WORLD TRADE
ORGANIZATIONWT/TPR/M/45
27 November 1998
(98-4778)
Trade Policy Review Body
21-22 September 1998
TRADE POLICY REVIEW
SOLOMON ISLANDS
Minutes of Meeting
Chairperson:  H.E. Ms. Anne Anderson (Ireland)
Page
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON                                              2
II. OPENING STATEMENT BY THE REPRESENTATIVE OF
THE SOLOMON ISLAND                                                                                                     3
III. STATEMENT BY THE FIRST DISCUSSANT                                                                   4
IV. STATEMENT BY THE SECOND DISCUSSANT                                                              5
V. STATEMENTS BY MEMBERS OF THE TRADE POLICY REVIEW BODY              6
VI. REPLIES BY THE REPRESENTATIVE OF THE SOLOMON ISLANDS
AND ADDITIONAL COMMENTS                                                                                      9WT/TPR/M/45
Page 2
I. INTRODUCTORY REMARKS BY THE CHAIRPERSON
1. The Trade Policy Review of the Solomon Islands was held on 21 and 22 September 1998.
2. The Chairperson welcomed the delegation of the Solomon Islands, led by the honourable
Enele D. Kwanairara, Minister of Commerce, Employment and Tourism, and the discussants,
Mrs. Usha Chandnee Dwarka-Canabady of the delega tion of Mauritius and Mr. Robert Kasper of the
delegation of the United States.  As usual, both discussants appeared in their personal capacities.  A
summary of the main points to be raised by the discussants had been circulated in document
WT/TPR/49.
3. The Chairperson recalled the purpose of the Trade Policy Reviews and the main elements of
the procedures for the meeting.  The report by the Government of the Solomon Islands was contained
in document WT/TPR/G/45 and that of the WTO Secretariat in WT/TPR/S/45.  Copies of written
questions submitted by five members (Australia, European Union, Hong Kong China, Japan and NewZealand) had been transmitted to the delegation of the Solomon Islands.WT/TPR/M/45
Page 3
II. OPENING STATEMENT BY THE REPRESENTATIVE OF THE SOLOMON
ISLANDS
4. The representative of the Solomon Islands thanked the Secretariat for its report and for
technical assistance received from the Forum S ecretariat throughout the review, as well as from
Australia in facilitating the Trade Policy Review.  The review was extremely useful;  it had alreadyachieved its objective of increasing transparency and assisting the Government to rethink its trade
policies.
5. The Solomon Islands, a small least developed island economy dependent on log exports to
Korea and Japan, had been adversely affected by the Asian financial crisis.  World log prices had
fallen by two-thirds.  In addition, the current Government had inherited arrears in public debt ofSI$185 million.  The situation was compounded by unsustainable forestry and fishery management by
the previous government which had allowed log exports to expand to two to three times maximum
sustainable yields.  In 1998, log exports are proj ected to be almost 600,000 cubic metres compared
with a sustainable yield of approximately 230,000 cubic metres.  Fishing licences had also been issued
at double sustainable yields, although these remained underused.
6. The dilemma faced by the Solomon Islands’ Government was how to return to environmental
sustainable management of key resources while generating the tax and export receipts necessary to
service foreign debts.  Confronted with these difficulties, the Government undertook a series of
economic policy reforms.  These have included a balanced budget for 1998; wage and recruitment
freeze in the public service, and substantial long term downsizing;  20 per cent currency devaluation
to maintain international competitiveness; tariff re forms to lower and simplify import duties;  and the
elimination of substantial import and export duty exemptions granted by the previous Government.The current Government was committed to improved transparency of economic policies and the
removal of such ad hoc discretionary powers.
7. The Government will continue to pursue a long term policy of environmental sustainability.
However, without the support of the internationa l community, the Government could not be expected
to achieve this as well as trade and economic objectives simultaneously.
8. A key component of the Government's trade policies was to develop the export sector.
Inward-looking policies were rejected.  The Government believed strongly in encouraging
downstream processing of key products, such as forestry  and fisheries.  It rejected the view that the
Solomon Islands should specialise in earning economic rents from exporting unprocessed products.
