Solomon Islands WT/TPR/S/45
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IV. TRADE POLICIES BY SECTOR
(1) OVERVIEW
1. The Solomon Islands is predominantly an agrarian and resource-based economy, heavily
dependent upon agriculture, forestry and fishing, which together accounted for half of GDP in 1995.
Most of the population depends in some way on subsistence agriculture and, to a lesser extent, on
fishing.  The past decade has seen increased re liance on logging.  Until the collapse in the world
lumber market in 1997, unprocessed logs dominated production as well as exports, and export taxes
on round logs were the Government's main source of tax revenue, accounting for over half of total tax
receipts.  Off-shore fishing is based mainly on the export of canned tuna to the United Kingdom under
the EU preferential tariff and other market access arrangements.  Traditional commercial tree crops
comprise mainly copra, cocoa, coconut and oil palm products.
2. Excessive logging in recent years has created major concerns over sustainable forestry
management.  At current harvesting rates, equivalent to almost three times the estimated sustainable
yield, commercial forests will be fully logged within 15 years.  This raises important questions over
the Government’s management of the country’s main natural resource, in particular the allocation of
logging rights and the appropriate method of taxing associated resource rents.  Natural resourcemanagement and related tax issues also arise with regard to fishing.  In contrast to forestry, however,
fishing levels are said to be well below the sustainable catch.  Improved performance by these and
other natural-resource-based activities is needed  to achieve sustainable economic growth in the
Solomon Islands.  The natural-resource sectors continue to be influenced by government measures
that tend to hamper their long-term development.  These include import and export measures, tax and
investment policies.
3. The principal instrument used by the Government to assist local manufacturing has been the
import tariff (Chapter III).  Nevertheless, largely because of the very small domestic market, import
substitution has been mainly limited to beer, soft drinks, tobacco products, soaps, detergents and
metal fabricated products;  the manufacturing sect or contributes only 4% to GDP (3% if subsistence
agriculture is included in total GDP -  Chart IV.1).   The Government is also committed to encouraging
wood and fish processing, and has adopted trade a nd investment measures aimed at promoting such
downstream processing.  In addition to export taxes on unprocessed logs and fish, these measures
include making fishing and logging licences largely conditional upon the establishment of domestic
processing facilities, and income tax concessions.
4. The services sector, primarily wholesale and retail trade as well as public administration,
contributes significantly to employment and production, accounting for almost half of GDP in 1995.Government assistance to service sectors mainly involves laws and regulations that restrict market
access, particularly those that confer monopoly power on state-owned enterprises (as in the case of
electricity and telecommunications).  The resulting lack of competition results in higher prices than
otherwise for these services.  This is to the detriment of consumers as well as businesses who use such
services as inputs; the associated increase in cost s and often poor service quality impairs international
competitiveness and impedes foreign investment.
(2) A
GRICULTURAL AND OTHER PRIMARY PRODUCTS (TABLE IV .1)
5. Primary production accounted for 42% of GDP in 1995, with agriculture representing just
over half of this share (Chart IV.1).  These figures, however, understate the contribution agriculture
makes to what is a predominantly agrarian economy.  As well as commercial agriculture there is
substantial subsistence or non-monetary food production - estimated to be some 16% of GDP in 1995.WT/TPR/S/45 Trade Policy Review
Page 68
Taking this into account the share of GDP from agriculture in 1995 would increase to 33%, and that
of total primary production to 50%.
Table IV.1
Tariffs applied in the Solomon Islands, by ISIC category, 1998
(Per cent)
ISIC
CodeProducts Import tariffs 1998
Simple average Dispersion
Range Std. Dev.
Total 22.7 5-70 18.4
1. Agriculture, forestry and fishing 32.8 5-70 20.2
111 Agriculture and livestock production 25.5 5-40 13.5
121 Forestry 22.0 20-40 6.0
122 Logging 40.0 40-40 0.0
130 Fish and shellfish, live, fresh or frozen 62.9 10-70 17.7
- Ocean and coastal fishing 61.3 10-70 19.3
- Fishing n.e.c. 70.0 70-70 0.0
2. Mining and quarrying 14.0 5-70 14.0
210 Coal mining 20.0 20-20 0.0
220 Crude petroleum and ..natural gas production 20.0 20-20 0.0
230 Metal ore mining 10.0 10-10 0.0
- Iron ore mining 10.0 10-10 0.0
- Non-ferrous ore mining 10.0 10-10 0.0
290 Other mining 14.8 5-70 16.0
- Felspar mining 10.0 10-10 0.0
- Chemical and fertilizer mineral mining 10.0 10-10 0.0
- Salt mining 12.5 5-20 7.5
- Mining and quarrying n.e.s. 23.2 10-70 24.5
3. Manufacturing 22.3 5-70 18.2
311 Food products 47.9 5-70 23.3
- Slaughtering, preparing and preserving meat 58.2 20-70 18.9
- Dairy products 26.5 20-70 16.2
- Canning and preserving of fruit and vegetables 55.4 20-70 16.3
- Fish products 65.5 20-70 11.8
- Manuf. of vegetable & animal oils/fats 30.3 5-70 16.4
- Grain mill products 23.0 5-70 17.5
- Manufacture of bakery products 59.3 40-70 14.4
- Sugar factories and refineries 15.0 5-40 15.8
- Cocoa, chocolate and sugar confectionery 42.3 40-70 8.0
312 Other food products and animal feed 23.3 5-70 13.1
- Other food products 25,6 15-70 12.0
- Prepared animal feed 10.6 5-40 11.4
313 Beveragesa.. .. ..
- Distilling, rectifying and blending spiritsa.. .. ..
- Manufacture of winea.. .. ..
- Manufacture of malt liquora.. .. ..
- Soft drinks and mineral water 70 70-70 0.0
314 Tobacco productsa.. .. ..
3 2 1 T e x t i l e s 2 6 . 35 - 7 01 0 . 5
- Spinning, weaving and finishing textiles 21.7 5-70 6.5
- Made-up textile goods, exc. wearing apparel 29.7 5-40 13.6
- Knitting mills 40.0 40-40 0.0
- Carpets and rugs 40.0 40-40 0.0
- Cordage, rope and twine 10.0 10-10 0.0
Table IV.1 (cont'd)Solomon Islands WT/TPR/S/45
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ISIC
CodeProducts Import tariffs 1998
Simple average Dispersion
Range Std. Dev.
- Textiles, n.e.s. 18.7 10-40 6.6
322 Clothing (except knitted or crocheted) 39.9 5-70 9.4
323 Leather and leather products 28.8 20-40 9.9
- Tanning and leather finishing 20.0 20-20 0.0
- Fur dressing and dyeing 40.0 40-40 0.0
- Leather products, exc. footwear & clothing 34.1 20-40 9.1
324 Leather footwear 36.8 10-40 9.2
331 Wood products, except furniture 34.2 20-40 9.1
- Sawmills, planing and other wood mills 35.0 20-40 8.7
- Wooden and cane containers and cane ware 40.0 40-40 0.0
- Wood and cork products n.e.s. 29.3 20-40 10.0
332 Wooden furniture 60.9 10-70 16.4
341 Paper and product products 19.9 5-20 1.3
- Pulp, paper and paperboard 19.8 5-20 1.7
- Containers, boxes of paper & paperboard 20.0` 20-20 0.0
- Pulp, paper and paperboard n.e.s. 20.0 20-20 0.0
342 Printing and publishing 19.3 5-40 14.0
351 Industrial chemicals 9.8 5-40 6.8
- Basic industrial chemicals (exc. fertilisers) 8.8 5-40 5.4
- Fertilisers and pesticides 5.0 5-5 0.0
- Synthetic resins, plastic materials and man-made
fibres (except glass)14.5 10-40 9.4
352 Chemical products and pharmaceuticals 23.5 5-70 22.8
- Paints, varnishes and lacquers 13.8 10-20 4.8
- Drugs and medicines 5.2 5-20 1.6
- Soap, cleaning preparations, perfumes 62.3 10-70 18.0
- Other chemicals n.e.s. 28.4 5-70 18.0
353 Petroleum refineries 31.7 20-40 9.9
354 Petroleum and coal products 20.0 20-20 0.0
355 Rubber products 34.6 5-40 9.9
- Tyre and tube industries 24.0 20-40 8.0
- Rubber products n.e.s. 38.3 5-40 7.5
356 Plastic products 22.3 10-40 14.2
361 Pottery, chi.. and earthenware 24.4 10-40 14.1
362 Glass and glass products 16.8 10-40 12.4
369 Other non-metallic mineral products 18.0 10-70 9.3
- Structural clay products 10.6 10-20 2.3
- Cement, lime and plaster 10.0 10-10 0.0
- Non-metal mineral products n.e.s. 21.4 10-70 9.3
371 Iron and steel products 5.7 5-10 1.8
372 Non-ferrous basic metals 18.4 5-70 20.1
381 Metal products 12.3 5-70 9.5
- Cutlery, hand tools and hardware 8.6 5-40 6.3
- Metal furniture and fixtures 24.5 10-70 21.9
- Structural metal products 13.3 10-40 6.9
- Fabricated metal products, except machinery and
equipment n.e.s.13.3 5-40 8.4
382 Machinery 11.9 5-70 10.4
- Engines and turbines 6.8 5-10 2.4
- Agricultural machinery and equipment 8.7 5-10 2.2
- Metal and woodworking machinery 9.2 5-10 1.8
- Special industrial machinery and equipment 10.1 5-20 1.7
- Office, computing & accounting machinery 8.4 5-10 2.3
Table IV.1 (cont'd)WT/TPR/S/45 Trade Policy Review
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ISIC
CodeProducts Import tariffs 1998
Simple average Dispersion
Range Std. Dev.
- Non-electrical machinery and equipment 15.8 5-70 15.8
383 Electrical machinery 26.1 5-70 17.4
- Electrical motors and apparatus 17.3 5-20 5.2
- Radio, television and communications 30.7 5-70 22.9
- Electrical appliances and houseware 35.8 20-40 8.1
- Electrical apparatus n.e.s 21.8 5-40 6.4
384 Transport equipment 17.2 5-70 13.5
- Shipbuilding and repairing 19.1 5-40 5.6
- Railway equipment 20.0 20-20 0.0
- Motor vehiclesa.. .. ..
- Motorcycles and bicycles 27.5 5-70 30.2
- Aircraft manufacture 8.3 5-10 2.4
- Other transport equipment 14.0 5-40 13.2
385 Professional and scientific equipment 21.6 5-40 14.7
- Professional and scientific measuring and
controlling equipment n.e.s.10.1 5-20 2.4
- Photographic and optical goods 23.3 5-40 15.2
- Watches and clocks 40.0 40-40 0.0
390 Other manufactures 29.0 5-70 18.2
- Jewellery and related articles 67.5 20-70 10.9
- Musical instruments 40.0 40-40 0.0
- Sporting goods 10.4 5-40 6.2
- Other manufacturing n.e.s. 25.4 10-70 13.1
.. Not available.
a Ad valorem equivalents are not available for specific tariffs.  Since these specific duties are expected to provide high ad valorem
rates, the overall tariff average calculated of 22.7 per cent is likely to be an under-estimate.
Source: Government of Solomon Islands and estimates by the WTO Secretariat.
