RESTRICTED

WT/TPR/S/387

3 April 2019

(19-2099) Page: 1/87

Trade Policy Review Body

TRADE POLICY REVIEW

REPORT BY THE SECRETARIAT

PAPUA NEW GUINEA

This report, prepared for the third 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 Marrakesh 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: Ricardo Barba-Viniegra (tel.: 022 739 5088); and Rosen Marinov (tel.: 022 739 6391).

Document WT/TPR/G/387 contains the policy statement submitted by Papua New Guinea.

Note: This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on Papua New Guinea. This report was drafted in English.

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CONTENTS SUMMARY ...... 6 1 ECONOMIC ENVIRONMENT ...... 10 1.1 Main Features of the Economy ...... 10 1.2 Recent Economic Developments ...... 11 1.3 Developments in Trade and Investment ...... 13 1.3.1 Trends and patterns in merchandise and services trade ...... 13 1.3.2 Trends and patterns in FDI ...... 16 2 TRADE AND INVESTMENT REGIMES...... 18 2.1 General Framework ...... 18 2.2 Trade Policy Formulation and Objectives ...... 18 2.3 Trade Agreements and Arrangements ...... 22 2.3.1 WTO ...... 22 2.3.2 Regional and preferential agreements ...... 23 2.3.2.1 European Union–PNG/Fiji EPA ...... 25 2.3.2.2 MSGTA ...... 25 2.3.2.3 PICTA ...... 26 2.3.2.4 SPARTECA ...... 26 2.3.2.5 Other arrangements ...... 26 2.3.3 Investment regime ...... 27 3 TRADE POLICIES AND PRACTICES BY MEASURE ...... 30 3.1 Measures Directly Affecting Imports ...... 30 3.1.1 Customs procedures, valuation, and requirements ...... 30 3.1.2 Rules of origin ...... 31 3.1.3 Tariffs ...... 31 3.1.4 Other charges affecting imports ...... 35 3.1.4.1 Border levies ...... 35 3.1.4.2 Internal taxes ...... 35 3.1.5 Duty and tax concessions ...... 36 3.1.6 Import prohibitions, restrictions, and licensing ...... 36 3.1.7 Anti-dumping, countervailing, and safeguard measures ...... 36 3.1.8 Other measures affecting imports ...... 36 3.2 Measures Directly Affecting Exports ...... 37 3.2.1 Customs procedures and requirements ...... 37 3.2.2 Taxes, charges, and levies ...... 37 3.2.3 Export prohibitions, restrictions, and licensing ...... 37 3.2.4 Export support and promotion ...... 37 3.2.5 Export finance, insurance, and guarantees ...... 38 3.3 Measures Affecting Production and Trade ...... 38 3.3.1 Incentives ...... 38

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3.3.2 Standards and other technical requirements ...... 38 3.3.3 Sanitary and phytosanitary requirements ...... 39 3.3.4 Competition policy and price controls ...... 40 3.3.4.1 Competition policy ...... 40 3.3.4.2 Price controls...... 42 3.3.5 State trading, SOEs, and privatization ...... 42 3.3.6 Government procurement ...... 43 3.3.7 Intellectual property rights (IPRs) ...... 44 4 TRADE POLICIES BY SECTOR ...... 45 4.1 Agriculture, Forestry, and Fisheries ...... 45 4.1.1 Agriculture ...... 45 4.1.2 Forestry ...... 48 4.1.3 Fisheries ...... 49 4.2 Mining and Energy ...... 51 4.2.1 Mining ...... 52 4.2.2 Oil ...... 53 4.2.3 Natural gas ...... 54 4.2.4 Electricity ...... 56 4.3 Manufacturing ...... 58 4.4 Services ...... 59 4.4.1 Overview ...... 59 4.4.2 Financial services ...... 60 4.4.2.1 Banking ...... 61 4.4.2.2 Insurance ...... 62 4.4.3 Telecommunications and postal services ...... 62 4.4.4 Transport ...... 64 4.4.4.1 Overview ...... 64 4.4.4.2 Road transport ...... 65 4.4.4.3 Maritime transport ...... 66 4.4.4.4 Air transport ...... 67 4.4.5 Tourism ...... 69 5 APPENDIX TABLES ...... 71

CHARTS

Chart 1.1 GDP by economic activity (at basic prices), 2018 ...... 10 Chart 1.2 Merchandise trade by main HS sections, 2012 and 2017 ...... 14 Chart 1.3 Direction of merchandise trade, 2012 and 2017 ...... 15 Chart 3.1 Frequency distribution of MFN tariff rates, 2019 ...... 33 Chart 3.2 Average applied MFN tariff rates by HS section, 2019 ...... 35

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TABLES

Table 1.1 Selected economic indicators, 2013-18 ...... 12 Table 1.2 Balance of payments, 2013-18 ...... 13 Table 1.3 Services trade, 2012-17 ...... 16 Table 1.4 FDI, 2012-17...... 16 Table 1.5 FDI stock by sector, 2012-17 ...... 17 Table 1.6 FDI stock by source, 2012-17 ...... 17 Table 2.1 Main trade-related legislation, 2019 ...... 21 Table 2.2 Notifications, 2010-18 ...... 23 Table 2.3 RTAs in force, 2019 ...... 24 Table 2.4 Cottage business activities, 2019 ...... 27 Table 2.5 IPA approvals by type, 2014-18 ...... 29 Table 3.1 Distribution of declarations by selectivity lane, 2012-17 ...... 30 Table 3.2 Tax revenue, 2012-18 ...... 32 Table 3.3 Structure of MFN tariff, 2010 and 2019 ...... 32 Table 3.4 Summary analysis of MFN tariffs, 2019 ...... 33 Table 3.5 Forgone revenue from imports, 2012-17 ...... 36 Table 3.6 Competition enforcement, 2011-17 ...... 41 Table 3.7 State participation in the economy, 2019 ...... 42 Table 3.8 Procurement proceedings limits, 2019 ...... 43 Table 4.1 Main agriculture exports, 2012-16 ...... 45 Table 4.2 Key agriculture targets for 2030 ...... 48 Table 4.3 Key forestry targets for 2030 ...... 49 Table 4.4 Key fisheries targets for 2030 ...... 51 Table 4.5 Key mining targets for 2030 ...... 53 Table 4.6 Key oil, refining and LNG targets for 2030 ...... 54 Table 4.7 Key energy targets for 2030 ...... 57 Table 4.8 Key manufacturing targets by 2030 ...... 59 Table 4.9 Total assets of banks and insurance companies, 2012-17 ...... 60 Table 4.10 Financial soundness indicators, 2012-17 ...... 62 Table 4.11 Telecommunications indicators, 2012-17 ...... 63 Table 4.12 Key telecommunication targets by 2030 ...... 64 Table 4.13 Key road transport targets by 2030 ...... 66 Table 4.14 Key water transport targets for 2030 ...... 67 Table 4.15 Key air transport targets for 2030 ...... 69 Table 4.16 Selected tourism indicators, 2012-17 ...... 69 Table 4.17 Key tourism targets for 2030 ...... 70

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APPENDIX TABLES

Table A1.1 Merchandise exports by HS sections and major HS chapters/products, 2012-17 ...... 71 Table A1.2 Merchandise total exports by destination, 2012-17 ...... 72 Table A1.3 Merchandise imports by HS section and major HS chapters/subheadings, 2012-17 .. 73 Table A1.4 Merchandise total imports by origin, 2012-17 ...... 74

Table A2.1 Tax incentives, 2019 ...... 75

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SUMMARY

1. This is the third Trade Policy Review of Papua New Guinea (PNG). Its macroeconomic performance has been broadly satisfactory, with the economy growing at an annual average rate of 5.2% during 2010-18. Real GDP growth peaked at 15.4% in 2014 but decelerated to an estimated zero in 2018. The recent slowdown was attributed to low commodity prices, a major drought in 2017 and a big earthquake in February 2018 which also weakened PNG's external position and created fiscal challenges.

2. Notwithstanding the increase in GDP per capita from USD 1,672 in 2009 to USD 2,556 in 2017, poverty alleviation remains one of PNG's major challenges. It is estimated that some 3 million people, about 40% of the population, live below the basic needs poverty line.

3. In general, the Bank of Papua New Guinea (BPNG) maintained a neutral monetary policy stance during the review period, with inflation averaging 5.5% in 2013-18. PNG's fiscal deficit, as percentage of GDP, declined from 6.9% in 2013 to an estimated 2.9% for 2018. However, the government debt-to-GDP ratio currently exceeds the target band of 30-35%, mainly because tax revenues from LNG exports have been decreasing since 2015. The Government aims to achieve fiscal consolidation in the medium-term and reduce its debt to a level below 30% of GDP in 2021 by, inter alia, increasing revenues and widening the tax base.

4. Despite recording current account surpluses since 2014, PNG has been facing a shortage of foreign exchange, which has adversely affected activities dependent on imports and has dampened GDP growth. During 2012-17, PNG's merchandise exports almost doubled and their composition drastically shifted, with LNG and other mineral products accounting for about half of the total (up from 17% in 2012). The composition of imports remained largely unchanged across commodity groups. Australia accounted for around 34% of imports and 28% of exports of goods in 2017.

5. PNG's investment regime is generally open. However, certain low-skilled economic activities continue to be reserved for PNG citizens and national entities. On average, FDI inward stock represented about 20% of GDP between 2012 and 2017. FDI inflows were negative in 2014 and 2017 because of LNG project-related debt repayments. Some legislative reforms and added stability in government helped PNG to improve its ranking in the World Bank's latest Ease of Doing Business report to 109th (from 145th in 2016). Some of the reported challenges for doing business in PNG are enforcing contracts, starting a business, resolving insolvency, and trading across borders.

6. In 2017, PNG adopted its first ever National Trade Policy, covering the period 2017-2032. An institutional transformation is currently under way at the Department of Commerce and Industry, with a view to separating external trade from commerce and industry functions. PNG still has no legal and institutional frameworks for the application of antidumping, countervailing, and safeguard measures. During the review period, the only significant legislative developments concerned the public-private partnership (PPP) and government procurement frameworks. Provisions stipulating local preference margins and reserving certain tenders for PNG nationals are being introduced.

