WORLD TRADE WT/TPR/M/25
22July1997
ORGANIZATION(97-3085)
Trade Policy Review Body
TRADE POLICY REVIEW
CYPRUS
MINUTES OFMEETING
Chairperson: H.E. Mr.Munir Akram (Pakistan)
Page
I. INTRODUCTORY REMARKS BYTHE CHAIRPERSON 2
II. OPENING STATEMENT BYTHE REPRESENTATIVE OFCYPRUS 3
III. STATEMENT BYTHE FIRST DISCUSSANT 5
IV. STATEMENT BYTHE SECOND DISCUSSANT 6
V. STATEMENTS BYMEMBERS 8
VI. REPLIES BYTHE REPRESENTATIVE OFCYPRUS AND
ADDITIONAL COMMENTS 13
VII. CONCLUDING REMARKS BYTHE CHAIRPERSON 18WT/TPR/M/25
Page2
I. INTRODUCTORY REMARKS BYTHE CHAIRPERSON
1. ThefirstTrade Policy Review ofCyprus washeldon25and26June1997.
2. TheChairpersonwelcomedthedelegationofCyprus,ledbyMr.MichaelErotokritos,Permanent
Secretary oftheMinistry ofCommerce, Industry andTourism, andthediscussants, Mr.Wilhelm Meier
ofthedelegation ofSwitzerland, andMr.Michael Stone ofthedelegation ofHong Kong. Asusual,
bothdiscussants would actintheirpersonal capacities. Asummary ofthemain points toberaised
bythediscussants hadbeencirculated indocument WT/TPRD/D/10.
3. TheChairperson recalled thepurpose oftheTrade Policy Reviews andthemain elements of
theprocedures forthemeeting. Thereport bytheGovernment ofCyprus wascontained indocument
WT/TPR/G/25andthatoftheWTOSecretariatindocumentWT/TPR/S/25.Copiesofwrittenquestions
submitted byeightdelegations, (Australia, Canada, European Union, Hong Kong, Japan, NewZealand,
Norway andtheUnited States) hadbeentransmitted tothedelegation ofCyprus. TheChairperson
emphasized that,iffullreplies could notbeprovided during themeeting, supplementary written replies
could beprovided within amonth.WT/TPR/M/25
Page3
II. OPENING STATEMENT BYTHE REPRESENTATIVE OFCYPRUS
4. Therepresentative oftheRepublic ofCyprus thanked theSecretariat foritsverycomprehensive
report, which hebelieved, provided abalanced assessment ofCyprus 'tradepolicy. Thisexercise had
enabled hisGovernment toevaluate itsdegree ofcompliance, since itbecame amember oftheWTO
inJuly1995, withthecommitments ithadundertaken intheUruguay Round Agreements andtotake
acloserlookatCyprus'traderegimeandtheprogressachievedtowardsopentradeingoodsandservices.
HisGovernment hadbeenabletoidentify some future actions tobetaken intheprocess ofopening
upCyprus 'economy andtolookattrade liberalization reforms embarked onsince the1987Customs
Union Agreement withtheEuropean Union (EU) aimed atmaking thetrade regime more responsive
tocompetitivepressures.Mostimportantly,thereportindicatedcertainareaswherefurtherstepstowards
liberalization might beneeded toachieve Cyprus 'twingoals ofharmonizing lawsandpolicies with
theEUandensuring conformity withmultilateral rules.
5. Cyprus hadarecord ofsuccessful economic performance, reflected inrapid growth, full
employment andexternal andinternal stability. Ithadbeentransformed intoamodern economy,
increasingly service oriented, withdynamic industrial andagricultural sectors andanadvanced physical
andsocial infrastructure. Satisfactory economic growth hadbeenachieved between 1994 and1996;
GDPhadgrown atanaverage 4.4percentperannum inrealterms; percapita income wasUS$13,550
in1996. Cyprus wasclassified among theupper-middle income countries andprospects for1997
remained good, withrealGDP growth estimated ataround 3.2percent. Theaverage rateof
unemployment during 1994to1996was2.8percentoftheeconomically active population, reflecting
virtually fullemployment.
6. Theoverall macroeconomic policy ofCyprus wasguided bytheconvergence criteria ofthe
Maastricht Treaty. Inflation waskeptunder control, fluctuating around 3percentduring theperiod
1994-96; thefiscal deficit haddecreased from around 6.8percentofGDP in1991 to1percentin
1995, butwidened to3.4percentin1996. Public debt(excluding intra-governmental debt) hadbeen
reduced to54percentofGDP; theGovernment hadlessened itsreliance onforeign andCentral Bank
financing. External debtasashare ofGDPhadfallen fromalmost 40percentin1990to24percent
in1996.
7. Duetothesmalldomesticmarketandopennatureofitseconomy,accesstointernationalmarkets
wasofutmost importance forCyprus toachieve itsoverall goalofthehighest possible rateofeconomic
growth, fullemployment andwelfare. In1996, merchandise exports amounted toUS$1.4 billion,
while imports were US$3.9 billion; these represented 16and45percentofGDP respectively.
8. Manufactured products accounted for60percentoftotaldomestic exports, followed byraw
agricultural products withashare of24percent. Exports ofprocessed agricultural products accounted
forabout 14percent. Themain agricultural exports were potatoes, citrus fruitandvineproducts.
Exported manufactures included clothing, pharmaceuticals, cement, andfootwear. Exports ofservices,
amounting toUS$3 billion in1996, farexceeded those ofgoods. Income from tourism accounted
for19percentofGDPandthesector employed onefourth ofCyprus 'labour force. Cyprus hadbecome
animportant transshipment centre; re-exports hadgrown rapidly inthelastdecade andrepresented
65percentoftotalmerchandise exports in1996, mainly directed towards middle eastern andcentral
European countries. TheEUwasCyprus 'mostimportant trading partner, providing 49percentof
Cyprus 'imports in1996 andreceiving 57percentofexports.WT/TPR/M/25
Page4
9. Themultilateral trading system wasanintegral partofCyprus 'economic andforeign policy;
anopentrade environment wasessential forachieving domestic growth andpromoting international
economic andpolitical stability. Cyprus hadpromoted competition through increased market access.
10. InadditiontoimplementingchangesstemmingfromtheUruguayRound,Cypruswascommitted
toitsgoalofharmonization withtheEUacquis communautaire inpreparation forsmooth integration
intotheEU.Inthiscontext, discretionary import licensing hadbeenabolished from1January 1996,
andprice controls onbasic consumer goods hadbeenconsiderably reduced; currently applying to
14products, thesecontrols wereexpected tobeeliminated bytheendof1998. Cyprus hadalsoadopted
EUlegislation oncompetition andconsumer protection policy; alawbased ontheEUMerger Control
Regulation waswiththelegislature.
11. InlinewithitsUruguay Round agriculture commitments, Cyprus hadreplaced allnon-tariff
measures foragricultural products bytariffs, anddomestic support wastobereduced from
C£58.4 million toC£50.6 million by2004. Cyprus wasoneofthefewdeveloping countries tohave
made commitments toreduce export subsidies; theseweremainly granted forwineandfruit,andwould
bereduced progressively by24percent,fromapproximately C£9million (0.2percentofGDP), by
2004.
