs and capital goods. Final goods that compete with domestic or CARICOM production face the highest rates.
The report adds that Trinidad and Tobago applies import surcharges on a number of agricultural products. While the Government plans to eliminate or reduce some of these surcharges, some will remain. For example, import surcharges of 60% on sugar, 75% on icing sugar, and 86% on some poultry cuts are expected to remain in place beyond 2004, considerably exceeding the 15% level bound during the Uruguay Round and included in Trinidad and Tobago's schedule of concessions.
The contribution of agriculture and food processing to GDP is just above 5%, but the sector employs some 14% of the labour force. While sugar is the main agricultural export, Trinidad and Tobago is a net importer of agricultural products (mainly cereals, dairy products, oil seeds and vegetables). Exports of sugar depend primarily on the quota arrangements with the European Union and the United States which offer guaranteed prices above world levels.
The report states that while Trinidad and Tobago has notified to the WTO that it maintains no export subsidies, it applies a number of incentives, including tax concessions and duty-free access for imports of inputs and capital goods. Some are geared to promoting exports, others are designed to promote the development of specific industries or sectors. The government plans to eliminate export allowances by the year 2000.
The services sector accounts for over 60% of its GDP and around 75% of total employment. Financial services are particularly important accounting for 11.5% of GDP. Activity in services has been largely liberalized, and market access is fairly open in most sub-sectors. Under the GATS, Trinidad and Tobago made specific commitments on several services sectors, including tourism, business (including professional), transport and financial services. Trinidad and Tobago's Schedule includes horizontal commitments on commercial presence and the presence of natural persons. Trinidad and Tobago also participated and presented offers in the subsequent WTO negotiations on telecommunications and financial services. In telecommunications, the partial privatization had led to a temporary de facto monopoly in the provision of basic telephony services, but this monopoly is expected to be dismantled by 2009.
The report also notes that 24 companies currently operate under a free-zone régime. Total exports from free-zone enterprises have risen from US$6 million in 1993 to US$38 million in 1996. The establishment and administration of Free Zones is regulated by the Trinidad and Tobago Free Zones Company, which reviews applications taking into account foreign exchange earning capacity and employment generation potential. No sectoral limitation is applied. Companies granted approved status are allowed to supply domestically a maximum of 20% of goods produced, subject to the payment of import duties
Trinidad and Tobago has updated its domestic legislation regarding intellectual property rights to bring it in line with the TRIPS Agreement. The registration of patents, trademarks and industrial designs is administered by the Intellectual Property Registrar-General, within the Ministry of Legal Affairs.
The report concludes that while Trinidad and Tobago's economy was considerably liberalized and deregulated since the mid 1980s, the government will only ensure long-term economic stability by diversifying away from oil products. This effort, the report states, will be helped by open access to markets for its non-fuel exports.
Notes to Editors
The WTO's Secretariat report, together with a policy statement prepared by the Trinidad and Tobago Government, will be discussed by the WTO Trade Policy Review Body (TPRB) on 12 and 13 November 1998. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and practices of each WTO member at regular intervals and monitors significant trends and developments which may have an impact on the global trading system. The Secretariat report covers the development of all aspects of each of Trinidad and Tobago'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 and trade-related aspects of intellectual property rights are also covered.
To this press release are attached the summary observations from the Secretariat report and a summary of the government policy statement. The full Secretariat and government reports are available for journalists from the WTO Secretariat on request (call 41 22 739 5019). They are also available for the press in the newsroom of the WTO internet site (www.wto.org). The Secretariat report, together with the government policy statement, a report 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 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), Jamaica (1998), 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 Islands (1998), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland (1998), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994 & 1998), 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: TRINIDAD
Report by the Secretariat Summary Observations
Since the mid 1980s, Trinidad and Tobago has engaged in a process of liberalization and deregulation, which has led to the elimination of a number of restrictions to trade and to a reduction in the average level of tariff protection. Few non-price border restrictions to trade remain, and the amendment of domestic legislation to incorporate Trinidad and Tobago's commitments under the different WTO agreements has been virtually completed. No direct export subsidies are granted; however, a complex system of investment incentives remains in place. Regional trade liberalization undertaken in the Caribbean Community and Common Market (CARICOM) has gone hand-in-hand with commitments under the multilateral trading system. Trinidad and Tobago has been in the forefront of compliance with CARICOM's Common External Tariff (CET) reduction commitments for industrial goods. Tariffs on agricultural goods remain above average, however, and some products are subject to high import surcharges.
Trinidad and Tobago's economy relies heavily on production and export of oil and natural gas. Proven oil reserves are estimated at 12 years' supply at the current level of production, while proven natural gas reserves have been estimated as sufficient for 55 years of output. Related industrial activities include oil refining, gas processing and production of ammonia, urea, methanol, iron and steel.
The economy grew rapidly between 1973 and 1982, triggered by high oil prices, leading to a substantial increase in investment and consumption. Falling oil prices thereafter led to contracting output, declining per capita income, high unemployment, rising current account deficits and loss of foreign exchange reserves. In response, Trinidad and Tobago introduced in 1988 a programme of structural reform and liberalization, aimed at restoring external balance, reducing the public sector deficit, and improving financial intermediation. This reform process was strengthened in the 1990s, when price controls were virtually dismantled, import duties were reduced under CARICOM provisions and the role of the private sector in economic activity enhanced. However, there remains a large participation of the State in the oil/natural gas sector; overall, government consumption and investment represent between one-fourth and one-third of GDP.
