RESTRICTED  WORLD  TRADE  
ORGANIZATION  WT/TPR/S/239 
12 October 2010  
 
(10-5122) 
Trade Policy Review Body  
   
 
  
 
TRADE POLICY REVIEW 
 
Report by the Secretariat 
 
PAPUA NEW GUINEA 
 
  
 
This report, prepared for the second Trade Policy Review of Papua New Guinea, 
has been drawn up by the WTO Secretariat on its own responsibility.  The 
Secretariat has, as required by the Agreement establishing the Trade Policy 
Review Mechanism (Annex 3 of the Ma rrakesh Agreement Establishing the 
World Trade Organization), sought clarification from Papua New Guinea on its 
trade policies and practices. 
 
Any technical questions arising from this report may be addressed to 
Mr. Michael Daly (tel.:  022 739 5077). 
 
Document WT/TPR/G/239 contains the policy statement submitted by Papua 
New Guinea. 
 
 
 
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 Papua New Guinea. Papua New Guinea WT/TPR/S/239 
 Page iii 
 
 
CONTENTS 
 
  Page 
SUMMARY   vii 
I. ECONOMIC ENVIRONMENT 1 
 (1) I NTRODUCTION  1 
 (2) R ECENT ECONOMIC DEVELOPMENTS  2 
 (3) M ACROECONOMIC POLICIES AND DEVELOPMENTS  4 
 (i) Fiscal policy 4 
 (ii) Monetary and exchange rate policies 6 
 (4) K EY STRUCTURAL POLICY CHALLENGES  7 
 (i) "Dutch disease" 7 
 (ii) Reducing the costs of doing business, and infrastructure development 8  (iii) Public sector reforms 8 
 (5) B
ALANCE OF PAYMENTS  9 
 (6) D EBT  9 
 (7) D EVELOPMENTS IN TRADE  10 
 (i) Services 10 
 (ii) Merchandise 13 
 (8) F OREIGN DIRECT INVESTMENT  13 
 (9) O UTLOOK  14 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 16 
 (1) O VERVIEW  16 
 (2) G ENERAL CONSTITUTIONAL AND INSTITUTIONAL FRAMEWORK  16 
 (3) T RADE POLICY FORMULATION , IMPLEMENTATION , AND EVALUATION  17 
 (4) T RADE POLICY OBJECTIVES  20 
 (5) T RADE AGREEMENTS AND ARRANGEMENTS  20 
 (i) Multilateral 20 
 (ii) Preferential 22 
 (iii) Generalized System of Preferences (GSP) 29  (iv) Non-preferential 29 
 (6) F
OREIGN INVESTMENT REGIME  29 
 (i) Overview 29  (ii) Investment incentives 33 
 (iii) International agreements 34 
 (7) A
ID FOR TRADE  34 
III. TRADE POLICIES AND PRACTICES BY MEASURE 36 
 (1) I NTRODUCTION  36 
 (2) M EASURES DIRECTLY AFFECTING IMPORTS  37 
 (i) Registration, documentation, and customs procedures 37 
 (ii) Tariffs 39  (iii) Rules of origin 45 
   WT/TPR/S/239 Trade Policy Review 
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Page 
 (iv) Other taxes on imports 46 
 (v) Import prohibitions, restrictions, and licensing 46 
 (vi) Anti-dumping, countervailing, and safeguard measures 47 
 (3) M EASURES DIRECTLY AFFECTING EXPORTS  47 
 (i) Registration and documentation 47 
 (ii) Export taxes, charges, and levies 47  (iii) Export prohibitions, controls, and licensing 48 
 (iv) Export assistance 48 
 (v) Export processing zones 48  (vi) State trading 49 
 (vii) Duty drawback 49 
 (4) I
NTERNAL MEASURES  49 
 (i) Internal taxes, exemptions, and concessions 49 
 (ii) Government procurement 52 
 (iii) Standards and other technical requirements 53  (iv) Competition policy, law, and consumer protection 55 
 (v) Price controls and monitoring 57 
 (vi) State-owned enterprises and privatization 58 
 (vii) Agricultural marketing boards 59 
 (viii) Intellectual property rights 59 
IV. TRADE POLICIES BY SECTOR 61 
 (1) I
NTRODUCTION  61 
 (2) A GRICULTURE , FORESTRY , AND FISHERIES  62 
 (i) Agriculture 62 
 (ii) Forestry 70 
 (iii) Fisheries 71 
 (3) M INING   76 
 (4) M ANUFACTURING  78 
 (i) Food processing 81 
 (5) E NERGY   82 
 (i) Oil and gas 82 
 (ii) Electricity 84 
 (6) S ERVICES  85 
 (i) Telecommunications 85 
 (ii) Financial services 88  (iii) Tourism 90 
 (iv) Transport 90 
REFERENCES   95 
APPENDIX TABLES  99 
 Papua New Guinea WT/TPR/S/239 
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    Page 
CHARTS 
I. ECONOMIC ENVIRONMENT 
I.1 Product composition of merchandise trade, 2003 and 2009 11 
I.2 Direction of merchandise trade, 2003 and 2009 12 
III. TRADE POLICIES AND PRACTICES BY MEASURES 
III.1 Simple average applied MFN rates, by HS section, 1999 and 2008-10 43 
III.2 Distribution of MFN tariff rates, 2008-10 43 
III.3 Tariff escalation by 2-digit ISIC industry, 2008-10 45 
TABLES 
I. ECONOMIC ENVIRONMENT 
I.1 Selected macroeconomi c indicators, 2003-10 2 
I.2 Basic economic and soci al indicators, 2003-09 4 
I.3 Balance of payments, 2003-09 10 
I.4 Foreign direct investment, by sector, 2003-07 14 
I.5 Foreign direct investment, by country of origin, 2003-07 14 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
II.1 Main trade-related legislation, as at July 2010 19 
II.2 Latest notifications by WTO Agreement, 2000 to July 2010 22 
II.3 Cottage business activities list, as at March 2010 31 
II.4 IPA approvals, by type, 2000-08 32 
III. TRADE POLICIES AND PRACTICES BY MEASURES 
III.1 Tariff structure, selected years 41 
III.2 Products on which MFN applied tariffs exceed bound levels, July 2010 42 III.3 Products with MFN tariff of 40% 44 
III.4 Harmonization of PNG standards, 2009 54 
IV. TRADE POLICIES BY SECTOR IV.1 Production of major pr imary commodities, 2003-08 63 
IV.2 Main exports, 2001 and 2003-09 64 
IV.3 Allocation of fishing licences for purse seine operations 73 IV.4 Onshore fish processors 74 
IV.5 Effective rates of protection, selected products, selected years 79 
IV.6 Specific MFN tariff rates on alcoholic beverages and tobacco products, 2010 80  WT/TPR/S/239 Trade Policy Review 
Page vi 
 
