Papua New Guinea WT/TPR/S/62
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III. TRADE POLICIES AND PRACTICES BY MEASURE
(1) INTRODUCTION
1. Trade taxes are PNG’s main intervention measures and an important source of government
revenue, accounting for well over one quarter of total taxes in 1998.  However, a major tax and tariff
reform programme, implemented from 1 July 1999, has reduced reliance on tariffs by significantly
cutting duty rates across-the-board and implementing a broad-based 10% VAT on goods and services.Tariffs were reduced immediately to 9%, from a si mple applied MFN average rate of 20%, and will
be phased down to 5% in 2006.  Tariffs currently range from zero to 55%, subject to a few exceptions
such as sugar and canned mackerel.  Maximum tariffs on all products will fall to 40% in 2006.  Export
taxes are levied mainly on unprocessed logs at progressive rates of up to 70%.
2. While tariffs are almost exclusively ad valorem , the transparency of the tariff system has in
the past been greatly undermined by the widespread use of discretionary exemptions.  These were
used to provide investment incentives to benefit certain activities, often involving government equity,
and frequently also supported by import protection, initially in the form of bans and quotas, but
subsequently converted to high tariffs by the mid-1990s.  Many of these income tax and other duty
exemptions, such as for pioneer industries, have been recently abolished, and the Government hasannounced plans to cut and rationalize the use of incentives.
3. Apart from tariffs, very few formal trade barriers are faced by imports, except for fruit,
vegetables and animal and related products, which are subject to strict quarantine regulations,
including blanket bans.  There are no import quotas, and only a small number of items are prohibited
or subject to licensing, mainly for health or safe ty reasons.  Similarly, although PNG’s main exports
of agricultural and resource-based products are licensed, they are generally free from quantitative or
price controls; exceptions involve logs and fish where harvesting limits are applied in the interests ofsustainable management.  Exports of a wide range of manufactured products are eligible for financial
assistance in the form of income tax holidays and other tax concessions.
4. The Government plays a major role in the development of natural-resource projects.  In
mining and petroleum projects, for example, the Government usually exercises its legal option of
taking, at exploration cost, an equity share (of up to 30%) either directly or indirectly through its 51%ownership of Orogen Minerals.  In addition, higher standard income tax rates apply to mining and
petroleum projects, and additional taxes apply on profits above set rate-of-return thresholds.
Domestication of the country’s fish, forestry, and mineral resources is a key government policy
objective.
5. Many staple products, such as rice, and utility services remain subject to price controls,
although some, such as on beer, have been lifted in recent years.  There are many state-owned
enterprises and statutory authorities, some of which have monopoly rights.  Until recently,
government-funded price stabilization schemes, involving historically large payouts to support
minimum export returns, applied to principal export tree crops of coffee, cocoa, copra and oil palm.
The Copra Marketing Board retains exclusive rights to the domestic and export marketing of copraand coconut products.
6. Most state-owned enterprises and non-mining joint ventures have performed poorly.  The
Government intends to privatize many of the main statutory commercial enterprises, including those
supplying key utility services;  for example, it intends to deregulate the telecommunications industry
from 2002 with PANGTEL being recently established as the statutory regulator.  Privatization,WT/TPR/S/62 Trade Policy Review
Page 50
accompanied by improved corporate governance, could enhance competition within the economy,
thereby making it more attractive to foreign investment and fostering long-term development.
(2) MEASURES DIRECTLY AFFECTING IMPORTS
(i) Registration, documentation and customs administration
7. There are minimal registration requirements for im porters in PNG.  Importers must have a tax
file number to declare on importation.  Customs agents must also be licensed and are required tolodge a bond with the Internal Revenue Commission to be used if necessary to meet duty defaults by
clients on cleared goods.
8. The documents generally required for commercial importation are the invoice, bill of lading,
and packing list.  All goods are entered through customs using a single administration document
(Form 15) and valuation forms (F53 and F54).  Clea rance through customs at ports normally takes
from three to five days, although longer delays can occur if the shipment is subject to investigation.  A
pre-clearance system operates for airfreight, which releases about 90% in advance.  PNG is
considering the feasibility of acceding to the Customs Convention on the A.T.A. Carnet System for
the Temporary Admission of Goods.
9. The ASYCUDA system has been used at the major ports of Lae and Port Moresby since
1994, and was introduced at Madang in 1999.
1  It is to be extended to Kimbe and Jackson’s Airport at
Port Moresby shortly, as well as to Vanimo, Alot au, Rabaul and Lihir by March 2000.  The system is
also being upgraded from version 2 to ASYCUDA++.
10. Reports of poor customs administration continue, with claims of inconsistent application of
regulations and discretionary decision-making by customs officers.  Appeal procedures on customs
matters, contained in the Customs Act (sections 177 and 178), are rarely used;  they can be
cumbersome and subject to relatively long delays.  The Government intends to revise the customslegislation to introduce better appeal provisions, and to restructure the Internal Revenue Commission
to provide improved appeal facilities.  PNG also  plans to introduce an advance ruling system for
customs classifications by 2000.
11. PNG authorities are taking steps aimed at improving customs procedures to help facilitate
trade.  They intend to make procedures and customs rulings more transparent.  Customs proceduresare being reviewed in accordance with the Kyot o Convention (the International Convention on the
Simplification and Harmonization of  Customs Procedures) as part of PNG's APEC involvement.
(ii) Tariffs and surcharges
12. PNG adopted the Harmonized System in Januar y 1991, disaggregated to the eight-digit level.
It contains approximately 5,400 tariff lines.  The amended 1996 version was endorsed by Parliamentin December 1996.  All imports are dutiable at MFN rates, except mainly for tariff preferences
extended to a relatively small range of goods imported from MSG members.
13. The Commissioners for Taxation and Customs and Excise are located within the Internal
Revenue Commission, following the amalgamation in 1992 of the Taxation Office and the Bureau of
Customs and Excise.  The Commission is responsible for collecting tariffs and export taxes, excise
                                                     
1 ASYCUDA is an acronym for Automatic System for Customs Data.  It is a computerized customs
management system, devised by UNCTAD, that covers most foreign trade procedures, including the productionof trade statistics.  The system has been adopted by a number of developing countries.Papua New Guinea WT/TPR/S/62
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duties levied on the sale, including imports, of certain goods, including certain "luxury" goods, and, as
from 1 July 1999, the new VAT (section 4).  Tariff rates are specified under the Customs Tariff
Act 1990.
(a) General features
14. Tariffs have traditionally served dual purposes in Papua New Guinea:  to raise government
revenue, and to protect domestic production, especially infant or new industries, to meet theGovernment’s import substitution policies.  In taxing imports, tariffs provide a major source of
government revenue.  Very high tariffs were levied on many goods, including motor vehicles, whether
or not produced at home, primarily to raise revenue.  Tariffs on imported substitutes also protect
domestic industries by raising the price of imports.  Meeting these two objectives resulted in a highly
distorted tariff structure with high rates and wide disparities in rates.  This impaired economicefficiency by distorting the economy’s resource allocation and thereby reducing national welfare
(Box III.1).  PNG’s manufacturing sector largely st agnated under such high tariff protection, and
infant industries continued to be inefficient despite being in existence for some 20 years.
15. Trade taxes on imports and exports are an important source of government revenue in
Papua New Guinea, providing on average around one third of total tax revenue during the 1990s,declining since 1995 to an estimated 28% in 1998 (Chart III.1).  Most came from import tariffs, which
accounted for one quarter of total tax revenue in 1998, up from 22% in the previous two years.
2
Although export taxes increased in relative importance during the 1990s, the share began to decline in1995, and especially since 1997 due to the drop in world prices and export taxes on logs.  This share
is expected to drop to around 3% in 1998 due to reduced log exports and tax rates.
16. Tariff policy is currently the responsibility of the Internal Revenue Commission, which is in
the portfolio of the Minister of Finance (now Treasury and Planning).  Until recently, all tariff rateand other changes to the PNG Customs Tariff Act 1990 required legislative amendment through
Parliament.  Tariff reductions, but not increases, can now be made by government without
parliamentary approval.  Tariff rates have been changed regularly in annual budgets.
17. Tariffs generally increased during the 1970s and 1980s, when tariff setting was generally
ad hoc.  Import duties were raised across-the-board in the March 1994 mini budget and in 1995.Rates however tended to change erratically, often reversing earlier amendments.  For example,
average tariffs on four key categories of agricultural inputs rose from 7.5% in 1987 to 8.5% in 1989,
fell to 5% in 1990, and to zero in 1991 and 1992, before increasing to 10% in 1993 and 11% in 1994.
These duties were reduced to 8% in November 1995 and to 5% in January 1997.  This ad hoc
approach to setting tariff rates created many anom alies, with closely related products in consumption
or production being subject to substantially different duty rates.  This introduced unnecessary
distortions into the tariff and added to the efficiency costs from tariff protection.
18. No additional charges are levied on imported goods (apart from excise taxes, which are also
applied to domestic goods, if produced, and the VAT since 1 July 1999).  A temporary import duty
surcharge of 1.5%, introduced in the 1998 Budget as a drought relief measure and extended in the1999 Budget, was terminated on 1 July 1999 when the tax reforms commenced.  This surcharge
applied to all dutiable imports.
                                                     
2 In 1980 tariffs represented 16% of total internal revenue.WT/TPR/S/62 Trade Policy Review
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Box III.1:  The advantages of lower, more uniform tariffs
The extent to which a country’s efficiency of resource use is reduced by its tariff structure will depend upon
both the level of duties and the degree of non-uniformity between these rates.  For any given average tariff
rate, the wider the disparities in duty levels, especially between goods that are close substitutes in both
consumption or production, the more distorting will be the tariff structure.  Thus, a movement towards a
lower and more uniform tariff would be expected in general to improve resource allocation and raise
economic welfare.  This is because a uniform tariff structure will have less influence on the private decisions
by producers and consumers, and allow resources to be directed more by market outcomes.
A non-uniform tariff is often supported on the grounds of providing a cascading or escalating tariff to
encourage downstream processing.  Such a tariff structure provides much lower duty rates on raw materials
with progressively higher tariffs being applied through to the final processed product.  However, by
providing greater incentives to produce downstream products, an escalating tariff risks generating inefficient
activities that become dependent on government assistance.  What may be mild escalation in nominal tariff
terms can provide very high effective (net) assistance to downstream activities.  For example, a firm facing
an average tariff duty on inputs of 10% and producing an output protected by a 50% tariff, would receive a
rate of effective protection anywhere from 50% to over 500%, depending on the activity’s "free trade" value
added.  They may on occasions be value subtracting when inputs and outputs are priced at international,
rather than assisted, levels.
High and disparate tariffs foster inefficiency and penalize efficient activities, including export industries, by
promoting a high-cost economy, thereby impairing the competitiveness of exporters.  Taxes on imports are,
in effect, shifted onto exports.
As well as promoting efficiency gains, a low uniform tariff is simpler and easier to administer.  It removes
many of the incentives for making false customs descri ptions and classifications. Moreover, by treating all
producers and importers equally, it is likely to reduce lobbying or "rent seeking" pressures on the
Government and make it easier to reject pleas for special treatment.
It is often argued that reducing duty rates to adopt a lower more uniform tariff would entail a substantial
reduction in government revenue compared to a current system of high tariffs, especially on consumer and
so-called luxury goods.  However, this need not be the case.  At lower rates, evasion of tariffs is reduced.
Import volumes will also increase, as domestic consumers purchase more and local suppliers produce less.
This shortage in domestic production will be met by imports.  As tariffs are lowered, it is possible that import
quantities could rise sufficiently to raise tariff revenue, depending upon market conditions.  This would
especially be the case if special duty exemptions an d concessions, which are usually associated with high and
disparate tariff structures, were also eliminated.  Such concessions themselves are liable to make the tariff
structure more disparate and undermine transparency and economic efficiency.
The above analysis suggests that uniform tariffs should be a policy goal, even though demand elasticities
(a measure of the extent to which demand for a product varies with changes in price) will differ across goods.
Although setting higher tariffs on those products with inelastic demand (small responsiveness to price
changes) may in principle distort welfare less and maximize tariff revenue, tariff uniformity remains
desirable industry and tax policy objectives.  This is becau se trying to set tariff levels according to differences
in demand elasticities is in practice a high-risk strategy given that empirical measures of elasticities are
inevitably imprecise, and the potential resource costs of getting it wrong are high.  Thus, tariff uniformity is a
sensible "rule of thumb" policy goal on efficiency grounds, and is also desirable on grounds of transparency
and administrative simplicity.
Using high tariffs to raise government revenue adversely affects economic efficiency.  Tariffs tax only
foreign products.  A true consumption tax, such as a conventional VAT, would be non-discriminatory and tax
imports and domestically produced goods equally.  Thus, the protective effect of tariffs can be removed by
converting them to a true consumption tax by extending the same duty to domestic products (although in
practice many of these goods will not be produced locally).  Although a consumption tax and a tariff both
raise prices of domestically produced goods, tariffs benefit home producers by enabling them to sell at a
higher price equal to the duty-paid import price, wh ereas consumption taxes accrue to the Government as
revenue.
Source: WTO Secretariat.Papua New Guinea WT/TPR/S/62
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0102030405060708090100
1990 1995 1996 1997 1998Per cent of tax revenueChart III.1                                             
Government revenue structure, 1990 and 1995-98
Sourc e:  Bank of Papua New Guinea, Quarterly Economic Bulletin (various issues).Export taxes Personal taxesDirect taxes:
Company taxesOther direct taxes
Import dutiesExcise taxesIndirect taxes:
Other indirect taxes
(b) Tariff reduction programme
19. Under the Government’s structural adjustment programme, an eight-year programme of
phased tariff reductions (three years longer than the five-year programme initially announced in 1995)
was introduced from 1 July 1999, as part of a package of tax reforms which included the introduction
of a VAT.3  The programme reduced the number of tariff rates immediately from six to four by
lowering the "basic" and "input" tariffs on raw materials and capital goods from 5% and 11% to zero
(Table III.1).  Other rates were reduced immediately from 40% to 30% on intermediate goods (the"intermediate" rate);  from 55% to 40% on protected goods (the "protective" rate);  and to 55% for
duties that previously ranged from 75% to 125% (the "prohibitive" rate).  These new rates are to be
further phased down in three equal cuts of five percentage points to 15%, 25% and 40%, respectively,
by 1 January 2006.  The programme, passed by Parliament in 1998 as the Tariff (Tariff Reform 1998)
Act 1997, was initially to have begun on 1 January 1998, and then on 1 January 1999, following theGovernment’s White Paper on the Tariff Reform Programme presented to Parliament in late 1998.  It
was subsequently delayed for a further six months in tandem with the introduction of the VAT.  The
tariff reforms were an important component of the tax reforms.
                                                     
