RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/45
9 September 1998
(98-3452)
Trade Policy Review Body
TRADE POLICY REVIEW
SOLOMON ISLANDS
Report by the Secretariat
This report, prepared for the Trade Policy Review of Solomon Islands, has been
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has,
as required by the Agreement establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), sought clarification from  the Government of Solomon Islands on
its trade policies and practices.
Document WT/TPR/G/45 contains the policy statement submitted by the
Government of Solomon Islands.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Solomon Islands.Solomon Islands WT/TPR/S/45
Page iii
CONTENTS
SUMMARY OBSERVATIONS   ix
(1) ECONOMIC ENVIRONMENT   ix
(2) THE SOLOMON ISLANDS IN WORLD TRADE    x(3) LEGAL AND INSTITUTIONAL FRAMEWORK    x
(4) TRADE POLICY FEATURES AND TRENDS    x
(i) Recent evolution   xi
(ii) Type and incidence of trade policy instruments   xi
(iii) Sectoral policies xiii
(5) TRADE POLICIES AND FOREIGN TRADING PARTNERS xiv
I. ECONOMIC ENVIRONMENT   1
(1) INTRODUCTION   1
(2) RECENT ECONOMIC PERFORMANCE   2
(i) Fiscal policy and budgetary developments   4
(ii) Monetary and financial sector policies   7(iii) Exchange rate policies   8(iv) Policy challenges ahead 11(v) The 1998 Budget 12
(vi) Foreign aid 14
(3) MERCHANDISE TRADE PERFORMANCE 14
(i) Commodity pattern of trade 14
(ii) Regional pattern of trade 16
(4) OUTLOOK 17
(II) TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 19
(1) THE INSTITUTIONAL FRAMEWORK 19
(2) STRUCTURE OF TRADE POLICY FORMULATION AND IMPLEMENTATION 20(3) IMPLEMENTING THE STRUCUTRAL REFORM PROGRAM 22(4) POLICY OBJECTIVES 24
(5) LAWS AND REGULATIONS 25
(6) TRADE AGREEMENTS AND ARRANGEMENTS 26
(i) Multilateral agreements 26
(ii) Regional agreements 27(iii) Bilateral agreements 31(iv) Generalized System of Preferences 31
(v) Other agreements and arrangements 31WT/TPR/S/45 Trade Policy Review
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(7) TRADE DISPUTES 31
(8) FOREIGN INVESTMENT POLICIES AND PROCEDURES 31
(i) Legislative framework for FDI 32
(ii) Investment incentives 34(iii) Transparency issues 35
III. TRADE POLICIES AND PRACTICES BY MEASURE 39
(1) INTRODUCTION 39
(2) MEASURES DIRECTLY AFFECTING IMPORTS 40
(i) Registration and documentation 40
(ii) Tariffs and surcharges 40
(iii) Tariff quotas 47(iv) Other levies and charges 48(v) Preshipment inspection 48(vi) Customs valuation 48(vii) Import prohibitions, quotas and licensing 49(viii) State trading and countertrade 49(ix) Import cartels 49(x) Standards and other technical requirements 49(xi) Government procurement 51(xii) Local-content requirements 52(xiii) Rules of origin 52(xiv) Trade remedies 52
(xv) Measures implemented in exporting countries 52
(xvi) Other measures 52
(3) MEASURES DIRECTLY AFFECTING EXPORTS 52
(i) Registration requirements 52
(ii) Export taxes 52(iii) Export prohibitions, controls and licensing 55(iv) Export quotas and voluntary restraints 55(v) State trading 55(vi) Export subsidies 56(vii) Duty drawback and tax concessions 56(viii) Export finance, promotion and processing zones 56(ix) Export-processing zones 56(x) Other measures 56Solomon Islands WT/TPR/S/45
Page v
(4) INTERNAL MEASURES 56
(i) Taxation concessions and subsidies 56
(ii) Research and development 57
(iii) Competition policy 57
(iv) Price control 58(v) Corporatization and privatization 59(vi) Agricultural marketing arrangements 62
(vii) Other measures 65
(5) INTELLECTUAL PROPERTY PROTECTION 65
IV. TRADE POLICIES BY SECTOR 67
(1) OVERVIEW 67(2) AGRICULTURAL AND OTHER PRIMARY PRODUCTS 67
(i) Livestock and dairy 72
(ii) Fruit, vegetables and nuts 73(iii) Coffee, tea and spices 73(iv) Cereals 73(v) Oil palm and cocoa products 74(vi) Forestry and logging 75(vii) Fishing 83
