RESTRICTEDWORLD TRADE
ORGANIZATIONWT/TPR/G/45
16 September 1998
(98-3526)
Trade Policy Review Body Original:  English
TRADE POLICY REVIEW
SOLOMON ISLANDS
Report by the Government
Pursuant to the Agreement Establishi ng the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization),
the policy statement by the Government of Solomon Islands is attached.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting of the
Trade Policy Review Body on Solomon Islands.Solomon Islands WT/TPR/G/45
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CONTENTS
I. MACROECONOMIC PERFORMANCE  5
II. TRADE POLICIES AND PRACTICE  6
III. TRADE POLICIES BY SECTOR  6
IV. TRADE POLICY  - INSTITUTIONAL FRAMEWORK  8V. TRADE POLICY IMPLEMENTATION  9VI. ECONOMIC ENVIRONMENT AND FACTORS INFLUENCING TRADE  9
VII. CONCLUSION 11Solomon Islands WT/TPR/G/45
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I. MACROECONOMIC PERFORMANCE
1. Solomon Islands economic performance, until the onset of the Asian economic crisis of 1997 was
characterized by strong expor t receipts, modest inflati on but stagnant growth in  domestic credit and critical
problems in fiscal policy.  GDP growth averaged around 3-4% generated largely from strong output
performance in the forestry, fishing and agriculture plantation sectors.
2. Positive growth was experienced since the early 1990s.  The forestry sect or experienced a logging
boom while developments in the fishing sector were  stronger than in the past decade.  The economy,
however, became increasingly dependent on timber re venues, which by 1995 accounted for around half of
export earnings and over a third of government revenues.  By 1996 the export base was less diversified
than at any time since the early 1970s.  The governmen t reached a crisis point in fiscal management by
1995.  This placed strains on the domestic financial system and on relations with domestic and foreign
creditors.
3. Since mid-1997, the slowdown in economic performance was exacerbated by the Asian financial
crisis.  The impact of this is being felt mainly through, the balance of payments and the exchange rate,
inflation, production and government finances.  The economy experienced lower than expected exportreceipts, a rise in inflation, depr essed government revenues and a general slow down in economic activity.
4. These trends are expected to continue throughout the rest of 1998 and also in 1999.  The short to
medium term outlook for the Solomon Islands is not encouraging as the economy is heavily dependent on
international trade with Asia, and the prolonged crisis  in Asia will have a negative impact on the demand
for and prices of Solomon Islands’ export as well as upon economic growth in general.
5. Given the resource endowment of the Solomon Islands, the economy has the potential to grow in
the long term.  However, to achieve its potential, the right mix of policies and business environment need
to exist in Solomon Islands.  The government is full y aware of the adverse impact an expansionary and
unsustainable fiscal policy can have on the economy and has already taken steps to ensure sound
management of its finances as a criti cal prerequisite to restore economic stability.  Fiscal budgets will be in
future be drawn up to ensure stability and balance in revenues and expenditures.  The government of the
Solomon Islands is committed to the full and timely payment of its public debt (and arrears).  Public policy
will also be instrumental in assuring the rate of resource utilisation at sustainable levels and to ensuring theeffective use of the incomes derived from the exploitation of national assets.  The challenge in the medium
term is to improve the efficiency of public policy and administration to enable the Solomon Islanders to
contribute more effectively to, and benefit from, growth in the economy.
6. The government also recognizes the role played by  the private sector and will continue to provide
a conducive business climate for private sector to grow and invest.  Government will therefore, concentrateon critical areas such as infrastru cture development and rehabilitation, investment in human capital, and
ensuring the existing legal framework simple and complementary to private sector development.
7. Prospects for 1999 and in the medium term future therefore, depend on policy decisions related to
the governments’ reform program, the level of a ssistance received from development partners and
multilateral agencies and changes in the real economy.  The Gold Ridge mine has commenced production
in the third quarter of 1997, fish and palm oil are e xpected to be resilient but  log exports will depressed
which could result in a vulnerable balance of payments position throughout 1999.