3 A previous reform programme announced in 1992 to apply a uniform tariff of 10% (with exemptions
for all capital inputs used in export activities and for essential foods), and a protective rate of 30% was neverimplemented.WT/TPR/S/62 Trade Policy Review
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Table III.1
Tariff reduction programme, July 1999 to 2006
(Per cent)
Tariff category Pre-1 July 1999a 1 July 1999 –
30 Dec.  20001 Jan. 2001 –
31 Dec. 20021 Jan. 2003 –
31 Dec. 20051 Jan. 2006
F r e e 0000 0
Input rate 5 0 0 0 0
B a s i c  r a t e 1 1000 0
Intermediate rate 40 30 25 20 15
Protective rate 55 40 35 30 25
Prohibitive rate 75-125 55 50 45 40
a Excludes temporary tariff surcharge of 1.5%, which was abolished on 1 July 1999.
Source: Government of Papua New Guinea.
20. The tariff reductions were based on a line-by-line review of tariff rates by the Internal
Revenue Commission, following wide consultation s with industry.  The new tariff rates were
structured to provide "prohibitive" and "protective" rates — and sometimes the "intermediate" rate —
on imports competing with domestic goods, or where production was considered possible(Table III.2).  Other goods, including especially inputs, were made free or subject to the
"intermediate" rate.  Tariff reductions were made in some cases on final goods because producers
would have benefited from lower costs due to reduced tariffs on major inputs.
Table III.2
Main areas of tariff protection, July 1999 to 2006(Per cent)
Tariff range
HS
2-digitMain areas of tariff protectionPre-July
19992006
2 Prohibitive rate on poultry meat & pork;  intermediate rate on bovine meat;  specific duty on  poultry 11-40 0-15
3 Protective rate on all fish & crustaceans;  bait duty free as an input to fishing 11-55 0-25
4 Specific duty on eggs to protect local industry by avoiding dumping;  protective rate on natural honey 11-55 0-25
5 Protective rate on feathers, ivory, shell & coral 11-40 0-15
6 Protective rate on cut flowers, foliage & branches for bouquets 0-55 0-25
7 Protective rate on all fresh, prepared & preserved vegetables 11-75 0-40
8 Protective rate on fresh & preserved fruit & nuts eg cashew nuts, bananas, pineapples, avocados, melons 11-55 0-40
9 Protective rate on coffee, tea & some spices e.g. dried or crushed chillies, vanilla, cardamom & ginger 40-55 15-25
11 Intermediate rate on flour products produced domestically 11-55 0-15
12 Protective tariff rate on peanuts & copra; intermediate rate on other products e.g. palm nuts & sugar cane 11-40 0-25
13 Prohibitive rate on vegetable saps and extracts of opium 11-55 0-40
14 Intermediate rate on vegetable materials for platting 11-55 0-15
15 Protective rate on palm oil, copra oil & palm kernel 11-55 0-15
16 Protective rate on preparations of meat & crustaceans;  higher tariffs on canned mackerel (govt
agreement)8-90 0-25
17 High sugar tariffs (government agreement);  protective rate on sugar confectionery 40-85 0-40
18 Protective rate on chocolate bars & confectionery;  intermediate rate on cocoa & cocoa products 40 0-25
19 Protective rate on food products e.g. instant noodles, crisps;  intermediate rate on other products e.g.
pasta11-40 0-25
20 Protective tariff on all preparations of vegetables, fruit & nuts;  baked beans 11-40 0-25
21 Protective rate on coffee & tea extracts, ice cream & cordials 11-55 0-25
Table III.2 (cont'd)Papua New Guinea WT/TPR/S/62
Page 55
Tariff range
HS
2-digitMain areas of tariff protectionPre-July
19992006
22 Protective rate on mineral & aerated waters, beer & spirits;  composite rates protect against dumping 0-125 0-40
23 Intermediate rate on animal feed 11-55 0-15
24 Composite rates to protect against dumping 11-125 40
25 Intermediate rate on cement 5-40 0-15
28 Intermediate rate on sodium hypochlorine (produced locally as bleach) 5 0-15
32 Intermediate rate on paint, lacquers & varnishes 11-40 0-15
33 Intermediate rate on cosmetics & toiletries 11-55 0-15
34 Protective rate on soap, detergents, bleaches & candles 11-55 0-25
35 Intermediate rate on glues & adhesives 11-40 0-15
38 Protective & intermediate rates on disinfectants & room deodorisers 11-55 0-25
39 Protective rate on plastic shopping bags;  intermediate rate on plastic goods e.g. pipes, hoses, plastic
bottles11-55 0-25
41 Protective rate on crocodile skin & leather 11-55 0-25
42 Protective rate on leather articles 11-55 0-25
43 Intermediate rate on furskin articles 11-40 0-15
44 Prohibitive rate on plywood, wooden frames, pallets & carpentry; intermediate rate on wood board 40-100 0-40
46 Protective rate on mats, screens & baskets 11-40 25
48 Protective rate on printed envelopes & toilet paper; intermediate rate on corrugated paper & paperboard 11-55 0-15
49 Protective rate on postcards, calendars, catalogues 0-40 0-15
56 Intermediate rate on fishing nets 11-40 0-15
57 Intermediate rate on carpets & textile floor coverings 55 15
58 Intermediate rate on lace, tapestries, braids & embroidery 11-40 0-15
59 Intermediate rate on wallpaper & textile wall coverings 11-40 0-15
61 Protective rate on knitted or crocheted clothing 409 15-25
62 Protective rate on clothing to assist production 11-40 15-25
63 Intermediate rate on all made-up textile articles 11-40 0-25
64 Intermediate rate on footwear produced locally 11-40 0-25
65 Intermediate rate on headgear 11-40 0-15
66 Intermediate rate on umbrellas 40 15
67 Protective rate on artificial flowers 11-55 0-15
68 Protective rate on cement pipes, prefabricated structural components, panels, boards, tiles & blocks 11-75 0-25
69 Intermediate rate on ceramic tableware & kitchenware 11-55 0-25
70 Protective rate on framed mirrors to protect carpentry industry; intermediate rate on unframed mirrors 11-40 0-25
71 Protective rate on jewellery 0-55 0-40
72 Intermediate rate on corrugated iron or steel 5 0-15
73 Protective or intermediate rate on products produced locally 11-55 0-25
74 Intermediate rate on household copper articles 11-40 0-15
75 Intermediate rate on nickel articles 11-40 0-15
76 Intermediate rates on aluminium kitchen & household articles 5-40 0-15
78 Intermediate rate on vats, reservoirs & drums 11-40 0-15
79 Intermediate rate on certain zinc articles 11-40 0-15
80 Intermediate rate on tin vats, reservoirs, drums & household articles 11-40 0-15
82 All hand tools & cutlery imported duty free 11-55 0-40
83 Protective rate on sign-and-name plates, crown forks, statuettes & bells;  intermediate rate on mountings 11-55 0-25
84 Protective rate on special machinery items 11-55 0-25
Table III.2 (cont'd)WT/TPR/S/62 Trade Policy Review
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Tariff range
HS
2-digitMain areas of tariff protectionPre-July
19992006
85 Intermediate rate on primary cells & batteries plus lead-acid for piston engines 5-55 0-15
86 Duty-free inputs 11 0
90 Intermediate rate on camera lenses & binoculars 0-55 0-15
91 Duty-free inputs 11 0
92 Duty free 11 0
93 Duty free 55 0
Source: Government of Papua New Guinea (1998), White Paper on the Tariff Reform Programme .
21. Tariff reductions were also partly financed by applying excise taxes on certain designated
luxury items to replace in part the high tariffs on these products.  For example, new passenger motor
vehicles, which were previously dutiable at a tariff of mainly 75% when imported, are from
1 July 1999 duty free but subject to an excise duty of 60% plus the 10% VAT, whether imported or
not (although in practice all vehicles are imported).  The excise duty was raised to 110% on passenger
motor vehicles with engine capacity of 2,800 cc and above in the 1999 Supplementary Budget.
22. The tax reform package was to be approximately revenue neutral.  The Government estimated
that the tariff reductions would reduce revenue by K 132 million in the first full year (1999-2000), butthat this would be offset by some K 77 million by additional revenue from the VAT and excise tax
changes.  This would enable the Government to compensate provinces for lost sales tax revenue.
23. The tariff and tax reforms should improve economic efficiency by substantially reducing the
unweighted average tariff rate from 20% - excludin g the temporary surcharge duty of 1.5%, which
was abolished on 1 July 1999 - to 9% currently, and to 5% in 2006.  The dispersion in duty rates hasalso been narrowed immediately from a standard de viation of 19 to 17 percentage points, and will fall
further to 10 percentage points in 2006 (Table III.3).
4  The average unweighted tariff in 1995 was
32%.  Since the major cuts in tariffs mainly affected lower duties initially, including the cuts on basic
and input tariffs to zero, the immediate reduction in the average tariff rate is much more pronounced
than the decline in dispersion.  These reforms will  help redress the discrimination provided by the
tariff against export activities.
24. The new tariff structure has increased the share of duty-free lines from 3% to 77%
(Chart III.2).  Nevertheless, it provides long-ter m tariff assistance at maximum rates of 25% and 40%
designed to protect a number of goods produced domestically, accounting for almost 15% of tariff
lines in 2006 — albeit substantially down on the previous share of 30% of tariff lines subject to ratesof 40% and above (Chart III.2).  A few goods with high tariffs, namely alcoholic beverages, sugar,
tinned mackerel, plywood, and tobacco products, have also been given preferential treatment under
the tariff reduction programme because of contractual obligations by the Government with domestic
producers (Table III.4).  Although the number of products  left with relatively high tariffs in 2006 will
be relatively small, they comprise a significant share of domestic production and are likely thereforeto have a substantial impact on resource allocation and the economy’s overall economic efficiency.
                                                     
