WTO Trade Review Shows Backlog Of Reforms In Tonga

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Modernization of legal, regulatory frameworks necessary for development

NUKU‘ALOFA, Tonga (Matangi Tonga, Feb. 16, 2014) – An important review of Tonga's Trade Policy by the WTO in Geneva, Switzerland, from February 11-13 found that the Pacific island nation faces a backlog of reforms that are required to modernize and streamline its legal and regulatory frameworks for economic development.

Tonga's imports continue to outstrip its exports by a factor of at least 10:1 annually and over 50% of the imports are for fuel and food.

The review of the trade policy was the first since Tonga joined the World Trade Organization (WTO) in July 2007.

The review examined the impact of Tonga's trade policies and practices on the WTO multilateral trading system.

The review was based on reports submitted by the WTO Secretariat and the Government of Tonga.

Trade initiatives

Tonga, a member of the Pacific Islands Forum, participates in a number of initiatives to expand trade in the region, such as the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA); the Pacific Island Countries Trade Agreement (PICTA); the Pacific Agreement on Closer Economic Relations (PACER), and PACER Plus.

Tonga, as a member of the African, Caribbean and Pacific Group of States (ACP) has been negotiating an Economic Partnership Agreement (EPA), with the European Union EU since 2004. However, none of these ongoing negotiations has been concluded so far.

At present SPARTECA appeared to be the only one that is providing some tangible tariff preferences to Tongan exports to New Zealand and Australia.

Exports from Tonga may be eligible under the Generalized Scheme of Preferences (GSP) schemes of the EU, the United States, and Japan.

Meanwhile the WTO framework for rules and Most-Favoured-Nation tariffs thus "continues to provide the basic parameters for Tonga's trade and economic policies."

Market access

The review also stated that Tonga does not regulate market access through tariff rate quotas, and provides no preferential tariffs to any trading partner.

"Trade restriction appear to be motivated by the need to protect human, animal or plant life or health; public morals; national security; cultural heritage; the conservation of exhaustible natural resources; and to uphold intellectual property rights. Tonga does not levy export taxes on any goods."

The Tongan economy, one of the smallest among WTO Members with a GDP of about US$500 million, is based "on agriculture, fisheries, a small mainly domestically oriented manufacturing sector, and tourism and other services."

Tonga is classified as a middle-income developing country, and remittances from expatriates provide a major boost to the local economy.

Tonga's imports outstrip its exports by a factor of at least 10:1 annually. More than 50% of Tonga's imports consist of fuel from Singapore and food, mainly from New Zealand and Fiji. Tonga's exports are mainly squash, root crops, coconuts and marine products.

Tonga derives an increasing share of government revenue from excise taxes and a broad-based consumption tax. In 2012/13, the Government raised almost TOP$55 million in revenue from the consumption tax on imports and domestic production, compared with nearly TOP$30 million from excise taxes, and TOP$14.7 million from import duties.

Killed local fishery

In 2011, the Tongan waters were re-opened to foreign tuna-fishing vessels, with the intention of reviving the fishery industry, but instead it killed the local fishery, as the local fishing companies could not compete with the government subsidized foreign fishing vessels. The outcome of this exercise is a sudden drop in the number of local commercial fishing operations from 26 to only one today.

Besides issuing fishing licenses to foreign fishing vessels, government also streamlined its business licence regulations in 2012, allowing a single licence to suffice for individuals and enterprises engaged in more than one business activity, easier filing, faster processing, and reduced fees, particularly for electronic registrations.

Concerns

The WTO report also noted that although banks and foreign exchange dealers are supervised by the National Reserve Bank of Tonga, the insurance sector and other financial services suppliers are not regulated by any authority. "Similarly, Tonga has yet to establish an independent regulator in the telecoms sector."

The Tonga Telecommunication Sector was also a matter of great concern because of Tonga's high termination rates for international telephone calls, which led for these calls being rerouted, and that weakened Tonga's connectivity to the rest of the world.

"Overall, Tonga is faced with a backlog of reforms to modernize and streamline its legal and regulatory frameworks, including in the area of agriculture and related Sanitary/Phytosanitary measures, air and maritime transport, and telecommunications."

Uncertainty

There is also a sense of uncertainty over which government ministry is responsible for trade in Tonga. The Ministry of Commerce, Tourism and Labour was responsible for foreign trade policy matters until mid-2012, when the trade portfolio was transferred to the Ministry of Foreign Affairs without a corresponding transfer of staff. Meanwhile, the "old" trade ministry is still in charge of trade related matters.

Tonga's delegation to the Trade Policy Review in Switzerland was led by the Minister of Labour, Commerce and Tourism, Hon. Dr Viliami Latu, the Secretary for the Ministry of Foreign Affairs and Trade, Va'inga Tone; Lepaola Bloomfield Vaea, from the Ministry of Revenue and Customs; Viliami Kami from the Ministry of Agriculture; 'Aminiasi Kefu, the Solicitor General and Tevita Lautaha from the Ministry of Labour, Commerce and Tourism.

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