Annual economic growth accelerated to over 3% a year between 1994 and 1997, as trade and investment liberalization took hold. Tariffs were cut as a result of the implementation, starting in 1995, of the four-phased reduction programme of CARICOM's CET, which has lowered the maximum tariff on industrial goods from 35 to 20%; capital controls were removed; the fixed exchange rate régime was replaced by a managed float; and a programme of privatization and liquidation of public enterprises was put in place. GDP growth reached 3.2% in 1997, fuelled by an investment and consumer spending boom. Initial forecasts point to an acceleration of growth in 1998, reflecting the effects of massive investment in the oil/natural gas sector. These forecasts may, however, need to be revised downward, to take into account the negative effect of the recent decline in oil prices. Although below its peak, unemployment remains high, at 13.5% at the end of 1997.
As a result of improvements in tax collection, proceeds from privatization, and reductions in government subsidies and transfers, Trinidad and Tobago has posted a budget surplus since 1995; the surplus reached 1.8 % of GDP in 1997. Lower oil prices may, however, have a negative impact on public finances in 1998 and 1999.
External transactions in goods and services represent over 100% of GDP, with exports of fuels, the main earner of foreign exchange, accounting for over 20%. Low export diversification and strong dependence on the oil/natural gas sector make Trinidad and Tobago vulnerable to external shocks. The strong decline in oil prices occurring in 1998, while imports continue to increase, is likely to have a negative impact on the current account. Moreover, Trinidad and Tobago's heavy reliance on a single market, the United States, for exports may add to this vulnerability, should the U.S. economy slow down.
Until 1997, Trinidad and Tobago generally posted a trade surplus. Recently, however, imports have grown much faster than exports, fuelled by rapid increases in consumer and capital goods, as the economy has expanded and the local currency has appreciated in real terms. Between 1993 and 1997, imports more than doubled, while exports increased by around 50%, and in 1997 a trade deficit of US$610 million was registered. In 1998, a trade deficit, albeit smaller than in 1997, is again forecast. The current account, in surplus for most of the 1990s, recorded a deficit of US$708 million (12.1% of GDP) in 1997. The capital account, fed by direct investment flows mainly to the oil/natural gas sector, has registered a surplus since 1996, peaking at US$619 million in 1997, leading to a substantial accumulation of net foreign exchange reserves, which stood at the equivalent of over four months of imports at end-1997.
Trade policy regime and objectives
One of the Government's main policy concerns is to diversify the economy away from its dependence on the petroleum sector, by developingnon-oil manufacturing activities as well as services, such as transhipment and trading. Other concerns include increasing the level of foreign and domestic investment, generating permanent employment opportunities, and promoting food security. The Government also aims to improve the regulatory, legal and fiscal framework for growth in the energy sector; to maximize local crude oil production; to increase refining capacity; and to develop downstream natural gas-based industries.
Trinidad and Tobago, a GATT contracting party since October 1962, became a WTO Member on 1 March 1995. MFN treatment is accorded to all its trading partners. As a result of the Uruguay Round, most industrial tariffs are bound at a ceiling rate of 50%; some products are bound at 70%. There is a substantial gap between bound rates and applied tariffs, which peak at 30%. All agricultural lines are bound, mostly at 100%. Other duties and charges are bound at 15%. Trinidad and Tobago has revised and amended several pieces of domestic legislation to comply with its obligations under the WTO. Thus, anti-dumping legislation and regulations have been amended to conform to the WTO Anti-dumping Agreement; new Patent and Copyright Acts have been adopted, and legislation regarding trademarks and industrial designs amended to conform to the TRIPS Agreement. Legislation with respect to trade secrets and unfair competition has also been put in place.
Under the GATS, Trinidad and Tobago made specific commitments on tourism, business (including professional), educational, health-related, recreational, research and development, recreational, cultural and sporting, transport and financial services. Trinidad and Tobago's Schedule includes horizontal commitments on commercial presence and the presence of natural persons. Trinidad and Tobago also participated and presented offers in the subsequent WTO negotiations on telecommunications and financial services.
To date, Trinidad and Tobago has not been involved directly, as either plaintiff or defendant, under the GATT or WTO dispute settlement mechanisms.
Trinidad and Tobago, a founding member of CARICOM, adopted CARICOM's CET in 1991, implementing the four-phase schedule of CET rate reductions between 1995 and 1 July 1998. Deeper integration among CARICOM countries is expected to result from reforms aimed at consolidating the CARICOM Single Market and Economy (CSME). Two protocols amending the CARICOM Treaty signed in 1997, are expected to lead to free movement of goods, services and capital, while further steps are being taken to liberalize movement of persons. Schedule I of the CARICOM Treaty allows a few national exceptions to the duty-free entry of goods from other CARICOM member states; for Trinidad and Tobago these are milk and cream, tyre repair materials, and rubber tyres. However, Trinidad and Tobago has chosen not to use this exception, and is in the process of eliminating Schedule I.