7. PNG is an original WTO Member; it remains a non-resident Member, handling WTO matters through its mission in Brussels and the WTO Pacific Islands Forum Representative Office in Geneva, established in 2004. The absence of a Geneva mission continues to hamper its participation in the multilateral trading system. PNG is not a party to the Information Technology Agreement, or to the plurilateral Agreements on Government Procurement and Trade in Civil Aircraft. It has not been involved in any formal WTO disputes, including as a third party.

8. PNG has made few notifications to the WTO; the authorities have requested technical assistance from the Secretariat in this regard. PNG notified its Category A commitments under the Agreement on Trade Facilitation (TFA) on 8 June 2016, and deposited its instrument of acceptance of the TFA on 7 March 2018. PNG accepted the Protocol Amending the TRIPS Agreement in June 2016.

9. PNG has four RTAs in force: Economic Partnership Agreement (EPA) EU–Papua New Guinea/Fiji; Melanesian Spearhead Group Trade Agreement (MSGTA); Pacific Island Countries Trade Agreement (PICTA); and South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA). These RTAs encompass 41 partners (some of them are not WTO Members), and have

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- 7 - been notified to the WTO. The four RTAs have membership overlaps, translating in complex trade regimes that pose risks of raising business costs and thereby potentially resulting in more trade (and investment) diversion than creation.

10. PNG's applied MFN tariff is now based on HS2017, with a simple average (excluding non-ad valorem rates) of 3.9%, down from 5.1% in 2010. Some 82 tariff lines (1.4% of all lines), covering certain alcoholic beverages, tobacco, and poultry meat, carry specific rates. Ad valorem tariffs range from zero to 50%, with the highest rates levied on wood, pulp, paper and furniture products. There are no seasonal tariffs, or tariff quotas. PNG has bound its entire tariff; it has bound "other duties and charges" at zero. On 23 tariff lines, applied rates exceed bound levels; unit differences preclude meaningful comparison between applied and bound specific rates on 34 additional tariff lines.

11. PNG has not submitted any notifications to the Committee on Import Licensing since 1998. Prior authorization and/or licence requirements exist for certain imports mainly for security, public health and environmental reasons. Export controls and restrictions are also in place largely for the purpose of protecting wildlife, cultural heritage and the environment.

12. PNG applies ad valorem export taxes on crocodile skins (5%), jewellery and articles of gold or silver (5%), and certain ores and concentrates (5%). As from January 2018, unprocessed old-growth logs (except plantation logs) are subject to a progressive export tax, whose rates increase with the f.o.b. price. A log export development levy of PGK 8 per m3 also remains in force.

13. An amendment to the Income Tax Act, repealing an export subsidy provision, became effective as of 1 January 2015. PNG maintains an income tax concession allowing for the double deduction of expenditure on export market development. The tax savings must not exceed 75% of incurred eligible expenditure, which includes that on overseas publicity and advertising, market research, tender preparation, samples, trade fairs and exhibitions, overseas sales offices, and certain travel.

14. PNG's standards and technical regulations framework has been undermined by significant challenges regarding human and material resources. The National Institute of Standards and Industrial Technology (NISIT) has been suspended from the International Laboratory Accreditation Cooperation Mutual Recognition Arrangement (ILAC MRA) since August 2017. Although PNG has struggled to put in place an accreditation scheme, it recognizes certificates issued from signatories of the ILAC MRA. In 2019, NISIT's budgetary allocation was increased with a view to enhancing its personnel and technical capacity. A state-owned building has also been designated for the establishment of laboratories and an office complex.

15. There was little change to PNG's SPS regime during the period under review; the legislation in force remains outdated, and a range of capacity weaknesses are yet to be addressed. PNG lacks legislation on genetically modified organisms; such imports are cleared for entry without any specific controls. A system of import permits, administered by the National Agriculture Quarantine and Inspection Authority (NAQIA), remains in place for: live animals, animal products, fish and fish products, plants, timber, plant products, biological organisms, sand, stone and gravel. An electronic platform for the issuance of import permits is being developed but progress is hampered by the lack of resources. In August 2015, PNG imposed a moratorium on the issuance of import permits for fresh foods, including fruit, vegetables and uncooked poultry, with the stated aim of fostering domestic production and further protecting biosecurity. The import ban was lifted, at least partially, in January 2016.

16. In principle, PNG's competition regime applies to all sectors of the economy, and to SOEs that engage in commercial activities in competition with private firms. The mandate of the Independent Consumer and Competition Commission (ICCC) comprises: competition and consumer protection enforcement; administering price controls; and regulating certain markets. The ICCC has not yet entered into any formal international cooperation arrangements. In July 2018, the National Executive Council (NEC) approved a switch from the voluntary to a compulsory pre-merger notification system, which is yet to enter into force.

17. PNG has not submitted to the WTO any notifications on state-trading entities. According to the authorities, no public entities or SOEs have any exclusive rights to import, export or supply in the domestic market a particular good or service. State involvement remains prevalent in many

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- 8 - sectors of the economy and, in some cases, continues to crowd out private entrepreneurs. A number of SOEs continue to benefit from soft budget constraints and access to concessional finance arrangements. In June 2015, with a view to ensuring the efficient management of state-owned commercial assets, PNG established a framework that consolidated: all state interests in oil and gas projects under Kumul Petroleum Holdings (KPH); all state interests in mining projects under Kumul Minerals Holdings (KMH); and all remaining SOEs under Kumul Consolidated Holdings (KCH). As at December 2018, the KCH portfolio of companies alone had combined assets of PGK 9 billion and 7,117 employees.

18. No changes to the legal and institutional framework governing intellectual property took place during the review period. Enforcement of IPRs continues to face major challenges. The sale of counterfeit and pirated goods remains widespread.

19. Agriculture and related activities account for 18% of PNG's GDP. Agricultural policy relies on a self-sufficiency-driven notion of food security using high tariff barriers at the border for the targeted products (e.g. pork, poultry, sugar). The tariff is the main border measure assisting agriculture; the simple average MFN applied tariff on agriculture (WTO definition) is 10.1%. Agriculture exports (e.g. palm oil, coffee, cocoa) have fallen in the last few years not only because of a major drought in 2016-17 but also due to low productivity that reflects some of the key challenges facing the sector, notably poor application of technological improvements, and lack of scale economies inherent in smallholder farming.

20. In July 2018, PNG submitted its first domestic support notification to the WTO. It is the only Pacific Island country that has an Aggregate Measure of Support (AMS) entitlement, and is among the nine Small and Vulnerable Economies who obtained the same treatment as LDCs and Net Food Importing Developing Countries in the 2015 Nairobi Ministerial Decision on Export Competition in export finance.

21. In recent years, PNG's forests have been degraded and depleted due to excessive logging. The Government has decided to ban all round log exports by 2020. In addition, there is a moratorium on issuance of new logging permits. Regarding the fisheries sector, under the EPA, some fish canneries have been established to benefit from access to the EU market. However, PNG canneries are under threat of intensified competition following the inclusion of fish products under the EU's GSP+ scheme.

22. Since 2014-15, the development of LNG projects has propelled the gas industry to become the key driver of economic growth. Nonetheless, LNG output has mostly been used to repay project-related debt and has generated little employment or additional government revenues. Oil reserves are projected to be depleted by 2026 unless new discoveries are made. Mining remains an important contributor to the economy but very limited processing takes place in PNG and more could be done to encourage further value addition and downstream processing onshore to create jobs. Although the sector has been opened to private participation, electricity supply remains unreliable and very expensive for the quality of service, thus raising the costs of doing business in PNG.

23. Manufacturing has developed on the back of PNG's comparative advantage in agricultural and resource-based industries. PNG's largest manufacturing export commodities are palm oil, copra oil, processed timber and most recently refined petroleum. Processed tuna is another rapidly growing export industry. PNG imports most processed food, clothing and footwear, as well as inputs to industry and commerce. The tariff is the main border measure assisting the manufacturing sector; the simple average applied MFN tariff on manufacturing (major division 3 of ISIC) is 3.2%. Specific tax incentives are in place for manufacturing.

24. The services sector is, increasingly, the largest contributor to PNG's GDP (41.2% in 2018); wholesale and retail trade is the most important subsector. PNG's GATS commitments cover a limited number of sectors and remain unchanged since the Uruguay Round.

25. While most financial services are available in PNG, their supply is limited. Overseas investors may not be able to secure substantial funds locally. New projects would normally need to bring funds from overseas to start operations. According to the IMF, PNG's banking system is sound, profitable, and well-capitalized. However, PNG remains among the most underbanked countries on several

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- 9 - indicators (numbers of branches, ATMs, and loan penetration). BPNG is promoting financial inclusion and deepening.

26. Telecommunications services have benefited from the introduction of private-sector competition in the mobile telephony segment in 2007, which has resulted in a substantial upgrade in the quality and reach of services, and a significant decline in cost. However, broadband access remains expensive by international standards, access to the Internet at reasonable speeds remains difficult, and there are limitations on the international data gateway capacity, which also greatly reduces service quality.

27. Inadequate public infrastructure, across all transport modes, impedes development and is a major barrier to domestic and international trade. The coverage and quality of PNG's transport networks lag behind most other countries in Asia and the Pacific, mainly because of inadequate investment over the past 30 years. Travel by land between most provinces and to ports remains very difficult, and coastal shipping (restricted to domestic-flagged and licensed ships) and aviation services are not cost-effective. To foster the construction of transport infrastructure, the Government intends to establish PPP's as a means of harnessing private investment and management in major projects.

28. PNG's vast potential for attracting foreign tourists and fostering employment and economic growth remains largely untapped. Indeed, tourism continues to face many of the same hurdles confronting other sectors, including expensive air travel, law and security concerns, poor quality and expensive utilities, inadequate infrastructure (e.g. roads, tourism resorts), and insufficient foreign investment. To tackle these issues, the National Tourism Master Plan 2007-17 (currently being updated) prioritized marketing, product development and investment, transport and infrastructure, human resource development, and institution/industry partnerships.

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1 ECONOMIC ENVIRONMENT

1.1 Main Features of the Economy

1.1. Papua New Guinea (PNG) is rich in natural resources, including minerals, oil and gas, forests and fisheries. PNG's rugged terrain includes mountain ranges and dense rain forests, which limit the reach of transportation and communication links. The country has several active volcanoes, and is subject to frequent earthquakes, including a large one in February 2018 that killed nearly 200 people, damaged infrastructure, and disrupted oil, gas, and minerals exports.