(3) MINING AND QUARRYING 87
(4) MANUFACTURING 88
(i) Food products 88
(ii) Beverages and tobacco products 90(iii) Textiles and clothing 91
(iv) Wood products 91
(v) Chemicals 91
(5) SERVICES 91
(i) Tourism 94
(ii) Transportation 95(iii) Communications 96(iv) Financial services 97(v) Other services 99
REFERENCES             101WT/TPR/S/45 Trade Policy Review
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CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Merchandise trade as a percentage of GDP, 1993-97  4
I.2 Fiscal developments, 1991-97  5
I.3 Sources of government tax revenue, 1989, 1996 and 1997  6
I.4 Balance-of-payments, 1991-97 11I.5 Composition of merchandise exports, 1983 and 1996 15
I.6 Composition of merchandise imports, 1983 and 1996 15
I.7 Merchandise exports by destination, 1983 and 1996 16
I.8 Merchandise imports by destination, 1983 and 1996 17
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVE
II.1 Structure of comprehensive reform programme 22
II.2 Management structure of PSRP 23
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Share of Government tax revenue from trade taxes, 1992-97 42
III.2 Tariff structure, 1998 44
III.3 Composition of export taxes, 1992-97 55III.4 Illustration of the copra price stabilization scheme 63
III.5 Illustration of the proposed cocoa price stabilization scheme 64
IV. TRADE POLICIES BY SECTOR
IV.1 Sectoral composition of GDP at factor cost, 1995 71
IV.2 Composition of exports, 1996 71
IV.3 Log exports, 1989-97 75
IV.4 Share of log export tax receipts in total government tax revenue, 1992-97 76IV.5 Actual and sustainable harvest levels for native forest, 1992-98 77
IV.6 Composition of services in GDP (at factor cost), 1995 92
IV.7 Structure of financial intermediation in the Solomon Islands 98Solomon Islands WT/TPR/S/45
Page vii
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Main economic and social indicators  1
I.2 Economic performance, 1991-97  2
I.3 Public debt liability, 1991-97  6
I.4 Balance-of-payments, 1991-97  8
I.5 Exchange controls  9
I.6 Summary of expenditure and revenue, 1998 Budget 13I.7 Key effects of Asian crisis on Solomon Islands' economy 18
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVE
II.1 Main ministries responsible for trade-related policies 20
II.2 Legislative reform programme affecting trade-related policies 26
II.3 Foreign investment, 1989-96 32
II.4 Sectors reserved exclusively for Solomon Islanders, 1998 33
II.5 Transparency ratings of investment policies and practices 38
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Main features of the tariff structure, by HS section, 1998 43
III.2 Quarantine entry requirements 51
III.3 Export taxes, 1998 53III.4 Price controls in Honiara 58
III.5 Share portfolio of Investment  Corporation of Solomon Islands 59
IV. TRADE POLICIES BY SECTOR
IV.1 Tariffs applied in the Solomon Islands, by ISIC category, 1998 68
IV.2 Agricultural production by major commodity, 1990-97 72
IV.3 Tuna catch by domestic and foreign fleets, 1990-96 84
IV.4 Provincial-foreign tuna joint ventures, 1990-94 85IV.5 Summary of sector specific commitments under GATS 93
IV.6 Visitor arrivals, 1984-97 94Solomon Islands WT/TPR/S/45
Page ix
SUMMARY OBSERVATIONS
1. The Solomon Islands is a small
archipelago in the South Pacific. Despite
having relatively abundant forestry and fishresources, it is one of the region’s poorest
countries;  GDP per capita was US$950 in
1995, and the islands have Least-Developed
Country status.  Inept economic management
by previous governments has constraineddevelopment and often favoured vested
interests at the community’s expense.  The
present Government, which assumed office in
September 1997, inherited an economy in
crisis and in need of urgent fundamentalreform.
