WT/TPR/S/110 Trade Policy Review
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II. TRADE AND INVESTMENT REGIMES
(1) OVERVIEW
1. Apart from a revision of the 1979 export and import law in 2000, no major changes have been
made in recent years to the Maldives' legal framework for trade and investment.  Such policies have
tended to be coordinated on an ad hoc basis with little formal interaction with the private sector.  The
Maldives, an LDC and a former GATT contracting party, requires substantial trade-related technicalassistance to fulfil its WTO commitments.  Membership of regional integration agreements has been
limited to SAARC.  Graduation from LDC status would have implications for its fish exports.
Although trade and investment liberalization and private-sector growth are seen as key catalysts for
achieving economic progress and alleviating poverty, the investment regime lacks transparency in
parts, and the Maldives has not been particularly successful in attracting FDI, outside tourism.
(2) C
ONSTITUTIONAL AND INSTITUTIONAL FRAMEWORK
2. The Maldives is a unitary democratic republic; it gained independence from the
United Kingdom in July 1965.  The current Constitution, adopted in January 1998, separated the
President's executive powers from the legislative role of the unicameral Parliament and established an
independent judiciary.  It guarantees the legal equality of  Maldivians as well as freedom ofmovement and expression.  The Constitution prohibits foreign ownership of land, and parliamentary
approval is required for foreigners to lease land for over 25 years.
3. Legislative power is vested in the Parliament, the People's Majlis (Council) whose
50 members serve five-year terms.  The President appoints eight members;  the rest are elected by
universal suffrage.  Parliamentary elections are due in November 2004.  The speaker of the People's
Majlis is a non-member appointed by the President.  The People's Special Majlis (Council), which
approves constitutional amendments, consists of  members of the Cabinet, the People's Majlis,
publicly elected representatives, and eight Presidential appointees.
4. Executive power is vested in the President, who is the Head of State and of Government, but
is not a member of Parliament.   He is nominated by Parliament by secret ballot every five years and
ratified by national referendum.  The President may serve numerous terms;  the current President took
office in 1978.  Presidential elections are due in October  2003.  The President appoints and presidesover the Cabinet, which includes non-members of Parliament.  The Cabinet, currently comprising
21 members, assists the President in formulating government policy, and advises on the country's
economic and social development.  It also helps the President to formulate annual budgets and
government bills.  In addition, the Cabinet advises the President on the ratification of international
treaties and agreements.  All bilateral and multilateral agreements must be authorized and ratified bythe President.
5. The President's Office administers functions and activities arising from the President's
responsibilities.  A number of government bodies are directly under its responsibility, including the
Anti-Corruption Board, the Audit Office, and two state-owned enterprises, the Maldives National
Shipping Limited and Air Maldives Limited (until  April 2000).
6. The President is the highest judicial authority.  He hears appeals from the High Court, and
appoints the Chief Justice (head of the High Court), judges, and magistrates.  The High Court hears all
court appeals and state cases as determined by the President.  The judicial system is based on Islamic
law, with some English common law in mainly commercial matters.  Local courts on inhabited islands
are presided over by magistrates.Maldives WT/TPR/S/110
Page 15
7. Male is the seat of government.  The other 1,190 islands are grouped into 20 administrative
atolls.  The Ministry of Atolls Administration overseas their administration, with each group headed
by an Atoll Chief appointed by the President, and responsible to the Atolls minister.  An Island Chief
(Katheeb) heads every island and is responsible to the Atoll Chief.
(3) STRUCTURE OF TRADE POLICY FORMULATION AND IMPLEMENTATION
8. The President, Cabinet or the relevant minister generally identifies the need for new
legislation, but parliamentary members may also introduce bills.  The responsible ministry or agency
normally sends policy guidelines (or a draft bill) to the Law Commission requesting it to draft the bill,
which is then sent to the President's Office.  Cabi net then debates it, before it is submitted to the
People's Majlis.  Bills passed by Parliament become law upon ratification by the President, and are
published in the Government Gazette .1
9. Trade policy formulation has been coordinated largely on an ad hoc basis with little formal
consultative processes in place between relevant ministries, apart from cabinet committees.  However,
the President established a National WTO Committee in May 2002 to improve trade policy
coordination and formulation.  A senior officer from the Ministry of Trade and Industries, which is
responsible for formulating trade (including tariffs) and industrial policy, chairs the committee.  Thistechnical committee consists of senior officials from 13 ministries or agencies, and meets regularly to
coordinate WTO issues.  It makes recommendations to line ministries, especially the Ministry of
Trade and Industries, which negotiates and implements multilateral, regional and bilateral trade
arrangements.  The Maldives has not participated actively in any multilateral trade negotiations, and
belongs to only one major regional trade agreement.
10. Other ministries or agencies with important input in trade-related policies include:  Finance
and Treasury (budget, expenditure/revenue measures other than tariffs);  Planning and NationalDevelopment (plans, economic statistics)
2;  Tourism;  and Fisheries, Agriculture and Marine
Resources.  Under the Ministry of Finance and Treasury, the Maldives Customs Service administers
the tariff regime, including customs procedures and rules of origin;  the Department of Inland
Revenue administers other taxes.  The Public Enterprises Monitoring and Evaluation Board (PEMEB)
under the Ministry of Finance and Treasury oversees the performance of state-ownedenterprises (SOEs).  Line ministries also play a role in regulating and overseeing most SOEs.
11. No independent statutory body exists to review or advise the Government on economic and
trade policies, including the provision of government assistance to industry.  Most economic policy
advice comes from the Maldives Monetary Authority (MMA), the Ministries of Finance and Treasury,
Planning and National Development, and Trade and Industries.   International institutions, such as the
World Bank, the IMF, and the Asian Development Bank (ADB), also provide economic advice.
12. Little formal consultation or interaction exists between the public and private sectors on trade
policy formulation and implementation.  The National Chamber of Commerce and Industries has
recently suggested a public-private partnership, structured around Vision 2020 (section (5)) and the
Sixth National Development Plan, to provide a more structured dialogue with the Government.  There
are no non-governmental organizations (NGOs) or other groups active in trade and industry policies.
