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WTO Continued Economic Reform Can Help PNG

CONTINUED ECONOMIC REFORM CAN HELP PAPUA NEW GUINEA

ACHIEVE SUSTAINABLE GROWTH

Continued reform - including further efforts to liberalize trade and investment regimes - can increase Papua New Guinea's economic flexibility and improve its prospects of achieving sustainable growth. A new WTO report says that while reliance on the tariff as the main trade instrument has made the trade regime of Papua New Guinea (PNG) more predictable and transparent, the economy remains relatively weak and vulnerable to external shocks. The report adds that PNG's trading partners can assist the adjustment process by ensuring PNG's exports a stable and increased access to their markets.

The new WTO Secretariat report, along with a policy statement by the Government of PGN, will serve as the basis for the trade policy review of PNG which will take place in the Trade Policy Review Body of the WTO on 15 and 17 November.

The report notes that PNG's recent economic performance has been erratic with years of modest growth alternating with declines in output. The economy has been adversely affected by several unavoidable shocks, such as the Asian financial crisis, depressed commodity prices and severe droughts. The report adds that these difficulties have been compounded by problems of governance, a weak institutional structure and process, and a seeming lack of momentum for reform. The report states, however, that in June 1999 the PNG authorities announced the implementation of an Economic Recovery Package, with trade reform seen as an important means of fostering private-sector-led growth and enhancing productivity and competitiveness.

During 1992-97, merchandise exports and imports averaged 49% and 27% of GDP, respectively. Exports are mainly oil and minerals (gold and copper), which account for some 60% of exports, as well as logs and traditional agricultural commodities, especially palm-oil products and coffee. Imports are predominantly of manufactures, especially machinery and transport equipment, food, fuels and lubricants. The report notes that export balances have fluctuated considerably, mainly in line with mining developments. Almost three quarters of PNG's exports in 1997 went to Australia, Japan and European Union (EU) countries, mainly German and the United Kingdom. Over half of imports came from Australia, followed by the United States.

Foreign direct investment (FDI), the report says, is confined mainly to the "enclave" mining sector. Relatively little FDI has flowed into PNG, with Australia as the major source. Such FDI has been unstable, and has recently slumped due to investor uncertainty over PNG's political and economic situation. The Government is reviewing PNG's investment procedures, to make them more transparent and conductive to FDI. Significant segments of industry remain reserved for domestic investors, although since 1995 such restrictions no longer cover manufacturing and construction activities. Where allowed, no foreign ownership limits apply to FDI. The report also notes that non-PNG nationals may lease, but not own land.

The tariff is PNG's main trade policy instrument, the report states. Tax and tariff reform was introduced in 1999. Specifically, a VAT was introduced on goods and services to fund a substantial tariff reduction programme. The average tariff was halved to under 10% and the structure rationalized. Furthermore, the Government plans to reduce the average applied tariff to 5% by 2006. However, the report states that PGN's authorities increased tariffs on some goods - including certain food and plastic products - as from 1 July 1999, mainly to 30% or 40%, to provide protection for domestic producers. PGN also retained pockets of high tariff protection until 2006. In 2006, the average tariff on agricultural products will be 16%, on mining products 0% and on manufacturing products 5%.

The report notes that unprocessed products are subject to the highest tariffs, on average, and semi-processed products the lowest. This indicates, the report states, that the tariff structure may discourage processing, especially from raw inputs. The report suggests that lower, more uniform tariffs on unprocessed products could improve the incentive structure.

The report says that PNG applies few formal non-tariff trade barriers. PGN has anti-dumping and countervailing provisions but has rarely used them. Export taxes, ranging to 70%, apply to unprocessed logs. PGN has no export quotas or voluntary export restrains but a wide range of exports receive tax incentives. The report notes that be targeting manufactured goods, these schemes tend to discriminate against other exports.

PNG applies stringent quarantine restrictions, the report says. Imports of vegetables and fruit that are also grown in PNG are banned outright. Imports of many plants, such as sugar cane, are also prohibited, while imports of other are restricted.

PNG is member of APEC and as such is committed to achieving free trade and investment in the region on goods and services by 2020. It is also a member of the South Pacific Forum. As a member of the Melanesian Spearhead Group, PGN grants some duty-free tariff preferences. As a signatory to the Lomé Convention, PGN receives non-reciprocal tariff and other preferences from the EU on many goods as well as financial assistance. PNG is a party to the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA), a non-reciprocal preferential agreement to provide the Forum island countries with duty-free access for their products to Australia and New Zealand. PNG is also a beneficiary of the GSP schemes of most industrialized economies.

Notes to Editor

The WTO's Secretariat report, together with a policy statement prepared by Papua New Guinea, will be discussed by the WTO Trade Policy Review Body (TPRB) on 15 and 17 November 1999. 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 Papua New Guinea'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 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. The full Secretariat and government reports are 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 Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed: Argentina (1992 & 1999), Australia (1989, 1994 & 1998), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993 & 1999), Botswana (1998), Brazil (1992 & 1996), Burkina Faso (1998), Cameroon (1995), Canada (1990, 1992, 1994, 1996 & 1998), 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 & 1999), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Guinea (1999), Hong Kong (1990, 1994 & 1998), Hungary (1991 & 1998), Iceland (1994), India (1993 & 1998), Indonesia (1991, 1994 & 1998), Israel (1994 & 1999), Jamaica (1998), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia (1993 & 1997), Mali (1998), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990 & 1996), Namibia (1998), Nicaragua (1999), Nigeria (1991 & 1998), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992 & 1999), 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), Togo (1999), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 & 1998), the United States (1989, 1992, 1994, 1996 & 1999), Uganda (1995), Uruguay (1992 & 1998), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

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