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Cyprus: June 1997

“ The economy had clearly benefited from the reduction in distortions by developing trade in manufactures and, particularly, services; per capita income levels had grown considerably.”

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First press release
Summary of Secretariat report
  > Summary of Government report

26 JUNE 1997

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    The Trade Policy Review Body of the World Trade Organization (WTO) concluded its first review of Cyprus' trade policies on 26 June 1996. The text of the Chairperson's concluding remarks is attached as a summary of the salient points which emerged during the discussion.

    The review enables the TPRB to conduct a collective examination of the full range of trade policies and practices of each WTO member country at regular periodic intervals to monitor significant trends and developments which may have an impact on the global trading system.

    The review is based on two reports which are prepared respectively by the WTO Secretariat and the government under review and which cover all aspects of the country's trade policies, including: its domestic laws and regulations; the institutional framework; bilateral, regional and other preferential agreements; the wider economic needs and the external environment.

    A record of the discussions and the Chairperson's summing-up, together with these two reports, will be published in due course as the complete trade policy review of Cyprus 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), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991), Colombia (1990 & 1996), Costa Rica (1995), C˘te d'Ivoire (1995), the Czech Republic (1996), Cyprus (1997), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993 & 1995), Fiji (1997), 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).

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    The Trade Policy Review Body has now completed the first review of the Republic of Cyprus' trade policies and practices. These remarks, made on my own responsibility, summarize the main points of the discussion. They are not intended to substitute for the collective evaluation and appreciation of the Cyprus' trade policies and measures. Details of the discussion will be reflected in the minutes of the meeting.

    Prior to the start of the Review there was an exchange of views on the political aspects of the situation in Cyprus, as referred to in paragraph 8 of the Republic of Cyprus' Government Report contained in document WT/TPR/G/25, where their respective positions were expressed by the parties concerned. This exchange will be reflected in document WT/TPR/R/2.

    The discussion of Cyprus' trade policies was underscored by the appreciation of Members for the considerable steps already taken by Cyprus to liberalize its import markets, reduce export restrictions, and establish a rules based, transparent trading and investment environment. The economy had clearly benefited from the reduction in distortions by developing trade in manufactures and, particularly, services; per capita income levels had grown considerably. Cyprus was urged to continue its trade liberalization and to embed it solidly within the rules and principles of the multilateral trading system, particularly by increasing its commitments in the WTO. In this context Members raised a number of issues including:

    -    the outlook for sustainable growth in the economy and the prospects for exports and investment in goods and services;

    -    fiscal discipline, partly linked to the Maastricht criteria, and its role in helping to sustain a stable macroeconomic environment. Relevant to this issue were the link of the Cyprus pound to the ecu, monetary policy considerations and associated prospects for the rate of inflation;

    -    the vulnerability of Cyprus' economy to the external environment, as reflected in a structural trade deficit, and measures to strengthen the production base, to lend stability to economic growth;

    -    economic and legislative preparations for the integration of Cyprus into the European Union. In this connection, several Members clearly expressed the view that this integration should not be at the expense of Cyprus' full participation in the multilateral system, and emphasized the need for greater geographical diversification of trade;

    -    investment objectives, especially equity participation limits on some FDI and the nature of the "economic interest" clause;

    -    the tariff structure, notably divergences between applied and bound rates; surcharges for safeguard reasons; the still significant number of specific rates; the use of excise taxes; and participation in the ITA;

    -    the use of standards by Cyprus that are more stringent than international standards in some areas;

    -     taxation and standards applied to automobiles;

    -    Cyprus' law and policy on anti-dumping and public procurement and its possible accession to the Government Procurement Agreement; and

    -    certain aspects of its competition, environment and intellectual property legislation.

    Members also raised a number of questions in connection with Cyprus' sectoral policies. Thus, in agriculture, questions were posed on the use and level of subsidies, and on the MFN and preferential implementation of certain tariff quotas, including on sheepmeat. In manufacturing, the use of export subsidies related to local content was questioned. Members also raised questions on Cyprus' plans for further liberalization in financial services; its position on deregulation in telecommunications and possible WTO commitments; plans to expand the tourism sector, including by liberalizing the investment regime; and a possible relaxation of restrictions in maritime and port services. While two members recalled Paragraph 4 of the Singapore Ministerial Declaration, they posed questions relating to the observation of "core labour standards" by Cyprus.