2. The Government's commitment to
broad reforms is clear from its Policy and
Structural Reform Programme.  Rapid
implementation is essential to prevent the
economy’s chronic macroeconomic
imbalances and serious structural deficienciesfrom intensifying.
(1) E
CONOMIC ENVIRONMENT
3. After gaining independence from the
United Kingdom in 1978, the Solomon Islands
adopted inward-looking trade policies aimedat promoting the processing of primary
resources, such as fish and timber, as well as
encouraging manufactures.  These
interventionist policies were manifested in
high and disparate trade taxes on imports andexports; a heavy state role in industrial
development; a large public service;  and
high, unsustainable fiscal deficits underpinned
by expansionary monetary policies.
4. These policies resulted in the economy
becoming virtually insolvent by 1997, with the
government unable to service public debt,
which escalated to over 65% of GDP in 1997.
Arrears grew sevenfold to SI$184.3 million in
1997, over three times that year’s fiscal
deficit, and equivalent to 13% of GDP.
Monetary policy has also been ineffectivesince August 1995 when the Central Bank
suspended new credit to the Governmentunder rules limiting public debt to 40% of
average budget revenues.
5. Inflation is expected to rise from 8%
to double-digit levels in 1998.  Although
annual average real GDP growth of 5% has
exceeded population growth by 2% since1991, its durability is threatened by the
unsustainability of the logging activities that
have fuelled this growth. Long-term viability
of the timber and fishing industries, upon
which the economy critically depends, is amajor concern.
6. The managed exchange rate has
appreciated in real terms during recent years,
despite the recent 20% devaluation,
potentially undermining exportcompetitiveness.  A more flexible and market-
determined exchange rate system may improve
international competitiveness and insulate the
external balances from outside shocks.
7. The history of poor fiscal and
monetary management has reduced confidence
of international investors and aid donor.Foreign direct investment has fallen to low
levels and the external balance remains
vulnerable.
8. Achieving a balanced budget in 1998
will be a critical milestone in theGovernment’s resolve to implement reform.
Restoring fiscal balance requires stringent
controls to meet expenditure and revenue
targets and achieving other key policies,
including downsizing of the public service;asset sales from privatization to help pay off
debt; and the elimination of generous tax
exemptions.  However, progress has been slow
and further delays need to be resisted.  Action
is necessary in key areas to prevent paralysisof the reform programme, which would
jeopardize the  economic recovery.
9. The Solomon Islands' economic
difficulties have been accentuated by recent
external developments, including the Asian
crisis. Its two main exports, logs and fish, have
been adversely affected by the collapse inworld timber prices in late 1997 and theWT/TPR/S/45 Trade Policies Review
Page x
reduction of EU preferences for processed
fish.
(2) THE SOLOMON ISLANDS IN WORLD
TRADE
10. External trade is vital to the Solomon
Islands' economy.  Merchandise exports andimports averaged 51% and 47% of GDP,
respectively, during 1993-97. External
balances have fluctuated considerably;  at the
end of 1997, reserves provided less than two
months of import cover.  Deficits onmerchandise and services trade have been
offset by capital and aid inflows.
11. Exports consist largely of timber, fish
and traditional agricultural goods of palm oil,
copra and cocoa.  Over three quarters ofexports in 1996 went to Asian markets Timber
is sold principally to Japan and other Asian
countries;  log exports have declined
substantially following the collapse of world
timber markets in late 1997.  Fish exports,
mainly of canned tuna, go almost entirely to
the United Kingdom under preferential EUmarket access arrangements (Lomé
Convention).
12. Imports are mainly of manufactures,
especially machinery and transport equipment,
food, fuels and lubricants.  Well over half ofimports are from Australia and New Zealand.