The Government must assist in developing compar ative advantage in downstream processing of key
natural resources.
9. With assistance from the EU and the Lomé tariff preferences, the Solomon Islands had
achieved notable success in exporting canned tuna to the United Kingdom.  Although these tariff
preferences were still crucial and needed to be maintained, the fish canning industry had the potential
to be competitive with South east Asian competitors.
10. There are a number of areas where certain economic and trade policy reforms are necessary
for the Solomon Islands to meet its WTO obligations.  The Government was committed to reforming
its intellectual property laws within three years and on customs valuation within two years.
Moreover, in order to meet its Article X obligations on transparency, the Government would
introduce legislation to require the gazettal of all future import duty exemptions.
11. Copra exports by the Solomon Islands had suffered from depressed world prices due to the
large subsidies on edible oil products provided by some WTO members.   The Government hoped thatthe up-coming millennium round of negotiations would address the problem of highly distorting
agricultural subsidies that harmed their farmers.  The Government supported the Cairns Group in
liberalizing agricultural trade, and in eliminating these export subsidies.WT/TPR/M/45
Page 4
III. STATEMENT BY THE FIRST DISCUSSANT
12. The first discussant (Ms. Usha Chandnee Dwarka-Canabady) saw the participation of the
Solomon Islands in the review as a sign of the Government's commitment to its WTO obligations.
She believed that both Mauritius and the Solomon Islands shared common problems in particular their
vulnerability to external factors, such as was evid ent from the impact of the Asian financial crisis on
the Solomon islands. Some of these problems stem from immutable geographical factors,  such asremoteness from developed markets and small domestic markets.  Nonetheless, other constraints on
economic development could be tackled by the adoption and implementation of appropriate
Government policies.
13. The Solomon Islands was in the midst of an economic and financial crisis.  The virtual
insolvency of the economy, with its inability to service its public debt which had escalated to over 65
per cent of GDP in 1997, had been exacerbated by the suspension of new Central Bank credit to
government since 1995 and the resurgence of inflation to double digit levels.  Confronted with thiscrisis, the current Government had adopted a Policy and Structural Reform Programme.  An
organizational structure had also been established to implement the programme aimed at restoring
macro-economic stability and initiating micro-economic reforms.  These measures needed to be
urgently implemented and strictly adhered to.  Additional details were sought on implementation to
date, set time frames and on how the process was evolving, including on measures taken in the 1998Budget to restore fiscal balance and to check inflation.
14. The Government’s views were also sought on its policy of maintaining a constant real
exchange rate, in particular on whether such a policy would preserve international competitiveness at
a time when highly efficient regional competitors were emerging and faced with the erosion of Lomé
preferences.  The discussant also requested inform ation on how the Government intended to improve
competitiveness of timber and fishing activities, and its views on whether efforts to promote
production by making licences conditional upon domestic processing risked developing inefficient
processing industries reliant on continued government support.
15. The implementation of sustainable management policies on natural resources was an
important objective of the Government's reform programme.  However, the discussant noted thepotential conflict between sustained development and economic growth.  In view of the dependence
of government revenue on timber exports, she asked whether measures other than export taxes had
been considered, such as the introduction of a resource-rent tax or the granting of logging licences
conditional upon certain ecological factors.  She sought clarification on whether the Government
intended to prohibit round log exports from 1999.
16. Since the export base had become less diversified during the 1990s and the Government was
keen to expand exports, the discussant inquired as to the policies being taken to attract foreigninvestment with a view to diversifying exports.  How important did the Government see the
establishment of a transparent and stable rules-based system for investment and taxation in facilitating
foreign investment?  She noted that a number of provisions were available under the Lomé
Convention to encourage private sector development, and which the Solomon Islands might wish to
avail themselves of.
17. The need to diversify export markets had been highlighted by the Asian financial crisis and
the erosion of Lomé preferences.  As it already belonged to two regional groupings, the Melanesian
Spearhead Group and SPARTECA, the Government was requested to outline its policies on regional
trade cooperation.