12. Cyprushadboundapproximately80percentofitsindustrialtarifflines,at40percent;however,
applied rateswereconsiderably lower. Theaverage MFN tariff for1996 onindustrial products was
10.9percentand3percentforimports from theEU.
13. Adraftbillonpublic procurement wasbefore theHouse ofRepresentatives, andtrademarks
andpatent legislation would beupdated tobring itintoconformity withtheTRIPS Agreement. Anti-
dumping andcountervailing legislation wascurrently being revised, although Cyprus hadnever applied
suchmeasures. Cyprus isintheprocess ofharmonizing itsstandards withthose oftheEU.
14. Financial liberalization, imperative forharmonization andintegration withtheEU,wasone
ofthecornerstones ofCyprus 'policy reform. Exchange controls were being phased outgradually;
during 1997 controls oninvestments bynon-residents anddirect investment abroad byresidents had
beenrelaxed. Thenewpolicy hadcreated amore liberal regulatory andadministrative regime with
simplified approval procedures. Foreign participation ofupto100percentofequity wasnowpermitted
inawiderange ofactivities.
15. Prudential oversight ofbanks hadbeenstrengthened. AnewBanking Billhadbeenprepared
toupgrade thelegalframework forbanklicensing andsupervision andtoattune ittotheneeds ofa
fullyliberalized, market-oriented banking system.
16. Globalization wasnowaprominent force intrade policy anditwasimportant toensure that
thebenefits andopportunities ofglobal integration accrued tothedeveloping andleast-developed
countries, andeconomies intransition; thesecountries mustbehelped tointegrate intotheworld trade
order andnotbemarginalized. Inaddition, theproblems faced bysmall countries likeCyprus should
notbeoverlooked. Substantial adjustment costs were associated withtheliberalization ofthese
economies, andtechnical assistance would berequired toincrease theirunderstanding oftheobligations
andrights under thenewtrading system, andtoenable them tohonour theircommitments under the
WTO Agreements.
17. Cyprus would pursue atrade agenda aimed atachieving asuccessful multilateral free-trading
system; itwasalsocommitted toitspursuit ofregional initiatives, which complemented, andacted
asacatalyst to,theprocess ofmultilateral trade liberalization.WT/TPR/M/25
Page5
III. STATEMENT BYTHE FIRST DISCUSSANT
18. Thefirstdiscussant (Mr.Wilhelm Meier) thought thatthereports bytheSecretariat andthe
Government ofCyprus reflected theefforts ofCyprus todesign andsuccessfully implement reasonable
economic andtradepolicies. Hewould concentrate ontwotopics: (i)economic policy andtradepolicy
inthecontext oftheintegration ofCyprus intotheEU; and(ii)theStrategic Development Plan.
19. Thereports confirmed thatthecentral element ofCyprus 'economic andtrade policies was
thecontinuous effort towards successful integration intotheEU; priority wasgiven toharmonizing
andadjusting policies totheacquis communautaire ,aimed atfacilitating theaccession process. The
Strategic Plan, which focused primarily onthisforeign economic policy objective, hadenabled the
Government tomanage itseconomic andtrade policies successfully.
20. Henoted, however, thatother dimensions ofeconomic andtrade policies, beyond integration
withtheEU,warranted more attention. Cyprus 'position asanatural gateway andbridge totheMiddle
Eastplaced itinaprivileged situation andheasked whatpolicies werebeing pursued toensure that
Cyprus 'relationships outside Europe werenotneglected. Healsorequested details ofCyprus 'priorities
ineconomic andtrade policies dealing withthisimportant dimension.
21. TheCyprus pound hadbeenpegged totheECUsince1992; however, certain sources indicated
thatthenewStrategic Planincluded theadoption ofamore flexible monetary policy. Herequested
anexplanation ofthesituation andthemonetary mechanisms involved. Export performance hadnot
beenespecially dynamic since1992andheasked whether, andtowhatextent, thelinking oftheCyprus
pound totheECUaffected thisperformance. Inaddition, given thatthecurrencies ofmany ofCyprus '
trading partners werelinked tothedollar, hewondered towhatextent theterms oftradewereaffected
bydollar fluctuations. Hebelieved thatthisrelationship wasalsopertinent intheareaoftourism.
22. UndertheCustomsUnionwiththeEU,Cypruswouldsoonhavethesamecompetitiveconditions
asEUmembers andwould beexposed tomore competition fromtheEU.Implementation ofthesecond
phase oftheCustoms Union Protocol would begin in1998andremaining restrictions werescheduled
forelimination by2002. Hewondered whatdifficulties Cyprus envisaged inthiscontext; whether
quotas orincreased barriers would havetobeintroduced, andifsoinwhatfields. Heasked foran
explanation ofthesituation regarding textiles.
23. Regarding theStrategic Development Plan, thediscussant noted thatCyprus 'policies were
quite successful andreasonable. However, asstated intheSecretariat andGovernment Reports,
productivity improvements hadnotmetthePlan'sexpectations; theaverage growth ratehadbeen
only1.8percentintheperiod 1994-96 against anexpected rateof2.8percent. Hebelieved that,
along withthereasons noted intheGovernment Report, lowinvestment inindustrial capacity andin
professional training contributed tothisunsatisfactory situation.
24. Theresearch anddevelopment instruments designed tocopewiththese challenges might not
beadequate totrigger asustained process toovercome thedifficulties. Heasked theCyprus delegation
toindicate what plans andconcrete steps hadbeen taken inthefield ofadvanced technology,
management, design, investment, etc.,andhowtheGovernment intended toensure thattheresources
spent would result insustained improvement.WT/TPR/M/25
Page6
IV. STATEMENT BYTHE SECOND DISCUSSANT
25. Theseconddiscussant(Mr.MichaelStone)expressedappreciationforthedocumentationprepared
forthemeeting. Hecontinued thatCyprus hadtaken considerable steps toliberalize itsmarkets and
establish atransparent andrule-based trading andinvestment environment. Ithadbeenreducing or
eliminating tariffs formany years asapartofitsphased joining oftheEUCustoms Union Agreement,
which came intoeffect inJanuary 1988. Thefirstphase would becompleted by31December 1997,
andthesecond phase by2001 or2002.
26. Since 1993, when theEUCouncil gaveafavourable opinion onCyprus 'request foraccession
totheEU,further considerable steps hadbeentaken toharmonize lawsandregulations withthose
oftheEU.Oneofthekeyfiscal aimswastokeeptheannual budget deficit andpublic debtatlevels
conforming withtherelevant Maastrict convergence criteria. These steps were welcome andwere
moving Cyprus along thepathtoanopeneconomy withfewer distortions totrade andinvestment.
27. While thebudget deficit wasgenerally being contained, there weresome concerns about the
slowbutsteady riseinpublic expenditure andtheshortfall remaining between income andexpenditure.
Thepublic sector 'sshare ofGDP wascurrently about 35percentandrising; public debtwassome
54percentofGDP andthedeficit widened in1996 to3.4percentofGDP. Itwould beuseful to
havefurther explanations oftheGovernment 'slong-term aimsregarding thepublic share ofGDP and
itsability tocopewithsetbacks, bothinterms ofadditional revenue andreduced expenditure. Comment
would alsobewelcome onwhether Cyprus hadplans tojointheplurilateral Government Procurement
Agreement; henoted that95percentofgovernment purchases were bycompetitive tender, which
wasanexcellent figure.
