99-4857 MOREPRESS RELEASE
EMBARGO: NOT FOR PUBLICATION UNTIL
1300 GMT 17 NOVEMBER 1999
PRESS/TPRB/120
10 November 1999
CONTINUED ECONOMIC REFORM CAN HELP PAPUA NEW GUINEA
ACHIEVE SUSTAINABLE GROWTH
Continued reform - including further efforts to  liberalize trade and investment regimes - can
increase Papua New Guinea's economic flexibility and improve its prospects of achieving sustainable
growth. A new WTO report says that while reliance on the tariff as the main trade instrument has
made the trade regime of Papua New Guinea (PNG) more predictable and transparent, the economy
remains relatively weak and vulnerable to external shocks. The report adds that PNG's trading
partners can assist the adjustment process by ensuring PNG's exports a stable and increased access totheir markets.
The new WTO Secretariat report, along with a policy statement by the Government of PGN,
will serve as the basis for the trade policy review of PNG which will take place in the Trade Policy
Review Body of the WTO on 15 and 17 November.
The report notes that PNG's recent economic performance has been erratic with years of
modest growth alternating with declines in ou tput. The economy has been adversely affected by
several unavoidable shocks, such as the Asian financial crisis, depressed commodity prices and severe
droughts. The report adds that these difficulties have been compounded by problems of governance, aweak institutional structure and process, and a seeming lack of momentum for reform. The report
states, however, that in June 1999 the PNG authorities announced the implementation of an Economic
Recovery Package, with trade reform seen as an  important means of fostering private-sector-led
growth and enhancing productivity and competitiveness.PRESS/TPRB/120
Page 2/3
MOREDuring 1992-97, merchandise exports and imports averaged 49% and 27% of GDP,
respectively. Exports are mainly oil and minerals (gold and copper), which account for some 60% ofexports, as well as logs and traditional agricultu ral commodities, especially palm-oil products and
coffee. Imports are predominantly of manufactures, especially machinery and transport equipment,
food, fuels and lubricants. The report notes that export balances have fluctuated considerably, mainly
in line with mining developments. Almost three qua rters of PNG's exports in 1997 went to Australia,
Japan and European Union (EU) countries, mainly German and the United Kingdom. Over half ofimports came from Australia, followed by the United States.
Foreign direct investment (FDI), the report says, is confined mainly to the "enclave" mining
sector. Relatively little FDI has flowed into PNG, with Australia as the major source. Such FDI has
been unstable, and has recently slumped due to investor uncertainty over PNG's political and
economic situation. The Government is reviewing PNG's investment procedures, to make them more
transparent and conductive to FDI. Significant se gments of industry remain reserved for domestic
investors, although since 1995 such restrictions no longer cover manufacturing and construction
activities. Where allowed, no foreign ownership limits apply to FDI. The report also notes that non-
PNG nationals may lease, but not own land.
The tariff is PNG's main trade policy instrument, the report states. Tax and tariff reform was
introduced in 1999. Specifically, a VAT was introduced on goods and services to fund a substantial
tariff reduction programme. The average tariff was halved to under 10% and the structure
rationalized. Furthermore, the Government plans to reduce the average applied tariff to 5% by 2006.
However, the report states that PGN's authorities increased tariffs on some goods - including certain
food and plastic products - as from 1 July 1999, mainly to 30% or 40%, to provide protection fordomestic producers. PGN also retained pockets of high tariff protection until 2006. In 2006, the
average tariff on agricultural products will be  16%, on mining products 0% and on manufacturing
products 5%.
The report notes that unprocessed products are subject to the highest tariffs, on average, and
semi-processed products the lowest. This indicates, the report states, that the tariff structure may
discourage processing, especially from raw inputs. The report suggests that lower, more uniform
tariffs on unprocessed products could improve the incentive structure.
The report says that PNG applies few formal non-tariff trade barriers. PGN has anti-dumping
and countervailing provisions but has rarely used them. Export taxes, ranging to 70%, apply to
unprocessed logs. PGN has no export quotas or voluntary export restrains but a wide range of exports
receive tax incentives. The report notes that be targeting manufactured goods, these schemes tend to
discriminate against other exports.