18. The considered introduction of a Value Added Tax would be an important step in reducing
heavy reliance on trade taxes.  She indicated that VAT legislation which had been recently introduced
in Mauritius had been drafted in a manner so as to ensure transparency.  Furthermore, the
discretionary power granted to Ministers to prov ide VAT exemptions was not provided for in the
legislation.WT/TPR/M/45
Page 5
IV. STATEMENT BY THE SECOND DISCUSSANT
19. The second discussant (Mr. Robert Kasper) stat ed that the review was occurring at a most
opportune time, when the Government was undertaking a structural reform programme to address the
country's serious, and perhaps worsening, economic problems.  The review enabled the Government
to reflect on past policies, and he felt that the Secretariat report had successfully challenged the
Government to consider other revenue measures and policies for avoiding exhaustion of key naturalresources.
20. The Solomon Islands was in the midst of a financial crisis and an unstable economy.  It relied
on exports of three main products (timber, canned tuna and traditional tree crops), and foreign aid to
finance imports of goods and services.  Its economic performance and tax revenues were heavily
dependent on exports of unprocessed logs to predominantly Japan and Korea, which had been hard hit
by the Asian economic crisis.  This vulnerability could be worsened by the prospect of tougher
competition from other timber producing countries.  The discussant asked for more information on theGovernment's policies for dealing with the Asian crisis and its possible effects on timber production
and exports.
21. The discussant requested the Government's views on possible alternative revenue measures to
export taxes, such as auctioning of timber licences and stumpage fees.  Export taxes may be an
inefficient means of capturing resource rents, and ma y also result in a costly input subsidy to domestic
wood processors, and promote tax evasion and under -reporting of log exports.  He also requested
details on how the Government intended to use the current respite in logging due to the collapse of
world prices to institute policies that would moderate export volumes at sustainable levels.
22. Current fisheries management revolved around the allocation of large underutilized quotas to
two unprofitable fish processors that received considerable financial assistance from duty remissionsand other measures.  Canned exports also benefitted from eroding Lomé tariff preferences; 90 per cent
of exports went to the United Kingdom.  What polices was the Government considering to enhance
the competitiveness of fish exports, including priv atization of the canning facility.  Moreover, the
discussant asked the Solomon Islands’ delegation to comment on whether there was merit in
increasing the quota allocations to distant fee-paying vessels, especially to purse seiners.
23. Attracting foreign investment was necessary to diversify the economy beyond fishing and
timber.  It had offered costly incentives, such as tax holidays, to attract export-oriented investment.
Although a useful sweetener, fiscal incentives ra rely substitute for more important investment
considerations, such as economic and political stability, good market prospects, adequate skilled
labour and suitable services, such as telecommunications, transportation and energy which are
essential to the economy's economic development.  Privatization and de-monopolization of air
services could lower air fares and boost tourism.  Similarly, opening telecommunications to foreigninvestment would improve technology and comm unication services and provide employment.
24. The Solomon Islands had disappointingly achieved little tangible progress in implementing
key multilateral obligations, such as Customs Valuation and TRIPs.  The discussant sought details on
the steps the Government was taking to implement these obligations within their respective transition
periods. Moreover, although the tariff structure had been compressed into five applied rates, thedisproportionately higher bound rates provided little security to potential investors needing to import
inputs.  The Solomon Islands could expect greate r competition from other regional states should they
liberalise their trade regimes, such as Tonga, Vanuatu and Samoa.WT/TPR/M/45
Page 6
V. STATEMENTS BY MEMBERS OF THE TRADE POLICY REVIEW BODY
25. The representative of Australia noted Australia's close bilateral relationship with the Solomon
Islands.  He welcomed the Government’s commitment to economic reform and its recognition of the
need for economic restructuring and strengthening of administrative capacity.  The Government had
inherited the legacy of poor economic decision-making.  This, coupled with the Asian economic
crisis, severely affected major exports and economic activity.