28. ThediscussantnotedthatCyprusstillmaintainedconsiderablesubsidiesintheagriculturalsector,
andtariffs onselected imports. While thiswasasensitive andtraditional sector, subsidies distorted
trade anddirected investment intoareas thatwerenotnecessarily themostproductive. Henoted also
thatCyprus hadlimited water andwasinterested toknow ofthelonger termplans inthisarea.
29. Hewasconcerned about thelowlevel ofinvestment inseveral important sectors, resulting
inalowrateofproductivity improvement. Wage inflation hadbeenhigher thantheEUaverage;
unemployment wasatacommendably lowlevel, butperhaps toolowtomoderate wage demands.
Further discussion onthese areas ofconcern andthepolicies totackle them would beuseful.
30. While much hadbeenachieved onthegeneral trade andeconomic front, much remained to
bedone. Theservices sector waskeytothefuture prospects ofCyprus, asrecognized intheStrategic
Development Plan. However, among others, thetourism sector hadfallen wellbehind theobjectives
setinthePlan. Itwould beuseful tohearwhy, andthesteps being taken toreverse theshortfall.
ItwouldalsobeusefultounderstandCyprus'rathermeasuredapproachtotheliberalizationofinvestment
inthiskeysector; forexample, thedocumentation suggested thatonly49percentofforeign investment
waspermitted inhotels andrestaurants. Thedesired levelofinvestment might bepromoted ifgreater
than50percentforeign equity holding wasfreely allowed. Amplification ofthechanges introduced
inFebruary 1997 regarding foreign equity participation would behelpful.
31. Thefinancial sector wasclearly important toCyprus; taxbreaks andexemptions wereavailable
fornon-residents toencourage offshore finance andbusiness. Financial liberalization wasacornerstone
inefforts toharmonize itsinstitutional framework withtheEU,yetCyprus hadmade onlylimited
commitments intheinsurance sector under theGATS. There wasalsoahighconcentration inthe
banking sector, withthree banks controlling three-quarters ofdeposits. Itwould beuseful toknow
Cyprus 'intentions inthissector.WT/TPR/M/25
Page7
32. Fortheservices sector ingeneral, herequested clarification regarding further liberalization
andcommitments planned tocement thecurrent policies fordeveloping thiskeyareaoftheeconomy.
Telecommunications, forexample, wasastate-owned monopoly; heasked whether thiswould be
privatized andwhether acommitment would bemade intelecommunications under GATS.
33. Heconcluded bynoting thatinintellectual property, Cyprus hadentered most ofthemain
international conventions; itwould beuseful toknow whether Cyprus would beapplying theWTO
TRIPS Agreement when thelegislation mentioned intheirstatement waspassed.WT/TPR/M/25
Page8
V. STATEMENTS BYMEMBERS
34. Members commended Cyprus 'economic progress, andtheliberalization andeconomic reforms
already undertaken. They encouraged Cyprus tocontinue towork towards MFN liberalization and
consistency withWTO obligations.
35. Therepresentative oftheUnited States noted that,forthemost part,hisobservations with
respect tothetradepolicy ofCyprus werepositive; satisfactory progress hadbeenmade oninvestment
liberalization; andhecommended theauthorities foradopting anewpolicy onforeign investment that
substantially liberalized theinvestment regime.
36. Withreference toparagraph 4oftheSingapore Ministerial Declaration, theUnited States was
pleased tonotethattheGovernment ofCyprus hadagoodrecord ofprotecting corelabour standards;
stepshadbeentakeninrecentyearstoeliminategender-specificwagedifferentialsfromsectoralcollective
bargaining agreements, andthelawsgoverning working conditions inCyprus 'export processing zones
were thesame asthose outside thezone.
37. Hewaspleased tonotethattheGovernment ofCyprus hadapplied theDecision onValuation
ofCarrier Media Bearing Software forDataProcessing Equipment, adopted bytheCommittee on
Customs Valuation. Heencouraged Cyprus tojointheAgreement onGovernment Procurement and
actively participate inanewTransparency Working Group established asaresult oftheGovernment
Procurement Initiative adopted attheDecember 1996 Singapore Ministerial.
38. TheUnited States wasdisappointed thatCyprus wasnotyetaparticipant intheInformation
Technology Agreement. Given thattheEuropean Union anditsmember States wereparticipants, it
would appear consistent withCyprus 'Customs Union withtheEUtoparticipate. Henoted thatTurkey,
which alsohadaCustoms Union Agreement withtheEU,wasaparticipant intheITA.
39. Hisdelegation wasinterested intheCyprus authorities 'planstoeliminate certain export-subsidy
practices implicit ina50percenttaxconcession forexports ofmanufactured goods, andlocal-content
requirements. TheUnited States hadcirculated inadvance anumber ofquestions totheCypriot
delegation onintellectual property protection, investment, thetemporary refugee levy,andcertain labour
practices, which hehoped theauthorities would beintheposition toanswer during thisreview.
40. Therepresentative ofNorway commended theGovernment ofCyprus andtheSecretariat for
accurate anduseful documentation andthediscussants fortheirrelated contributions. Shecontinued
thatthere hadbeenmany favourable achievements intheCyprus economy. Percapita income had
tripled during thelasttenyears, fromabout US$4,500 toabout US$13,600; otherpositive developments
included thelevels offiscal deficit andpublic debt,which hadremained within those required tosatisfy
theMaastricht criteria, andofforeign exchange reserves. These reserves hadincreased considerably
between 1993 and1996, andwerenowatmore thenC£2,000 million, corresponding toanenviable
11.5months ofimports. TheGovernment report, however, noted thatthissituation wasrather unstable,
given thegreat dependence ontourism andthat,ifthecurrent account deficit continued atthesame
levelthiswould inevitably lead,inthemedium term, toanincrease inforeign debtandareversal of
thetrend ofthelastfewyears. Therepresentative ofNorway considered thisaninvitation toaskwhat
plans, ifany,theGovernment hadforaddressing thecurrent account problem.
41. Withasmallmanufacturingbaseandthemovementofdomesticresourcesintoservicesactivities,
merchandise imports represented nearly 40percentofGDP, outweighing exports byafactor ofalmost
three. Sheasked howtheGovernment planned tocorrect thisstructural trade deficit.WT/TPR/M/25
Page9
42. Oneofthegeneral objectives ofthe1994-1998 Strategic Development Planwastoupgrade
theenvironment; shewasinterested inhearing further details ofthisplan.
43. IntheSingapore Ministerial Declaration, Ministers hadrenewed their commitment tothe
observance ofinternationally recognized corelabour standards, andexpressed thebelief thateconomic
growth anddevelopment fostered byincreased trade andfurther trade liberalization hadcontributed
tothepromotion ofthese standards. Cyprus hadbeenamember oftheILOsince 1960. According
totheSecretariat 'sreport, theCypriot economy hadbeentransformed since the1960s when primary
products dominated exports duetoacontinuous development ofthetertiary sector; services now
accounted for70percentofbothGDP andforeign exchange receipts. Sherequested information on
howtheILOconventions inthefieldofcorelabour standards were implemented within thetertiary
sector, andwhether there hadbeenanyproblems withtheimplementation ofthese standards dueto
thedevelopment ofthissector. TheGovernment ofNorway hadsentotherwritten questions inadvance.
