RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/TPR/G/215 
1 April 2009  
 
(09-1553) 
Trade Policy Review Body Original: English 
   
 
  
 
TRADE POLICY REVIEW 
 
Report by 
 
SOLOMON ISLANDS 
 
  
 
Pursuant to the Agreement Establishi ng the Trade Policy Review Mechanism 
(Annex 3 of the Marrakesh Agreement Establishing the World Trade 
Organization), the policy statement by Solomon Islands is attached. 
 
 
Note: This report is subject to restricted circ ulation and press embargo until the end of the first 
session of the meeting of the Trade Polic y Review Body on Solomon Islands. Solomon Islands WT/TPR/G/215 
 Page 3 
 
 
CONTENTS 
 
    P a g e  
1. ECONOMIC ENVIRONMENT 5 
 1.1 E CONOMIC OVERVIEW  5 
 1.2 F ISCAL POLICY  5 
 1.3 M ONETARY POLICY  5 
 1.4 N ATIONAL DEBT 5 
 1.5 I NFLATION  6 
 1.6 T RADE AND FOREIGN DIRECT INVESTMENT  6 
 1.7 S ECTORAL PERFORMANCE  6 
 1.8 E CONOMIC CHALLENGES  6 
 1.9 C ONSTITUTIONAL REFORM  7 
 
2. TRADE  AND  TRADE-RELATED  POLICIES 7 
 2.1 R EGIONAL TRADE AGREEMENTS  7 
 2.2 MFN  TARIFF POLICY  8 
 2.3 I NTEGRATED FRAMEWORK  9 
 2.4 I NTELLECTUAL PROPERTY  9 
 2.5 A VIATION AND TELECOMMUNICATIONS  9 
 
3. TRADE  RELATIONSHIPS 10 
 3.1 G ENERALISED SYSTEM OF PREFERENCES  10 
 3.2 E CONOMIC PARTNERSHIP AGREEMENT  10 
 3.3 M ELANESIAN SPEARHEAD GROUP  10 
 3.4 P ACIFIC ISLAND COUNTRIES TRADE AGREEMENT  10 
 3.5 P ACIFIC AGREEMENT ON CLOSER ECONOMIC RELATIONS  11 
 4. MULTILATERAL
 TRADE  RELATIONS 11 
 4.1 S MALL , VULNERABLE ECONOMIES WORK PROGRAMME  11 
 4.2 A ID FOR TRADE  11 
 4.3 NAMA  AND PREFERENCE EROSION  12 
  
 
   Solomon Islands WT/TPR/G/215 
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 1. ECONOMIC ENVIRONMENT 
1.1 E CONOMIC OVERVIEW  
1. Economic performance since the last TPR in 1998 has been volatile, with real growth ranging 
from negative 14 per cent to positive 10 per cent.   Although economic performance has recently 
improved, Solomon Islands still remains reliant on a narrow commodity base and is vulnerable to 
world conditions.  Internal ‘tensions’ in 2000 las ting until 2003 destabilised governance and severely 
disrupted economic performance, reducing growth a nd destroying investors’ confidence.  Although 
growth has since been robust, reaching 10 per cent in real terms in 2007, GDP per capita has only 
recently reached the pre-tensions level.  Growth  remains heavily dependent on the logging industry 
which is expected to decline sharply in the next  two years due to the limited remaining sources of 
supply. 
2. In 2008, GDP growth in real terms was 5 per cent, slightly down on the average 7 per cent of 
the last 5 years.  Given the predicted deple tion of logging resources and the depressed global 
economic climate, real economic growth is lik ely to fall further in the immediate future. 
1.2 F ISCAL POLICY  
3. Fiscal performance has varied throughout the last ten years with severe problems caused by 
the tensions, particularly the rapid build-up of publ ic debt.  Post-tensions government revenues have 
improved as a result of economic growth, tax reform, donor assistance and increased tax compliance. At the same time, government expenditure has also increased rapidly.  Finances were stabilised in 
2006, since when there have been successive fully-funded budgets.  Ho wever, the near future presents 
serious challenges for the Government’s fiscal position as the anticipated decline in the logging 
industry will damage government revenues and this may be exacerbated by the deterioration in the 
global economic climate. It is expected that govern ment revenue will fall in the future, potentially 
requiring a retrenchment on the part of the Government. 
1.3 M
ONETARY POLICY  
4. The Solomon Islands Dollar has consistently tr acked a basket of currencies dominated by the 
US Dollar in the last ten years.  Excess liquidity rose considerably between  1999 and 2006, although 
it has now fallen significantly as a result of Centra l Bank actions.  Domestic  credit rebounded strongly 
post-tensions, overtaking pre-tensi on levels.  This has been driven  largely by increases in private 
sector credit. 
5. Reserves have gradually decreased in recent years.  This is a result of revaluation effects and 
the high costs of fuel and food.  During 2008, reserves fell below the benchmark of three months’ 
worth of goods and non-factor services. 
1.4 N ATIONAL DEBT 
6. Both official public debt and public sector a rrears increased greatly from 2000, and by 2002, 
100 per cent of government loans were in default.   However, the signing of the Honiara debt 
agreement in 2005 signalled a government commitm ent to no new borrowing and sustainable debt 
management.  By 2008, nearly all debt had been regularised and the ratio of public debt to GDP – 
although still high, at 43 per cent – has decreased significantly in the last few years. WT/TPR/G/215 Trade Policy Review 
Page 6 
 
