RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/62
22 October 1999
(99-4485)
Trade Policy Review Body
TRADE POLICY REVIEW
PAPUA NEW GUINEA
Report by the Secretariat
This report, prepared for the  Trade Policy Review of Papua New Guinea, has
been drawn up by the WTO Secretariat on its own responsibility.  The
Secretariat has, as required by the Agreement establishing the Trade Policy
Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the
World Trade Organization), sought clarification from the Government of
Papua New Guinea on its trade policies and practices.
Document WT/TPR/G/62 contains the policy statement submitted by the
Government of Papua New Guinea
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Papua New Guinea.Papua New Guinea WT/TPR/S/62
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS ix
(1) E CONOMIC ENVIRONMENT ix
(2) T RADE AND FOREIGN DIRECT INVESTMENT x
(3) L EGAL AND INSTITUTIONAL FRAMEWORK x
(4) TRADE POLICY FEATURES AND TRENDS xi
(i) Type and incidence of trade policy instruments xi(ii) Sectoral policies xiii
(5) T
RADE POLICIES AND FOREIGN TRADING PARTNERS xv
I. ECONOMIC ENVIRONMENT 1
(1) I NTRODUCTION 1
(2) R ECENT ECONOMIC PERFORMANCE 3
(3) M ACROECONOMIC POLICIES 6
(i) Fiscal policies 7(ii) Monetary policies 8
(iii) Exchange rate policies 9
(4) M
AIN DOMESTIC STRUCTURAL POLICY ISSUES 12
(i) Trade and taxation policies 12(ii) Foreign investment policies 13(iii) Labour market policies 14(iv) Policy challenges 15
(5) M
ERCHANDISE TRADE PERFORMANCE 16
(i) Commodity pattern of trade 16(ii) Regional pattern of trade 19
(6) O
UTLOOK 19
II. TRADE AND INVESTMENT POLICY REGIME:  FRAMEWORK AND  OBJECTIVES 21
(1) T HE INSTITUTIONAL FRAMEWORK 21
(2) S TRUCTURE OF TRADE POLICY FORMULATION AND IMPLEMENTATION 22
(3) I MPLEMENTING THE STRUCTURAL ADJUSTMENT PROGRAMME 25
(i) Economic Recovery Package 26(ii) The 1999 Budget 26(iii) The August 1999 Supplementary Budget 28
(4) P
OLICY OBJECTIVES 28
(5) L AWS AND REGULATIONS 30
(6) T RADE AGREEMENTS AND ARRANGEMENTS 31
(i) Multilateral agreements 31(ii) Regional agreements 33(iii) Bilateral agreements 41
(iv) Generalized System of Preferences (GSP) 41
(v) Other agreements and arrangements 41
(7) T
RADE DISPUTES 42WT/TPR/S/62 Trade Policy Review
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(8) F OREIGN INVESTMENT POLICIES AND PROCEDURES 42
(i) Legislative framework for FDI 44(ii) The national investment policy 48
III. TRADE POLICIES AND PRACTICES BY MEASURE 49
(1) I
NTRODUCTION 49
(2) M EASURES DIRECTLY AFFECTING IMPORTS 50
(i) Registration, documentation and customs administration 50(ii) Tariffs and surcharges 50(iii) Tariff quotas 61(iv) Other levies and charges 61
(v) Preshipment inspection 62
(vi) Customs valuation 62(vii) Import prohibitions, quotas and licensing 63(viii) State trading and countertrade 64(ix) Import cartels 64(x) Local-content requirements 64
(xi) Rules of origin 64
(xii) Trade remedies 64(xiii) Measures implemented in exporting countries 65(xiv) Other measures 65
(3) M
EASURES DIRECTLY AFFECTING EXPORTS 65
(i) Registration requirements 65
(ii) Export taxes 65
(iii) Export prohibitions, controls and licensing 66(iv) Export quotas and voluntary restraints 67(v) State trading 67(vi) Export subsidies 67
(vii) Duty drawback and tax concessions 67
(viii) Export finance and promotion 68(ix) Export-processing zones 68(x) Other measures 68
(4) I
NTERNAL MEASURES 68
(i) Taxation 68
(ii) Standards and other technical requirements 73
(iii) Direct assistance 76(iv) Restrictions on foreign investment 78(v) Protection of intellectual property 79(vi) Government procurement 79(vii) Corporatization and privatization 79
(viii) Competition and related policies 83
IV. TRADE POLICIES BY SECTOR 86
(1) O
VERVIEW 86
(2) A GRICULTURAL AND OTHER PRIMARY PRODUCTS 88
(i) Livestock and dairy 92(ii) Fruit, vegetables and nuts 93
(iii) Coffee, tea, and spices 93
(iv) Cereals 94(v) Oil palm and cocoa products 94Papua New Guinea WT/TPR/S/62