4 These average tariff rates are derived from scheduled applied MFN rates and therefore exclude the
effects of tariff concessions and exemptions.WT/TPR/S/62 Trade Policy Review
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Table III.4
Products subject to different treatmen t under the tariff reduction programme
(Per cent)
Product description Pre-1 July 19991 July 1999 –
31 Dec. 20001 Jan. 2001 –
31 Dec. 20021 Jan. 2003 –
31 Dec. 20051 Jan. 2006
A.  Products subject to preferential phasing arrangements
Cane or beet sugar 85 82 76 70 40
Tinned mackerel 90 70 50 20 15
Plywood, veneered panels
and similar laminated wood100 95 85 75 40
Beer 125 55 or K 2.20/litre 50 or K 2.15/litre 45 or K 2.15/litre 40 or K 2.10/litre
Other fermented beverages K 1.00/litre 55 or K 2.20/litre 50 or K 2.15/litre 45 or K 2.15/litre 40 or K 2.10/litre
Spirits and liqueurs 55 55 or K 14.00/litre 50 or K 14.00/litre 45 or K 12.00/litre 40 or K 12.00/litre
Cigarettes 125 55 or K 40.00/litre 50 or K 40.00 /kg. 45 or K 35.00/kg. 40 or K 30.00/kg.
Certain other manufactured
tobacco products125 55 or K 15.00/litre 50 or K 15.00/kg. 45 or K 10.00/kg. 40 or K10.00/kg.
Twist tobacco 25 55 or K 15.00/kg. 50 or K 15.00/kg. 45 or K 10.00/kg. 40 or K10.00/kg.
B.  Products subject to immediate removal of high tariffs
Pre-1 July 1999
rate
Live cats, dogs and birds; cream & yoghurt;  human & pig hair; rice flour & certain malt;  certain animal fats & oils;certain cocoa preparations;  malt extract;  food sauces & ice cream;  acorns & horse chestnuts;  lubricating oils &
certain gases;  certain fruit;  glazier’s putty;  perfumes, polishes, creams & modelling paste;  miscellaneous chemical
products, e.g. brake fluid, ink removers;  certain plastics e.g. floor coverings, self adhesive strips, drinking cups;  certainrubber products, cork;  wood pulp & certain paper products;  certain printed matter;  worn clothing & rags;  certain
glass products;  & certain miscellaneous products.40
Poker machines & certain toys 150, 40
Photographic plates;  precious stones & metals;  & certain furniture 55
Certain vegetable saps & vegetable products;  ferro-cenum & other pyrophoric alloys;  densified wood, ice cream
sticks;  worked mica & other articles;  air conditioners, vending machines & freezers;  electrical parts for TVs, etc.55, 40
Source: Complied by WTO Secretariat, based on information supplied by the Government of Papua New Guinea.
25. Tariff rates, on average, in 2006 will remain over three times as high on agricultural products
than on manufactured goods, at 16% compared to 5%.  Prior to the reforms, the average tariff on
agriculture was only about double that of manufacturing.  Thus, average tariffs on agriculture are
being reduced by almost 60% compared with a 76% reduction for manufacturing, while mining,
previously with average tariffs of 13%, now receives zero tariff assistance.  This indicates that the
discrimination in the tariff against the manufacturing and mining sectors will increase and that thesesectors overall have incurred the greatest tariff cuts.  However, this must be qualified by the fact that
some items of manufacturing, including certain processed foods and timber products, have retained
relatively high tariffs compared to many other manufacturing activities.
26. The immediate removal of tariffs on imported raw materials and capital inputs would have
reduced the drop in effective rates of protection for certain manufacturers caused by reductions inhigh tariff rates on final goods.  Under the reforms, some tariffs on final goods (output tariffs) were
reduced to offset the benefits flowing to domestic producers from lower input tariffs.  It is conceivable
that effective protection may not have fallen significantly (or may have even increased) for
manufacturers of certain products subject to low redu ctions on output tariffs relative to their input
tariffs, at least in the short term until output tariffs fall further.
27. Some tariffs of 55% and mainly of 40% were not subject to phased reduction but were
reduced immediately to zero from 1 July 1999 (Table III.4).  These generally occurred on productsPapua New Guinea WT/TPR/S/62
Page 59
that are not produced locally or considered viable.  A few other products also incurred accelerated
reductions.  These included certain carpentry and joinery products, where tariffs of 100%, 75% and
55% were reduced immediately to 40%, to be phased down to 25% in 2006;  and certain stone and
cement panels, on which tariffs were reduced imme diately from 75% to 40%, to be phased down to
25% in 2006.
28. At the same time, tariffs were increased on a number of manufacturing and agricultural goods
reclassified so as to provide pockets of increased protection (Table III.5).  Tariff rates on these
products were mainly increased from 11% to 30% or 40% on 1 July 1999, and although being phased
down under the programme, most duties will remain above the pre-1 July 1999 rate in 2006.  The
Government foreshadowed the similar reclassificatio n of new goods, to receive increased tariffs, if
they needed protection to be produced in PNG.
Table III.5
Tariff increases, 1 July 1999(Per cent)
Product descriptionPre-1 July 1999
tariff rate1 July 1999 tariff
rate
Other foliage for wreaths Free 40
Artificial wreaths Free 30
Onions & shallots 40 55
Hams, cuts, shoulders of pork & kangaroo, chocolate milk & yoghurt drinks;  residual carbon
products;  vegetable plaiting materials11 40
Animal & vegetable fats & oils;  prepared sardines & tuna;  bakers’ mixes;  prepared baking
powders;  other vegetable materials;  non-dog and cat animal feed;  lacquers & varnishes;
propylene plates & sheets;  baths & basins;  other plastic packaging articles;  plastic reservoirs,
tanks; writing paper;  clothing labels & badges;  sacks & bags of jute, cotton & man-made fibresor other textile materials;  bridges & sections;  kitchenware parts;  battery parts;  tanker trailers &
semi-trailers & other trailers & semi-trailers11 30
Zinc-coated corrugated steel 53 0
Fermented beverages K 1.00/litre 55 or K 2.20/litre
Spirits 11 55 or K 14.00/litre
Source: Compiled by WTO Secretariat from information supplied by the Government of Papua New Guinea.
29. Several tariff rate changes were announced in advance in the 1999 Budget, including on
sugar, cement, plywood, and canned mackerel.  These were subsequently reduced to 76%, 40%, 95%
and 70% from 1 July 1999.  At the same time, a higher tariff of 100% was set on imported used cars,
compared with a tariff rate on new cars of zero from 1 July 1999 (previously 75%).
30. Since the 1996 Budget, 99% of tariff lines have been ad valorem .  Most will be maintained in
the reform programme, except mainly for imported live poultry, which is now duty free and no longer
subject to a specific rate.  They are mainly found on agricultural products and beverages, where some94% of tariff lines have ad valorem duties.  Specific rates apply on imported eggs, poultry offal, beer
concentrate, tobacco, and matches;  and alternate duties, applying whichever rate is the higher, on
bottled water, beer, spirits, and certain other alcoholic beverages and tobacco products.  These
non-ad valorem duties are to be phased down significantly by 2006.
(c) Tariff escalation
31. The long-term escalating tariff structure, with rates ranging from free to 40% in 2006, is
intended to encourage downstream processing.  However, when the rates to apply in 2006 are
averaged across processing stages, it appears that the reforms will make the PNG tariff structure moreWT/TPR/S/62 Trade Policy Review
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de-escalating overall, and in particular between unprocessed and semi-processed products.  Tariffs
are, on average, lower on semi-processed and processed goods then on unprocessed products.  The
current average tariff on unprocessed products is 16% compared with 3% on semi-processed goods
and 10% on fully processed products (Table III.3);  in 2006, the average tariff rates will be 10%, 2%
and 6%, respectively.  Thus, the tariff structure tends to discourage downstream processing of
unprocessed products, while encouraging the processing of semi-processed products.  Since PNG isprimarily a resource-based economy, this structure would appear unsuited to its longer term
competitive base of processing unprocessed products.  A more neutral tariff structure between
different stages of processing that does not discriminate against processing unprocessed products
would be economically more efficient.
(d) Tariff bindings
32. Papua New Guinea bound its entire tariff schedule during the Uruguay Round.  Agricultural
products were bound at a general rate of 45%, to be implemented by 2004, and other products at 40%.
However, a small group of items were bound at lower rates, mainly 11%, 20% and 30%, while very
much higher bound rates, mainly 55%, 75% and 100%, were applied to a larger group of agricultural
products including nuts, certain vegetable oils, and sugar.  These bound rates are to be implementedover variable time periods.  The tariff reduction programme was aimed at meeting PNG’s
commitments on tariff bindings.  However, during the programme, tariff rates on a few non-food
manufactured products may be above the bound level of 40%.
33. The Government intends to lower the general bound rate on manufactured products to 30% by
2006.  Meeting this objective would require further reductions in the top tariff rate of 40%, which will
apply in 2006 at the end of the current programme.
(e) Tariff preferences
34. Papua New Guinea applies MFN tariffs on imports from all countries except the
Solomon Islands, Vanuatu and more recently Fiji, from which  eligible imports are duty free under the
MSG Trade Agreement (Chapter II).  Some additional imports from Fiji are imported duty free, from
1 July 1999, following removal of the concesional 10% tariff.
(f) Tariff concessions
35. Several schemes operate to provide tariff concessions.  The Customs Act provides 24 classes
of tariff exemptions.  Some cover specific infrastructure projects, while others are either
organization-specific or use-specific, such as for the Lae Mackerel cannery and specialized mining
equipment.  Others are more general, and are considered on a case-by-case basis following
consultations with the ministers concerned, such as granting new manufacturers duty-free imports ofcapital equipment.  Requests for tariff exemptions are handled by the Internal Revenue Commission,
for final approval by the Minister of Finance (now Treasury and Planning).  Once authorized, the
tariff exemption order is gazetted.
36. Specialized mining and petroleum capital equipment that is not readily available in PNG is
exempt from duty for temporary importation in an approved use.  The importer must lodge a securityand undertake to re-export the equipment when the period has elapsed.  Mining and petroleum firms
also benefited from an Average Import Duty Ra te Scheme, which capped the duty on imported inputs
to an average tariff rate of 14.62% set with reference to the rates applied to a basket of nominated
products.  The Lihir, Ok Tedi, Mesima and Porgera gold mining projects and the Kutubu petroleum
project were granted this average duty rate on a range of imported inputs.Papua New Guinea WT/TPR/S/62
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37. Imports of aircraft and parts by a PNG registered company with a PNG airline operator’s
licence are duty free.  Similarly, a PNG registered shipping company may import all ships duty free,
including boats, ferries, tankers, and fishing vessels but not pleasure craft.  Registered PNG
companies may also import marine engines and outboard motors of up to 40 hp duty free.
38. Until recently, the minister also had discretion to grant tariff concessions on imported inputs
under the Pioneer Industries Act, and also in joint venture projects involving the Government.
39. The Government recognized that the past practice of providing largely discretionary tariff
exemptions and remissions were undermining the transparency of the tariff regime, and making it
more distorting.  For example, government tariff exemptions to specific commercial and donor funded
construction projects had undermined the growth of the private construction industry in PNG.  As
well as eroding customs tariff revenue in a discriminatory and at times obscure manner, they wereopen to misuse and political influence on behalf of vested interests in ways that harmed competition
and efficiency.  Import duty exemptions were estimated to be costing the Government around K 80 to
100 million annually in revenue forgone.
40. The Government announced in the 1999 Budget that all import duty exemptions would be
removed and that the Pioneer Industries Act would be terminated in order to eliminate distortions inthe market.  Almost all import duty exemptions were removed in April 1999.
(iii) Tariff quotas
41. According to the authorities, Papua New Guinea does not have tariff quotas on any products.
(iv) Other levies and charges
42. The tax reform package introduced on 1 July 1999 placed greater reliance on excise taxes as a
means of taxing consumption of certain products  to raise revenue. Legislation was amended in 1996
to separate the excise element from the tariff and to explicitly apply excise taxes to imports.Previously, excise taxes were technically levied only on domestic products, but the tariff included an
equivalent excise tax component.  Excise taxes have been extended from mainly alcoholic beverages
(beer, wine, and spirits), most fuels, and manufac tured tobacco products, to cover designated luxury
goods, such as motor vehicles.  The 10% excise tax on soft drinks was removed on 1 July 1999.
Excise rates have been ad valorem since 1996, except for specific duties on fuels.
43. Excise taxes are applied uniformly to imported and domestically produced goods and do not
discriminate against imports.  The tax base for imports is the c.i.f. value plus import duty.  For
domestic products, it is based on a prescribed "distributor price", which is tied to the actual
distributor’s selling price.  For cigarettes and tobacco products, the prescribed distributor’s price is the
list price.  In the case of beer, spirits, and soft drinks, the prescribed distributor’s price is tied to theaverage selling price.  The same excise rate applies to all alcoholic beverages;  thus high-alcohol
drinks have been taxed more lightly than low-alcohol drinks.  However, the prescribed distributor’s
price on spirits was raised from K 9.23 per litre to K 12.90 per litre on 1 July 1999 to remove this
differential taxation.
44. The tax reforms extended the coverage of excise taxes to motor vehicles and certain luxury
goods to fully or partially replace tariffs.  Excise rates currently range from 10% to 150%.
5  Apar t
                                                     