8. Recognizing the urgent need for an immediate turnaround to salvage the current economic down-
fall, the Solomon Islands Alliance for Change (S IAC) Government in November 1997 released its
statement of Policies structured and designed to restore macroeconomic stability and initiate
microeconomic reforms to promote restructuring and improve efficiency which the Government is
committed to achieve.WT/TPR/G/45 Trade Policy Review
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9. Solomon Islands maintains a constant real exchange rate in order to  enhance the country’s
international competitiveness.  To this end, Solomon Islands is moving quickly to apply a comprehensive
phased reform programme beginning from public sector reform, structural reform on high tariffs and
freezing high wage rates.
II. TRADE POLICIES AND PRACTICE
10. The significant changes in the global economy towards trade liberation, economic deregulation,
trade and investment promotion are key factors influencing Solomon Islands development strategy.  InOctober 1997, the Government announced its Structural Reform Programme, aimed at improving Solomon
Islands current economic and a long term prospects.  With this in mind, the Government is undertaking a
phased reform programme to review the existing import restrictions and reduction of imports tariffs, tax
reform, public sector reform, and export promotion and development.
11. The structural reform program announced in October 1997 by the Government is aimed at moving
the economy towards sustainable, private sector led economic growth.  The reform programme focuses on
economic reform, including macro-economic stabilization policies and microeconomic policies for
enhancing productivity and competitiveness, as well as  policies aimed at redirecting and deployingresources from the public to private sector.  There is  a clear need for external and internal financial
balance, appropriate monetary and fiscal policy aimed at achieving low inflation and interest rates, increase
of employment, a stable exchange rate and a reduce on balance of payments deficit.  Microeconomic
reforms include trade and investment policies, tariffs  and taxes as well as sectoral policies, focused on
enhancing transparency of investment policies;  accel erating tariff reductions on goods and services traded
among Forum Island Countries;  and reviewing duty remission policies.
12. Solomon Islands trade policy objectives include progressive removal of trade barriers.  It is the
Government’s desires to promote and diversify export trade as an important means of economicdevelopment.  To achieve this, the Government is undertaking a comprehensive review of the tax system,
with a view to broadening its base and reducing tax rates, focusing in particular on tax and tariff reform.  It
is also moving towards the removal of administrative obstacles to investment aimed at improving the
transparency of investment policies, and to creati ng  a conducive environment for private sector growth
and development.  A  further review of the trade ta xes with a view to create uniform rates to eliminate
trade distortions is also being considered.  The government is also studying a consumption based ‘value
added tax’ aimed at gradually removal of the tax imposed by tariffs.
13. A major objective of the Government’s reform programme is the implementation of sustainable
management policies over its key natural resources, such as forest, marine, minerals and agricultural
commodities and implementing effective control over th e unsustainable exploitation of such resources is
also high on the agenda.
14. Since the early 1990’s there has been a progressive move towards export oriented policies which
is also the main trade policy objective of the Government.  Policy is aimed at developing an open outward-looking and export oriented economic that generates rapid rates of growth and higher standards of living.
Also, a national policy is in place to encourage export related investment.  This includes a range of income
and other tax concessions which are available under the Foreign Investment Act as investment incentives.
III. TRADE POLICIES BY SECTOR
15. The Primary Sector accounted for 42% of GDP in 1995, with agriculture representing just over
half of this share.  The former accounted for around a quarter of formal employment, with agriculture and
forestry the most important contributors.  The primary sector is also the Solomon Islands main source of
export earnings.  In 1996, timber and fish accounted fo r 79% of the total exports.  Traditional agriculture
commodities of considerable export significance are palm oil, copra and cocoa.  These traditionalSolomon Islands WT/TPR/G/45
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agriculture commodities and other e xport potential cash crops such as chillies and local fruit tress will be
the primary focus of the Government’s policies on agriculture.