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(vi) Forestry and logging 95
(vii) Fishing 103
(3) M INING AND QUARRYING 109
(4) M ANUFACTURING 113
(i) Food products 114
(ii) Beverages and tobacco products 115
(iii) Textiles, clothing, footwear and leather products 115(iv) Wood products 116(v) Paper and printed products 116(vi) Chemicals 116
(vii) Petroleum and plastic products 117
(viii) Non-metallic mineral products 117(ix) Metal products 117(x) Electrical machinery 117(xi) Transport equipment 117(xii) Jewellery products 118
(5) S
ERVICES 118
(i) Tourism 120(ii) Transportation 120(iii) Telecommunications 121(iv) Financial services 121
REFERENCES 123
APPENDIX TABLES 127WT/TPR/S/62 Trade Policy Review
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CHARTS
Page
I. ECONOMIC ENVIRONMENT
I.1 Merchandise trade as a share of GDP, 1992-97 4
I.2 Public debt as a share of GDP, 1992-98 6I.3 Foreign equity holdings by sector and country of ownership, 1997 14I.4 Composition of merchandise trade 17I.5 Merchandise trade by destination and origin 18
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Government revenue structure, 1990 and 1995-98 53
III.2 Distribution of tariff rates, before 1 July 1999 and 2006 57
IV. TRADE POLICIES BY SECTOR
IV.1 Sectoral composition of GDP, 1988 and 1997 89
IV.2 Formal employment, by sector, 1990 90
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Main economic and social indicators 2
I.2 Economic performance, 1994-98 2
I.3 Public debt liability, 1992-98 9I.4 Balance of payments, 1994-98 11I.5 Exchange controls 11
I.6 Key effects of the Asian crisis on PNG economy 20
II. TRADE AND INVESTMENT POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Notification requirements to the WTO as at 30 June 1999 32
II.2 Foreign investment, 1993-98 42
II.3 Foreign investment approvals, 1995-98 43II.4 Summary features of foreign investment policies and proposed changes 45II.5 Transparency ratings of investment policies and practices 46II.6 Compliance of investment policies with APEC non-binding principles 47Papua New Guinea WT/TPR/S/62
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Page
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Tariff reduction programme, July 1999 to 2006 54
III.2 Main areas of tariff protection, July 1999 to 2006 54
III.3 Tariff structure 1999 and 2006 57
III.4 Products subject to different treatment  under the tariff reduction programme 58
III.5 Tariff increases, 1 July 1999 59III.6 Main fiscal incentives 70III.7 Quarantine restrictions on imports of animal products 74III.8 Restricted imports due to plant quarantine 75
III.9 Quarantine bans and restrictions on imports of fruit and vegetables 75
III.10 Activities closed to foreign investment 78III.11 Privatization and divestiture timetable 81
IV. TRADE POLICIES BY SECTOR
IV.1 Effective rates of protection for selected activities 87
IV.2 Steps in obtaining a logging permit 96
IV.3 Export tax rates, 1979-95 98IV.4 Fish production and sustainable yields 104IV.5 Purse seine access agreements, 1995-96 and 1997-98 105IV.6 Fishing licences under the National Tuna Fishery Management Plan 108
IV.7 Mineral and oil production 111
IV.8 Summary of sector specific commitments under GATS 118
APPENDIX TABLES
IV. TRADE POLICIES BY SECTOR
AIV.1 Tariffs applied in Papua New Guinea, by ISIC category, 1 July 1999 129Papua New Guinea WT/TPR/S/62
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SUMMARY OBSERVATIONS
1. The Independent State of Papua New
Guinea (PNG) is an archipelago in the South
Pacific.  It consists mainly of the eastern half
of the island of New Guinea, which bordersthe Indonesian province of Irian Jaya.  PNG is
a developing country, rich in resources, with a
GDP per capita of some US$900 and low
social indicators.  The present Government,
which took office in July 1999, inherited aneconomy in crisis and in urgent need of
fundamental economic reform.