5 Excise tax rates range from 150% on poker machines and certain other gambling machines;  110% on
large-engined passenger motor cars;  60% on small-engined passenger motor cars, and arms and ammunition;40% on precious stones and metals;  30% on pure-bred breeding horses, perfumes, rolls of film, certain dryingWT/TPR/S/62 Trade Policy Review
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from alcoholic beverages and tobacco products, all excisable products are now free of import duty.
For example, new passenger cars are now importable duty free, but subject to an excise duty of 60%
(or 110% on large-engined passenger cars) following the Supplementary Budget;  and poker machines
are importable duty free, subject to an excise tax of 150% — equal to the previous import duty.
Excise duties on fuels, alcoholic beverages, and tobacco products were also raised in the 1999
Supplementary Budget.
45. The substitution of excise duties for tariffs on designated luxury goods will reduce the degree
of tariff protection provided to existing or potential domestic producers of such products, while still
taxing consumption.  While both tariffs and excise (or sales) taxes raise domestic prices, tariffs differ
by discriminating against imports.  Whereas tariffs protect domestic producers by enabling them to
charge higher prices than they could otherwise, excise (and sales) taxes afford no such protection,since they apply to imported and domestically produced goods alike.  Thus, while domestic producers
tend to be the main beneficiaries of tariffs, the Government gains from excise (and sale) taxes.  The
reformed tax structure should, therefore, enhance economic efficiency.  However, excise taxes are
best restricted to final consumer goods and not intermediate inputs to ensure that only consumption,
and not production, is taxed.  This can be a problem where excise taxes are applied on products thatare both consumed and used as inputs into production, such as fuels and motor vehicles.
46. Another cornerstone of the tax reform package was the introduction of a 10% VAT (see
section 4).
47. Licence fees are charged for permits covering several activities, such as for fishing vessels
and for foreigners obtaining work permits.  These were increased in the 1999 Budget from K 50 to
K 1,500 for a three-year permit, and new permits were introduced for expatriate employees of
family-run foreign-owned businesses costing K 5, 000 annually to encourage such businesses to
employ Papua New Guineans.
(v) Preshipment inspection
48. The Government instituted a preshipment inspection system in 1997 on imports (and exports).
The declared values and classifications of imports are checked, including physical inspection of goods
in the foreign port of export and upon importation.  These arrangements are compatible with WTOrequirements.  These services are supplied by a private contractor, Société Générale de Surveillance
(SGS).
(vi) Customs valuation
49. Since 1990, tariffs have been levied on the c.i.f. (cost, insurance and freight) value rather than
the f.o.b. (free on board) value of imports.  Without changing tariff rates, this increased dutycollections and also raised the level of tariff protection afforded domestic industries by some 15%.
6
50. Papua New Guinea became a member of the World Customs Organization in 1998.  The
Government is also implementing the WTO Agreement on Customs Valuation.  PNG uses six
customs valuation methods, the main one being the transaction value method.  This is the export price
                                                                                                                                                                    
machines, certain electrical appliances, such as s ound equipment and microwave ovens, certain optical
equipment;  and 10% on most transport equipment, except trailers.
6 The actual increase in tariff protection would have depended upon the difference between the f.o.b.
and c.i.f. price of imports.  This is given by the tran sportation costs of imports.  The larger these costs, and
hence the more the import’s c.i.f. value exceeds its f.o.b. price, the more tariff protection would have beenincreased by the change in valuation.Papua New Guinea WT/TPR/S/62
Page 63
paid by the importer adjusted in accordance with the customs legislation.  The other valuation
methods permitted in the legislation are "deductive", "similar", "identical", "computed" calculations,
and "fallback".  Where a customs valuation is in dispute, the goods can be cleared provisionally if the
importer lodges either a bank guarantee or cash deposit as security.
51. PNG does not set any minimum import or reference prices for customs valuation.  However,
the fallback value method, the valuation method applied of last resort, applies certain set values.
(vii) Import prohibitions, quotas and licensing
52. Import bans and quotas were previously used to encourage domestic manufacturing
industries, such as canned beef, sugar, cement, vegetables, flour, batteries and canned mackerel.
These import bans and quotas were removed, mainly by 1996, and converted to protective and
prohibitive tariff rates, ranging mostly from 30% to 80%, with some higher rates.  The import ban oncanned beef was converted to a tariff of 55% in 1994, for example, and the ten-year ban on sugar was
replaced with a tariff of 85% in 1997.
53. According to authorities, PNG no longer operates  any prohibitions or import quotas.  Many of
the high tariffs remaining and receiving special "phasing down" treatment are a legacy of
"anti-competitive" arrangements negotiated by previous governments (Box III.2).
Box III.2:  Examples of industries subject to special arrangements
These arrangements usually involved the Government effectively granting monopoly status by initially
applying import bans and quotas, and more recently by  converting these to high, often prohibitive, tariffs.
Examples of industries protected in this manner in the past include:
- the cement plant at Lae, designated as the sole supplier of this vital input and supported initially by an
import ban;
- the sugar refinery at Ramu, initially granted a ten-year import ban, and continues to produce refined
sugar that is of poor quality;
- the mackerel cannery at Lae, provided with an import ban on canned mackerel;
- the corned beef cannery at Madang, initially granted monopoly production and import status which,
after court action, was removed by the entry of a new cannery;  both were supported by a seven-year
import ban on canned beef.
These arrangements continue to inflate the domestic price of many key inputs, thereby penalizing
downstream users and exporters.
Source: REPIM (1996), "Growth with Stability:  Monetary and Fiscal Policy in Papua New Guinea", in
Temu (ed), Papua New Guinea:  A 20/20 Vision , National Centre for Development Studies,
Australian National University, Canberra.
54. PNG maintains import licensing only to protect national health and security, such as on
imports of dangerous drugs, pornographic material, and firearms;  licences are issued by the Health
Department and Police Department, respectively.
55. PNG bans the importation of certain pesticides for agricultural use, namely DDT, Chlordane,
Dieldrin and Endrin, because of environmental conc erns.  As a party to the Montreal Protocol onWT/TPR/S/62 Trade Policy Review
Page 64
Substances that Deplete the Ozone Layer, it also  bans imports of CFCs and other ozone-depleting
substances.  It also belongs to Basle Conv ention on Control of Transboundary Movement of
Hazardous Wastes and their Disposal.
56. Import restrictions apply on wild fauna and flora under the Convention on International Trade
in Endangered Species of Fauna and Flora (CITES).  These are contained in the International Trade
(Fauna and Flora) Act of 1979.  The crocodile industry is regulated by the Crocodile (Trade andProtection) Act 1974.
57. PNG applies trade embargoes in compliance with UN Security Council Resolutions.
However, there are presently no trade embargoes affecting PNG trade.
(viii) State trading and countertrade
58. Papua New Guinea is not involved in countertrade and has no state trading activities
controlling imports.  All trade is conducted under normal commercial terms.
(ix) Import cartels
59. There are no known import cartels operating in PNG according to authorities.
(x) Local-content requirements
60. According to authorities, Papua New Guinea has no local-content requirements for domestic
production.  Nevertheless, as discussed in Chapter IV, PNG maintains mandatory requirements for
licensed foreign vessels fishing in its exclusive zone.
(xi) Rules of origin
61. The MSG Trade Agreement with the Solomon Islands, Vanuatu, and Fiji stipulates certain
rules of origin requirements based on changes in HS (6-digit) classifications.  These must be met for
goods to receive preferential tariff access to PNG.
62. The Government intends to align national rules of origin with those of the World Customs
Organization, and those of regional preferential tariff schemes.  It has taken steps to issue origin
certificates for PNG goods under regional trade arrangements.
(xii) Trade remedies
63. PNG has anti-dumping and subsidy provisions in its Customs Tariff (Dumping and Subsidies)
Act.  The Government may impose dumping duties on goods dumped below "normal value" andcausing or threatening to cause injury to the domestic industry.  The legislation permits anti-dumping
action to be either on particular goods;  goods exported from a particular country;  goods contained in
a particular shipment;  goods exported by a particular exporter; or any other specification of goods.
All dumping duties must be gazetted.  However, according to authorities, PNG has not used such
measures, although a recommendation to apply anti-dumping duties on cement imports is currentlywith the Government.  The 1999 Budget also referred to the imposition of a levy of K 3 on imports of
barracuda as an anti-dumping measure.
64. Alternate tariff rates with a floor specific duty have been applied to cigarettes, tobacco, beer,
and spirits to guard against possible dumping practices.  This specific duty rate is to be linked toPapua New Guinea WT/TPR/S/62
Page 65
movements in the kina exchange rate.  Specific duties have also been applied to some other products,
such as eggs and poultry meat, to guard against the possible dumping of cheap products.
65. From 1 July 1999, ministerial responsibility for anti-dumping was shifted from the Minister
of Foreign Affairs and Trade to the Minister of  Treasury and Planning.  Administration of the
anti-dumping legislation now rests with the Intern al Revenue Commission.  Dumping of products is to
be countered in future through the imposition of anti-dumping duties rather than the use of specifictariff rates.
(xiii) Measures implemented in exporting countries
66. The Government has no agreements with foreign governments or enterprises designed to
influence the quantity or value of goods and services exported to Papua New Guinea.  According to
the authorities, no firm in PNG is party to any such VER arrangement.
(xiv) Other measures
67. Papua New Guinea does not maintain any surveillance measures on imports.  It has declared
several centres as free-trade zones.  These are Vanimo, Daru, Buka and Kerema.  All zones are in
their early stage of development.
68. No import restrictions are, or have been, applied by PNG under WTO balance-of-payments
provisions.
(3) M
EASURES DIRECTLY AFFECTING EXPORTS
(i) Registration requirements
69. Exporters do not need to be registered but must have a tax file number.
(ii) Export taxes
70. Papua New Guinea imposes export taxes, principally for revenue purposes, on the f.o.b. value
of a range of products, payable before shipment.  Taxes of 5% apply to exports of sea cucumbers,mineral ores and concentrates, and crocodile skins
7; 15% on rattan (cane), when exported
unprocessed;  and higher progressive rates on round logs.  Exports of Sandalwood attract a flat rate
tax of 15%.  Export taxes were lifted on marine products, except for bêche de mer, in the 1997 Budget
because of the decline in export prices.
71. Progressive export taxes on logs were introduced in 1996 comprising six incremental steps
from a rate of 15% for logs valued up to K 90 per cubic metre f.o.b. to a maximum rate of 70% for
logs valued over K 200 per cubic metre.8   These changes superseded a previously announced plan to
replace export and other forestry taxes with a system of stumpage fees.  Following the collapse in
world prices in 1997, logs valued up to K 130 per cubic metre were exempt from export tax from July
1998, but this exemption was removed in the August 1999 Supplementary Budget.  Export taxes, 95%of which come from logs, represented around 10% of government tax revenue.  This was expected to
fall to 3% for 1998.
                                                     
7 The 5% export tax was removed in 1994 for gold and silver produced by small-scale alluvial miners.
Under mining agreements, Bougainville, Ok Tedi, Misima, Porgera and Kutubu are not subject to export taxeson gold, copper, and crude oil.
8 Previously tax rates on logs were related to tree species and ranged from 26% to 46%.WT/TPR/S/62 Trade Policy Review
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72. Export taxes on unprocessed logs are seen as a means of capturing the resource rents
associated with natural-resource-based products, and also to promote downstream value added.
However, like import tariffs, export taxes are distorting.  They are an inefficient means of taxing
resource rents, such as from forests.  Contrary to their intended effects, export taxes can also provide a
disincentive to conserve natural resources by reducing domestic log prices and diminishing the
economic value of forests.  Export taxes compound the anti-export bias, albeit reduced significantlyfollowing recent reforms, inherent in PNG’s tariff structure and its policy of supporting an
over-valued kina.  They also constitute assistance to inefficient domestic downstream processors by
providing access to raw materials, such as round logs, at well below world prices.  Such assistance is
in addition to that accorded processed products, such as plywood, which also receive high tariff
protection against imports (Box III.3).  Export ta xes are also prone to tax evasion through mis-
classification and under-declaration of f.o.b. values.
Box III.3:  Promotion of downstream processing
Many developing countries, such as PNG, tax or ban exports of natural-resource-based commodities, such
as logs, to promote greater domestic value added by encouraging downstream processing.  The expectation
is that these restrictions will boost economic activity by generating employment and raising export receipts,
and help conserve forests.  However, the efficacy of using export restrictions to achieve these economic and
environmental objectives is questionable.
Taxing or restricting exports of the primary resource assists 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.  Domestic prices would be expected to
fall by the full amount of the export tax, or where the taxes are prohibitive or export of the logs banned, by a
potentially larger amount.  Because export restrictions lower input prices, they can provide substantial
effective rates of assistance to value added by downstream processors.  This is particular the case for
processed wood products that also receive high tariff assistance.  Indeed, if the implicit input subsidy and
tariffs become large enough, the downstream processed activity may subtract, rather than add value.  Such
inefficient processing would be economically undesirable and would risk frittering away the economy’s
natural resources without any lasting benefit to the country.
This is the case for plywood and other laminated boards in PNG, which continue to be subject to high tariffs
of currently 95% (down from 100%) while also benefiting from the export tax on logs (Chapter IV).
Source :  WTO Secretariat.
(iii) Export prohibitions, controls and licensing
73. Export permits and licences are required primarily for primary commodities, and are issued
by the respective department responsible.  For example, log exports require an export licence from the
PNG Forest Authority, and are subject to guidelines on minimum export prices.  Agricultural exportlicences are issued by the Department of Agricultur e and Livestock, including for copra, cocoa, and
coffee, and by the Department of Fisheries for marine products.
74. A log export-monitoring and surveillance scheme is provided by SGS to control avoidance of
export taxes through under-invoicing or mis-specification of export amounts.  The highly progressive
structure of export tax rates increases the incentives for such evasion.  Some 70% of log exports arecovered by SGS surveillance.  The Government is considering whether to continue using SGS.Papua New Guinea WT/TPR/S/62
Page 67
75. Exports of certain unprocessed log species and raw rattan are banned.  Banned logs are
conifer, ebony, cordia, balsa, teak, rosewood and black bean, but these can be exported as sawn
timber.  These controls are again aimed at encouraging domestic processing.
76. Exports of flora and fauna may be prohibited or subject to license under the Convention on
International Trade in Endangered Species (CITES).  These are contained in the International Trade
(Fauna and Flora) Act.  This Act also lists native species for which export permits are not required forenvironmental reasons, and include mainly fish, crustaceans and several food crops, such as coconuts,
sugar cane, and betel nuts (Schedule 4).
(iv) Export quotas and voluntary restraints
77. Papua New Guinea does not, according to its authorities, maintain export quotas or voluntary
export restraints.
(v) State trading
78. The Copra Marketing Board, a wholly government-owned statutory trading company, has
exclusive rights to the domestic and international marketing of copra as part of the Government’s
marketing arrangements.
(vi) Export subsidies
79. Papua New Guinea does not provide export s ubsidies per se.  However, exports have
benefited since 1984 from principally two income tax concessions that reduce tax payments on export
profits.  Export income is exempt from tax for the first three years of export.  For the next four years,
income growth above the average income level for the previous three years is also exempt.  The
income tax exemption is available to firms producing new manufactured products - as defined in the
Industrial Development (Wage Subsidy) Act 1984 - or a wide range of other prescribed processed
goods, such as food products.
9  A double deduction for income tax purposes also applies to
expenditure on export market development costs.  This covers goods fully manufactured in PNG or
with local labour costs exceeding 10% of the product’s price.  Unprocessed primary commodities and
services, such as tourism, are ineligible.
80. These concessionary schemes target manufactured exports, and thereby discriminate against
other exports, including non-processed products and services.
(vii) Duty drawback and tax concessions
81. The lack of an effective duty drawback system in PNG administered by the Internal Revenue
Commission has compounded the anti-export bias of past import protection policies.  Changes to the
Customs Act in 1996 were aimed at accelerating the payment of duty refunds by allowing them to be
offset against future import duties.  Recent changes have also been taken to ease the administrativedemands of the scheme, such as relaxing the need for ministerial approval, government gazettal of
every refund, and reduced paper work and supervision of exports (Customs Regulations).  Proposals
were again announced in the 1999 Budget to offer exporters an export duty credit on import duties.
82. However, the tariff reforms from 1 July 1999 have eliminated virtually all tariffs on imported
inputs, thereby removing the need for a duty drawb ack system.  Although exporters are still penalized
                                                     