26. The Government had made significant progress in some areas, such as announcing a
responsible 1998 Budget; partially settled debt arrears; and securing of technical assistance.
However, many tasks remained.  Australia and other development partners were willing to assist the
Solomon Islands in its economic and structural reform.  Australia had increased its aid program by 20
per cent in recognition of the policies being adopted, and was working in five agreed priority areas in
support of the Policy and Structural reform Programme.  Australia encouraged the Solomon Islands to
continue liberalizing trade and investment policies, and hoped that this review would contribute to thereform process.
27. Australia shared the same concerns as the Solomon Islands on the damage of agricultural
export subsidies, and too would like to see them eliminated.  This would help many least developed
and developing countries who rely heavily on agricu ltural development for growth.  According to the
Australian representative, the Cairns Group is committed to the complete removal of agriculturalexport subsidies in the next round of negotiations to begin next year.  The possibility of a North
Atlantic subsidy war also concerned Australia, and would be sheer folly at a time of world economic
instability and current low agricultural world prices.  Australia looked forward to receiving answers to
the questions that it had submitted in advance.
28. The representative of New Zealand welcomed the accession of the Solomon Islands to the
WTO in 1996, and appreciated the challenges it confronted in meeting its multilateral commitments.
However, there were many benefits to it participating in a rules-based system.  New Zealand
appreciated the progressive changes from inward-l ooking interventionist trade policies to outward-
looking and more open export-oriented policies.  It nevertheless appreciated the difficult transition
associated with trade liberalization and deregulation.
29. He supported the Structural Reform Programme and the proposed review of trade and
investment legislation.  He noted with pleasure the Government's commitment to implement the
programme urgently.  Although tariff bindings and recent moves to simplify tariffs had increased the
transparency and predicability of its trade regime, duties remained relatively high and disparate.  New
Zealand supported the Solomon Island’s concerns on the effects of export subsidies on small least
developed economies, and in this regard, New Zeal and, as a member of the Cairns Group, welcomed
the support of the Solomon Islands.  New  Zeala nd as a fellow member of SPARTECA and the South
Pacific Forum will continue to support the Solomon Islands.  It is coordinating a regional seminar
course in the South Pacific in late 1998.  The New Zealand representative looked forward to responses
from the delegation of the Solomon Islands on questions submitted in advance.
30. The representative of the European Union noted the economy’s problems of having a narrow
economic base; mismanagement by the previous government; and the adverse effects of the Asian
crisis.  The European Commission was assisting the economy’s diversification by providing technical
and financial assistance to help implement the structural reform program.
31. He referred to questions submitted in advance, and in particular asked whether the tourism
sector was included on the negative investment list.  He felt that the Solomon Islands could improve
income and revenue collection from natural resource s, and asked for comments in this regard.  He
also sought details from the Solomon Islands' Government on its intention to maintain priceWT/TPR/M/45
Page 7
stabilization policies for traditional agricultural policies in the light of the STABEX arrangements
operated under the Lomé Convention.
32. The representative of the United States admired efforts by the Solomon Islands’ Government
to reverse past misdirected economic policies.  However, he expressed concern that the reform
objectives would be thwarted if not pursued vigorously and thoroughly.  In his view, the Government
needed to move away from previous tax and trade policies that had distorted the overall investmentand economic climate, and to achieve a more diversified private-sector based economy.  He therefore
welcomed the Government's emphasis on fostering private-sector led growth to enhance
competitiveness and productivity.  He supported the main policy priorities of tariff, tax and
investment reforms as well as achieving sustainable management of natural resources, especially
timber and fish.  The US representative referred to  the large scale reform needed in the Solomon
Islands, and called on the Government to accelerate implementation of WTO-consistent policies in
areas of customs valuation, intellectual property protection and agriculture.