44. Therepresentative ofNewZealand noted hisdelegation 'sappreciation ofthesignificant steps
taken byCyprus toward amore liberal trade regime since 1994, andwelcomed Cyprus 'abolition of
import licensing. Thetariffication ofallofCyprus 'quantitative restrictions onagricultural products,
asrequired bytheAgriculture Agreement, hadassisted itsmove towards amore liberal trade regime,
although at37.6percent,theaverage tariff forMFN imports ofagricultural products wasstillhigh.
Other constructive examples included thereduction ofprice controls overthelastfewyears andthe
abolition ofexport bans, quotas, andexport performance requirements. These positive changes reflected
theGovernment 'scommitment tothemultilateral trading system astheprincipal andmosteffective
platform fortrade andinvestment liberalization.
45. However, agriculture remained oneareawhich significantly qualified forpositive overall
assessment. Twoaspects inthisareawarranted particular attention: NewZealand hadserious concerns
about thewayinwhich Cyprus administered tariff quotas oncertain agricultural products; andwhile
Cyprus wasoneofthefewdeveloping countries tomake commitments toreduce export subsidies,
thelevelofexport subsidies forsome agricultural products hadincreased in1994/1995.
46. ThebulkofNew Zealand 'sexport trade withCyprus wasintheagricultural sector, with
sheepmeatrepresenting34percentofexportstoCyprusintheyearendedDecember1996.Accordingly,
NewZealand 'slong-standing interest intheCypriot trade regime forsheepmeat imports remained an
important, though notexclusive, focus inthisTrade Policy Review. Aspecific example thatillustrated
thelackoftransparency andpredictable administration oftheCypriot traderegime wasthetariffquota
forsheepmeat.
47. Therepresentative stated thattheadministration ofatariff quota must beundertaken ina
predictable, equitable andtransparent manner; thiswasespecially important, given thatCyprus had
notestablished tariffquota commitments intheUruguay Round toprotect existing levels oftrade, despite
binding itsduties forsome products atveryhighlevels. In1996, theoperation ofasheepmeat tariff
quota wasaltered toonethatutilized acombination ofin-andout-of-quota dutyrates. Furthermore,
despite imports ofsheepmeat falling wellshortofthetariffquota, norefunds wereprovided toforeign
exporters fortheout-of-quota dutyamount theywerecharged. Hepointed outthatCyprus hadageneral
obligation toensure thatratesofdutywerepublished promptly andthatquota allocation procedures
werefairandequitable. Heasked whyNewZealand hadnotbeennotified ofthechange intheoperation
ofthesheepmeat tariff quota, andwhyforeign exporters were notrefunded theextra dutytheyhad
paid.
48. Alsoofconcern werethedifferent dutyratesapplied between EUandnon-EU imports oflamb
meat, rather thanasingle MFN rate. Cyprus maintained aglobal tariffquota of1,100 tonnes offrozenWT/TPR/M/25
Page10
lamb, withduties ofC£0.32/kg. forEUsuppliers andC£0.50/kg. forMFN suppliers. TheCyprus
authorities hadinformed NewZealand thatthedutyrateswereC£0.74/kg. fortheEUandC£1.15/kg.
onout-of-quota imports fornon-EU countries. While Cyprus wasentitled toofferpreferential duty
ratesfortheentry ofEUproducts, thispreferential treatment wasbeing provided within aMFN global
tariffquota; NewZealand believed thatthiswasabreach ofMFN principles sinceCyprus wasgiving
different duties todifferent countries within anMFN quota, andNewZealand andother countries were
therefore being negatively affected bythispolicy. Hisdelegation considered thatanypreferential access
must onlybeprovided bymeans ofaseparate tariff quota, andheasked howCyprus could justify
applying different dutyratestodifferent trading partners within anMFN quota system.
49. Insummary, NewZealand welcomed theencouraging signsoftradeliberalization andbelieved
thatacontinued focus onamultilateral trade process would helpCyprus toprogress towards amore
predictable, transparent andequitable trade regime. Helooked forward toreceiving answers tothe
questions thatNewZealand hadsubmitted totheCypriot delegation.
50. Therepresentative oftheEuropean Union noted thatseveral ofthepoints hisdelegation had
intended tomention hadalready beenraised andhewould therefore notrepeat them.
51. Inthe1960s, Cyprus haddepended onexports ofcopper andcitrus fruits; since thenexport
industries hadbeendeveloped, especially textiles. Therecent growth intradeinservices, inparticular,
tourism andbusiness services, hadbeenparticularly striking since these nowaccounted forabout two
thirds ofbothGDP andforeign exchange receipts. Itwasappropriate tonotethatpercapita income
hadalmost tripled indollar terms, andliving standards werenowonparwiththose insome Western
European countries. These general, positive remarks wereabackground tothemore specific written
questions addressed toCyprus inadvance.
52. Henoted thatgrowth intheCyprus economy hadbeenlower inthe1990s thanintheprevious
decade andhadshown significant fluctuations fromyeartoyear. Thefigure forGDP growth in1996
wasestimated at1.6percent,andhewasinterested inhearing comments fromthedelegation ofCyprus
ontheoutlook forthegeneral development oftheeconomy inthecoming period andthereasons for
thefluctuations.
53. Heasked forcomments ontheprospects forexports ofmanufactured goods, given therelatively
rapid riseinlabour costs andlowlevel ofinvestment incapital goods noted inthedocumentation.
Hewasalsointerested toknow ofanysteps being taken tostrengthen thecompetitivity ofthese
industries.Theimportanceoftourism,whichgeneratedsome40percentofreceiptsofforeignexchange
oncurrent account, andmore than20percentofGDP, hadalready beennoted; approximately one
quarter ofthework force wasemployed inthissector. Heasked howCyprus viewed thedependence
oftheeconomy ontourism, anditsfuture prospects, andwasinterested tohearoftheprospects for
exports ofother services.
54. Anumber ofdifferent taxesandduties werelevied onimports ofautomobiles; heasked whether
theauthorities planned tosimplify these andwhether there were plans tointroduce internationally
recognized technical andsafety specifications.
55. Herequested information onprogress made inimproving conditions ofcompetition and,
specifically, whether theGovernment ofCyprus intended totakefurther stepstopromote competition
inareas where monopolies stillexisted.
56. Finally, henoted thathisdelegation hadrequested anupdate ontheprogress ofthedraftlaw
onpublic procurement andtheobjectives ofgovernment policy inthisarea.WT/TPR/M/25
Page11
57. Therepresentative ofJapan wasimpressed bythecontinuous development oftheCyprus
economy, ledbytourism anditsotherservices, andmoreparticularly bythetripling ofpercapita income
inthepastdecade, tomore thanUS$13,000. Cyprus hadbeenadapting itslegislation andpolicies
tomultilateral commitments andwascurrently strengthening itseconomic relations withtheEU.