1.2. The services sector constitutes the backbone of the economy in terms of GDP share (41.2% in 2018), followed by mining and quarrying, notably oil and gas extraction (30.3%), agriculture and related activities (18.0%), construction (7.2%), and manufacturing (2.1%) (Chart 1.1). PNG remains a developing dualistic economy, heavily reliant on subsistence agriculture.

ChartChart 1.1 1. 1GDP GDP by byeconomic economic activity activity (at basic (at prices), basic 201? prices), 2018

Electricity, gas & Construction water 1.2% 7.2% Manufacturing 2.1% Administrative & support activities Education 7.4% 2.9% Professional & scientific 1.3%

Oil & gas Public Health & social extraction; mining administration & 0.8% & quarrying defence 5.1% 30.3% Services 41.2% Wholesale & Real estate retail trade 5.6% 10.3%

Finance & insurance 2.5% Accommodation Information & & food 1.7% communication Agriculture, 1.8% Transport & storage forestry & fishing 2.1% 18.0%

Source: Department of Treasury online information. Viewed at: Source: Data provided by the authorities http://www.treasury.gov.pg/html/national_budget/2019.html.

1.3. The economy of PNG is highly trade-oriented, and is dependent on merchandise exports (42.0% of GDP in 2017), and travel and tourism (1.8% of GDP in 2017).1 PNG is also an important recipient of official development assistance (ODA).2 Annual average ODA flows amounted to USD 510 million (over 2% of GDP per year) during 2010-16.3 PNG has a narrow merchandise export basket, concentrated in a few countries (Section 1.3.1).

1.4. PNG has a population of 8.3 million; they are predominantly rural, and many follow traditional lifestyles. The country has made development progress over the last few years, as reflected in an increase in GDP per capita, from USD 1,672 in 2009 to USD 2,556 in 2017.4 However, the alleviation of poverty continues to be one of its major challenges. It is estimated that some 3 million people, about 40% of the population, live below the basic needs poverty line.5 Furthermore, part of the population considered vulnerable may have fallen back into poverty in the aftermath of the

1 World Travel and Tourism Council online information. Viewed at: https://www.wttc.org/-/media/files/reports/economic-impact-research/countries-2018/png2018.pdf. 2 The main bilateral donors are Australia, New Zealand, Japan and France. 3 OECD online information. Viewed at: http://oecd.org/dac/financing-sustainable-development/. 4 World Bank online information. Viewed at: https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=PG. 5 The national poverty line established in 2010-11 represents the expenditure required to meet minimum food and non-food needs. World Bank online information. Viewed at: http://databank.worldbank.org/data/download/poverty/33EF03BB-9722-4AE2-ABC7- AA2972D68AFE/Global_POVEQ_PNG.pdf.

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- 11 - catastrophic earthquake of 2018. PNG ranks 153rd out of 189 countries in the latest UNDP Human Development Index.6

1.5. The national currency is the Kina (PGK). The Bank of Papua New Guinea (BPNG, the central bank) is, in principle, independent, and is responsible for monetary policy and price stability. PNG's de jure exchange rate arrangement is floating. Since May 2016, the exchange rate has stabilized within a 2% band against the U.S. dollar. Accordingly, the de facto exchange rate arrangement has been reclassified to stabilized from a crawl-like arrangement, effective 22 August 2017.7

1.6. On 9 October 1975, PNG accepted Article VIII, Sections 2, 3 and 4, of the IMF Agreement.8 PNG maintains the following exchange restrictions, subject to IMF approval under Article VIII: the requirement to obtain a tax clearance certificate evidencing the payment of all taxes, prior to making payments or transfers for certain current international transactions; and the rationing of foreign exchange (FX) and its allocation by the BPNG to certain priority items, which results in undue delays and arrears in current international payments.9

1.2 Recent Economic Developments

1.7. At the time of its previous TPR, held in 2010, prudent macroeconomic policies and structural reforms, including trade liberalization, had helped PNG achieve positive real GDP growth rates notwithstanding the global financial crisis of 2007-08. A major economic challenge confronting PNG at the time, which had wide trade policy implications, was how to manage the "Dutch disease" effects of the kina's appreciation. It was feared that the substantial foreign direct investment (FDI) inflows from liquefied natural gas (LNG) and other projects from the expected mining boom would reduce competitiveness in the non-mining sectors and might accentuate the economy's "dualistic" or "two-speed" nature.10

1.8. Since then, PNG's macroeconomic performance has been broadly satisfactory. Annual real GDP growth averaged 5.2% during 2010-18, fluctuating from 15.4% in 2014 to zero in 2018, mainly in response to changes in major export commodity prices and the LNG pipeline project coming on stream in 2014-15. Increased LNG output, however, has generated little direct increase in local employment, or additional government revenues to support spending. Rather, LNG earnings have mostly been used to repay project-related debt.

1.9. For 2018, PNG authorities expected 0.3% real GDP growth, while the IMF estimated zero (Table 1.1), largely because of low commodity prices, a major drought in 2017, and the earthquake in February 2018. These factors have also weakened the external position, and created fiscal challenges. For 2019, the IMF predicts the economy will recover to 3.8%, as resource output returns to normal.11

1.10. Key elements impeding higher rates of economic growth include supply-side constraints, notably poor infrastructure, and other structural impediments, such as weak institutional capacity, a difficult business climate, and political instability. To address some of these challenges, the National Trade Policy 2017-32 was launched, with the aim of becoming "an internationally competitive export-driven economy that is built on and aided by an expanding and efficient domestic market" (Section 2.2).

6 UNDP online information. Viewed at: http://hdr.undp.org/en/countries/profiles/PNG#. 7 IMF Country Report No. 18/352. 8 Article VIII spells out the obligations of the members in carrying out their monetary policy. Section 2 prohibits members from imposing restrictions on making current payments, and provides that governments must make foreign exchange available for goods, services, and invisibles; Section 3 directs members to avoid discriminatory currency practices; and Section 4 enables the convertibility of foreign-held balances. 9 PNG also maintains multiple currency practices (MCPs), subject to IMF approval: an MCP arising from the spread of more than 2% between the rates set by the BPNG for its FX allocations to authorized FX dealers (AFEDs), and the rates used by AFEDs in transactions with their clients; and an MCP arising from the potential spread deviation of more than 2% between the rates set by the BPNG for its FX transactions with the Government and embassies, and the rates used by AFEDs in transactions with their clients. IMF Country Report No. 17/411. 10 WTO (2010), Trade Policy Review of Papua New Guinea, Geneva. 11 IMF Country Report No. 18/352.

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Table 1.1 Selected economic indicators, 2013-18

2013 2014 2015 2016 2017 2018a Real sector Nominal GDP (USD million) 21,261 23,060 20,639 19,028 20,334 21,390 Nominal GDP (PGK billion) 47.7 56.8 57.1 59.6 65.5 70.8 Real GDP growth (% change) 3.8 15.4 5.3 1.6 2.5 0.0 Inflation (CPI average, % change) 5.0 5.2 6.0 6.7 5.4 4.8 Money and banking (% change) Domestic credit 40.9 12.8 23.5 15.9 -1.0 10.5 Credit to the private sector 17.5 3.5 3.4 7.2 -3.6 7.0 Broad money 6.7 3.4 8.0 10.9 0.9 16.5 Interest rate (182-day T-bills; average) 5.0 5.3 7.1 7.4 7.1 7.0 Central government operations (% GDP) Revenue and grants 20.7 20.9 19.3 17.6 17.6 17.9 Expenditure and net lending 27.6 27.2 24.1 22.8 20.3 20.8 Net lending (+)/borrowing (-) -6.9 -6.3 -4.8 -5.2 -2.7 -2.9 Government gross debt 24.9 27.1 32.3 37.8 37.5 36.8 External sector PGK/USD (end-of-period) 2.42 2.59 3.01 3.17 3.27 3.39 NEER (2005=1200, end-of-period) 120.6 114.2 116.4 104.2 101.0 .. REER (2005=1200, end-of-period) 127.0 123.6 131.4 123.6 124.0 .. Terms of trade (2010=100, end-of-period) 99.3 97.4 102.0 93.4 85.0 84.8 Current account (% GDP) -30.8 1.3 12.0 24.1 24.5 23.4 External debt (% GDP)b 6.4 6.2 7.9 10.2 11.3 14.1 External debt service (% exports)b 1.4 1.1 1.1 1.3 1.4 1.8 Gross official reserves (USD billion) 2.8 2.3 1.9 1.7 1.7 2.2 In months of goods and services imports) 4.3 5.9 6.0 4.4 4.9 5.6

.. Not available. a Preliminary. b Public external debt includes external debt of the central Government, the BPNG, and statutory authorities. Source: IMF Country Report No. 18/352.

1.11. The inflation rate, as measured by the Consumer Price Index (CPI), averaged 5.7% during 2013-17. For 2018, the IMF estimates an easing of the average inflation rate to 4.8%, partly due to weak demand and improved agricultural supply. In general, during the review period, the BPNG adopted a neutral monetary policy stance, with inflation considered manageable. However, it is closely monitoring inflation trends, and will adjust monetary policy as necessary. It also continues to diffuse liquidity using a range of monetary instruments, including through open market operations issuing Central Bank Bills and maintaining the cash reserve ratio at 10% since 2014.12

1.12. PNG's fiscal deficit, as percentage of GDP, went down from 6.9% in 2013 to an estimated 2.9% in 2018 (Table 1.1). During the boom years of 2013-14, government spending was ramped up sharply, in anticipation of sustained increases in resource-based revenues. The fall in oil and gas prices, together with very favourable tax terms for the LNG project, have meant that, since 2015, tax revenues from LNG exports have been very low, while revenues from other sectors were adversely affected by the drought and the weak tax administration. On the expenditure side, it has proven difficult to unwind earlier increases in government spending.13

1.13. Fiscal deficits, together with slow economic growth, have pushed the government debt-to-GDP ratio over the band of 30-35% (estimated at 36.8% for 2018). As a result, the authorities are taking steps to achieve fiscal consolidation, with the 2019 budget showing debt falling below 30% of GDP in 2021. Another key target of the Medium-Term Fiscal Strategy 2018-22 is to reach an average annual non-resource primary fiscal balance of zero by, inter alia, promoting revenue mobilization and spending reduction to manage public debt at prudent levels. The Strategy also includes longer-term aims of developing non-resource sectors by prioritizing spending and investment on education, health care, and key infrastructure projects; new tariff and excise rates;

