RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/96
9 January 2002
(02-0019)
Trade Policy Review Body
TRADE POLICY REVIEW
MALAWI
Report by the Secretariat
This report, prepared for the first Trade Policy Review of Malawi, has been
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has,
as required by the Agreement establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), sought clarification from the Government of Malawi on its trade
policies and practices.
Any technical questions arising from this report may be addressed to
Mr. J. Degbelo (tel. 739 5583) or Mr. C. Boonekamp (tel. 739 5226).
Document WT/TPR/G/96 contains the policy statement submitted by the
Government of Malawi.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting 
of the Trade Policy Review Body on Malawi.Malawi WT/TPR/S/96
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS vii
(1) E CONOMIC ENVIRONMENT vii
(2) I NSTITUTIONAL FRAMEWORK vii
(3) T RADE POLICY INSTRUMENTS viii
(4) S ECTORAL POLICIES x
(5) T RADE POLICIES AND TRADING PARTNERS xi
I. ECONOMIC ENVIRONMENT 1
(1) M AJOR FEATURES OF THE ECONOMY 1
(2) R ECENT ECONOMIC DEVELOPMENTS 3
 (3) T RADE PERFORMANCE AND INVESTMENT 7
(i) Trade in goods and services 7(ii) Investment 10
(4) O
UTLOOK 10
II. TRADE AND INVESTMENT REGIMES 11
(1) T HE INSTITUTIONAL FRAMEWORK 11
(2) T RADE POLICY FORMULATION AND IMPLEMENTATION 11
(3) T RADE LAWS AND REGULATIONS 13
(4) P OLICY OBJECTIVES 15
(5) T RADE AGREEMENTS AND ARRANGEMENTS 17
(i) Multilateral agreements 17(ii) Trade-related technical assistance 19
(iii) Regional agreements 24
(iv) Bilateral agreements 29(v) Generalized System of Preferences (GSP) and Global System of Trade
Preferences (GSTP) 31
(vi) Other agreements and arrangements 31
(6) I
NVESTMENT POLICIES AND PROCEDURES 33
(i) Regulatory framework 33(ii) Investment incentives and promotion 33
III. TRADE POLICIES AND PRACTICES BY MEASURE 35
(1) I
NTRODUCTION 35
(2) M EASURES DIRECTLY AFFECTING IMPORTS 35
(i) Registration and documentation 35
(ii) Customs inspection and clearance 36(iii) Tariffs, other duties, and taxes 37(iv) Customs valuation 48WT/TPR/S/96 Trade Policy Review
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Page
(v) Import prohibitions, quantitative restrictions, and licensing 49
(vi) Anti-dumping, countervailing, and safeguard measures 50(vii) Standards and other technical requirements 51(viii) Government procurement 55(ix) Local-content requirements 56
(x) Other measures 57
(3) M
EASURES DIRECTLY AFFECTING EXPORTS 57
(i) Registration and documentation 57(ii) Export taxes 57(iii) Export prohibitions, controls, and licensing 57
(iv) Export assistance 58
(v) Export-processing zones 58(vi) Export promotion and finance 59
(4) M
EASURES AFFECTING PRODUCTION AND TRADE 60
(i) Incentives 60(ii) Credit arrangements 60
(iii) State-owned enterprises and privatization 60
(iv) Competition policy 62(v) Assistance to research and development 62(vi) Protection of intellectual property rights 62
IV. TRADE POLICIES BY SECTOR 66
(1) O
VERVIEW 66
(2) A GRICULTURAL AND RELATED ACTIVITIES 66
(i) Main features 66(ii) Policy developments 68(iii) Policy by key product category 71
(3) M
INING AND ENERGY 76
(i) Mining 76
(ii) Energy 79
(4) M ANUFACTURING 80
(5) S ERVICES 82
(i) Banking and insurance services 84(ii) Telecommunications 85
(iii) Transport 86
(iv) Tourism 89
REFERENCES 91
APPENDIX TABLES 93Malawi WT/TPR/S/96
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Page
CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Merchandise trade as a share of GDP, 1994-99 2
I.2 Commodity composition of exports and imports, 1995 and 1999 8
I.3 Malawi's major trading partners, 1995 and 1999 9
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Applied MFN tariff distribution, 2000/01 39
IV. TRADE POLICIES BY SECTOR
IV.1 Average Malawi tariffs by ISIC classification, 2000 83
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Main economic and social indicators 1
I.2 Public external debt, 1994-00 3I.3 Economic performance, 1996-00 4I.4 Balance of payments, 1996-00 6
II. TRADE AND INVESTMENT REGIMES
II.1 Main trade-related laws 14
II.2 Selected notifications to the WTO, 31 July 2001 17
