RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/221 
22 September 2009  
 
(09-4370) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
MALDIVES 
 
  
 
This report, prepared for the second Trad e Policy Review of the Maldives, has 
been drawn up by the WTO Secretaria t on its own responsibility.  The 
Secretariat has, as required by the Agreement establishing the Trade Policy 
Review Mechanism (Annex 3 of the Ma rrakesh Agreement Establishing the 
World Trade Organization), sought clarification from the Maldives on its trade 
policies and practices. 
 
Any technical questions arising from this report may be addressed to 
Mr. Usman Ali Khilji (tel:  022 739 6936). 
 
Document WT/TPR/G/221 contains the policy statement submitted by the 
Maldives. 
 
 
 
Note: This report is subject to restricted ci rculation and press embargo until the end of the 
first session of the meeting of the Trade Policy Review Body on the Maldives.  Maldives WT/TPR/S/221 
 Page iii 
 
 
CONTENTS 
  Page 
SUMMARY OBSERVATIONS vii 
 (1) E CONOMIC ENVIRONMENT  vii 
 (2) T RADE POLICY FRAMEWORK  vii 
 (3) T RADE POLICY DEVELOPMENTS  vii 
 (4) S ECTORAL DEVELOPMENTS  viii 
I. ECONOMIC ENVIRONMENT 1 
 (1) I NTRODUCTION  1 
 (2) R ECENT ECONOMIC DEVELOPMENTS  3 
 (3) M ACROECONOMIC POLICIES AND DEVELOPMENTS  5 
 (i) Fiscal policy 5 
 (ii) Monetary and exchange rate policies 6 
 (4) K EY STRUCTURAL POLICY CHALLENGES  6 
 (i) Privatization and SOEs 6 
 (ii) Environment 7 
 (5) B ALANCE OF PAYMENTS  7 
 (6) D EVELOPMENTS IN TRADE  8 
 (i) Composition of trade 8  (ii) Direction of trade 11 
 (7) F
OREIGN DIRECT INVESTMENT  11 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 12 
 (1) I NTRODUCTION  12 
 (2) G ENERAL CONSTITUTIONAL AND LEGAL FRAMEWORK  12 
 (3) T RADE POLICY FORMULATION , IMPLEMENTATION AND EVALUATION  13 
 (4) T RADE POLICY OBJECTIVES  14 
 (5) T RADE AGREEMENTS AND ARRANGEMENTS  15 
 (i) Multilateral agreements 15  (ii) Regional agreements 15 
 (iii) Bilateral agreements 15 
 (iv) Generalized System of Preferences (GSP) 15 
 (6) F
OREIGN INVESTMENT REGIME  16 
III. TRADE POLICIES AND PRACTICES BY MEASURE  18 
 (1) O VERVIEW  18 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  19 
 (i) Registration, documenta tion, and customs clearance 19 
 (ii) Tariffs 20 
 (iii) Other duties and taxes 25 
 (iv) Import prohibitions, restrictions, and licensing 25  (v) Anti-dumping, countervailing, and safeguard measures 27 
 (vi) State trading 27 WT/TPR/S/221 Trade Policy Review 
Page iv 
 
 
  Page 
 (3) M EASURES DIRECTLY AFFECTING EXPORTS  27 
 (i) Registration and documentation 27 
 (ii) Export taxes, charges, and levies 28  (iii) Export prohibitions, controls, and licensing 28 
 (iv) Export assistance 28 
 (v) Export-processing zones 28  (vi) State trading 28 
 (4) I
NTERNAL MEASURES  28 
 (i) Internal taxes 28  (ii) Competition policy 29 
 (iii) Government procurement 29 
 (iv) Local-content requirements 29  (v) State-owned enterprises 29 
 (vi) Price controls and monitoring 31 
 (vii) Intellectual property rights 31  (viii) Standards and other technical requirements 32 
IV. TRADE POLICIES BY SECTOR 33 
 (1) I
NTRODUCTION  33 
 (2) F ISHERIES AND AGRICULTURE  33 
 (i) Fisheries 33  (ii) Agriculture 35 
(3) M
ANUFACTURING  36 
 (4) E NERGY   36 
 (5) S ERVICES  37 
 (i) Tourism 37 
 (ii) Financial sector 40  (iii) Telecommunications 41 
 (iv) Transport 42 
V. INTEGRATED FRAMEWORK, AID FOR TRADE, AND TRADE-RELATED 
TECHNICAL ASSISTANCE 45 
 (1) O
VERVIEW  45 
 (2) T RADE -RELATED TECHNICAL ASSISTANCE  45 
 (i) Technical assistance provi ded since the last Review 45 
 (ii) Graduation from LDC status 46 
 (iii) Trade-related technical assistance needs 47 
 (3) I NTEGRATED FRAMEWORK AND AID FOR TRADE  48 
 (i) Integrated Framework 48 
 (ii) Aid for Trade 49 
 (4) M AINSTREAMING TRADE INTO THE NATIONAL DEVELOPMENT FRAMEWORK  49 
 (i) Mainstreaming at the policy level 49  (ii) Mainstreaming at the institutional level 50 
 (iii) Mainstreaming at the government-donor partnership level 50 
 REFERENCES   53 Maldives WT/TPR/S/221 
 Page v 
 