6. The primary sector accounts for around a quarter of formal employment, with agriculture and
forestry the most important contributors.  Again, agriculture’s significance is increased substantially if
subsistence/self-employment is included.  The primary sector is also by far the Solomon Islands main
export earner.  Well over 95 % of its exports are primary commodities:  in 1996, timber and fish
accounted for 79% of total exports (Chart IV.2).  Traditional agricultural commodities of considerableexport significance are palm oil, copra and cocoa.  Timber exports, which as noted, expanded
significantly during the 1990s, represented over 60 % of exports in 1996, up from 34% in 1990.  The
share of fish exports contracted over the same period from 30% to 18%, and that of agricultural
commodities from 25% to 18%.
7. The Government’s agricultural policies, outlined in the 1994 Agricultural Sector Plan, are
intended to facilitate export diversification into minor crops, such as chillies, and the development of
local fruit trees like canarium nuts.  Policies are also aimed at promoting greater downstream
processing of traditional tropical tree crop exports, such as copra, cocoa and palm oil.Solomon Islands WT/TPR/S/45
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MonetaryPer cent
Data provided by the authorities of the Solomon Islands.Chart IV.1
Sectoral com position of GDP at factor cost , 1995
Forestry 
10
Services
54Total, including 
subsistence agriculture
Fishing
10
Source :Agriculture
22
Manufacturing
4Forestry 
9
Services
47Fishing
8Agriculture
33
Manufacturing
3
Chart IV.2
Composition of exports, 1996
Per cent
Forestry
61Other
3
Fishing
18Agriculture
18
Palm products
11
Coconut products 
(copra & oil)
5
Cocoa
2
Source : Government of Solomon Islands, 1998 Budget Speech, 16 April 1998. WT/TPR/S/45 Trade Policy Review
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8. The agricultural sector comprises the smallholder, plantation, and livestock subsectors.
Smallholder agriculture, which sustains about 80% of the population, is very diverse, covering a
mixture of subsistence, cash crop, and local market farming.  Important subsistence crops include
cassava, sweet potatoes, yams, sugar cane, beans, taro and tomatoes.  The most important cash crops
are copra, cocoa, sweet potatoes, betel nuts and sugar cane.
9. Plantation agriculture mainly covers production of copra, palm oil and kernel, coconut oil,
and cocoa (Table IV.2).  These are mainly exported (Chart IV.2).  It is dominated by two major
plantations.  Solomon Islands Plantation Limited (SIPL) is 30% government owned, through the
Investment Corporation of the Solomon Islands, a nd produces mainly oil palm products, with small
amounts of cocoa.  Russell Islands Plantation Estates Limited (RIPEL), is fully owned by the
Commodities Export Marketing Authority (CEMA) and produces both coconut oil and cocoa.  Theplantation was purchased in 1996 from Lever Solomons Limited, a joint-venture arrangement between
the Government and Unilever.
Table IV.2
Agricultural production by major commodity, 1990-97(Tonnes)
Copra Coconut oil Palm oil Palm kernel Cocoa
1990 34,306 2,693 22,104  5,051 3,895
1991 25,133 2,717 22,518  4,992 4,615
1992 29,073 3,879 30,854  6,781 4,159
1993 29,057 4,286 30,986  7,043 3,297
1994 22,500 2,827 29,737  7,183 3,337
1995 26,148 4,372 29,562  6,861 2,482
1996 21,989 3,520 28,680  6,834 2,464
1997 28,679 5,399 28,863 11,506 3,907
Source: Central Bank of Solomon Islands, Quarterly Review, December 1997, Vol. 8, No. 4, p. 79.
10. Some 90% of land in the Solomon Islands is communal customary land owned by tribal
groups.  One third of the remainder is privately owned and the rest is government land, mainly in
urban and coastal areas.  Very little land ownership has been registered or documented.  Registration
of customary land has been slow and has led to many disputed claims, despite efforts under theCustomary Tribal Boundary Record Act to define and record tribal land boundaries as a precondition
to registration. Ownership of virtually all inshore reefs and lagoons is held under customary systems
of tenure.
11. Registered customary land can only be leased with the majority consent of its tribal owners,
and then only through the Government.  Foreign individuals and companies cannot own land, and
must sub-lease such property from the Government with the consent of traditional landowner groups.
The period of the lease can be up to 75 years.  The land tenure system greatly restricts the availabilityof land for commercial and industrial development, and for large-scale commercial agriculture.  The
uncertainty over land ownership may reduce incentiv es for landholders to undertake large investments
to improve land use and productivity;  it also undermines the acceptability of land as collateral on
loans.
(i) Livestock and dairy
12. The livestock sector mainly involves subsistence raising of pigs and chickens.  The Livestock
Development Authority was corporatized in 1996 following severe financial problems.  The AuthoritySolomon Islands WT/TPR/S/45
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imports chicken and meat products from Vanuatu and Australia, including feed.  In 1996, it imported
over 30,000 fertilized eggs to hatch day-old chicks to sell on to farmers.  In addition, it operates a
piggery at Mamara to sell weaner pigs to farmers.
13. Previous attempts by the Authority to establish a beef cattle industry failed.  An export
abattoir was established at Mamara.  A small cattle herd is run by the Russell Islands Plantation
Limited (RIPEL), one of the few remaining cattle producers;  the company is looking at expanding itscattle operations.
14. The Government continues to run a cattle breeding programme aimed at rehabilitating the
declining beef industry.  The programme distributes breeding stock to farmers.
(ii) Fruit, vegetables and nuts
15. Commercial production of these commodities is relatively small in the Solomon Islands.
16. The Government is funding some research into  improving fruit tree varieties, and a pest-risk
assessment on fruit flies is being undertaken to facilitate pineapple exports to New Zealand.  The
Government is also considering the development of an organic pineapple export programme.
17. There is some production of betel and canarium nuts, which the Government is keen to
support.  Canarium kernel processing is being undertaken by the Government to assist thedevelopment of oils for the pharmaceuticals industry. Ngali nuts are handled by the CEMA.  Ngali nut
oil has been exported on a trial basis to several countries, for possible use in soap products.
18. Vegetable farming is mainly confined to the Guadalcanal Plain for sale in Honiara.
19. Imports of fresh fruit, vegetables and nuts are dutiable at a rate of 40%.
(iii) Coffee, tea and spices
20. The CEMA is responsible for the marketing of coffee and spices such as chillies, turmeric,
vanilla, ginger and cinnamon.  These crops are in their exploratory stages of development.  Some20 tonnes of chillies were produced in 1996;  the Ministry of Agriculture is assisting farmers by
supplying quality seed.
21. Imports of coffee, tea and spices are dutiable at a tariff of 20%.
(iv) Cereals
22. Previous efforts to grow rice in the Solomon Islands have been unsuccessful.  Brewer
Solomons Agriculture Limited (Solrice), a joint ve nture formed in 1978 between American interests
and the Government to farm rice on the Guadalcanal Plain, ceased operations in 1986 after continual
losses and the withdrawal of the private partner in 1982.
23. A smallholder paddy scheme supported by China has recently been established to farm
500 hectares of former Solrice land.  The scheme is being managed by the National Rice GrowingCommittee:  farmers are to be allocated land in one-hectare lots, with preference given to Guadalcanal
farmers;  machinery is being provided on a leased basis;  and farmers will be expected to pay for their
irrigation water as soon as practicable.
24. Imports of cereals attract a tariff of 5%.WT/TPR/S/45 Trade Policy Review
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(v) Oil palm and cocoa products
25. Oil palm products, including copra, palm kernel and, to a much lesser extent, coconut oil, are
the backbone of plantation agriculture in the Solomon Islands (Table IV.2).  Palm oil (including
kernel) exports accounted to some 11% of total exports in 1996 (Chart IV.2).
26. Oil palm products are produced by the SIPL, wh ich grows mainly oil palms in a plantation
situated on the Guadalcanal Plain, and operates a palm oil mill with an annual crushing capacity of110,000 tonnes.  Although palm oil is, in principle, marketed by the CEMA, the latter plays a minimal
role and leaves oil palm marketing to SIPL.
27. An attempt has been made to spread the benefits of oil palm cultivation under the Smallholder
Outgrower Scheme, funded by the European Union at a cost of SI$3 million.  The Scheme, which is
due to end in 1998, was designed to encourage additional oil palm plantings in close proximity toSIPL’s processing mill.  Under the Scheme, SIPL provides the seedlings, management support and
inputs;  and markets the end product.  However, few villages cultivate oil palm, and only three
growers are presently supported by SIPL.  The company is also examining the possibility of crushing
palm kernel locally as an alternative to exporting it.
28. A new development is being negotiated with a Malaysian firm to establish an oil palm
plantation on Vangunu Island in Western Province.  A nursery has already been established to grow
seedlings, and government-owned land of 10,000 hectares has been offered, under rental
arrangements yet to be finalized.  The payment for land will consist of an initial ‘land premium’
payment, plus an annual rental charge.  The developer will build the necessary social infrastructure
and processing facilities.  The total cost of the project is estimated at SI$400 million.  The venture
will receive a tax holiday for eight years, until production commences, and will be exempt from tariff
duties on imported inputs .
29. Copra is an important cash crop in the Solomon Islands, as well as an important export earner.
The CEMA exclusively markets copra exports, and operates a copra price stabilization scheme.  This
scheme has, however, been more than a self-funded stabilization arrangement, having previously used
government funds to support farm prices when international levels collapsed.
30. The Authority sets uniform national copra prices, which benefits isolated smallholders whose
delivery costs are effectively cross-subsidized by other growers.  The Authority provides mainly
marketing and transport services.  It operates over 45 copra ‘buying points’ run by private agents on a
commission basis.  Copra is transported by the CEMA to mills or export ports using three chartered
vessels.
31. The CEMA's objective is for all copra to be crushed domestically into coconut oil by
end-1999.  It has established four copra crushing mills, including in Temotu, Makira and Western
Province;  six more are planned, including in Guadalcanal, Choiseul and Isabel, mainly as joint
ventures with provincial governments.
32. Both SIPL and RIPEL grow cocoa, which is marketed for export by the CEMA, using a
system of licensed exporters.  The CEMA intends to introduce from the 1999 season a pricestabilization scheme for cocoa, similar to that  run for copra.  Cocoa is an important export
commodity, and the second most important smallholder cash crop.  All cocoa beans are exported
unprocessed;  no dried cocoa beans are processed locally, but the possibility of establishing
small-scale units is being investigated by the CEMA.  SIPL and RIPEL are both looking at increasing
the size of their plantation holdings of cocoa.Solomon Islands WT/TPR/S/45
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33. Imports of palm nuts and copra are dutiable at a tariff of 20%.  Crude oils, including coconut
and palm oil, attract a tariff of mainly 40%.
(vi) Forestry and logging
34. Natural tropical rainforests cover over three quarters of the Solomon Islands.  However, due
to difficult terrain and low timber yields, only about 10% of its forests are considered commercially
viable.  Although some plantation logs are produced , natural forests remain the core of the forestry
industry, generally accounting for over 90% of logs harvested.
35. Round log exports increased substantially during the 1990s, in line with buoyant international
timber prices. Exports commenced in 1961, and annual exports averaged around 250,000 cubic metres
during the 1970s;  these jumped to well over 700,000 cubic metres in 1995 and 1996, substantially up
from levels of under 300,000 cubic metres in 1989 (Chart IV.3).  Although log exports fellsubstantially in 1997, they are estimated to have remained above 550,000 cubic metres.  The Central
Bank is projecting log exports of 600,000 cubic metres in 1998.  As discussed earlier, harvesting of
natural forests, almost exclusively for export market s, at these high rates has raised major concerns in
the Solomon Islands about sustainability of the logging industry.