33. The US representative thought further tariff rationalization was needed, as well as the
eradication of inefficient and non-transparent incentives.  He referred to written questions submitted
in advance.  In particular, he asked for clarification on why the tax holidays provided on export profits
did not constitute export subsidies under the Subsidies Agreement, notwithstanding its least developed
status.  Information was also sought on the findings of the inter-ministerial committee established toreview appropriate criteria for using selective tax concessions.  Since the Solomon Islands’
Government was considering the introduction of pre-shipment inspection services, the US
representative also asked the Solomon Islands’ delegation to elaborate on the difficulties incurred in
customs administration, and on how it would meet its WTO obligations in these areas.
34. On intellectual property, he asked about the status of the Government’s efforts to promulgate
TRIPS-compliant patent, trademark and copyright legislation.  He also requested information on any
plans to provide for customs seizure of pirated and counterfeit imports.  The US representative also
asked whether the Solomon islands' Government intended to join the Paris, Berne and Rome
Conventions as well as the Treaty on Intellectual Property in Respect of Integrated Circuits, and if so,
when.
35. The representative of Hong Kong, China noted the potential for increased trade between the
two  countries, despite the recent slackening in su ch bilateral trade.  Hong Kong, China imposed no
tariff or quotas on imports from all sources, including the Solomon Islands.  She referred to written
questions submitted in advance on services, competit ion policy and technical standards.  Hong Kong,
China also encouraged the Solomon Islands to c ontinue with tariff reforms, and would like the
Government to announce a timetable for the removal of the temporary tariff surcharge of 10 per cent
introduced in the 1998 Budget.
36. The representative of Japan commented that the Solomon Islands’ economy was vulnerable to
external factors, and the Asian crisis had seriously affected it through the collapse of world timber
prices.  Japan appreciated the efforts by the Government to implement the Policy and Structural
Reform Programme aimed at restructuring the economy towards sustainable private-sector led
growth.  Important components of this programme were economic reforms, such as cancellation ofexport tax remissions and privatization of state-owned enterprises.
37. He welcomed the Government's strong commitment to liberal trade, noting that it does not
generally maintain import quotas.  However, he raised a number of concerns.  These included the
discretionary power of the Finance Minister to grant import or export duty remissions.  He also stated
that the origin rules of the MSG Agreement enabled goods originating from third countries to beimported duty free, and requested that the authorities review this situation.  The Japanese
representative also noted that the Solomon Islands' commitments under GATS covered a limited
number of sectors; namely parts of tourism; banking and other financial services; insurance andWT/TPR/M/45
Page 8
related services, construction, and professional services.  Japan wished to receive information on
attempts to deregulate other services.  Japan hoped that the Solomon Islands would improve its GATS
commitments in the next round of negotiations.  Japa n looked forward to receiving responses to its
written questions.
38. The representative of India  stated that the recent downslide in the economy in the last few
years emphasises the need to diversify the export basket of the Solomon Islands from primary
products such as fish and timber. The recent global developments, including the Asian crisis, and the
resultant collapse in world timber prices and re duction in EU preferences for processed fish have
further exacerbated the situation.  Given the importance of external trade to the economy, India
believed that the structural reforms programme must include trade policy and the sustainable
management of key natural resources as its key components.  India also agreed with other delegations
that the Government of Solomon Islands should take steps to attract foreign investment in areas other
than its traditional products.  India noted with satisfaction the assurances given by the SolomonIslands with regard to phasing out of agricultural subsidies, sustainable management of its resources,
rationalization of its tariff structure, public sector downsizing, etc.  It also looked forward to these
commitments being put into action and seeing the Solomon Islands effectively integrating into the
WTO System.
39. The representative of Canada welcomed the Government’s commitment to broad and
comprehensive reforms contemplated under its Policy and Structural Reform Programme in the face
of difficult circumstances.  Trade liberalization and other economic reforms offered the best
prescription for long term economic growth and development of the Solomon Islands.WT/TPR/M/45
Page 9
VI. REPLIES BY THE REPRESENTATIVE OF THE SOLOMON ISLANDS AND
ADDITIONAL COMMENTS
40. The replies by the Solomon Islands were divided into three broad themes: (i) background and
current economic crisis, (ii) main sectoral issues; and (iii) other specific issues.  The Solomon Islands’
delegation distributed at the meeting written answers of questions it had received in advance.