12 IMF Country Report No. 18/352. 13 IMF Country Report No. 18/352.

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- 13 - and legislative amendments and administrative initiatives to increase revenues and widen tax coverage.14

1.14. Despite an increasing current account surplus since 2014, PNG has been facing a shortage of FX, estimated at around USD 1 billion, which has adversely affected activities dependent on imports and has dampened GDP growth. According to the IMF, the kina is overvalued by 10.7%, and eliminating overvaluation will require a depreciation of 12-15% in nominal terms. Overvaluation acts as a subsidy for imports and dividends paid abroad, while taxing exports. The monetary authorities have begun to address the FX problem by facilitating exchange rate adjustment, increasing the supply of FX, and strengthening the monetary framework. In 2018, the Government issued a debut sovereign bond, to improve the domestic public debt profile and help resolve the FX and exchange rate conundrum.15

1.15. PNG's capital and financial account balance swung from a large surplus in 2013, reflecting inflows to finance the LNG projects (Section 4.2.3)16, to a deficit estimated at USD 4.4 billion in 2018 (Table 1.2). Part of this swing in the capital and financial account has been financed by an increase in goods and services exports. The most important counterpart for the large increase in capital and financial account outflows has been through reduced imports. Outflows have been partly financed, or imports supported, through the depletion of international reserves during 2013-17. However, international reserves are estimated to have increased from USD 1.7 billion in 2017 to USD 2.2 billion at end-2018, equivalent to 5.6 months of imports (Table 1.1).

Table 1.2 Balance of payments, 2013-18

(US D million) 2013 2014 2015 2016 2017a 2018a Current account balanceb -6,540 303 2,426 4,517 4,851 4,867 Trade balance -516 4,248 5,150 6,715 7,203 6,837 Exports f.o.b. 5,951 8,758 7,800 8,683 9,710 9,576 Imports f.o.b. -6,468 -4,510 -2,650 -1,968 -2,507 -2,739 Services (net) -4,956 -3,104 -1,887 -1,648 -1,779 -1,293 Income (net) -1,200 -956 -944 -784 -820 -925 Current transfers 132 115 106 234 247 247 Capital and financial account balance 4,150 -883 -4,941 -4,485 -4,797 -4,390 Capital account balance 15 2 1 2 9 10 Direct investment 904 864 584 602 591 606 Portfolio investment -116 373 274 -70 -335 788 Other investments 3,346 -2,122 -5,800 -5,019 -5,794 -6,356 Net errors and omissions -1,387 0 0 0 0 0 Overall balance -1,176 -520 -440 31 54 478 a Estimates. b Includes IMF's estimates related to the PNG LNG project. Source: IMF Country Report No. 18/352.

1.3 Developments in Trade and Investment

1.3.1 Trends and patterns in merchandise and services trade

1.16. In 2017, PNG ranked 64th among world merchandise exporters and 111th among importers (considering EU member States as one, and excluding intra-EU trade).17

1.17. During the review period, PNG's merchandise exports almost doubled from USD 5.5 billion in 2012 to USD 9.9 billion in 2017, driven by a surge in exports of mineral fuels and oils, mostly LNG (28.9% of total merchandise exports in 2017). As a result, the export structure shifted drastically, with mineral products accounting for about half of total merchandise exports, compared with the 17.3% share in 2012 (Chart 1.2 and Table A1.1). Other top export products are precious stones and

14 IMF Country Reports No. 17/411 and 18/352. 15 The bond issue was for USD 500 million, with a 10-year maturity and a yield of 8.375%. IMF Country Report No. 18/352. 16 A large portion of this outflow consisted of construction loan repayments. 17 WTO statistics database, Trade Profiles: Papua New Guinea. Viewed at: http://stat.wto.org/CountryProfiles/PG_e.htm.

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- 14 - metals (23.2% in 2017), followed by palm oil, transport equipment, wood and articles of wood, and coffee.

1.18. Merchandise exports are also highly concentrated geographically. However, the share of Australia, PNG's single most important export market destination, decreased from 32.1% in 2012 to 28.3% in 2017. Japan's participation in PNG's total merchandise exports doubled from 9.6% in 2012 to 19.8% in 2017, while that of China also increased from 9.6% to 13.1% during the period. Noteworthy is the decrease in the share of the European Union in PNG's total exports to 11.9% in 2017, from 16.5% in 2012. The participation of Singapore in PNG's total merchandise exports alsoChart went 1.[PNG] down significantly Product composition over the period of merchandise (Chart 1.3 and trade Table by HS A1. main2). sections, 2012 and 2017 Chart 1.2 Merchandise trade by main HS sections, 2012 and 2017

2012 2017

Exports

Prepared food, Mineral products beverages & tobacco 17.3% 3.6% Mineral products 49.1% Prepared food, (28.9% liquefied Wood & articles Fats & oils beverages & tobacco natural gas) thereof 5.0% 3.0% 10.8% Fats & oils 6.4% Vegetable products 4.9% Vegetable products 2.1% Other Other 3.9% 9.1% Transport equip. 5.1% Precious stones & metals 27.4% Base metals & Wood & articles articles thereof thereof 3.3% 3.8% Transport equipment Base metals & Precious stones & metals 19.5% articles thereof 23.2% 2.2%

Total: USD 5.5 billion Total: USD 9.9 billion

Imports

Chemicals 4.7% Mineral products Chemicals Plastics & rubber 15.3% 6.9% Mineral products 3.7% Plastics & rubber 17.2% Base metals & 4.7% articles thereof Prepared food, Prepared food, 10.1% beverages & tobacco beverages & tobacco 6.8% Base metals & 3.8% articles thereof 8.3% Vegetable products Vegetable products 4.0% 5.4%

Other Other 11.0% 13.3%

Machinery; electrical equipment Machinery; 30.4% electrical equipment 27.2% Transport equipment Transport equipment 15.0% 12.1%

Total: USD 8.7 billion Total: USD 5.0 billion

Source: WTO Secretariat calculations, based on data received by the authorities. Source: WTO Secretariat calculations, based on data received by the authorities.

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- 15 - Chart 1.[PNG] Direction of merchandise trade, 2012 and 2017 Chart 1.3 Direction of merchandise trade, 2012 and 2017

2012 2017

Exports

Other Other 10.2% EU-28 8.4% Philippines EU-28 16.5% India 2.9% 11.9% 3.7% Hong Kong, China 3.6% Philippines China 3.2% Singapore 13.1% 5.2% China 9.6% Singapore Chinese Taipei 15.1% 6.9%

Japan 9.6% Japan 19.8%

Australia 28.3% Australia 32.1%

Total: USD 5.5 billion Total: USD 9.9 billion

Imports United United Other States States 3.4% EU-28 8.3% 5.9% Other EU-28 11.9% 3.4% Thailand 3.0% 8.3% China New Zealand 2.7% Thailand 2.9% 10.8%

Indonesia 3.0% China New Zealand 3.0% 6.7% Japan Malaysia Indonesia 3.4% 3.8% 6.3% Japan 6.0% Malaysia Singapore 11.2% 15.9%

Singapore Australia Australia 12.4% 33.8% 33.9%

Total: USD 8.7 billion Total: USD 5.0 billion

Source: WTO Secretariat calculations, based on data received by the authorities. Source: WTO Secretariat calculations, based on data received by the authorities. 1.19. Merchandise imports have decreased considerably throughout the review period, from USD 8.7 billion in 2012 to USD 5.0 billion in 2017. As much as half may be attributable to the reduction of imports directly associated with the LNG project. In addition, FX restrictions are likely to have played an important part. There is considerably more balance across commodity groups in PNG's import structure (Chart 1.2 and Table A1.3). The largest category is machinery and electrical equipment with a 27.2% share in 2017 (30.4% in 2012), followed by mineral products (15.3%), and transport equipment (12.1%). Prepared food, beverages and tobacco, and cereals also represent a sizeable part of PNG's total merchandise imports.

1.20. Merchandise imports are also highly concentrated geographically (Chart 1.3 and Table A1.4). Australia continues to be PNG's largest source of merchandise imports with a 33.8% share in 2017 (about the same as in 2012), followed by Singapore 12.4% (15.9% in 2012), Malaysia (11.2%), and China (10.8%). The participation of the European Union in PNG's total imports averaged 7% during the period, while that of the United States was 3.5%.

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1.21. In services trade, PNG ranks 148th in the world (considering the EU member States as one, and excluding intra-EU trade) as an exporter and 102nd as an importer.18 Largely because of transportation and other business services, PNG has traditionally been a net importer of services. However, PNG's services trade deficit decreased significantly, from PGK 6,784.3 million in 2012 to PGK 3,796.2 million in 2017 (Table 1.3).

Table 1.3 Services trade, 2012-17 (PGK million) 2012 2013 2014 2015 2016 2017a Service credits 993.7 937.3 515.7 404.3 518.9 800.9 Transportation 146.6 137.6 48.6 47.4 53.7 132.3 Travel (excluding transp.) 2.0 7.4 6.1 4.6 2.1 4.5 Education 2.8 0.8 0.6 0.0 0.0 0.3 Insurance 9.1 21.7 22.8 3.1 7.2 10.8 Other financial services 16.8 10.8 17.6 16.9 8.4 25.9 Computer and information 0.2 0.3 0.2 0.7 0.2 1.5 Communications 3.3 36.2 25.0 12.0 4.9 13.8 Other business services 266.8 136.7 119.2 61.1 188.7 92.7 Cultural and recreational 1.5 0.6 0.7 0.1 0.4 0.3 Government services 96.2 74.9 80.4 101.5 96.7 116.5 Construction services 81.1 3.5 11.6 1.1 7.9 44.0 Refining and smelting 0.0 0.0 0.0 0.0 0.0 0.0 Other service receipts 367.3 506.8 182.9 155.8 148.7 358.2 Service debits 7,778.0 8,725.7 5,626.9 3,690.8 2,962.8 4,597.1 Transportation 1,619.9 1,684.7 1,303.3 1,118.5 749.5 1,062.5 Travel (excluding transp.) 96.9 106.4 89,1 80.1 52.6 129.4 Education 226.9 236.6 218,7 264.8 291.8 315.3 Insurance 249.1 323.6 266.5 234.8 133.0 183.3 Other financial services 225.9 217.8 135.2 96.1 58.7 110.7 Computer and information 47.1 49.7 37.5 39.2 34.6 82.6 Communications 71.5 88.2 71.9 155.0 179.8 250.0 Other business services 1,977.4 2,015.6 1,301.4 933.1 879.7 1,301.2 Cultural and recreational 1.3 1.0 0.6 0.3 3.1 0.1 Government services 37.9 77.1 91.3 39.1 52.4 46.3 Construction services 2,590.3 3,235,7 1,234.9 175.2 41.1 226.5 Refining and smelting 209.3 178.6 236.3 197.1 256.7 412.7 Other service payments 424.5 510.7 640.2 357.5 229.9 476.4 a Preliminary. Note: The services account is classified according to the Balance of Payments and International Investment Position Manual, Version 5. Source: Information provided by the BPNG.