CARICOM has preferential trade agreements with Colombia and Venezuela. Under the Agreement with Colombia, Trinidad and Tobago, as a CARICOM medium-development country, has bound duty-free access bilaterally as of 1 June 1998 on a number of products, most of which are already imported duty free. Actual concessions have been granted on a small number of products, including skipjack and bonito, and knives and cutting blades for kitchen appliances and lawn mowers. Phased, bound duty reductions will be extended from 1 January 1999 to another group of products, including precious stones, some kinds of coated electrodes and rods, and a group of non-competing inputs and capital goods. Unilateral preferential market access to Venezuela is granted under the CARICOM/Venezuela Agreement on Trade and Investment.
The Foreign Investment Act of 1990 is expected to be replaced by a new Investment Promotion Act, now in draft, which seeks to diversify export-related foreign investment. Currently, more than half of foreign investment is in the energy sector and related downstream activities; the United States is the largest foreign investor, mainly in the petroleum sector. There are no restricted sectors for foreign investment; however, approval is required for acquisition of commercial and residential land exceeding a certain area, or where a licence is needed (e.g. for drilling, mining or establishment of a bank by any investor, domestic or foreign; or for acquisition of more than 30% of a publicly held local company by a foreign investor). Trinidad and Tobago has bilateral investment agreements with Canada, France, the United Kingdom and the United States; agreements with Argentina, Hungary, Italy, the Netherlands and Venezuela are under negotiation. Investment issues are also covered in CARICOM's agreements with Colombia and Venezuela. In addition to the treaty with other CARICOM members, double taxation treaties have been signed with Canada, Denmark, France, Germany, Italy, Norway, Sweden, Switzerland, United Kingdom, United States and Venezuela.
Trade policy by instrument
Trinidad and Tobago adopted CARICOM's CET for all goods, except a group of mainly agricultural products (List A) and industrial goods (List C) in 1991. Between 1995 and 1998, maximum import duties for industrial products were lowered from 35% to 20% in four phases. Maximum applied rates for agricultural goods have remained at 40% during the whole implementation period. As a consequence of these reductions, Trinidad and Tobago currently has an unweighted average MFN tariff of 9.1% (slightly higher if ad valorem equivalents of specific duties are included). Nominal protection is higher for agricultural products, with an average rate of 19.1%, while industrial imports face an average tariff of 7%. The tariff structure offers higher protection to final consumption goods and agricultural products than to inputs and capital goods, which are either duty-free or subject to a 2.5 % tariff. Final goods that compete with domestic or CARICOM production face the highest rates. Exceptions to the CET, including some motor vehicles, electrical appliances, and jewellery, are charged rates of up to 30%.
Quantitative restrictions have largely been dismantled since 1990. Import surcharges are currently applied on a number of agricultural products. These were originally expected to be eliminated by December 1994, but this elimination was postponed, although certain surcharges were gradually reduced or phased out. Under a schedule established in 1995, surcharges on bovine meat and milk were to be eliminated by 1998; and those on vegetables and fruit are to be eliminated by 1999. Import surcharges on certain other products will remain after that date; some will be subject to reductions by 2004, but some will remain. For example, import surcharges of 60% on sugar, 75% on icing sugar, and 86% on some poultry cuts are expected to remain in place beyond 2004, considerably exceeding the 15% level bound during the Uruguay Round and included in Trinidad and Tobago's schedule of concessions.
According to the authorities, Trinidad and Tobago is de facto applying the WTO Agreement on Customs Valuation, although, under the Agreement, Trinidad and Tobago, as a developing country, has until end-1999 to bring its valuation system into conformity with the Agreement.
The Trinidad and Tobago Bureau of Standards (TTBS), under the Ministry of Trade and Industry is the enquiry point under the WTO Agreement on Technical Barriers to Trade. Standards are compulsory where they affect the health and safety of consumers or where they can prevent fraud and deception. The TTBS has also the right to test against standards for quality and grading, and is authorised to accept foreign certificates. Environmental standards, using ISO 14000 guidelines, were adopted in 1997, and are the domain of the Environmental Management Authority.
Trinidad and Tobago is not a party to the plurilateral Agreement on Government Procurement. Government procurement is not included in the scope of CARICOM, although an action plan to create a central regional information-coordinating agency has been launched. Procurement for governmental agencies is regulated by a Central Tenders Board. Tenders are either selective or competitive, and are open to foreign suppliers. However, a preferential margin of 10% is accorded to local suppliers of goods and services, and, in some cases, if tenders go to foreigners, a local agent may be required.
According to the authorities, anti-dumping legislation has been brought into conformity with the relevant WTO Agreement. The Anti-Dumping and Countervailing Duties Act (No.11 of 1992), notified to the WTO in March 1995, was substantially amended in 1995; however, the amendment has not yet been notified. To date, the only anti-dumping action taken by Trinidad and Tobago has been an investigation on imports of cheddar cheese from New Zealand, initiated in September 1996. In this case, a margin of dumping of 13.93% was calculated; however, no duty was imposed, since the New Zealand Dairy Board undertook to increase its price of cheddar cheese exported to Trinidad and Tobago by the amount of the calculated margin of dumping.
Licences are still needed for the importation of some products, namely those included in the Import Negative List, originally used to manage a system of quantitative restrictions to protect infant industries, and now used mainly for licensing purposes. Currently, the List includes livestock, meat, fish, sugar, oils and fats, motor vehicles, cigarette papers, small ships and boats, and pesticides; it does not apply to CARICOM imports, except of oils and fats.