                                                     
1 The President may return bills to the Parliament for amendment.  The President must ratify a returned
bill if, after reconsideration, it is passed without any amendments by a two-thirds majority of the People'sMajlis.
2 Replaced the Ministry of Planning, Human Resources and Environment in 1998.WT/TPR/S/110 Trade Policy Review
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(4) TRADE LAWS AND REGULATIONS
13. In line with the Constitution, are implemented by government policies, parliamentary laws
and Presidential decrees, directives, and regulations promulgated by ministries.  Ministers can issue
their own orders or regulations in their areas of responsibility, subject to the President's approval.  For
example, PEMEB regulates SOEs by presidential as well as ministerial authority.
14. International agreements become effective when  ratified by the President (Section 147 of the
Constitution).  The process of ratification of the WTO Agreement is seemingly under way and it is to
be completed in the near future.  At present, the WTO Agreement is considered de facto  law, and the
authorities are committed to honouring their obligations.  Any potential violations are genuinely
inadvertent and inconsequential, according to authorities.  Domestic legislation that might be contrary
to WTO provisions would be brought into conformity with relevant obligations.
15. The 1979 Export and Import Law (No. 31/79) was revised, effective end-May 2000, to
formally adopt the Harmonized System (HS).3  At the same time, tariff rates were changed up or
down.  The Maldives' main trade-related laws are listed in Table II.1.
Table II.1
Main trade-related legislation
Title of Legislation
Export and Import Law, 1979 (No. (31/79)
Tourism Act, 1999 (No. 2/99)
Law on Public Utilities: electricity distribution, telecommunication provision, water distribution, sewerage systems, 1996 (No.  4/96)
Import and Sale of Pharmaceutical Drugs, 1975 (No. 75/78)
Contract Law, 1991 (No. 4/91)
Mortgage Law, 1993 (No. 9/93)
Law on Leasing Uninhabited Islands for Developing Tourist Resorts, 1994 (No. 3/94)
Law on Bills of Exchange, Cheques and Promissory Notes, 1995 (No. 16/95)
Foreign Investment Law, 1979 (No. 25/79)
Law on Doing Business in Maldives by Foreign Nationals, 1979 (No. 4/79)
Law on Outlets Selling Imports and Food Serving Outlets, 1978 (No. 60/78)
Consumer Protection Law, 1996 (No. 1/96)
Law on Prohibited Imports, 1975 (No. 4/75)
Partnership Law, 1996 (No. 9/96)
Company Law, 1996 (No. 10/96)
Environmental Protection and Preservation Act, 1993 (No. 4/93)
Source: The Maldivian authorities.
16. Legislative reform is considered essential in order to establish an enabling environment more
conducive for private-sector development.  This would enhance the predictability of the foreign trade
regime and increase confidence of traders and investors.  Some trade laws (including the Amended
Export and Import Law) and regulations are being reviewed to reflect trends in the multilateral trading
system, but additional work is needed to align national legislation with these requirements.Legislation on copyright and e-commerce is under preparation.
                                                     
3 The export and import legislation enables the Go vernment to treat trade duties in accordance with
regional or international agreements.Maldives WT/TPR/S/110
Page 17
17. The Maldives has made relatively few notifications to the WTO (Table II.2).  According to
the authorities, compliance with notification requirements is hampered by severe human resource
constraints, and poor understanding of WTO obligations in this area.
Table II.2
Selected notifications to the WTO, 2002
WTO Agreement Description of requirement Periodicity Symbol of latest notification
Anti-Dumping (Article 18.5) Laws and regulations Once, by March 1995, then
changesG/ADP/N/1/MDV/2,
10 February 1999
Subsidies (Article 32) Laws and regulations Once, by March 1995, then
changesG/SCM/N/1/MDV/2,
22 January 1999
Preshipment Inspection
(Article 5)Laws and regulations that put the
Agreement into forceOnce, then changes only G/PSI/N/1/Add.8,
28 September 1999
Rules of Origin (Article 5.1 andAnnex II, para. 4)Preferential and non-preferential
rules of originNon-preferential in April 1995;
preferential upon entry into forceG/RO/N/22,
16 September 1999
Rules of Origin (implementation
of Article 2(h) and Annex II,
para. 3(d))Survey of Members' practices Once G/RO/W/26,
25 March 1998
Customs Valuation (Articles
20.1 and 22.1)Delay in commencement of
provisions and changes in lawsOnce on delay, then changes
onlyG/VAL/W/69,
26 May 2000
TRIPS (Article 69) Details of enquiry points Once, then changes IP/N/3/Rev.5,
6 July 2001
GATS (Articles III.4 and IV.2) Details of enquiry points Once, then changes S/ENQ/78/REV.1,
5 October 2001
Committee on Trade and
DevelopmentIntegrated Framework for trade-
related technical assistanceNeeds assessment presented by
the MaldivesWT/COMTD/IF/22,
26 February 1998
Sub-Committee on Least-
Developed CountriesDetails of focal points under the
Integrated FrameworkOnce WT/COMTD/LDC/W/14,
24 February 1999
Agriculture (Articles 10 and18.2)Export subsidies (outlays and
quantities)Annual G/AG/N/MDV/1,
6 January 2000
Agriculture (Article 18.2) Domestic support Annual G/AG/N/MDV/2,
6 January 2000
Source: WTO documents.
(5) TRADE AND ECONOMIC POLICY OBJECTIVES
18. Trade and economic liberalization are considered by the Maldivian authorities to be means of
promoting private-sector investment and development.  However, trade liberalization, such as tariffreductions, is not specifically included in the current development plan.  Relatively high tariffs are
maintained, mainly for revenue reasons.  Nevertheless, the Government is committed to further
outward orientation of the economy to improve trade and economic performance, and to diversify the
economy away from fishing and tourism.  It maintains few non-tariff measures, and its industrial
strategy is aimed at removing bottlenecks to private-sector growth;  this strategy entails reducing theheavy role of SOEs in the commercial sector and fisheries.  Greater competition in the provision of
key services, such as telecommunications, is also envisaged.  The Government is committed to greater
regional integration, including with its SAARC neighbours.