58. Questions ofatechnical nature hadbeensenttoCyprus inwriting, andhehoped these would
beanswered during thecourse ofthemeeting. However, anumber ofquestions remained: herequested
anexplanation ofthekinds ofproducts subject topricecontrols, andhowandtowhatextent thecontrols
wereoperated. Also, MFN rateswerehighcompared tothepreferential tariffratesapplied toimports
fromEUsuppliers, andespecially withregard tovegetables, fruitandbeverages; heasked whether
Cyprus intended toreview thesehightariffrates. Japan wasalsointerested toknow when theproposed
patent bill,intended tobring Cyprus 'patent lawintoconformity withtheTRIPS Agreement, was
expected toenter intoforce.
59. Intheservices sector, herequested further details ofCyprus 'three-year plantoupgrade the
tourism industry, andmore specifically, whether thesubsidized interest ratesandother measures were
applied equally toentities withlocal andforeign investment. Insurance activities hadbeenopened
toforeign suppliers; however, liberalization wasstillrequired inareas suchasfixed premiums on
third-party motor-vehicle liability. Herequested further information ontheliberalization policy and
actions tobetaken intheinsurance sector.
60. Therepresentative ofCanada noted thattheresults ofCyprus 'transformation from a
predominantly resource-based economy toonedominated bytheservices sector hadbeenremarkable,
asevidenced bythestrong growth inpercapita income, lowunemployment, andfiscal andmonetary
stability. Canada commended Cyprus foritsliberalization efforts, andnotably, thereduction of
agricultural export subsidies, theextent ofitstariff bindings andtheopenness ofitsservice sectors.
Recent legislation intheareasofforeign investment, andsurveillance mechanisms formoney laundering
were alsotobecommended.
61. However, there wasscope forfurther improvement incertain areas. Tariff bindings largely
exceeded applied rates, creating uncertainty fortrading partners; discriminatory excise taxes were
maintained onsome imports; andagriculture wasstillsubject toafairdegree ofprotection. Hebelieved
itwould beuseful fortheCyprus Government toassess thecostofthisprotection totheeconomy:
heasked whether export capabilities insome agricultural products could beimproved byfreeing up
resources devoted touncompetitive production; competitiveness inthetourism sector could beenhanced
bylower-cost imported foods; andtheimpressive performance inthetourism andfinancial sectors
could befurther improved bylifting limitations onforeign participation. Canada hadalsosubmitted
written questions related totariffs, safeguard measures, procurement, financial services and
telecommunications.
62. WhilerelationswiththeEUwere,understandably,centraltoCyprus'economicandtradepolicy,
Canada hoped thatCyprus would continue toattach importance toMFN liberalization.
63. Therepresentative ofIndianoted thatCyprus hadmoved fromexcessive reliance ontheexport
ofresource-based products torapid development oftheservices sector. However, within thissector,
theGovernment relied heavily onthetourism industry which, asasource ofrevenue, could besubject
tofluctuations.
64. Thetightmonetary andfiscal discipline adopted byCyprus, inlinewiththeconvergence criteria
oftheMaastricht treaty, along withothereconomic measures, hadhelped tocontrol inflation andreduceWT/TPR/M/25
Page12
debt. However, there wasastrong concentration oftrade withonebloc, andhehoped thatCyprus
would adopt amore global approach indiversifying thesource ofitsimports.
65. Cyprus hadtaken several measures toimplement itscommitments under thevarious WTO
Agreements.However,hisdelegationbelievedthatCyprus'existingstandardsandtechnicalrequirements
warranted attention; sanitary andphytosanitary regulations werestricter insomecasesthaninternational
standards, andhebelieved thatthisaspect required further examination.
66. Therepresentative ofSwitzerland stated thathisdelegation wasaware oftheimportance to
Cyprus ofaccession negotiations withtheEU,andexpressed appreciation fortheliberalization measures
alsoundertaken byCyprus intheWTO context. Discretionary import licensing had,withoneexception,
beeneliminated; andprice controls hadbeenconsiderably reduced inthelasttwoyears. Remaining
price controls were scheduled forelimination bytheendof1998.
67. From theendof1997, Cyprus would apply theEUcommon customs tariffforproducts covered
bytherelevant protocol. However, regarding other border measures, henoted thatexcise duties on
imported cigarettes weresetattwice theratecharged forthose produced domestically. Heasked when
these measures would bebrought intoconformity withArticle IIIofGATT 1994; healsorequested
confirmationthatthetemporaryrefugeelevy,introducedin1977,wouldbeabolishedon1January1998.
68. Intheservices sector, thefinancial services regime, particularly concerning banking and
insurance, appeared tobeopen, andtheprinciple ofnational treatment respected; foreign investment
wastreated onacase-by-case basis. Herequested information onanyamendments applicable toforeign
investment contained inthedraftbanking lawtobeadopted in1997. Inthetourism sector, heasked
whether Cyprus intended toretain thelimits onforeign equity participation, currently fixed at49per
centinhotels andtravel agencies. Hestated thatfurther details ontheliberalization process forthe
telecommunications sector would provide amore dynamic picture ofthissector.
69. While Switzerland appreciated thework already carried outintheareaofpublic procurement,
herequested further information onthedraftlawcurrently under review andonCyprus 'future policies
inthisarea. Heasked whether Cyprus envisaged signing thePlurilateral Agreement onGovernment
Procurement inthenearfuture, andifnot,whether anegotiating schedule already existed forthis
purpose.WT/TPR/M/25
Page13
VI. REPLIES BYTHEREPRESENTATIVE OFCYPRUS AND ADDITIONAL COMMENTS
70. Thereplies bytherepresentative ofCyprus weredivided intothreethemes: (i)macroeconomic
andstructural questions; (ii)trade-related policy objectives andinstruments; and(iii)sectoral issues.
(i) Macroeconomic andstructural questions
71. Therepresentative began bynoting thatahighly satisfactory average economic growth rate
of4.6percenthadbeenachieved from1992 to1996; theexpected growth ratefor1997 was3.2per
cent.
72. Aweak improvement of4.2percentwasexpected formanufactured exports in1997; industrial
exports hadincreased by2percentinnominal terms in1996, following adecline of1percentin
theprevious year. Thetraditional industrial sub-sectors ofclothing andfootwear wereexperiencing
problems ofcompetitiveness, linked toarapid increase inlabour costs andintense international
competition. Theexport performance ofproducts suchasprocessed agricultural goods, cement, and
pharmaceuticalswassatisfactory,andshowedprospectsforfurtherincrease.TheGovernment'sindustrial
policy wastoincrease productivity, upgrade theleveloftechnology, andimprove supply conditions
bysupporting private investment. Investment formachinery andequipment showed astrong recovery
in1996 asaresult ofgovernment support measures.
73. TheGovernment 'smedium-term fiscal objective wastomaintain thefiscal deficit below 3per
centofGDP, inlinewiththeconvergence criteria oftheMaastricht Treaty. Thefiscal strategy provided
foracombination ofmeasures acting onbothexpenditure andrevenue; efforts toreduce expenditure
would becomplemented bymeasures toincrease revenue through more efficient taxcollection. Public
sector reform wasalsonecessary toreduce expenditure andincrease revenue-collection capability.
Government revenue fromtaxes wasonly26percentofGDP, making Cyprus oneoftheleasttaxed
countries inEurope.