PNG applies stringent quarantine restrictions, the report says. Imports of vegetables and fruit
that are also grown in PNG are banned outright. Imports of many plants, such as sugar cane, are alsoprohibited, while imports of other are restricted.
PNG is member of APEC and as such is committed to achieving free trade and investment in
the region on goods and services by 2020. It is also a member of the South Pacific Forum. As a
member of the Melanesian Spearhead Group, PGN gr ants some duty-free tariff preferences. As a
signatory to the Lomé Convention, PGN receives non- reciprocal tariff and other preferences from the
EU on many goods as well as financial assistance. PNG is a party to the South Pacific Regional Trade
and Economic Cooperation Agreement (SPARTECA) , a non-reciprocal preferential agreement to
provide the Forum island countries with duty-free access for their products to Australia and New
Zealand. PNG is also a beneficiary of the GSP schemes of most industrialized economies.PRESS/TPRB/120
Page 4
MORENotes to Editor
The WTO's Secretariat report, together with a policy statement prepared by Papua New
Guinea, will be discussed by the WTO Trade Policy Review Body (TPRB) on 15 and 17 November
1999. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and
practices of each WTO member at regular intervals and monitors significant trends and developments
which may have an impact on the global trading system. The Secretariat report covers thedevelopment of all aspects of each of Papua New Guinea's trade policies, including domestic laws and
regulations, the institutional framework, trade policies by measure and by sector. Since the WTO
came into force, the areas of services and trade-related aspects of intellectual property rights are also
covered.
To this press release are attached the summary observations from the Secretariat report. The
full Secretariat and government reports are available for the press in the newsroom of the WTOinternet site (www.wto.org). The Secretariat report, together with the government policy statement, a
report of the TPRB's discussion and the Chairman's summing up, will be published in hardback in due
course and will be available from the Secretariat,  Centre William Rappard, 154 rue de Lausanne, 1211
Geneva 21.
Since December 1989, the following reports have been completed: Argentina (1992 & 1999),
Australia (1989, 1994 & 1998), Austria (1992), Bang ladesh (1992), Benin (1997), Bolivia (1993 &
1999), Botswana (1998), Brazil (1992 & 1996), Bu rkina Faso (1998), Cameroon (1995), Canada
(1990, 1992, 1994, 1996 & 1998), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995),
Côte d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996),
Egypt (1992 & 1999), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997),
Fiji (1997), Finland (1992), Ghana (1992), Guinea (1999), Hong Kong (1990, 1994 & 1998), Hungary
(1991 & 1998), Iceland (1994), I ndia (1993 & 1998), Indonesia (1991, 1994 & 1998), Israel (1994 &
1999), Jamaica (1998), Japan (1990, 1992, 1995 & 1998 ), Kenya (1993), Korea, Rep. of (1992 &
1996), Lesotho (1998), Macau (1994), Malaysia  (1993 & 1997), Mali (1998), Mauritius (1995),
Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990 & 1996), Namibia (1998),
Nicaragua (1999), Nigeria (1991 & 1998), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997),
Peru (1994), the Philippines (1993), Poland (1993), Romania (1992 & 1999), Senegal (1994),
Singapore (1992 & 1996), Slovak Republic (1995), the Solomon Islands (1998), South Africa (1993
& 1998), Sri Lanka(1995), Swaziland (1998), Sweden (1990 & 1994), Switzerland (1991 & 1996),Thailand (1991 & 1995), Togo (1999), Trinidad and Tobago (1998), Tunisia (1994), Turkey (1994 &
1998), the United States (1989, 1992, 1994, 1996 & 1999), Uganda (1995), Uruguay (1992 & 1998),
Venezuela (1996), Zambia (1996) and Zimbabwe (1994).PRESS/TPRB/120
Page 5
MORETRADE POLICY REVIEW BODY
PAPUA NEW GUINEA
Report by the Secretariat - Summary Observations
The Independent State of Papua New Guinea (PNG) is an archipelago in the South Pacific.  It
consists mainly of the eastern half of the island of New Guinea, which borders the Indonesian
province of Irian Jaya.  PNG is a developing country, rich in resources, with a GDP per capita of
some US$900 and low social indicators.  The present Government, which took office in July 1999,
inherited an economy in crisis and in urgent need of fundamental economic reform.
