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*English only.WORLD TRADE
ORGANIZATIONWT/TPR/M/45/Add.1*
18 February 1999
(99-0645)
Trade Policy Review Body
21-22 September 1998
TRADE POLICY REVIEW
SOLOMON ISLANDS
Minutes of Meeting
Addendum
Please add Section VII (attached) to document WT/TPR/M/45.
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VII. CONCLUDING REMARKS BY THE CHAIRPERSON
1. The first Trade Policy Review of the Solomon Islands was conducted by the Trade Policy
Review Body on 21-22 September 1998.  These remarks, prepared on my own responsibility, attempt
to summarize the salient points of the discussion.  They are not intended as a full report; details of the
discussion will be reflected in the minutes.
2. The discussion developed under three main themes: (i) background and current economic
crisis, (ii) main sectoral issues, and (iii) other specific issues related mainly to its membership of theWTO.
(i) Background and current economic crisis
3. Members recognized that the Solomon Islands faced immense and numerous economic
difficulties.  Mismanagement by the previous government had led to unsustainable levels of public
debt, which could not be repaid from exports at a su stainable level.  Concentration of exports in three
product groups (timber, fisheries and copra) and two principal markets (Japan and the EU, particularly
the United Kingdom) meant that the economy was highly vulnerable to external price developments.
The effects of the Asian economic downturn had been particularly severe for the timber sector,
reducing world prices by two-thirds.
4. Members recognized the dilemmas confronting the Solomon Islands' Government, in
particular, the tension in policy-making between environmental and trade considerations, given the
need to service the debt.  They asked what routes the authorities considered possible to resumeeconomic growth and promote sustainable trade.WT/TPR/M/45/Add.1
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5. Members welcomed the efforts being made by the Solomon Islands' Government in economic
reform.  They stressed the need to continue the process, particularly in respect of taxation, in order toincrease revenue while promoting exports.  Tariff rationalization was welcomed, although rates
remained relatively high and disparate, and a temporary tariff surcharge of 10 per cent had been
implemented in the 1998 Budget, with no time limits.  The effectiveness of export taxes was
questioned and alternative means of increasing fiscal revenue (such as stumpage fees or resource rent
taxes) were suggested.  Members emphasized the need to introduce a transparent structure of taxation(including VAT) with minimal scope for Ministerial discretion in application.
6. Questions were asked about the Government's inve stment policies, including the utility of the
negative list, and the effectiveness of incentives.  Clarification was sought on the development of
investment in particular sectors, including telecommunications and tourism.
7. In response, the representative of the Solomon Islands outlined steps that the Government had
taken to address the twin problems of unsustainable debt burden, which it inherited upon coming to
power, and the continuing unsustainable exploitation of forestry.  The Government had succeeded in
reducing outstanding government debt from SI$185 million to SI$140 million in an attempt to restore
fiscal balance.  In addition, the Asian Development Bank had approved a loan to assist the
Government in meeting its objective of balancing the budget.
8. In order to avoid these problems in the future, the Government intended to reduce its
dependence on forestry and to diversify into other activities, such as tourism, mining and the domestic
processing of raw materials;  for example, all copra was now to be processed locally for export.  As
regards exports of canned tuna, the delegation appealed to the EU to maintain existing Lomé
preferences so as to enable Solomon Islands' producers to compete with other exporters.  The
delegation also appreciated the contribution of the STABEX programme to agricultural development.
The Government realised that it could not continue to rely on trade taxes for revenues and wasseriously considering progressively reducing such taxes and their replacement by a VAT.
9. In recognition of the fact that the private sector  must be the engine of growth in the economy,
the Government had involved the Chamber of Commerce in its reform programme.  It also recognized
weaknesses in the administration of the Investment Act and was taking steps to increase its
transparency.  In addition, the Government was evaluati ng the role of investment incentives in the Act
with a view to rationalis ing their use and removing discretion in their administration.  The negative
list was not at present in application.
(ii) Main sectoral issues
10. Members commented on the heavy reliance of the economy on a few sectors, namely timber,
fish and copra.  Questions were raised on sustainable management of timber resources, and how thecurrent "break" from logging brought about following the collapse in timber prices could be used by
the Government to implement such policies. In this connection, Members also raised questions on the
Government's views on the allocation of logging and fishing licences, including the auctioning and
under-utilization of such licences.  The need to ma intain international competitiveness in timber and
fish in the face of the erosion of market access to the EU market under Lomé tariff preferences andreduced timber prices, were also matters of concern.  The Government referred to rules-of-origin
restrictions imposed under the Lomé arrangements for preferences as limiting the development of
their fisheries industry.