9 New products for which import parity pricing is prevented due to tariff are ineligible.WT/TPR/S/62 Trade Policy Review
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by the tariff regime, for example, through the exchange rate and adverse effects on resource-use
efficiency, these imposts are not compensated for by any drawback scheme.10
83. All exports (except logs) are zero-rated for VAT purposes.  Thus, VAT is not levied on
exports, and exporters can claim a tax credit for VAT paid on inputs.  This will reduce the bias against
exports.  However, exporters are still penalized by excise taxes paid on fuels.
(viii) Export finance and promotion
84. Such schemes do not exist in PNG according to authorities.
(ix) Export-processing zones
85. The government intends to develop free-trade zones into export-processing zones.
(x) Other measures
86. No export cartels exist in Papua New Guinea according to authorities.
(4) INTERNAL MEASURES
(i) Taxation
(a) Indirect taxation
87. As discussed earlier, a key feature of the tax reforms in 1 July 1999 was the introduction of a
10% single-rate VAT on goods and services, subject to limited exemptions such as health andeducation services.  VAT revenue (and excise duties) was used to fund the significant tariff reductions
and the removal of provincial sales taxes, in return  for provinces sharing in the VAT revenue with the
national Government.  Provincial sales taxes, previously levied at a general rate of 3% but with higher
rates of up to 5% on cigarettes and alcohol, were abolished.
11  The VAT on rice is being phased in
over three years using a rebate system.  A registration threshold of K 100,000 annual turnover exists
to simplify tax administration.12
88. All exports are zero-rated, except for logging. Logs are exempt from VAT, whether or not
exported, but are not entitled to tax credits for VAT paid on inputs.  The treatment of mining and
petroleum exports is still under consideration following several announcements.  The latest proposal,
considered in the 1999 Budget, allows for zero-ratin g of exports, along with full tax credits on inputs,
with a new mining tax of 4% of assessable income levied from 1 July 1999.  The 4% mining tax is
designed to recoup the estimated windfall gains that would otherwise accrue to the mining sector fromthe tax reforms. The sector claims that the levy is too high and that these arrangements would
effectively increase its overall tax burden, partly because a tax credit is no longer given for the
                                                     
10 By reducing imports, tariffs raise a country’s exchange rate above what it would otherwise be,
thereby reducing export returns in domestic currency.
11 Although at relatively low rates, provincial taxes were applied to each transaction, thereby resulting
in double and cascading taxation.
12 Small businesses are to be compensated for VAT pa id on inputs with a tax credit for a prescribed
share of their purchases.  Wholesale purchasers of cocoa, coffee, and copra will receive a deemed input credit of1% of the value of their purchases.Papua New Guinea WT/TPR/S/62
Page 69
increased royalty payment of 0.75%, which is instead tax deductible for company tax purposes.13
These arrangements are being reviewed by a Tax Taskforce.
89. Providing full tax credits for VAT paid on inputs to mining, petroleum, and logging firms
when they were also benefiting from the elimination of tariffs on imported inputs would have given
them large windfall gains.  The Government therefore was keen to cushion the loss to government
revenue.  However, subjecting these sectors to different rules will effectively penalize exports.  Suchdiscriminatory treatment is inconsistent with the tax reform objective of tax neutrality, which would
improve economic efficiency.  While tax authorities have indicated this differential treatment will be
temporary, no time limits have been set.  The additional 4% mining levy is to be reconsidered in the
2000 Budget.
(b) Direct taxation90. Mining and petroleum companies are subject to higher income taxes than those in other
sectors.  Large resident mining, petroleum, and gas ventures pay company tax rates of 35%, 50% and
30%, respectively, compared with a non-mining rate of 25%.  A dividend withholding tax of 17% also
applies to company dividends from mining but not petroleum firms.
14  A special additional profits tax
of 35% for mining and 50% for petroleum applies to income exceeding designated rates of return -20% for mining and 27% for petroleum - after the investment is fully recouped.
15   The tax rate on
smaller scale mining projects was reduced from 35% to the general rate of 25% in 1995.
91. Mining income tax is paid in foreign currency directly into the Mineral Resources
Stabilization Fund at the Central Bank where it is in vested in Treasury Bills until allocated in the
national budget.  The Fund’s estimated balance of K 686 million at end-1998 was down from its peak
of K 695 million in December 1997.  While its objective is to stabilize government budgets and to
sterilize the domestic liquidity effects of mining booms, this was undermined by legislative changes in1994 to allow these funds to secure commercial offshore loans.  The previous Government rejected
using these provisions again to secure a foreign commercial loan.  The Fund’s balances have been
allowed to rise despite excessive accumulation of public debt.  The 1999 Budget foreshadowed a
review of the Fund and its functions.
92. The Government imposes a base royalty rate on mining and petroleum projects of 2% of the
f.o.b. value of production, increased from 1.25% in 1996.  This royalty is paid to landowners.
Logging companies also pay royalties to landowners:  these are specific rate royalties that increase
with the export price of logs.  They range from K 10 per cubic metre on logs with a f.o.b. price of
K 90 per cubic metre and below, up to K 23 plus 7.5% for logs above K 200 per cubic metre.
(c) Tax measures93. The Government has extended financial assistance to industry, often on a discretionary basis,
through a range of tax concessions and incentives.  These measures assist selective recipients in the
same way as direct government outlays, either by reducing their tax payments overall or, as in the
                                                     
13 The sector estimated that the initial proposal to zero-rate petroleum and mining exports but to limit
tax credits to three quarters of VAT paid on service inputs would cost K 50 million annually in additional tax.
In 1997, a levy-production system was proposed whereby the sector would be granted full tax credits for VAT
paid on inputs but would no longer receive a tax credit for increased royalty payments.
14 This may be reduced to 15% for non-resident shareholders in countries having a double taxation
agreement with PNG.
15 Additional profit taxes have not been paid sin ce the Bougainville Panguna mine was closed in 1989.WT/TPR/S/62 Trade Policy Review
Page 70
case of accelerated depreciation arrangements for income taxes, by deferring tax payments.16  T a x
concessions and incentives erode the tax base, thereby compounding the Government’s difficult
budgetary position. Most are difficult to justify on economic grounds (Table III.6).
Table III.6
Main fiscal incentives
Type of incentive Effect of incentive Assessment according to economic
efficiency principles
Rural development incentive
Income tax exempt for up to the first ten years Limited use If a firm cannot make a profit it is
generally not likely to be making a
worthwhile contribution to the economy;Addressing infrastructure constraints and
resolving law & order problems are
considered to be far better means of
ensuring rural development
Losses are deductible against other income All losses from genuine business activities
should be deductible against any taxable
income
Double deduction for export marketdevelopment costs
Eligible expenditure includes overseas publicity
& advertising, market research, tender
preparation, samples, trade fair expenses,
overseas sales & office expensesRarely used due to lack of publicity All genuine business expenses should be
fully deductible only once unless there are
clear externality effects
Pioneer industry scheme
Tax holiday of five years for investment in new
manufacturing activitiesActed as a disincentive for non-pioneer
firms to enter the industry where an
incumbent firm has pioneer status.
Extensive lobbying has been encouraged
e.g. logging industryIf a venture cannot earn a taxable profit it
is generally unlikely to make a worthwhile
contribution to the economy; Discretionary
arrangements facilitate wasteful lobbying
and possibly corruption
Various depreciation provisions
Capital assets can be written down faster than
otherwiseCommon provision All genuine business expenses should be
fully deductible.  Full and immediatedepreciation or its real equivalent is
justified.  However, the provision should
apply to all genuine business activities, notjust to particular sectors.  Unlimited carry
forward of genuine business losses is
justified
Expenditure for agriculture, fisheries exports &dive/tourist boats can be written off in the initial
year
Industrial plant & buildings for storage areeligible for increased depreciation of up to 100%
of cost, provided a loss is not created for any one
year
Table III.6 (cont'd)
                                                     