(i) Background and current economic crisis
41. The representative of the Solomon Islands began by noting the severe impact the Asian crisis
had on the economy.  This had precipitated a financial crisis mainly due to the collapse in the world
log market.  It was therefore necessary for the Government to reconsider its entire development path,
such as the unsustainable development policies of the previous government.  The Government has had
to make some very painful decisions.
42. The incoming government had gone a major way in trying to address the crisis situation of the
Solomon Islands, including the accumulated debt burden since 1995 of SI$185 million at end-1997.
During 1998, the Government faced with financial difficulties had nevertheless reduced this debt to
SI$140 million.  The Asian Development Bank had also recently approved a loan to assist the
Government to maintain its 1998 balanced budget and to help service debt.
43. The Asian crisis had severely affected government revenue; some 40-45 per cent came from
export taxes on logs.  The Government is attempting to diversify the economy to reduce reliance on a
few major export commodities, and is therefore keen to promote other industries, such as tourism,
mining, and downstream processing of natural resources.  In this context, it was expected that all
copra would be processed locally into coconut oil and other high value products by end-1998.  The
Lomé tariff preferences were crucially important to the Solomon Islands' fishing industry, and theSolomon Islands’ delegation requested that the EU maintain these preferences to help improve the
industry's efficiency to compete internationally.  Assistance from STABEX had greatly helped
develop agricultural infrastructure and the marketing of agricultural products.
44. The Government was aware that it could not continue with its heavy reliance on trade taxes
which themselves impeded private sector growth.  The Government was therefore seriouslyconsidering the introduction of a VAT and progressively phasing out trade taxes to more acceptable
WTO levels.  It was keen to involve the private sector in its reform policies.  Current structural
weaknesses existed in administering the investment legislation, and a current review was intended to
improve transparency and the efficiency of attracting investment.  The role of incentives was being
reviewed to rationalize their use and avoid discretionary remissions.  The Solomon Islands required
assistance from its advanced WTO members to cope with the current crisis.
45. The first discussant asked for additional details on procedures to ensure that budget
projections are met, and that policy reforms are actually implemented.  She stated that loss of Lomé
preferences would be a major concern to the Solomon Islands, pointing out that those countries
adopting sound logging practices could benefit from enhanced preferences under the EU GSP Scheme
and hence provide added competition to the Solomon Islands.
46. The representative of New Zealand commented that tariff reductions and export taxes can
benefit countries at a time of economic crisis, and that governments should resist reverting to
protectionism.
47. The representative of the European Union asked for additional details on the coverage of the
negative investment list.WT/TPR/M/45
Page 10
48. The representative of the Solomon Islands explained that a Committee chaired by the Prime
Minister had been created to help the decision-making process and the implementation of the reform
programme.  Budget targets were reviewed monthly to ensure compliance.  The negative investment
list reported in the Secretariat's report is not currently being implemented.
(ii) Main sectoral issues
49. The representative of the Solomon Islands referred to the importance of agriculture, and
indicated that the Government would undertake economic and exchange rate policies to maintain
competitiveness of these sectors, such as copra, cocoa and palm oil.  The Government would proceed
with policies to promote downstream processing and diversification at minimal economic cost.  It
believed that the export of unprocessed logs and fish had been the source of nefarious rent-seeking
behaviour by private sector participants which weakened governance and subverted the proper
functioning of the public sector.  Trade malpractice was rampant in the logging industry because of
the large rents involved, and endemic malpractices had been confirmed by many studies.  Theyoccurred via transfer pricing, species misidentif ication by log exporting firms and mismanagement.
Fiji and Vanuatu that have banned round log exports, exported substantial (unsubsidized) processed
timber exports.
50. In his view, these malpractices resulted from the large rents themselves.  The problem was not
one of determining efficient measures for taxing such rents.  The loss of economic surplus through
under-invoicing of log exports from 1990-97 was estimated by the ADB to be SI$480 million.
equivalent to the increase of the public debt over that time.  Had this surplus been extracted, the
current financial crisis might not have eventuated.  Economies that have banned export of
unprocessed logs do not share these problems, and downstream processing of these resources should
in his view be encouraged.  Good log management  is impossible without good governance, and timber
malpractices will not be eliminated in a country with weak tax and customs administration.