0100200300400500600700800
1989 1990 1991 1992 1993 1994 1995 1996 1997020406080100120'000 cubic metres
Note:
Source: Data for plantation forest between 1989 and 1993 are not available.
Asian Develo pment Bank , 1997 Economic Re port on Solomon Islands , 1998 , p.31.Chart IV.3
Log exports, 1989-97
Natural forest
     Volume
ValuePlantation forest     Volume
ValueSI$ million
36. Some 85% of native logs are exported unprocessed, mainly to Japan and the Republic of
Korea;  small quantities are processed locally into sawn timber, mainly for  export.  Log exports
comprised well over half of export receipts in 1996, and are by far the Solomon Islands largest single
export earner (Chart IV.2).  Export taxes on logs also account for a significant share of tax revenue,
peaking at 34% in 1994 and slightly above one quarter in 1995 and 1996 (Chart IV.4).  In 1996,
estimated export tax receipts from logs of SI$77.2 million represented over 90% of export taxWT/TPR/S/45 Trade Policy Review
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revenue, exceeding that from customs tariffs.  Log export tax collections are estimated to have fallen
to SI$62.2 million in 1997, representing 22% of expected tax receipts, following the collapse in
international log prices.  Although projected to fall further to SI$30 million in 1998, this amount was
collected by the end of the first half of the year.
10152025303540
1992 1993 1994 1995 1996 (est.) 1997 (proj.)Per cent
Source: Asian Development Bank, 1997 Economic Report on Solomon Islands, 1998, p.209.Chart IV.4
Share of log export tax receipts in total government tax revenue, 1992-97
37. Licences to log natural forests are the constitutional responsibility of the national
Government.  Loggers must also obtain a business licence from the relevant provincial government to
commence operations.  Since about 80% of current harvesting occurs on customary land, companies
must also negotiate access to forests with traditional landowners.
38. Tariffs on imports of unprocessed logs and sawn timber are 40%;  the maximum tariff on
imports of wood products is also 40%.
(a) Sustainable management
39. It is widely acknowledged that existing timber harvest rates of the commercially viable part of
natural forests are well above sustainable yields.  In 1998, reputable estimates put sustainable yields at
around 223,000 cubic metres annually, if implemented immediately.  Existing felling rates of well
over 600,000 cubic metres in 1997, and over 800,000 cubic metres in 1995 and 1996, were therefore
almost three times sustainable yields (Chart IV.5).  If these rates were to continue, commercial forestsin the Solomon Islands would be eliminated by around 2010-15.  The longer harvest rates remain
above sustainable levels, the worse the problem will become:  it is estimated, for example, that the
sustainable annual yield would fall to around 200,000 cubic metres by 2000 if felling rates were not
reduced to sustainable levels before then.Solomon Islands WT/TPR/S/45
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0100200300400500600700800900
1992 1993 1994 1995 1996 1997 1998
Asian Development Bank, 1997 Economic Report on Solomon Islands, 1998, p.38.SustainableActualChart IV.5                                                
Actual and sustainable harvest levels for native forests, 1992-98
'000 cubic metres
Source :
40. Although the objective of sustainable forest management has frequently been reaffirmed by
successive governments, forests continue to be poorly managed.  Forest legislation and procedures
have been ineffective.  Proposals to replace the Forest Resources and Timber Utilization Act of 1969,which controls the felling of natural forests and plantations, never materialized, despite the
development of draft legislation by the Food and Agricultural Organization (FAO) in 1989.
Moreover, a subsequent ‘Statement of Policy’ in July 1993, reaffirming sustainable management as an
important objective, produced little change in practice.  More recent efforts to develop a National
Forestry Action Plan from 1994-96 with assistance from the United Kingdom were also abandonedwithout a formal plan being adopted.
41. Log harvesting requires a licence issued by the Commissioner of Forests within the Ministry
of Forests, Environment and Conservation.  It is estimated that issued logging licences have exceeded
sustainable yields, by as much as ten fold.  Not all licences are currently operational.  They include
approximately 1.5 million cubic metres issued to  foreign-owned companies, most of which are
members of Solomon Islands Forest Industry Association (SIFIA).  Substantial licences were also
issued since 1994, despite the introduction of a moratorium on new logging concessions in September
1993.  The additional licences, many free of export duty, were justified on the grounds of increasing
local participation in logging and enabling domesti c licence holders to obtain necessary capital to
establish downstream saw-milling operations.  It is estimated that these licences, to non-SIFIA locallandowner companies, totalled at least 1 million cubic metres.
42. There is an urgent need to reduce licensed harvest rates to sustainable levels.  The
Government introduced a moratorium on the issuing of new logging licences in late 1997, shortly
after entering office.  However, further steps are necessary to cancel existing licences if harvest rates
are to be lowered to sustainable levels;  cancelling non-operational licences alone will be insufficient.
The recent collapse in the international log market, due to a demand slump in principal marketsWT/TPR/S/45 Trade Policy Review
Page 78
following the Asian crisis, may provide an opportunity to implement such reductions.1  The downturn
in world prices and substantial stockpiling of logs in the Solomon Islands have substantially cut
current logging rates to within sustainable levels.  The Government could seize this opportunity to
lower licensed harvest levels.
43. Substantial changes in forest policies are necessary if the current Government is to achieve its
stated objective of implementing sustainable management of the country’s forests (and other naturalresources), including a fundamental strengthening of the control mechanisms governing the issue of
timber licences. The Government now intends to introduce as high priority in 1998 new forest
legislation based on a draft bill prepared in 1994 using the earlier FAO work.  It was reviewed in
June 1997 by the Solomon Islands Forest Industry Association (SIFIA), and was recently submitted to
Cabinet for initial consideration.
44. Unilateral agreement for reductions may be now possible with licence holders, given the
bleak outlook for the international timber market.  However, other options may need to be considered.
Licence levels could be reduced on a pro-rata basis according to the licensees' recent harvest levels,
and severe penalties imposed for over-logging.  Alternatively, a more efficient and longer term
solution would be to replace existing licences with a quota system whereby the Government couldauction sustainable logging entitlements (Box IV.1).  This would be the most economically efficient
means of controlling logging rates and allocating such entitlements among loggers, especially if
auctioned quotas could be traded freely among logging companies (Duncan, 1994).  It could also
provide the Government with a more efficient method of taxing the resource rents accruing from
natural forests than the current distorting system of export taxes on round logs.
(b) Taxation of forest rents
45. The current structure of taxing the forestry sector in the Solomon Islands taxes resource rents
inefficiently.  The main method is an export tax on unprocessed round logs.
2  These rates, currently
set at 35% for the first SI$250 per cubic metre and 38% for higher f.o.b. values, have risen
substantially since 1992, with the aim of taxing increasing resource rents from buoyant international
log prices.  Although a portion of the export levy equivalent to 7.5% of the f.o.b. price was intended
to fund reafforestation, such a fund has not been established, and the levy accrues instead to theGovernment as normal revenue.  In 1996, export taxes from logs amounted to an estimated
SI$77.2 million.  These export taxes were also justified as a desirable means of promoting domestic
downstream timber processing, such as sawn timber which, along with plantation logs, are not taxed if
exported.  Logging contractors also pay minimal licence fees to the national Government.
                                                     
1Log prices to the main markets of Japan and Republic of Korea slumped from US$250 per cubic metre
in early 1997 to around US$60 per cubic metre in March 1998.
2Landowners are also paid a negotiated royalty payment on logs felled.  These payments vary between
contracts and precise details are not available.  However, a figure of 10% of the f.o.b. export value plusSI$25 per cubic metre is often used as a general guide.  On this basis, annual royalty payments are thought tohave totalled between SI$50-60 million  in recent years (ADB, 1998b).Solomon Islands WT/TPR/S/45
Page 79
Box IV.1:  Auctioning logging quotas
One method for allocating logging quotas would be for the Government to auction them to timber companies
under a tender or bid system.  Quot as could be set at the sustainable yield level and coul d be auctioned in
relatively small lots.  Bids could be required either in SI$ per cubic metre or as a percentage of the world
(f.o.b) value of the logs.  While the former method of tendering would have the disadvantage of providing
different ad valorem tax rates across logs according to their value, it could encourage more logging of
higher valued lumber and would be administratively easier.  The Government would no longer need to
monitor export prices declared by loggers.  All successful tenderers would pay the clearing bid for their
quota, i.e. the price at which the total demand for logging trees equals the volume of quota auctioned.
Quotas would be for a set period, say one year, and would be re-auctioned at the end of each period.
An auction system would offer several advantages over  the current system of allocating logging licences.
Firstly, it would be more economically efficient.  Com panies would compete among th emselves at the auction
and the quota would go to firms that attached the highest value to the logs and were therefore prepared to
make the highest bids.  Moreover, it would allow potentially efficient new entrants to compete equally,
providing competitive pressures on exi sting loggers to remain efficient.
Secondly, it would enable the market to determine the price of the logs, including the size of the resource
rents.  In a well-functioning auction market with no restrictions on participants, the clearing bid would be
expected to include th e full level of the resource or economic re nt - the excess in earnings that a scarce
resource derives above its transfer value or opportunity cost, i.e. above its most profitable alternative use.
This assumes that the market is competitive.  The Go vernment would need to set realistic minimum reserve
bids and place no restrictions on partic ipation to protect against legitimat e concerns that logging companies
may collude to minimize tenders.  Where collusion was suspected, quotas could be re-auctioned with new
firms invited to tender.
Thirdly, by requiring bids in dollars, the government w ould no longer have to check f.o.b. values declared by
log exporters.  The incentive to under-declare log prices would also be eliminated.  The risk of sharp falls in
international log prices, of the kind currently experienced, would rest mainly with the loggers, who could
manage this risk by hedging using long-term contracts or futures markets.  This would make the government
budget less vulnerable to sudden revenue falls.  The Go vernment would, however, s till need to monitor the
volume of trees felled.
Fourthly, landowners would have a greater incentive to manage forests efficiently since they would  receive
from the Government a true market price for their logs.  A mechanism would need to be implemented to
ensure that this occurred, with landowners respons ible for managing the forest s receiving the predominant
share.
Lastly, an auction system could strengthen government r evenue:  the recent practice of issuing tax remissions
would be eliminated, and the system would provide an objective means of allocating logging rights.  Like any
system, suitable checks would be needed to ensure that the auction process operated without political
interference and at ‘arms length’.
An alternative but potentially less effic ient system to auctioni ng would be to continue allocating log quotas to
loggers, but to replace the export taxes with a stumpage fee paid on trees felled.  Stumpage fees could, for
example, contain a base rate plus a variable component to tax more effectively the economic rent from
logging -  such as the percentage of the difference between the production costs and the log's f.o.b. value.
Source:  Duncan, 1994.WT/TPR/S/45 Trade Policy Review
Page 80
46. The incidence of log export taxes falls on producers, since the Solomon Islands, as a small
supplier, is a price taker not a price setter on world markets.  Since it has no international market
power and cannot affect the terms of trade, producers would not be able to pass on these taxes to
overseas consumers through higher prices (Box IV.2).  Thus, if tax rates are set too high in relation to
the resource rents derived, the size of the export sector could be reduced to such an extent thatrevenue from the export tax may also fall.  Moreover, what appears to be a relatively "low" rate of
export tax may still be high when account is taken of other policies that penalize exports, such as high
import tariffs and a relatively over-valued exchange rate.  There are many examples internationally of
export taxes that have been set at such levels th at producer incentives have been eroded and industry
growth retarded as a result.
