98-3675                                                                         MOREPRESS RELEASE
PRESS/TPRB/82
23 September 1998
 TRADE POLICY REVIEW BODY
REVIEW OF THE SOLOMON ISLANDS
TPRB'S EVALUATION
The Trade Policy Review Body of the World Trade Organization (WTO) concluded its first
review of the Solomon Islands' trade policies on 21 and 22 September 1998. 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 c onduct a collective examination of the full range of
trade policies and practices of each WTO member country at regular periodic intervals to monitorsignificant 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 asp ects of the country's trade policies, including: its
domestic laws and regulations; the institutional framework; bilateral, regional and other preferentialagreements; the wider economic needs and the external environment.  A record of the discussion and the
Chairperson's summing-up together with these two reports, will be published in due course as the
complete trade policy review of the Solomon Isla nds 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: Since D ecember 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), I ndia (1993 & 1998), Indonesia (1991 a nd 1994), Israel (1994), 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), Ni geria (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 Island
(1998), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland (1998), 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).PRESS/TPRB/82
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MORETRADE POLICY REVIEW BODY
REVIEW OF THE SOLOMON ISLANDS
CONCLUDING REMARKS BY THE CHAIRPERSON
The first Trade Policy Review of the Solomon Islands was conducted by the Trade Policy
Review Body on 21-22 September 1998.  These remarks, prepared on my own responsibility, attempt
to summarize the salient points of the discussion.  They are not intended as a full report; details of the
discussion will be reflected in the minutes.
The discussion developed under the three main themes of: (i) background and current
economic crisis, (ii) main sectoral issues, and (iii) other specific issues related mainly to its
membership of the WTO.  Section (iv) concludes by remarks.
Background and current economic crisis
Members recognized that the Solomon Islands faced immense and numerous economic
difficulties.  Mismanagement by the previous government had led to unsustainable levels of publicdebt, which could not be repaid from exports at a su stainable level.  Concentration of exports in three
product groups (timber, fisheries and copra) and two principal markets (Japan and the EU, particularly
the United Kingdom) meant that the economy was highly vulnerable to external price developments.
The effects of the Asian economic downturn had been particularly severe for the timber sector,
reducing world prices by two-thirds.
Members recognized the dilemmas confronting the Solomon Islands' Government, in
particular, the tension in policy-making between environmental and trade considerations, given the
need to service the debt.  They asked what routes the authorities considered possible to resume
economic growth and promote sustainable trade.
Members welcomed the efforts being made by the Solomon Islands' Government in economic
reform.  They stressed the need to continue the process, particularly in respect of taxation, in order to
increase revenue while promoting exports.  Tariff rationalization was welcomed, although rates
remained relatively high and disparate, and a temporary tariff surcharge of 10 per cent had beenimplemented in the 1998 Budget, with no time limits.  The effectiveness of export taxes was
questioned and alternative means of increasing fiscal revenue (such as stumpage fees or resource rent
taxes) were suggested.  Members emphasized the need to introduce a transparent structure of taxation
(including VAT) with minimal scope for Ministerial discretion in application.
Questions were asked about the Government's inve stment policies, including the utility of the
negative list, and the effectiveness of incentives.  Clarification was sought on the development ofinvestment in particular sectors, including telecommunications and tourism.
In response, the representative of the Solomon Islands outlined steps that the Government had
taken to address the twin problems of unsustainable debt burden, which it inherited upon coming to
power, and the continuing unsustainable exploitation of forestry.  The Government had succeeded inreducing outstanding government debt from SI$185 million to SI$140 million in an attempt to restore
fiscal balance.  In addition, the Asian Development Bank had approved a loan to assist the
Government in meeting its objective of balancing the budget.PRESS/TPRB/82
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MOREIn order to avoid these problems in the future, the Government intended to reduce its
dependence on forestry and to diversify into other activities, such as tourism, mining and the domestic
processing of raw materials;  for example, all copra was now to be processed locally for export.  As
regards exports of canned tuna, the delegation appealed to the EU to maintain existing Lomé
preferences so as to enable Solomon Islands' producers to compete with other exporters.  The
delegation also appreciated the contribution of the STABEX programme to agricultural development.The Government realised that it could not continue to rely on trade taxes for revenues and was
seriously considering progressively reducing such taxes and their replacement by a VAT.
In recognition of the fact that the private sector  must be the engine of growth in the economy,
the Government had involved the Chamber of Commerce in its reform programme.  It also recognized
weaknesses in the administration of the Investment Act and was taking steps to increase its
transparency.  In addition, the Government was evaluati ng the role of investment incentives in the Act
with a view to rationalising their use and removing discretion in their administration.  The negative
list was not at present in application.