Measures affecting exports, production and trade
Trinidad and Tobago applies no export taxes, but a system of export licensing for a number of products, mainly for security and health purposes but also to control the re-export of capital goods imported under preferential conditions, is in effect. There are no export quotas, except those determined under bilateral arrangements, nor specific export performance requirements.
Trinidad and Tobago has notified the WTO that it maintains no export subsidies. However, a number of incentives are applied, including tax concessions and duty-free access for imports of inputs and capital goods. Some are geared to promoting exports, such as export allowances (in the form of tax credits) under the Corporation Tax Act and the Finance Act; others are designed to promote the development of specific industries or sectors, such as the customs duty concessions for imports of capital goods for a wide range of approved manufactured activities. The Government plans to eliminate export allowances by the year 2000, although Trinidad and Tobago, as a developing country, is required to comply fully with the disciplines of the WTO Agreement on Subsidies and Countervailing Measures only in 2003. Duty concessions under these schemes have, in some cases, already been wiped out by the elimination of tariffs on non-competing inputs and capital goods.
The establishment and administration of Free Zones is regulated by the Trinidad and Tobago Free Zones Company, which reviews applications taking into account foreign exchange earning capacity and employment generation potential. No sectoral limitation is applied. Companies granted approved status are allowed to supply domestically a maximum of 20% of goods produced, subject to the payment of import duties. Since 1997, certificates of origin have been required for goods manufactured in the Free Zones. There are currently 24 companies operating under the free-zone régime, with exports totalling US$38 million in 1996.
Although most price controls have been eliminated, and only the prices of sugar, pharmaceuticals, and school books remain directly regulated, a number of goods and services are subject to administered prices. These include certain agricultural products (i.e. coffee, milk, cocoa, etc.), for which guaranteed prices are paid to producers; the ex-refinery prices of certain fuels; and utility fares.
Trinidad and Tobago has updated its domestic legislation regarding intellectual property rights to bring it in line with the TRIPS Agreement. The registration of patents, trademarks and industrial designs is administered by the Intellectual Property Registrar-General, within the Ministry of Legal Affairs.
Measures by sector
The contribution of agriculture and food processing, beverages and tobacco to GDP, is just above 5%, but the sector employs some 14% of the labour force. Agricultural exports are dominated by sugar. The main exports of processed products are beverages and prepared cereals. Trinidad and Tobago is a net importer of agricultural products; the main imported goods are cereals, dairy products, oil seeds and vegetables.
In the Uruguay Round, Trinidad and Tobago bound its tariffs on all agricultural products at ceiling rates of 100%, with the exception of seven items bound at higher levels; these include poultry, cabbage, lettuce and coffee. Applied tariffs on agricultural products vary between 0 and 40%; in 1998, Trinidad and Tobago's simple average MFN tariff on agricultural products was 19.1%. The highest tariffs are applied to edible fruit and nuts, fish products, edible vegetables, animal and vegetable fat and oil, and meat and edible meat offal.
Quantity-based measures, previously applied under the Negative List, were converted to equivalent tariffs in accordance with the Uruguay Round Agreement on Agriculture. Some agricultural products are subject to import surcharges; in 1998, surcharges are applied to various parts of poultry (100%), sugar and icing sugar (60-75%), vegetables (15%) and fruit (5%). Surcharges on fruit and vegetables will be removed by 1999, and those on poultry parts will be reduced in 2004; surcharges on sugar and icing sugar are not subject to reduction. Import duties on alcoholic beverages are set at specific rates, ranging from TT$4.75 per litre for beer to TT$40.00 per litre for cordials and liqueurs. Alcoholic beverages that are locally and regionally produced face excise duties.
Sugar is the main agricultural crop. Exports depend primarily on the quota arrangements with the European Union and the United States, which offer guaranteed prices above world levels. Trinidad and Tobago has been allocated an export quota of 47,556 tons of raw sugar by the European Union under the Sugar Protocol to the Lomé Convention, and an additional 10,000 tonnes under the Special Preferential Sugar Arrangement. The United States allocated Trinidad and Tobago a quota of 14,201 tonnes of raw sugar for fiscal year 1997, of which 13,576 tonnes were exported. Refined sugar is exported to other CARICOM countries, but is also imported when domestic production is insufficient to meet export quotas and domestic demand. Some 29,000 tonnes of raw sugar and 9,105 tonnes of refined sugar were imported in 1997. As noted, imports of raw sugar are subject to a customs duty of 40%, and an additional charge of 60%. Imports of refined sugar face a 15% import tariff.
Agricultural incentives include subsidies for soil conservation, equipment and machinery, agricultural vehicles and wheel tractors, as well as price support for sugarcane, coffee, cocoa, milk, oranges, grapefruit, paddy, copra and sorrel. Payments granted for price support reached TT$35.97 million in 1997, while input subsidies totalled TT$0.4million; together these payments account for some 1.8% of agricultural GDP.