16. The Government’s agriculture po licies, outlined in the 1994 Ag riculture Sector Plan are to
facilitate export diversification for minor crops such as  chillies, and the development of the local fruit tress
like canarium nuts.  Promoting and encouraging down stream processing of traditional tropical tree crops,
such as copra, cocoa and palm oil is also high on the agenda.
17. Round log exports increased substantially during the 1990’s largely because of high international
log prices.  However, exports fell substantially in 1997 in line with  the fall in international log prices.
Although log exports fell in l997, pr ojected log exports will remain at 600,000 cubic metres in 1998.  The
current harvesting rates equivalent to almost three times the estimated sustainable yield, raises concern bythe new Government, and intends to put in place legi slation aimed at sustaina ble manufactured of the
forest resources including a fundamental strengthening of the control mechanism governing the harvesting
of the forest resources.  In 1997 the Government formally recognised the Code of Practice for Timber
Harvesting as a means of improving logging practices in Solomon Islands.
18. Oil palm products including copra are at present and will continue to be the backbone of the
plantation sector in the Solomon Islands.  Efforts have been made to extend the benefits of oil palm
cultivation to shareholders in the  Outgrower Scheme funded by the European Union.  Under this Scheme,
Solomon Islands Plantation Limited (SIPL) provides seedlings, management s upport, and input including
markets for end products.  The programme was designed to encourage further expansion of oil palm
plantation, but close proximity to SIPL’s processing mill.
19. Copra is an important commodity in Solomon Islands; as well as an important export earner.
Commodities Export Marketing Authority (CEMA) has exclusive export rights over copra.  CEMA
operates a copra price stabilization scheme, aiming at stabilizing copra price in order to give rise to copraproduction.  In its development policies the Authority is embarking on a program for all copra to be
crushed domestically into coconut oil by 1999.  CE MA has now established four copra crush mills.
20. The fisheries sector is an important source of fo reign exchange; and contributed 8% of the total
GDP in 1995, an increased from 5.5% in 1980.  The fish eries export is mainly of processed chilled, frozen,
canned and fresh ‘sashimi’ tuna; and other marine products such as bêche-de-mer and shark fin.  Thefisheries accounted for well over 18% of total export in 1996.  Given the potential for the development of
the fisheries sector, Solomon Islands has drafted a new fisheries act, aimed at facilitating further
development of the industries and the necessary adjustme nts.  The legislation is expected to be brought to
Parliament in 1998.
21. Solomon Islands has maintained very high nominal rates of export taxes on logs in order to
encourage down-stream processing of timber resources and to generate revenue.  Excessive logging has
created considerable environmental concern, particul arly over the control and management of country’s
key natural resources.  These concerns have prompt ed the SIAC Government to put in place measures
geared towards improving performance in logging and other natural resource based activities, largely to
achieve sustainable economic growth.  It must be noted that the Government is committed to encouraging
the private sector lead development of down-stream processing of marine and forest products.  The
Solomon Islands government will adopt Trade and In vestment measures aimed at promoting down stream
processing.  However, unlike measures adopted in the past Solomon Islands will seek to develop anindustry policy that will facilitate processing that aims at achieving interna tional competitiveness within
time-bound constraints.
22. Production and marketing of minerals is regulated under the Mines and Minerals
Amendment - 1996.  Legislation prohibits prospecting and mining on land without prior consent from the
customary landowners.  Solomon Islands encourages foreign investment in this sector at present throughgeological publications, and by providing these to potential investors.  Applications for exploration andWT/TPR/G/45 Trade Policy Review
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mining leases are considered by a statutory Minerals Board, which comprises of relevant Ministries,
departments and provincial governments and landowner.  Similar arrangement also apply to petroleum
mining under the Petroleum Act - 1987, and Petroleum Regulation.