PNG's recent economic performance has been erratic with years of modest growth alternating
with declines in output.  The economy has been adversely affected by several unavoidable shocks,such as the Asian financial crisis, depressed commodity prices and severe droughts.  These difficulties
have been compounded by problems of governance, a weak institutional structure and process, and a
seeming lack of momentum for reform.
The new Government appears committed to broad-based economic reform.  These reforms
seek to address chronic macroeconomic imbalances and structural deficiencies.  The Government
implemented a Supplementary Budget in August 1999 to contain the fiscal deficit.  It has re-engaged
in dialogue with the World Bank and the International Monetary Fund (IMF) to obtain support for
reform, including trade liberalization and a far-reaching privatization programme.
Economic Environment
After independence in 1975, PNG adopted inward-looking policies to promote industries to
process primary resources, such as fish and timber, and other manufactures, such as processed foods.
These interventionist policies were manifested, inter alia, in:  high and disparate trade taxes onimports and exports, as well as import quotas and prohibitions;  a significant state role in industrial
development, including joint ventures;  a relatively large public service;  and, more recently, fairly
high fiscal deficits, financed by expansionary monetary policies.
PNG's present economic situation is difficult.  Public debt is high, as are the Government's
accumulated arrears;  inflation has risen to over 20% a year, weakening external competitiveness, and
low world commodity prices limit export earnings;  external reserves are low and foreign direct
investment is confined mainly to the "enclave" mining sector.
The authorities recognize the need for a restoration of confidence and in June 1999
announced the implementation of an Economic Recove ry Package.  The Package includes measures
aimed at financial discipline and structural reform.  Policy under the Package is to be outwardlooking, with trade reform seen as an important means of fostering private-sector-led growth and
enhancing productivity and competitiveness.  Meeting multilateral commitments is integral to the
reform agenda;  thus, for example, PNG's tariff is fully bound and it  intends to implement
WTO-consistent policies in intellectual property rights.  In meeting these commitments, PNG looks to
bilateral and multilateral donors for technical support.
In line with the Package, tax and tariff refo rm was introduced in July 1999.  Specifically, a
VAT was introduced on goods and services to fund a substantial tariff reduction programme.  The
average tariff was halved, to under 10%, and the structure rationalized;  the average and maximum
tariff are to be further phased down over the period to 2006.  As noted, the Government introducedmeasures to contain the budget deficit to 1.7% of GDP, from a previous target of over 3%.  Donors
and international financial agencies are being approached to fund the deficit, thus avoiding recourse toPRESS/TPRB/120
Page 6
MOREthe monetary authority;  privatization proceeds are to help reduce the public debt.  Change has also
been mooted to improve governance and political  accountability.
Trade and Foreign Direct Investment
International trade and foreign direct investment (FDI) are vital to the PNG economy.
Merchandise exports and imports averaged 49% and 27% of GDP, respectively, during 1992-97.External balances have fluctuated considerably, mainly in line with mining developments.
Trade is relatively concentrated, both in commodities and markets.  Exports are mainly oil
and minerals (gold and copper), which account for some 60% of exports, as well as logs and
traditional agricultural commodities, especially palm-oil products and coffee.  Almost three quarters
of exports in 1997 went to Australia, Japan and European Union (EU) countries, mainly Germany and
the United Kingdom.  Log exports fell sharply following the Asian crisis and the decline in worldtimber markets in late 1997.
Imports are predominantly of manufactures, especially machinery and transport equipment,
food, fuels and lubricants.  Over half of imports came from Australia, followed by the United States.
Outside the resource sectors, especially mining, which accounts for some 80% of foreign
equity in PNG, relatively little foreign direct investment (FDI) has flowed into PNG.  Such FDI has
been unstable, and has recently slumped due to investor uncertainty over PNG’s political and
economic situation.  Australia is the major source of FDI.