Main sectoral issues
Members commented on the heavy reliance of the economy on a few sectors, namely timber,
fish and copra.  Questions were raised on sustainable management of timber resources, and how the
current "break" from logging brought about following the collapse in timber prices could be used by
the Government to implement such policies. In this connection, Members also raised questions on the
Government's views on the allocation of logging and fishing licences, including the auctioning andunder-utilization of such licences.  The need to ma intain international competitiveness in timber and
fish in the face of the erosion of market access to the EU market under Lomé tariff preferences and
reduced timber prices, were also matters of concern.  The Government referred to rules-of-origin
restrictions imposed under the Lomé arrangements for preferences as limiting the development of
their fisheries industry.
The role of downstream processing of fish and timber was discussed.  Some members saw
adverse effects on developing efficient processing industries from export taxes on unprocessed
resources.  Members requested clarification on the government's intention to prohibit round log
exports in 1999.  The Government indicated its commitment to promoting downstream processing as
a way of improving the economy's resilience and development.  In its view, export taxes on
unprocessed products can play a useful role in this regard.
Some members agreed with the Solomon Islands that the vulnerability of the economy to
world price changes, especially for copra, was worsened by the effects of export subsidies by some
WTO members on edible oilseeds.  Members from the Cairns Group emphasized their aim to obtain
strengthened multilateral disciplines on the use of such trade-distorting policies.
The Government raised the possibility of its multilateral partners organizing a
debt-environment swap as a means of enabling the Government to service its debt while at the same
time implementing sustainable forest management.
Other specific issues
Members welcomed intentions by the Government to review its legislation and to bring its
policies into conformity with its WTO obligations, and saw achievement of these multilateral
obligations as making an important contribution to its reform efforts.  Members requested additionalinformation on steps to be taken in areas, such as TRIPs, customs valuation, preshipment inspection,
standards and state trading.  Members asked the Solomon Islands whether there were any
impediments to implementing such consistent policies.PRESS/TPRB/82
Page 5
The Government reiterated its commitment to meeting its WTO obligations with the aid of
technical assistance.  A number of members offered the possibility of providing such assistance.  The
Government was urged to accelerate WTO adherence if possible.
Members referred to the Solomon islands' membership of regional arrangements, such as the
Melanesian Spearhead Group, and asked that it further explain its view on their usefulness.  The
delegation reaffirmed its support for the closer integration of the Pacific Island countries, in particular
through the Melanesian Spearhead Group, and a wider regional free trade area.
A number of Members raised the need for the Solomons to improve efficient delivery of basic
service inputs, such as telecommunications and transportation.  They saw additional GATS
commitments in services such as telecommunications as  playing an important role in this context, and
asked the Government for its views and policies towards liberalising services and expanding its
multilateral commitments in the coming round of negotiations.  Members also encouraged the
Solomons to implement policies aimed at deregulation and privatization of key service industries.
The Government indicated its intention to proceed with divesting its ownership in Solomons
Telekom within the next couple of months, and the possibility of allowing new entrants.
Conclusions
The Chair felt this was a particularly interesting review in that it has brought into focus some
key issues with wider applicability:  in particular, how to reconcile policies of environmental
sustainability and the steps necessary to generate foreign earnings (especially in circumstances where
a government is coping with significant debt serv icing burdens), and also the question of how small
economies heavily reliant on a very limited number of products can maximize returns on production.
The review has shown very clearly the serious difficulties faced by the Solomon Islands, as a
small, least-developed, island economy with a limited resource base.  Some of these are inherited
from previous economic mismanagement;  others are due to external problems, including the dramatic
results of the Asian crisis, erosion of preferences and the effects of subsidization of competing
products.
We have also had a substantial discussion on the vulnerability of an undiversified economy to
both commodity booms and external shocks.  A number of delegations have addressed issues of
diversification, sustainability and resource conservation, the role of export taxation;  the effects of
Lomé preferences;  and the prospects for establishing efficient downstream processing.  We hope that
the signals given by Members will help the Solomon Islands in establishing a more viable economic
base. One issue of overwhelming importance is the creation of a stable environment for future tradeand investment, with minimal scope for discretion.  Tariff reforms have already begun and, again, a
stable basis for trade is crucial.
The present Government has underlined its commitment to economic reforms and the Trade
Policy Review Body has given its strong encouragement to the process.  We hope that the SolomonIslands Government will, as a follow-up to this review, be able to benefit from the technical
cooperation opportunities that are being offered to it and will thereby be able to participate more
effectively in the WTO Agreements and benefit from the multilateral system.  We wish the Solomon
Islands well in coping with the present difficul ties and promoting its economic recovery and future
development.
END