74. Thelinking oftheCyprus pound totheECU hadnotadversely affected export performance
toanysignificant extent. Other factors hadcontributed tothepoorperformance, suchasrising labour
costs withlowproductivity improvement, theeffects ofadverse climatic conditions onexports of
agricultural products, andreduced demand from traditional European importers.
75. Cyprus 'currency waspegged totheECU aspartofthemajor policy objective ofbecoming
amember oftheEuropean Union; itsmembers made upthemajority ofCyprus 'trading partners,
withthelinkthusreducing fluctuations duetochanges intheircurrencies. Payments foroilweremade
indollars; thestrengthening ofthedollar hadhadasomewhat negative effect onCyprus 'balance of
payments.
76. Steps hadbeentaken toadapt totheliberalization ofimports brought about under theUruguay
Round andtheCustoms Union Agreement. These included increased tariffratesimposed onsensitive
locally produced goods; abolition ofimport duties onrawmaterials usedforlocal manufacturing;
allowances forinvestments infixedassets; financial assistance forcompetitiveness studies, advertising
promotion,andmarketresearch;infrastructuralimprovementssuchasestablishmentofindustrialestates,
andtheleasing ofplotsforindustrialists. Intheagriculture sector, structural adjustment programmes
would include theintroduction ofnewproduct varieties, newtechnology, andfinancial support.
77. Aquestion hadbeenraised regarding theGovernment 'splans tocorrect thestructural trade
deficit. Thisdeficit reflected thebasic structure oftheeconomy asindicated bytheimportance of
thetertiary sector onthesupply sideandexportable services onthedemand side. ItalsoreflectedWT/TPR/M/25
Page14
thereduced levelofprotection andtherecent erosion ofcompetitiveness resulting fromincreased labour
costs. TheGovernment hadtaken measures toincrease productivity andcompetitiveness, byshifting
theemphasis tonewareas ofproduction withhigher value-added content andbyefforts toimprove
thequality ofproducts andservices. However, animportant factor fortheexternal stability ofthe
economy wastheoutcome ofthecurrent account, including theperformance ofinvisibles receipts and
theability oftheeconomy toexport tradeable services.
78. Several factors hadcontributed tothecurrent account deficit of5.5percentin1996. These
included adecline intourist receipts; unfavourable weather conditions; lowprices forexported potatoes,
animportant agricultural export; increased prices ofimported crude oilandenergy products, onwhich
Cyprus wasalmost 100percentdependent; andariseinimports ofdefence equipment. These had
beenfinanced inthepastbyautonomous capital inflows andexternal finance. TheGovernment aimed
toimprove theexternal stability oftheeconomy through investment grants andsubsidized loans to
strengthentheindustrialbaseandacceleratetheadjustmentprocess,andbyinitiativestoimprovetourism-
related services, including byupgrading quality, diversification oftourist markets, andincreased
promotional activities.
79. Aquestion hadbeen raised regarding thepossible impact onthird-country trade ofthe
implementation byCyprus oftheEUCommon External Tariff on1January 1998. Tariffs forgoods
originating intheEU,covered bytheCustoms Union Agreement, would beeliminated from
1January 1998 andtheEUcommon customs tariff adopted forimports from third countries. The
CCT forgoods covered bytheCustoms Union Agreement waslower thanratesadopted byCyprus
under theWTO Agreements, andtheimpact onthird-country trade would therefore bepositive.
80. Regarding public support foraccession totheEU:while noreferendum hadbeenheldinCyprus
priortoapplication forentry, itwasevident fromthepositions ofallpolitical parties thatpublic feeling
wasbehind thiseffort. Joining theEUwould notbewithout problems, however, Cyprus wasprepared
tofacethese andachieve itstarget offullmembership.
81. Quotas ortradebarriers werecontemplated foranumber ofproducts noted inAnnex 3ofthe
Agreement inthecontext offorming theCustoms Union. However, allquantitative restrictions had
already beenlifted. Within thetariffsystem, minimum prices andquantitative restrictions ontextiles,
inforce prior to1January 1996, hadbeenreplaced byamaximum MFN rateof60percent, anda
maximum preferential rateof25percent.
82. Thefirstdiscussant noted thatcaution wasnecessary when comparing growth ratesthathad
beenachieved fromalowstarting basetothose ofcountries whose economic activity wasatahigher
level. Healsorecalled hisquestion regarding compatibility between thepegging ofCyprus 'currency
totheECUandtheflexible monetary policy included intheStrategic Plan. More specifically, heasked
whether there wasafixed bandwidth forthepegofthepound.
83. Therepresentative ofCyprus believed that,given Cyprus 'highaverage GDP percapita, the
achievement ofgrowth under conditions offullemployment andthelowinflation rate,thecomparison
ofGDP growth rateswithother dynamic economies werevalid. TheCyprus pound hadbeenpegged
totheECU withaparity of1.7ECU/C£ andabandof2.25percentoneither side; fluctuations had
been wellwithin theband. Foreign exchange controls were maintained byCyprus asadefence
mechanism forthepound, however, these would begradually liberalized; monetary policy support
fortheparity oftheCyprus pound hadalsobeenseverely reduced. Indirect measures formonetary
management, andauctioning ofgovernment papers hadbeenintroduced attheendof1996, andthe
financial system hadbeenmodernized. Stability ofthecurrency wasanimportant basisforthegrowth
oftheeconomy, andefforts were made toavoid fluctuations anduncertainties inforeign exchange.WT/TPR/M/25
Page15
84. Cyprus didnotbelieve thattherewasanyincompatibility between efforts towards harmonization
withtheEUacquis communautaire andconformity withWTO commitments. Working committees
hadbeenestablished inco-operation withtheEuropean Commission andwork hadbeencarried out
toidentify where further harmonization wasrequired. These efforts included harmonization with
developments incommitments made bytheEUininternational fora; theamendment oflegislation
was,therefore, acontinuous process.
(ii) Trade-related policy objectives andinstruments
85. Regarding thequestion ofinvestment promotion, theCyprus Government hadalready taken
steps toliberalize foreign participation. Administrative procedures hadbeensimplified andupto
100percentforeign equity participation isallowed inawiderange ofactivities suchasmanufacturing
andservices, provided certain prerequisites weremet,withveryfewexceptions. However, inalimited
numberofcases,e.g.restaurantsandcommercialrepresentatives,bothcomingundertheservicessector,
upto49percentparticipation isallowed. Theminimum capital investment requirement isintended
topromote substantial levels offoreign investment. Intheprimary sector, upto49percentforeign
investment isallowed. Forasmall number ofactivities, suchasbanking, insurance andfinancial
services, applications arereviewed onacase-by-case basis. Thereason forallowing 49rather than
50percentforeign equity participation wasforpractical legalpurposes andintended toavoid deadlock
incaseofdispute.
86. Newinvestment incentives hadbeenintroduced tohelptechnological upgrading andenhance
thecompetitiveness ofmanufacturing. These included grants of20percentoftotalinvestment, up
toamaximum ofC£150,000, andaninterest ratesubsidy ofupto3.5percentage points onloans for
newmachinery andequipment. Thiswastoencourage theintroduction ofadvanced technology and
increase thecompetitiveness ofthemanufacturing sector. Monetary policy wasgeared towards reducing
interest ratestoencourage investment andhelpincrease economic activity; thelending ratehadbeen
reduced from 8.5to8percentwitheffect from March 1997.