 
 1.5 I NFLATION  
7. The inflation rate over the last ten years has been volatile, although more recently it had been 
relatively stable until the last two years.  After a moderate rate of 4 per cent in 2004, inflation rose 
sharply to 23 per cent in 2008, heavily influenced by  rising global commodity prices, particularly in 
oil and rice.  
1.6 T RADE AND FOREIGN DIRECT INVESTMENT  
8. The trade balance was adversely hit during the tens ions, partly as a result of the destruction of 
the mining industry, which is yet to be restart produc tion.  Other industries such as palm oil have now 
resumed production.  The overall trade balance has d eclined substantially in the last five years 
recording a SBD 750m deficit in 2008.  This has largely been the result of high fuel (on which 
Solomon Islands is heavily dependent for its ener gy needs) and food prices.  The trade balance is 
expected to worsen as logging exports decrease.  Da ta is limited, but indications suggest that FDI, 
whilst remaining low, has showed a gradual rise since the end of the tensions. A new Foreign 
Investment Act, which came into force in 200 5, has facilitated investment from overseas and 
tightened regulation.   
1.7 S ECTORAL PERFORMANCE  
9. Logging dominates Solomon Islands’ economy.  Following a decline after the Asian crisis 
and disruption caused by the internal tensions, l ogging has rebounded strongly during the last five 
years.  It currently accounts for 20 per cent of the economy, contributes 12 per cent of government revenue, two thirds of export receipts and approxim ately 7,000 full-time jobs out of a total formal 
sector of only 44,350 nationwide (over 15 per cent).  Ho wever, logging is predicted to decline rapidly 
over the next two years, necessitating a significant st ructural adjustment.  Unemployment is already 
rising due to demographic trends a nd rural-urban migration, but the additional effect of the logging 
decline is likely to extend beyond those directly employed in the industry once indirect effects are 
taken into consideration. 
10. Production in other commodities has improved signi ficantly in the aftermath of the tensions 
despite remaining small relative to the logging industry: recent years have seen increases in 
production of copra, palm oil and fish. 
1.8 E
CONOMIC CHALLENGES  
11. There are a number of significant challenges facing Solomon Islands’ economy.  Logging is 
expected to decline rapidly from 2009 leading to major revenue, balance of payments and 
unemployment problems.  Solomon Islands lags behi nd other pacific countries in terms of metrics 
such as ease of doing business and investment climate, due in particular to high utility costs, poor communication services and underdeveloped financial services, all of which are particularly severe beyond the main urban centres.  A lack of capacity  in governance, ongoing security concerns and 
acute vulnerability to world commodity prices have further undermined economic performance. 
12. The current reform programme is aimed at addressing many of these problems.  Obstacles to 
long-run growth in non-logging sectors are being inde ntified and removed.  Sectors that have been 
identified as having a strong potential for growth include mining (the country’s only established gold 
mine shall reopen shortly), tourism, agriculture and fisheries.  Government expenditure is increasingly 
aimed at improving the long-run productive capacity  of the economy, whilst avoiding inflationary 
expenditure by focusing on infrastructure, health and education. Solomon Islands WT/TPR/G/215 
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 13. A number of business reforms were enacted in 2008, with a view to increasing the ease of 
doing business and attracting further foreign invest ment.  Underperforming state-owned enterprises 
are being reformed and a monitoring unit has been established.  The tax regime is currently being 
changed to create a broader tax base and ensure a fairer return from resources.  Further new customs 
and tax measures will bolster revenues through increased compliance. 
1.9 C ONSTITUTIONAL REFORM  
14. The Government’s constitutional reform program me aims to address the dislocation between 
the formal political system (derived from the West minster system) and prevailing systems of power 
and authority, both traditional and emerging.  Pa rliamentary democracy in Solomon Islands has 
suffered superficially from the lack of a history of strong political parties and adversarial opposition, 
but more fundamentally from the disconnect be tween the values associated with representative 
democracy (placing emphasis on the individual, the rule of law in a cohesive, homogeneous society) which contrast starkly with prevailing Solomon Islands values of representative democracy (involving 
participatory, consensual decision-making, and a stronger conception of collective rights, pluralism 
and restorative justice). 