51. Downstream processing of logs would also br ing other benefits.  It would reduce the impact
of world price volatility.  While unprocessed timber prices collapsed recently from an average of
$US115 per cubic metre to $US 51 per, the world pri ce of sawn timber fell by only 10 per cent.  Thus,
by promoting downstream processing, the Solomon Islands’ economy would be less volatile and lessproned to risk.  On the distortive impact of export taxes, the representative stated that the magnitude
of the distortion was small; compared to exports in the first half of 1998 of 300,000 cubic metres of
processed logs, exports of sawn timber was only 3,000 cubic metres.  In his view, firms had not
responded to the incentives provided by the relatively high export taxes on unprocessed logs to
process logs domestically because of the high rents earnt on round log exports, and also because the
manufacture of sawn timber in the Solomon Islands was not yet efficient.  Downstream processing,
already being practiced by some NGOs conscious of environmental concerns, brought benefits,especially to rural communities, through employment and creating dynamic business development.
52. Processing of flitches (squared logs) could be efficient in the Solomon Islands, provided there
were no more than 3 mills to ensure utilization of economies of scale (minimum efficient scale of
70,000 cubic metres per mill).  Export of flitches would involve only three export points, and would
therefore reduce the administrative costs of tax and licensing systems.  Such downstream processingwould diminish in his view the malpractices of under-measurement and species misidentification.  To
his knowledge, although used in fishing and agriculture, no other economy auctioned timber licences.
In his view, the risks of doing so would be considerable for a small island economy.  Auctioning
would also develop a short term mentality as loggers extracted logs as quickly as possible.  Thus, even
if it did eliminate transfer pricing practices, auctioning would not stop other timber malpractices.
53. Aided by Lomé tariff preferences, the Solomon Islands had developed a capacity to export
processed fish to the United Kingdom based on vertically integrated production.  The industry’s
comparative advantage was due to its proximity to fishing grounds, which offset additional costs dueWT/TPR/M/45
Page 11
to its locational disadvantages, such as on imported inputs, like steel cans, and increased product
selling costs.  While the Government would like to  privatize the fish processing industry to prepare
for the eventual phase out of Lomé tariff preferences, these arrangements precluded this by having
rules- of-origin that require the fishing operations to have 51 per cent domestic ownership.  Thus, to
privatise the unprofitable canning operations required domestic or other ACP buyers to be found for
its fishing fleet.  Moreover, once the fish processing operations were privatised, the Solomon Islandsfishing industry would lose its commercial advantage by no longer being vertically integrated.
54. The current real appreciation in the currency was due to the ‘Dutch disease’ effects of the
logging boom.  These effects were problematic and could occur in any economy undergoing a boom
sector, with devastating effects on other sectors.  This is another reason why to maximise rents on
logging booms may not necessarily be beneficial to the Solomon Islands’ economy.  Maintaining a
rational exchange rate policy will be easier when logging practices are phased out.
55. On sustainability, the representative indicated that lowering log export taxes at this stage
would worsen sustainability by increasing log expor ts.  In his view, the global community needed to
respond positively to the difficult challenges confronted by the Solomon Islands in dealing with trade
and environment issues.  To repay public debt, as foreshadowed, the Solomon Islands must sacrifice
sustainability.  A possible solution would be for the global community to arrange a debt for
environment swap to restructure the country’s debt in return for sustainable forest practices.  It is
estimated that such a swap would cost about US$40 million, and could return forest harvest levels to
sustainable levels over three years.
56. The first discussant agreed that the Solomon Islands had an interesting case for promoting
downstream log processing which went beyond mere economic considerations.  She inquired as to
whether any countries had been approached on debt for environment swaps.  She also asked whatplans existed to recoup unused fishing licences that had exceeded by up to twice sustainable levels.