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Tariff indicators, end-2000/01 38
III.2 MFN tariff escalation by ISIC 2-digit heading, 2000/01 40III.3 Industrial drawback of customs duties, 2000/01 47
IV. TRADE POLICIES BY SECTOR
IV.1 Contribution of agriculture to Malawi's exports, 1993-99 67
IV.2 Priority land resource problems, 2001 69IV.3 Livestock policies, 2001 70IV.4 Agricultural policies and strategies, 2001 71
IV.5 Mineral reserves, 2000 77
IV.6 Summary of main features of minerals policy 78IV.7 Mining and prospecting licences issued, 1998-00 78IV.8 Commercial holdings by the Press Corporation Ltd, 2001 81WT/TPR/S/96 Trade Policy Review
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APPENDIX TABLES
II. TRADE AND INVESTMENT REGIMES
AII.1 Trade-related projects in Malawi 95
III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 MFN tariff statistics, by HS 2-digit, 2000/01 99
AIII.2 Industrial rebates of tariffs, 2000/01 102AIII.3 Divestiture sequence plan, 2001 104
AIII.4 Details of privatized enterprises, 1996-June 2001 107
IV. TRADE POLICIES BY SECTORAIV.1 Sector-wide agricultural policies and strategies, 2001 109
AIV.2 MFN tariff statistics by ISIC categories, 2000-01 111Malawi WT/TPR/S/96
Page vii
SUMMARY OBSERVATIONS
(1) ECONOMIC ENVIRONMENT
1. Malawi is a landlocked southern
African country, independent since 1964.
Structural adjustment programmes since the
mid 1980s substantially liberalized the Malawieconomy, contributing to high economic
growth (almost 9% in 1996) and to the
reduction of inflation to single-digit rates (9%
in 1997).  However, in the late 1990s, policy
slippages, especially expansionary fiscalpolicies, resulted in macroeconomic
imbalances, which precipitated an economic
and currency crisis.  Growth slowed to under
2% in 2000.
2. Monetary policy, until recently,
accommodated expansionary fiscal policies
and fuelled inflation, which peaked at 45% in
1999.  Real interest rates were maintained at a
high level.  The public sector "crowded out"
private sector growth, which stagnated.
Moreover, despite a more liberal regime and
efforts to attract investment, including theformation of the Malawi Investment Promotion
Agency and various tax and other financial
incentives, foreign direct investment (FDI)
inflows remain erratic and relatively low:
inflows (concentrated in manufacturing,construction and distribution) have declined,
from US$70 million in 1998 to US$51 million
in 2000.  Unfavourable climatic conditions,
declining export prices for tobacco (the main
cash crop), and institutional weaknesses havecompounded the economic difficulties.
Malawi's GDP per capita stood at US$200 in
1999, and its external debt of US$2.6 billion
was equivalent to about 150% of GDP.
Malawi is eligible for debt relief under theEnhanced Heavily-Indebted Poor Countries
(HIPC) Initiative.
3. The authorities have recently moved to
improve Malawi's stabilization policies.  A
Parastatal Enterprise Reform and Monitoring
Unit is now in place to control financial
operations of parastatals, and a MonetaryPolicy Committee monitors monetary issues.
Monetary targets are set, and Governmentborrowings from the Reserve Bank are now
limited to 20% of annual budgeted domestic
revenue.  Exchange rate reforms have been
strengthened and the export surrender
requirements on traditional commodities
(e.g. tobacco) reduced from 60% to 40% witha view to improving the international
competitiveness of Malawi's exports.
4. Despite liberalization, Malawi's trade
in goods fell from 97% of GDP in 1994 to
74% in 1999, i.e. from 30% to 27% for exportsand from 67% to 47% for imports.  Malawi's
trade is relatively concentrated, especially in
commodities.  Primary products,
overwhelmingly tobacco, account for most
exports.  Minimal export diversification hasoccurred;  non-traditional exports accounted
for only 13% of exports in 1999.  Most
manufactured products, including fuels,
machinery, transport equipment, chemicals,
and other intermediate inputs, are imported.
The share of developing countries in Malawi's
trade has decreased.  Over two thirds ofexports are sold to developed countries.