11. The role of downstream processing of fish and timber was discussed.  Some members saw
adverse effects on developing efficient processing industries from export taxes on unprocessedresources.  Members requested clarification on the government's intention to prohibit round logWT/TPR/M/45/Add.1
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exports in 1999.  The Government indicated its commitment to promoting downstream processing as
a way of improving the economy's resilience and development.  In its view, export taxes onunprocessed products can play a useful role in this regard.
12. Some members agreed with the Solomon Islands that the vulnerability of the economy to
world price changes, especially for copra, was worsened by the effects of export subsidies by some
WTO members on edible oilseeds.  Members from the Cairns Group emphasized their aim to obtain
strengthened multilateral disciplines on the use of such trade-distorting policies.
13. The Government raised the possibility of its multilateral partners organizing a
debt-environment swap as a means of enabling the Government to service its debt while at the same
time implementing sustainable forest management.
(iii) Other specific issues
14. Members welcomed intentions by the Government to review its legislation and to bring its
policies into conformity with its WTO obligations, and saw achievement of these multilateral
obligations as making an important contribution to its reform efforts.  Members requested additional
information on steps to be taken in areas, such as TRIPs, customs valuation, preshipment inspection,
standards and state trading.  Members asked the Solomon Islands whether there were any
impediments to implementing such consistent policies.
15. The Government reiterated its commitment to meeting its WTO obligations with the aid of
technical assistance.  A number of members offered the possibility of providing such assistance.  The
Government was urged to accelerate WTO adherence if possible.
16. Members referred to the Solomon Islands' membership of regional arrangements, such as the
Melanesian Spearhead Group, and asked that it further explain its view on their usefulness.  The
delegation reaffirmed its support for the closer integration of the Pacific island countries, in particular
through the Melanesian Spearhead Group, and a wider regional free trade area.
17. A number of Members raised the need for the Solomons to improve efficient delivery of basic
service inputs, such as telecommunications and transportation.  They saw additional GATS
commitments in services such as telecommunications as  playing an important role in this context, and
asked the Government for its views and policies towards liberalising services and expanding its
multilateral commitments in the coming round of negotiations.  Members also encouraged theSolomons to implement policies aimed at deregulation and privatization of key service industries.
18. The Government indicated its intention to proceed with divesting its ownership in Solomons
Telekom within the next couple of months, and the possibility of allowing new entrants.
(iv) Conclusions
19. The Chair felt this was a particularly interesting review in that it has brought into focus some
key issues with wider applicability:  in particular, how to reconcile policies of environmental
sustainability and the steps necessary to generate foreign earnings (especially in circumstances where
a government is coping with significant debt serv icing burdens), and also the question of how small
economies heavily reliant on a very limited number of products can maximize returns on production.
20. The review has shown very clearly the serious difficulties faced by the Solomon Islands, as a
small, least-developed, island economy with a limited resource base.  Some of these are inherited
from previous economic mismanagement;  others are due to external problems, including the dramaticWT/TPR/M/45/Add.1
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results of the Asian crisis, erosion of preferences and the effects of subsidization of competing
products.
21. We have also had a substantial discussion on the vulnerability of an undiversified economy to
both commodity booms and external shocks.  A number of delegations have addressed issues of
diversification, sustainability and resource conservation, the role of export taxation;  the effects of
Lomé preferences;  and the prospects for establishing efficient downstream processing.  We hope that
the signals given by Members will help the Solomon Islands in establishing a more viable economicbase. One issue of overwhelming importance is the creation of a stable environment for future trade
and investment, with minimal scope for discretion.  Tariff reforms have already begun and, again, a
stable basis for trade is crucial.
22. The present Government has underlined its commitment to economic reforms and the Trade
Policy Review Body has given its strong encouragement to the process.  We hope that the SolomonIslands Government will, as a follow-up to this review, be able to benefit from the technical
cooperation opportunities that are being offered to it and will thereby be able to participate more
effectively in the WTO Agreements and benefit from the multilateral system.  We wish the Solomon
Islands well in coping with the present difficul ties and promoting its economic recovery and future
development.
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