She was also interested in whether the proposed VAT would apply to imported inputs, such as steel
products for fish canning.
57. The representative of Korea supported the reform programme of the Solomon Islands’
Government.  As a major importer of timber products from the Solomon Islands, Korea believed that
the timber industry in the Solomon Islands would in future faced increasing competitive pressures due
to declining demand in Asian economies affected by the Asian crisis, and from other suppliers that
benefitted from the recent currency realignments.  He asked for information on the Government ’s
strategies for addressing these concerns.
58. The representative of New Zealand asked if discussions had been held with the EU on the
rules-of-origin requirements of the Lomé Convention, and whether any solutions had been developed.
He was also interested in hearing more on the likely impact that the removal of the Lomé preferenceswould have on the Solomon Islands’ economy.  While  he agreed that downstream processing would
produce social as well as economic benefits to the Solomon Islands, he wondered whether the
Government had considered other ways to provide incentives to promote processed timber exports
that would enable export taxes to be reduced.
59. The representative of the Solomon Islands indicated that imported inputs would not normally
attract VAT.  A Tuna Management Committee existed that reviewed fish licences issued to firms and
a strict system applied to cancel licences abused by firms.  The Government had in place a Committee
that administers the Government’s reform programme.
(iii) Other specific issues
60. The representative of the Solomon Islands reaffirmed the Government’s commitment to bring
legislation into conformity with its WTO obligations.  By 2002, such legislation would be enacted onWT/TPR/M/45
Page 12
intellectual property and customs valuation.  Regional WTO members have been requested to provide
technical assistance to meet these objectives.  Legislation requiring the gazettal of tariff and tax
incentives to investors will also be implemented to  ensure transparency of the taxation system.  The
Government strongly supported closer regional trade integration with MSG members and other
Pacific island countries under the Free Trade Area initiatives proposed at the South Pacific Forum.
He also stated that rules-of-origin requirements in the MSG Trade Agreement were explicit and basedon a change in 6-digit tariff classification levels.
61. Tourism is not on the Negative List for foreign investment, and there are no prohibitions on
such investment.  On the contrary, the Government welcomed foreign investment in tourism.
Moreover, regarding its services commitments, the representative stated that the Government was
actively considering liberalization of its telecommunications sector.
62. The first discussant referred to an EU sugges tion to be considered during the forthcoming
Lomé renegotiations for the creation of a Free Trade Area between the EU and ACP.  She asked
whether the Government had given any thought to  establishing such an agreement between MSG
members and the EU.
63. The representative of Japan encouraged the Solomon Islands to make further efforts to
liberalize other service sectors in addition to telecommunications, and to implement WTO-consistent
legislation in intellectual property and customs valuation.  He also indicated that Japan wouldconsider providing technical assistance to help make the necessary legislative changes in fields such
as IPR.
64. The representative of Australia asked for details on plans to liberalize telecommunications,
and whether these would be reflected in the Solomon Islands’ GATS commitments, including the
adoption of some of the Reference Paper principles.  She also asked for information on other servicesenvisaged for liberalization.
65. The representative of the United States noted the Solomon Islands’ intention to conform with
intellectual property and customs valuation legislation by 2002, and indicated that the US would
consider providing technical assistance in this regard.  He encouraged this timetable to be accelerated,
if possible, to increase predicability and foreign investor’s confidence.  Telecommunicationsliberalization would help tourist development and assist foreign investment in these sectors.
Prescribing these changes in its GATS commitments would also help improve predicability.
66. The representative of New Zealand noted the intention for the Solomon Islands’ Government
to implement WTO-consistent legislation on intellectual property and customs valuation, and its
request for technical assistance.  In this context, the New Zealand Government was sponsoring a
regional conference later this year.
67. The representative of the Solomon Islands thanked Japan, USA and New Zealand for their
offers of technical assistance, and for assistance already provided, including from Australia in the area
of customs valuation.  He indicated that the Government had decided to privatize the sole Telcom
operator, and would divest its shares within the ne xt couple of months.  It would also look at the
possibility of allowing another operator to enter the telecommunications market.
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