WORLD TRADE WT/TPR/M/25/Add.1
23September 1997
ORGANIZATION(97-3884)
Original: English Trade Policy Review Body
25-26 June 1997
TRADE POLICY REVIEW
CYPRUS
MINUTES OFMEETING
Addendum
Answers toWritten Questions
Thefollowing communication wasreceived on22July1997 from theDelegation ofCyprus
responding toquestions raised bydelegations andthediscussants during thereview.
_______________
QUESTIONS FROM AUSTRALIA
FreemovementofgoodsundertheCustomsUnionAgreementwhichcameintoforcein1988
between Cyprus andtheECwillbeachieved by2002. Atwhat point willagricultural goods be
freely traded, bearing inmind thatCyprus maintains tariff quota regimes thatinclude trade for
which theEUenjoys preferential access? What principles oftheCAP willbeapplied toCyprus?
Thepassage tothesecond phase oftheAgreement wasdiscussed atthelastAssociation Council
between EUandCyprus. TheGovernment ofCyprus isnowexpecting theCommission torespond
withconcrete proposals ontheprocedure tobefollowed.
Asregards theprinciples tobefollowed inrelation tothemechanisms oftheCAPtobeadopted
byCyprus, wequote article 26oftheCUA.
"1. Thefreemovement ofagricultural products covered bytheAgreement andthepresent
Protocol byreciprocal concessions, shallbeconditional onanAgreement being made inthe
framework ofthedecision taken bytheAssociation Council forthepassage tothesecond phase
ofthesecond stage, onthefollowing principles.
(i) Theintroduction byCyprus ofCommunity quality standards forthese products.
Itisnoted thatCyprus willimplement quality standards for24vegetables and
12fruits, asfrom1.1.1998. Thestandards areharmonized withthose oftheEU.WT/TPR/M/25/Add.1
Page2
(ii) Theapplication byCyprus internally ofdomestic priceconstraints fortheseproducts
similar tothose inforce intheCommunity, withaviewtoensuring thestability
ofthedomestic market andavoiding market crises.
(iii) Theapplication byCyprus ofCommunity measures fortheseproducts attheCyprus
frontier."
Inanycase, thisissue isdirectly related withthedevelopments ofthenegotiations onthe
application ofCyprus forfullmembership withEU.
Australia understands thatCyprus introduced atariff quota regime forfrozen lamb in1996
toreplace thedomestic purchase requirement. Cyprus lamb imports felldramatically after the
introduction ofthenewsystem. Does Cyprus consider thattheMFN tariff quota, which includes
anallocation forpreferential trade, hasmaintained current access opportunities forexporters
offrozen lamb isrequired bytheUruguay Round?
Yes,thenewimport regime forfrozen lambmaintains current access opportunities forexporters
offrozen lamb asrequired bytheUruguay Round.
Itshould benoted thattherates ofduties forthisproduct arewellbelow thelevel ofour
commitments toWTO andunder thenewsystem therewasnotafavourable shifttopreferential imports
ofthisproduct against MFN imports.
Withthelifting, asfrom1.1.1996, oftheimport restrictions forthisproduct andtheabolition
ofthedomestic purchase requirement, itbecame necessary tointroduce atariffquota. Theexperience
ofearlier years showed thattheallocation oftariffquota onafirstcome firstserved basiswould create
conditions ofoligopoly withthequota being utilized byalimited number ofimporters. Hence, the
combined system which treated allimporters equally wasconsidered tobethemost appropriate.
Asareaction totheBSEcrisis, demand forallmeat, notjustbeef, haddeclined drastically
in1996. Inaddition, tourist traffic inCyprus haddeclined, accentuating thepoormarket conditions
forfrozen sheepmeat; thesefactors resulted inreduced consumption ofbothlocally-produced products
andimported frozen sheepmeat. Thesituation wasnotexpected toariseinthefuture; imports ofthese
products forthefirstfivemonths of1997 were already wellabove totalimports for1996.
CanCyprus confirm thatithasremoved thelocal purchase requirement oncheese?
Itisherebyconfirmedthatasfrom17.1.1997Cyprushasremovedthelocalpurchaserequirement
oncheese.
QUESTION FROM CANADA
Foreign investment incertain important services industries isallowed onacase-by-case
basis. CanCyprus clarify whether there areanyguidelines which setoutcriteria tobeusedin
theapproval process? Arethese restrictions considered permanent ortransitional?
Forasmall number ofcases, suchastheestablishment ofnewbanks andnewinsurance or
financial services companies, thepublishing ofnewspapers andtheestablishment ofnewairlines
companies, thelevelofforeign participation isdecided taking intoaccount theparticular characteristics
ofeachindividual case. Fortheassessment ofthese applications consultations takeplace between the
Central Bank andthecompetent Ministry. There arenopredetermined guidelines orcriteria ontheWT/TPR/M/25/Add.1
Page3
basis ofwhich applications areassessed though inthecaseofbanks, besides theminimum capital
requirement, "fitandproper" and"experience inthefield" criteria areapplied. These restrictions
maybeconsidered transitional aiming tofurther liberalizations.