Legal and Institutional Framework
PNG is a constitutional monarchy.  Legislative power resides in a unicameral national
Parliament.  Executive power is vested in the nati onal Government.  Parliamentary elections must be
held within periods of five years.  The Prime Minister is elected by Parliament and appoints ministersto the National Executive Council, or Cabinet;  the Government can fall on a successful
no-confidence vote in Parliament.  New governments have a constitutional grace period against
no-confidence votes of 18 months, previously six months.  Coalition governments have been the norm
and no government or prime minister has yet served a full term.
Responsibility for trade-related policies rests with the national Government, but provincial
governments have concurrent powers with the national Government in important trade-related areas,
such as agriculture, forestry, industrial development, fishing and mining.  This is especially true, for
example, with respect to approval of forestry, mining and fishing developments on customary land,
which cover over 90% of land ownership.
Trade and economic policy formulation in PNG ha s not always been well coordinated.  An
Advisory Secretary was established in the Prime Minister’s Office in January 1999 with a view to
supporting reform, including oversight of cabinet decisions and implementation of the 1999 Budget.
The Government promotes public dialogue through the Consultative Implementation and
Monitoring Council (CIMC), national economic summits - last held in February 1998 - and the annualNational Development Forum.  The Government’s inaugural Forum, held in August 1999, focussed
on reform and the 2000 Budget.  The Government also  interacts with the private sector via the PNG
Manufacturers’ Council and other bodies, such as the Chamber of Commerce.  No independent
statutory body exists to advise the Government on trade-related policies, including the tariff and
industry assistance;  in principle, the Industry Assistance Board  has such a role, but has lacked thenecessary institutional capacity.PRESS/TPRB/120
Page 7
MORETrade Policy Features and Trends
PNG became a de facto GATT contracting party in 1960 under its "UN trust" status with
Australia, and acceded to the GATT in 1994.  It became a WTO Member in June 1996.  PNG's entire
tariff is bound, mainly at ceiling tariff rates of 40% and 45%.  PNG scheduled commitments under the
General Agreement Trade In Services (GATS) on a broad range of services, including certain
business, construction, financial and telecommunication services.  It is not a signatory to any of thePlurilateral Trade Agreements.
As a member of APEC, PNG is committed to achieving free trade and investment in the
region on goods and services by 2020.  It is also a member of the South Pacific Forum.
PNG grants at least most-favoured nation (MFN) treatment to all WTO Members.  PNG
grants some duty-free tariff preferences under the Melanesian Spearhead Group (MSG).  Thesepreferences initially covered imports of beef from Vanuatu and canned tuna from the Solomon
Islands;  PNG exports of tea to these countries.  Fiji has since joined the Agreement, in 1996, and
more products are now covered, such as fruit, nuts, coffee and cement.  MSG exports by PNG include
mainly tinned meat, coffee and cement.  MSG trade is a minor share of PNG’s total trade, however,
and the Agreement has not significantly expanded trade within the region.
As a signatory to the Lomé Convention, PNG receives non-reciprocal tariff and other
preferences from the EU on many goods.  Financia l assistance, totalling K 2.8 billion to end-1995, has
also been provided, mainly to fund development projects and to finance past commodity price support
schemes.
PNG is a party to the South Pacific Region al Trade and Economic Cooperation Agreement
(SPARTECA), a non-reciprocal preferential agreement to provide the Forum island countries with
duty-free access for their products to Australia and New Zealand.  PNG is also a beneficiary of the
GSP schemes of most industrialized economies.
Type and incidence of trade policy instruments
The tariff is PNG's main trade policy instrument .  Tariffs were cut across-the-board on 1 July
1999 from an average (unweighted) applied MFN rate of 20% to 9%.  The tariff structure was alsosimplified and rationalized with the number of tariff rates reduced from six to four – zero, 30%, 40%
and 55% – by removing duties of 5% or 11% on basic and intermediate inputs and by lowering duties
ranging previously between 75% and 125% to 55%, with some exceptions.  Under the eight-year
Tariff Reduction Programme, MFN rates will be further phased down to 15%, 25% and 40%, without
exception, in 2006, when it is envisaged that the average applied tariff will be 5%.