 
  Page 
APPENDIX TABLES 
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 
AII.1 Overview of PNG free-tr ade agreements, March 2010 101 
III. TRADE POLICIES AND PRACTICES BY MEASURES 
AIII.1 Eligible goods under the export exemption scheme, 2010 102 
AIII.2 Infrastructure tax credit scheme, 2005-10 103 
IV. TRADE POLICIES BY SECTOR 
AIV.1 Effective rates of protection, selected manufactured products, 2007 104 
 Papua New Guinea WT/TPR/S/239 
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SUMMARY 
1. Papua New Guinea's resource-rich 
economy remains heavily reliant on subsistence agriculture.  Its average GDP per 
capita was just over US$1,000 in 2007.  PNG 
is heavily trade dependent (both on primary exports and manufactured imports, including inputs), and vulnerable to world commodity price movements.  Ranking 148
th on the 
UNDP's Human Development Index (a low-
ranked medium human development country), PNG has not met the Millennium Development Goals. 
2. PNG provides all trading partners at 
least MFN treatment.  It pursues an open trade 
regime through multilateralism, and 
preferential regional and bilateral approaches; the relative benefits of these discriminatory agreements may be questionable.  An interim EPA with the EU, operative from 2008, 
triggered preparatory on-going PACER-Plus 
negotiations with Australia and New Zealand.  PNG is concerned that the expected gains from improved access to the EU fish market under the EPA's global fish sourcing rules may be undermined by the EU's adoption of 
regulations on illegal, unreported, and 
unregulated (IUU) fishing.  PNG is also concerned that Australia and New Zealand will negotiate inadequate access to their semi-skilled and unskilled labour markets. 
3. Since 2000, PNG's relatively steady 
macroeconomic environment has helped sustain growth, but structural reforms have waned recently, particularly since 2006, and fiscal discipline eased.  The economy has 
become more outward looking, with fewer 
import restrictions, especially lower tariffs, and relatively few formal non-tariff barriers overall.  Notable exceptions include the 30-year import ban on petroleum products under the Agreement establishing the Napa 
Napa oil refinery.  In principle, PNG's trade 
policy has been aimed at the "domestication" of value added across sectors, especially fishing, to promote processing, import substitution, and to dive rsify the economy.   4. PNG adopted an Export Driven 
Economic Recovery and Growth strategy in 2002.  However, reform of outdated trade-related laws has generally been slow and 
piecemeal, handicapped by PNG's limited 
institutional, resource, and technical capacities.  Trade policy reforms have essentially paused since the Tariff Reduction Program (TRP), which started in 1999, ended 
on time in 2006.  Subsequent programmes 
have been deferred, the latest in 2010 until 2011, due to macroeconomic concerns, including the impacts of the global financial crisis and lower mineral tax revenues from falling commodity prices.  Support for further 
reforms has also been eroded by the 
Government's failure to implement fundamental reforms to reduce binding constraints to PNG's economic and private-sector development (e.g. building 
infrastructure, improving law and order, and 
reducing the high costs of doing business), which manufacturers saw as an essential quid 
pro quo  for supporting the TRP. 
5. A major economic challenge 
confronting PNG, with wide trade policy 
implications, is how to manage the "Dutch 
disease" effects of the kina's appreciation. This is probable from the substantial inward foreign investment in LNG and other projects from the expected mining boom, accentuating the 
economy's "dualistic" or "two speed" nature.  
It is likely to reduce the competitiveness of import-competing activities and traditional exports, thus requiring significant structural adjustment in non-mining sectors.  The 
Government believes it is best to avoid tariff 
increases or other protection, including export assistance.  Tariff reductions to lower and more uniform rates would enhance resource-use efficiency, alleviate their anti-export bias, and help offset the kina's appreciation by 
expanding imports.  Despite substantial 