19. Economic growth is seen as an important mean s of alleviating poverty and improving living
standards for Maldivians.  The Government is committed to fostering private-sector development byliberalizing trade and investment and strengthening the country's economic, legal, social,
administrative, and physical infrastructure.  Private, including foreign, direct investment and
international trade are seen as important catalysts for growth.  Economic development is to be based
on sustainable management of key natural resources, such as fisheries and those related to tourism.WT/TPR/S/110 Trade Policy Review
Page 18
20. Development is guided by rolling government plans.  The Sixth National Development Plan,
the first plan that extends for five years instead  of three (2001-05), embodies the long-term vision of
the Maldives becoming a top ranking middle-in come nation by 2020 (Vision 2020).  It aims to
achieve "conducive conditions for brisk commerce and economic activity" and for the country to
become a "hub for regional free trade" as well as a "more diversified economy with export-oriented
services trade".  National prosperity is to be equitably distributed and environmentally friendlypolicies are to protect against global ecological degradation.  An important means of raising
prosperity is to develop a more educated and skilled workforce using modern information technology.
21. The sixth Plan promotes greater private participation in economic and regional development.
Other national objectives include:  diversification and expansion of the country’s economic base away
from fishing and tourism while ensuring sustainability of physical and natural resources;  legislative,regulatory, governance, and administrative reforms to facilitate rapid economic and social
development;  and cost-effective transportation and telecommunication infrastructures.  Financial-
sector reform, to establish a capital market and to develop financial services is seen as essential for
diversifying the economy;  and land tenure reform, to allow private ownership, is also seen as
necessary in order to allow land to be used as loan collateral.  The Government considers soundmacroeconomic management to be necessary to implement the Plan.  According to authorities,
corruption among officials is relatively low, and the Government is making efforts to eradicate it.
The Anti-Corruption Act was passed in 2000  and the Anti-Corruption Board formed in 2001.
22. In line with the findings of a 2001 study, the aut horities aim to strengthen the traditional areas
of tourism, fisheries, and agriculture, and to expand regional ports and shipping services.
4  This study
also suggested that developing information and communication technology services could make the
Maldives a regional offshore banking and financial centre.  It proposed strengthening links with tradeblocks and other economic regions, including within the South Asian Association for Regional
Cooperation (SAARC), and forming b ilateral free-trade arrangements with regional partners, as well
as collaborating with selected countries in ASEAN, Africa, and Europe.
(6) T
RADE AGREEMENTS AND ARRANGEMENTS
(i) Multilateral agreements
23. The Maldives became an original member of the WTO on 31 May 1995;  it had been a
GATT contracting party since 19 April 1983.  It has not been involved in any disputes under the WTO
(or GATT) Dispute Settlement Mechanism.  The Ma ldives provides at least MFN treatment to all
WTO Members and is eligible for "special and differential treatment" under WTO Agreements.
24. The Maldives, with other SAARC members, expressed serious concerns prior to the Doha
Ministerial Conference that implementation of Uruguay Round Agreements had further accentuated
inequalities between developed and developing countries.5  Developed countries had to facilitate the
industrialization of developing countries by providing market access in areas of comparative
advantage by eliminating trade-distorting subsidies, non-tariff barriers, and other unreasonable
protectionist measures.  This included reducing "tariff peaks", escalation, and non-tariff barriers inareas of export interest to developing countries;  providing effective substance for the "special and
differential" treatment of developing countries based on objective criteria rather than "best endeavour"
clauses;  more rapidly liberalizing and integrating textiles and clothing;  allowing greater flexibility in
applying and enforcing TRIPS, especially for essential medicines;  and extending transitional periods
                                                     
4 International Trade Institute of Singapore (2001).
5 "Joint Statement by the SAARC Commerce Ministers on the Forthcoming Fourth WTO Ministerial
Conference at Doha", New Delhi, 23 August 2001.Maldives WT/TPR/S/110
Page 19
for TRIMs used by developing countries.  The Maldives also called for substantial reductions in
agricultural tariffs and domestic support, and for developed countries to eliminate all export subsidies,
while retaining flexibility for developing countries  to safeguard their food security concerns.  It
expressed concerns on extending multilateral negotiations into new areas, such as investment,
competition, environment, and especially labour standards.  The Maldives also supported several
initiatives to stop LDC marginalization, including developed countries making binding commitmentsto grant LDCs duty-free and quota-free access exempt from anti-dumping duties, safeguard actions,
and non-tariff barriers, and to harmonize rules of origin, including under unilateral preference
schemes.
25. The Maldives follows the work of the WTO Committee on Trade and Development and the
Sub-Committee on Least-Developed Countries.  The Ministry of Trade and Industries has beennotified to the WTO as the focal point under the Integrated Framework.
6  A WTO study concluded
that applied tariffs on products of export interest to LDCs were much higher in developing and
transition economies than in developed countries.7  In the Maldives' case, the study found that tariffs
on fish exports to developed countries averaged 4.5% (1.6% if certain preferential tariffs were
included) compared with 20.8% in developi ng markets (20.4% including preferences).
26. The Maldives is a member of the United Nations and its agencies, and other multilateral
institutions, such as the International Monetary Fund, the World Bank, and the Asian Development
B a n k  ( A D B ) .   I t  i s  a l s o  a  m e m b e r  o f  t h e  Commonwealth of Nations and of the Non-Aligned
Movement.
(ii) Trade-related technical assistance
27. The Maldives is unable to participate meaningfully in the WTO because it has no resident
mission in Geneva.  Like other LDCs, it has numerous trade-related needs.  Issues identified in itsneeds assessment under the Integrated Framework for Trade-Related Technical Assistance to Least-
Developed Countries (IF) ranged from the implementation of WTO Agreements, through human and
institutional capacities, to supply-side constraints (Annex II.1).  While past assistance from various
sources has been valuable, more is required, and must be better coordinated among donors.