However, tariffs were increased on some goods as from 1 July 1999, mainly to 30% or 40%
to provide protection for domestic producers.  These increases included rates on certain food and
plastic products.  Pockets of high tariff protection were also retained until 2006, including current
rates of 82% on sugar, 70% on canned mackerel and 95% on plywood and veneer panels.  On some
products, where domestic production was considered non-viable, high tariff rates were reduced to
zero.
Current duties, and the rates to apply in 2006, give rise to substantial dispersion and some
escalation.  The average tariff in 2006 on agricultura l products will be 16%, compared with zero for
mining and 5% for manufacturing.  The revised tariff structure also seems to provide mixed incentives
for processing.  Unprocessed products are subject to the highest tariffs, on average, andsemi-processed products the lowest.  This indicates that the tariff structure may discourage
processing, especially from raw inputs.  Lower, more uniform tariffs on unprocessed products could
improve the incentive structure.PRESS/TPRB/120
Page 8
MOREAll duties, with the main exception of those on alcoholic beverages, are ad valorem, thus
lending transparency.  There is widespread use of exemptions, often to specific users, but this is being
rationalized.  A duty drawback system is in operation but is little used, with refunds often involving
significant delays.  Recent efforts taken to improve the system include relaxing approval
arrangements, and there are proposals to provide the drawback as a credit against the import duties.
PNG applies few formal non-tariff trade barriers.  During the 1990s, high tariffs replaced widespread
import quotas and bans.  Certain import prohibitions and controls apply for environmental, health,
public safety and security reasons, and under international conventions.  PNG applies no trade
embargoes, nor any local-content requirements for domestic production.
PNG has anti-dumping and countervailing provisions, but they have rarely been used,
although  application of anti-dumping duties is currently being considered for cement.  Specific
tariffs, mainly on food items, have been used as the main means of guarding against "cheap" imports.However, the Government has signalled greater use in future of anti-dumping provisions, which are
now to be administered by the Internal Revenue Co mmission, within the Treasury portfolio, instead of
the Ministry of Foreign Affairs and Trade.
PNG applies stringent quarantine regulations.  Imports of vegetables and fruit that are also
grown in PNG are banned outright.  Imports of many  plants, such as sugar cane, are also prohibited,
while imports of others are restricted.  Live animals and certain animal products, such as honey, beef,
eggs and non-pork smallgoods, can only be imported from Australia and New Zealand (and Vanuatu
in the case of beef).  Fresh pig meat and pork smallgoods are importable only from Australia, and
canned ham only from Australia, New Zealand, Nort h American and certain EU member States.
PNG intends to align its national standards with international norms;  it is a member of ISO
and IEC.  Many Australian and New Zealand standards are applied.  Most standards are for health and
safety reasons and apply particularly on chemicals, construction equipment, and building hardware.
PNG aims to develop national accreditation bodies for conformity testing, based on ISO guidelines.Test results from foreign countries are usually accepted.  PNG has no significant marking, labelling or
packing requirements.
Government procurement is handled by the Central Tenders Board for contracts above
K 0.5 million.  Preferences exist for local suppliers on smaller contracts.
Export taxes, ranging to 70%, apply to unprocessed logs.  Export taxes were lifted on all
marine products, except bêche-de-mer, in 1997.  Export licences are required for resource-based
products, such as logs, which are also subject to minimum export price guidelines.  Exports of certain
unprocessed logs and raw rattan are banned.  Other export controls are mainly for cultural, health and
environmental reasons, or in accordance with international conventions.
PNG has no export quotas or voluntary export restraints, and exports are unsubsidized.
However, a wide range of exports receive tax incentives, such as a tax exemption for up to three years
on profits from exports and an exemption for any increases in such profits for a further four years.  By
targeting manufactured goods, these schemes tend to discriminate against other exports.
PNG has no production subsidies.  Tax concessions assist investment and production;  in
addition to tariff concessions, there are income tax holidays and other measures, such as special
write-offs and accelerated depreciation provisions for income tax purposes.  These incentives are
currently being rationalized under the Investment Promotion Authority (IPA);  some measures, such
as tax holidays provided to start-up firms under a pioneer industry scheme, have recently been
removed, subject to grandfathering of existing incentives.