23. Manufacturing, other than fish processing contributed only 4% of the Solomon Islands GDP in
1996, and accounted for  just over 10% of formal employment.  Solomon Islands intends to review itsmanufacturing  policies; to attract foreign investment by improving the labour market; and reducing trade
and production distortions, such as excessive tariff barriers as well as improving infrastructures.
24. The services sector including public administration account for a large and growing share of
production in Solomon Islands.  In 1995 it accounted for around 47% of the total GDP.  Solomon Islands
recognise the importance of having a vibrant and efficient service sector for development of its exports as
well as implementation of its policies.  The SIAC government has undertaken measures assuring the right-
sizing of the public sector.
25. Tourism is one of the Government’s priority sectors.  Policies for tourism development are
designed especially to encourage eco-tourism.  This has been an area in which some good progress has
been made.  The Government, in its reform program to develop tourism industry, intends to further review
its policies on tourism including reviewing current intern ational airfares with a view to reduce them so as
to further assist the development of the sector.
26. Given the geography of the Solomon Islands sea transport, including an efficient port services and
inter-island shipping services is an important priority.  Sea transport provides vital links to remote islands
and resources, and the Government intends to either  subsidise non-commercial routes, or through licensing
tender unprofitable routes to private shipping operators.
27. Air transport is and will always play an importa nt role in Solomon Islands export of agriculture
and perishable products including fresh ‘Sashimi’ tuna.  The Government recognizes the advantage of
creating competition in international travel to enhance the growth in trade, tourism and the domestic
economy.  The Solomon Islands government has recentl y granted approval to a privately owned operator,
King Solomon Airlines to operate the route to Cairns, Australia.
28. Telecommunications are currently provided by Solomon Telekom which has a monopoly in the
sector.  The existing legislation which provides Solomon Telekom with a monopoly in telecommunications
services is due to expire in the year 2002.  The Gove rnment is considering the possibility of deregulating
this sector to allow competition and hence to encourage quality services but at lower prices.
IV. TRADE POLICY - INSTITUTIONAL FRAMEWORK
29. Formulation of trade policy in the Solomon Islands  involves cabinet approval.  Laws enacted by
Parliament are generally initiated from respective Ministries; submitted to cabinet for approval beforebeing presented to Parliament for enactment, thereafter submitted to the Governor General for his assent.
30. The administration of trade policy comes under several Ministries, Departments and Government
statutory bodies.  Regular re views of trade policies and devices long-term strategy is the responsibility of
the Ministry of Commerce, Employment and Tourism.  The private sector’s input is channelled through the
Chamber of Commerce, and has been regularly consulted in the trade areas.
31. There are laws and regulations governing the implementation of trade policies in Solomon Islands,
including sector-specific Acts.  The Government intends to closely examine and review a substantial
number of these laws, particularly those that affec ting trade-related policies; and to bring them into
conformity with its WTO obligations.  This includes an update of intellectual property rights.Solomon Islands WT/TPR/G/45
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32. Solomon Islands is a signatory to convention between the European Union (EU) and the Pacific
ACP; the MSG Trade Agreement (MSG) between Papua New Guinea (PNG), Vanuatu, Solomon Islandsand Fiji as well as SPARTECA.  The Solomon Islands also benefits from other preferences such as the
GSP of Japan and the USA. Solomon Islands generally, supports the notion of a regional free-trade area
among the Pacific Island countries; as well as the re gional trade initiatives begi n undertaken within the
Forum Economic Ministers Meeting.
V. TRADE POLICY IMPLEMENTATION
33. The continuous decline of nominal and effective tariffs is part of Governments policy to gradually
move away from dependence on import duties as a source of revenue.  Solomon Island has introduced a
revised tariff schedule which commenced from March 1998.  The new tariff condensed the originalnumber of individual ad valoren  rates which ranged from zero to 225%, down to five rates ranging from
5%, 10%, 40% and 70%.  The highest rates of 40% and 70%, apply to 34% of tariff lines, cover mainly
luxury goods for revenue reasons and to avoid over-exploitation.