16 Deferred tax payments assist recipients by providing them with an interest-free loan.  The amount of
this assistance, and the cost to the Government, is the value of the interest rate concession.Papua New Guinea WT/TPR/S/62
Page 71
Type of incentive Effect of incentive Assessment according to economic
efficiency principles
Training levy
All businesses with annual payroll above
K 100,000 are subject to a 2% levy on wagesRevenue steadily increasing A payroll tax is likely to be an efficient tax
in PNG since the burden will fall in
workers’ income rather than investment &
job creation.  No evidence that the tax is
stimulating genuine training
Qualifying expenses incurred in training citizenemployees can reduce the levyUsed by companies to reduce levy but
unclear whether training is occurring or
whether creative accounting is being used
to reduce tax liability
Wage subsidy
Firms manufacturing new products receivepayment for up to five yearsNo great awareness and not contributed
greatly to additional jobsWage subsidy is preferable to tariff
protection for particular sectors, but it
needs to be assessed in terms of a more
comprehensive cost-benefit evaluation
Staff training cost
Double deduction for wages of apprentices &75% of certain training expenditureMore information needed to assess effects Normally deductions should not exceed
the value of expenditure but externalities
can justify training incentives
Exemption of certain interest income
Interest income on deposits with licensed
financial institutions, approved fixed interest
securities & approved foreign deposits are
exempt from income taxConsidered effective to create incentives to
save but there is an important distortion in
that the exemption does not apply to
Treasury billsWith an income tax system savings are
effectively taxed since income is taxed.
This justifies certain exemptions for
capital income but in principle all capital
income should be taxed in the same way
Source: AusAid (1998), "Papua New Guinea:  Coping with Shocks and Achieving Broad-Based Economic Development",
Australian Agency for International Development, Report prepared by Economic Insights Property Ltd.,International Development Issues , No. 52, May, Canberra.
94. Tax measures also encourage wasteful lobbying and other rent-seeking behaviour by the
private sector, just like tariffs and other forms of import protection.  This is especially so when wide
discretion exists in their use without clear and objective criteria.  Possible misuse for mainly political
reasons can heavily distort commercial decisions, thereby undermining competition and marketefficiency.  For example, the five-year tax holidays provided until recently, under the Pioneer
Industries Act, to a "pioneer" firm in an industry, deterred competition from new entrants ineligible
for such concessions, and were subject to political influence.  By narrowing the tax base, such
incentives also discriminate against other taxpayers, who incur higher taxes as a result.  These
incentives in PNG assisted individual firms often against the national economic interest.
95. The Government terminated the Pioneer Industries Act in January 1999, while
"grandfathering" existing incentives.  Provision of incentives is to be rationalized under the
Investment Promotion Authority using the income tax and customs legislation.
96. Many of these tax measures were granted to encourage foreign direct investment.  However,
international experience suggests that such incentiv es are usually costly in revenue forgone and
provide only obscure benefits (Box III.4).  Foreign investment is usually determined by more
important commercial factors, such as the political and economic stability of the host nation, as well
as its commercial potential.  Evidence also suggests that any investment attracted by these incentives
alone is likely to be inefficient and easily withdrawn should the incentives stop.  This is hardly the
kind of investment needed to provide for long-term development.WT/TPR/S/62 Trade Policy Review
Page 72
Box III.4:  Effectiveness of investment incentives
Incentives for investment, notably tax holidays, are used in Papua New Guinea.  The main aim of these
incentives is to attract foreign direct investment (FDI) and thereby develop local industry oriented towardsexports.  While it is difficult to judge the extent to which incentives have actually attracted FDI toPapua New Guinea, there are grounds for doubting the effectiveness of such measures, based on evidencefrom other economies.  Moreover, in some instances the use of incentives may even be counterproductive.
In the first place, access to incentives is seldom among the main determinants of business decisions.  This has
been confirmed repeatedly by business surveys.  Proximity to markets, the availability of sufficiently skilledlabour at relatively low cost, adequacy of essentia l infrastructure, and a stable economic and legal
environment are usually much more important.  Other countries' experience with evaluation of tax andnon-tax incentives suggests that the cost of such measures to the Government (in terms of expenditure or tax
revenue forgone) may exceed the investment generated.  Their high cost is related to the difficulty in
identifying incremental investment that would not have been undertaken without the incentive.
Tax cuts for foreign multinational enterprises (MNEs) th at are taxed in their home countries purely on a
residence basis (that is, they receive a full credit for taxes paid abroad) may have little or no effect on theincentive for those firms to invest in the country offering such relief.  Such cuts would provide an effectiveincentive only insofar as MNEs are in an excess foreign credit position, taxes on repatriated income can be
deferred, the MNE's home country exempts foreign-source income from domestic taxes, or "tax sparing" is
allowed by double taxation treaties.
To the extent that incentives do stimulate particular types of investment, they may result in a less efficient
allocation of national resources than would be the case if the Government remained neutral and refrainedfrom influencing private decisions.  Any adverse effect of incentives on resource allocation would manifestitself as lower total factor productivity (TFP).  The be lief that foreign investment should be assisted because
it yields social benefits (externalities) that are not ad equately taken into account by private investors, would
appear to be overstated.  Most benefits of foreig n investment accrue privately and hence do not need the
incentives.  Moreover, it does not provide a justification for assisting foreign over domestic investment and,since it is usually extremely difficult to measure such externalities precisely, there is always the likelihoodthat incentives will turn out to be excessive.
Incentives are usually expensive for the Government, involving large losses in tax revenues.  A tax system
embodying many special incentives is also much more susceptible to tax avoidance and evasion, whichfurther contribute to the loss in tax revenues.  Incentives therefore tend to worsen the fiscal balance, reducingnational savings and causing deterioration in the current account balance.
Lastly, use of investment incentives may provoke countermeasures by trading partners.  Even where they do
not contravene the WTO Agreement on Subsidies and Countervailing Measures, other countries may use
them to justify countermeasures.  In particular, countr ies may react by adopting incentives of their own, thus
resulting in a beggar-thy-neighbour situation.  Such an "incentives race" or "incentives shopping" tends to beharmful to all countries concerned.  It is also likely to disadvantage developing countries.
Rather than offering incentives to attract foreign investment, governments might instead focus on removing
existing impediments that deter investment.  Countries often have a mix of policies that simultaneouslyimpede and encourage foreign investment.  Rationalizing these policies to remove impediments is likely to be
the best approach.
In the case of taxation, the most efficient means of removing the specific obstacle to FDI posed by
international double taxation of profits earned by foreign companies in Papua New Guinea may be doubletaxation treaties with the governments of the countries in  which foreign investors reside.  In this way, MNEs
investing in PNG could obtain relief for taxes levied by the PNG Government.  At present, PNG is looking toextend the number of double taxation treaties it has with other governments.  Development of a tax treaty
network would obviate the need for investment incentives, notably tax holidays, and be a more effective
means of attracting FDI.
Controlling the prolific use of investment incentives has been the subject of a number of recent discussions,
including among OECD Members and in the WTO 1996 Annual Report.
Source:  WTO Secretariat.Papua New Guinea WT/TPR/S/62
Page 73
(ii) Standards and other technical requirements
(a) Standards, testing and certification
97. Papua New Guinea does not have well developed procedures for setting technical standards.
National standards were set since 1993 by the National Institute of Standards and Industrial
Technology.  The Investment Promotion Authority now administers these functions.  The
Government aims to align national standards with international norms, especially on food labelling,electrical and electronic appliances, as well as plastic and rubber products.  PNG is a member of
various international standards bodies, such as the International Organization for Standardization
(ISO) and the International Electrotechnical Commission (IEC).  Fish processors, for example, must
comply with the new Food Sanitation Act, which meets the standards of the Codex Food Code.
98. There are over 1,400 national standards in PNG.   About 50% are based on ISO norms and less
than 10% on IEC standards.  The rest are mainly Australian and New Zealand standards.  Most
standards are set for health and safety reasons, on chemical and hazardous fertilizers and herbicides,
construction equipment, and building hardware.  Environmental standards apply on food,
pharmaceuticals, electro-medical equipment, household and industrial chemicals, cosmetics, and
beauty products.  According to the authorities, these standards are applied to imports and domesticallyproduced goods without distinction.
99. PNG intends to sign mutual recognition arrangements in metrology, food, and toys.  It is
developing arrangements for national accreditation and certification of bodies to conduct conformity
testing.  This includes plans to develop a National Certification System of Conformity Testing.  No
accredited testing institution currently exists.  Future accreditation is to be based on ISO guidelines.
PNG usually recognizes test results from reputable overseas institutions. However, exports from such
suppliers have sometimes been required to undergo PNG testing.
(b) Health, sanitary and phytosanitary regulations
100. The Animal and Plant Disease and Control Acts and the Quarantine Act prohibit imports of
animals, plants and their products without an import permit.  Applications for import permits must
include an original certificate of origin from th e manufacturer and the appropriate authority in the
exporting country, and be submitted at least six weeks before exportation.  If the import is from anon-established trading partner, a permit will be issued only after PNG officers undertake a country
veterinary assessment at the expense of the importer.  This takes a minimum of 18 months.  Imports
must comply with the terms and conditions specif ied in the permit.  Once imports are satisfactorily
inspected, a Permit to Land is issued.
101. Special conditions apply to imports of certain live animals, mainly cattle, horses, sheep, goats,
pigs, birds, dogs, cats, bees, and live fish.  These may only be imported from Australia and
New Zealand.  Special conditions also apply to an imal products, some of which cannot be imported
from countries other than Australia and New Zealand (Table III.7).
102. Plant and related materials are classified as either prohibited or restricted.  Prohibited plants,
comprising betelnuts, breadfruit, sugar cane, passionfruit, sweet potatoes, taro, and yams, may only beimported for research purposes by a recognized institution.  Imports of Barberry, Indian hemp,
cocaine and water hyacinth are prohibited outright.  Import restrictions cover a wide range of plants
and related materials (Table III.8).WT/TPR/S/62 Trade Policy Review
Page 74
Table III.7
Quarantine restrictions on imports of animal products
Product Australia New Zealand Other countries of origin
Fresh, chilled, frozen meats
& smallgoodsYes Yes, but not pig meats or small
goods containing pig meatProhibited, except for beef from Vanuatu
Canned meat and poultry
(other than pig meats)Yes Yes, but not pig meat Yes, subject to manufacturer’s declaration
on heat treatment & veterinary certificate
Canned pig meats, pork &
hamYes Yes, as for other countries Yes from U.S., Canada, Eire, UK, the
Netherlands & Denmark, subject to
manufacturer’s declaration on heat
treatment & veterinary certificate.  Other
countries must be free of certain diseases
Dairy products Yes Yes Yes for liquid milk and cheese, subject to
manufacturer’s declaration on heat
treatment & veterinary certificate
Meat, blood & bone meal Yes, subject to manufacturer’s
declaration on heat treatment &
veterinary certificationYes, as for Australia Prohibited
Honey & other bee products
- liquid or 
powdered honeyYes, subject to manufacturer’s
declaration on heat treatment &
veterinary certificationYes, as for Australia Prohibited
- liquid royal jelly Prohibited Prohibited Prohibited
- beeswax & used 
bee-keeping 
equipmentProhibited Prohibited Prohibited
Miscellaneous foodstuffs
- eggs Yes Yes Yes, as a component of canned foodstuffs,
subject to manufacturer’s declaration on
heat treatment & veterinary certification.
Prohibited in all other forms
- noodles Yes, for both plain & egg noodles Yes, as for Australia Egg noodles prohibited.  Plain noodles
allowed subject to manufacturer’s
declaration of no egg content, endorsed by
a government veterinary officer
- pet food As for canned or processed
foodstuffsAs for canned or processed
foodstuffsAs for canned or processed foodstuffs
- margarine Yes Yes Yes, subject to manufacturer’s declaration
that it contains no animal material but only
vegetable or fish oils
- canned seafood Yes Yes Yes
Source: The authorities of Papua New Guinea.
103. Imports of all vegetables (except onions), and fruit that can be grown in PNG are banned.
Fruit not available in PNG is subject to an "on-quota" list and requires an import permit (Table III.9).Onions may only be imported by a holder of a fruit import permit.
104. According to PNG authorities, quarantine regulations have been based on risk assessment
taking into account the relevant health status of the country of origin.Papua New Guinea WT/TPR/S/62
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Table III.8
Restricted imports due to plant quarantine
Avocado Fruit & vegetables – fresh, frozen,
dried, canned or bottledOpium poppy Sago
Bamboo Ginger Orchids Seeds
Banana Grape Packing materials Soil
Bromeliads Grass e.g. Lucerne Palms Soybean
Bulbs & tubers Grass seed Pawpaw Strawberry
Cacti Kapok Peanuts Sunflower
Cereals Legumes Peat Tapioca
Citrus Maize Pepper Tea
Cloves Mango Pineapple Timber
Coconut Mushroom Potato Tobacco
Coffee Nursery stock Pyrethrum Tomato
Flowers Oil palm Rice
Forest tree species Onion, garlic Rubber
Source: The authorities of Papua New Guinea.
Table III.9
Quarantine bans and restrictions on imports of fruit and vegetables
Fruit Vegetables
Banned Not banned Banned On quota
Artichoke Lettuce Onions, but a permit is required to import fruit Avocados Apples
Asparagus All melons Bananas Apricots
Beans Okra Breadfruit Blackberries
Beetroot Marrow Custard
applesBlueberries
Broccoli Parsley Guavas Cherries
Brussels sprouts Parsnips Lemons Figs
Cabbage Peas Limes Gooseberries
Capsicum Potatoes Mangoes Kiwi fruit
Carrots Pumpkin Pawpaws Lychees
Cauliflower Radish Passionfruit Mandarins
Celery Rhubarb Pineapples Nectarines
Chicory Silverbeet Pamelos Oranges
Corn Spring onions Strawberries Peaches
Cucumbers Squash Pears
Eggplant Shallots Persimmons
Endive Swedes Plums
Fennel Sweet potato Pomegranates
Garlic Tomatoes Raspberries
Ginger Turnip Tangelos
Leeks Zucchini Any other fruit not
available in PNG
Source:   The authorities of Papua New Guinea.WT/TPR/S/62 Trade Policy Review
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(iii) Direct assistance
(a) Input and transport subsidies
105. Most agricultural inputs are unsubsidized.  They are either privately traded, as for fertilizers,
chemicals, seeds, and breeding stock or, as in the case of planting materials for major export crops,
provided by government agencies at full cost recovery.
106. However, several government subsidies have existed since May 1992.  The Government
subsidizes coffee pulpers, cocoa-fermenting vats, farm tools and sundry other equipment used by
smallholders.  These are intended to compensate for low commodity prices, and to improve product
quality and husbandry practices.
107. Freight subsidies to compensate for the high transportation and handling costs are provided
for cash and high value crops, such as cardamom and vanilla, marketed from remote areas in EastSepik, Simbu and New Ireland provinces.  A freight subsidy for breeding stock transported into these
regions is aimed at promoting genetic improvements.  In addition, transport subsidies apply to
seedlings and fertilizers used by smallholder for oil palm cultivation.  Cocoa and coconut seedlings
are distributed free to farmers in the provinces of East New Britain and North Solomons as a form of
disaster relief.
108. The cost to the Government of these subsidies is unknown, but thought to be relatively small.
However, these inputs may have significantly distorted the incentives for growing tree crops when
combined with other assistance from price support measures.
(b) Assistance to research and development
109. The Government provides limited direct fund ing to agricultural research and development.
Agricultural research is funded by the Department of Agriculture and Livestock, on average
amounting to K 9-10 million annually or less than 1% of agricultural GDP.  Such research isconcentrated more on the four major export crops (coffee, copra, cocoa, and oil palm) than on
smallholder food crops and livestock.
17   In 1997, the Government established the National
Agricultural Research Institute, a publicly funded statutory authority, to focus on applied food crop
and livestock research targeting smallholder semi-subsistence farmers.  After an initial government
grant of K 6 million it has operated from private funding.
110. Government support is also provided to a number of publicly and privately owned
commodity-specific research institutes, such as th e Cocoa and Copra Research Institute, the Oil Palm
Research Association and the Coffee Research Institute (now part of the Coffee Industry
Corporation).  These activities are also funded by export levies (representing from 55% to 90% of
funding over 1990-93).
111. The Forest Research Institute was established in 1989 to conduct research on sustainable
management of forests.
112. The responsibility for providing extension services to farmers now rests with the provincial
governments.  However, most extension services are provided privately by industry institutions as part
of their research activities.
                                                     