15. The programme seeks to redress this balance by creating a federalised system of governance, 
which will devolve greater planning and decision-ma king to the provincial and community levels.  
This may require the development of a system of fiscal federalism to address the disproportionately 
centralised control of government expenditure. 
2. TRADE AND TRADE-RELATED POLICIES 
2.1 R
EGIONAL TRADE AGREEMENTS  
16. Solomon Islands is actively participating in  and negotiating a variety of regional trade 
agreements, discussed below.  There are two main  reasons that the Government expends greater 
administrative effort in the pursuit of regiona l agreements than in multilateral negotiations. 
2.1.1 Regional-First Liberalisation 
17. Multilateral negotiations have already extended highly preferential market access to Solomon 
Islands as a least developed country, through ma ny developed Members’ GSP schemes.  Indeed, 
Solomon Islands’ current level of tariff preferences is  probably as high as it ever has been or ever will 
be.  Nevertheless, the economy has failed to capitalise on this opportunity, for a wide variety of reasons: inability to meet technical standards, SPS requirements, the difficulty of overcoming the 
prohibitive costs and delays associated with dist ance, and a shear inability to supply a quantity of 
product which foreign customers consider viable .  One means of addressing this multiplicity of 
constraints that Solomon Islands is pursuing alongs ide other Pacific economies is to concentrate on 
and promote the regional market, in which technical  standards are more realistically attainable, 
distances may be shorter and customer size is smalle r.  It also provides an opportunity to experience 
and understand the challenges and co nsequences of ambitious liberalisa tion in a forum that is more 
forgiving of the administrative constraints of tho se undertaking the technical work before approaching 
similar tasks in a multilateral forum. WT/TPR/G/215 Trade Policy Review 
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 2.1.2 Offensive Interests and Labour Mobility 
18. The second major reason to pursue regional agreem ents is the opportunity to discuss subjects 
of enormous offensive interest to countries like Solomon Islands which are ignored in multilateral 
forums, such as rules governing the use of traditiona l knowledge.  By far the most important of these 
to Solomon Islands is the temporary movement of natural persons.  In the Solomon Islands context, 
such ‘temporary movement’ refers to unskilled an d semi-skilled workers (such as caregivers and 
tradesmen), overseas for a sufficient period to make the placement economically viable (which may be as little as six months within the Pacific region, rising to two years or more for distant markets with much higher transport costs). 
19. Solomon Islands has been participating in the Recognised Seasonal Employer scheme under 
which unskilled labourers can work in New Zeal and for up to seven months each year, and 
Government has an active work programme to im prove the scheme’s facilitation and regulation.  
Although the numbers of workers are small by inte rnational standards (238 up to June 2008, although 
indications are strong that Solomon Islands’ par ticipation programme will expand rapidly in 2009), 
the gains even from a single participant can direc tly lift multiple dependents out of poverty in rural 
areas virtually untouched by the formal economy , for whom alternative economic opportunities are 
slow to materialise.  The Government is seeking th e funding to establish a regional pilot for a further 
scheme to train caregivers in the Pacific and place th em in fixed-term employment abroad.  Solomon 
Islands has an overwhelming comparative advantage in the provision of inexpensive, low-skill labour 
relative to many neighbouring and distant economies, so it is perfectly natural that it should seek to 
incorporate this comparative advantage in th e negotiation of trade agreements, just as it 
accommodates the comparative advantage of more a dvanced economies in the negotiation of subjects 
such as trade in goods and services.  It provides a me ans for Solomon Islands to overcome some of its 
most intractable constraints of distance from and co st of transport to major markets, whilst providing 
additional benefits such as the spill-over effects of technology transfer, the broad up-skilling that very 
low-skill workers immersed in a foreign economy expe rience, and the socially beneficial opportunity 
to use accumulated earnings to invest directly in  the chronically credit-constrained rural economy. 
2.2 MFN
 TARIFF POLICY  
20. A comprehensive review and rationalisation of Solomon Islands’ current MFN tariff policy is 
planned as an early component of the Integrated Framework project.  The following summarises the 
rationale for the current structure. 
2.2.1 Import Duty 