Box IV.2:  The incidence of export taxes in "small" suppliers
Whether the incidence of an export tax is borne by the domestic producer or the foreign consumer depends
on the supply situation of the country and demand conditions for the product in the world market.  If a
country is ‘small’, i.e. its exports of a particular commodity represent a minor share of world supply, it will
have no influence on world price -  that is, the country will be a price taker on international markets.  Any
reduction in export volumes caused by the export tax will not raise the export price.  In this case, the
domestic producers of the taxed commodity will bear th e full incidence of the export tax, and are unable to
pass on the tax to foreign consumers via increased prices.
It would seem highly implausible for the Solomon Islands to be other than a price taker for its exports,
including lumber and fish.  Experience from other count ries using export taxes demonstrates that even where
such terms of trade benefits are thought to be impo rtant, they can be difficult to capture in practice,
especially in the longer term, when a country’s world demand for any particular commodity is likely to be
more elastic due to greater product and country s ubstitution.  Thus, imposing export taxes on unprocessed
commodities is unlikely to raise export returns, and ma y both penalize the export industry, and misallocated
resources away from a (relatively efficient) taxed export activity into relatively inefficient downstream
domestic processing of the commodity.
An export tax would be expected to reduce export volumes through two mutually reinforcing effects.  Firstly,
domestic supply will be reduced in response to the fa ll in the after-tax export price.  Secondly, the
corresponding fall in the domestic price will increase hom e consumption.  Both these responses will result in
less ‘surplus’ production for export, and will reduce natio nal welfare.  In addition, an export tax may lower
government revenue if the fall in export volumes induced by the tax more than offset the rise in the tax rate.
47. The widespread discretionary remission and exemption of export taxes was economically
costly.  These remissions had proliferated in the 1990s, mainly favouring domestic logging interests.
In 1996, the effective export tax was 20%, almost half the official rate.  Revenue forgone from these
exemptions in that year amounted to SI$53 million, an increase of some two thirds over 1995;  theestimated total was SI$131 million from 1990-97 (ADB, 1998b).  These measures also tended to
discriminate in favour of domestic landowner companies that generally received these remissions, on
the grounds of encouraging local participation in logging, and to provide funds for them to establish
domestic processing mills.
3  However, there is substantial evidence to suggest that the logging
contractors used by domestic landowner companies benefited most from the arrangements.  One study
concluded that the contracts negotiated between the domestic logging companies and the local
                                                     
3The Government has also periodically provided remissions on the timber levy component of the
export tax to encourage firms to engage in reafforestation.  However, in most cases, receipt of the remission was
not conditional on such work being completed.  The Government intends to establish a scheme that willencourage resource owners to carry out reafforestation in logged areas.Solomon Islands WT/TPR/S/45
Page 81
landowners resulted in the logging contractors capturing up to 77% of the export tax revenue forgone
(Price Waterhouse, 1995).  The current Government ha s moved quickly to deal with this situation, and
in November 1997 cancelled all export tax remissions on logs.
48. Export taxes may also be readily evaded.  Foreign firms had the greatest incentives to
under-report log shipments since, unlike most locally-owned logging operations, they were not
exempted from export taxes.  Average prices of logs exported by foreign companies have been foundto be substantially below those of their domestic counterparts (Central Bank, 1996).  Several studies
have estimated the magnitude of this evasion via transfer pricing practices (Duncan, ADB, 1998b):
the most recent ADB study estimates that export taxes totalling SI$350 million were evaded between
1990 and 1997.
(c) Domestic processing
49. In addition to taxing log earnings, export taxes are used in the Solomon Islands to encourage
downstream processing of timber.  However, using such taxes in this way risks encouraging
processing activities that are inefficient and costly by world standards (Box IV.3).  Wood processors
receive an input subsidy by paying below world prices for their major local input - financed by the
forest owner forgoing higher prices - while exporting their products untaxed at world prices.  Thisinput subsidy, set by the rate of export tax, may provide relatively high effective assistance to
downstream processors.  By reducing log prices, such taxes also undermine forest conservation.
Landowners and loggers have reduced incentives to properly manage forests, since land is made more
valuable for other purposes.  More wasteful timber processing techniques may also be encouraged,
since the cost of the log inputs, and hence of wasted timber, is reduced, and investment in more
technically efficient capital equipment made less attractive.
Box IV.3:  Promotion of downstream processing via export taxation
Many developing countries, such as the Solomon Isl ands, have used taxes or bans on exports of natural
resource-based commodities, such as lumber, to pr omote greater domestic value added by encouraging
downstream processing.  The expectation is that these restrictions will generate employment, raise export
receipts and boost economic activity generally.  However, th e efficacy of using export restrictions to achieve
these environmental, or other, objectives is questionable.
Taxing or restricting exports of the primary resource encourages downstream processing by diverting export
sales on to the home market.  The domestic price is thus reduced by the export restriction, providing an
implicit subsidy to processors and penalizing raw material suppliers.  Because export restrictions lower input
prices, they can provide substantial effective rates of assistance to value added by downstream processors.  If
the implicit input subsidy becomes large enough, the downstream activity may subtract, rather than add
value, in which case its survival depends entirely on government support.
There is evidence that this may be occurring in the Solomon Islands on sawn timber (ADB, 1998).  On
average, in 1997, round logs worth SI$1,380 on the export market (assuming a 40% recovery ratio) were
needed to produce one cubic metre of export-sawn grade timber that sold internationally for only SI$1,348.
Thus, sawn timber processing in the Solomon Islands had subtracted value of SI$32 per cubic metre.  This
implies that it was only the assistance provided to timber processing from the lower domestic log prices
induced by the log export taxes that made timber processing viable.  These figures indicate that the economy
would have generated more wealth if the Solomon Islands had exported round logs, ceased sawn timber
processing, and imported its timber requirements.WT/TPR/S/45 Trade Policy Review
Page 82
50. The Government has not yet made a policy announcement on whether to support the previous
Government’s intention to prohibit log exports in 1999.  Nevertheless, it is committed to
strengthening its polices on promoting greater domestic timber processing.  The Government’s forest
policies emphasize the development of value-added products by urgently phasing out large-scale
logging operations and shifting foreign investment strategies towards downstream processing.  It has
also indicated that licences for large-scale loggi ng will only be issued to applicants with a
development plan under a government-approved investment package.
51. Such policies would be an inappropriate and costly means of promoting downstream
processing and/or achieving investment in social infrastructure.  Similar policies have also been
unsuccessful in the past.  In 1980, the Government made log harvesting and export conditional on at
least 20% of felled timber being processed domestically.  Existing sawmills are inefficient comparedwith Asian mills, having outdated capital equipment and producing low volumes, with high wastage
rates, in a capital-intensive industry where economies of  scale are significant.  Utilization rates in the
most efficient mills in the Solomon islands are as low as 35% (ADB, 1994).  It is questionable
whether sawmilling operations, especially the small portable sawmills that previous policies have
encouraged in the Solomon Islands, can become internationally efficient.
(d) Monitoring and surveillance
52. A major problem with managing natural resources is to ensure that loggers do not exceed
their allowed felling volumes, and that they meet their full tax obligations.  In addition, governments
are usually keen to ensure that correct logging pr actices are used to minimize the adverse impact of
logging on forests and the eco-system generally.
53. The Government formally recognized the Code of Practice for Timber Harvesting in
June 1997, as a means of improving logging practices in the Solomon Islands.  All loggers operatingwithin the Solomon Islands are expected to adopt this Code and will have to submit their logging
plans once it is implemented.  It is important that the Code is also properly enforced.
54. Monitoring and surveillance needs also to be increased to control tax evasion through transfer
pricing by under-declaring f.o.b. log prices and/or under-reporting volumes/grades.  The Government
could improve its revenue base by ensuring that it captures an appropriate share of the resource rents.The current system, which relies on the use of special export licences on logs issued by the Central
Bank as means of checking declared f.o.b. log prices for tax purposes, appears to have been largely
ineffective.
4  As a first step, the Government has decided to re-establish the Forestry Division’s
Timber Control Unit with assistance from the Australian Government.
55. In addition, logging licences need to be effectively monitored and enforced if harvest levels
are to be kept within set sustainable yields.  The Government has stated that it will reduce harvest
rates to sustainable yields by end-1998.  Inactive licences and those subject to landowner disputes are
to be terminated first.  The sharp fall in logging  rates due to the slump in export markets may provide
the Government with a good opportunity to implem ent an effective scheme for controlling harvest
levels.  Effective monitoring and surveillance measures will be needed regardless of the system usedto allocate and tax forest resources.  However, as noted above, an auctioned quota system could
remove incentives to understate f.o.b. values (but not volume of grades), and may provide better
incentives for landowners and quota-holders to properly manage forests (Duncan, 1994).
                                                     
4Exports of logs require the permission of both the Central Bank and the Department of Forests.
Customs use world prices assembled by the Central Bank as a basis for assessing f.o.b. values declared byloggers.  However, without any way of verifying log species and volumes of shipments, it is extremely difficultto effectively monitor declared export prices.Solomon Islands WT/TPR/S/45
Page 83
(e) Costs of production
56. International comparisons of logging production costs are difficult and need to be interpreted
cautiously.  However, it appears that although the Solomon Islands and Papua New Guinea have
similar average logging costs, costs in the Solomon Islands - SI$224 per cubic metre - are
substantially above the lowest cost PNG operators - SI$174 per cubic metre (ADB, 1998b).  It has
also recently been reported that logging in the Solomon Islands becomes uneconomic at export prices
of below US$65 per cubic metre, which is above current prices of around US$60 per cubic metre
(ADB, 1998a).
57. While costs for the Solomon Islands may appear to be reasonably competitive against Papua
New Guinea, this may not be so against other worl d producers, especially potential Asian producers,
such as Indonesia, given recent currency movements and especially if they further liberalize theirexports of round logs.  Moreover, the Solomon Islands has several natural advantages over Papua
New Guinea, such as shorter distances from forest resources to log ponds, generally higher volumes
per hectare, and a higher number of commercial species, which would be expected to reduce the
average logging costs in the Solomon Islands compared with Papua New Guinea.
(f) Plantation forests
58. Although natural forests are still by far the most important source of logs, plantation
production has increased.  In 1997, exports of plantation logs had grown to approximately
100,000 cubic metres, equivalent to about 15% of the volume of logs exported in that year.  Most
plantation logs are exported to Japan as peeler logs while the remainder are processed into sawn
timber and mainly exported to Australia and Thailand.
59. The Government has been directly involved in  the development of plantation estates, which
cover in total some 25,000 hectares.  The largest, Kolombangara Forests Products Limited (KPPL)which is 49% owned by the Government, through the Investment Corporation, has plantations on
Kolombangara Island in Western Province.  It commenced harvesting operations in 1994.
60. The Government has placed a moratorium on the policy of selling off government-owned
plantations.  The largest plantation, located in Viru in Western Province, was sold in 1996.
(vii) Fishing
61. Fishing is an important sector of the Solomon Islands economy, contributing 8% of total
(including non-monetary) GDP in 1995, up from 5.5% in 1980.  Processed fish exports, comprising
mainly chilled, frozen and canned tuna, accounted for 18% of total exports in 1996, down from 43%
in 1980, due mainly to the rapid expansion in log exports over this period (Chart IV.2).  The size of
the yearly tuna catch can vary substantially.  Following record catches in 1994 and 1995, the 1996catch was poor, falling by over one quarter, largely because of unfavourable climatic and ocean
current conditions.