17 World Bank (1997).  Agriculture research on tree crops has accounted for about 2% of tree crop
GDP, compared with 0.4% of GDP for livestock, food and other minor crops.Papua New Guinea WT/TPR/S/62
Page 77
(c) Concessional loans and credit
113. Credit availability is a major constraint in PNG, especially in rural areas.  The Government
has tackled this problem through directed lending programmes to government-owned banks, and by
subsidizing credit through various schemes. Two public banks were involved, the PNG Banking
Corporation and the Rural Development Bank;  the two were recently merged.  The Corporation
provided about three quarters of agricultural credit supplied by commercial banks, while just over halfof loans from the Rural Development Bank went to agriculture.  The Government has traditionally
used these institutions, and the financial system generally, as a means of delivering concessional rural
credit to promote rural development.
114. The Credit Guarantee Scheme required the Rural Development Bank to direct subsidized
credit by way of unsecured mini (K 500-K 2,000) and small (K 2,000-K 10,000) loans for rural basedactivities using informal collateral.  This scheme suffered from substantial bad debts and repayment
arrears by borrowers.  The Government also dire cted the PNG Banking Corporation and commercial
banks to provide concessional agricultural loans with little regard to collateral or credit risk appraisal.
As a result, rural funds have generally been inadequate, and the state-owned banks in particular have a
high share of non-performing rural loans.  The Rural Development Bank, for example, performedunprofitably, and was insolvent by K 9.3 million in 1994, with debts subsequently written off by the
Government.  Private banks also see agricultural lending as high risk and unprofitable, due partly to
government-administered concessional loans and government-initiated moratoriums on repayments.
115. The Department of Agriculture and Livestock commenced the Smallholder Agricultural
Credit Scheme in 1996, involving also the Rural Development Bank, to provide credit for smallholder
projects.
116. The Government also operates a Credit Guarantee Loan Scheme involving the PNG Banking
Corporation and all commercial banks.  The Go vernment guarantees the banks 80% of the debt
outstanding at any time, and also provides a subsidy.  The Small Business Development Corporation
has operated a Small Business Guarantee Facility, since 1996, which guarantees loans to eligible
small businesses from participating commercial bank s.  However, to date only two commercial banks
have participated in the scheme, involving only a few firms.  The Bank of Papua New Guineaadministers a similar scheme providing subsidized lo an and equity financing for small businesses;  it
is funded by the European Investment Bank, agai n with reluctant participation from commercial
banks.
117. International experience suggests that provision of subsidies is often destructive to the lending
institution and can in the longer term reduce the supply of credit to targeted groups.  Subsidized creditschemes are usually difficult to justify on either economic efficiency or equity grounds.  Such loans
distort the efficient operation of financial markets and generally accrue to large better-off producers.
Moreover, the provision of subsidized loans from  state-owned banks is likely to crowd out more
efficient private suppliers of credit.  Quite paradoxically, removing credit concessions would probably
expand rural lending and reduce interest rates to targeted groups.
18
118. Rural lending is also adversely affected by the communal land tenure system in
Papua New Guinea.  The absence of clear title to land seriously reduces the value of land for loan
collateral purposes.  This makes banks more reluctant to lend, or to require a higher interest rate to
cover the risk premium.  The link between land tenure and access to credit is critical.  Although some
measures have been implemented to overcome this problem, such as the use of Clan Land Usage
Agreements, it remains a major obstacle to providing credit.  In addition, law and order problems are
                                                     
18 Jarrett and Anderson, 1989.WT/TPR/S/62 Trade Policy Review
Page 78
limiting access to credit in rural areas:  they have increased the costs of banks doing business in rural
areas and contributed to the closure of branches in small villages.  Lack of land tenure is also a major
disincentive to foreign investment in agriculture,  thereby further reducing agricultural land values and
discouraging investment in land improvement.
(iv) Restrictions on foreign investment
119. Under the Regulations of the Investment Promotion Act 1992, investment in many business
activities is reserved to PNG citizens and national en terprises (enterprises with foreign participation
but majority domestic ownership).  These activities are closed to foreign enterprises that are 50% or
more owned or controlled overseas.  Most reserved activities are also closed to national enterprises
and open only to PNG citizens.  These include certain small-scale agricultural activities, coastal
fishing, real estate, equipment rental services, small hotels and restaurants, coastal and landtransportation, and motor vehicle repair, as well as a range of wholesale and retail services
(Table III.10).  Reserved activities that are closed both to foreign and PNG citizens and open only to
national enterprises include fish hatcheries and farming; certain tourist related activities; alluvial
mining; and coastal freight transportation.  The reserved list of activities is currently under review.
Table III.10
Activities closed to foreign investment
Category Activity
A.  Citizen enterprises
Agriculture Small-scale growing, processing and development for export of tree crops (coffee, cocoa, copra, tea), crops,
as well as market gardening and horticulture, animals and mixed farming;  poultry farming;  and hunting,
trapping and game propagation.
Forestry and logging Small-scale and walk-about sawmilling;  gathering of wild growing forest materials, e.g. rattan, herbs, wil d
fruits and flowers.
Fishing Commercial coastal (within three miles) and inland fishing;  collecting of crustaceans, molluscs, natural
pearls and sponges.
Wildlife Hunting and collection of non-protected fauna.
Business Land surveying and valuing;  post couriers;  installation and servicing telephones, etc;  sign writing;  labour
recruitment;  contract cleaning;  and immigration services.
Health and social work Child-care activities.
Mining Small-scale gold buying.
Real estate All forms.
Rental machinery Land transport equipment, e.g. cars, vending and amusement machines, TVs, videos, and sound equipment.
Recreational and cultural Indigenous culture and art;  and motion picture distribution and projection.
Recycling Car parts, drums, bottles, and scrap metals.
Hotels, etc. Fast food outlets;  and places offering short-term lodging with less than ten rooms.
Transport Customs clearances  forwarding services;  land, coastal, and inland water transportation of freight and
people; and certain airport services, e.g. building and maintenance.
Security services Security guards and dogs.
Car sales and repair Wholesale, retail and repair of second-hand cars and bikes;  retail sale of fuel.
Wholesale and retail trade Crocodile skins;  coffee and copra;  handicrafts;  wild growing forest materials;  food, beverages, a nd
tobacco;  textiles, clothing, and footwear;  and other household goods from outlets below 500 sq. metres;
newspapers and magazines;  stalls and markets;  repair of electrical household appliances;  shoe repair;  andwatch repair.
B.  National enterprises
Fisheries Fish hatcheries and farming.
Hospitality Tourist-related activities, e.g. village guest houses;  travel agencies and tour operators.
Transport Coastal transportation of bulk goods;  and hiring of sea transport equipment.
Security Security systems, armoured fleets etc.
Source: PNG Investment Promotion Authority.Papua New Guinea WT/TPR/S/62
Page 79
(v) Protection of intellectual property
120. Papua New Guinea has little legislation to protect intellectual property rights.  The
Trademarks Act, passed in 1980, established a register of trade marks, which is maintained by the
Office of the Registrar of Trade Marks located in the Investment Promotion Authority.  There are
currently 12,400 registered trade marks in PNG.  The Copyright Act of 1978 was never implemented.
121. There is little or no enforcement of intellectual property rights.  Producers or importers may
use the common law remedies available in domestic courts under Part XI of the Trademarks Act to
protect against counterfeits or infringements of trade marks.  The same applies to copyright.
122. There are no provisions in the Customs Act for the seizure of imported goods that infringe
intellectual property rights.  No provisions exist in the trade marks or copyright legislation to allow
for seizure by customs of imported pirated or counterfeit goods.  Such goods do not constituteprohibited imports under customs legislation.  The on ly possibility would be for the Commissioner of
Customs to invoke his general discretionary power to declare such goods as unauthorized imports.
However, this has never been used against pirated or counterfeit goods.
123. The Government intends to adopt the necessary legislation on intellectual property by 2000,
but would appear to need technical assistance to do so. The Intellectual Property Office has beenestablished to administer new legislation to be introduced shortly on copyright, and on patents,
industrial designs, and trade marks.  This legislation has been prepared in conjunction with the World
Intellectual Property Organization (WIPO), to which PNG acceded in 1997.  PNG is a signatory of the
Paris Convention (1967) but not of the Berne C onvention, the Rome Convention, or the Treaty on
Intellectual Property in Respect of Integrated Circuits.
(vi) Government procurement
124. Papua New Guinea is not a member of, nor an observer to, the WTO Plurilateral Agreement
on Government Procurement.  It does not intend to become a signatory to this Agreement until
multilateral disciplines covering procurement are developed.
125. According to the authorities, Papua New Guinea has a liberal and decentralized public sector
procurement system for goods and services.  This is believed to encourage open tenders without
discriminating between local and foreign suppliers.  The Central Tenders Board must approve publicprocurement of goods and services over K 500,000.  Below this ceiling, government preferences are
provided to national companies on construction contracts.
(vii) Corporatization and privatization
126. State-owned public enterprises and statutory authorities occupy a prominent position in
Papua New Guinea, and have traditionally been formed under separate legislation.  They do notoperate under the Companies Act.  They are controlled by a board of directors headed by the
managing director, generally appointed by the Cabinet or relevant minister.  They are funded to
varying degrees by government transfers and loans.  While authorities may borrow with Finance
approval, loans are usually channelled through the national Government.
127. Statutory financial institutions, such as the Public Officers’ Superannuation Fund, the
National Provident Fund, the Investment Corporation of PNG and the PNG Banking Corporation,
generate their own returns and in principle operate for profit, as do other commercial statutory
authorities.  These include the utility providers, such as the PNG Electricity Commission and PNG
Telikom, as well as Air Niugini.  Other statutor y authorities, such as the National BroadcastingWT/TPR/S/62 Trade Policy Review
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Commission and the National Fisheries Authority, depend for all or part of their funding on
government transfers.  Such transfers have generally accounted for between 10% and 15% of
government expenditure, or 1% to 2% of GDP.
128. Statutory authorities are now required to meet minimum performance targets of an economic
rate of return of 10% and a minimum 16-22% financial rate of return.  Commercial statutory
authorities must also pay dividends to the Government equal to 50% of after-tax profits, unless theyhave exceptional capital needs.  Their operations are heavily influenced by government controls.
These include approval by the Finance Minister of all contracts over K 0.5 million;  price controls on
a number of their services;  and approval by Cabinet of five-year rolling corporate plans.
129. Governments have repeatedly supported the commercialization and privatization of statutory
authorities.  However, most announced plans have not been implemented.  The PNG HoldingsCorporation was formed in 1992 to implement a privatization programme, but little eventuated.
Previously announced plans to privatize major commercial statutory authorities, including Telikom
PNG, Air Niugini, Post PNG, PNG Banking Co rporation Group, Eda Ranu, PNG Harbours Board,
and the PNG Electricity Commission have proceed ed slowly.  In 1996 Air Niugini and Post PNG
were corporatized.  In 1998, the Government also amalgamated the Motor Vehicle Insurance Trust,the Nuigini Insurance Corporation and the Rural Development Bank for sale to the PNG Banking
Corporation.  A number of the Government’s interests in the agriculture and mining sectors have also
been divested.  New Guinea Forests Products was sold in 1996 and the Government’s preference
shares in Ramu Sugar were sold in 1995.  Shares in West New Britain Palm Oil and Hargy Oil were
also partially sold in 1996.  In 1996, the Government also floated on the Australian stock exchange,
under the name of Orogen Minerals, 49% of its interest in several gold and petroleum projects
(Kutubu, Gobe, Lihir and Misima) previously held by the Mineral Resources DevelopmentCorporation - the statutory authority holding the Government’s shares in mining and petroleum
ventures.
130. The previous Government had reaffirmed its comm itment to privatization as a key part of the
structural reform programme by including in its 1999 Budget a comprehensive privatization
programme.  Privatization proceeds were to be used to fund the budgetary cost of public sector reformand to reduce public debt.  Initial priorities included the sale of government stores, offices, and
vehicles (through the sale of the Public Transport Board) and plantations, as well as the privatization
of the PNG Banking Corporation, Telikom and the Government’s equity in mining companies.
131. In its 1999 Economic Recovery Programme, the previous Government reiterated its intention
to complete the 1999 privatization programme (Table III.11).  This was expected to raise someK 60-70 million, and was to be implemented by the Privatization Council, with support from the
Office of Public Enterprises and Assets Management.
132. More recently, the incoming Government has indicated that it would implement a radical
privatization programme aimed at raising between K 3 and 5 billion to help reduce public domestic
debt.  This would include the privatization of Air Niugini, Telikom, Post PNG, PNG Harbours Board,
Halla Cement, Ramu Sugar, the PNG Electricity Commission, Government St ores and Supplies, PNG
Banking Corporation, and Niugini Insurance Cor poration.  Individual departments and ministers
would no longer be involved in the disposal of state assets.  Instead, a Privatization Commission of
PNG would be established under the Minist ry of Corporatization and Privatization.Papua New Guinea WT/TPR/S/62
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Table III.11
Privatization and divestiture timetable
Public
enterpriseGovt. share
(%)Latest value of
holdingPrivatization type Deadline Status Further action
PNG-Halla
Cement Ltd50 Value is nil.  Gov.
has guaranteed
US$11.5 million ofloan from Korean
EximbankDirect negotiation
with international
cement companies31.07.99 Negotiation
under way with
two firmsEncourage potential
buyers: allow firm to use
own wharf; applyanti-dumping laws
against unfair
competition
Public
Transport
Board100 K 40 million Sale of lands,
vehicles &
equipment by
tender or auctionStart by
30.09.99Value assets
Air Niugini 100 K 12 million based
on assets, but
goodwill yet to be
valuedMangt-peform.
contract for
two years, then
privatize30.10.99 Draft report on
firm’s operation
with
GovernmentPrepare draft
management
performance contract &
invite bids
Telikom PNGLtd100 K 1,150 million
(1996 profit of
K 24.3 million)By international
biddingFeb. 2000 Prepare profile;  appoint
investment bank through
competitive bidding toprepare bidding
documents & advise on
necessary action toprivatize;  set up
regulatory authority
Llimo Poultry
Products (five
subsidiaries)100aK 10 million against
K 16 million debtLiquidate Llimo;
tendering for allassets (if possible);
otherwise direct
negotiation31.07.99 Value net assets; prepare
sale documents;
advertise sale in papers;
Stenin bay
Lumber
Company8.3 Sale of shares to
private partners
through negotiation31.07.99 Private
shareholders
willing to
negotiate
purchase of
Govt’s. sharesValue assets; negotiate
sale
Printing Office 100 Sell building by
tender;  auction
other assets31.08.99 Determine ownership of
land; value assets; keep
equipment needed to
publish sensitive govt.
documents
Hargy OilPalms Pty Ltd50 Sell share to private
partnerValue net assets;
negotiate sale with
private partner
Open Bay
Timber Pty Ltd20 K 3.9 million (net
assets 1997)Sell share to private
partnerValue assets; negotiate
sale with private partner
Overseas realestate assets100 US$9.7 million Sale of buildings
and vehicles30.09.99 Sold due to
closure of
diplomatic
missionsAppoint reputable agents
to supervise sale
a Investment Corporation.
Source: Government of Papua New Guinea (1999), Economic Recovery Programme , June.
133. Many public enterprises continue to incur losses, partly a result of government pricing
policies requiring them to meet social objectiv es, including maintaining uniform prices.  Elcom,
Telikom and Air Niugini currently make large losses, and are heavily indebted.  The previous
Government injected K 50 million to re-capitalize Air Niugini and reduce the PNG Banking
Corporation’s debt exposure to the airline.  The Corporation advanced these funds to the Government
as part of the restructuring and purchase of the Motor Vehicle Insurance Trust.  This restructuring wasWT/TPR/S/62 Trade Policy Review
Page 82
apparently fast-tracked to raise government revenue with little transparency and consultation with the
Treasury or the Central Bank, and with no proper valuation of the Trust’s assets.  Such quasi-fiscal
transactions cloud the financial affairs of  Government and statutory corporations.
134. The poor financial performance of most public enterprises is mainly symptomatic of poor
management and operating inefficiencies.  Some ventures appear from the outset to have been
commercially questionable.  Most utilities are supplied to captive markets by state monopolies devoidof competition.  Relatively high prices and poor quality of key services, such as electricity and
telecommunications, inhibit growth and investment in Papua New Guinea, and inflate business costs
considerably.  Access to quality utility services at competitive prices would improve the international
competitiveness of user industries, and would encourage foreign investment.
135. Decisions on which entities to privatize or divest need to be based on making key service
markets more competitive and efficient rather than on revenue considerations.  Private operation of
utilities can take several forms (Box III.5).  The key to improving efficiency is not so much changing
ownership, but more importantly removing statutory barriers to new entrants and investment,
including foreign participation.
Box III.5:  Private-sector participation in public utilities
Increased private-sector participatio n is likely to bring most efficiency benefits when it is accompanied by
efforts to make the market more competitive.
A number of different types of arrangements may be us ed to increase private-sector participation in public
utilities:
Service contract :  the private firm supplies specific services, e.g. meter reading;
Management contract :  the private firm takes over operation and maintenance of the utility, and makes
day-to-day management decisions;
Lease contract : the private firm leases facilities and operates and manages the utility, including financing of
working capital and replacement of assets;
Concession arrangement - build , operate and transfer (BOT) :  the private firm acquires ownership of
assets and completely runs the utility for a certain period,  e.g. 20 years, and then transfers the utility back to
the public authority;
Divestiture/privatization :  the private firm takes complete control of the utility by purchasing assets.  Such
firms may be subject to specific regulatory controls on pricing behaviour, or fall under general anti-
competitive legislation that prohibits non-competitive pricing.
Privatization of essential services, such as electricity  and water, in a relatively small economy may raise
legitimate concerns that a single private supplier may charge consumers monopoly prices that are non-traded.
The small domestic market in PNG may be sufficient to support only one supplier, especially where
significant economies of scale and scope exist:  the so-called case of a natural monopoly.  However, these
real concerns do not necessarily justify public provision.  Many utility services may be provided efficiently
through commercial presence of foreign investors, comb ined with effective government regulation.  The
benefits from privatization would be substantially incr eased if legislative barriers to foreign investment were
repealed.
Source: Asian Development Bank (1997b), "Vanuatu Case-Study", Water Supply and Sanitation Study
Tour , South Pacific Regional Office, Port Vila.Papua New Guinea WT/TPR/S/62
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(viii) Competition and related policies
136. There is no national competition policy or specific competition legislation in
Papua New Guinea.  The only laws protecting consumers from unfair trade practices are the
Consumer Protection Act and the Price Control Act.  The Government intends, over the longer term,
to introduce a business practices act and a national competition policy.
(a) Price controls137. The Government controls the prices of a range of goods and services, mainly key agricultural
products, such as flour, rice, dairy products, and canned fish, as well as utility services, shipping
freight rates, and internal air fares.  These are important items of final consumption, and currently
cover some 30% of the basket of goods and services used to construct the consumer price index.
There are three methods of price control under the Price Regulation Act:  maximum prices for someservices and certain items, such as foodstuffs and concrete, are set directly;  for other goods maximum
mark-ups are determined;  fuel prices are subject to a ceiling linked to import parity, and reviewed
monthly.
138. The Finance Secretary sets prices and mark-ups.  Submissions on price changes are received
from suppliers, usually annually.
19  The Consumer Affairs Council is responsible for administering
and enforcing the price controls.  However, sanctions are limited to written warnings;  legal remedies
are not available due to lack of resources.
139. Price control measures are seen by authorities to strike a balance between consumer and
business interests in markets where prices may otherwise be too high, due to low competition,
insufficient information, shortages, or protected businesses.  The Government has moved away from
price regulation and controls, believing that these distort markets.  Coverage of price controls was
reduced in mid-1995 when they were lifted from items accounting for some 16% of the CPI basket,including on bakeries, breweries, and soft drinks.  Plans exist to de-control prices on other goods and
services representing another 21% of the basket;  when implemented, price controls would remain on
about 9% of items included in the CPI basket.
(b) Agricultural marketing arrangements
140. The Government has been actively involved in  the marketing and pricing of traditional key
cash crops, which that are mainly exported.  Marketing boards in PNG have been replaced by private
industry corporations responsible for marketing, extension, and research.  An exception is the
government-owned statutory trading company, the Copra Marketing Board.  It exclusively markets
domestic and export sales of copra and coconut products.  The Board buys virtually all copra and
allocates sales between exports and the sole domestic copra oil producer Coconut Products Limited.
141. Domestic and export sales of coffee, cocoa, and oil palm are marketed privately by the Coffee
Industry Corporation, the Cocoa Board, and the Oi l Palm Industry Corporation.  Although these
boards do not trade directly in these products, all dealers, traders, processors, and exporters of these
commodities must be licensed with the respective body.  Coffee, for example, is marketed abroad by
19 registered exporters, produced by 51 factories and purchased by over 6,000 roadside buyers, whilecocoa has ten exporters, 1,400 fermentaries and almost 1,000 wet-bean dealers.  Such trade licensing
does not appear to have inhibited competition nor led to inefficient operators in PNG.  Evidence
                                                     