(iii) Regional agreements
28. The Maldives is a founding member of the South Asian Association for Regional Cooperation
(SAARC) Preferential Trading Arrangements (S APTA), signed in April 1993 and effective from
7 December 1995.
8  There have been three Rounds of trade negotiations under SAPTA, the last in
November 1998.  It covers a total 3,456 tariff items.9  A fourth round, launched in 1998, was to have
been concluded in May 2002 but has been re-scheduled.10  Leaders recently reaffirmed their vision for
                                                     
6 WTO document WT/COMTD/LDC/W14, 24 February 1999.
7 WTO document WT/COMTD/LDC/W/17, 25 January 2000.  The study excluded preferential
treatment extended under regional or bilateral arrangements, such as the Lomé Convention (now the Cotonou
Agreement).
8 SAARC commenced formally in 1985.  Its other members are Bangladesh, Bhutan, India, Nepal,
Pakistan, and Sri Lanka.  SAPTA was envisaged as a fi rst step towards transition to a South Asian Free Trade
Area (SAFTA) by 2001, and subsequently to a customs union, common market, and economic union.
9 Trade negotiations are conducted bilaterally in rounds to identify products and to agree on tariff
concessions.  However, no bilateral negotiations are held in SAPTA between India and Nepal, India and Bhutan,
and India and Sri Lanka, as trade in these cases is governed by separate bilateral protocols.
10 Tariff negotiations under the first three rounds were conducted on a product-by-product basis.  The
fourth round is being conducted using multiple approaches, including product, sectoral, and across-the-board,based on requests.   The first meeting of the Inter-Governmental Group on Trade Liberalization to Initiate theWT/TPR/S/110 Trade Policy Review
Page 20
a South Asian Economic Union and for a free-trade area (SAFTA).11  The Draft Treaty Framework
for SAFTA was to be finalized by end-2002, but no timetable has been set for its implementation.
29. SAPTA was notified to the WTO in 1997 under the Enabling Clause.12  In principle, it covers
all products, manufactures, and commodities in their raw, semi-processed, and processed forms.
Services are not covered.  It covers, in principle, tariffs, non-tariff measures, and direct trade
measures.  Members may take safeguard action by provisionally suspending preferential dutieswithout discrimination if imports cause or threaten serious injury to industry.
30. SAARC provides special treatment for members that are UN-designated LDCs, including:
exclusive or deeper tariff preferences;  removal of non-tariff measures;  and special consideration of
LDC exports in applying safeguards.  According to authorities, the Maldives has received only limited
exclusive or deeper preferences, including removal of non-tariff measures, and concessions underSAPTA have been largely on products with little or no trade.  There are no notified cases, from any
member, of safeguards being applied.   Of the seven SAARC members, four (Bangladesh, Bhutan,
Maldives, and Nepal) are LDCs.  Should the Maldiv es graduate from LDC status, it would lose this
(and potential) special treatment, especially additional tariff preferences, from other SAARC
members.  The latest UN human development index ranks the Maldives as the highest SAARCmember, slightly above Sri Lanka and well ahead of India and Pakistan.
31. Tariff preferences are subject to rules of origin  specified in the agreement, including special
less onerous rules for LDCs.  Originating products are those wholly produced or obtained in a
SAARC exporting State.
13  Processed goods count as originating products provided their total value of
materials, parts or produce originating from non-SARRC members or of undetermined origin do not
exceed 60% (50% prior to March 1999) of their f.o.b. value, and that the final manufacturing process
is performed within the exporting country.14  Special sectoral and partial cumulative rules apply.15
Members may prohibit importation of products containing inputs originating from states with which
they have no economic and commercial relations.  The Maldives has not applied this provision.
32. The Maldives and other LDC members of SAARC are subject to less onerous rules than other
members.  The maximum value-added share for non-originating products is increased to 70% (60%
before March 1999) and 60% (50% before March 1999) in applying the cumulative rules of origin.Authorities reported that traders had no difficulties in the application of these rules.
                                                                                                                                                                    
Fourth Round of SAPTA was held in March 2002.  This round is expected to extend the product coverage
significantly and to deepen tariff concessions.
11 Eleventh SAARC Summit, Kathmandu, 2002.  See SAARC online information.  Available at:
http://www.saarc-sec.org.
12 WTO document WT/COMTD/10, 25 April 1997.
13 These cover raw or mineral products extracted from  soil, water or seabed;  harvested agricultural
products, including forestry;  animals born and raised, and their products;  hunting or fishing products;  sea fish
products and other marine products caught by its vessels, and their products processed exclusively on boardfactory ships;  used articles fit only for the recovery of raw materials;  and waste and scrap resulting frommanufacturing operations.
14 The value of non-originating materials or parts of produce is the c.i.f. value on importation where
this can be proven, or the earliest ascertainable price paid in the State where processing occurred.
15 Wholly produced or obtained products used by a member as input for a finished product eligible for
preferential treatment by another member shall be co nsidered as originating products where the processing
occurred provided that the aggregate content originati ng in that country is not less than 50% (60% before
March 1999) of the f.o.b. value.  Direct consignment rules apply to goods transported through non-membercountries.Maldives WT/TPR/S/110
Page 21
(iv) Bilateral agreements
33. The Maldives' only bilateral trade agreement is with India;  it became effective on
31 March 1981.  It stipulates that the countries provide each other no less favourable treatment than
extended to any trading partner.  However, it excludes privileges granted to neighbouring countries to
facilitate trade;  customs unions, free-trade areas or similar arrangements;  and preferences accorded
under any general scheme for expanding trade among developing countries.
(v) Generalized System of Preferences (GSP)
34. The Maldives is eligible for GSP treatment from most industrialized countries;  the main
exception is the United States, which is currently the Maldives major export market.  Major export
markets extending GSP treatment to the Maldives  include the EU and Japan.  However, owing to
rules of origin and product exclusions, the main product to benefit from GSP tariff preferences isprocessed (canned) fish exported to the EU.
16  This would disappear upon graduation of the Maldives
from LDC status.  According to the authorities, the Maldives would lose all such preferential
treatment immediately upon graduation, as well as LDC-specific "special and differential" treatment
under the WTO, and concessional finance from bilateral, multilateral, and other sources.