QUESTIONS FROM THE EUROPEAN UNION
Trade inservices increased ten-fold between 1980 and1996. How doestheGovernment
view thedependence oftheeconomy ontourism andthefuture prospects forthedevelopment
oftheservices sector?
Tourism willremain animportant economic activity asitisanareawhere Cyprus hasa
comparative advantage. However, ithasapproached itslimits interms ofbedcapacity. Besides, the
efforts toenrich thetourist product anddiversify therelevant markets, Government policy aimsat
reducing thedependence ontourism andachieving amore balanced growth through theimplementation
ofmeasures inthefollowing directions:
- strengthening ofthemanufacturing sector andimproving itssupply conditions;
- promotion ofother exportable services, where Cyprus hasthepotential tobecome a
regional service centre.
Please comment onprogress made inimproving conditions ofcompetition. Does the
Government intend totakefurther steps topromote competition inareas where monopolies still
exist?
TheLawfortheProtection ofCompetition No.207/89 came intoforce on8.6.1990. This
Lawreproduces thetextofarticles 85and86oftheECTreaty andmostoftheprovisions oftheCouncil
Regulations No.17/62 and27/62. Article 85prohibits agreements which prevent competition toan
appreciable extent; Article 86prevents abuse ofadominant position, affecting tradebetween member
States. Exemptions toarticle 85apply toagreements necessary fortheattainment oftheobjectives
oftheCAPandpractices oragreements which contribute toimproving theproduction ordistribution
ofgoods orpromoting technical oreconomic progress.
Thecurrent legislation outlaws import cartels, butallows export cartels inorder toenhance
exports. Theaimofcompetition policy inCyprus istoconsolidate theexisting legislative framework
inorder tocover allsectors ofeconomic activity, including theoperation ofpublic enterprises, and
tomake itcomparable totheEUregulatory framework.
Theabove-mentioned lawisenforced byanindependent seven-member Commission (located
attheMinistry ofCommerce, Industry andTourism) acting asanadministrative tribunal (similar to
theEuropean Commission) andassisted bytheCompetition andConsumer Protection Service ofthe
Ministry ofCommerce, Industry andTourism. Theseven members oftheCommission areappointed
bytheCouncil ofMinisters. Atleastthree members oftheCommission mustcome fromtheprivate
sector. Theresponsibility oftheCommission istoinvestigate restrictions ordistortions ofcompetition
andtoexamine applications withaview tograting exemptions from thelaw. TheDivision, acting
asSecretariat totheCommission, maintains aregister ofapplications forexemptions anddecisions
oftheCommission andoftheHigh Court ofAppeal.
TheCompetition andConsumer Protection Service hasalsodrafted seven Orders oftheCouncil
ofMinisters regarding block exemptions from theprovisions oftheLawNo.207/89 which arean
exactreplicaoftheEuropeanCommissionRegulationsNo.1983/83,1984/83,2349/84,4087/88,556/89,WT/TPR/M/25/Add.1
Page4
417/85 and418/85. These Orders, which areinforce today, concern agreements between enterprises
onsubject matters regarding exclusive distribution, exclusive purchasing, patent licensing, franchising,
know-how licensing, specialization, andresearch anddevelopment respectively. TheCompetition and
Consumer Protection Service isalsopreparing additional orders andregulations, within theprospect
ofharmonizing Cypriot legislation withtheacquis communautaire forthebetter enforcement ofthe
Competition LawNo.207/89 which willenable Cyprus 'accession totheEuropean Union.
TheCompetition andConsumer Protection Service, incooperation withaforeign expert, has
completed thepreparation ofadraftlawregarding thecontrol ofconcentrations between enterprises
which isbased oftheEuropean Council Regulations No.4064/89 of21.12.1989. Thisbillwasapproved
bytheCouncil ofMinisters inDecember 1996 andhasbeenrecently forwarded totheHouse of
Representatives andisexpected tocome intoeffect during 1997. Thespecific objective ofthispiece
oflegislation istoprevent anytakeovers ormergers between enterprises which tendtocreate or
strengthen theexisting dominant position ofenterprises intherelevant market orindustry thereby
restricting ordistorting competition. Under theproposed legislation, companies withanannual turnover
ofmore than£C2million would needpermission toacquire ormerge withcompeting businesses.
Such legislation would notberetroactive.
TheCommission fortheProtection ofCompetition meets onaverage onceaweek. During 1996
theCommission hadheld50meetings. Fournewcomplaints werelodged withtheCommission in1996
andsixnewself-appointed orvoluntary cases concerning violations wereinitiated. TheCommission
alsoissued eight decisions ondifferent subject matters concerning transgressions ofthelaw.