1.3.2 Trends and patterns in FDI

1.22. PNG's FDI regime is generally open. Under the Cottage Business Activities List, certain low-skilled economic activities continue to be reserved for PNG citizens and national entities (Table 2.4 and Section 2.3.3). The National Investment Policy contains guidelines for the pursuit of economic development through domestic and foreign-funded investment projects. FDI inflows were negative in 2014 and 2017 because of LNG project-related debt repayments. On average, FDI inward stock represented about 20% of GDP over 2012-17 (Table 1.4).

Table 1.4 FDI, 2012-17

2012 2013 2014 2015 2016 2017 FDI inflows 25.0 18.2 -30.1 28.2 39.8 -200.5 FDI inward stock 4,656.1 4,222.9 4,139.9 4,466.5 4,465.1 4,422.2 FDI inward stock (% of GDP) 22.0 19.9 19.6 21.1 22.3 20.9

Source: UNCTAD (2018), World Investment Report 2018, Geneva.

18 WTO statistics database, Trade Profiles: Papua New Guinea. Viewed at: http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=PG.

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1.23. During the review period, PNG took measures to attract larger FDI inflows and improve the business climate. Some legislative reforms and stability in government helped PNG to improve its ranking in the latest World Bank's Ease of Doing Business report, to 109th (from 145th in 2016) among 190 economies. According to the World Bank, some of the most problematic areas for doing business in PNG are enforcing contracts, starting a business, resolving insolvency, and trading across borders (Section 3.1.1).19

1.24. Because of LNG and other projects, the mining sector is PNG's largest recipient of total FDI inflows, with an 86% share in 2017 (Table 1.5), followed by the financial sector (3.8%), manufacturing (2.8%), and agriculture (1.7%). Australia is the largest source of total FDI in PNG (58.7% in 2017), followed by Japan (12%), China (8.3%)20, and Malaysia (2.2%) (Table 1.6).

Table 1.5 FDI stock by sector, 2012-17 (PGK million) Sector 2012 2013 2014 2015 2016 2017a Agriculture 219 219 219 219 219 237 Mining 8,559 8,673 9,151 11,527 12,268 12,270 Transportation 4 5 5 5 5 5 Manufacturing 394 394 395 395 395 395 Fisheries 52 52 52 52 52 52 Banking/insurance/finance 137 451 382 545 545 545 Retail 44 44 48 48 48 48 Forestry 134 134 134 134 134 212 Hotels/restaurants 10 10 10 10 10 10 Communication 123 123 224 224 214 214 Other 116 120 121 273 275 276 Total 9,792 10,225 10,739 13,432 14,165 14,264 a Preliminary. Note: FDI = Foreign-equity holdings in PNG. Source: Information provided by the BPNG.

Table 1.6 FDI stock by source, 2012-17 (PGK million) Country 2012 2013 2014 2015 2016 2017a Australia 5,690 5,804 6,281 7,634 8,376 8,377 Japan 1,717 1,717 1,717 1,717 1,717 1,717 China 5 5 5 1,193 1,193 1,187 Malaysia 164 164 164 288 288 308 British Virgin Islands 141 141 219 219 219 264 Cayman Islands 224 224 224 224 224 224 Bahamas 189 189 189 189 189 189 Isle of Man 170 170 170 170 170 170 Singapore 165 165 168 168 168 168 United Kingdom 206 206 136 136 136 175 Hong Kong, China 69 69 69 99 99 99 Canada 98 98 98 98 98 98 United States 50 50 0 50 50 50 Total 9,792 10,225 10,739 13,432 14,165 14,264 a Preliminary. Note: FDI = Foreign-equity holdings in PNG. Source: Information provided by the BPNG.

19 World Bank online information. Viewed at: http://www.doingbusiness.org/content/dam/doingBusiness/country/p/papua-new-guinea/PNG.pdf. 20 The significant increase in equity stock from China is attributed to investments in mining.

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2 TRADE AND INVESTMENT REGIMES

2.1 General Framework

2.1. PNG is a constitutional monarchy, with the British Sovereign, represented by a governor- general approved by national Parliament, as ceremonial Head of State.1 The Government is elected for a maximum period of five years, by universal adult suffrage. Under the 1975 Constitution, legislative authority is vested in the unicameral Parliament. This provides for the separation of powers between the executive, the legislature, and the judiciary.

2.2. The Prime Minister, elected by Parliament, heads the National Executive Council (NEC). There are 33 ministerial portfolios, headed by appointed ministers from the ruling coalition, which collectively comprise the Government. The NEC, with members from all ministries, can propose and draft new legislation, which can then be passed to Parliament for review.

2.3. The Parliament has 111 members, of which 89 represent regular constituencies and the other 22 are occupied by the governors of the 21 provinces and the National Capital District of Port Moresby. Candidates for member of parliament are voted upon when the Prime Minister asks the Governor-General to call a national election, a maximum of five years after the previous national election. Each of PNG's 21 provinces has its own unelected government, which may levy taxes to supplement grants received from the national Government.

2.4. Constitutional changes are rare, and require an absolute two-thirds or, in some cases, a three-quarters parliamentary majority. Legislative proposals are presented to Parliament as bills. Multilateral agreements must be passed into domestic law, and all trade agreements are submitted to Parliament.

2.5. Provincial and national governments have concurrent powers in many key areas, including agriculture, commercial and industrial development, forestry, fishing, transportation, labour, and mining. However, since national laws take precedence, provincial governments cannot pass trade-related laws which are inconsistent with national legislation.

2.6. PNG's independent judiciary consists of the Supreme Court at the top, headed by the Chief Justice, and the National Court, which has unlimited jurisdiction in both civil and criminal matters. There are also district- and village-level courts, as well as specialized agencies handling customary land disputes and civil cases relating to mining; the legal system has adopted traditional local values, including communal land rights. Land courts also handle ownership disputes.

2.2 Trade Policy Formulation and Objectives

2.7. The Ministry of Commerce and Industry (MCI), through the Department of Commerce and Industry (DCI), handles external trade policy formulation and implementation.2 It negotiates and administers PNG's multilateral, bilateral, and regional trade agreements (RTAs). Other ministries with trade-related responsibilities include: Treasury, Finance and Rural Development, and its Internal Revenue Commission (IRC) and the Customs Service; the Prime Minister's Office; Agriculture and Livestock; Forestry; Fisheries; Lands and Physical Planning; Petroleum and Energy; Public Enterprises and State Investments; and Tourism and Culture.

2.8. Several statutory authorities have trade-related roles, e.g. the National Forest Authority, the National Fisheries Authority, the Minerals Resources Authority, the Tourism Promotion Authority, and the Independent Competition and Consumer Commission. Services trade involves line agencies, such as the Ministry of Communication and Information Technology, the Ministry of Transport, and the Ministry of Civil Aviation. The DCI handles internal trade, manufacturing, small and medium- sized enterprises (SMEs), investment, and promoting commercial and industrial development. The Investment Promotion Authority (IPA), under the MCI, facilitates and certifies foreign investment.

1 PNG gained internal self-government in December 1973, and political independence from Australia in September 1975. 2 The DCI is currently in a transition to separate external trade from commerce and industry.

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2.9. The private sector and civil society continue to interact, formally and informally, with the Government. The former is represented by the Chamber of Commerce and Industry, the Manufacturers Council, the Business Council, the Chamber of Mines and Petroleum, and the Rural Industries Council. The Consultative Implementation and Monitoring Council (CIMC) facilitates dialogue between the Government, the private sector, civil society, and the general community. No independent body publicly evaluates or advises the Government on trade policies. The privately- funded Institute of National Affairs (INA) conducts research and provides independent public policy advice to the Government. The Government's independent "think tank" on public policy and development-related issues, the National Research Institute, also plays a policy advisory role.

2.10. In 2009, the Government's long-term vision of a strong, dynamic and competitive economy by 2050 was outlined in the national development framework, Vision 2050. It aims to ensure that economic growth by 2050 will be broad-based, less reliant on the mining and energy sectors, and conducive to creating new income-earning opportunities and improvements in human development outcomes. The focus is to "develop manufacturing, agriculture, forestry, fisheries and tourism ventures to generate 70% of GDP, with the balance coming from mining, petroleum and gas ventures in the non-renewable sector".3

2.11. In 2010, the Government launched the Development Strategic Plan (DSP), 2010–30. It provides a strategic planning framework to extend economic growth benefits to the most disadvantaged regions and communities through a more effective transport and utilities network, and quality education and health services.4

2.12. In 2014, an addendum to the DSP was launched, the National Strategy for Responsible Sustainable Development (NSRSD), 2010–30. It emphasizes the Government's desire to reduce the economy's reliance on non-renewable resource extraction, and encourages the development of environmentally sustainable industries and low-carbon technologies in pursuing a more inclusive economic growth path.5 The DSP and the NSRSD guide all medium-term development and sector strategies. DSP implementation is based on four consecutive five-year Medium-Term Development Plans (MTDPs), each guided by an accompanying medium-term fiscal strategy to ensure ongoing confidence in the Government's fiscal position. Currently, MTDP III 2018-22 is being implemented.6

2.13. In 2015, the National Trade Policy (NTP) 2017-32 was launched. PNG aims "to become an internationally competitive export-driven economy that is built on and aided by an expanding and efficient domestic market". The following six principles guide the implementation of the NTP and PNG's overall trade orientation7:

• PNG's national interests and development goals must take priority in the conduct of domestic and international trade. Through its trade agreements, PNG will transform deficits into surpluses on both its merchandise and services accounts;

• PNG remains open to engaging with any trade or investment party in priority sectors, where such engagements are beneficial to the country and will contribute towards achieving its sustainable growth and development goals;

• PNG will engage all stakeholders, especially the private sector, in the formulation, ongoing review, implementation and improvement of its NTP and in the development of its trading regime. To this end, the NTP encourages greater participation of PNG businesses and workers in strategic economic activities;

• the Government is to provide oversight and coordination of the required policy and regulatory framework for trade, and create the necessary enabling environment for an efficient and viable trading system. It will also be involved in strategic sectors of interest to PNG through public-private partnership (PPP) arrangements, to promote public policy

3 Government of PNG (2009), PNG Vision 2050, p. 36, Port Moresby. 4 Government of PNG (2010), PNG DSP, 2010–30, Port Moresby. 5 Government of PNG (2014), NSRSD, 2014–30, Port Moresby. 6 Government online information. Viewed at: http://www.planning.gov.pg/images/dnpm/pdf/latest_pub/MTDP%20III%20Book%202_Final%20Proof(Web)_c ompressed.pdf. 7 DCI, PNG: NTP 2017-32, Port Moresby.