reforms, tariffs still provide significant (and disparate) effective rates of protection, especially for food processing and other inefficient manufacturing. 
6. PNG's robust growth since 2000 
peaked at 7.2% in 2007 and remained at 4.5% WT/TPR/S/239 Trade Policy Review 
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 in 2009, despite the global recession.  Services 
have grown most, their nominal share of GDP rising from 35.2% in 2003 to 38.1% in 2009.  The share of mining (including oil and gas) 
rose from 18.3% in 2003 to 28.1% in 2008, but 
slumped to 20.9% in 2009.  Agriculture, forestry and fishing fell from 37.2% to 34.5% over the same period, while the share of manufacturing remained at some 6%.  
7. While economic growth, earlier 
reforms, and the massive LNG project hold promise, PNG faces many priorities: improving governance, reducing corruption, and kick-starting reforms, supported by significant improvements to lower the costs of 
doing business, e.g. promoting efficiency of 
utilities and building public infrastructure, all of which are sizable impediments to investment and private sector development. 
8. PNG's average (unweighted) applied 
MFN tariff fell from 20.5% in 1999 to 5.1% 
in 2006, where it has remained.  Applied MFN tariffs on agricultural items (WTO definition), averaging 12.5%, generally exceed non-agricultural goods, averaging 3.9% (33.2% and 18.5% before the TRP, respectively).  Some 
three quarters of tariff lines are duty free, with 
essentially three other bands of 15%, 25%, and 40%, phased down mainly from 25%, 35% and 50%, respectively.  The rate of 70% on sugar, which was not lowered to 40% as 
intended, will remain until 2011.  Tariffs are 
transparent; specific (non- ad valorem ) duties, 
which often conceal high  rates, apply to only 
1% of tariff lines.   
9. PNG's fully bound (unweighted) 
average tariff of 32.8%, which is well above 
the average applied MFN rate and widened by the unilateral TRP, allows plenty of scope to raise rates within commitments.  Thus, while rarely used, this leeway also contributes to the 
unpredictability of the tariff.  A few applied 
MFN tariffs appear to exceed bound rates. 
10. Customs has facilitated trade by 
modernizing processes and procedures, and improving transparency.  ASYCUDA has been upgraded.  Brokers can submit declarations 
electronically, but roll-out has been slow.  Some 10% of goods are inspected, and risk management is being de veloped slowly.  Slow 
clearance reflects mainly delays from 
inadequate quarantine and port services.  PNG, joined the World Customs Organization in 2002, and is acceding to the Revised Kyoto Convention. 
11. Customs applies the transaction value.  
PNG has no anti-dumping, countervailing or safeguards legislation.  It has no other discriminatory import duties or charges, no import quotas, and minimal import licensing.  PNG controls certain imports predominantly 
for national health, safety, security, and 
environmental reasons.  Exceptions are the import prohibitions on uncooked poultry and eggs, and licensing restrictions on cooked and processed poultry.  Quarantine and SPS 
restrictions, ostensibly based on risk 
assessments, appear strictest on fish, but also apply to fruit, vegetables, and meats. 
12. The export regime is relatively open.  
Export taxes, seemingly narrowed in coverage, apply mainly to crocodile hides, and to round 
logs (28.5% of the f.o.b. value and K 8 per 
cubic metre), although there is little domestic processing despite the significant implicit subsidy provided via lower log prices.  Certain tree exports are prohibited for environmental 
reasons.  Many primary products require 
export licences, and several statutory marketing boards have exclusive export rights.  PNG subsidizes manufactured exports via corporate income tax concessions, the cost-
effectiveness of which is questionable. 
13. Government procurement, while 
reformed, is an important instrument of industrial policy.  Contracts under K 1 million are reserved for local suppliers, who also receive a preferential margin of 7.5% on larger 
contracts up to K 10 million.  PNG has 