2. PNG's recent economic performance
has been erratic with years of modest growth
alternating with declines in output.  Theeconomy has been adversely affected by
several unavoidable shocks, such as the Asian
financial crisis, depressed commodity prices
and severe droughts.  These difficulties have
been compounded by problems of governance,
a weak institutional structure and process, and
a seeming lack of momentum for reform.
3. The new Government appears
committed to broad-based economic reform.
These reforms seek to address chronic
macroeconomic imbalances and structural
deficiencies.  The Government implemented aSupplementary Budget in August 1999 to
contain the fiscal deficit.  It has re-engaged in
dialogue with the World Bank and the
International Monetary Fund (IMF) to obtain
support for reform, including tradeliberalization and a far-reaching privatization
programme.
(1) E
CONOMIC ENVIRONMENT
4. After independence in 1975, PNG
adopted inward-looking policies to promoteindustries to process primary resources, such
as fish and timber, and other manufactures,
such as processed foods.  These interventionist
policies were manifested, inter alia, in:  high
and disparate trade taxes on imports and
exports, as well as import quotas and
prohibitions;  a significant state role inindustrial development, including joint
ventures;  a relatively large public service;and, more recently, fairly high fiscal deficits,
financed by expansionary monetary policies.
5. PNG's present economic situation is
difficult.  Public debt is high, as are the
Government's accumulated arrears;  inflation
has risen to over 20% a year, weakeningexternal competitiveness, and low world
commodity prices limit export earnings;
external reserves are low and foreign direct
investment is confined mainly to the "enclave"
mining sector.
6. The authorities recognize the need for
a restoration of confidence and in June 1999
announced the implementation of an Economic
Recovery Package.  The Package includes
measures aimed at financial discipline andstructural reform.  Policy under the Package
is to be outward looking, with trade reform
seen as an important means of fostering
private-sector-led growth and enhancing
productivity and competitiveness.  Meeting
multilateral commitments is integral to the
reform agenda;  thus, for example, PNG'stariff is fully bound and it  intends to
implement WTO-consistent policies in
intellectual property rights.  In meeting these
commitments, PNG looks to bilateral and
multilateral donors for technical support.
7. In line with the Package, tax and tariff
reform was introduced in July 1999.
Specifically, a VAT was introduced on goods
and services to fund a substantial tariff
reduction programme.  The average tariff washalved, to under 10%, and the structure
rationalized;  the average and maximum tariff
are to be further phased down over the period
to 2006.  As noted, the Government introduced
measures to contain the budget deficit to 1.7%of GDP, from a previous target of over 3%.
Donors and international financial agencies
are being approached to fund the deficit, thus
avoiding recourse to the monetary authority;
privatization proceeds are to help reduce the
public debt.  Change has also been mooted to
improve governance and politicalaccountability.WT/TPR/S/62 Trade Policy Review
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(2) TRADE AND FOREIGN DIRECT
INVESTMENT
8. International trade and foreign direct
investment (FDI) are vital to the PNG
economy.  Merchandise exports and imports
averaged 49% and 27% of GDP, respectively,during 1992-97.  External balances have
fluctuated considerably, mainly in line with
mining developments.
9. Trade is relatively concentrated, both
in commodities and markets.  Exports aremainly 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.  Almost three quarters of exports in1997 went to Australia, Japan and European
Union (EU) countries, mainly Germany and
the United Kingdom.  Log exports fell sharply
following the Asian crisis and the decline in
world timber markets in late 1997.
10. Imports are predominantly of
manufactures, especially machinery andtransport equipment, food, fuels and
lubricants.  Over half of imports came from
Australia, followed by the United States.
11. Outside the resource sectors,
especially mining, which accounts for some80% of foreign equity in PNG, relatively little
foreign direct investment (FDI) has flowed
into PNG.  Such FDI has been unstable, and
has recently slumped due to investor
uncertainty over PNG’s political andeconomic situation.  Australia is the major
source of FDI.
(3) L
EGAL AND INSTITUTIONAL
FRAMEWORK
12. PNG is a constitutional monarchy.
Legislative power resides in a unicameral
national Parliament.  Executive power is
vested in the national Government.