34. Solomon Island applies MFN tariffs on imports from all countries, except Papua New Guinea and
Vanuatu as founding members of MSG Trade Agreement,  and recently Fiji following its admission to the
agreement.  This will allow Fiji el igible products to be imported duty free.  Eligible imports from these
MSG member states are duty free, and recently expanded to 229 items from 3 in 1993.
35. Custom duties are levied on the C.I.F value of the imported product since 1987, when the basis for
duty is calculated from charge of “selling price to purchase”.  The method used for customs valuation is
consistent with the former Brussels Definition of value (BDV).  The Government is intending toimplement the WTO customs Valuation Agreement (CVA) by 2002, and also further decreasing the rate of
customs duty, and replacing it with value added tax (VAT).
36. All commodities, except logs are exported under ge neral authority issued by the Central Bank of
Solomon Islands (CBSI) provided under the exchange control regulations.  Solomon Islands exporter do
not need to be registered.  However, export documentation generally required are shipping bill and a
commercial invoice.  On logs, exporters must provide tally sheets, a price certificate from the
Commissioner of Forests as well as specific Authority from CBSI.
37. Realizing the short-fall faced in the past of inefficient and in effective coordination of trade
policies, the present Government is committed to introduced a more c oordinated approach to trade and
economic policy formulation and implementation.
VI. ECONOMIC ENVIRONMENT AND FACTORS INFLUENCING TRADE
38. In 1997, the Government introduced its key policy designed to move towards sustainable
economic growth, realizing the diffi culties paused as a result of the economic situation Solomon Islands
currently faced.
39. The new Government has devised policies for economic reform; released in November 1997.  An
integral part of the reform program is the formulation of the Medium Term Development Plan, 1999 -2003, aimed at achieving balanced and sustainable economic development and sound management of its
natural resources.
40. To enhance the implementation of the proposed reforms, the Government has implemented an
organizational and decision making structure to administer the proposed program.  The Government also,
recognizes the urgency of translating this  commitment to reform into policy action.
41. In the 1998 Budget, the Government announced several initiatives aimed at improving financial
control.  It also outlined policies taken by the Government, in an endeavour to reduce public sectorWT/TPR/G/45 Trade Policy Review
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expenditures, namely:  a wage freeze on public servants  and a recruitment freeze.  Already the Government
has taken steps to increase revenue collection by reforming the customs tariff and eliminating tax
exemptions where this is legally possible.
42. Introducing fiscal discipline to improve checks and controls; to reduce public sector expenditure
and deficits is the Governments priority policy list in order to enhance sustainable economic growth.Under its reform program, it will review the present inefficient duty and tax collection and major
exemption and concessions.
43. In December 1997, the Government devalued the  Solomon Islands dollar by 20% against United
State dollar.  This decision was taken primary to rest ore the country’s international competitiveness.  Since
then the Solomon Islands dollars has stabilized against the US Dollar.
44. The 1998 Development Budget estimated  a total of SI$88.8 million foreign aid of which 70%
occurs as grant.  This is a large inflow to Solomon Islands economy, equivalent to 15% of total exports
receipts in 1996, making it the third - largest source of  foreign currency source after timber and fisheries.
The Government under its reformed macroeconomic policies is determined to ensure that these aid inflow
do not create macroeconomic instability.
45. One of the main objectives of SIAC Government’s reform policies is to improve the export-led
growth strategy aimed at a generation of new entrants into the Solomon Islands labour market, and to
achieve an improvement in the standard of living.  The Government has noted the importance of a flexibleand competitive labour market.
46. The downturn in  the Asian economies has been instrumental in the current decline in the logging
sector.  South Korea and Japan have been our traditional markets for South Sea logs.  Solomon Islands isnow seeking alternative markets for logs stock piled in log ponds.