South Africa has been surpassed by Germany
and the United States as Malawi's main export
market (its share fell to 12% in 1999).
Imports are increasingly being sourced fromindustrialized countries, which accounted for
42% of Malawi's imports in 1999.  South
Africa remains the main source of Malawi's
imports although its share fell from 44% in
1995 to 32% in 1999.  Zimbabwe's share alsodeclined, to 10% in 1999, ranking it third
behind the United Kingdom, whose share rose
to 16% (up from 4% in 1995).  Malawi's
regional trade, including with other COMESA
and SADC members, is relatively minor.Malawi is a net importer of services,
especially in transport and insurance.
(2) I
NSTITUTIONAL FRAMEWORK
5. Malawi, a unitary republic,
introduced multi-party democracy in 1994
following adoption of a new Constitution,
which vests executive power with the Presidentand legislative authority with the National
Assembly.  Parliament comprises the Assembly
and the President, who is both Head of StateWT/TPR/S/96 Trade Policy Review
Page viii
and of the Government.  He appoints cabinet
ministers;  executive functions are performed
by the Office of the President and Cabinet.
6. The main ministries involved in setting
and implementing trade-related policies are
Commerce and Industry;  Finance andEconomic Planning;  and Agriculture and
Irrigation.  Several other ministries and
government bodies are responsible for policies
in certain subsectors, such as tobacco,
minerals, timber, fishing, and tourism.Private-sector input on trade-related policies
is facilitated by the new National Working
Group on Trade Policy and its National Task
Force.  This is intended to improve private-
sector interaction and trade policycoordination, until now dispersed over several
ministries, none with overriding authority.
7. The Government's Poverty Reduction
Strategy Paper, completed in November 2001,
has undergone substantial public discussion.
The Government's long-term economic
development plan for Malawi to become amiddle-income country by 2020 – Vision 2020
– proposes doubling the size of the
manufacturing sector to 25% of GDP, and
encouraging mining, tourism, and agriculture.
Industrial development is to be promotedthrough an integrated trade and industry
policy aimed at removing bottlenecks to
private-sector development.  Industrial
linkages are to be expanded, and small and
medium-sized enterprises encouraged.  Keyinfrastructure is to be improved.  Export
promotion and diversification are to be
encouraged;  and preferential access to
developed markets is to be better utilized, by
reducing supply-side constraints.
8. Malawi is an original Member of the
WTO, and grants at least MFN treatment to
other WTO Members, to non-WTO ACP states,
and to independent Commonwealth countries
or UN-administered protectorates.  The
authorities are of the opinion that
implementing Malawi's multilateralcommitments will assist Malawi's ongoing
reforms and economic recovery.  However,
without technical assistance from theinternational community, it will be virtually
impossible for Malawi to implement WTO-
consistent policies in areas such as intellectual
property protection and contingency trade
remedies.  Therefore, Malawi looks to
bilateral and multilateral donors for technicalassistance and support in meeting its WTO
commitments.  It is one of the pilot countries
under the Integrated Framework (IF) for
Trade-Related Technical Assistance to Least-
Developed Countries, jointly managed by sixmultilateral institutions, including the WTO.
9. Malawi is a member of the Common
Market for Eastern and Southern Africa
(COMESA), and the Southern African
Development Community (SADC).  It is asignatory to a bilateral trade agreement with
Zimbabwe, and it is negotiating such
agreements with Mozambique, Tanzania, and
Zambia.  Malawi receives non-reciprocal
preferential treatment from the European
Union under the Cotonou Agreement and the
"Everything But Arms" scheme;  from theUnited States under the African Growth and
Opportunity Act;  from other developed
countries under the Generalized System of
Preferences (GSP);  and under a separate
agreement with South Africa.
10. Malawi's cross membership of
overlapping regional and bilateral
arrangements with different trade
liberalization agendas and trading rules
makes its trade regime more complex.  It maydistort Malawi's trade and incentive patterns
and entail undertaking inconsistent
obligations.
(3) T
RADE POLICY INSTRUMENTS
11. The tariff is Malawi's main trade
policy instrument.  Its simple average MFN
tariff was almost 14% in 2000/01, down from
almost 16% in 1997/98 and 21% in 1996/97.
Virtually all tariffs are ad valorem.  The tariff
structure is escalatory, with six bands;  rates
of zero or 5% apply to "necessities" and of
10% to intermediate goods.  The maximumduty rate applied to consumer goods is
currently 25%.  With a coefficient of variationMalawi WT/TPR/S/96
Page ix
of about 0.7, tariffs were moderately dispersed
in 2000/01.  Lower, more uniform duties
would improve the tariff structure and
economic efficiency.