PNG does not have specific competition law;  the Government intends to introduce a national
competition policy.  Price controls apply to a range of staple items;  their coverage has beenPRESS/TPRB/120
Page 9
MOREsubstantially reduced.  They no longer apply, for example, to bakery or brewery products and soft
drinks.  Plans exist to further de-control prices.  The Government also intends to inject greatercompetition and private participation into the supply of essential utilities.
The Government is reviewing PNG's investment procedures, to make them more transparent
and conducive to FDI.  A revised National Investment Policy is currently being introduced.
Significant segments of industry remain reserved for domestic investors, although since 1995 suchrestrictions no longer cover manufacturing and construction activities;  the authorities are reviewing
the reserve list with a view to phasing it out.  Where allowed, no foreign ownership limits apply to
FDI.  The Investment Promotion Authority screens and certifies foreign investment proposals.  The
aim is for the IPA is to become a "one-stop shop", facilitating investment by moving to a simpler
system of registration and post-investment monitoring to replace the current case-by-case approval
process.  Non-PNG nationals ma y lease, but not own, land.
Sectoral policies
PNG is heavily dependent on agriculture and on natural resources, notably minerals, forestry
and fish.  Primary production accounts for just over half of GDP, and some one quarter of official
employment.  By contrast, manufacturing repres ents 9% of GDP.  Agriculture is much more
important if subsistence production is included;  some 85% of the population depends on agriculture.
Besides mining, sectoral trade and investment policies relate mainly to the development of
targeted domestic food, wood and fish processing industries, although, as noted, the tariff structure
tends to discourage semi-processing activities.  Trade and investment measures to support processinginclude export taxes and other controls on unprocessed timber and rattan, as well as efforts to make
logging licences largely conditional upon domestic processing.  Domestic processors receive
preference in the allocation of logging permits, and first-purchase option on logs.  The goal is to have
at least 30% of logs processed domestically by 2000, compared to around 5% currently.  Official
policy is to ban log exports by 2000.  Processors of plywood and veneer boards also receive high tariff
protection, currently 95% but declining to 40% in 2006.  The combination of implicit input subsidies
on logs and high import tariffs would be expected to provide correspondingly high effective rates of
assistance for wood products.
Domestication of the PNG tuna fishing industry is the principal objective of the 1999 Tuna
Management Plan.  PNG operators with majority domestic ownership receive preferential access to
tuna fishing licences.  Longline licences for catching sashimi tuna, for example, have been closed to
foreign entrants since 1995.  Additional preferences, including exemption from payment of licence
access fees, are granted to wholly domestic-owned vessels.  The Plan envisages a total of 100 purse
seine tuna licences, with 30 going to vessels from Distant Water Fishing Nations (DWFN) under
bilateral agreements, and a fall in the licensed annual catch for these vessels from about
250,000 tonnes currently to 128,000 tonnes.  PNG is committed to reducing the number of DWFNlicences by 10% a year.
The tuna cannery at Madang can be supplied only by PNG fishing operators, and relies almost
totally on duty-free exports to EU markets under Lomé preferences.  Previous efforts to establish
regional fishing fleets and fish processing activities in PNG, as well as elsewhere in the region, havefailed, having been unable to compete with more efficient processors.
Mandatory local-content requirements apply to DWFN vessels fishing in PNG waters.  Each
vessel must make at least three calls per journey to PNG designated ports and purchase minimum
supplies worth US$90,000.  PNG, along with other island neighbours, has also banned high-seastransshipment, which must occur in designated PNG ports.  These controls tend to raise the costs
incurred by foreign fishing fleets and reduce their capacity to pay higher licence fees.PRESS/TPRB/120
Page 10
MOREPNG's fishing and forestry policies are also aimed at sustainable management.  Fish catches
and timber production, are currently below estima ted sustainable yields.  Such management will
require enhanced surveillance measures to ensure that licensed levels are enforced.  The Government
is also taking steps to terminate unsustainable logging;  these include withdrawing unused timber
permits, since issued permits are thought to be double sustainable levels, and ensuring that expired
licences are indeed terminated.