47. Solomon Islands intends to implement its Uruguay Round obligations; by reforming legislation
affecting trade.  However, while Solomon Islands wi shes to begin these reforms at the earliest possible,
limited resources will affect the progress of the revi ew of these policies.  The Solomon Islands will be
seeking technical assi stance from developed WTO members to assist in the preparation of legislation to
assure compatibility of WTO laws with existing obligations.
48. Lack of expertise, marketing skills, and distance to markets; and venerability to natural disaster,
will remain the major constraints to the deve lopment of the Solomon Islands export sector.
49. Solomon Islands is strongly supportive of the Multila teral Trading System and the liberalization of
global trade bearing in mind the special needs of least developed and highly vulnerable island states.
50. In its effort to liberalize trade the Government in 1997 under its Reform Programs restructured,
the Import and Export Tariffs and reduced the number of rates from some twenty different rates to seven
basic rates with 5% being the minimum and 70% the maximum.  The other rates are 10%, 20% 40% and50%.
51. The restructuring reflects most products now bearing 10%-40% whereas before the reduction
those commodities carried between 50%-100% and in some cases were even as high 200%.  The 70% rate
in many cases is used as a protective rate but this protection is subject to review and maybe removed if a
local manufacturer does not impr ove his product quality and stay competitive in the market.
52. In the areas of export tax, most exports are eith er free of duty or carry low duty rates between 5%
- 10%.  The 5% rate is imposed on major exports such as palm oil, cocoa, copra and tuna.  The 10% rate is
imposed on all marine products except trocus shell which bears 30% as a protective rate.  Farmed marine
products are free of export duty to enc ourage export of locally bred products.Solomon Islands WT/TPR/G/45
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53. There are no export taxes on manufactured products there is no export duty levied on those.  This
is to encourage local manufacturing and export of those products.
54. Solomon Islands has made a progress in restructuring of its import tariff by reducing the number
of duty rates and lowering the rates in may cases although a few essential items have been increased for
revenue and protective reasons.
VII. CONCLUSION
55. The government has recently undertaken a compre hensive program aimed at  achieving sustainable
private sector led economic growth.  It is also committed to fulfill its WTO obligation towards trade
liberalization policy measures.  However, Solomon Islands will need more time to adjust its existing laws
and regulation affecting trade.  Because of its small but open economy, Solomon Islands will have to
carefully monitor the pace of its import and export liber alization, in order to allow time to enhance local
efficiency productivity and strengthen competitiveness.  With this in mind, Solomon Islands will employ a
phasing reform approach towards its trade liberalization.
56. Solomon Islands Trade Policy Review preparatory work which began in March 1998, has given us
an opportunity to identify our constraints and opportunities for trade development.  This will enable us, toreform our trade policies and create a trading environment for the private sector to get maximum economic
benefits from reforms and adjustments made to our trade development policies.
57. The government is presenting the country’s legal framework as a priority with a view to
accommodate any policy changes for the effec tive development of the private sector .
58. It is the Government policy to continue to promote and encourage greater transparency,
harmonization of tariffs, and slowly remove trade distortions and trade barriers.  To that end the
Government of the Solomon Islands intends to bri ng legislation to parliament that will see all tax
incentives granted to investors gazetted and publicly notified.
59. Solomon Islands will continue to support private sector lead growth through the improvement of
economic infrastructure, Human Resources Development, aimed at improving domestic labour market
productivity; and the provision of competitive market environment.
60. Since accession to the WTO in June 1996 Solomon Islands is committed to continue to make
modifications to existing laws and regulations, and implements various measures to assure compliancewith its commitments in the WTO, despite the complexity of the work involved.
61. Solomon Islands recognizes the importance of free a nd open trade, and will, therefore, continue to
conduct its trade policy in  a transparent and fair manner.
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