 
CHARTS 
  Page 
I. ECONOMIC ENVIRONMENT 
 I.1 Product composition of merchandise trade, 2003 and 2008 9 
I.2 Direction of merchandise trade, 2003 and 2008 10 
 III. TRADE POLICIES AND PRACTICES BY MEASURE  
 
III.1 Average applied MFN rates, by HS section, 2002 and 2008 21 III.2 Distribution of MFN tariff rates, 2008 22 
 
 
TABLES 
 
I. ECONOMIC ENVIRONMENT  
I.1 Selected macroeconomi c indicators, 2003-09 2 
I.2 Basic economic and soci al indicators, 2003-09 4 
I.3 Balance of payments, 2003-09 8 
 II. TRADE POLICY REGIME:  FRAMEWORK AND OJECTIVES 
 
II.1 Main trade-related legislation, 2009 14  
III. TRADE POLICIES AND PRACTICES BY MEASURE  
 III.1 Tariff structure, 2002 and 2008 21 
III.2 MFN tariff escalation by ISIC 2-digit heading, 2008 24 
III.3 Public enterprises of the Republic of Maldives 30  
IV. TRADE POLICIES BY SECTOR 
 IV.1 Fishing indicators, 2002-09 34 
IV.2 Tourism indicators, 2002-09 38 
  Maldives WT/TPR/S/221 
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SUMMARY OBSERVATIONS 
 