12. Widespread use of exemptions and
rebates, including under several local-contentschemes, is non-transparent, and provides
tailor-made protection to certain industries by
increasing tariff escalation and effective
protection.  Their discretionary use is
extensive and their rationale, other than as adistorting protective measure is unclear. A
duty drawback system operates, with refunds
no longer based on ratios, but on materials
used in exports.  Refunds  are said to incur
long delays.
13. Since 1992, Malawi has been applying
mandatory preshipment inspection on most
imports, which is  due to stop in March 2003.
Import documentation has been simplified.
Transaction value has applied, in principle,
for customs valuation since 1990, but
minimum prices exist, for example on usedcars.  Discriminatory internal taxes have been
eliminated, and broadening the surtax and
excise coverage has reduced government
reliance on tariff revenue, thereby facilitating
duty reductions.
14. In the context of the Uruguay Round,
Malawi bound tariffs on all agricultural
products at a ceiling rate of 125% (except for
a few products with ceiling rates of 50%, 55%,
and 65%), and on less than 1% of tariff linesfor non-agricultural products, at ceiling rates
ranging from 30% to 65%.  Other duties and
charges on these products are bound at a
ceiling rate of 20%.
15. Malawi has removed most formal
non-tariff barriers, including import quotas.
Such restrictions apply for environmental,
health, safety, and security reasons, some
under international conventions.  Standards,
including mandatory technical regulations,
are set by the Malawi Standards Board on the
basis of regional and international norms suchas ISO and Codex Alimentarius;  they do not
discriminate against imports.  Although noformal mutual recognition agreements exist,
overseas test results are usually unilaterally
accepted by Malawi.  Sanitary and
phytosanitary requirements apply, but do not
appear generally to impede imports, except for
prohibitions on genetically modified food, andmeats subject to growth hormones.
16. Malawi is preparing new anti-
dumping legislation and introducing rules on
countervailing and safeguard measures, with a
view to meeting the provisions of the relevantWTO Agreements.  Existing anti-dumping
legislation has a "public interest" provision,
but its application is unclear, since no anti-
dumping action has been taken.  Malawi
intends to make greater use of trade remedymeasures to encourage domestic production.
However, there is a risk that the use of such
measures may protect inefficient industries.
17. Government procurement is
decentralized, but must be approved by the
newly formed Contracting-Out Unit or, for
large amounts, by the Office of the Presidentand Cabinet.  A Public Procurement Authority
will administer new legislation, expected in
2002, to improve transparency and monitoring
of public procurement.  Open tender is to be
the main method of procurement.  Largerprice preference margins are expected to
apply to domestic suppliers:  20% for goods
and 10% for works and construction,
compared with currently 15% and 7.5%,
respectively.
18. Malawi's export regime is relatively
open.  Since 1998, all export taxes have been
removed and exports are not subject to quotas;
export prohibitions reflect international
conventions.  Export surrender requirementswere abolished in 1994, except on traditional
products of tobacco, tea, and sugar.  Export
licences are maintained on a few products, to
protect the environment and to ensure
adequate domestic supplies, such as fuels and
maize.  Exports of unmanufactured tobacco
and tea are also subject to licence.
19. Exports are assisted through various
incentive schemes.  Non-traditional exportersWT/TPR/S/96 Trade Policy Review
Page x
receive a deduction from income tax of 12% of
gross receipts and of 25% of their
international transport costs.  From December
1995, those with EPZ status pay no income
tax.  This requires all production to be
exported (although up to 20% may be allowedonto the domestic market in certain cases,
provided all appropriate duties are paid on
materials).  While these policies reflect the
Government's efforts to promote export-
oriented firms, generous export incentives maydiscriminate against non-exporting firms and,
even if successful in raising exports, entail
large budgetary costs.
20. Certain, mainly agricultural, activities
are assisted by tax concessions, andinvestment incentives apply.  Several public
enterprises have been privatized.  However,
problems of preparing highly indebted
companies for divestment, and a lack of
buyers, have slowed down the implementation
of the privatization programme, suspended for
review from July to October 2001.  Inconsequence, state-owned companies still play
an important role in the economy.  The
Government has introduced competition
legislation to be administered by a
Competition Commission, and it intends toamend Malawi's legislation on intellectual
property to meet its multilateral obligations.