21. A broad reform of the MFN import duties was implemented in 2007, harmonising tax rates, 
reducing statutory exemptions and reducing average ta riffs, with most goods now taxed at 10 per cent, 
very much below Solomon Islands’ WTO bound rates.   Whilst the Government sees a liberal tariff 
policy as a desirable driver of growth, it recognises the enormous fiscal challenges ahead: the narrow 
tax base due to the limited extent of the formal se ctor, the rapid decline of logging, the volatility of 
foreign aid flows and the vulnerability of fiscal re venue to commodity price shocks.  Future policy-
making challenges are likely to require great flex ibility to defend the fragile fiscal position. 
2.2.2 Export Taxation 
22. Even if the dominant role of logging is di sregarded, the domestic economy is highly 
dependent on the export of a small number of  unprocessed commodities.  The small manufacturing 
base is constrained not only by high local costs of  doing business, but by high international transport Solomon Islands WT/TPR/G/215 
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 costs which impact the cost both of shipping final products and of raw materials, considering the 
limited scope for sourcing inputs from the tiny and undiversified local economy. 
23. Whilst the Government recognises the limited sc ope for using an activist trade policy to 
promote industrial activity under such circumstance s, it recognises that Solomon Islands lags other 
comparator economies in the extent to which it proc esses its agricultural and fisheries exports.  Such 
processing typically reduces the ultimate proportional cost of transportation to a final market by increasing the ratio of value to volume, providing  a means to mitigate the country’s inherent 
geographical challenges.  Considering the financia l and administrative limitations on Government, at 
current levels of economic developm ent, export taxes are considered to  be an important component of 
a broader effort to establish processing operations that can generate greater economic returns, 
particularly in rural areas, which suffer the most acute burden of poverty. 
2.3 I
NTEGRATED FRAMEWORK  
24. The Integrated Framework represents the first attempt to perform a comprehensive baseline 
analysis and needs assessment of trade policy and trade-related technical assistance in Solomon 
Islands.  As such, the Diagnostic Trade Integration Study (DTIS) is an important milestone in the 
slow process of developing a c oherent national approach to the interlinked activities of policy 
consultation and formation, the de velopment of domestic legislati on, demand-driven trade-related 
technical assistance, the prioritisation of offensive a nd defensive interests in international agreements, 
and the mainstreaming of trade issues into broader government planning processes. 
25. The main mission was completed in 2008, and final publication of the DTIS is expected in 
early 2009.  With the support of a national capacity building programme under the Enhanced 
Integrated Framework, the first new projects unde r the work programme recommended by the DTIS 
will begin this year. 
2.4 I NTELLECTUAL PROPERTY  
26. As a least developed country far from the tec hnological frontier which has minimal capacity 
to conduct original research and development activ ities, Solomon Islands’ interests in intellectual 
property rights are to ensure support for its broade r policy priorities of poverty reduction and rural 
development.  At the multilateral level, these are be st served by taking full advantage of all exceptions 
and flexibilities which improve ordinary peopl e’s access to cheap medicines and educational 
materials, and maximising the private sector’s ab ility to transfer and adapt technology from abroad.  
At the regional level, this involves active suppor t for programmes to recognise and protect traditional 
knowledge, to restore the balance of intellectual pr operty law in favour of indigenous intellectual 
assets for the benefit of rural communities. 
2.5 A VIATION AND TELECOMMUNICATIONS  
27. Reducing costs in service sectors such as telecommunications and aviation are important 
policy priorities of Government.  The Government recognises the importance of liberalisation within 
the context of a broad policy which also addr esses the concomitant need for adequate public 
investment in infrastructure, appropriate government  regulation, and the social necessity of extending 
the provision of these services beyond the limits of commercial viability.  Solomon Islands’ 
geography is amongst the most adverse even in th e Pacific, with a low population density widely 
dispersed over extreme distances, making the provision of transport links and even cellular telecommunication services extremely expensive.  Gi ven the negligible purchasing power of most of 
these communities, profitable service provision is not possible, and yet without such links to the WT/TPR/G/215 Trade Policy Review 
Page 10 
 