35. The EU's "Everything But Ar ms" (EBA) initiative, extending duty-and quota-free access to
the EU of all LDC products, except for arms, and cert ain transitional arrangements for sugar, rice, and
fresh bananas, had little impact on the Maldives, since its major export to the EU is canned tuna,
which already received such access.  Moreover, while the EBA initiative included clothing exports
not previously covered by the EU's LDC arrangements, preferential access is still prevented because
the Maldives' products do not meet the EU's rules of origin.17  From end-October 2000, SAARC
members have benefitted from the EU's regional cumulation rules of origin.18
36. The graduation of the Maldives from LDC status would have implications on market access
arrangements for its exports, mainly of traditional fish products (canned and semi-processed frozen or
chilled) to the EU and of dried and salted tuna to Sri Lanka under the LDC-specific SAARC
preferences (Box II.1).  While fish exports to the preferential EU market have declined substantially
since 1997, those to Sri Lanka have increased considerably.  Fish exports to these two major
preferential markets account for about 20% of total merchandise exports, or 5% of total exports(including services).
                                                     
16 Maldivian fish exports meet the EU's rules of origin, if they are either caught within its 12-mile
territorial zone or, if outside, within its EEZ, by Maldivian vessels sailed under the Maldivian (or EC) flag.  Thecaptain and officers must be Maldivian (or EC) nationals , as well as at least 75% of the crew, and the vessel
must meet certain ownership requirements.
17 The EU's GSP provisions allow LDCs to be granted time-bound derogations from the usual rules of
origin for specific products.  The Maldives unsuccessfully applied for such derogations on clothing exports inthe late 1980s and mid-1990s.  Nepal is the only SAARC country granted such derogations.
18 Originating inputs in any other SAARC member that are further worked or processed in another also
count as originating in that beneficiary country provided certain conditions are met.  For clothing, less
processing is therefore required if a beneficiary countr y uses an intermediate product originating in another
SAARC country.  Where the final SAARC exporter can meet the value-added requirements of the RegionalCumulation Regulations, then inputs from SAARC members will be considered to have originated in thatcountry.  However, the authorities indicated that this was of little benefit to the Maldives, since not all importedclothing raw materials originate within SAARC countries or the EU.WT/TPR/S/110 Trade Policy Review
Page 22
Box II.1:  Graduation of the Maldives from LDC status
One of the Maldivian Government's major concerns with LDC graduation is the adverse impact it may
have on the country's preferential access of certain exports to key developed markets.  On graduation, themain exports likely to be affected would be fish to the EU and to Sri Lanka.  Its other main merchandiseexport, clothing, would be largely unaffected.
The share of Maldivian exports, most notably canned and some fresh fish, to the preferential EU market
has fallen substantially from 21% in 1997 to 12% in 2001.  Graduation from LDC status would make
these fish products ineligible for GSP treatment and subject to MFN tariffs, of up to 24%.  Clothingexports would not be affected because, unlike fish, they do not satisfy the EU's rules of origin forpreferential access.  While non-preferential clothing exports to the EU have shown little growth andaccount for less than 10% of total exports to the EU, they have grown strongly to the United States.
Clothing exports to the United States and EU are not subject to quotas, regardless of development status.  
Graduation would also remove preferences under SAPTA whereby additional tariff margins of preference
are provided for certain products imported from LDC members.  Imports of dried fish by Sri Lanka havegrown substantially under these arrangements.  The margin of preference on such imports is 35%.  TheMaldives would lose the entire margin on fish exports following graduation.    The share of the Maldives'
fish exports sold under SAARC preferences, mainly dr ied fish to Sri Lanka, has increased substantially:
they accounted for 4% of total fish exports in 1997, while in 2001 the share was 30%.  Clothing exports to
SAARC members would be unaffected as no member provides preferences on these products.  TheMaldives would lose access to more generous rules of origin extended by SAARC countries to LDC
members.
Fish exports, especially of canned tuna to the EU, would be hit hardest by graduation.  Canned exports
involve the highest degree of processing, receive large preferences and are exported to no other market.
However, sole reliance on this market, and the difficulties faced by Maldivian fish products competing in
the EU with other suppliers, including MFN dutiable imports, such as from Thailand, raises serious
questions about the economic efficiency of this activity for the Maldives.   If fish canning is not
internationally efficient, these resources could be used more efficiently in alternative activities.  Access toLDC preferences in the EU market is unlikely to prevent Maldivian canned fish exports from being
displaced by other more competitive suppliers in the longer run, unless the industry's efficiency is
improved significantly.  Continuing to shelter these exports from world competition in the preferential EUmarket and in the home market, by tariffs and other protectionist measures, is unlikely to help the industryachieve these efficiency gains.  The progressive relaxation and recent termination, in 2000, of thestate-owned MIFCO's tuna export monopoly at national level were important but incomplete steps towardsimproving efficiency by injecting greater competition among processors.
LDC graduation would put the Maldives at a disadvantage in the EU market for fish products compared
with ACP non-LDC developing countries, such as Papua New Guinea and Fiji, which could continue toexport fish products duty free to the EU under the Cotonou Agreement.
Source:  WTO Secretariat.
37. The Maldives is not a signatory of the GSTP as its major markets are developed economies
rather than developing countries.
(7) INVESTMENT POLICIES AND PROCEDURES
(i) Regulatory framework
38. In line with the stated objective of promotin g investment, intended reform of the legal
framework governing trade and investment is aimed at providing a more transparent and predictable
business environment.   The 1979 Law Governing Foreign Investment (No. 25/79), effective
February 1989, guarantees investor security in both goods and services.  Foreign investors may ownMaldives WT/TPR/S/110
Page 23
and operate business enterprises.  Separate legislation, the Law on Doing Business in the Maldives by
Foreign Nationals, 1979 (No. 4/79), covers foreign investment in trade (imports and exports) and
related services;  this also covers the operation of a foreign party or joint venture in wholesale and
retail activities.  A revised foreign investment law is due to be submitted to parliament in 2002.