The manufacturing sector is heavily dependent on oil refining and petrochemicals; petroleum-related manufacturing accounts for two-thirds of total manufacturing GDP. The 1998 average MFN tariff on imports of industrial products (HS Chapters 25-97, covering both manufacturing and mining) was 7.0%, with a peak of 30% and a minimum rate of zero. The highest tariffs are applied on arms and ammunition, clocks and watches, works of art, clothing and apparel articles, carpets, furniture, toys, footwear, soap and leather goods. A number of incentive schemes are available for manufacturers; thus, customs duty concessions are granted to imports of machinery, equipment and materials for a wide range of approved manufacturing activities. Relief from corporation tax and customs duty is granted to approved enterprises for a period of up to 10 years.
Petroleum-related manufacturing includes a refinery, 13 petrochemical plants, a natural gas liquid recovery plant and electricity power plants. Refining activities have fallen considerably from their peak in the 1960s, but the decline has been reversed in the mid 1990s. On the other hand, petrochemical output has been rising considerably; currently Trinidad and Tobago is the world's second largest producer of ammonia, and third largest producer of urea. Non-petroleum manufacturing activities are concentrated in cement, iron and steel.
The extractive sector contributed 14.4% to GDP in 1996, while employing under 4% of the labour force; the sector also generates most foreign investment inflows. Hydrocarbons account for almost the whole of the sector's output.Oil production has declined from its peak in the 1970s; conversely, natural gas production has been increasing since 1978. However, the sector still accounted for 22% of government revenue and 73% of foreign exchange earnings in 1997.
The tax régime in the petroleum industry is based on a three-tier system consisting of two profit-based corporation taxes (the Petroleum Profits Tax, set at 50% of taxable profits, and an Unemployment Levy, set at 5% of taxable profits), three production-based taxes (a Royalty, a Petroleum Production Levy, a Petroleum Impost) and an income-based tax, (the Supplemental Profits Petroleum Tax. Profits accruing from exploration, production and refining activities are subject to the Petroleum Profits Tax and taxed at 50%, while profits accruing from petroleum marketing and distribution, for which the state-owned National Petroleum Marketing Company of Trinidad and Tobago and the National Gas Company have the monopoly, are taxed, since 1997, at a rate of 35%, since they are subject to the Corporate Profits Tax. A system of incentives and tax allowances are used to encourage investment in the energy sector, including import duty and VAT exemptions, and deduction of capital expenditures incurred on workovers, heavy oil projects and on a development dry hole for the computation of the Petroleum Profits Tax.
The services sector accounts for over 60% of GDP and around 75% of total employment. Financial services are particularly important, accounting for 11.5% of GDP. Activity in services has been largely liberalized, and market access is fairly open in most sub-sectors; national treatment is granted to foreign suppliers in most areas. The regulatory frameworks for financial services, transport, and telecommunications have been strengthened. In telecommunications, partial privatization had led to a temporary de facto monopoly in the provision of basic telephony services by Telecommunication Services of Trinidad and Tobago (TSTT); this monopoly is expected to be dismantled by 2009. Value-added services must use the network of TSTT.
Under the General Agreement on Trade in Services (GATS), Trinidad and Tobago scheduled horizontal commitments regarding commercial presence and the movement of natural persons for all sectors included in its Schedule. With respect to commercial presence, the acquisition of over 30% of the equity of publicly traded companies is subject to approval. Specific commitments were scheduled in business services (including professional services, computer and related services, research and development services, real estate and other business services); educational services; financial services; health related and social services; tourism and travel-related services; recreation, cultural and sporting services; and transport services. Trinidad and Tobago Trinidad and Tobago presented a Schedule of Specific Commitments in the Negotiations on Telecommunications, binding full competition in value-added services, using TSTT's network, full competition on satellite-based mobile services and fixed satellite services for public use. Trinidad and Tobago also submitted an additional offer in the 1997 Negotiations on Financial Services, making commitments only in reinsurance.
The economy of Trinidad and Tobago has experienced considerable liberalization and deregulation since the mid 1980s, and particularly since. Strong investment in the oil/natural gas sector has fuelled growth since the mid 1990s, at the same time leading to a substantial increase in imports, which added to high investment income outflows, has resulted in a current account deficit. The recent strength of the Trinidad and Tobago dollar, which has resulted from the stringent monetary policy conducted by the Central Bank, may aggravate the current account deficit. Despite the current weakness of oil prices, Trinidad and Tobago's economy has been partly shielded from negative effects by large direct investment inflows. However, the economy remains vulnerable to external shocks due to its excessive dependence on the production and export of fuels, and a prolonged situation of lower oil prices is likely to take its toll on growth. Hence, to ensure long-run economic stability Trinidad and Tobago needs to reinforce its current policy of diversifying away from the oil sector. This effort will be helped by open access to markets for its non-fuel exports.Back to top
TRADE POLICY REVIEW BODY:
Report by the Government
Trinidad and Tobago, prior to the 1980s pursued an industrialization policy based on import substitution, which involved a strategy of utilizing relatively cheap labour combined with both local and foreign investment, implementation of a regime of fiscal incentives including tax holidays and duty concessions, and a system of quantitative restrictions in the form of a Negative List. Although this strategy produced some measure of growth in the productive capacity of the country, the meaningful diversification or transformation of the country's production base was not realized.