62. Tariffs on imported fresh, frozen and chilled fish and crustaceans range from 10% to 70%, but
average 63% since most imports are dutiable at 70%.
(a) Offshore fisheries
63. The fishing industry comprises mainly the canning of tuna harvested in offshore waters.  The
Exclusive Economic Zone (EEZ) of the Solomon Islands contains abundant supplies of tuna,
including skipjack, yellowfin, bigeye and albacore.  Tuna fishing is conducted by two shore-basedWT/TPR/S/45 Trade Policy Review
Page 84
processing firms that run their own fleets.  These are Solomon Taiyo Limited, a 51%
government-owned joint venture with Japanese interests, and a foreign-owned firm, National
Fisheries Development Limited, which was initially developed with majority government ownership.
About two thirds of the domestic catch is caught using pole-and-line vessels, and the rest by purse
seine operators.5  The Government also permits distant water fishing nation (DWFN) vessels from
Japan (and periodically from the Republic of Korea and Chinese Taipei) to fish its waters underbilateral access agreements.  These pole-and-line and long-line vessels send their catch directly
overseas and pay access licence fees to the Solomon Islands Government.  Foreign purse seine
operators are limited to U.S. vessels that are also granted access to fish a relatively small share (below
10%) of the Solomon Islands waters under a multilateral agreement between the United States and
members of the Forum Fisheries Agency.
6  However, U.S. vessels usually account for less than 2% of
the total international catch in the Solomon Islands (Table IV.3).
Table IV.3
Tuna catch by domestic and foreign fleets, 1990-96
(Tonnes)
Domestic fleet Foreign fleet
Pole & line Purse seine Japanese long line Japanese pole & line U.S. Purse  seine Total
1990 21,557 9,042 3,794 6,453 57 40,903
1991 37,940 13,375 4,282 181 1774 57,552
1992 22,520 21,517 2,453 105 6 46,601
1993 19,970 19,138 3,108 18 255 42,489
1994 22,972 12,229 3,007 4,574 708 43,490
1995 34,388 19,991 573 71 0 55,023
1996 23,636 .. .. .. .. ..
.. Not available.
Source: Asian Development Bank, 1997 Economic Report on the Solomon Islands, 1998, p. 205.
64. Tuna stocks are controlled by licensed catch limits issued by the Fisheries Division of the
Ministry of Agriculture and Fisheries. Around 80-90%  of tuna caught in Solomon Islands waters is
caught by shore-based vessels, which hold most of the quota.  The total annual tuna quota allocated by
the national Government to local fishing vessels is currently 120,000 t onnes - comprising
50,000 tonnes for pole-and-line operators in the main group archipelago and 70,000 tonnes to
pole-and-line and other vessels operating outside this area - plus 8,500 tonnes for albacore tuna caught
by foreign long-line vessels.  Solomon Taiyo, which was initially granted exclusive fishing rights, has
been allocated 47,000 tonnes out of this total, and National Fisheries Development Limited37,500 tonnes.  This is thought to be well below the assessed total attainable catch (TAC) for
                                                     
5Tuna fishing is based on three types of catching methods:  purse seine operators fish using nets;
pole-and-line vessels fish with many individually manned rods;  while long-liners catch fish by trailing behind
them a long, single line with many hooks.
6Under the 1998 Treaty, U.S. payments to the Forum Fishing Agency are shared among the
16 members based mainly on the share of total fish caught by U.S. vessels in each members’ waters.  In 1996-97(the Ninth Licensing Period), U.S. payments totalled US$18 million.  The size of the catch from SolomonIslands waters is relatively small.Solomon Islands WT/TPR/S/45
Page 85
Solomon Islands waters.7  Current quotas are largely under-utilized.  In 1995, the total tuna catch of
about 55,000 tonnes represented less than half of the allocated quota.
65. However, as much as 250,000 tonnes of annual catch quota may have been issued when
allowance is made of joint-venture fishing agreements between provincial governments and foreign
firms.  Between 1990 and 1994, seven such arrangements were made, involving a total annual fish
quota of about 110,000 tonnes (Table IV.4).  Much of this quota is under-utilized, and most of theventures have failed.  Uncertainty over current qu ota levels and confusion over who has the authority
to issue fishing licences creates problems for sustainable fisheries management.  Although provincial
governments have limited powers under fisheries legislation to authorize local fishing vessels in
in-shore areas, it is questionable whether this extends to issuing permits to foreign vessels.
8
Table IV.4
Provincial-foreign  tuna joint ventures, 1990-94
Name Year
approvedProvince Intended activities Quota (tonnes) Operational
Makirabelle 1990 Makira Tuna fishing, fresh water fish farm,
canning35,000 No
Malaita-Rusfil 1992 Malaita Tuna fishing, marketing other marine
products30,000 No
Lauru-Marissco 1992 Choiseul Tuna fishing, fish farming, canning 15,000 No
Ting Hong 1994 Government Long lining, air freight, on-shore facilities 4,000 No
Malaita-Orientel
Services Transport1994 Malaita Tuna fishing 15,000 No
MAR/Temotu 1994 Temotu Tuna fishing 10,000 No
Tuna Enterprises 1994 .. Long lining 420 No
.. Not available.
Source: Forum Fisheries Agency Report No. 95/37, Tuna Industry Development Study: Solomon Islands, 1995.
66. Existing quotas are being reviewed by the Fisheries Division, with the aim of cancelling
quotas held by non-operational firms.  There appears to be scope to increase operable quota levels to
nearer TAC levels.  The best opportunities would appear to be from fee-paying DWFN vessels,especially from purse seine operators.
9  However, foreign owned purse seine vessels are not allowed
to operate in the Solomon Islands (except for U.S. vessels), and tuna for on-shore processing is
supplied exclusively by local vessels using mainly pole-and-line operations.  Fees from DWFN
vessels peaked at SI$8.3 million in 1993, and declined sharply from SI$6.5 million to SI$2.0 million
in 1996.
67. It has been suggested that the current catch fees paid by Japanese vessels, at 5% of the value
of fish landed in Japan, are low and could be increased to more adequately capture the rentsassociated with fish.  However, although the Solomon Islands is a significant source of tuna, it must
                                                     
7The TAC was estimated by the South Pacific Commission in 1992 to be between 153,000 and
160,000 tonnes annually for skipjack tuna alone, with abundant supplies of other types of tuna.
8Authority to allocate catch quotas rests with the national Government under fisheries legislation.
Moreover, provincial governments are explicitly prohibited from establishing business or economic relations
with foreign companies or governments under the Provincial Government Act, without prior approval from the
Minister.  Approval for foreign investment is also the authority of the national Government.
9According to the Government’s Medium Term Development Strategy, consideration is being given to
allowing greater access by foreign purse-seiners to fishing areas away from the main group archipelago as ameans of increasing catches and government revenues.WT/TPR/S/45 Trade Policy Review
Page 86
compete with neighbouring South Pacific and other world suppliers.  While the South Pacific region
accounts for over half of canned tuna supplies , over 90% of South Pacific tuna comes from
Micronesia, Kiribati and the Marshall Islands, mainly using purse seine vessels.  Existing fees
received by the Solomon Islands are already slightly above the regional level.  Moreover,
substantially increasing fees while licensed foreign vessels continuously catch well-below their
allocated quota levels may prove difficult commercially.
68. Apart from fees paid by DWFN vessels for access rights, the Government taxes fishing by
imposing an export tax of 5% f.o.b. on fresh, chilled or frozen fish, including tuna.10  However, as
with timber, actual rates paid were below the scheduled rates due to remissions.  Tuna caught by
DWFN vessels, for example, is not covered by the export tax.  These taxes, justified on grounds of
taxing resource rents and promoting downstream processing, suffer from the same economicshortcomings as discussed above for logs.  They assist processing operations by lowering the
domestic price of fish, and thereby risk creating inefficient domestic processing.  Such taxes also risk
over-taxing efficient export activities and may reduce incentives for sustainable management of fish
resources by operators.  As in the case of logs, the Government might consider replacing the current
taxation and quota licensing arrangements with a system involving the auctioning of transferablequota entitlements with both local and foreign vessels competing equally.
69. Trans-shipment within the fisheries limits requires a permit, and from 1995 is permitted only
at the designated ports of Honiara, Noro or Tulagi .  Previously, joint-venture operators were permitted
to trans-ship to carriers at sea.  This change appears to have been motivated by concerns to promote
additional on-shore activity and expenditure by operators.  However, to the extent that this has
imposed additional costs on fishing operators, such requirements are likely to be detrimental to the
competitiveness of the local fishing and canning i ndustry.  The Government’s preference for local
pole-and-line vessels, as a superior means of localizing the fishing industry and supporting the bait
fish industry, may also be having similar adverse effects.
(b) In-shore fishing
70. A major part of in-shore fishing is subsistence based, since most of the population live on the
coast.  The main catch is reef fish and crustaceans.
71. The rights to fish in-shore areas, including the reefs and lagoons, belong to traditional tribal
groups.  The provincial governments also have jurisdiction over waters for up to three nautical miles.
Local fishing vessels are not permitted within 500 metres of shore or near designated fishing areas,
unless an agreement, verified by the provincial government, is reached with the customary
landowners.
72. Bait fishing is practised commercially to su pply the domestic pole-and-line fishing boats.
Bait boats (normally four to service each pole-and-line boat) are able to operate in registered bait fish
grounds.  Pole-and-line operators pay royalties to the customary landowners of these grounds.  Since
1994, all vessels have paid the same rates;  these were set at SI$77 per night, per boat, in 1996.
73. Exports of baitfish are prohibited.
74. There is some clam production in in-shore areas for export to the aquarium market.
                                                     
10A rate of 10% f.o.b. applies to some fish, such as reef fish.Solomon Islands WT/TPR/S/45
Page 87
(3) MINING AND QUARRYING (TABLE IV.1)
75. The Solomon Islands has limited mining potential.  Its first mining operation, a gold mine at
Gold Ridge to be operated by a foreign company, Ross Mining Limited, commenced production in
1998, after experiencing considerable delays.  As we ll as gold, these are known, but largely unproven,
deposits of copper, nickel, cobalt and bauxite.  There are currently about 10-15 active exploration
leases operated by foreign companies.  The Government is seeking interest from private firms toevaluate the feasibility of establishing bauxite/alumina operations in the Solomons.
76. Mining of minerals is controlled by the Mines and Mineral Act of 1990 and the Mines and
Minerals Regulations of 1996, which are admini stered by the Ministry of Mines and Energy.
Minerals exploration is by a tenement licensing system whereby the Government issues prospecting
licences over land, provided applicants have acquired access rights from the landowners.  Legislationprohibits prospecting and mining on land without the consent of the customary landowners.
Applicants must also submit adequate environmen tal protection plans, including an environmental
impact statement, and leave the land in acceptable condition.  Applications for exploration and mining
leases are considered by a statutory Minerals Board, which includes representatives of the relevant
provincial government and the landowners.  Similar arrangements apply to petroleum mining underthe Petroleum Act of 1987 and Petroleum Regulations.
77. Only Solomon Islanders may be granted a licence to pan for alluvial gold.  Commercial
mining firms require a licence from the Ministry to mine, buy or export gold.