QUESTIONS FROM HONG KONG
Divergence between MFN andpreferential rates. WehopethatCyprus would bring down
MFN rates toalign them withthepreferential rates soastoallow faircompetition. Wewould
liketoknow ifCyprus hasanyplantoadjust thehightariff products toletthem fallinlinewith
thepreferential rates.
Thepossibility ofreviewing anyhigh tariff ratealways exists, depending onspecial
circumstances. Thetariff ratesareanyway subject toannual reduction commitments. Inaddition,
Cyprus willreview thetariff rates, when proposals onadopting CCT tariffs willbemade, inthe
framework ofnegotiations withtheEU.
InenteringintothesecondphaseoftheEC-CyprusCUA,howwouldanti-dumpingmeasures
inforce intheECbedealt withinCyprus?
Ifeverything proceeds asplanned andtheamendment ofexisting anti-dumping legislation is
completed bytheendof1997, theninentering intothesecond phase oftheEC-Cyprus Customs Union,
Cyprus would have already been harmonized withtheEUlegislation which conforms toWTO
commitments.
While Cyprus bound roughly 80%ofitsindustrial products atanuniform rateof40%
asitsundertaking intheUruguay Round, anumber ofproducts andsectors suchasclothing,
footwear andmotor vehicles remain unbound forprotection ofthelocalindustry (WT/TPR/S/25,
p.25,para. 6).Inaddition, clothing imports from MFN suppliers aresubject toanaverage duty
ofover50%, andamaximum of60%(WT/TPR/S/25, p.58,para. 40). HasCyprus anyplan
forbringing intariff reductions inthese industrial sectors, inparticular, theclothing sector, to
allow formore open competition?WT/TPR/M/25/Add.1
Page5
Thetariffs referred tointhequestion aretheonesthatwereapplied in1996. In1997, tariffs
were considerably reduced andtheywillbereduced further induecourse.
QUESTIONS FROM INDIA
Wewould likeCyprus toclarify what changes theyexpect intheirtrade regime oncetheir
accession totheEUisfinalized, particularly since theirexisting Custom Union Agreement differs
from themain EUCustom Union Agreement.
Onjoining theEU,Cyprus, asallmember countries, willbeexpected toadhere tothecommon
external trade policy oftheEuropean Union including allbilateral ormultilateral agreements or
commitments made bytheUnion. Inthisrespect Cyprus 'trade regime willhavetobemodified
accordingly.
Weunderstand thateven though alldiscretionary import licensing, except perhaps for
groundnuts, hasbeen abolished, quantitative restrictions onimports continue. Wewould be
grateful iftheWTO justification fortheretention ofthese restrictions iskindly given.
Import prohibitions andquantitative restrictions havebeenabolished from January 1,1996.
However, forasmall number ofproducts theimport licensing system hasbeenmaintained notfor
thepurpose ofprotecting localproduction butforother considerations suchastheprotection ofhealth,
safety, environmental factors, etc.,pursuant toGATT Articles XXandXXI.
Aminimum level ofinvestment isapparently required even incases where theforeign
investment isupto100% oftheequity. Thismaybeabarrier forentry ofsmall enterprises
especially infoodprocessing industries. Does Cyprus plantoremove these barriers tomarket
entry thereby enhancing theenvironment forcompetition?
Inviewofthecontinuing liberalization process, thesebarriers willbereconsidered inthevery
nearfuture withaviewtowiden further theopportunities fornon-resident investment inCyprus.
Wenotethatanimport surcharge ismaintained onanumber ofproducts which have
perhaps replaced discretionary licences/quotas. Theimport surcharge isexpected toberemoved
forallproducts, except cement, chipboard andwater pumps. Wenotethatprice controls also
areinplace oncement andchipboard. Themultiplicity ofregulation mayobfuscate therationale
forthesafeguards. Wewould liketoknow whether there areanyother safeguards onthese
products andwhether these aswellasothers have been notified toWTO.
There arenoother safeguards oncement, chipboard andwater pumps. Safeguards havebeen
notified toWTO, asprovided forintherelevant Agreements.
QUESTIONS FROM JAPAN
Towhat kind ofproducts areprice controls applied, howandtowhat extent dothey
operate?
Theagricultural products whose prices arestillunder control arethefollowing:
(1) Pork;
(2) Poultry andeggs;
(3) Potatoes;
(4) Drybeans.WT/TPR/M/25/Add.1
Page6
Asfaraslocally produced products areconcerned, suchaspork, poultry, eggsandpotatoes,
theirmaximum prices arefixedbytheMinistry ofCommerce, Industry andTourism. Itisworth while
tonotethattheMinister takes adecision after therespective matters have been discussed inthe
Consultative Price Committee anditssuggestions havebeensubmitted totheMinister ofCommerce,
Industry andTourism. Thecurrent prices forpork, poultry, eggsandpotatoes areasfollows:
Wholesale
£CRetail
£C
1.Porkperkilo 0.52 1.35
2.Poultry perkilo 1.05 1.16
3.Eggs perdozen 0.52 0.57
4.Potatoes perkilo - 0.40
Inthecaseofdrybeans maximum margins aresetforthewholesale andretail prices, which
currently are8%and10%respectively.