(3) L
EGAL AND INSTITUTIONAL
FRAMEWORK
13. The Solomon Islands is a
constitutional monarchy with substantialdevolution of powers to provincial
governments.  Although responsibility for
trade-related policies rests with the national
Government, provincial governments may pass
ordinances affecting such policies, includingthe provision of agricultural grants and
protection of on-shore fishing. They must also
approve forestry, mining and fishing
developments on customary land, which
accounts for over 90% of land ownership.14. Legislative power resides in a
unicameral national Parliament.  Executive
power is vested in the national Government,
elected every four years.  The Prime Minister
is elected by Parliament.  A Cabinet of senior
ministers formulates policy.
15. With the aim of improving the
coordination of trade and economic policies,
the Government has developed an
organizational decision-making structure
involving the Ministries of National Planningand Development, the Pr ime Minister’s Office
and Ministry of Finance, as well as the
Central Bank, to help implement the reform
programme.  Two new ministerial task forces
— one examining economic reform and theother public sector reform — report to a
Cabinet sub-committee (the Policy and
Structural Reform Committee, PSRC) chaired
by the Prime Minister.  The Government
reform blueprint is being formulated in the
Medium-Term Development Plan
(1999-2003).
16. The Government consults frequently
with the private sector through the Chamber of
Commerce, which is represented on the PSRC.
No independent statutory body exists to advise
the Government on, or to review, trade-relatedpolicies, including the provision of tariff and
other industry assistance.
(4) T
RADE POLICY FEATURES AND TRENDS
17. The Solomon Islands, a de facto GATT
contracting party since independence, accededto the WTO as an original member in July
1996.  Its entire tariff was bound under the
Uruguay Round, mainly at a ceiling level of
80%.  It scheduled GATS commitments on
professional, construction, tourism andfinancial services.   It is not a signatory to any
of the Plurilateral Trade Agreements.
18. The Solomon Islands' only exception
to MFN treatment concerns tariff preferences
within the MSG (Melanesian Spearhead
Group) Trade Agreement of 1996.  These
cover imports of tea from Papua New Guineaand beef from Vanuatu; and its canned tunaSolomon Islands WT/TPR/S/45
Page xi
exports to these countries enter  duty free.  Fiji
is now a member of the Group, and more
products are covered, such as fruit, nuts,
coffee and cement.
19. As a signatory to the Lomé
Convention, the Solomon Islands receives non-reciprocal preferences from the European
Union on many goods.  Additional financial
assistance, totaling ECU 28 million to 1996,
has been provided under Lomé IV, mainly as
grants under STABEX or EDF.
20. The Solomon Islands is also a party to
the South Pacific Regional Trade and
Economic Cooperation Agreement
(SPARTECA), a non-reciprocal preferential
agreement covering the Forum islandcountries (FICs) aimed at achieving duty-free
and unrestricted access for FIC exports to
Australia and New Zealand.  It is also a
beneficiary of the GSP schemes of most
industrialized economies.
(i) Recent evolution
21. The Government’s immediate priority
is comprehensive economic reform to redress
serious macroeconomic imbalances and
structural weaknesses.  Great importance is
attached to the rehabilitation of public
finances.  Economic policy is to be export-oriented and outward looking.  Trade-related
reforms are seen as an important means of
fostering private-sector-led growth and
enhancing productivity and competitiveness.
22. The main policy priorities are tariff
and tax reforms, notably reduction of
exemptions; downsizing of the public sector;
more transparent and facilitative foreign
investment policies; and sustainable
management of key natural resources,especially forestry and fishing.
23. While the Government's intent was to
commence the main policy reforms from mid-
1998 after fully reviewing existing polices,
several important decisions were taken in
advance.  These included the cancellation of
export tax remissions on logs inNovember 1997, and implementation of a
moratorium on new logging licences. This was
followed by a 20% currency devaluation in
December 1997. Furthermore, the tariff was
substantially revised in March 1998; this
involved the compression of the duty structurefrom 20 ad valorem rates, ranging from zero
to 225%, into five rates of 5, 10, 20, 40 and
70%, the modal rate being 10%.
Subsequently, a 10% across-the-board import
surcharge was introduced in the April 1998Budget to raise revenue.