78. Development of the Gold Ridge gold mine in Guadalcanal was put out to tender by the
Government in 1995.  It accepted a feasibility study from Ross Mining Limited and signed a 25-year
mining lease agreement in March 1997.  Construction began in August 1997.  Total cost of the project
is estimated at $A67 million.  The ore body is relatively small and low-grade, and is expected toproduce 100,000 ounces of gold annually for ten years, valued at over $A55 million in 1998.  A major
part of the project was the relocation of landowners on freehold land at Lungga, at a cost of
SI$8 million, largely met by the landowners.
79. The Ross Mining venture has been subject to prolonged and expensive administrative and
legal delays.  Litigation is still continuing over compensation claims lodged by some customarylandowners.  During the feasibility study, separate agreements had to be negotiated by the company
with the customary landowners, the provincial Government and the national Government.  The
national Government also had to negotiate an agreement with the landowners.
80. The Government negotiated a special package of incentives and tax arrangements for the
Gold Ridge project.  The company has a tax holiday for five years, after which it will benefit fromspecial capital deductions available to mining enterprises under the Income Tax Act.  From
commencement of production, the company will pay a royalty of 1.5% of gross receipts to landowners
and the Guadalcanal provincial Government, and an export tax of 1.5% will be paid to the national
Government.  An additional profit tax of 30% is to be paid if profits exceed a rate of return of 25%.
81. The Government intends to establish a National Mining Company to directly participate in
mining projects, primarily through joint-venture agreements with foreign firms.
82. Tariffs on imported minerals range from 5 to 70%, with an average of 14%.  Most imported
minerals are dutiable at 10 or 20%.  Coal and crude petroleum oils are dutiable at 20%.WT/TPR/S/45 Trade Policy Review
Page 88
(4) MANUFACTURING (TABLE IV.1)
83. Manufacturing, other than fish processing, represented only 4% of the Solomon Islands GDP
in 1996, and accounting for just over 10% of formal employment.  Manufacturing output is directed at
satisfying the domestic market, and covers mainly small-scale production of food, beer and soft drink
processing, light engineering, wood and metal fabricated goods, and garments.  No production data is
available on manufacturing output.
84. Manufacturing’s share of GDP, employment and exports increases substantially if production
of canned tuna is included.
85. Manufacturing output has been assisted not only by export taxes on logging and fishing, but
also in the past, by relatively high protective tariffs imposed to encourage import substitution in a
number of areas.  These areas include beer, soap and detergents, fish canning, nails, noodles, softdrinks, flour milling, paints, plastic flexible packing material, aluminium, glass, and tobacco products
(Walker, 1997).
(i) Food products
(a) Meat products
86. Meat processing in the Solomon Islands covers mainly the subsistence slaughtering of poultry
and pigs.  There has been some interest expressed in constructing a commercial poultry slaughtering
plant.  Past attempts to establish a commercial beef raising industry based on an export abattoir
constructed at Mamara were unsuccessful.
87. Meat and meat products are generally subject to quarantine arrangements requiring an import
licence unless of Australian or New Zealand origin.  Tariffs on meat products range from 20 to 70%,
and average 58%.  The most common tariff is 70%.
(b) Fish products
88. Fish processing in the Solomon Islands is based primarily on the export of canned tuna by
Solomon Taiyo at Noro.  The company was established in 1973 as a joint venture between the
Government and the Taiyo Fishing Company of Japan.  In return for exclusive fishing rights in the
Solomon Islands, and other concessions, including exemption from fishing fees, the Government
received a 25% equity.  The Government increased its shareholding to 49% in 1979, and to its currentlevel of 51% in 1987.  Further restructuring occurred in 1993 when a shareholders agreement replaced
the joint-venture arrangement.
11  Solomon Taiyo continues to be assured sufficient tuna quota
(existing levels being well in excess of its catch), and it benefits from a 50% remission on import
duties and export taxes paid on fresh, shelled and frozen fish (canned products are not subject to the
export tax).
89. The company’s canning operations have increased in importance, and now account for over
two thirds of output, mainly at the expense of frozen tuna.  About 95% of its canned tuna is exported,
almost entirely to the United Kingdom where over 90% is purchased by a major supermarket chain.
Small sales of smoked arabushi and fresh sashimi tuna in Japan, and fish meal sales have also
increased.  Despite rising sales, the cannery’s profitability has been discouraging.  From 1973 to 93,profits were made in only three years, totalling SI$7.9 million as against accumulated losses of
                                                     
11In 1993, the parent company, Taiyo Fishing Company changed its name to Maruha Corporation.Solomon Islands WT/TPR/S/45
Page 89
SI$107.2 million.  Small profits since then have not changed the picture. Current annual sales exceed
SI$100 million.
90. The company has a high cost structure.  It is heavily indebted in yen-denominated loans.  It
faces relatively high wages and low labour produc tivity compared with some South-East Asian
producers like Thailand and the Philippines.  It was estimated in 1991 that both the ex-factory cost
and c.i.f. cost in the United Kingdom of canned tuna from the Solomon Islands was 23% above thatfrom an average Thailand factory (FFA, 1995b).  Such high cost structures continue to threaten the
long term international competitiveness and viability of its canning operations.
91. It is widely acknowledged that the preferential access to the EU markets under the Lomé
Convention has been crucial to the Solomon Islands sales in the United Kingdom.  Canned tuna
exports from ACP countries enter EU markets duty free, giving them a 24% tariff preference overnon-ACP exports, which are also subject to import quotas.  The relaxation of EU quotas on non-ACP
exports of canned tuna, together with reductions in ta riff preference margins as EU tariffs fall, and the
extension from 1998 of similar preferences to other non-ACP least developing suppliers will place
additional competitive pressures on Solomon Islands cannery operations in its predominant market.
92. Canned tuna activities also benefit from an export tax of 5% on chilled, fresh and frozen tuna,
although Solomon Taiyo receives a 50% remission on this levy.  It also benefits from a high tariff on
imports of canned fish of 70%, reduced recently from 110%.
93. The other main fish processing activity in the Solomon islands includes the export of tuna by
National Fisheries Developments Limited (NFD).  Established in 1977 as a majority
government-owned joint venture with Solomon Ta iyo, it was sold to British Columbia Packers in
1990 with accumulated losses of SI$12 million.  Until 1997, when it was sold to Tri Marine
International, it exported mainly frozen tuna from its shore-based facilities at Tulagi.  NFD currentlyexports mainly skipjack tuna to Japan.  It is investigating the feasibility of establishing further shore-
based activities, such as a cannery, and of expanding its operations at Tulgai.  Despite receiving
substantial tax concessions in 1990, such as a five-year holiday and remission of duties on imported
equipment, diesel fuel as well as export taxes on frozen fish, the company continued making losses,
totalling SI$19.2 million by 1992.  It continues to catch well below its allocated fish quota.
94. NFD’s pre-1997 operations encountered inconsistent government policies including attempts
to reverse many of the taxation concessions within the agreed five-year period;  to alter its tuna quota;
to retrospectively require a cannery to be esta blished at Tulgai; to prevent the company from
chartering foreign purse seine vessels as agreed;  and to impose a 7.5% duty on all imports, including
fuel.  It has been estimated that NFD’s previous operations of exporting frozen tuna to the Philippinesfor canning would have been more economic if it closed its Tulgai operations and operated offshore
using purse seine vessels (FFA, 1995b).  It was estimated that the additional freight costs to and from
Honiara alone added  SI$150,000 to annual operating costs.  Restrictions imposed on NFD not to
replace its fleet with purse seine vessels may also be increasing operating costs.
95. Several other joint ventures involve mainly provincial governments wishing to establish
shore-based operations.  Although provincial governments did not have authority to negotiate
investment incentives and issue fishing quotas, such agreements were generally endorsed by the
national Government.  However, all the ventures we re unsuccessful, and most have ceased operations.
96. Tariffs on imported processed fish products range from 20 to 70%, and average 66%.  Most
imports, including canned fish, are dutiable at 70%.WT/TPR/S/45 Trade Policy Review
Page 90
(c) Vegetable and animal oils and fats
97. The Solomon Islands produces both palm and coconut oil, from oil palms and coconuts
largely grown on two major plantations.  SIPL produces  mainly palm oil from its own mill.  It has
operated profitably and is a possible candidate for privatization.  Its tax holiday was terminated in
1978, but it generally does not pay import duty on large machinery.  It is the second largest
private-sector employer in the Solomon Islands.
98. Coconut oil is currently produced by RIPEL, which since 1996 has spent some SI$2 million
re-equipping the Yandina copra mill to an annual capacity of 15,000 tonnes.  Extraction rates of oil
from copra has increased at the mill to 59%.  Coconut oil production increased in 1996 to over
7,000 tonnes;  over 2,000 tonnes of copra meal was also produced.
99. Tariffs on these products range from 5 to 70%, and average 30%.
(d) Grain milled products
100. There is a small flour milling operation in the Solomon Islands.  Flour is milled using
imported wheat from Australia.
101. Tariffs on grain milled products range from 5 to 70%, and average 23%.  Tariffs of 20%
currently apply to imported cereal flour.
(ii) Beverages and tobacco products
(a) Beverages
102. Beer and soft drinks are manufactured in the Solomon Islands using imported inputs.  Wines
and spirits are fully imported.
103. Beer is subject to an excise tax if produced locally, and a much higher tariff if imported.  The
difference in these two rates is the protective component of the tariff on beer.  On light beer, this
amounts to a specific protective tariff of SI$2.50 per litre, and SI$8.50 per litre on standard beer.  Thisrepresents relatively high tariff assistance for beer production in the Solomon Islands.  For example, if
the c.i.f. price of imported standard beer was SI$5.00 per litre, the equivalent an ad valorem tariff
duty would be 170%.
104. Domestic beer production also benefits from relatively high tariffs on other imported
alcoholic beverages.  Imports of wine and alcoholic cider are dutiable at a specific tariff rate ofSI$10 per litre, while spirits are generally dutiable at SI$100 per litre.
105. The domestic production of soft drinks in the Solomon Islands is assisted by relatively high
tariffs on imports of 70% and a tariff of 70% on imported fruit juice.  In addition, local production of
bottled water is protected by a specific import duty of SI$3.60 per litre.
(b) Tobacco products
106. Manufactured tobacco products of plug, fig, twist, stick, cake and coarse-rubbed tobacco,
including ready-rubbed tobacco, produced from impor ted tobacco are subject to an excise tax of
SI$10 per kg.  However, if imported, these products attract tariff duty of SI$180 per kg., except for
twig or stick tobacco, which are dutiable at SI$130 per kg. Thus, the protective tariff on tobaccoSolomon Islands WT/TPR/S/45
Page 91
products, i.e. the difference in these rates, is either SI$170 per kg., or SI$20 per kg. on twig and stick
tobacco.  The ad valorem  equivalents of specific duties of this magnitude are substantial.
107. Domestic production of tobacco, including ready-rubbed tobacco, is also assisted by the
higher tariff duties imposed on imports of tailor-made cigarettes (there is no local production) than the
excise taxes levied on local production of ready-rubbed and other tobacco products.
(iii) Textiles and clothing
108. The Solomon Islands has a small garments industry, protected by a relatively high composite
tariff on imported used clothing of 70% plus SI$3 per kg.  This rate may be higher than the previous
ad valorem rate of 110%.  Domestic clothing producers are also assisted by the relative high tariffs
(40%) on imported new clothing and by import licensing arrangements on imports of used clothing.