Preferential tariff ratesapply toimports fromEUsuppliers. MFN ratesarehighcompared
topreferential rates (especially vegetables, fruit, beverages). Does Cyprus intend toreview these
hightariff rates?
Thepossibility ofreviewing anyhigh tariff ratealways exists, depending onspecial
circumstances. Thetariffratesareanyway subject toannual reduction commitments. Inaddition Cyprus
willreview thetariff rates, when proposals onadopting CCT tariffs willbemade, intheframework
ofnegotiations withtheEU.
Potato andCarrot andBeetroot Marketing Boards aresoleexporters oftheir respective
products, although private exporters mayseekpermission toexport. Could Cyprus explain the
procedures toenable private traders toseekpermission toexport? Arethere anyquantitative
restrictions?
Almost alltheexported quantities aredirected toWestern European countries. Ineachcountry
ofdestination themarketing oftheCyprus potatoes andbeetroot isexercised wholly through anextensive
network oflocalprivate traders. Carrots havenotbeenexported since 1993.
Private traders mayseekpermission fordirect export byapplying totherespective Marketing
Board. Permission isusually granted toprivate traders toexport tonon-traditional ortonotwell
serviced markets suchasCentral andEastern European countries, Middle EastCountries andcountries
ofallother continents (Asia including Japan, Africa, America, Oceania).
Normally theexporters havetobuytheirpotatoes orbeetroots onaf.o.b. basisfromtheBoard 's
packing stations inorder tosecure highquality oftheexported product. Exceptionally, however,
(forverysmall quantities) theBoard mayallow theexporters tobuydirectly from thegrowers.
Arethelocal standards authorized bytheGovernment? Aretechnical committees
governmental orprivate organizations? Explanations onthecontents ofcompulsory standards.
Local standards areauthorized bytheCyprus Standards Organization (CYS) which isa
governmental organization. Technical committees function under theauspices oftheCYSandconsistWT/TPR/M/25/Add.1
Page7
ofrepresentatives fromboththeGovernment andtheprivate sector. There existbothcompulsory and
voluntary standards. Compulsory standards apply mainly tofooditems andbuilding materials.
When isthepatent lawexpected tobebrought intoconformity withtheWTO Agreement
onTRIPS? Does Cyprus adopt procedures toenable property rightholders tolodge application
inwriting withtheadministrative authorities? What aretheunauthorized parallel imports that
trademarks andpatent rightholders mayprevent?
Thepatent lawwillbeenforced within 1997-1998. Concerning theadministrative procedures
inthecaseofinfringement, interested persons canapply totheOffice oftheRegistrar ofTrade Marks
fortheexpungement ofaTrade Mark fromtheTrade Mark Registry ifatrademark hasbeenwrongly
registered.
Unauthorized parallel imports areimports ofgoods thatareillegal copies, pirated products, etc.
Astoretailpricecontrolsonpasteurizedmilk,whatarethemainreasonsandpleaseprovide
explanation ontheretail price controls themselves.
Price controls were setupinJanuary 1974, after ajoint declaration wassigned bythe
Government, theEmployers Association andtheLabour Unions. Thedeclaration forprice controls
wassigned inorder toprevent "price explosions" andtokeepprices atreasonable levels, thusprotecting
theconsumer, since there were anumber ofreasons bytheendof1973 which made suchactions
necessary. These reasons weretheenergy crisis andtheinflation thatoccurred incountries withwhich
Cyprus wastrading. Apart fromtheabove exogenous factors therewerealsodomestic problems which
ledtothejointdeclaration suchastheconditions ofdrought.
Today most oftheconsumer goods andservices which were under price controls havebeen
liberalized andprice levels aredetermined bymarket forces. Oneofthefewgoods whose price is
stillunder control ispasteurized milkforthesimple reason thatthereareonlytwounitswhich pasteurize
milk, thusforming anoligopoly.
Withduetimeandtheenforcement ofthecompetition law,itisexpected thatbytheendof1998
there willbenoprice controls whatsoever.
ThepricecontrolsconcerningthepasteurizedmilkaresetbytheMinisterofCommerce,Industry
andTourism afterthematter hasbeendiscussed intheConsultative PriceCommittee andthesuggestions
ofitsmembers havebeensubmitted totheMinister.