Consequently, in the 1980s, with the accrual of substantial windfall earnings from the increase in the price of petroleum on the international market, the focus of the industrialization policy shifted to economic diversification and transformation largely through investment in the energy-based sector. Policy initiatives were also taken to stimulate development of the non-oil manufacturing sector, with a focus on exports.
These initiatives to develop the non-oil manufacturing sector via a trade liberalization regime were intensified largely through a Structural Adjustment Programme (SAP) which was embarked upon by the Government of Trinidad and Tobago in 1990. Within the context of the SAP, the Trade Reform Programme has been specifically geared to foster improved efficiency in the operations of local companies, expansion in export-oriented production in the manufacturing, services, tourism and agricultural sectors, enhanced international competitiveness and increased export earnings, all of which would contribute to sustained growth, increased generation of employment and an overall improvement in the standard of living in Trinidad and Tobago.
The Trade Reform Programme essentially seeks to transform the trade regime from one which was inward-looking to one which is outward-looking, based on the principle of export-led growth and the development of an investment regime with an improved legal, regulatory and institutional framework, aimed at rendering the economy more attractive to export-led investment both local and foreign.
Within the policy reform environment, the private sector is expected to become the prime generator of economic growth and development. The role of the Government has been redefined as a promoter and catalyst of trade and industrial development. The Government's economic policies are specifically designed to foster private sector growth and development by providing a favourable climate for investment and commercial activities.
The Trade Reform Programme can be categorized into six major areas of activity, namely trade liberalization, enhanced competitiveness, sectoral programmes, market access opportunities, the Free Zones Programme and institutional support measures and facilities. These trade policy measures have been supplemented by a substantive reform of the financial, fiscal and investment legislation, including the removal of foreign exchange controls and the flotation of the local currency.
Economic Policy and Environment
Fiscal policy has been conducted within the context of a comprehensive macro-economic structural adjustment programme and the Government of Trinidad and Tobago continues to maintain a prudent fiscal strategy. This strategy together with administrative restructuring of the revenue collecting agencies, has resulted in an overall decrease in the fiscal deficit. The current account balance of the central government has recorded a surplus in the last five years contributing to improved national savings and a reduction in the investment/savings gap.
Monetary policy is being pursued with the priority objective of maintaining exchange rate stability, and the enhancement of the country's foreign reserves. The foreign exchange rate was liberalized in 1993 and since then Trinidad and Tobago has adopted a floating exchange rate followed by the removal of exchange controls on the current and capital accounts. The Central Bank currently relies on the managing of liquidity and interest rate policy to achieve its main objective of a stable and low rate of inflation. The monetary authorities are increasingly adopting the use of open market operations as a tool for liquidity management, and reducing dependence on the cash reserve requirement. It is expected the use of open market operations will lower the cost of financial intermediation and therefore the cost of borrowing. These monetary initiatives have been accompanied by legislative and institutional reforms in the financial sector designed to facilitate the transformation of the domestic capital market.
Government has also focused on the provision of capital for the development of the small business sector. A Venture Capital Act was recently introduced. It is designed to promote the injection of equity capital into small and medium-sized enterprises, without the burden of excessive financial charges which are usually associated with debt financing.
The development of the small business sector is an essential prerequisite for the balanced development of the local economy. It is evident that this sector will continue to be the foundation for the Trinidad and Tobago economy by providing products and services and most importantly, opportunities which would permit the small investor to gain a foothold in the local market. In keeping with these goals, Government has improved the range of fiscal incentives which are available to the small business sector and these initiatives have already borne fruit. Figures supplied by the Small Business Development Company (SBDC) indicate that loan applications have increased by 30% between January to March, 1998 when compared with the same period in 1997.
The implementation of the programme of structural reforms has impacted favourably on the economy. In 1997, Trinidad and Tobago's economy recorded its fourth consecutive year of economic growth. Real output has been growing by an average of 3% since 1994. This growth has been propelled by increased exploration and production activity in the Petroleum Sector as well as expansion in the output of the non-oil sector. In 1997, strong performances were recorded in the manufacturing, construction, distribution and transport sub-sectors, while the tourism sector displayed increased vibrancy.
The growth in the economy has impacted positively on both the unemployment and inflation rates. The annual average rate of inflation has been on the decline, from 11.4% in 1993 to 3.7% in 1997. The reduced rate of inflation was partly due to the reduction or removal of import surcharges on several categories of capital and consumer goods. The rate of unemployment has also reflected a significant contraction, from 22.4% of the labour force in 1989 to 15% in 1997.
Trade and Investment Policy:
The programmes undertaken by the Government of Trinidad and Tobago since 1991 to diversify the economy and promote sustainable export-led growth and development, have been undertaken within the context of the global trend towards trade liberalization and the growing preponderance of mega trading blocs. The basic element of the Trade Reform Programme include:
- The elimination of the Import Negative List;
- The reduction of the Common External Tariff (CET) on imported goods;
- The removal of price controls:
- The removal of stamp duty on imported goods;
- The computerization of Customs import and export procedures.
The Trade Reform Programme is closely linked to initiatives to attract foreign investment and to facilitate the development of the domestic industrial base. It is obvious that an essential prerequisite for the take-off of the economy is a substantial pool of capital, which would be utilized to fuel investment in the private sector. Such capital could be derived from both domestic and foreign sources.