improved its system of setting standards and conformity assessments, and follows mainly international norms.  State-owned enterprises, including statutory monopolies, dominate Papua New Guinea WT/TPR/S/239 
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many key service industries e.g. power, 
telecommunications, aviation, water, sewerage, postal services, and ports.   
14. The largely unchanged and generally 
open FDI regime requires foreign investors to 
be certified and "screened".  Joint ventures are voluntary and full foreign equity is allowed (special sectoral rules apply, e.g. in petroleum and minerals, timber, and fisheries).  Generous 
non-transparent select ive investment 
incentives (e.g. tariff concessions) apply on a national treatment basis, subject to significant political discretion and Cabinet approval.  Ongoing land tenure reforms should release customary land (accounting for 97% of all 
land) for economic use.  Foreigners may only 
lease land (up to 99 years). 
15. The Independent Consumer and 
Competition Commission, formed in 2002, enforces competition policy, which includes 
regulating major state-owned service 
suppliers, as well as competition law and it administers price controls. The few remaining controls include monitoring of petrol, diesel, kerosene, and aviation fuel prices under the Government's import parity pricing agreement.  
PNG has significantly improved intellectual 
property protection, but enforcement is lacking.  Customs may ex officio  suspend 
clearance of suspected pirated imports for registered right owners (only three existed 
in 2008). Parallel imports are not banned.  
16. The Government views agriculture as 
a key sector in promoting export-driven growth, rural development, and poverty reduction.  Food security, interpreted as self-
sufficiency, is a priority.  Due to high tariffs, 
PNG is almost self-sufficient in sugar, pork, and chicken.  However, except for oil palm, agriculture has under-pe rformed because of 
low productivity, largely reflecting inadequate research and development, poor take-up of 
technological improvements, and lack of scale 
economies inherent in smallholder farming.  Other major constraints include inadequate transport facilities, unreliable and expensive utilities, prevalent crime and lawlessness, and 
insecurity of land tenure.  Major non-oil-palm crops are marketed by statutory boards, 
including, in the past, operation of price stabilization funds (coffee, cocoa, and coconuts).  These may have impeded 
agricultural development through inefficiency 
and over-regulation.   
17. Logging unsustainability remains a 
major problem, due largely to permits issued in contravention of the licence moratorium.  
Fisheries especially are being "domesticated" 
as licences are tied to on-shore processing; concerns persist over unsustainability in fishing. 
18. The Government may take up to 30% 
minority equity in mining projects.  These 
shareholdings are held by the state-owned 
Mineral Resources Development Company Ltd (MRDC).  In March 2007, the state-owned Petromin Holdings Ltd was formed to hold the State's assets and to maximize indigenous 
ownership and revenue gains in mineral and 
petroleum projects.  A share of the State's equity in the LNG project will be held by the new state-owned Kroton No. 2 Ltd.  
19. Telecommunications reform, after 
delays and uncertainty, is moving towards 
competition and ending the state-owned 
Telikom monopoly over fixed-line services (local, national, and international calls), due from August 2010.  The mobile monopoly ceased in 2007 when Digicel entered the 
market, with its share rising to 65% in 2009,  
and prices falling by up to 60% along with improved coverage and quality.  Regulation of telecoms is being transferred from the ICCC to a new independent regulator, the National 
Information Communications Technology 
Authority (NICTA), which will replace the PNG Radio Communications and Telecommunications Authority (PANGTEL). 
20. The state-owned, inefficient, 
monopoly power utility, PPL, is regulated by 
the ICCC, but still supplies unreliable and 
expensive electricity, thus raising business costs.  While PPL was corporatized for privatization, this did not go ahead.  It has been under financial pressure, compounded by WT/TPR/S/239 Trade Policy Review 
Page x 
 