Could Cyprus explain whytheretail price ofimported cheese inmost cases islower than
thatoflocally produced evenwithhigher import duties oncheese (para. 26,p.51)?Isthiscaused
byanyprice control ontheproduct orbyanyother measures?
There seems tobeamisunderstanding concerning thenotion thattheretail price ofimported
cheese islower thanthatofsimilar locally-produced cheeses evenwithahighrateofimport duty.
Itisnoted thatthelocal production concerns mainly edam typeofcheeses. Even before theprices
ofedancheese wereliberalized withthethenexisting system ofsubsidies andbefore thatwiththeso
called "marriage system", theretail prices oflocally produced cheeses werelower thantheprices of
imported cheeses. According totheresults ofamarket research which covered themonths ofMarch,
April, MayandJune1997, theretail prices oflocally-produced cheeses arebelow those ofimported
cheeses.WT/TPR/M/25/Add.1
Page8
Regarding athree-year plantoupgrade thetourism industry (para. 45,p.59)areinterest
subsidies andother upgrading measures related equally towards eachagency whether theyare
localorhaveforeign investment? Areforeign investors equally treated? Could Cyprus givefurther
explanations onthethree-year plan?
Withregard totheincentive schemes included inthethree-year Action Plantoupgrade tourism
(interest subsidization andother upgrading measures) there isnodiscrimination towards anytourist
enterprise whether theyhavelocalorforeign participation.
Thethree-year Planisapackage ofmeasures aiming at:
-restricting newhotel development;
-enhancing tourist demand through marketing activities andliberalization ofairtraffic;
-containing operational costs inthetourist sector;
-upgrading infrastructure andtheenvironment anddiversifying thetourist product through
thecreation offacilities suchasmarinas, golfcourses, theme parks, agrotourism, etc.
IstheCTO agovernmental organization? What istheCTO authorized todoandwhat
doesitactually do?
TheCTOisasemi-governmental organization. Itisgoverned byaBoard ofDirectors appointed
bytheCouncil ofMinisters andithasitsownbudget. Allpolicy decisions aresubmitted tothe
Government through theMinister ofCommerce, Industry andTourism whoisresponsible forthe
supervision ofCTO activities. TheCTOisresponsible forthedevelopment andpromotion oftourism
intheRepublic ofCyprus. Inthiscontext, theCTOdesigns, proposes andimplements policies, executes
short andmedium-term programmes fortourism development andcoordinates theactivities ofthe
departments andlocalauthorities which arerelevant totourism. Italsoclassifies andinspects tourist
enterprises andundertakes extensive marketing activities abroad.
Arethereanyfieldsinwhich100%foreigninvestmentisallowed,otherthanforgolfcourses
ortheme parks?
Inthefollowing sectors, subject tocertain prerequisites, 100% foreign ownership isallowed.
-Wholesale andretail trade
-Services sector
-Secondary/manufacturing sector
However, inrestaurants andcommercial representatives, bothcoming under theservices sector,
foreign ownership isallowed upto49%.
Regarding theprovision, installation andmaintenance oftelecommunications terminal
equipment, what aretheconditions forentry intobusiness inthisfieldregarding market access
andnational treatment? Arethere anyregulations inthisfield?
Theconditions forentry intobusiness inthefieldofprovision, installation andmaintenance
oftelecommunications terminal equipment (TTE) regarding market access andnational treatment are
asfollows:WT/TPR/M/25/Add.1
Page9
(a) Provision ofTTE
NorestrictionsprovidedtheTTEhasreceivedanapprovalfromtheCyprusTelecommunications
Authority (CYTA). IftheTTEhasbeencertified byanaccredited (bytherelevant authority ofany
oftheEUcountries) testing laboratory/house ascomplying withtheETSI standards and/or ITU
recommendations, thenCYTA proceeds withthetesting oftheinterface section only. Ifthistestis
successful, anapproval isgranted andtheTTEmust always bemarked accordingly.
(b) Installation ofTTE
Onlypersons licensed byCYTA areallowed tocarry outanyinstallation oftelecommunications
services and/or TTE. Itisalways understood thatthepersonnel responsible fortheinstallation ofhighly
andtechnologically advanced TTEshould havebeenproperly trained bythemanufacturers oftheTTE.
(c) Maintenance ofTTE
Maintenance ofTTE isfreeofanyregulations. Itis,however, always understood that
maintenance personnel should havebeenproperly trained bythemanufacturers oftheTTE.
QUESTIONS FROM NEW ZEALAND
Why there wasnoprior notification oftheintention tocombine inandoutofquota duty
rates toimports offrozen sheepmeat during thelasthalfof1996?
Asyoumaybeaware thetariffregime forfrozen sheepmeat wasamongst theissues negotiated
withtheEUunder theobligations oftheCustoms Union Agreement between Cyprus andtheEU.
These wereconcluded latein1996andtherefore thearrangements in1996werefollowed onaninterim
basis.