Parliamentary elections must be held within
periods of five years.  The Prime Minister is
elected by Parliament and appoints ministers
to the National Executive Council, or Cabinet;the Government can fall on a successful
no-confidence vote in Parliament.  New
governments have a constitutional grace
period against no-confidence votes of 18
months, previously six months.  Coalition
governments have been the norm and nogovernment or prime minister has yet served a
full term.
13. Responsibility for trade-related
policies rests with the national Government,
but provincial governments have concurrentpowers with the national Government in
important trade-related areas, such as
agriculture, forestry, industrial development,
fishing and mining.  This is especially true, for
example, with respect to approval of forestry,mining and fishing developments on customary
land, which cover over 90% of land
ownership.
14. Trade and economic policy
formulation in PNG has not always been well
coordinated.  An Advisory Secretary was
established in the Prime Minister’s Office inJanuary 1999 with a view to supporting
reform, including oversight of cabinet
decisions and implementation of the 1999
Budget.
15. The Government promotes public
dialogue through the Consultative
Implementation and Mo nitoring Council
(CIMC), national economic summits - last held
in February 1998 - and the annual National
Development Forum.  The Government’sinaugural Forum, held in August 1999,
focussed on reform and the 2000 Budget.  The
Government also interacts with the private
sector via the PNG Manufacturers’ Council
and other bodies, such as the Chamber ofCommerce.  No independent statutory body
exists to advise the Government on
trade-related policies, including the tariff and
industry assistance;  in principle, the Industry
Assistance Board  has such a role, but has
lacked the necessary institutional capacity.Papua New Guinea WT/TPR/S/62
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(4) TRADE POLICY FEATURES AND
TRENDS
16. PNG became a de facto GATT
contracting party in 1960 under its "UN trust"
status with Australia, and acceded to the
GATT in 1994.  It became a WTO Member inJune 1996.  PNG's entire tariff is bound,
mainly at ceiling tariff rates of 40% and 45%.
PNG scheduled commitments under the
General Agreement Trade In Services (GATS)
on a broad range of services, including certainbusiness, construction, financial and
telecommunication services.  It is not a
signatory to any of the Plurilateral Trade
Agreements.
17. As a member of APEC, PNG 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.
18. PNG grants at least most-favoured
nation (MFN) treatment to all WTO Members.
PNG grants some duty-free tariff preferencesunder the Melanesian Spearhead Group
(MSG).  These preferences initially covered
imports of beef from Vanuatu and canned tuna
from the Solomon Islands;  PNG exports of tea
to these countries.  Fiji has since joined theAgreement, in 1996, and more products are
now covered, such as fruit, nuts, coffee and
cement.  MSG exports by PNG include mainly
tinned meat, coffee and cement.  MSG trade is
a minor share of PNG’s total trade, however,and the Agreement has not significantly
expanded trade within the region.
19. As a signatory to the Lomé
Convention, PNG receives non-reciprocal
tariff and other preferences from the EU onmany goods.  Financial assistance, totalling
K 2.8 billion to end-1995, has also been
provided, mainly to fund development projects
and to finance past commodity price support
schemes.
20. PNG is a party to the South Pacific
Regional Trade and Economic CooperationAgreement (SPARTECA), a non-reciprocalpreferential 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.
(i) Type and incidence of trade policy
instruments
21. The tariff is PNG's main trade policy
instrument.  Tariffs were cut across-the-board
on 1 July 1999 from an average (unweighted)
applied MFN rate of 20% to 9%.  The tariffstructure was also simplified and rationalized
with the number of tariff rates reduced from
six to four – zero, 30%, 40% and 55% – by
removing duties of 5% or 11% on basic and
intermediate inputs and by lowering dutiesranging previously between 75% and 125% to
55%, with some exceptions.  Under the eight-
year Tariff Reduction Programme, MFN rates
will be further phased down to 15%, 25% and
40%, without exception, in 2006, when it is
envisaged that the average applied tariff will
be 5%.
22. However, tariffs were increased on
some goods as from 1 July 1999, mainly to
30% or 40% to provide protection for
domestic producers.  These increases included
rates on certain food and plastic products.Pockets of high tariff protection were also
retained until 2006, including current rates of
82% on sugar, 70% on canned mackerel and
95% on plywood and veneer panels.  On some
products, where domestic production wasconsidered non-viable, high tariff rates were
reduced to zero.