Trade measures, initially import bans and quotas, but currently relatively high tariffs, assist a
range of agricultural commodities (including sugar, poultry, eggs and beef) in an attempt to achieve
food self-sufficiency.  These policies have met with little success, and contribute to high domestic
food prices.
Traditional tree crops, especially coffee, copra, cocoa and palm oil products, remain
important to the PNG economy, accounting for substantial exports.  These products were assisted byprice stabilization measures, which effectively provided substantial price support, during the late
1980s, when export prices collapsed.  These schemes were terminated in 1999, except for a private
scheme run by the Coffee Industry Corporation.  The statutory Copra Marketing Board is the
monopoly seller of copra and coconut products on both domestic and export markets.
Past governments have promoted import substitution policies through direct participation in
numerous commercial joint ventures, if not complete state ownership, aided by measures such as trade
restrictions or legislative provisions preventing new entrants.  Examples include government
participation in oil palm plantations, livestock ventures, Ramu sugar and Halla cement.  The
Government has divested some of these interests, however, and intends to sell off more as part of itsprivatization programme.
The Government plays a key role in the development of mining projects.  Mining leases must
be negotiated with national and provincial governments as well as with customary landowners.
Higher standard company tax rates apply to mining and petroleum firms than to enterprises operatingin other sectors, and additional profit taxes appl y to returns above certain threshold levels.  The
Government may take a minority equity holding of  up to 30% in any mining or petroleum project,
either directly or via its 51% stake in Orogen Minerals.  Royalties apply, at a rate of 2% of the value
of mine output.  A profits levy of 4% has been applied to compensate for the loss in government
revenue from zero-rating mineral exports for VAT purposes, thereby allowing mining companies – incontrast to loggers – to receive a credit for VAT paid on inputs.
Hitherto, there has been minimal domestic processing of minerals.  A petroleum refinery is
currently under construction;  it is expected to meet PNG’s entire demand for refined petroleum
products.
Most basic services, such as electricity, telecommunications, ports, water, air and maritime
transport, are provided by state-owned statutor y monopolies.  Postal and telecommunication services
were corporatized in 1996, with the establishment of two separate entities, Telikom and Post PNG;
however, Telikom will retain its legislated monopoly until 2002, when PNG is committed to opening
the market to foreign suppliers, providing them with non-discriminatory acc ess to the local network.
Post PNG retains monopoly rights in providing certain postal services, such as registration andinsurance of articles, although letter delivery is, in principle, open to private entrants.  It is
government policy to gradually divest 49% of both Telikom and Post PNG.
Banking licences are granted by the Central Bank.  Foreign banks may operate domestically
as locally incorporated subsidiaries or as foreign branches, provided an assigned minimum level ofcapital is kept within PNG.  The Central Bank accepts that PNG branches of reputable foreign banks
will be adequately supervised by those banks' own domestic prudential regulators.PRESS/TPRB/120
Page 11
ENDForeign companies may enter the PNG insurance market without discrimination;  non-life
firms must be licensed with the Insurance Commissioner.  However, the Motor Vehicle Insurance
Trust has a statutory monopoly on providing third-party motor vehicle insurance.  Although foreign
companies are expected to place all risks within PNG, such risks may be placed offshore, subject to
approval from the Insurance Commissioner.  In 1997, some 20% of gross non-life insurance
premiums were placed abroad.
Life insurance companies and superannuation funds are currently unregulated.  However,
legislation is planned that would extend prudential controls to these companies and strengthen
existing requirements for non-bank financial institutions.
The Securities Commission was established in 1998 to administer new companies and
securities legislation, such as that dealing with company law and the formation of companies as well
as takeovers and acquisitions.  The PNG Stock Exchange commenced operations in 1999.
Trade Policies and Foreign Trading Partners
PNG's trade measures are generally applied on a non-discriminatory basis.  Reliance on the
tariff, which is fully bound and has been simplified, as the main trade instrument has made the trade
regime more predictable and transparent.  The economy, however, remains relatively weak and
vulnerable to external shocks.  Continued reform, including further efforts to liberalize trade and
investment regimes, can increase the economy's flexibility and improve its prospects of achieving
sustainable growth.  PNG's trading partners can a ssist the adjustment process by ensuring stable,
increased access to their markets.