39. The Ministry of Trade and Industries, through its Foreign Investment Services Bureau (FISB)
established in August 1987, handles and registers foreign investment in all sectors (including infisheries and banking), except tourism, which is the responsibility of the Ministry of Tourism.  The
FISB has published Foreign Investment Guidelines.  It handles inter-agency coordination through the
Foreign Investment Board, and it assists foreign investors to obtain the necessary operating licences
from the relevant agencies.
40. Foreign investors must apply to the FISB for investment approval (by the Foreign Investment
Board) and sign a standard investment agreement.  The only criterion is of "market saturation" for
projects that target the domestic market.  Since 1997, 48 out of 51 applications have been approved,
and all eleven applications made in 2002 (up to September) have been allowed.  The few rejections
have been mainly for environmental reasons. Although no maximum time period is prescribed for
processing applications, they are usually processed within 45 days.  Unless stated otherwise, investorshave six months to commence the project.  The Government may provide a Letter of Intent to issue a
licence under certain circumstances where the investor is required to incur expenses in conducting the
project's feasibility and technical studies.
41. Although there are no minimum investment levels, all FDI must have a capital level
"acceptable to the Government" (Article 2).  The proposed capital investment should reflect or be
adequate for the type of project proposed.   The initial period of validity of the agreement is increased
from five years to ten years for investments exceeding US$200,000.
19  There are no joint-venture
requirements;  100% foreign ownership is permitted.  No activities are excluded or restricted from
foreign investment.  Foreign applicants must have their financial status guaranteed by a bank or
institution acceptable to the Government.  A fore ign investment project may be suspended if the
investor breaches domestic laws, commits an 'activit y detrimental to the country's security', or where
the Government believes temporary closure is necessary for national security (subject to a60-day limit for it to prove the case, otherwise the investor must be paid "fair compensation").
20
42. Foreign investors must use local raw materials where available and commercially viable.
However, this rarely operates in practice since the Maldives has limited raw materials.  Foreign
investors must employ Maldivian nationals except where employment of non-nationals is "necessary".
The Ministry of Human Resources, Employment and Labour regulates employment of expatriates.
While a percentage of production "shall, if necessary, be required to be marketed in the Maldives in a
manner agreed between both parties", the authorities indicated that this provision has never been
exercised.   The FISB Guidelines provide preferences for projects that:  require local employees and
offer technical training;  utilize local raw materials;  produce goods that are locally marketable at
competitive prices to enable import replacement;  add to the country's economic and socialinfrastructure;  are regionally located;  and cannot be started by local investors due to insufficient
funds or technical expertise.   No performance requirements are imposed on foreign investors.   The
Government's priority is to promote investment activities that are capital intensive, enhance
technology transfer, introduce new skills, and are environmentally friendly.  Foreigners may only
lease land from private land owners or, as is more common, from government authorities.   Lease rates
and land availability are published.
                                                     
19 Renewal periods of an additional ten years are unaffected by the size of the investment.
20 Investment capital would be permitted to leave the country as agreed by the parties.WT/TPR/S/110 Trade Policy Review
Page 24
43. Fees (royalties) are paid by foreign investors to the Government and are negotiated as part of
the investment agreement.  There are general guidelines on the payment of royalties, based on
investment levels.  However, some royalty regimes are sector specific.   For example, garment
manufacturers pay a royalty only on exports;  it is therefore akin to an export tax.  Until recently, the
royalty rate was 3% of export turnover, but this was replaced in August 1999 with specific rates
ranging from US$0.025 to US$0.10 per piece, depending upon the clothing category (Table II.3).  Inone case, the royalty rate on garments of the same description (men's 100% cotton shorts), although
classified under different clothing categories, is US$0.10 per piece if exported to the United States
and US$0.09 per piece if exported to Canada or the EU.  Different rates also apply to some cotton and
nylon articles, such as "spandex body shapers".  Specific royalties were introduced to avoid evasion
from under-declaration of export values associated with the ad valorem  duty.  The authorities were
unsure whether the introduction of specific royalties also increased rates.  Royalties of 2% of sales,
including domestic, turnover for fish caught in EEZ (non-territorial) waters apply to both domestic
and foreign operators.
Table II.3
Royalties on garment exports, 2002
Destination Category DescriptionRoyalty
(US$/ piece)
United States 347/348 Men's & ladies' shorts & pants 0.10
United States 338/339 Men's & women's t-shirts 0.075
United States 352/652 Ladies' underwear 0.025
Canada 5 Men's 100% cotton shorts 0.09
EU 6 Men's 100% cotton shorts 0.09
United States 337 Men's 100% cotton shorts 0.10
United States 351 Pyjamas top & bottom set 0.06
United States 350 Pyjamas top & bottom or gown in cotton 0.05
United States 650 Pyjamas top & bottom or gown in synthetic fabric 0.05
United States 651 Pyjama top/bottom or nightdress in synthetic fabric 0.06
United States 638 Nylon spandex body shaper 0.065
United States 639 Ladies' knit top 0.065
United States 352 Ladies' knit undershirt 0.025
United States 352 Cotton spandex body shaper 0.025
United States 339 Ladies' rib tank top/sleeveless jersey 0.075
United States 338/339 Girls' pullover cotton 0.075
United States 338/339 Ladies' cotton keyhole tank 0.075
United States 338/339 Ladies' cotton rib square-neck tank top 0.075
United States 352/652 Ladies' knit brief 100% cotton 0.025
United States 639 Women's knitted shirts 0.065
Europe 4 Men's t-shirt with plackets 0.06
Europe 4 Crew-neck ladies' & men's t-shirts 0.05
Europe 4 Singlets men's/ladies' closed-neck lines (small garment) 0.04
Europe 7 Ladies' suntops (small garment) 0.04
Europe 7 Ladies' singlets with plackets (small garments) 0.04
Europe 7 Ladies' t-shirts with plackets 0.06
United States 352 100% cotton knitted men's briefs 0.025
United States 648 Children's & ladies' wearing apparel 0.07
United States 359 Ladies' hooded vest cvc 60/40 0.075
United States 647 Junior size boy’s shorts 100% nylon 0.07
Source: Maldivian authorities.Maldives WT/TPR/S/110
Page 25
(ii) Investment incentives and promotion
44. Most incentives apply equally to foreign and domestic investors.  Investment incentives
depend upon the level of foreign investment.  FDI projects below US$200,000 receive duty-free
imports of machinery, capital goods and construction materials for the first one year, and for
two years on larger investments.21  Imported raw materials are duty free for the project's term.  Over
half of the total tariff revenue forgone from duty concessions accrues to foreign investors; this wasRf 144 million (US$11.8 million) in 2001.  To the exte nt that investors would have invested in the
Maldives anyway, these incentives are an unnecessary drain on the budget.