According to the authorities, these arrangements are designed to prevent dumping of low quality itemsin the country and to protect consumer interests.
(iv) Wood products
109. Most of the lumber from the Solomon Islands forests is exported as round logs for overseas
processing.  Sawn timber exports are relatively small by comparison - below 5% of the value of total
timber exports.  In 1997, sawn timber exports amounted to approximately SI$1 million, or8,100 cubic metres.
110. The Government is committed to promoting downstream processing of logs, and taxes round
log exports partly to promote domestic value added.  In addition, the Government appears committed
to further strengthening requirements making logging licences conditional on foreign firms processing
logs domestically;  and to support the previous Government’s intention of prohibiting the export of
round logs in 1999.  As noted in the discussion of forestry, such polices risk creating inefficient
industries reliant on permanent government support (Box IV. 3).
111. Tariffs on wood and wood products average 42%, and range from 10 to 70%.
(v) Chemicals
112. Paint production in the Solomon Islands is assisted by import of 20%.  Soaps and detergents
manufactured in the Solomon Islands are protected by relatively high tariffs of 70%.
113. Tariffs on imported non-industrial chemicals range from 5 to 70%, and average 24%.  On
industrial chemicals, they average 10%, but range from 5 to 40%.
(5) S
ERVICES
114. Services, including public administration, account for a large and growing share of production
in the Solomon Islands.  In 1995, the services sector accounted for around 47% of total GDP
(Chart IV.6), compared with 42% in 1980.  The main service industries are wholesale and retail trade
(10% of GDP), transport and communications (6%), construction (6%) and finance (4%).  Almost two
thirds of paid employment in 1996 was in the services sector, especially in public administration
(13%) and wholesale and retail trade (12%).WT/TPR/S/45 Trade Policy Review
Page 92
Chart IV.6
Composition of services in GDP (at factor cost), 1995
Per cent
In 1984 prices.
Asian Development Bank, 1997 Economic Report on Solomon Islands, 1998, p.191.Note:
Source :Primary
50Finance 
4Construction
6
Other
20Wholesale and retail
10
Transport and
communications
6Secondary
4
Services
47Electricity and water
1
115. The Solomon Islands records a large outflow in  the balance of payments on international
trade in services.  In 1996, the net negative balance was SI$153 million, compared with
SI$140 million in 1995.  While the Solomon Islands receives substantial inflows from tourism, a net
outflow is usually incurred on travel due to Solomon Islanders visiting abroad.  In 1996, the outflow
on travel was SI$24.5 million.  However, the main outflow is associated with ‘other services’, whichamounted to SI$107 million in 1996.  This mainly covers international shipping services and
insurance.
116. A number of service activities are closed to foreign investment and are exclusively reserved
for Solomon Islanders.  These include many activities in wholesaling and retailing, construction,
transport and communications as well as recreational and sporting services.
117. The Solomon Islands scheduled GATS commitments covering a limited number of service
sectors:  one tourism subsector, hotels and restaurants (including catering); banking and other
financial services; insurance and related services; two construction subsectors, i.e. general
construction work for buildings and for civil engineering; and for a range of professional services
(Table IV.5).  These binding commitments involved no limitations on market access or nationaltreatment with respect to foreign providers of these services by means of cross-border supply,
consumption abroad or commercial presence.  In a ll cases, however, supply involving the temporary
movement of persons was unbound, and subject to a horizontal limitation that such movement would
only be for key managers and specialists where no comparable skills are available locally, and be for
initially two years.  Extensions are subject to immigration and labour requirements.  Moreover,market access commitments made on supply by commercial presence are subject to the horizontal
limitations of normal foreign investment and land ownership requirements.Solomon Islands WT/TPR/S/45
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Table IV.5
Summary of sector specific commitments under GATS
Sector or subsector Modes of supply
Cross-border
supplyConsumption
abroadCommercial
presenceTemporary presence of
natural persons
Market access (ma)/national treatment (nt)
TOURISM & RELATEDSERVICES
Hotels & restaurants (includingcatering)None (ma & nt) None (ma & nt) None (ma & nt),
subject to horizontal
limitation on maUnbound (ma & nt), subject
to horizontal limitation
FINANCIAL SERVICES
Banking & other financialservices (excluding insurance)None (ma & nt) None (ma & nt) None (ma & nt),
subject to horizontallimitation on maUnbound, subject to
horizontal limitation
All insurance & insurance-relatedservicesNone (ma & nt) (None (ma &
nt)None (ma & nt),
subject to horizontallimitation on maUnbound, subject to
horizontal limitation
CONSTRUCTION &
RELATED ENGINEERING
SERVICES
General construction work forbuildingsUnbound (ma & nt)
due to technicalfeasibilityNone (ma & nt) None (ma & nt),
subject to horizontallimitation on maUnbound, subject to
horizontal limitation
General construction work forcivil engineeringUnbound (ma & nt),
except whereresources and
materials are
unavailable locallyNone (ma & nt) None (ma & nt),
subject to horizontallimitation on maUnbound, subject to
horizontal limitations
BUSINESS SERVICES
Professional services
- Legal services, home countrylaw, including public internationallawNone (ma & nt) None (ma & nt) None (ma & nt),
except must be sole
proprietorship or
partnership, and
subject to horizontal
limitation on maUnbound, subject to
horizontal limitation
- Accounting, auditing &bookkeeping servicesNone (ma & nt) None (ma & nt) None (ma & nt),
subject to horizontallimitation on maUnbound, subject to
horizontal limitation
- Architectural services None (ma & nt) None (ma & nt) None (ma & nt),
subject to horizontallimitation on maUnbound, subject to
horizontal limitations
- Engineering services None (ma & nt) None (ma & nt) None ( ma & nt),
subject to horizontal
limitation on maUnbound, subject to
horizontal limitation
Note: Horizontal limitation states that measures are unbound on both market access and national treatment for temporary stay of natural
persons, except for key staff with specialist skills not available locally where entry will be limited to two years initially, with any
extension subject to immigration and labour laws.  Foreign employees are also required to provide on-the-job training to local
employees.  Horizontal limitations also apply to market-access commitments whereby commercial presence is subject to normal
foreign investment, company registration and land ownership requirements.
Source: Government of Solomon Islands.WT/TPR/S/45 Trade Policy Review
Page 94
(i) Tourism
118. Tourism is regarded by the Government as a target industry.  Policy regarding tourism
development is currently the responsibility of the Minister of Commerce, Employment and Tourism.
The Solomon Islands Visitors Bureau, created by the Ministry late 1996, is responsible for providing
marketing and promotional activities.  The Bu reau was formed following changes to the
Solomon Islands Tourist Authority Act to separate the role of tourism policy from market promotion.It is partially funded by a 10% bed tax collected by hotels.
119. The availability of accommodation is seen as a major constraint on tourism development
(Central Bank, 1996).  The number of visitors to  the Solomon Islands has shown little growth, and at
just over 11,000 in 1996, was no higher than in the early 1980s (Table IV.6).  Over half of these
visitors are from Australia and New Zealand, and only about one third represent holiday tourists.
Table IV.6
Visitor arrivals, 1984-97(number)
Visitors
1984 11,177
1985 11,974
1986 11,630
1987 12,555
1988 10,679
1989 9,860
1990 9,185
1991 11,105
1992 12,446
1993 11,570
1994 11,919
1995 11,209
1996 11,217
1997 (1st quarter) 2,567
Source: Asian Development Bank, 1997 Economic Report on Solomon Islands, 1998, p. 90.
120. The Government is keen to exploit the country’s advantages in eco-tourism.  There has been
some recent expansion in such tourist facilities;  several new lodges have been constructed at Maroo
Lagoon.  Slow progress has been made in the conceptual planning of the Mamara Tasifarongo Mawo
project, which involves interests from Singapore.  The Anuha resort on the Florida Islands is being
developed privately on customary land leased to th e Government for sub-lease to the developer for
75 years.
121. Although the Government has no direct interests in tourism resorts following the privatization
of the Mendana Hotel, it encourages private development by offering various tax concessions.  The
Foreign Investment Board may grant income tax incentives permitted under the Income Tax Act.
These include a five-year tax holiday on tourist hotels and resorts (subject to minimum bedroomnumber requirements of 300 and 50, respectively), and other tourist-oriented projects.  Approved
projects may also depreciate capital expenditure over two years, and write off overseas promotion at a
rate of 150%.  The same benefits apply to expenditure on expansion and renovation of eligible resorts
incurred from 1 January 1989.  Imports for tourism development may also be granted exemption from
tariffs for two years.Solomon Islands WT/TPR/S/45
Page 95
122. Relatively expensive international airfares and limited service schedules operated by Solomon
Airlines impact negatively on the tourism industry in the Solomon Islands.
(ii) Transportation
123. The Solomon Islands archipelago is heavily reliant on air and maritime transportation
services, internationally, and domestically between the islands.
124. The Solomon Islands made no GATS commitments on transportation services.
(a) Maritime transport
125. The main port of the Solomon Islands at Honiara provides limited deep-water berth capacity.
It is government-owned and operated by the Solomon Islands Port Authority.  A secondary port is
operated at Noro.  The Authority is barely profitable, and charges have been fixed for several years.
The Government is considering privatizing the Authority.
126. Inter-island water services are provided by the government-owned National Shipping
Services Limited and several private shipping lines. Since being formed in 1994, it has performed
badly and incurred substantial losses.  This is largely because it is required by the Government to
operate uneconomic routes.
127. An important priority for the Government is to develop inter-island shipping services.  It has
indicated that it would consider either subsidizing non-commercial routes, or licensing by tender
unprofitable routes to private operators.
128. Stevedoring, domestic marketing of marine products, shipping agencies, internal cargo and
passenger shipping is reserved for indigenous islanders;  foreign investment in these activities is
prohibited.
(b) Air transport
129. The main provider of international and domestic air services in the Solomon Islands is the
national airline, Solomon Airlines, which is fully owned by the Government through the Investment
Corporation.  It operates international services to Brisbane, Auckland, Fiji, Vanuatu and Port
Moresby, using aircraft leased from Qantas.  It has a monopoly on most international routes, as well
as on domestic services through its subsidiary Western Pacific.  Approval has been granted recently
for a privately-owned operator, King Solomon Airline, to operate the route between Cairns, Australia,and Honiara, which currently has no service followin g its closure by Solomon Airlines several years
ago.
130. Profitability of Solomon Airlines has improved in recent years following financial
restructuring.  However, this follows large accumu lated losses in earlier years.  Western Pacific is
operating unprofitably.  Solomon Airlines has government-guaranteed debts with the InvestmentCorporation totalling SI$8 million.  The Government is considering privatizing Solomon Airlines.
131. Civil aviation is the responsibility of the Ministry of Transport, Works, Aviation and
Communication and the Civil Aviation Authority, which owns and operates the airport facilities,
including the international terminal at Henderson Field, Honiara, where a new terminal building,
funded by the Japanese Government, is now operating.WT/TPR/S/45 Trade Policy Review
Page 96
132. A number of provincial airports were closed in 1996 due to non-renewal of government leases
by landowners.