 
 difficulties in servicing government loans and 
overseas borrowings.  The forthcoming National Electricity Policy is considering focusing on reforms to private-sector 
participation and competition, especially in 
generation. 
21. The financial sector, which weathered 
the GFC reasonably well, is relatively open and privately based, except for the state 
monopoly in the provision of compulsory 
third-party motor-vehicle insurance and general reinsurance.  Government policy is to maintain an "open" regime for financial institutions meeting the licensing criteria.  The Bank of PNG (Central Bank) prudentially 
regulates the financial sector, and claims its 
prudential and supervisory functions have been strengthened to comply with international best practice. 
22. Competition on air routes to Australia 
has increased recently, with Pacific Blue 
entering as a code-share partner for Airlines PNG to compete with Qantas, which code-shares with Air Niugini.  Foreign equity controls apply to air services.  Cabotage is prohibited, including in coastal shipping; 
removal would reduce domestic shipping and 
business costs substantially.  Improvements in airline access, infrast ructure, utilities, and 
telecommunications are necessary pre-requisites for expanding tourism. 
 23. While PNG's economic outlook will 
depend on world commodity prices and other developments, more important will be whether it can successfully meet its domestic economic 
policy and related challenges.  WTO Members 
can help by ensuring open markets for its exports.  Greater technical assistance and international aid are required, but must be provided in a more targeted and efficient 
manner to help PNG achieve its priority 
reforms, and not to compound its economic problems (e.g., accentuating the "Dutch disease" effects).