24. The Government sees meeting its
multilateral commitments as playing an
essential role in its reform agenda.  It intends
to implement, for example, WTO-consistentpolicies on customs valuation, intellectual
property protection, agriculture and
quarantine, as required for least-developing
countries, with technical support from
bilateral and multilateral donors.
(ii) Type and incidence of trade policy
instruments
25. Tariffs are the main instrument of
trade policy.  Applied MFN duties remain
relatively high, with an unweighted average of
23%, excluding the 10% surcharge and
specific duties.  The top ad valorem tariff rateof 70% is mainly on processed foods and
consumer goods, such as perfume, jewellery,
electronics and furniture.  However, higher
composite duties, involving specific rates,
apply mainly to tobacco products; alcoholicbeverages, including beer; new and used
motor vehicles; and worn clothing.
26. The five-rate tariff structure contains
built-in escalation, with higher duties imposed
on fully processed products.  Average appliedMFN tariffs 26% on these products of are two-
thirds higher than for semi-processed
products.  However, de-escalation exists
between raw materials and semi-processed
products, reflecting much higher duties on raw
materials.  Although tariff transparency is
enhanced by application of ad valorem dutiesto 97% of all tariff lines, it has been reduced
by the widespread discretionary use by pastWT/TPR/S/45 Trade Policies Review
Page xii
governments of exemptions and remissions,
often for obscure reasons.  The present
Government estimates that these cost 40% of
collectable customs revenue, and is reviewing
their use.  Some were removed recently
following changes to the Customs Act.
27. There are no duty drawback or similar
arrangements for exporters.  Removal of tariff
concessions together with a move to lower,
more uniform levels, if not a single rate, would
further enhance the efficiency, simplicity andtransparency of the customs tariff.
28. The Government aims to improve
customs efficiency and reduce tariff evasion.
It is considering introducing preshipment
inspection services using a private contractor.The former Brussels Definition of Value
(BDV) is used for customs valuation, and no
minimum prices are applied.  No legislation
exists on safeguards nor on anti-dumping and
countervailing actions.
29. Few formal non-tariff trade barriers
apply.  Certain import prohibitions andcontrols apply for environmental, health,
public safety and security reasons as well as
under international conventions, such as
CITES.  Import licensing exists on methylated
spirits and ethyl alcohol (importable only bygovernment pharmacies), alcoholic spirits,
used clothing, arms and ammunition.  There
are no import quotas or trade embargoes;  nor
are there local-content requirements for
domestic production.  Governmentprocurement is by open tender.
30. The Solomon Islands does not set or
impose standards, nor is it a member of ISO.
International standards are applied
occasionally for public safety reasons, as onchemicals and hazardous fertilizers,
herbicides and construction equipment.  There
are no marking, labeling or packing
requirements.  Quarantine provisions apply to
imports of plant and animal products, mainly
meat, dairy, eggs, honey, hides and skins,
unless sourced from Australia or NewZealand.31. Export taxes ranging between 5% and
38% apply to many unprocessed products,
especially logs, fish, gold, copra, palm oil and
cocoa; some of these taxes were increased in
the 1998 Budget.  Export licences are required
for logs and, from 1997, for gold and otherminerals.  Other export controls are mainly
for cultural, health and environmental
reasons, or in accordance with international
conventions, as in the case of export
prohibitions on wildlife under CITES.  Exportsof war relics, bait fish, traditional artifacts,
and endangered species, such as bêche-de-mer
and trochus shells, are also prohibited or
controlled.
32. No export quotas or voluntary export
restraints apply and exports are not
subsidized.  However, profits from exports are
non-taxable for up to six years (with possible
extensions), depending upon the level of
domestic value added.
33. While there are no production
subsidies in the Solomon Islands, taxconcessions are granted for investment and
production.  In addition to the discretionary
use of concessions on trade and excise taxes,
there are income tax holidays and other fiscal
incentives, such as special write-offs andaccelerated depreciation provisions.  Many of
these measures reflect the national policy of
attracting export-oriented investment.  These
incentives currently under review, further
erode the already narrow tax base.  It isdoubtful whether such incentives, are effective.