Why were importers ofNewZealand frozen sheepmeat noteligible forarefund ofduty
amount above £C0,50 perkiloonlamb meat imports forwhich they were overcharged
during 1996?
TheCyprus 'Customs andExcise Lawdoesnotprovide inthiscaseforarefund oftheduty.
Inanycaseduties collected donotrepresent anovercharge astherateofdutywaswellbelow thelevel
ofourcommitments toWTO.
Does Cyprus intend toreinstate a"combining" dutyratetoimports offrozen sheepmeat
atalater stage andwillduties onsheepmeat imported from theEUbesubjected tothesame
treatment from 1January 1998?
TheGovernment ofCyprus since 19June1996reverted toadirect import regime forimports
offrozen sheepmeat. Itisnotanticipated thattheneedofa"combined" dutyratetoimports offrozen
sheepmeat willagain benecessary.
Willthecurrent import regime forfrozen sheepmeat apply beyond 1998?
Cypriot import regime forfrozen sheepmeat applicable beyond 1998willdepend ontheoutcome
ofthefuture negotiations between Cyprus andtheEUinpassing tothesecond phase oftheCUA.WT/TPR/M/25/Add.1
Page10
Could Cyprus explain whether ithasaplanandschedule foraformation ofaCustoms
Union withtheECwithin areasonable length oftime? Could details beprovided? Does Cyprus
intend toinclude sheepmeat inaphased reduction programme oftariffs?
Thequestion ofinclusion ofsheepmeat inatariff reduction programme willdepend onthe
outcome ofnegotiations ofCyprus withtheEUinpassing tothesecond phase oftheCustoms Union
Agreement.
Tariff ratesonfresh fruitandvegetables arehighandthese products alsoappear tobenefit
from export subsidies. Could Cyprus explain theneed forprotection/assistance inthissector?
Cyprus ispresently applying twotariff ratesforthese products asmany ofthemareincluded
intheCustoms Union Agreement (CUA). Asfromthecompletion ofthefirstphase oftheCUA and
thebeginning ofthesecond phase, Cyprus willadopt thesame tariffratesastheEU.TheMFN tariffs
weretheresult ofthetariffication procedure, according tothemethod given. Asregards thecomparative
advantage thatCyprus appears tohaveonfreshfruitandvegetables, thesituation isnotquiteso,given
thatthecostoflabour inCyprus hasbecome considerably highandalsotaking intoconsideration the
scarcity andcostofwater. Ontheotherhand, theproducts inquestion donotbenefit toanyconsiderable
extent fromexport subsidies butmostly relyoninternal support measures and/or coverage ofmarketing
services andpromotional expenses. InfactCyprus considers thelevelofexport subsidies committed
quitelow.Arestructuring programme ofthefruitsector isunder study. Therestructuring programme
willinclude incentives fortheintroduction ofnewtechnology, newvarieties, etc.,which areexpected
toimprove thecompetitiveness ofthefruitsub-sector.
QUESTION FROM NORWAY
Isanynotification onsafeguards byCyprus inthepipeline?
TheNotification ofSafeguards (submitted inMarch, 1995) marked thepotential rightofCyprus
tomaintain quantitative restrictions theninforce. Inthemeantime, witheffect from1January 1996
theimport licensing regime hasbeenabandoned (with theexception ofafewproducts where import
licensing ismaintained fortheprotection ofhealth, safety, environmental factors etc.pursuant toGATT
Articles XXandXXIandimports arefreely allowed subject onlytotariffs. Fortheforeseeable future
thereisnointention onthepartoftheCyprus Government toreinstate anyofthequantitative restrictions.
QUESTIONS FROM THE UNITED STATES
Para. 60oftheSecretariat Report refers toexclusive dealerships andparallel imports.
What aspect ofthelawprecludes exclusive dealerships andwhat isthepolicy rationale? What
legal distinctions arebeing made withrespect toauthorized andunauthorized parallel imports?
Astoparallel imports wehavenoprovisions fororagainst parallel imports. Ifaproduct is
alegitimate original product itmaybeimported. Weconsider thatparallel imports isaprivate right
thattheprincipal andagent agree upon byprivate contact.
Paragraph58oftheSecretariatReportmentionsthattheproposedpatentbillwouldprovide
forcompulsory licensing ifthepatent isnotusedortheproduct notincluded. What arethetime
limits forarightholder tomake theproduct available inCyprus before theprovisions become
applicable? Arethere anysafeguards provided tolimit injury tothelegitimate interests ofthe
rightholder?WT/TPR/M/25/Add.1
Page11
Referring tothepatent billoncompulsory licenses thetimelimits forarightholder tomake
aproduct available inCyprus before theprovisions become applicable isnotmentioned intheproposed
billbutathree yearperiod willbeincluded intheRegulations (Supplementary Legislation) before a
compulsory license canbegranted. TheRegulations willincorporate alltherequirements provided
bytheFinal Agreement toprotect thelegitimate interests oftherightholder e.g.thelicense willonly
begiven forCyprus, notforexport anditwillnotbeanexclusive license.