(4) S
ECTORAL POLICIES
21. Malawi is heavily dependent on
agriculture, especially tobacco.  Agricultureaccounted for 38% of GDP in 1999, and about
85% of employment.  Following the
Government's deregulatory policies, the main
trade instrument affecting agriculture is the
tariff; the average MFN rate on such productswas 12.2% in 2000/01 (ISIC definition).
Controls on the production and marketing by
smallholders of traditional crops, including
tobacco, have been removed.  Licensed private
intermediate buyers can now market tobacco,
and the Government intends to de-monopolize
the auction house used for tobacco exports.The Tobacco Control Commission regulates
the tobacco industry, including production
controls on estate growers.22. The marketing (including export)
monopoly of the state-owned Agricultural
Development and Marketing Corporation
(ADMARC) was eliminated in 1987.  Price
bands on maize also ceased in 2000 and the
grain purchase practices of the National FoodReserve Agency were curtailed to meet only
disaster requirements.  Farm inputs, such as
seeds and fertilizers, are supplied mainly by
the private sector, although the government-
run Targeted Input Programme provides themto the poorest farmers.  Due to communal
ownership, there is no land market in Malawi;
this may constrain agricultural development.
23. Manufacturing accounted for about
14% of GDP in 1999.  Most prices have beende-controlled, and industrial licensing
removed, except for health, safety, and
environmental reasons.  The Government
plans to introduce incentives that will target
production of up to 20 selected products,
especially textiles, clothing, and agri-
processing activities.  Firms will be assistedbased on their export orientation, import
substitution capacity, product quality, and
financial performance.  MFN tariffs on
manufactured products averaged 13.7% in
2000/01(ISIC definition).
24. The share of services in Malawi's
GDP fell from 57% in 1994 to 47% in 1999.
The existence of many state-owned services
enterprises reflects the delays in liberalizing
this sector.  However, efforts are under way toderegulate and privatize public utilities.  The
telecommunications market is being
liberalized, and Malawi Telecom is slated for
partial sale to foreign investors.  The
Communications Regulatory Authority isresponsible for ensuring that new entrants
gain competitive access to the public network.
25. More efficient infrastructure services
should raise the competitiveness of
downstream activities and encourage foreign
direct investment (FDI).  Greater transport
liberalization, including allowing cabotageand third-country road carriers, would
improve efficiency and lower the high
transportation costs aggravated by Malawi'sMalawi WT/TPR/S/96
Page xi
landlocked position.  Private tourism
development is a government priority.
26. Substantial progress has been made in
liberalizing banking and insurance services,
including improved regulatory supervision
and divestment of the National InsuranceCompany in 2000 and the Commercial Bank in
2001.  Under the GATS, Malawi made
commitments in business services,
construction, health and social services,
tourism and travel-related services, andbanking services.  Measures affecting
presence of natural persons are unbound.
(5) T
RADE POLICIES AND TRADING
PARTNERS
27. Malawi participates in the multilateral
trading system and also in various preferential
arrangements to increase trade flows.
Regional integration is seen by Malawi as a
first step towards further participation in the
multilateral trading system.  However,
Malawi's membership of overlapping
preferential agreements with differentgeographical coverage, trade liberalization
agendas, and trading rules and goals makes
its trade regime more complex, inconsistent,
and difficult to manage.
28. Extending the coverage of tariff
bindings beyond agriculture and narrowingthe gap between bound and applied rates
would benefit Malawi and its trading partners
by increasing the predictability of the tariff.
Continued structural reforms, including
further trade and investment liberalization,
and the pursuit of the privatization programmecould improve the economy's dynamics and
growth prospects.  Moreover, further tariff
rationalization might reduce widespread
exemptions and rebates, and pave the way for
better resource allocation.
29. The Malawi economy remains
relatively weak and vulnerable to external
commodity price movements and other shocks,
such as weather conditions.  Current economic
difficulties, including fiscal uncertainties, ifnot improved, may weaken the Government's
resolve for further trade liberalization.
Trading partners can contribute to the reforms
by ensuring stable, increased access to their
markets, especially in agricultural products,
where Malawi's prospects appear strongest.
Enhancing and complying with its WTOcommitments may help sustain Malawi's
unilateral reforms.
Malawi seeks technical assistance to improve
its understanding of the WTO Agreements so
as to better meet its obligations.  This wouldalso help it to identify the opportunities offered
by the multilateral trading system.