87. Thecurrentforeigninvestmentpolicyregardingfreightandpassengertransportservicesallowed
foreign equity participation ofupto100percentprovided thelevel ofinvestment isnotlessthan
C£100,000. Road transport companies required thefurther authorization ofthelicensing authority,
which wasresponsible fortheoperation ofsuchnewcompanies. Applications were considered on
thebasisofcriteria uniformly applicable toCypriot andforeign investors. Formaintenance andrepair
ofvessels, andpushing andtowing services, foreign equity participation ofupto100percentmight
beallowed, forinvestments ofnotlessthanC£100,000.
88. Different guidelines andcriteria, temporary orpermanent, existed fordifferent sectors. Inthe
caseofestablishment ofanewbank, besides theminimum capital requirement, "fitandproper" and
"experience inthefield" criteria wereapplied; thesewereexpected tobepermanent andapplied equally
tonational andforeign investment. Ingeneral, thecriteria usedwere toensure thattheinvestment
didnotcreate environmental problems, andwasnotdetrimental totheeconomy ortonational security.
89. Thetemporary refugee levywould beabolished on1January 1998, forproducts covered by
theCustoms Union Agreement; forproducts outside thisAgreement thelevywould becharged ata
preferential rateof3.9percentforproducts fromtheEU,andamaximum of6percentonimports
from thirdcountries.WT/TPR/M/25
Page16
90. Thequestion ofdifferent dutyrates charged within theMFN system waslinked withthe
provisions oftheAssociation Agreement withtheEU. These provisions wereincluded intheMFN
exceptions notified toGATT. TheCustoms Union Agreement extended preferential treatment togoods
originating intheEU.
91. Clarification wasrequired regarding theelimination onanMFN basisofsurcharges affecting
certain industrial products. These surcharges were, hesaid,increased tariffs imposed inconformity
withWTO commitments; theydidnotformpartoftheCustoms Union Agreement butwerenecessitated
bytheabolition ofquantitative restrictions. Thesurcharges would beabolished fortheEuropean Union
by1January 1998, when theEUcommon customs tariff would beintroduced forthird countries.
Increased tariffs forcement, chipboard, andwater pumps, along withother products inAnnex Iof
theCustoms Union, would beeliminated by2002/2003.
92. Theamendment ofexisting anti-dumping legislation tobring itintoconformity withtherelevant
provisions oftheWTO Agreement wasexpected tobecompleted bytheendof1997.
93. Therepresentative noted thatimport duties oncarswere charged atvarious levels. Atthe
startoftheCustoms Union Agreement apreferential import dutyof25percentwaslevied onimports
ofcarsfromtheEUandarateof40percentforimports fromthirdcountries; for1998, duties would
bezeroand10percent, respectively. Theeffective excise taxonsaloon cars,consisting ofvarious
components, was,headmitted, veryhigh; thefirstcomponent wasanadvalorem dutyof80percent,
withafurther special dutybased ontheengine capacity andanadditional advalorem dutystarting
at5percentandrising to50percentforimports ofluxury cars. Taxation wastherefore below 100per
centforthebottom-of-the-range vehicles and,insome cases, more than150percentforluxury cars.
Thiswasarevenue-effective tax,simple initsadministration andequitable duetoitsprogressive
structure.
94. Theimport licensing requirement onfishing nets, noted inonequestion, waslinked to
environmental policies; closely knitted netsusedinthepasthadresulted indiminished fishstocks.
Thisrestriction wastherefore anenvironmental measure.
95. Onthesubject ofpublic procurement, abillsubmitted totheHouse ofRepresentatives in
February 1997wasexpected tobepassed intolawafterthesummer break. Thebillamended existing
administrative orders andincorporated them intoacomprehensive andtransparent legalframework.
Thenextpriority wasthepreparation andapproval ofdetailed regulations relating mainly toprocedural
arrangements, evaluation criteria, andthepreparation oftender specifications. TheGovernment 'spolicy
wastogradually harmonize public procurement legislation forgoods andservices withtherules of
theEUandtheWTO.
(iii) Sectoral issues
96. Inresponse toaquestion onimports offrozen sheepmeat, therepresentative ofCyprus stated
thatthelifting ofimport restrictions on1January 1996 hadmade itnecessary tointroduce atariff
quota onthese imports. Inthepast,quota allocation onafirst-come, first-served basis hadcreated
conditions ofoligopoly, hence itwasconsidered thatacombined system, treating allimporters equally,
wasmore 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.WT/TPR/M/25
Page17
97. Oneoftheprimary objectives ofthe1994-1998 Strategic Development Planwasprotection
oftheenvironment. Inaddition toefforts undertaken toharmonize withEUlegislation andpractices,
aplanfortheprotection oftheenvironment, addressing allaspects ofprotection, institutional set-up,
economic instruments, awareness, etc.,hadrecently been approved bytheGovernment. Adraft
framework lawontheenvironment wasinitsfinalstages while institutional arrangements forthe
administration ofenvironmental policy, andenvironmental impact assessment procedures, hadbeen
inplace forsome years. Asystem ofsupport wasoperated forindustrialists wishing tointroduce
pollution-reducing equipment; aspecial fundcontributing 30to40percenttowards thecostofaplant
aimed atreducing pollution.
98. Astudy ontheliberalization ofservices offered bytheCyprus Telecommunications Authority
hadbeencommissioned bytheGovernment ofCyprus; thisstudy wasnowunder review andconcrete
decisions ontheissuewereexpected inthenearfuture. TheAuthority wascurrently developing acosting
system tofacilitate theapplication ofcost-based pricing. Theresults ofthestudy were expected to
befinalized bythethirdquarter of1997andwould beforwarded totheCouncil ofMinisters forapproval
inaccordance with thepresent legislation. Cyprus intended tosubmit commitments onbasic
telecommunications before theendofthe1997.
99. Cyprus 'initial GATS commitments werelimited toonlyafewservices; tourism services were
notincluded. However, Cyprus wasre-examining itsservices policies inlinewithefforts towards
harmonization withtheEUacquis communautaire andtourism wasoneofthekeysectors included
inthese efforts.WT/TPR/M/25
Page18
VII. CONCLUDING REMARKS BYTHE CHAIRPERSON
100. TheTrade Policy Review Body hasnowcompleted thefirstreview oftheRepublic ofCyprus '
trade policies andpractices. These remarks, made onmyownresponsibility, summarize themain
points ofthediscussion. Theyarenotintended tosubstitute forthecollective evaluation andappreciation
oftheCyprus 'trade policies andmeasures. Details ofthediscussion willbereflected intheminutes
ofthemeeting.
101. Prior tothestartoftheReview there wasanexchange ofviews onthepolitical aspects ofthe
situation inCyprus, asreferred toinparagraph 8oftheRepublic ofCyprus 'Government Report
contained indocument WT/TPR/G/25, where theirrespective positions wereexpressed bytheparties
concerned. Thisexchange willbereflected indocument WT/TPR/R/2.