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objectives. The role of the private sector is primarily to spearhead trade-related activities and export-led growth;

• PNG will respect and uphold its rights and obligations arising from existing and future trade arrangements; and

• PNG is committed to free-trade deals that gives it no less than fair and equitable benefits, in line with its national interests.

2.14. PNG aims to achieve the following goals, through the NTP:

• build a strong economy, based on production in competitive/sustainable sectors, especially manufacturing and services, inclusive of micro, small and medium-sized enterprises' (MSME) participation in down-stream processing and value-adding, to increase PNG's export capacity and contribute towards a sustainable balance of payments. This will result in an annual average growth in both the manufacturing and services sectors of 5%;

• establish a sound policy and regulatory framework, conducive to doing business and promoting PNG's economic growth and development goals;

• improve and develop PNG's physical infrastructure (e.g. roads, transportation, logistics and communication) to enhance export competitiveness;

• align trade facilitation obligations and agreements, to ensure efficiency of customs and regulatory processes for outbound and inbound goods and services at the border;

• promote and implement rights, commitments and obligations arising from trade agreements, to attract investors wishing to do business with PNG;

• establish an effective mechanism for delivering international market intelligence and targeting market access;

• establish capacity to negotiate and implement trade agreements. A pro-active approach in trade policy development, negotiation and implementation is critical to achieving beneficial outcomes from bilateral sub-regional, regional and multilateral agreements. It also impacts on FDI, labour mobility and trade in services, at both the regional and global levels;

• build trade-related institutional capacity. Strengthening and developing the capacity of trade-related institutions, and creating professional career paths for trade actors, is an essential strategy for ensuring the success of the trade policy in the very long term;

• identify, support and involve other institutions and actors in trade policy for sustainable development. Issues such as environmental impact, gender and inclusiveness, safeguards for health and safety will be integral components of trade policy; and

• establish a mechanism for the effective and efficient governance and implementation of the NTP. A National Trade Office shall be established to achieve this goal.8

2.15. During the review period, PNG enacted the PPP Act, 2014 and the National Procurement Act, 2018, the only significant legislative developments since 2010 (Table 2.1). Laws are published in the National Gazette, and most departments have websites, albeit of varying usefulness.

8 Over the long term, it will increase in professionalism, institutional competence and stability, and its outreach into the global market-place will be significant for PNG's trade-led economic growth. DCI, PNG: NTP 2017-32, Port Moresby.

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Table 2.1 Main trade-related legislation, 2019

Area Legislation Agriculture Export (Desiccated Coconut) Act, 1956; Coffee Industry Corporation (Statutory Functions and Powers) Act, 1991; Kokonas Indastri Koporesen Act, 2002 (coconut); Cocoa Act, 1991; Cocoa Regulation, 1982; Copra Act, 1953; Copra Inspection Regulation, 1982 Aviation Civil Aviation Act, 2000 Banking and finance Central Banking Act, 2000; Savings and Loan Societies (Amendment) Act, 1995; Life Insurance Act, 2000 (as amended); Superannuation (General Provisions) Act, 2000 (as amended); Banks and Financial Institutions Act, 2000; Securities Act, 1997; Criminal Code (Money Laundering and Terrorist Financing) (Amendment) Act, 2015; United Nations Financial Sanctions Act, 2015; Anti‐Money Laundering and Counter Terrorist Financing Act, 2015 (AML/CTF Act); Proceeds of Crime (Amendment) Act, 2015; Mutual Assistance in Criminal Matters (Amendment) Act, 2015; National Development Bank Act, 2007; Savings and Life Insurance Act, 2000; Insurance (Miscellaneous Provisions) Act, 1975; Insurance Corporation Act, 1977; Insurance Act, 1995;Motor Vehicles Act, 1995; Proceeds of Crime Act, 2005 Commerce Trading Act, 1949; Trade Licensing Act, 1969; Discriminatory Practices Act, 1963; Free Trade Zones Act, 2000; Commerce (Trade Descriptions) Act, 1952; Companies Act, 1997; Takeovers Code, 1998; Industrial Centres Development Act, 1990; Small Medium Enterprise Corporation Act, 2014; Cooperative Societies Act, 1985 (amended); Goods Act, 1951; Arbitration Act, 1951; Investment Disputes Convention Act, 1978; Industry Assistance Board Act, 1985; Consumer Affairs Councils Act, 1993 Competition and Independent Consumer and Competition Commission Act, 2002; Price Regulation price regulation Act, 1949; Price Regulations, 1949 Customs Customs Tariff Act, 1990 (as amended); Export (Control and Valuation) Act, 1973; Export (Control and Valuation) Regulation, 1973; Customs (Ad valorem Duties) Regulation, 1987; Customs (Prohibited Imports) Regulation, 1973; Customs (Prohibited Exports) Regulations, 1963; Customs Duty (Rebate) Act, 1982 Energy Independent Consumer and Competition Commission, 2002; Electricity Industry Act, 2002 (Chapter 78); Electricity Commission Regulation, 1966; Electricity Supply (Government Power Station) Act, 1970; Electricity Supply (Government Power Station) Regulation, 1970; Electricity Commission (Privatization) Act, 2002 Environment International Trade (Flora and Fauna) Act, 1979; International Trade (Flora and Fauna) Regulations, 1982; Crocodile Trade (Protection) Act, 1974; Crocodile Trade (Protection) Regulations, 1980; Environment Act, 2000; Environmental Contaminants Act, 1978; Environmental Planning Act, 1978; Environmental Planning Regulations, 1992; Water Resources Regulations, 1982 Fisheries Fisheries Management Act, 1998 (amended 2015); Fisheries Management Regulations, 2000 (amended 2016); Fisheries (Torres Strait Protected Zones) Act, 1984; Fisheries (Torres Strait Protected Zones) Regulations, 1987; Export (Fish) Regulations, 1953 Forestry Forestry Act, 1991 (as amended); Forestry Regulations, 1996 Government PPP Act, 2014; National Procurement Act, 2018 procurement Health and Public Health Act, 1973; Tobacco Products (Health Control) Act, 1987; Drugs Act, pharmaceuticals 1952; Drugs Regulation, 1952; Poisons and Dangerous Substances Act, 1952; Poisonous and Dangerous Substance Regulations, 1953; Dangerous Drugs Act, 1952; Dangerous Drugs Regulation, 1955; Medicines and Cosmetics Act, 1999; Medicines and Cosmetics Regulation, 2002 Intellectual property Patents and Industrial Designs Act, 2000; Patents and Industrial Designs Regulation, 2002; Copyrights and Neighbouring Rights Act, 2000; Trademarks Act, 1978; Trademarks Regulation, 1979; Customs (Prohibited Imports) Regulation, 1973 Investment Investment Promotion Act, 1992; Investment Promotion Regulations, 1992 Land transport PNG Constitution, 1975; Land Act, 1996; National Road Safety Council Act, 1997; Motor Dealers Act, 1976 Mining Mining Act, 1992; Mineral Resources Act, 2005; Oil and Gas Act, 1998; Oil and Gas Regulations, 1998 Professional Professional Conduct Rules, 1989; Lawyers Act, 1986; Lawyers Admission Rule, business and other 1990; Attorney Generals Act, 1989; Attorney Generals Regulations, 1990; services Accountants Act, 1996; Architects Registration Act, 1989; Professional Engineers (Registration) Act, 1986; Professional Engineers (Registration) Regulation, 1988; Education Act, 1983; Education Regulation, 1983; Security (Protection) Industry Act, 2004

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Area Legislation Quarantine and SPS Food Sanitation Act, 1991; Quarantine Act, 1953; National Agricultural Quarantine and Inspection Authority Act, 1997; Animal Disease and Control Act, 1952; Animal Disease and Control Regulation, 1952; Animal Act, 1952; Animal Regulation, 1952; Plant Disease and Control Act, 1953; Plant Disease and Control Regulation, 1956 Shipping Shipping Act, 1951; Merchant Shipping Act, 1975; Independent Consumer and Competition Commission Act, 2002; Harbours Board Act, 1963 Standards National Institute of Standards and Industrial Technology Act, 1993; Trade Measurement Act, 1973; Building Act, 1971; Weights and Measurements Regulation, 1974 Taxation Income Tax Act and Regulations, 1959 (as amended); Goods and Services Tax Act, 2003 (as amended); Excise Tariff Act, 1956 (as amended); Goods and Services Tax Revenue Distribution Act, 2003; Goods and Services Tax Regulation, 2005; Stamp Duties Act, 1952 (Chapter 117); Customs Tariff (PNG LNG Project) (Amendment) Act, 2008 Telecommunications Independent Consumer and Competition Commission Act, 2002; Post and Telecommunication Corporation (Home Ownership) Act, 1990; Postal Services Act, 1996; National Information Communication Technology Act, 2009; Television (Prohibition and Control) Act, 1986; Cybercrimes Act, 2016

Source: Information provided by the authorities.