34. There is no specific competition law.
However, the Government intends to introduce
legislation to protect consumers from unfair
trade practices.  Price controls apply to arange of staple items, including milk, tinned
meat and fish, sugar, soap, rice, cooking oil,
bread, electricity, petroleum products and
water charges.  The Government also intends
to privatize and corporatize several state-
owned enterprises, including a number of
holdings of the Investment Corporation,notably Solomon Telekom, and some other
utilities.Solomon Islands WT/TPR/S/45
Page xiii
35. Renewed efforts are needed to ensure
greater private participation in providing key
utility services.  This will improve efficiency
and reduce prices.  Poor, and relatively
expensive, basic services by government
monopolies deter foreign investment andrestrain growth.
36. The Government is reviewing its
investment procedures with the aim of making
them more transparent and conducive to
foreign investment.  Although there are nomaximum foreign ownership limits, the
Foreign Investment Board examines proposed
local ownership levels on a case-by-case
basis.  It may stipulate some divestment of
foreign ownership over the project’s life.  Arelatively large negative list reserves for
indigenous people certain activities in
agriculture, forestry, fishing, manufacturing,
construction, wholesale and retail trade,
communications and tourism.  Non-Solomon
Islanders can lease, but may not buy, land.
37. Trade taxes on imports and exports
remain the main interventionist measures.  A
major constraint on trade liberalization is the
Government's heavy reliance on these taxes
for revenue.  Although declining, they provide
over half of tax revenue;  until recently, exporttaxes, especially on logs, were the main
revenue source.  Thus, trade liberalization and
tax reform are closely intertwined.  Trade
taxes are a distorting means of raising
government revenue.  Comprehensive taxreform is needed to reduce reliance on trade
taxes, to strengthen tax administration and
broaden the base.
(iii) Sectoral policies
38. The Solomon Islands is heavily
dependent on agriculture and natural
resources of forestry and fishing.  These
account for over half of GDP, with
manufacturing, excluding fish processing,
representing only 3%.
39. Most sectoral policies relate to the
development of wood and fish industries.Trade and investment measures have beendesigned to promote downstream processing
of these resources.  Such policies include
export taxes on unprocessed timber and fish,
as well as efforts to make fishing and logging
licences largely conditional upon domestic
processing.  These policies, which tax theunprocessed activity, risk creating
economically and technically inefficient
downstream processing industries reliant on
continued government support.  The present
Government has not yet indicated whether itwill uphold the previous Government's stated
policy intention of prohibiting round log
exports in 1999.
40. Export taxes, levied on producers,
compound the anti-export bias inherent in thecountry’s tariff and other economic policies
that contribute to the ‘high-cost’ nature of the
economy.  They tax resource rents from forests
and fishing inefficiently and undermine
conservation by reducing domestic prices for
the unprocessed product.  The Government
might usefully explore more efficient ways ofsecuring their share of resource rents (such as
the government auctioning of logging licences
or levying of stumpage fees on production).
41. Sectoral policies have contributed to
the poor management of these key naturalresources.  Unsustainable logging of
commercial forests, with licensed harvest
levels running at almost three times
sustainable yields, until the current downturn
in the global timber market, has threatened theindustry’s survival beyond 10-15 years.  By
contrast, in the case of fishing, off-shore
catches of tuna are well below licensed, and
much higher sustainable, levels.  Both are
uneconomic outcomes that reduce theeconomy’s long-term growth prospects.
42. Copra, cocoa and palm oil products
are important traditional agricultural
commodities.  The statutory monopoly
exporter of copra and cocoa, the Commodities
Export Marketing Authority, operates a copra
price stabilization scheme, involving publicfunds, and a similar scheme will  operate for
cocoa from 1999.  The Authority also markets
coffee together with spices, such as chillies,WT/TPR/S/45 Trade Policies Review
Page xiv
turmeric, vanilla, ginger and cinnamon.  Palm
oil products, such as palm kernel and coconut
oil, are the backbone of plantation agriculture.