23. Current duties, and the rates to apply
in 2006, give rise to substantial dispersion and
some escalation.  The average tariff in 2006on agricultural products will be 16%,
compared with zero for mining and 5% for
manufacturing.  The revised tariff structure
also seems to provide mixed incentives for
processing.  Unprocessed products are subject
to the highest tariffs, on average, and
semi-processed products the lowest.  Thisindicates that the tariff structure may
discourage processing, especially from rawWT/TPR/S/62 Trade Policy Review
Page xii
inputs.  Lower, more uniform tariffs on
unprocessed products could improve the
incentive structure.
24. All duties, with the main exception of
those on alcoholic beverages, are ad valorem,
thus lending transparency.  There iswidespread use of exemptions, often to specific
users, but this is being rationalized.  A duty
drawback system is in operation but is little
used, with refunds often involving significant
delays.  Recent efforts taken to improve thesystem include relaxing approval
arrangements, and there are proposals to
provide the drawback as a credit against the
import duties.
25. PNG applies few formal non-tariff
trade barriers.  During the 1990s, high tariffs
replaced widespread import quotas and bans.
Certain import prohibitions and controls apply
for environmental, health, public safety and
security reasons, and under international
conventions.  PNG applies no trade
embargoes, nor any local-contentrequirements for domestic production.
26. PNG has anti-dumping and
countervailing provisions, but they have rarely
been used, although  application of
anti-dumping duties is currently beingconsidered for cement.  Specific tariffs, mainly
on food items, have been used as the main
means of guarding against "cheap" imports.
However, the Government has signalled
greater use in future of anti-dumpingprovisions, which are now to be administered
by the Internal Revenue Commission, within
the Treasury portfolio, instead of the Ministry
of Foreign Affairs and Trade.
27. PNG applies stringent quarantine
regulations.  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 others are restricted.  Live animals and
certain animal products, such as honey, beef,
eggs and non-pork smallgoods, can only beimported from Australia and New Zealand
(and Vanuatu in the case of beef).  Fresh pigmeat and pork smallgoods are importable only
from Australia, and canned ham only from
Australia, New Zealand, North American and
certain EU member States.
28. PNG intends to align its national
standards with international norms;  it is amember of ISO and IEC.  Many Australian
and New Zealand standards are applied.  Most
standards are for health and safety reasons
and apply particularly on chemicals,
construction equipment, and buildinghardware.  PNG aims to develop national
accreditation bodies for conformity testing,
based on ISO guidelines.  Test results from
foreign countries are usually accepted.  PNG
has no significant marking, labelling orpacking requirements.
29. Government procurement is handled
by the Central Tenders Board for contracts
above K 0.5 million.  Preferences exist for
local suppliers on smaller contracts.
30. Export taxes, ranging to 70%, apply to
unprocessed logs.  Export taxes were lifted onall marine products, except bêche-de-mer, in
1997.  Export licences are required for
resource-based products, such as logs, which
are also subject to minimum export price
guidelines.  Exports of certain unprocessedlogs and raw rattan are banned.  Other export
controls are mainly for cultural, health and
environmental reasons, or in accordance with
international conventions.
31. PNG has no export quotas or
voluntary export restraints, and exports are
unsubsidized.  However, a wide range of
exports receive tax incentives, such as a tax
exemption for up to three years on profits from
exports and an exemption for any increases insuch profits for a further four years.  By
targeting manufactured goods, these schemes
tend to discriminate against other exports.
32. PNG has no production subsidies.
Tax concessions assist investment and
production;  in addition to tariff concessions,
there are income tax holidays and othermeasures, such as special write-offs andPapua New Guinea WT/TPR/S/62
Page xiii
accelerated depreciation provisions for
income tax purposes.  These incentives are
currently being rationalized under the
Investment Promotion Authority (IPA);  some
measures, such as tax holidays provided to
start-up firms under a pioneer industryscheme, have recently been removed, subject
to grandfathering of existing incentives.
33. PNG does not have specific
competition law;  the Government intends to
introduce a national competition policy.  Pricecontrols apply to a range of staple items;  their
coverage has been substantially reduced.