102. Thediscussion ofCyprus 'tradepolicies wasunderscored bytheappreciation ofMembers for
theconsiderablestepsalreadytakenbyCyprustoliberalizeitsimportmarkets,reduceexportrestrictions,
andestablish arulesbased, transparent trading andinvestment environment. Theeconomy hadclearly
benefitedfromthereductionindistortionsbydevelopingtradeinmanufacturesand,particularly,services;
percapita income levels hadgrown considerably. Cyprus wasurged tocontinue itstradeliberalization
andtoembed itsolidly within therulesandprinciples ofthemultilateral trading system, particularly
byincreasingitscommitmentsintheWTO.InthiscontextMembersraisedanumberofissuesincluding:
- theoutlook forsustainable growth intheeconomy andtheprospects forexports and
investment ingoods andservices;
- fiscal discipline, partly linked totheMaastricht criteria, anditsroleinhelping tosustain
astable macroeconomic environment. Relevant tothisissuewerethelinkoftheCyprus
pound totheecu,monetary policy considerations andassociated prospects fortherate
ofinflation;
- thevulnerability ofCyprus 'economy totheexternal environment, asreflected ina
structural tradedeficit, andmeasures tostrengthen theproduction base,tolendstability
toeconomic growth;
- economic andlegislative preparations fortheintegration ofCyprus intotheEuropean
Union. Inthisconnection, several Members clearly expressed theview thatthis
integration should notbeattheexpense ofCyprus 'fullparticipation inthemultilateral
system, andemphasized theneedforgreater geographical diversification oftrade;
- investment objectives, especially equity participation limits onsomeFDIandthenature
ofthe"economic interest" clause;
- thetariff structure, notably divergences between applied andbound rates; surcharges
forsafeguard reasons; thestillsignificant number ofspecific rates; theuseofexcise
taxes; andparticipation intheITA;
- theuseofstandards byCyprus thataremore stringent thaninternational standards
insome areas;
- taxation andstandards applied toautomobiles;WT/TPR/M/25
Page19
- Cyprus 'lawandpolicy onanti-dumping andpublic procurement anditspossible
accession totheGovernment Procurement Agreement; and
- certain aspects ofitscompetition, environment andintellectual property legislation.
103. Members alsoraised anumber ofquestions inconnection withCyprus 'sectoral policies. Thus,
inagriculture, questions wereposed ontheuseandlevelofsubsidies, andontheMFN andpreferential
implementation ofcertain tariff quotas, including onsheepmeat. Inmanufacturing, theuseofexport
subsidies related tolocalcontent wasquestioned. Members alsoraised questions onCyprus 'plans
forfurther liberalization infinancial services; itsposition onderegulation intelecommunications and
possibleWTOcommitments;planstoexpandthetourismsector,includingbyliberalizingtheinvestment
regime; andapossible relaxation ofrestrictions inmaritime andportservices. While twomembers
recalled Paragraph 4oftheSingapore Ministerial Declaration, theyposed questions relating tothe
observation of"core labour standards" byCyprus.
104. Inresponse, therepresentative oftheRepublic ofCyprus replied tothequestions raised under
threeheadings; macroeconomic andstructural policies, trade-related policy objectives andinstruments,
andsectoral issues. Cyprus undertook toprovide written answers tocertain other questions.
105. Cyprus 'economic growth ratehadbeenfavourable compared toother European countries;
theforecast for1997wasaround 3percent. Clothing andfootwear exports faced severe international
competition, while agriculture andpharmaceuticals tradeshowed favourable trends. TheGovernment 's
target wastomaintain afiscal deficit below 3percentofGDP; expenditure wastobeclosely monitored
andtaxefficiency increased, while public sector reform wasakeypolicy. ThelinkoftheCyprus
pound totheecu, which waspartly inconsequence ofCyprus 'aimtojointheEU,hadnotaffected
export performance adversely; thelinkreduced thevariability inexchange rates vis-à-vis Cyprus '
European partners, which were itsmajor markets. Stability ofthelinkwasmaintained through a
combination ofexchange controls andmonetary policy, together withtheoverall health oftheeconomy.
106. Thevulnerability oftheeconomy toexternal shocks andthestructural tradedeficit werebeing
improved bymeasures toincrease productivity, especially toreduce unitlabour costs, andtostrengthen
theservices sector, including byinvestment incentives.
107. Regarding Cyprus 'preparations forjoining theEU,theapplication oftheEUcommon external
tariffwould result intariffs lower thantheratesbound intheWTO byCyprus, hence inmorefavourable
conditions. Nonewquotas orother tradebarriers would result fromthecustoms union; allquantitative
restrictions hadbeenlifted from 1January 1996, withatariff quota system introduced onvarious
products, including textiles.
108. Ontraderelated policies andobjectives, therepresentative ofCyprus sawnoconflicts between
acceptance oftheEUacquis communautaire andWTO objectives. Cyprus followed thecontinuous
progress ofEUlegislation oninternational issues. Foreign investment hadbeenlargely liberalized
andadministrative procedures simplified, with100percentforeign ownership allowed inmostsectors;
inafewareas, suchasfinance, applications wereconsidered onacase-by-case basistomonitor quality.
109. Onmore specific issues, "surcharges" applied byCyprus wereincreased tariffs resulting from
theprocess ofelimination ofQR's;mostsurcharges would beremoved by1January 1998, andresidual
surcharges would belifted by2002/3. The"refugee levy" would beremoved onallproducts contained
intheEUAssociation Protocol from 1January 1998; products outside theProtocol would remain
subject tothelevy. Import duties oncarswould bereduced toaMFN rateof10percentbyend1997,WT/TPR/M/25
Page20
with azerorateforimports ofcarsfrom theEU. Excise taxation ofcarswasanimportant
revenue-effective element oftaxation.
110. Therepresentative ofCyprus continued bynoting thatnewanti-dumping legislation, inline
withtheWTO Agreement, should becompleted bylate1997. Onenvironmental matters, adraft
framework lawwasinpreparation, while interest rateconcessions andother incentives weregranted
forpollution control. Similarly, restrictions onfishing netswereimposed forconservation reasons.
With respect topublic procurement, abillonthematter hadbeensubmitted inFebruary 1997 and
wasexpected topassParliament intheautumn ofthisyear. Detailed regulations andtender
specifications would beprepared inaccordance withexisting policy; Cyprus 'procedures would be
harmonized withthose oftheEUandwould beconsistent withitsobligations under theWTO.
111. Onsectoral matters, inagriculture thesystem ofadministration forthetariffquota onsheepmeat
hadbeenintroduced toensure fairandequitable treatment. Demand formeathadfallen in1996 as
aresult ofBSEandreduced tourist trade, butthemarket wasrecovering in1997. Inservices,
100percentforeign participation wasallowed onfreight andpassenger transport, inspecified
circumstances. Telecommunications liberalization wasunder wayandanofferonbasictelecoms would
besubmitted totheWTO before theendof1997. Conditions fortourism services would beharmonized
withthose oftheEU.
*******
112. Overall, Ibelieve wehavehadauseful review ofCyprus. Iknow whatdifficulties theCypriot
delegation havelaboured under inpreparing theirreplies atsuchspeed, andIthank them warmly for
theirefforts. Iamsurethat,asrequested bysome delegations, Cyprus willbackupitsparticipation
inthismeeting withwritten answers tosome ofthequestions towhich replies havebeenpromised.