    In response, the representative of the Republic of Cyprus replied to the questions raised under three headings; macroeconomic and structural policies, trade-related policy objectives and instruments, and sectoral issues. Cyprus undertook to provide written answers to certain other questions.

    Cyprus' economic growth rate had been favourable compared to other European countries; the forecast for 1997 was around 3 per cent. Clothing and footwear exports faced severe international competition, while agriculture and pharmaceuticals trade showed favourable trends. The Government's target was to maintain a fiscal deficit below 3 per cent of GDP; expenditure was to be closely monitored and tax efficiency increased, while public sector reform was a key policy. The link of the Cyprus pound to the ecu, which was partly in consequence of Cyprus' aim to join the EU, had not affected export performance adversely; the link reduced the variability in exchange rates vis-Ó-vis Cyprus' European partners, which were its major markets. Stability of the link was maintained through a combination of exchange controls and monetary policy, together with the overall health of the economy.

    The vulnerability of the economy to external shocks and the structural trade deficit were being improved by measures to increase productivity, especially to reduce unit labour costs, and to strengthen the services sector, including by investment incentives.

    Regarding Cyprus' preparations for joining the EU, the application of the EU common external tariff would result in tariffs lower than the rates bound in the WTO by Cyprus, hence in more favourable conditions. No new quotas or other trade barriers would result from the customs union; all quantitative restrictions had been lifted from 1 January 1996, with a tariff quota system introduced on various products, including textiles.

    On trade related policies and objectives, the representative of Cyprus saw no conflicts between acceptance of the EU acquis communautaire and WTO objectives. Cyprus followed the continuous progress of EU legislation on international issues. Foreign investment had been largely liberalized and administrative procedures simplified, with 100 per cent foreign ownership allowed in most sectors; in a few areas, such as finance, applications were considered on a case-by-case basis to monitor quality.

    On more specific issues, "surcharges" applied by Cyprus were increased tariffs resulting from the process of elimination of QR's; most surcharges would be removed by end-1998, and residual surcharges would be lifted by 2002/3. The "refugee levy" would be removed on all products contained in the EU Association Protocol from 1 January 1998; products outside the Protocol would remain subject to the levy. Import duties on cars would be reduced to a MFN rate of 10 per cent by end 1997, with a zero rate for imports of cars from the EU. Excise taxation of cars was an important revenue-effective element of taxation.

    The representative of Cyprus continued by noting that new anti-dumping legislation, in line with the WTO Agreement, should be completed by late 1997. On environmental matters, a draft framework law was in preparation, while interest rate concessions and other incentives were granted for pollution control. Similarly, restrictions on fishing nets were imposed for conservation reasons. With respect to public procurement, a bill on the matter had been submitted in February 1997 and was expected to pass Parliament in the autumn of this year. Detailed regulations and tender specifications would be prepared in accordance with existing policy; Cyprus' procedures would be harmonized with those of the EU and would be consistent with its obligations under the WTO.

    On sectoral matters, in agriculture the system of administration for the tariff quota on sheepmeat had been introduced to ensure fair and equitable treatment. Demand for meat had fallen in 1996 as a result of BSE and reduced tourist trade, but the market was recovering in 1997. In services, 100 per cent foreign participation was allowed on freight and passenger transport, in specified circumstances. Telecommunications liberalization was under way and an offer on basic telecoms would be submitted to the WTO before the end of 1997. Conditions for tourism services would be harmonized with those of the EU.

    Overall, I believe we have had a useful review of Cyprus. I know what difficulties the Cypriot delegation have laboured under in preparing their replies at such speed, and I thank them warmly for their efforts. I am sure that, as requested by some delegations, Cyprus will back up its participation in this meeting with written answers to some of the questions to which replies have been promised. Back to top