19 Authority for setting prices was transferred to the Consumer Affairs Council in May 1996 but was
subsequently returned to the Finance Secretary.  Th e National Land Transportation Board is the price-setting
agency for selected transportation services.WT/TPR/S/62 Trade Policy Review
Page 84
suggests that coffee and cocoa growers receive co mpetitive prices, ranging between 70-80% of the
f.o.b price.  Marketing margins used by these bodies reflect international marketing, transportation,
and processing costs.
142. Price schemes are a traditional feature of export crops.  Price stabilization schemes were
introduced for copra in 1946, coffee in 1966, cocoa in 1974, and oil palm in 1983.  These schemes
were designed to stabilize prices by imposing levies on or paying bounties to growers whencommodity export prices rose above or fell below formula-set trigger prices.  While the schemes were
largely self-financing during most of the 1980s, funds became exhausted during the late 1980s
following prolonged periods of depressed prices.  Public loans became necessary to finance the
schemes.
20  These were replaced by what have been price support schemes, in November 1992, under
a five-year arrangement that set trigger prices at relatively generous levels.  Substantial bounties werepaid to growers to support export prices that were below the trigger price.  Budgetary assistance
(exclusive of STABEX assistance) through this support rose from K 56 million in 1992 to K 98
million in 1993, before declining to K 41 million in 1994.  These schemes contributed to the
Government’s fiscal crisis at the time.
143. Although price support subsequently ceased for these four commodities and, except for
cocoa, growers were charged levies as domestic prices rose (boosted in kina terms by the currency
devaluations) to partly repay the price support loans, the cumulative fiscal burden remained
substantial.  As of mid-1997, loans of K 118 million, or some 2% of GDP, remained outstanding,
mainly owed by the Coffee Industry Corporation. The levies currently paid by coffee and copra
growers are set at 65% of the excess of export prices  over the domestic trigger or support price plus a
10% margin.  The Corporation uses half of these collections to repay public debt;  the balance accrues
to the stabilization fund.
144. Trigger or support prices for coffee, cocoa, and copra were raised by 25% in March 1998.
This benefited growers by reducing the levy paid to the Government, by as much as K 30 million,
while also committing the Government to larger payouts should export prices fall below trigger levels.
According to the authorities, these schemes were  terminated in February 1999 when all loans were
repaid.  A price support scheme continues to be  run by the Coffee Industry Corporation without
government involvement.
145. Price stabilization schemes, especially de facto support schemes that are not self-financing,
are difficult to justify on economic efficiency grounds.  By assisting agriculture, they distort resource
use by favouring certain agricultural activities over others, and relative to non-agricultural activities.
Even if self-financing, such schemes can be detrimental to grower’s welfare and economic efficiencyby suppressing the transfer of price signals back to  them.  For example, they would have muffled the
beneficial effects of currency devaluations on growers' export returns.  This can affect supply
responses, by encouraging growers to produce less when world prices are high, and more when world
prices are depressed.  This, in turn, may accentuate price instability.  They are poor macro-
stabilization devices, and have dampened investment in PNG agriculture
21;  they are also inequitable
                                                     
20 Although the loans were granted by commercial banks, the Government collateralized the loans by
providing deposits with the Central Bank using STABEX funds, initially as loans, but converted to grants in1991.
21 Jarrett and Anderson, 1989.Papua New Guinea WT/TPR/S/62
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between growers and over time, and are an ineffective means of targeting welfare assistance to
farmers.22
146. Exclusive trading and agro-processing rights are also enjoyed by some other entities.  The
wholly government-owned Livestock Development Co rporation has sole rights over the construction
and management of abattoirs. This has precluded private entrants, and may have inhibited meat
processing.  The Corporation is also responsible for managing government livestock activities, such asranches, piggeries and poultry hatcheries. Its profitability depends heavily on free access to public
assets without being required to pay dividends to the Government.  The Lae mackerel plant has
exclusive rights over mackerel canning.
147. Direct foreign participation in agricultural marketing and trading is prohibited.
                                                     
22 These schemes during the 1970s and 1980s benefited mainly the bigger, more prosperous,
largeholders at the expense of the smallholders.  They were also inequitable over time since the growers who
paid the levies were often no longer in existence when bounties were paid during depressed international prices.