(iii) Communications
(a) Postal services
133. Postal services in the Solomon Islands are provided by the Solomon Islands Postal
Corporation, which was corporatized in December 1996.  All shares are held by the Government.  TheSolomon Islands Postal Corporation Act of 1996 replaced the Post Office Act and provides the
Corporation with a monopoly over delivery of nati onal and international standard letters, and the
issuing of postage stamps.  Letters may be carried by other operators only if they charge in excess of
ten times the basic postage rate for a standard letter.  Although the Corporation determines its own
prices, the Chairman is obliged to implement dire ctions from the Minister as to the policy to be
followed by the Board in the performance of its functions (Section 9).
134. The Corporation is permitted to provide telecommunications and value-added services
including (but not limited to) electronic mail, electronic data, interchange, electronic funds, transfer
services and any other appropriate or related services incidental to postal services.  The Postal
Corporation is examining possible new projects, including the provision of telecommunicationsservices in competition with Solomon Telekom, such as electronic mail.
135. Competition in the provision of postal services remains restricted by legislation.  While there
still appear to be plans to privatize the Corpora tion, the Government has indicated that no foreign
partner will be allowed.  No time targets have been set.
(b) Telecommunications
136. Telecommunications are provided by Solom on Telekom, which is 58% government-owned
through the Investment Corporation of Solom on Islands, and 42% owned by Cable and Wireless.
Solomon Telekom has operated profitably, and is the main source of dividend income for the
Investment Corporation, paying SI$4.6 million in dividends from 1995 to 1997.  Its estimated net
book value in 1997 was SI$42.8 million.
137. Existing legislation provides Solomon Telekom with a monopoly in providing
telecommunications services for 15 years, i.e. until 2002.  However, this monopoly was slightlyeased, at least in principle, from late 1996 when the Postal Corporation was permitted to provide
telecommunications services.  A foreign investor could now, in principle, enter the
telecommunications market through a joint venture with the Postal Corporation.  However, access
arrangements to the local network by new entrants remain unclear.
138. Telecommunication charges are set annually by the Telecommunications Authority, subject to
government approval.  Telephone rates were recently increased by 8% (domestic) and 5%
(international).  Government policy has been to use international call charges to cross-subsidize lower
charges on domestic calls, especially to rural areas.  The Government also pays a concessional rate on
telephone calls.
139. Solomon Telekom is one of the key candidates being considered for privatization by the
Government.  It is understood that on-going negotiations are being held with Cable and Wireless who
has expressed an interest in purchasing at least a further 9% equity in Solomon Telekom to obtain a
controlling share.  The Government will consider privatizing up to 90% of Solomon Telekom. TheSolomon Islands WT/TPR/S/45
Page 97
regulatory arrangements for telecomunications to be  implemented following divestment have yet to be
determined. These arrangements are expected to be completed in late 1998 or early 1999.
140. Broadcasting services are provided by one go vernment-owned (AM) and one privately-owned
(FM) radio station.  Two more private FM stations are expected to be broadcasting shortly;  they will
be joint ventures involving 40% local participation, the level set by the Government.  These stations
have been allocated spectrum frequencies by the Government.
(iv) Financial services
(a) Banking system
141. The banking system comprises operations of three commercial banks:  the National Bank of
Solomon Islands, which is a joint venture between Bank of Hawaii (51%) and the National Provident
Fund12;  and Westpac and ANZ, which are branches of Australian banks. Some 60% of total
commercial bank assets, estimated at SI$401 million at end-1996, are held by the National Bank.
Banks employed 407 staff in 1996 covering 20 branches and 42 agencies.
142. Financial intermediation in the Solomon Islands also involves the Development Bank,
National Provident Fund, credit unions, the Investment Corporation of Solomon Islands, the Home
Finance Corporation and the Central Bank of the Solomon Islands (Chart IV.7).  The Central Bankregulates the financial system for monetary policy purposes (Central Bank of Solomon Islands
Act 1976) and is also responsible for prudential supervision of commercial banks.  The Bank’s
prudential supervisory powers are being updated and broadened to also cover non-bank financial
intermediaries in the Financial Institutions Act which is expected to soon replace the Banking
Act 1976.
143. Commercial banks and the National Provident Fund have been adversely affected by their
high exposure (40% of assets) to non-performing government securities, following the collapse of thesecurities market in 1995, and the Government’s inability to service its debt.  This has heavily
impaired the efficiency of the banking and financial systems, with adverse effects on levels of private
lending.  Faced with large declines in profitability,  bank interest margins, measured as the difference
between lending and deposit rates, have widened substantially to around 13 percentage points.  This
reflects the small market size, high costs and risks of doing business, and the low level of competitionin the financial sector (Central Bank, 1996).  Commercial bank interest margins have increased almost
continuously since 1981, falling only in 1988 and 1992. These wide interest margins have inhibited
private-sector development.
144. The Central Bank is responsible for processing banking licences (the Banking Act 1976).
Banks must have a licence issued by the Minister of Finance on the recommendation of the CentralBank.  Written applications attaching necessary supporting documents, such as financial data, must be
made to the Central Bank.  In assessing a banking licence application, the Central Bank is required by
legislation to take into account factors like the applicant’s financial status and history; the adequacy of
the applicant’s capital structure and earnings prospects; and whether issuing the licence will be in the
public interest. The Central Bank will recommend licences only to institutions with a proven trackrecord in banking and finance.  The licence may stipulate certain terms and conditions on the bank’s
operations.  Two applications for banking licences were submitted within the last five years, but both
were rejected by the Central Bank because they failed to provide sufficient information for the Bank's
assessment of their credibility.
                                                     
12The Bank of Hawaii replaced the Commonwealth Bank in 1994.WT/TPR/S/45 Trade Policy Review
Page 98
Chart IV.7
Structure of financial intermed iation in the Solomon Islands
Source : Central Bank of the Solomon Islands.Commercial banksRest of the world
Solomon Islands
Government
- Development Bank
- National Provident Fund
- Credit Unions
- Investment Corporation
- Home Finance Corporation Businesses and householdsCentral Bank
145. Foreign banks are not required to participate as joint ventures with local interests.  They can
operate in the Solomon Islands as locally incorporated subsidiaries or as foreign branches.  The only
requirement is that foreign branches or agencies maintain an assigned minimum capital level in the
Solomon Islands.  Companies are expected to establish with a minimum initial capital of
SI$0.5 million (or, if greater, 5% of its total deposits) if the bank’s head office is located domestically,
and SI$40 million if it is to be located overseas.
146. Although the new banking bill is intended to improve the Central Bank’s supervisory powers,
there remain a number of inadequacies in its supervision of locally incorporated institutions.  Some ofthe Bank's prudential standards depart from international norms, such as on capital adequacy
requirements.  The Central Bank accepts that reputable foreign banks will be adequately supervised
by their own prudential regulators.  Two of the three domestic commercial banks operate as foreign
branches of Australian banks, and are therefore subject to supervision by their home authorities.
147. Foreign-based banks are prohibited, under the Exchange Control Act 1976, from borrowing
or lending foreign currrency in the Solomon Islands.  A number of legislative lending restrictions also
apply to commercial banks, aimed primarily at ensuring sound lending practices, such as preventingover-exposure to a single customer or related entity, or lending without collateral and against the
security of the bank’s own shares.
148. Banks may at times be directed by government policy to target their loans for certain
purposes, such as lending for investment reasons instead of for consumption.
149. The National Provident Fund is an important financial institution, receiving compulsory
savings of all employees.  It lends both privately and publicly, to governments through term loans or
by purchasing Government securities such as Treas ury Bills and Development Bonds, and to statutorySolomon Islands WT/TPR/S/45
Page 99
authorities, such as the Investment Corporation.  It is heavily exposed to public loans.  In 1996, gross
government debt held by the Fund rose by 15% to almost SI$90 million.  In addition, the Fund
operates a housing loan scheme for members.
150. Credit unions are growing in importance as a means of mobilizing regional savings and
providing relatively small loans to borrowers.  There are some 142 registered credit unions, with total
assets of SI$18 million;  total membership is around 17,000.  Credit unions must be registered withthe Office of the Registrar of Credit Unions, and belong to the umbrella organization,
Solomon Islands Credit Union League.  A number of credit unions have experienced financial
difficulties recently, and have had their operations either reviewed or suspended.
(b) Insurance
151. Banks are prohibited from engaging in insurance activities.  Companies wishing to provide
insurance services must be registered and meet the regulatory requirements of the Office of
Comptroller of Insurance.  This Office implements the provisions of the Insurance Act of 1985,
Insurance Regulations of 1986 and the Insurance (Amendment) Regulations of 1997.  It encourages
the onshore placement of insurance funds by firms, and is attempting to have previously placed funds
overseas repatriated to the Solomon Islands, especially interest income derived on these funds.  Anumber of recent placements have been underwritten locally.  Total premiums collected in 1996
amounted to SI$18 million, of which about SI$1 million related to life insurance.
152. The insurance market currently comprises foreign branches of QBE Insurance Limited and
NZ National Insurance, which provide non-life insurance.  Life insurance services are provided by
Solomon Islands Family Assurance and Solomon Mu tual Insurance. There are also two insurance
brokers (AON Risk Services and United Insurance Brokers) and two agents (BJS Agencies Limited
and AEKE Development Limited).  A number of companies, including GRE Insurance, ZurichInsurance and Commercial Union, recently closed down.
153. Insurance licences are issued on approval by the Foreign Investment Board, subject to a
favourable recommendation from the Comptroller of Insurance.  To receive a licence, firms must
satisfy a number of legislative requirements concerning deposits, capital, solvency margins and
investments.  These requirements are applied equally to domestic and foreign firms.  Applications arecarefully screened to ensure that only reputable and established companies enter the small Solomon
Islands market.  One company, Blue Shield, was closed in 1996 because it did not meet the solvency
requirements of the Comptroller of Insurance.  Policy holders with this company lost their entire
investment.
154. Legislation passed in 1995 to establish a government-owned Solomon Islands Insurance
Office was subsequently suspended.  The Government is committed to a sound private-sector run
insurance industry closely supervised by the Government.  It is also committed to minimizing the
flow of funds overseas through reinsurance by encouraging a locally-based insurance industry.  A
compulsory life insurance scheme, currently operated for members by the National Provident Fund, is
provided by the Solomon Islands Mutual Insurance Limited.  Insurance premiums are paid by theFund directly to the insurance provider.
(v) Other services
155. Professional business services (including legal, accounting, architectural and engineering
services) are free from restrictions on market access and national treatment where supplied
cross-border, consumed abroad or by commercial presence, except for legal services which must be
either a sole proprietorship or partnership (Table IV.5).  Similar GATS commitments were made onWT/TPR/S/45 Trade Policy Review
Page 100
construction services for general construction work on buildings and for civil engineering.  No
limitations apply to market access and national treatment on such services consumed abroad or
supplied by commercial presence.  Cross-border supply of civil engineering construction services
were unbound, unless resources and materials were not locally available.13  Unbound commitments
were made on the temporary movement of people.
156. Water and electricity are provided by two statutory authorities, the Solomon Island Electricity
Authority and Solomon Islands Water Authority.  Electricity generation capacity and infrastructure is
inadequate, with frequent power failures in Honiara.  The pricing policies for both electricity and
water need to reviewed: water charges remain substantially below full cost of supply, despite
increases in 1995 and late 1997, when a uniform tariff was introduced.
157. Wholesale and retail trade activities are reserved for Solomon Islanders, foreign investment is
prohibited.
                                                     
13Cross-border supply of construction services relating to buildings were also unbound, but because
such delivery was regarded as technically unfeasible.Solomon Islands WT/TPR/S/45
Page 101
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