Dotherestrictions under theExchange Control Lawoninvestment abroad stillapply to
corporations formed inCyprus butowned byforeign enterprises? Doesthislawinanywayaffect
theability ofsuchcorporations toremit profits andother investment-related funds tothehome
country?
TherestrictionsundertheExchangeControlLawoninvestmentabroadstillapplytocorporations
formedinCyprusandownedbyforeignenterprises.Remittanceofprofitsemanatingfromaninvestment
inCyprus, aswellasremittance ofcapital proceeds, including capital appreciations, inthecaseof
liquidation/sale oftheinvestment, isallowed without restriction.
Weunderstand thatunder thenewpolicy theCentral Bank canprohibit aforeign
investment ifitisfound tobein"conflict witheconomic interest". Against what kindofharm
isthismeasure directed? Could itbeusedtoprotect domestic industries from competition from
foreign-owned enterprises?
Firstly itshould beclarified thataforeign investment inCyprus isnotprohibited ongrounds
of"conflictwitheconomicinterest",butinaccordancewiththenewliberalinvestmentpolicytherelevant
overall economic criterion is"theCypriot economy isnotharmed". Thisrequirement replaced the
previouslyappliedapprovalcriterion"theforeigninvestmentmustbebeneficialtotheCyprioteconomy",
which evidently wasmore prohibitive. Itisageneral requirement which, certainly, isnotintended
toprotect thelocalindustries from foreign competition butisincluded inthelistofrequirements in
order togivetotheauthorities theground toreject cases (rather unspecified) which evidently may
result tothedetriment oftheCypriot economy e.g.cases that,ifapproved, maycreate monopolistic
conditions.
QUESTIONS FROM THE DISCUSSANTS
What policy doesCyprus pursue inthecontext oftheStrategic Planinorder nottoneglect
itsrelationship outside Europe? Could youelaborate onthepriorities intheeconomic andtrade
policy dealing withthisimportant additional dimension? How aretheobjectives tobecome a
member oftheEUandaregional centre related?
Contrary totheimpression given, Cyprus 'commitment tojointheEUdoesnotinanyway
come contrary tothedevelopment ofitstieswithitsMiddle Eastern andNorth African neighbours.
Indeed, thebasic strategic objective forCyprus asaprospective member oftheEUistoaccelerate
theprocess ofmaking Cyprus intoaregional centre ofbusiness activity ofinternational calibre, and
transforming itintoagateway forEurope intotheMiddle EastandNorth Africa. Cyprus 'geographic
position, thefriendly relations cultivated overthepost-independence period withvirtually allMiddle
East andNorth African countries, therelatively welldeveloped infrastructure, particularly in
telecommunications, portsandairports, itshuman capital endowment aswellasthesuccesses achieved
sofarinthedirection ofconverting Cyprus intoaregional service centre, arefactors onwhich Cyprus
triestobuild.
How isCyprus going totackle thevulnerability ofitseconomy toexternal shocks?WT/TPR/M/25/Add.1
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Through thepromotion ofamore balanced growth, aiming atreducing thedependence ofthe
economy ontourism, while simultaneously taking intoconsideration thecomparative advantages of
Cyprus. Thisstrategic objective incorporates apromotion oftheservices sectors, beyond tourism,
aswellastherestructuring ofthemanufacturing sector towards theproduction ofhighvalue added
products, inwhich theemphasis isonthequality andthedesign oftheproduct rather thanontheprice.
Inaddition, asfarasthesector ofagriculture isconcerned, emphasis isgiven totherestructuring of
thesector towards theproduction ofproducts, inwhich Cyprus hascomparative advantages dueto
itsfavourable climatic conditions. Through theenhancement ofthecompetitiveness withthepromotion
ofmeasures aiming atincreasing therateofimprovement ofproductivity, suchastheprovision and
upgrading ofexisting training courses, theintroduction offlexible systems ofremuneration entailing
incentives forahigher levelofproductivity, theexercise ofmoral suasion forthecontainment ofwage
andsalary increases, aswellastheencouragement oftheintroduction ofinnovations -newproducts
andnewmethods ofproduction.
What istheimpact ofdefence spending onthebudget?
Defence spending fluctuates around 4%to5%ofGDP. There isaDefence Fund whose main
financing source isthespecial contribution. Employees andemployers paya2%taxonthewage bill,
whileotherincomesarechargedwitharateof2,5%.Fromamedium-termperspectivedefencespending
hasmore orlessaneutral effect ontheoverall fiscal deficit. Thisisalsothefiscal aimofthe
Government.
When would Cyprus signmore WTO Agreements?