Trinidad and Tobago's investment thrust is characterized as follows:
- the creation of a more investor-friendly climate in the local economy. To this endthe Foreign Investment Act will be amended to ensure that it is more promotional and less regulatory in nature;
- the continued effort on the part of the Government to reduce the number and complexity of the bureaucratic procedures involved in investment and business transactions. The objective is to make these procedures as simple and transparent as possible;
- finally, Government will utilize the resources of its overseas Missions and other related agencies to market the country as an attractive location for investment.
In keeping with the above guidelines, some of the major pieces of legislation which impinge on investment have been either revised or amended. These include the Fiscal Incentives Act and the Value Added Tax Act. The Government has also introduced an enhanced investment incentive framework and it has reduced the maximum level of corporation tax from 40% to 35% in a bid to reduce the cost of doing business.
Another key element in the quest to attract foreign investors is the Free Zones Programme. This Programme in intended to attract export-oriented firms which would not otherwise have located operations in Trinidad and Tobago. The Programme in Trinidad and Tobago has developed quite differently from other Caribbean Programmes and in the process, has created a vehicle for economic development with particular features including the fact that all infrastructure is currently provided by private investors and the jobs that are created are generally of a high quality. The Programme is gradually becoming self-sufficient and is expected eventually to reduce substantially its dependency on the Treasury. The Free Zones approach will continue to be one of the main planks of the country's export strategy.
These trade and investment promotion efforts will be complemented by a series of key strategies and measures among which would be the procurement of enhanced market access opportunities for locally produced goods and services, mainly through the process of negotiations, to the markets of targeted countries.
Current Industrial Policy:
Trinidad and Tobago's industrial policy focuses mainly on the development of non-oil manufacturing, non-financial services and the small business sector. The policy is designed to create an expanded, diversified, export-oriented non-oil sector. The policy objectives are to:
- generate sustained economic growth and balanced, integrated development;
- encourage increased investment flows into export-oriented production;
- expand the range of business activity in the non-oil business sector;
- generate permanent employment opportunities;
- increase the export earnings of the non-oil business sector ;
- ensure that economic development takes place in harmony with national environmental considerations;
- mitigate the consequences of business failures;
- assist in the attainment of the country's food security objective.
In support of this programme, several strategies and measures will be implemented in order to assist the business sector in its restructuring efforts, and therefore enabling the non-oil sector to become more export-oriented. These strategies and measures address the following areas: investment; human resource development; financing; business information; institutional and regulatory reform.
In keeping with the objective of trade liberalization in all sectors of the economy, Government has implemented a number of reform measures in the agricultural sector. These include:
conversion of non-tariff measures (e.g. negative list) to a tariff equivalent system, consistent with the GATT 1994 Agreement on Agriculture and to extend and strengthen trade and price liberalization in the sector;
- phased reduction of the dispersion among tariff rates and their average level;
- within the framework of establishing tariff structures, maintenance of an open and transparent trade regime for agriculture with a minimum of government intervention;
- restructuring and divestment of State-owned enterprises.
External Trade Development - Negotiations, Etc.:
Trinidad and Tobago's market access strategies will be influenced by the ongoing process of liberalization and globalization of the world economy and by the configuration of the international economy into mega trading blocs. These developments have made it imperative for countries like Trinidad and Tobago to accelerate the pace of integration into these blocs and into the world economy or face the prospect of being marginalized.
It is significant to note that Trinidad and Tobago's traditional markets are located within the Western hemisphere, the European Union and CARICOM. Non-traditional country markets are located in economic blocs such as MERCOSUR, the Andean Community, the Central American Common Market and the Association of South East Asian nations, among others. Against this background, it is imperative for Trinidad and Tobago to expand its export production in a bid to effectively compete on the international market. Therefore, Trinidad and Tobago has adopted a dual approach in order to maximize market access opportunities. Consequently, efforts are being directed towards expanding market share for non-traditional products in traditional markets, particularly where preferential market access arrangements are available (Lomé, Caribbean Basin Initiative (CBI) and CARIBCAN), while seeking to penetrate non-traditional markets in a sustained and aggressive manner.
It is important to note that although the Government of Trinidad and Tobago is actively seeking to ensure that the national trade policy objectives are achieved, the realities of the configuration of the global economy may dictate, in most instances, that the negotiations of terms and conditions of access to markets be undertaken on an inter-regional or bloc to bloc basis. This has in fact been the case even in the pre-Uruguay Round scenario with respect to the Lomé, CBI and Caribbean arrangements which were negotiated with the CARICOM group of countries. It is the same with the current agreements between CARICOM, Venezuela, the Dominican Republic and Colombia and the ongoing Free Trade Area of the Americas negotiations. The necessity for inter-bloc negotiations in the current post-Uruguay Round environment may become pronounced with the passage of time.
Trinidad and Tobago's relations with Third Countries is based on the recognition of its limited size, the openness of the domestic and CARICOM markets, and the conviction that the growth and expansion of the local productive base can only be realized by the penetration of foreign markets.
Trinidad and Tobago is a founding member state of the CARICOM Grouping. CARICOM's focus is the conclusion of reciprocal free trade agreements with the Latin American countries and the countries of the extra-CARICOM Caribbean. Trinidad and Tobago, with its CARICOM partners, has entered into reciprocal free trade agreements with Colombia and the Dominican Republic and will be seeking to enter into similar agreements with the ANDEAN, Central American and MERCOSUR regional groupings. Trinidad and Tobago will also shortly initiate direct bilateral free trade negotiations with certain countries such as Mexico, Costa Rica and Panama..