 
 national economy, prospects for economic devel opment are non-existent.  The management and 
sequencing of such a complex work programme presen t very real challenges in policy formation that 
go far beyond the opening of previously closed sectors to new entrants.  Nevertheless, the 
Government recognises the importance that low-cost  access to these services h as for the growth of 
tourism, the provision of financial services beyond Honiara, and of small-scale rural enterprise more 
generally. 
28. Two further international carriers were welcom ed to the principal international air route 
between Honiara and Brisbane during 2008.  The G overnment is currently negotiating a premature 
end to the monopoly license granted to the single incumbent telecom provider, with a view to creating 
a competitive environment, which is expected to reduce prices significantly. 
3. TRADE RELATIONSHIPS 
3.1 G ENERALISED SYSTEM OF PREFERENCES  
29. As a least developed country, Solomon Islands  benefits from tariff preferences under many 
developed countries’ Generalised System of Pref erences schemes, including the European Union, 
Australia and New Zealand. 
3.2 E CONOMIC PARTNERSHIP AGREEMENT  
30. As part of the Pacific ACP group of countries, Solomon Islands has been participating in the 
negotiation of an Economic Part nership Agreement (EPA) with the European Commission since 
2002, in anticipation of the expiry of the waiver  permitting Cotonou trading preferences to continue 
until the end of 2007.  Unfortunately, no agreement could be reached prior to the waiver expiry, and 
so trade between Solomon Islands and the EU has been governed by the part of the latter’s GSP 
scheme offered to LDCs, called ‘Everything but Arms ’, since the beginning of 2008.  Negotiation of a 
comprehensive EPA is ongoing.  
3.3 M ELANESIAN SPEARHEAD GROUP  
31. The Melanesian Spearhead Group (MSG) links Solomon Islands with its closest political, 
social and cultural neighbours in Melanesia: Pa pua New Guinea, Vanuatu, Fiji and a non-state group 
in New Caledonia.  Given these ties, it was natural that the MSG would be the first regional platform 
on which a reciprocal trade agreement could be built.  First signed in 1993, the agreement has 
gradually expanded coverage over the last 25 years a nd a newly revised text was ratified last year to 
coincide with the launching of a new Secretariat.   Consultations concerning possible cooperation in 
various services areas have been ongoing for the past few years. 
3.4 P ACIFIC ISLAND COUNTRIES TRADE AGREEMENT  
32. The Pacific Island Countries Trade Agreement (P ICTA) entered into force in 2003, as a trade 
in goods agreement between the fourteen island members of the Pacific Islands Forum, although 
Solomon Islands did not begin trading under PICTA until late 2007.  The agreement plans for the elimination of almost all tariffs between parties by 2021.  An accelerated programme of negotiations 
on the inclusion of both trade in services and labour  mobility began in early 2008 and is scheduled to 
complete this year.  The very small size of the entire Pacific labour market makes progress on labour mobility particularly urgent, for the development a nd retention of more specialist skills and to smooth 
the over- and under-supply of skilled and unskilled labour across small economies in the same way 
that intranational labour migration would in a more typically sized economy. Solomon Islands WT/TPR/G/215 
 Page 11 
 