2.3 Trade Agreements and Arrangements

2.3.1 WTO

2.16. PNG became a GATT contracting party on 16 December 1994, and an original WTO Member on 9 June 1996. It grants at least MFN treatment to all trading partners, including non-WTO ones. It has bound its entire tariff; its services commitments have not changed from those scheduled in the Uruguay Round, which cover a limited number of sectors. PNG is not a party to the Information Technology Agreement (ITA), or to the plurilateral Agreements on Government Procurement (GPA) and Trade in Civil Aircraft. It has not been involved in any formal WTO disputes, including as a third party.

2.17. PNG notified its Category A commitments under the Agreement on Trade Facilitation (TFA) on 8 June 20169, and deposited its instrument of acceptance of the TFA on 7 March 2018.10 No laws were introduced or amended to implement the Agreement. In June 2016, PNG accepted the Protocol Amending the TRIPS Agreement, which took effect on 23 January 2017.

2.18. As a non-resident WTO Member, the absence of a Geneva mission makes PNG's multilateral participation less effective. Such matters are handled part-time by its EU mission in Brussels and the WTO Pacific Islands Forum Representative Office in Geneva, established in 2004.

2.19. PNG fully supports the multilateral trading system. In the WTO, PNG is part of the Small, Vulnerable Economies (SVEs) group, and is a member of the W52 Group, which proposes "modalities" in negotiations on geographical indications and "disclosure" by patent applicants. PNG has requested the WTO to create a division to specifically implement the work programme on SVEs, and to establish a regional training institute on WTO agreements. It advocates the extension of special and differential treatment to SVEs regarding fisheries subsidies; meaningful market access commitments on the temporary movement of people; and binding agreements on technical assistance for trade facilitation, agriculture, and non-agricultural market access (NAMA).

2.20. To the detriment of transparency, PNG has made few WTO notifications during 2010-18 (Table 2.2). It has outstanding notifications in several areas, including agriculture, import licensing procedures, quantitative restrictions, customs valuation, rules of origin, state trading enterprises, intellectual property rights (IPRs), and GATS. It has regularly submitted tariff data to the WTO Integrated Data Base (IDB).

9 WTO document WT/PCTF/N/PNG/1, 8 June 2016. 10 WTO online information. Viewed at: http://www.tfafacility.org/ratifications.

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Table 2.2 Notifications, 2010-18

Legal provision Description of requirements WTO document and date Agreement on Implementation of GATT Article VI of the GATT 1994 (Anti-dumping) Article 16.5 Competent authorities G/ADP/N/193/PNG, 12 April 2016 Agreement on Technical Barriers to Trade (TBT) Articles 10.1 and 10.3 National enquiry points G/TBT/ENQ/38/Rev.1, 8 July 2011 Agreement on Subsidies and Countervailing Measures Article XVI:1 of GATT 1994 New and full notification G/SCM/N/284/PNG; G/SCM/N/290/PNG; and Article 25 G/SCM/N/299/PNG, 21 November 2017

Article XVI:1 of GATT 1994 New and full notification G/SCM/N/315/PNG, 17 November 2017 and Article 25

Articles 25.11 and 25.12 Competent authorities G/SCM/N/202/PNG, 14 April 2016

Article 32.6 Laws and regulations G/SCM/N/1/PNG/1, 13 February 2014

Articles XVI:1 of GATT 1994, New and full notification, G/SCM/N/253/PNG; G/SCM/N/260/PNG, and Articles 25 and 27.4 extension of transition period for 26 July 2013 elimination of export subsidies

Article 27.4 Extension of transition period for G/SCM/N/226/PNG, 25 October 2011 elimination of export subsidies G/SCM/N/211/PNG, 7 October 2010 RTAs Article XXIV:7 of GATT 1994 Notification of the Interim WT/REG302/N/1, 19 October 2011 and Article V:7 of GATS Economic Partnership Agreement WT/REG302/N/1/Add.1, 19 September (IEPA) European Union – 2014 PNG/Fiji TFA Notification of Category A WT/PCTF/N/PNG/1, 8 June 2016 commitments Agreement on Agriculture Article 18.2 Domestic support G/AG/N/PNG/, 30 April 2018

Source: WTO database.

2.3.2 Regional and preferential agreements

2.21. PNG views regional integration as a key stepping stone towards fuller participation in the increasingly liberalized global economy. As an island country with a small market, PNG considers that its RTAs will help increase market access and investment inflows in support of its economic diversification efforts.11

2.22. PNG has four RTAs in force: (i) the European Union–PNG/Fiji Economic Partnership Agreement (EPA); (ii) the Melanesian Spearhead Group Trade Agreement (MSGTA); (iii) the Pacific Island Countries Trade Agreement (PICTA); and (iv) the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA). Some of the main features are summarized in Table 2.3. As a signatory to these four RTAs, PNG applies their respective preferential rules of origin (Section 3.1.2). PNG also has one bilateral trade agreement in force, the PNG-Australia Trade and Commercial Relations Agreement.

2.23. Overall, PNG's RTAs in force encompass 41 partners (some of whom are non-WTO Members): Australia, Cook Islands, Fiji, the EU-28, Kiribati, Micronesia, Nauru, New Zealand, Niue, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu. PNG's RTAs have been notified to the WTO either under the Enabling Clause or under GATT Article XXIV. The four RTAs have membership overlaps, translating in complex trade regimes that pose risks of raising business costs and thereby potentially resulting in more trade (and investment) diversion than creation.

11 DCI, Papua New Guinea: National Trade Policy 2017-32, Port Moresby.

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Table 2.3 RTAs in force, 2019

RTAs in force European Union–PNG/Fiji Title EPA European Union – PNG/Fiji Parties European Union, PNG, and Fiji Date of European Union and PNG signed on 30 July 2009, Fiji on 11 December 2009 / signature/entry Provisional application started 20 December 2009 for the European Union and PNG, into force and on 28 July 2014 for Fiji End of transition 2023 period Services Not included Selected features Customs and trade facilitation; TBT; SPS; dispute settlement; and institutional provisions. In 2017, the EU preferential purchase agreement on sugar from Fiji will expire WTO consideration Factual presentation not distributed status WTO document WT/REG/302 series Fiji–PNG–Solomon Islands–Vanuatu Title MSGTAa Parties Fiji, PNG, Solomon Islands, Vanuatu Date of 22 July 1993/1 January 1994 signature/entry into force End of transition 1994 period Services While the MSGTA excludes services, it was agreed in 2005 to consider a multilateral air services agreement Selected features Accession; anti-dumping and countervailing measures; competition; customs-related procedures; rules of origin; safeguard measures; subsidies and state aid; dispute settlement; general exceptions; and institutional provisions. The MSGTA3 was extended to cover trade in services, labour mobility, and cross-border investment WTO consideration Summary fact sheet (goods) distributed status WTO documents WT/COMTD/N/9, 3 August 1999; and WT/COMTD/21, 7 October 1999 Cook Islands–Fiji–Kiribati–Micronesia–Nauru–Niue–PNG–Samoa–Solomon Islands–Tonga– Tuvalu–Vanuatu Title PICTA Parties Cook Islands, Fiji, Kiribati, Micronesia, Nauru, Niue, PNG, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu Date of 18 August 2001/13 April 2003 (although dates of signature and of entry into force are signature/entry specific to each PICTA member) into force End of transition 2021 period Services Not included. However, it is expected that the coverage of PICTA will expand to include trade in services, movement of capital and labour Selected features Covers trade in goods except trade in alcohol and tobacco products. Government procurement is also excluded. The Agreement also provides a list of exceptions to ensure that the Forum Island Countries (FICs) can continue to restrict trade for the usual range of reasons generally allowed in international trade agreements. This includes the prohibition of dangerous goods (e.g. explosives, or the restriction of trade necessary to protect human or animal health) WTO consideration Factual presentation not distributed status WTO document WT/COMTD/N/29, 17 September 2008; and WT/COMTD/21, 7 October 1999 series

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RTAs in force Australia–Cook Islands–Fiji–Kiribati–Marshall Islands–Micronesia–Nauru–New Zealand–Niue– PNG–Samoa–Solomon Islands–Tonga–Tuvalu–Vanuatu Title SPARTECA Parties Australia, Cook Islands, Fiji, Kiribati, Micronesia, Nauru, New Zealand, Niue, PNG, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu Date of 14 July 1980/1 January 1981 signature/entry into force End of transition 1981 period Services Not included Selected features Accession; anti-dumping and countervailing measures; competition; customs-related procedures; rules of origin; safeguard measures; subsidies and state aid; dispute settlement; general exceptions; and institutional provisions WTO consideration Factual presentation not distributed status GATT document L/5100, 20 February 1981 a MSG member countries are trading under the revised MSGTA, also known as MSGTA2, in force since 2004. Source: WTO Secretariat, and information provided by the authorities.

2.3.2.1 European Union–PNG/Fiji EPA

2.24. The EPA represents the only new trade deal during the period under review. It has brought enhanced secure market access for PNG's exports in recent times. It covers canned tuna with very flexible rules of origin, and has also resulted in significant FDI inflows into PNG, particularly in the energy sector. Through the EPA, PNG also enjoys technical assistance to build the capacity of its human resources in strategic sectors, including the provision of supporting infrastructure for the conduct of trade, notably in the areas of customs and trade facilitation, standards, and quality.

2.25. The EPA provides duty-free and quota-free market access to all products from PNG except for sugar and rice, which are subject to longer transitional periods. It also provides for flexible rules of origin, especially in fisheries, allowing investors based in PNG to use fish caught using any boats (global sourcing) and to export it to the European Union, provided the fish is landed and processed (canned) in PNG. A comprehensive EPA to deepen PNG's trade relationship with the European Union over time is also under negotiation.

2.3.2.2 MSGTA

2.26. The MSGTA comprises four of the larger members of the Pacific region: Fiji, PNG, Solomon Islands, and Vanuatu. In June 2015, Indonesia was recognized as an associate member. MSG member countries currently trade under the revised MSGTA (MSGTA2), in force since 2004. The most recent revision to the Agreement, MSGTA3, was in 2016; it aims to establish a free trade area.12 MSGTA3 was extended from covering goods only, to covering trade in services, labour mobility, and cross-border investment.

2.27. The Melanesian Free Trade Agreement and the MSG Private Sector Development Strategy, are two corner stones of the MSG 2038 Prosperity for All Plan. The Strategy aims at achieving higher, inclusive and sustainable growth through developing the private sector. Emphasis has been placed on adopting an inclusive approach to private-sector development, unleashing rural entrepreneurship, and heightening the resilience of the private sector to the impact of climate change. Tariffs are eliminated on all products exported from other parties, except for individual members' negative lists. PNG's negative list includes sugar, salt and mackerel.