Trinidad and Tobago is actively involved in CARICOM's efforts to create a Single Market, a project which has been accelerated as a direct consequence of international developments such as the proposed establishment of the Free Trade Area of the Americas (FTAA) and other globalization trends. A single market will allow CARICOM to optimize its limited financial and economic resources in a bid to enhance its market leverage in the external trade negotiation process.
Trinidad and Tobago is a beneficiary of the CBI and CARIBCAN preferential agreements. The CBI Agreement offers duty free access to exports of selected Caribbean and Central American countries into the market of the United States of America. CARIBCAN offers a similar facility for Caribbean exports into the Canadian markets. A number of products are excluded from preferential treatment. However in 1998, methanol and lube oil, products of vital interest to Trinidad and Tobago, were included under CARIBCAN.
It is important to note that with the creation of the North American Free Trade Agreement (NAFTA), the preferential access enjoyed by Mexico into the markets of Canada and the United States in respect of products which have been excluded form the CBI and CARIBCAN, could erode the overall benefits which Trinidad and Tobago and other beneficiaries presently enjoy under these agreements. In addition, it is quite possible that foreign investors presently located in Trinidad and Tobago and engaged in the manufacture of the products excluded under the CBI and CARIBCAN might seek to locate in Mexico in order to enjoy the benefits of NAFTA market access. This element of investment diversion has already been evident by the re-location of some foreign operations from CARIBCAN beneficiary countries to Mexico. The result of such trade and investment diversion could be a loss of employment, and to some degree of economic dislocation. In the context of its production capability, Trinidad and Tobago is not currently affected in any substantial manner as some other CBI and CARIBCAN beneficiary countries have been.
In order to alleviate the possible adverse effect of the relative advantage enjoyed by Mexicofrom its membership in NAFTA, Trinidad and Tobago has joined its CARICOM partners in seeking to obtain "NAFTA Parity" or enhancement of the CBI to include those products which are presently excluded, with the aim of leveling the playing field for CARICOM exporters vis-à-vis their Mexican counterparts.
Consistent with its trade policy, the Government of Trinidad and Tobago has actively participated in the FTAA process at the Ministerial, Vice Ministerial and Working Group levels during the preparatory phase. It is prepared to participate in the second negotiating phase in a more focused manner, as part of a co-ordinated CARICOM effort, in order to ensure that its interest and that of the regional grouping is served, particularly as smaller economies, in the negotiating process. The country's negotiating effort will be reinforced by the fact that it has been nominated to hold the post of Vice Chairman of the FTAA negotiating group on Competition Policy.
Trinidad and Tobago has benefitted from the preferential duty free access granted to local products by the European Union countries under the provisions of the Lomé Convention. Negotiations are currently underway with respect to a successor arrangement to the Lomé IV Convention and Trinidad and Tobago has joined with fellow ACP States in stressing a strategy for negotiations that places importance on the following elements:
- ACP states should continue to negotiate the successor agreement as part of a unified bloc;
- the need to recognise that certain ACP states are smaller and more vulnerable and should be granted differential treatment;
- the extension of preferential access arrangements for the entry of ACP products into the European market;
- removal or reduction of restrictive or non-tariff barriers in the EU as they relate to Rules of Origin, technical restrictions to trade and phytosanitary measures.
Trinidad and Tobago has for many years been a net importer from many countries in the Far East including India, Japan, Singapore, Hong Kong, China and Korea. In the future, Trinidad and Tobago will be targeting Far Eastern countries as potential niche markets for non-traditional products and for the expansion of market share with respect to its current exports. This group of countries will also be targeted as potential sources of investment into Trinidad and Tobago. The Republic of South Africa may also be targeted as a possible export market and for possible joint venture investments by Trinidad and Tobago entrepreneurs
One of the major planks of Trinidad and Tobago's trade policy initiative is the negotiation of Foreign Investment Protection Agreements, referred to as Bilateral Investment Treaties, which have been concluded with several countries in an effort to maximize the benefits which could be derived from its trade and investment links with extra-regional trading partners. Trinidad and Tobago has concluded Bilateral Investment Treaties with Canada, the United Kingdom, France and the United States of America. Agreements with Germany, Venezuela, and Argentina, are currently being negotiated.
An Intellectual Property Rights Agreement has been concluded with the United States of America and consideration is being given to entering into similar agreements with other countries. These agreements will provide a measure of security to potential investors and technology providers, and thereby improve the attractiveness of Trinidad and Tobago as a location for investment.
Trinidad and Tobago have entered into Double Taxation treaties with Canada, Denmark, France, Italy, Norway, Sweden, Switzerland, the United Kingdom, the United States, Venezuela and the Federal Republic of Germany.
Conclusion: Back to top
The Government of Trinidad and Tobago has formulated a Plan of Action designed to facilitate the meaningful integration of the local economy into the globalized trading environment. This Plan of Action will be supported by a negotiation process which will target specific countries and which will see the country increasingly involved as an active player in multilateral fora such as the WTO and FTAA.