They no longer apply, for example, to bakery
or brewery products and soft drinks.  Plans
exist to further de-control prices.  TheGovernment also intends to inject greater
competition and private participation into the
supply of essential utilities.
34. The Government is reviewing PNG's
investment procedures, to make them more
transparent and conducive to FDI.  A revised
National Investment Policy is currently beingintroduced.  Significant segments of industry
remain reserved for domestic investors,
although since 1995 such restrictions no
longer cover manufacturing and construction
activities;  the authorities are reviewing thereserve list with a view to phasing it out.
Where allowed, no foreign ownership limits
apply to FDI.  The Investment Promotion
Authority screens and certifies foreign
investment proposals.  The aim is for the IPAis to become a "one-stop shop", facilitating
investment by moving to a simpler system of
registration and post-investment monitoring to
replace the current case-by-case approval
process.  Non-PNG nationals may lease, butnot own, land.
(ii) Sectoral policies
35. PNG is heavily dependent on
agriculture and on natural resources, notably
minerals, forestry and fish.  Primary
production accounts for just over half of GDP,
and some one quarter of official employment.By contrast, manufacturing represents 9% of
GDP.  Agriculture is much more important ifsubsistence production is included;  some 85%
of the population depends on agriculture.
36. Besides mining, sectoral trade and
investment policies relate mainly to the
development of targeted domestic food, wood
and fish processing industries, although, asnoted, the tariff structure tends to discourage
semi-processing activities.  Trade and
investment measures to support processing
include export taxes and other controls on
unprocessed timber and rattan, as well asefforts to make logging licences largely
conditional upon domestic processing.
Domestic processors receive preference in the
allocation of logging permits, and
first-purchase option on logs.  The goal is tohave at least 30% of logs processed
domestically by 2000, compared to around 5%
currently.  Official policy is to ban log exports
by 2000.  Processors of plywood and veneer
boards also receive high tariff protection,
currently 95% but declining to 40% in 2006.
The combination of implicit input subsidies onlogs and high import tariffs would be expected
to provide correspondingly high effective rates
of assistance for wood products.
37. Domestication of the PNG tuna fishing
industry is the principal objective of the 1999Tuna Management Plan.  PNG operators with
majority domestic ownership receive
preferential access to tuna fishing licences.
Longline licences for catching sashimi tuna,
for example, have been closed to foreignentrants since 1995.  Additional preferences,
including exemption from payment of licence
access fees, are granted to wholly domestic-
owned vessels.  The Plan envisages a total of
100 purse seine tuna licences, with 30 going tovessels from Distant Water Fishing Nations
(DWFN) under bilateral agreements, and a
fall in the licensed annual catch for these
vessels from about 250,000 tonnes currently to
128,000 tonnes.  PNG is committed to
reducing the number of DWFN licences by
10% a year.
38. The tuna cannery at Madang can be
supplied only by PNG fishing operators, and
relies almost totally on duty-free exports to EUWT/TPR/S/62 Trade Policy Review
Page xiv
markets under Lomé preferences.  Previous
efforts to establish regional fishing fleets and
fish processing activities in PNG, as well as
elsewhere in the region, have failed, having
been unable to compete with more efficient
processors.
39. Mandatory local-content requirements
apply to DWFN vessels fishing in PNG waters.
Each vessel must make at least three calls per
journey to PNG designated ports and
purchase minimum supplies worth US$90,000.PNG, along with other island neighbours, has
also banned high-seas transshipment, which
must occur in designated PNG ports.  These
controls tend to raise the costs incurred by
foreign fishing fleets and reduce their capacityto pay higher licence fees.
40. PNG's fishing and forestry policies
are also aimed at sustainable management.
Fish catches and timber production, are
currently below estimated sustainable yields.
Such management will require enhanced
surveillance measures to ensure that licensedlevels are enforced.  The Government is also
taking steps to terminate unsustainable
logging;  these include withdrawing unused
timber permits, since issued permits are
thought to be double sustainable levels, andensuring that expired licences are indeed
terminated.
41. Trade measures, initially import bans
and quotas, but currently relatively high
tariffs, assist a range of agriculturalcommodities (including sugar, poultry, eggs
and beef) in an attempt to achieve food self-
sufficiency.  These policies have met with little
success, and contribute to high domestic food
prices.