22
45. The Government may also waive duty and taxes on investments for specified periods, except
for taxes levied on tourism (Article 14).  There are no exchange controls, and profits and capital
proceeds can be repatriated on agreed terms.
46. Disagreements between parties must be settled in accordance with the investment agreement.
Private property is 'inviolable' under the Constitution, and can only be compulsorily acquired by the
State under legislation for public benefit and on payment of "just compensation".  Disputes on
projects involving less than US$1 million foreign investment must be resolved in Maldivian courts.
Disputes on larger projects can be referred for international arbitration, and mutually acceptable
third-country law is accepted.
47. The investment regime needs to be strengthen ed to provide greater protection to foreign
investors and to inject a more promotional thrust.23  As indicated earlier (section (7)(i)) the revised
legislation will help to address these concerns, including the removal of outdated and redundant
provisions in order to improve investor certainty and transparency.  The Maldives has also taken
recent steps to enhance protection for foreign investors.  It became a member of the World Bank's
Multilateral Investment Guarantee Agency (MIGA)  on 26 March 2002, and is awaiting ratification of
the Convention for the Settlement of Investment Disputes.  Because it has no company income tax, it
has no double-taxation agreements with other countries.  In the case of foreign investment, the
absence of company tax means that this is instead paid by the foreign investor in its home country,
where that country operates a world-wide tax system (as in the case of the United States, the
United Kingdom, and Japan, for example).24  It follows that the absence of company tax does not
necessarily constitute an incentive to foreign investment.
                                                     
21 Capital equipment and construction material imported for expansion and replacement will be
exempted from duty without time limit.
22 There is evidence to suggest that other factors, such as the economy's macroeconomic stability and
investor confidence, have a more significant influence on investment decisions.
23 World Bank (1999).
24 This is not the case where repatriated income can be deferred, "tax sparing" is allowed or where the
home country bases its taxes on the territorial principle.WT/TPR/S/110 Trade Policy Review
Page 26
ANNEX II.1:  T ECHNICAL ASSISTANCE EVALUATION
Trade-related technical-assistance needs25
Implementation of WTO Agreements
48. The Maldives faces difficulties in implementing various WTO Agreements.  These
difficulties are attributed primarily to weak institutional capacity of the implementing agencies.
Specific areas of need are:  (i) alignment of national laws, rules, and regulations to WTOrequirements;  (ii) notification requirements;  and (iii) training of government officials on WTO
matters, including capacity building for negotiations.  Trade-related assistance provided by the WTO
Secretariat, other inter-governmental organizations and bilateral donors has been limited.
26  M o r e ,
especially targeted, assistance is needed.  New institutions will need to be established, or existing ones
strengthened, to successfully implement WTO Agreements.
49. The Maldives' specific implementation-related concerns are in anti-dumping, safeguards,
countervailing, SPS, and TRIPS.  The Maldives deferred its introduction of the WTO Customs
Valuation Agreement until end-May 2002, but reportedly now has the capacity to implement it;  new
legislation was due to be enacted in 2002.  UNC TAD has assisted the introduction of ASYCUDA++,
and full operation was expected in 2002.  However, realizing the full benefits from implementing theAgreement requires capacity building in enforcement, and enhancement of customs-related
infrastructure.  Introduction of contingency measures will also require the establishment of an
independent body to administer the legislation;  assistance will be needed to establish this agency and
to train staff on how to conduct investigations based on WTO rules and procedures.
50. The Maldives' authorities have indicated a need for technical assistance to strengthen
phytosanitary and quarantine procedures.  Financial and technical support is needed to establish a
plant quarantine facility at the main port in Male and to prepare a legal framework for plantquarantine and phytosanitary procedures.  Technical help is also necessary to develop a national
phytosanitary certificate programme based on the FAO -IPP model.  Assistance is required to help the
Maldives meet WTO requirements on fisheries as well as to establish a code for Good Manufacturing
Practices and National Standards for fish and fish products, harmonized with those of the FAO’s
Codex Alimentarius Commission.  Technical standards, notably SPS measures on fish, and ISOrequirements, as well as developing adequate inspection and control facilities, are also key needs.
Training of staff on HACCP and risk asse ssment methodology has also been requested.
51. No intellectual property rights (IPR) legislation exists, but the Maldives intends to comply
with the TRIPS Agreement by end-2005.  It is preparing a draft copyright law with WIPO's
assistance.  There is an urgent need to develop and implement TRIPS-consistent legislation and toprovide effective enforcement, through training of customs and police officials.  The authorities have
expressed an interest in registering 'Maldive Fish' as a geographical indication.  The need to establish
a comprehensive intellectual property system has been communicated to the WTO Secretariat for
technical assistance in 2003.
52. A national seminar on notifications, together with a technical mission, might be considered as
part of future assistance.  The limited training of government officials on WTO matters, including in
                                                     
25 Information in this section is drawn from the Needs Assessment undertaken under the Integrated
Framework, contained in WTO document WT/COMTD/IF/22, 26 February 1998.
26 For example, the World Customs Council held an Asian Regional Seminar on Customs in India
during March 1997.  WTO Regional Seminars on GATS and SPS were also held in Sri Lanka and India, duringJuly and October 1997.Maldives WT/TPR/S/110
Page 27
multilateral negotiating skills, is another constraint.  This has been further hampered by the absence of
diplomatic representation in Geneva.  The Maldives can rarely attend WTO meetings owing to
financial limitations.  Assistance is also needed to prepare its GATS commitments, such as on
tourism.