The Government directly participates through
ownership interests in Solomon Islands
Plantation Limited and the Russell IslandsPlantation Estates Limited.  The Government
is considering privatizing some of these
interests.
43. Tourism is targeted for development.
The Government encourages privatedevelopment by offering various tax
concessions, including five-year tax holidays
and accelerated depreciation.
44. Efficient provision of basic business
input services is essential to improveinternational competitiveness and attract
foreign investment.  Most basic services, such
as electricity, telecommunications, ports,
water, air and maritime services are provided
by as state-owned statutory monopolies
sheltered from competition.  For example, the
Postal Corporation, although corporatized in1996, retains its legislated monopoly over
delivery of national and international standard
letters.  Solomon Telekom, which is 58% state-
owned, has a 15-year statutory monopoly over
telecommunications services until 2002.
45. Banking licenses must be approved by
the Central Bank.  Foreign banks may operate
domestically as locally incorporated
subsidiaries or as foreign branches, provided
an assigned minimum level of capital is keptwithin the country.  The Central Bank accepts
that such branches will be adequately
supervised by their own prudential regulators.
Banks are prohibited from providing
insurance services.
(5) T
RADE POLICIES AND FOREIGN
TRADING PARTNERS
46. The Solomon Islands’ economy is in
urgent need of large-scale economic reform.
Although some significant first steps have been
taken, much more needs to be done.  As a
small, least-developed island economy, itseconomic prosperity hinges on becoming moreintegrated into the world economy.  Trade
measures are applied on a non-discriminatory
basis, and its reliance on tariffs together with
bindings as a result of the Uruguay Round
have significantly increased the predictability
of its trade regime.  Preferential tradingarrangements with MSG members and
proposed initiatives within the Forum to
establish a Free Trade Area among FICs
should not be allowed to impede the process of
non-discriminatory trade liberalization.
47. The Solomon Islands depends heavily
on log and fish exports.  However, the
international competitiveness of both
industries is under threat.  Processed fish
exports (mainly canned tuna) rely heavily onpreferential EU access to the United Kingdom
market under the Lomé Convention.  Erosion
of these preferences, as well as their extension
to other LDC competitors, may be expected to
intensify competitive pressure on the industry.
Similarly, the future viability of the logging
industry depends not only on how quicklyworld timber prices recover, but also on the
extent to which export restrictions by other
lumber suppliers, such as Indonesia, are
relaxed.
48. Implementation of the Government’s
reform programme, including prudent use of
monetary and fiscal policies, should
substantially reduce the anti-export bias
inherent in its trade regime and improve the
efficiency of resource use.  This shouldenhance competitiveness on both home and
export markets.  A more market-oriented
economy would also benefit its trading
partners.
49. Trade, investment and economic
growth are closely linked.  Increased efforts to
remove impediments to international trade and
investment can be expected to contribute to
economic development.  Liberalization of
investment rules, complemented by trade
reforms, is necessary to attract capital into
efficient industries that can survive withoutgovernment assistance.  Faster privatization
and deregulation of key utilities will also help
revitalize the economy.Solomon Islands WT/TPR/S/45
Page xv
50. External aid will continue to be
essential for the Solomon Islands.  However, it
needs to be recognized that over-dependence
on aid may obstruct the economic
restructuring needed to improve the
economy’s resilience, and  have adverse sideeffects, by accentuating the ‘high cost’
economy and undermining international
competitiveness.  The difficult challenge facing
aid donors and the Government will be to
ensure that financial assistance is coordinatedand provided in ways that encourage
economic growth and development.  In this
context, the conditions resulting from
renegotiation of Lomé IV in 2000 will be
important.
51. The Solomon Islands will always be
vulnerable to external disturbances and their
effects on trade balances.  Trade liberalization
is an important means of increasing economic
flexibility and the capacity of the economy to
adjust to international influences.  The future
pace and depth of its trade reforms will becontingent upon the maintenance of an open,
stable and predictable global trading regime
that can successfully combat protectionist
pressures in major export markets.  The
Solomon Islands' trading partners can greatlyassist the Government's efforts to turn the
economy around by ensuring non-
discriminatory and stable access to their
market