42. Traditional tree crops, especially
coffee, copra, cocoa and palm oil products,
remain important to the PNG economy,
accounting for substantial exports.  These
products were assisted by price stabilization
measures, which effectively provided
substantial price support, during the late1980s, when export prices collapsed.  These
schemes were terminated in 1999, except for aprivate scheme run by the Coffee Industry
Corporation.  The statutory Copra Marketing
Board is the monopoly seller of copra and
coconut products on both domestic and export
markets.
43. Past governments have promoted
import substitution policies through direct
participation in numerous commercial joint
ventures, if not complete state ownership,
aided by measures such as trade restrictions
or legislative provisions preventing newentrants.  Examples include government
participation in oil palm plantations, livestock
ventures, Ramu sugar and Halla cement.  The
Government has divested some of these
interests, however, and intends to sell off moreas part of its privatization programme.
44. The Government plays a key role in
the development of mining projects.  Mining
leases must be negotiated with national and
provincial governments as well as with
customary landowners.  Higher standard
company tax rates apply to mining andpetroleum firms than to enterprises operating
in other sectors, and additional profit taxes
apply to returns above certain threshold
levels.  The Government may take a minority
equity holding of up to 30% in any mining orpetroleum project, either directly or via its
51% stake in Orogen Minerals.  Royalties
apply, at a rate of 2% of the value of mine
output.  A profits levy of 4% has been applied
to compensate for the loss in governmentrevenue from zero-rating mineral exports for
VAT purposes, thereby allowing mining
companies – in contrast to loggers – to receive
a credit for VAT paid on inputs.
45. Hitherto, there has been minimal
domestic processing of minerals.  A petroleum
refinery is currently under construction;  it is
expected to meet PNG’s entire demand for
refined petroleum products.
46. Most basic services, such as
electricity, telecommunications, ports, water,
air and maritime transport, are provided bystate-owned statutory monopolies.  Postal and
telecommunication services were corporatizedPapua New Guinea WT/TPR/S/62
Page xv
in 1996, with the establishment of two
separate entities, Telikom and Post PNG;
however, Telikom will retain its legislated
monopoly until 2002, when PNG is committed
to opening the market to foreign suppliers,
providing them with non-discriminatoryaccess to the local network.  Post PNG retains
monopoly rights in providing certain postal
services, such as registration and insurance of
articles, although letter delivery is, in
principle, open to private entrants.  It isgovernment policy to gradually divest 49% of
both Telikom and Post PNG.
47. Banking licences are granted by the
Central Bank.  Foreign banks may operate
domestically as locally incorporatedsubsidiaries or as foreign branches, provided
an assigned minimum level of capital is kept
within PNG.  The Central Bank accepts that
PNG branches of reputable foreign banks will
be adequately supervised by those banks' own
domestic prudential regulators.
48. Foreign companies may enter the
PNG insurance market without
discrimination;  non-life firms must be
licensed with the Insurance Commissioner.
However, the Motor Vehicle Insurance Trust
has a statutory monopoly on providingthird-party motor vehicle insurance.  Although
foreign companies are expected to place all
risks within PNG, such risks may be placed
offshore, subject to approval from the
Insurance Commissioner.  In 1997, some 20%of gross non-life insurance premiums were
placed abroad.49. Life insurance companies and
superannuation funds are currently
unregulated.  However, legislation is planned
that would extend prudential controls to these
companies and strengthen existing
requirements for non-bank financialinstitutions.
50. The Securities Commission was
established in 1998 to administer new
companies and securities legislation, such as
that dealing with company law and theformation of companies as well as takeovers
and acquisitions.  The PNG Stock Exchange
commenced operations in 1999.
(5) T
RADE POLICIES AND FOREIGN
TRADING PARTNERS
51. PNG's trade measures are generally
applied on a non-discriminatory basis.
Reliance on the tariff, which is fully bound and
has been simplified, as the main trade
instrument has made the trade regime more
predictable and transparent.  The economy,
however, remains relatively weak andvulnerable to external shocks.  Continued
reform, including further efforts to liberalize
trade and investment regimes, can increase the
economy's flexibility and improve its prospects
of achieving sustainable growth.  PNG'strading partners can assist the adjustment
process by ensuring stable, increased access
to their markets.