53. The Maldives has not been a major recipient of WTO training.  In March 2002 a seminar was
conducted in Male on the WTO and trade-related matters as part of the capacity-building element of
this Trade Policy Review.  A GATS-related mission by the WTO Secretariat was planned for 2002.
Regional activities in 2000 involved a joint ESCAP/WTO training course in Bangkok on the
functioning of the multilateral trading system, which also covered market access.  An ADB-sponsored
regional seminar covered selected WTO agreements, including TRIPS, GATS, subsidies andcountervailing measures, anti-dumping, and dispute settlement.  In 1999, the WTO Secretariat was
involved in a Government-organized seminar on the WTO and the multilateral trading system.  The
WTO also delivered a short training course for mid-level regional officials on GATS and investment
issues.  A WTO Reference Centre was established in Male in 1999.  The Maldives also sent a
participant to one of the Geneva-based trade policy courses in 2001, and since 1999 has been invitedto "Geneva Week", an annual set of briefings organized by the WTO for countries without Geneva
representation.  The Government is currently considering whether to open a Geneva mission.  One
consideration is that it would lose the Swiss Government's rental subsidy on such premises if itgraduated from LDC status.
54. Other international institutions and bilateral donors have provided trade-related training.  For
example, the Islamic Development Bank sponsored several regional trade policy courses and
workshops in 1999.  Bilateral donors have provided few training activities on WTO issues.
Supply-side constraints
55. Supply-side constraints are also major obstacles to the Maldives' trade expansion.  These
include its small and many dispersed islands, which greatly compound the problems of regional
development;  heavy dependence on fishing and tourism;  limited natural resources;  smallness of the
domestic market;  limited technology;  limited trade, industry, and export financing;  inadequateskilled manpower;  lack of adequate trade representation network abroad;  limited knowledge of
export opportunities;  weak infrastructure, including trans portation facilities;  weak human and
resource capacity of support institutions;  inadequate investment regime;  inefficient legal system;
and heavy reliance on imported inputs.  These problems are often inter-linked and compounded,
impairing the overall trading environment.  For inst ance, weak infrastructure, particularly inadequate
shipping facilities has compounded the problems of the Maldives' island dispersion and its small
market, which hinders its participation in international trade, aside from tourism.
56. Other infrastructural bottlenecks, including comprehensive but expensive telecommunications
and utility services, such as electricity, water, and sewerage facilities, may be linked to inappropriate
technology, non-competitive market structures, and inadequate investment.  Lack of knowledge ofexport opportunities and export financing facilities has constrained the country's ability to diversify its
narrow export base, including in overseas markets.   Supply-side constraints must be addressed in a
manner that is sustainable and that critically protects the environment on which the country's tourism
and fishing industries heavily depend.  It is essential, therefore, that these problems are addressed in a
comprehensive framework.  Much of this involv es building institutional capacity and improving
coordination among domestic stakeholders.
57. The Government has taken some action to address supply-side constraints.  However,
numerous needs remain;  these require assistance by a large number of providers, and better
coordination among them.  In this regard, the Integrated Framework (IF), a mechanism in which theWT/TPR/S/110 Trade Policy Review
Page 28
six multilateral agencies (IMF, ITC, UNCTAD, UNDP, World Bank, and WTO) coordinate the
delivery of trade-related technical assistance to LDCs, may improve the Maldives' cohesion intrade-related policy-making by mainstreaming trade priorities into its poverty-reduction strategy.
Mainstreaming trade into the Maldives' development framework
58. The IF emphasizes the importance of mainstreaming a country's trade priorities into its
national development plan or poverty-reduction strategy.  In order for trade to foster pro-poor
economic growth, the IF advocawtes mainstreaming at three levels:  policy, institutional, and
Government–donor partnership.  The IF is currently being implemented on a pilot basis, with severaladditional LDCs being covered in 2002.
Mainstreaming at the policy level59. While poverty reduction has been a long-standing government objective, it received greater
emphasis in the current Sixth National Development Plan.  Although the Maldives has made
considerable progress in reducing poverty, some 43% of the population still live below the poverty
line of Rf 15 per day, most residing in regional atolls.  The Plan aims to improve incomes of those
living below the poverty line and to provide equitabl e access to affordable basic utilities and services.
60. The Government recently concluded a Poverty Reduction Partnership Agreement with the
ADB.
27  This followed a high-level forum on poverty reduction and appropriate strategies, in
May 2001, attended by senior officials, non-governmental and community-based organizations, the
private sector, the ADB, and other development donors.  The agreement endorsed the Government'sVision 2020, and set out, in a formal partnership, th e long-term vision and agreed targets for poverty
reduction.  These are pro-poor growth and regional equity;  human resource development;  developing
a system of transparent and accountable governance;  and reducing poverty to minimum levels.
61. To monitor implementation, the agreement specified long-term (2002-20) indicators and
targets.  The key targets are to achieve average annual economic growth of 6% and a decline in
population growth to 1% per annum, so that poverty can be reduced from 43% in 1998 to 25% by
2015.  Other goals are:  to diversify economic activity both within tourism and fisheries and into new
sectors; to achieve international development goals
28;  to improve public sector accounting, budgeting,
auditing and debt-management systems;  to increase the number of public utility suppliers and tolower charges;  and to reduce state involvement in commercial activities.  The agreement also
incorporated short- and medium-term (2002-06) obj ectives and targets from the Government's Sixth
National Development Plan (section (5)).
Mainstreaming at the government–donor partnership level
62. Training and assistance is currently being addressed piecemeal through bilateral and regional
or multilateral donor programmes;  little coordination exists among development partners.  This not
only limits the benefits of such assistance, but also imposes a burden on the Government, whose
capacity is over-stretched.  This is one of the areas in which the IF intends to provide an integratedapproach within a coherent policy framework.  The Government has recently formally requested to be
involved in the IF exercise.
                                                     
27 Asian Development Bank (2002).
28 Enrol all children in primary school by 2015;  make progress towards gender equality and
empowering women by eliminating gender inequalities in primary and secondary education by 2005;  reduceinfant and child mortality rates by two thirds between 1990 and 2015;  reduce maternity mortality ratios bythree quarters over the same period;  and provide access for all who need reproductive health services by 2015.