(1) ECONOMIC ENVIRONMENT  
1. The Maldives is a physically and 
economically small, vulnerable developing 
country, heavily dependant for its prosperity on international trade, which accounted for over 150% of GDP in 2009, notwithstanding high import tariffs, its main source of tax 
revenue.  Despite the adverse effects of the 
tsunami in 2004, real GDP growth averaged 7.4% between 2003 and 2008;  however, it is expected to contract by 1.3% in 2009.  During the period under review, growth was driven mainly by a resurgence in tourism, whose 
services are the Maldives' main export, and to 
a lesser extent construction.  Consequently, GDP per capita rose from US$2,429 in 2003 to US$4,072 in 2008 and is expected to be US$4,214 in 2009.  In contrast, in 2009 the 
decline in tourism arrivals and fish catch 
resulted in a decline in GDP.  Despite strong growth, unemployment increased considerably to over 14% in 2006 and remains high, while inflation (as measured by the consumer price index) rose to nearly 12% in February 2009. 
2. To be able to sustain growth, the 
Maldives needs to diversify the economy, especially in light of its expected graduation from least developed country status in 2011.  Diversification would require significant 
private-sector involvement, for which a 
conducive business environment needs to be created.  The other serious constraint on growth is the large fiscal deficit and the consequent level of public debt.  The tax 
system needs to generate sufficient revenues 
(in as neutral a fashion as possible) to finance the Maldives' developmental needs (education, health, environment, etc.).  Thus, a broadened tax base and a shift away from the heavy reliance on border taxes (especially tariffs), 
and, to a lesser extent, land leases is needed.  
This would require, inter alia,  the introduction 
of a broad-based tax on consumption and the expedited implementation of the business profits tax.   3. Other challenges that the Maldives 
faces include:  the significant increase in the current account deficit, which reflects the rising fiscal deficit;  the erosion of preferences 
on exports to the EC owing to expected 
graduation to developing country status in 2011;  and reducing state involvement in most sectors of the economy, which appears to have crowded out the private sector.  In the longer 
term, global warming and the consequent rise 
in sea levels also threat en the Maldives.  The 
Government has set itself an environmental target of achieving carbon neutrality by 2019. 
(2) T
RADE POLICY FRAMEWORK  
4. The Maldives has undergone 
considerable political, constitutional, and 
judicial change during the period under review.  However, there seems to have been little change in the legal framework for trade and investment, which until recently was 
formulated and coordinated in an ad hoc  
manner, with very little coordination between ministries or with the private sector.  The setting up of the Trade Policy Coordinating Committee in 2009 should make trade policy formulation more coordinated and inclusive in 
the future. 
5. As a Member of the WTO, the 
Maldives accords MFN treatment to all Members.  As an LDC, the Maldives benefits from quota-free and duty-free access to the EC 
and Japan, two of the main destinations for its 
exports of fish and fish products;  however, these preferences will cea se once the Maldives 
graduates from LDC to developing country status.  The Maldives is a party to the South 
Asian Free Trade Agreement and is 
negotiating bilateral free-trade agreements with Sri Lanka and Qatar.  The foreign investment regime is seemingly liberal, with 100% foreign ownershi p permitted in all 
sectors (although there is a positive list in 
operation). 
(3) T
RADE POLICY DEVELOPMENTS  
6. The tariff continues to be the 
Maldives' principal source of tax revenue, WT/TPR/S/221 Trade Policy Review 
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accounting for approximately two thirds of tax 
receipts, as well as its main trade policy instrument.  During the period under review, the average applied MFN rate (21.4% in 2008) 
changed marginally due to a change in 
nomenclature rather than to a change in rates.  Considering it is principally a source of tax revenue, the tariff remains unduly complex (and therefore opaque), involving 11 different 
rates (10 ad valorem  and 1 specific), and many 
exemptions.  Although a large number of exemptions were eliminated in 2006, they continue to be prevalent.  As a result of exemptions and other concessions, approximately a quarter of the tariff revenue 
was forgone in 2006.  While  nearly all 
(96.3%) tariff lines are bound, the average 15.7 percentage point gap between bound and applied MFN rates imparts a large degree of unpredictability to the tariff, thereby providing 
the authorities with considerable scope to raise 
applied rates within bindings (although this has not been done during the review period).  Furthermore, applied tariff rates on 218 tariff lines exceed bound rates.   
7. The level and structure of the tariff is 
such that it is a major potential distortion to 
the allocation of resources and thus domestic efficiency, and therefore an impediment to the competitiveness of the economy.  Hence, lower and more uniform tariffs would 
contribute to a more efficient allocation of 
domestic resources.  Insofar as tariffs are levied on inputs used in the production of exports, they also constitute a tax on exports.  However, to the extent that alternative internal 
taxes are not viable, the scope for substantial 
tariff cuts may be limited by the tariff's importance as a source of tax revenue. 
8. A small number of items (alcoholic 
beverages, pork, used cars and motorcycles, and arms and ammunition) are prohibited or 
restricted for religious, environmental, safety, 
and security reasons.  The Maldives does not have anti-dumping, countervailing duties or subsidies legislation and has not used any contingency measures.   9. During the period under review, there 
has been no change to the export regime, which remains relatively open, although exports of certain marine species are 
prohibited, exports of timber are controlled, 
and ambergris exports are taxed.   
10. The State-Trading Organization (STO) 
engages in trading activities to, inter alia,  
ensure domestic supplies.  The STO imports, 
inter alia,  around 70% of staple foods (rice, 
sugar, and wheat flour), which are subject to price-control measures.  The government procurement regime has become seemingly more transparent.  Furthermore, the Government has recently embarked on a 
privatization project, which will initially 
involve making state-owned enterprises that are earmarked for privatization more efficient. 
11. Presently, the Maldives has no 
intellectual property legislation;  however, 
laws on copyright, trade marks, patents and 
geographical indications are either being drafted, or have been drafted and are awaiting enactment by Parliament.   
(4) S
ECTORAL DEVELOPMENTS  
12. The Maldives economy is heavily 
dependant on fisheries and on tourism 
services.  Fisheries account for nearly all merchandise exports, and the state-owned Maldives Industrial Fisheries Company (MIFCO) dominates the sector.  Fishing and 
fish processing activities are characterized by 
very little product diversification and low value-added products.  Export receipts would be significantly greater if higher value-added processes, such as canning, were to be 
encouraged.  The agriculture sector is limited 
to 30 square miles of arable land, which is used to grow fruit and vegetables for personal consumption.  Notwithstanding tariff and other concessions on imported inputs, the manufacturing sector remains weak.  
13. The state-owned electricity company 
(STELCO) dominates the electricity sector.  Despite rising global oil prices, electricity prices have not changed in the Maldives since Maldives WT/TPR/S/221 
 Page ix 
 
 
2002 so they are well below market prices.  As 
a result, STELCO is subsidized by the Government, thereby making the company a significant drain on the Government's 
resources.  However, the Government has 
recently embarked on a plan to make STELCO more efficient and thus more attractive for privatization. 
14. Tourism and related activities, such as 
transport and communications, dominate  services, contributing to as much as 70% of 
GDP.  There is very little direct state involvement in tourism, where it appears that productivity is much higher than in other 
sectors of the economy.  By contrast, state 
involvement in telecommunications, financial services, and transport is considerable, although the Government continues to liberalize these sectors in order to make them 
more competitive.