Cyprus isfollowing veryclosely theprogress ofnegotiations intheWTO invarious fields
suchasfinancial, telecommunications, maritime, etc.anditstrade policy isunder continuous review
taking intoaccount theharmonization process withtheacquis communautaire oftheEuropean Union.
Tohisrespect, thesigning ofother WTO Agreements willdepend ontheprogress oftheabove
harmonization process aswellasthelevelofdevelopment ofthesectors concerned.
There isahighconcentration inthebanking sector, withtwobanks controlling twothirds
ofdeposits. Itwould beuseful toknow what theintentions ofCyprus areinregard tothisvery
important sector.
There exists aggressive competition between theexisting banks. There isalarge number of
co-operative credit institutions which account forabout 1/3ofdeposits andloans andcontribute to
averycompetitive environment forbanking services. Despite thesmall sizeofthemarket, given the
present stateofeconomic development, theCentral Bankwould welcome applications forestablishment
ofmore banks intheform ofbranches orsubsidiaries ofbanking institutions ofprime international
standing. Insuchcases upto100% foreign participation maybeallowed. Cyprus offers national
treatment toallbanking institutions andallcriteria usedinevaluation arethesame forbothnationals
andforeigners.
Itmight bethatthedesired levelofinvestments inthetourist sector would bepromoted
ifgreater than 50% foreign investment wasfreely available. Amplification ofthechanges
introduced inFebruary 1997(para. 63ofWT/TPR/G/5) onthecertainty ofallowing 100% foreign
participation would beuseful.
Thetourist sector inCyprus, which isconsidered aheavily invested sector, hasbeenregulated
andcontrolled byGovernment decisions aiming atmitigating theproblems encountered inrecent years
inthetourist industry andattributed toalarge extent tothefactthatthesector hasbyfarexceededWT/TPR/M/25/Add.1
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itsoptimum expansion. Within thiscontext, theGovernment hasdecided torestrict foreign participation
inhotels andtourist villages upto49%, sothatexisting problems maynotbefurther aggravated.
Ontheother hand, thetourist policy encourages theestablishment byforeign investors ofnew
supplementary tourist projects suchasgolfcourses, marinas andleisure centres which would enrich
thetourist product. Inthelatter cases theforeign ownership maybeupto100%.
TheGovernment report mentions under performance interms ofexpected improvements
inproductivity attributed todifficulties intheuseofadvanced technology. Could youelaborate
what plans andsteps have been taken toovercome these difficulties?
(i) Theintroduction ofascheme ofgrants andsubsidized interest ratesforinvestment inmachinery
andequipment inthemanufacturing sector, aiming atatechnological upgrading ofthesector.
(ii) Thecreation oftheInstitute ofTechnology having asitsobjectives thetechnological upgrading,
therestructuring andenhancement ofthecompetitiveness ofthemanufacturing sector. The
Institute ofTechnology subsidizes studies undertaken bymanufacturing units intheireffort
toachieve theabove setobjectives.
(iii) Thecreation, through government assistance, ofaResource Centre forthesub-sector ofclothing
bytheprivate sector, providing information toenterprises intheareas offashion, design,
technology andmarket research.
(iv) Thecreation ofaFoundation forResearch Promotion aiming atencouraging applied research,
through theprovision ofgrants fortheundertaking ofresearch schemes.
(v) Theprovision ofpostgraduate courses through theMediterranean Institute ofManagement
runbytheCyprus Productivity Centre.
(vi) Afurther liberalization offoreign investment.
There areconsiderable subsidies intheagricultural sector. What arethelonger term
plans inthisarea?
Thetotalsupport provided bytheGovernment totheagricultural sector isnothigh, ascompared
tothesupport provided bytheEUandothercountries. ThetotalAMS in1995wasonly£C36,5million
ascompared toourcommitted AMS levelof£C58,4million. AMS which issubject toanannual
reduction level willbe£C50,6million by2004. Cyprus isnowintheprocess ofadjusting its
agricultural policy toCAPmechanisms andsupport provided bytheEU.Atthesametime, adjustments
arenecessary toalleviate theeffects oftheliberalization onthelocalproduction ofagricultural products.
Thelong-term plans include theimplementation ofstructural adjustment programs inorder toimprove
thecompetitiveness ofthesub-sector andtoreduce itsdependence ongovernment support. These
programs include theintroduction ofnewvarieties, newtechnology aswellasfinancial support, always
within thecommitment levels toWTO.
With theEUCCT, Cyprus willhave toimplement quotas justliketheEU,fortextiles
andnegotiate forcompensations upon introduction ofsuchquotas?
Forthetimebeing thereisnodecision tointroduce quotas fortextiles products. Thealignment
withEUpolicy onthisissuewillbeconsidered inthecontext ofthecompletion oftheCustoms Union
Agreement withtheEU.