 
 3.5 P ACIFIC AGREEMENT ON CLOSER ECONOMIC RELATIONS  
33. Solomon Islands signed the Pacific Agreemen t on Closer Economic Relations (PACER), a 
framework agreement for economic cooperation between  fourteen Pacific island countries, Australia, 
and New Zealand, in 2001.  The agreement fores ees countries beginning negotiation of a free-trade 
agreement not later than 2011.  Parties have begun to consult on the subject at an informal level.  The 
inclusion of provisions on labour mobility is an impor tant reason that Solomon Islands is motivated to 
consider a free-trade agreement with Australia and New Zealand as soon as the constraints of 
adequate domestic democra tic consultation and administrative capacity allow. 
4. MULTILATERAL TRADE RELATIONS 
34. Solomon Islands is represented at the WTO th rough the Geneva office of the Pacific Islands 
Forum Secretariat (PIFS), and by our Ambassador to the European Union,  based in Brussels.  
4.1 S MALL , VULNERABLE ECONOMIES WORK PROGRAMME  
35. Solomon Islands, though the PIFS Geneva office,  has been actively involved in the work 
programme on SVEs, alongside 21 other countries mo stly from the Pacific, Caribbean and Central 
America.  The programme seeks to implement the mandate of the November 2001 Declaration of the 
Fourth Ministerial Conference in Doha, which states 
We agree to a work programme, under th e auspices of the General Council, to 
examine issues relating to the trade of small economies.  The objective of this work is 
to frame responses to the trade-related issu es identified for the fuller integration of 
small, vulnerable economies into the multilateral trading system[.]1 
36. The work programme has designed forms of special and different ial treatment appropriate for 
countries that are typically isolated, dispersed, dist ant from major markets, wi th small, fragmented, 
imperfect domestic markets, undiversified e xports to few markets, open economies, low 
competitiveness, inadequate infrastructure, poor productivity and high transport costs. 
4.2 A ID FOR TRADE  
37. Solomon Islands recognises that it still has a great de al of reform and investment left to do in 
order to enable its economy to meet its full potentia l.  The array of specific, prioritised project 
proposals generated through the recent Diagnos tic Trade Integration Study process under the 
Integrated Framework programme have illustrate d just how much remains to be done, and how 
dependent Solomon Islands will be on the support of donor partners if these fundamental needs are to 
be adequately addressed.  The Integrated Framework, and especially the programme of capacity expansion supported by the Enhanced IF budget, h as already substantially increased the country’s 
capacity to absorb and effectivel y use aid for trade investments. 
38. However, Solomon Islands has traditionally re lied on a narrow concentration of sources for 
its aid for trade, most notably the European Un ion under the European Development Funds (EDF).  
Whilst the Government is extremely grateful to the EU for its generous, long-term support, it 
recognises the benefits of attracting a broader variety of donor partners into providing support in this 
area, particularly given the as-yet uncertain futu re of the EDF beyond the expiry of the Cotonou 
Agreement in 2020. 
                                                     
 
1 WT/MIN(01)/DEC/1, 20th November 2001, paragraph 35. WT/TPR/G/215 Trade Policy Review 
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 4.3 NAMA  AND PREFERENCE EROSION  
39. As a least developed country Member, Solomon Is lands is already benef iting from generously 
improved market access into many developed and developing economies as a result of the Doha 
Development Round.  As a result, then, the conc lusion of Doha is likely on balance to impact 
Solomon Islands negatively by eliminating or great ly reducing significant tariff preferences.  Of 
particular concern to the national economy will be the loss of a valuable fisher ies preference into the 
EU market.  Whilst Solomon Islands believes in th e long-run benefits of progressive mutual tariff 
reduction, it nevertheless recognises that the costs of adjustment will be significant, and of particular 
concern in the context of a small, vulnerable, le ast developed economy with very limited flexibility to 
support and facilitate significant shifts in employment.   In this context, the aid for trade already 
received both through the Integrated Framework programme and from bilateral donors is both timely 
and necessary, but Solomon Islands recognises that it has a long way to go before it is able to offer its 
private sector the internationally competitive infrast ructure, services and transport links it needs to 
survive without historical tariff preferences. 
 
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