12 MSG press release of 26 May 2016. Viewed at: http://www.msgsec.info/index.php/publicationsdocuments-a-downloads/press-release/1099-26-may-2016- msg-trade-ministers-approve-new-msg-trade-agreement.

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2.3.2.3 PICTA

2.28. PNG does not currently conduct any trade under the PICTA, as most of its market interests among the Pacific Island countries are covered within the MSGTA.

2.29. The PICTA is a free trade agreement among the FICs, and is intended to gradually establish a free trade area among the 14 FICs, which have a combined population of about 9 million people. PNG signed this Agreement in 2002 and ratified it in 2003. The PICTA entered into force in 2003, when six FICs ratified it.13 However, PNG does not trade under the PICTA, as it has not "announced its readiness to trade".14 The PICTA covers trade in goods except for alcohol and tobacco products, government procurement rules, and dangerous goods such as explosives or other restrictions to protect human or animal health.

2.30. The PICTA is scheduled to eliminate tariffs on intra-regional trade by 2021. Tariffs on "non-excepted" goods were removed by end-2017 (by 2021 for LDC members); and tariffs on "excepted imports" (i.e. negative list) by 2021. PNG has listed the most number of tariff lines to be excepted, on its "negative list", with a total of 89 tariff lines, and tariffs ranging from 20% to 76% (on cane and beet sugar and chemically pure sucrose).

2.31. FICs are encouraged to convert specific tariffs to ad valorem rates by the start of the scheduled reductions. Any remaining non-ad valorem duties were to be reduced by 80% by 2009, and be phased out by 2017. Trade barriers other than tariffs, such as quotas, must be eliminated immediately on trade between the FICs.15

2.32. The PICTA Trade in Services Protocol was opened for signature on 28 August 2012. Ten countries have signed it16; PNG is not one of them. To date, Samoa and Nauru have ratified it; it will enter into force once six countries have ratified it. The Protocol stipulates that parties will provide each other preferential treatment in trade in services (professional, telecoms, construction, financial, tourism and transport).

2.3.2.4 SPARTECA

2.33. Very little trade is taking place under SPARTECA. It is a non-reciprocal and non-discriminatory trade agreement whereby Australia and New Zealand provide duty-free access to all products originating in the 14 FICs, except sugar in the case of Australia. SPARTECA has played an integral part in PNG's development.

2.3.2.5 Other arrangements

2.34. PNG is also a member of the Pacific Islands Forum (PIF).17 It aims to increase sustainable regional trade (including in services) and investment to promote economic growth by lowering trade barriers among members, including physical (e.g. borders) and technical (e.g. quarantine, import taxes and passport requirements) measures.

2.35. As a developing APEC member, PNG is committed to voluntary non-discriminatory (i.e. most-favoured nation (MFN)) liberalization to achieve the Bogor Goals of "free and open trade and investment" by 2020.

13 WTO document WT/COMTD/N/29, 17 September 2008. 14 Following ratification, all PICTA parties are required to declare their readiness to trade under the Agreement. Parties must also incorporate PICTA preferential tariffs into their customs tariff, establish all necessary procedures for entry of goods under PICTA preferences including ASYCUDA, and confirm their acceptance of form FIC-1 as the standard certificate of origin to be used for all preferential trade under the PICTA. 15 Pacific Islands Forum Secretariat online information. Viewed at: http://www.forumsec.org/resources/uploads/attachments/documents/PICTA_FAQ_Jun2012.pdf. 16 These are: Cook Islands, the Federated States of Micronesia, Kiribati, Nauru, the Republic of the Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu. 17 PIF includes Australia, New Zealand and the 14 FICs. French Polynesia, New Caledonia and Tokelau are associate members, while American Samoa, Guam, Timor-Leste, and Wallis and Futuna are special observers. PIC Secretariat online information. Viewed at: http://www.forumsec.org.fj.

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2.36. Signed in September 2000 and ratified in October 2001, the PNG/Indonesia Agreement is inactive. It provides the basis for preferential trading arrangements between PNG and Indonesian border provinces.

2.37. PNG has special observer status in ASEAN, and has indicated its intention to become a member. This would imply joining the ASEAN Free Trade Agreement (AFTA) and the various ASEAN FTAs.

2.38. Generalized system of preference (GSP) schemes provide preferential tariffs to PNG exports.18 However, only a small share of exports depends on GSP benefits, since almost all enter major markets (Australia, New Zealand, and the European Union) under more generous preferential arrangements; statistics on PNG exports under GSP provisions were not available.

2.39. PNG is not a member of the Global System of Trade Preferences (GSTP), and provides no preferential tariff treatment to developing countries or least developed countries (LDCs).

2.3.3 Investment regime

2.40. PNG's FDI regime is generally open. There were no significant changes to the investment regime during the review period. The Investment Promotion Act, 1992, which established the Investment Promotion Authority (IPA), and the supporting Investment Promotion Regulations provide a comprehensive legal framework. The Act provides the general guiding framework for all investment in PNG, while investment in some key sectors is handled by other bodies under specific sectoral legislation, e.g. investment in fisheries is administered under the Fisheries Management Act, 1998; investment in banking and financial services, under the Banks and Financial Institutions Act, 2000; forestry under the Forestry Act ,1991; mining under the Mining Act, 1992; petroleum under the Oil and Gas Act, 1998; and telecommunications under the National Information Communication Technology Authority Act, 2009 (NICTA). These sectoral laws also take into account the provisions of the Investment Promotion Act, 1992 (IP Act).

2.41. The National Investment Policy (NIP) contains guidelines for the pursuit of economic development through domestic and foreign-funded investment projects. Under the Cottage Business Activities List, certain low-skilled economic activities continue to be reserved for PNG citizens and national entities (Table 2.4); the List is currently being revised.

Table 2.4 Cottage business activities, 2019

Cottage business activities Agriculture - Vegetables and other market produce, animals with annual sales of PGK 50,000 or less - Hunting, trapping and game propagation, including related services activities Forestry, - Gathering of wild-growing forest materials, including balata and other rubber-like gums; logging and cork; lac, resins and balsams; rattan; vegetable hair and eel grass; acorns and horse- related chestnuts; mosses, lichens and cut evergreen trees used for festive occasions; sap; bark; activities herbs; wild fruits; flowers and plants; leaves; needles; reeds; roots; or other wild- growing materials - Walk-about (mobile) sawmills Wildlife - Hunting or collecting of non-protected fauna, including insects, shells, animal teeth, tusks, feathers, declared sedentary organisms and similar products, and living or dead fauna Fishing - Commercially, in coastal (within three miles off the shoreline) and inland waters - Taking of marine or fresh water crustaceans and molluscs - Hunting of aquatic animals, e.g. turtles, sea squirts and other tunicates, sea urchins or other echinoderms, and other aquatic invertebrates - Gathering of marine materials, e.g. natural pearls, sponges, coral and algae Mining - Alluvial mining according to the definition of the Department of Mining Catering - Mobile food delivery services

18 Australia, Belarus, Canada, the European Union, Japan, New Zealand, Norway, the Russian Federation, Switzerland, Turkey, and the United States.

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Cottage business activities Wholesale - Wholesale and retail sale of wild-growing materials, e.g. balata and other rubber-like and retail gums; cork; resins; balsams; rattan; vegetable hair and eel grass; acorns and horse trade chestnuts; mosses, lichens and cut evergreen trees used for festive occasions; sap; bark; herbs; wild fruits; flowers and plants; leaves; needles; reeds; roots; or other wild- growing materials - Retail sales through stalls, tucker shops, markets, or carried out from a car or motorcycle - Wholesale and retail sale of second-hand clothing and footwear, handicrafts and artefacts - Footwear repairs when not done in combination with manufacture or wholesale or retail Weaving - Cane products, textiles, baskets, nets, dishes, ropes and bags, saleable at home, in street markets or in retail outlets, for a fee Bilum - String bags from traditional bush ropes and cotton stacking using traditional and making contemporary designs, saleable at home, in street markets or in retail outlets, for a fee Knitting - Textiles, wearing apparel, cloth, garment, designs, fabrics and decorations, etc., saleable at home, in street markets or in retail outlets, for a fee Art and craft - Handicrafts and artistic designs, saleable at home, in street markets or in retail outlets, for a fee Wood - Sculptures, on contract, or assorted carvings, saleable at home, in street markets or in carving retail outlets, for a fee Pottery - Clay pots, cups, mugs, dishes, plates, sculptures and other art forms, saleable at home, in making street markets or in retail outlet, for a fee Painting - Portrait and oil paintings, etc., saleable at home, in street markets or in retail outlets, for a fee Screen - Designs, including emblems, logos, traditional and contemporary art forms, printing commemorations and special events on apparel, including shirts, T-shirts and other garments and textile materials, suited to the event, situation or purpose, saleable at home, in street markets or in retail outlets, for a fee Sewing - Garments, textiles, cloth and fabrics, saleable at home, in street markets or in retail outlets, for a fee Jewellery - Simple jewellery products, e.g. necklaces, earrings, rings, and bracelets, primarily from making sea shells, tusks and beads, saleable at home, in street markets or in retail outlets, for a fee Baking - Fresh bakery products, e.g. bread loaves, cakes, pies, cookies and scones, saleable at home, in street markets or in retail outlets, for a fee Coffee - Using manual pulping machine with beans, saleable at buying points or at coffee depots pulping Small tyre - Where not done as incidental to the core business of maintenance and repairs repairs

Source: WTO Secretariat, and information provided by the authorities.

2.42. The IPA certifies foreign investors (50% or more ownership or control and management by non-PNG citizens) as bona fide investors to conduct business in PNG, and screens FDI proposals to ensure that investors are of "good standing". Joint ventures are encouraged but are not mandatory, and no foreign equity caps exist, although different requirements apply in the resource sectors. For example, the Government can take equity of up to 30% in mining development projects (Mining Act, 1992) and 22.5% in petroleum projects (Oil and Gas Act, 1998). If it elects not to, and there is 100% foreign equity, 2% will be negotiated for the landowners' benefit (negotiated at 7% for the LNG project).

2.43. The PPP Act, 2014 came into force on 1 January 2018 to create a transparent, rigorous and competitive process for preparing and tendering PPP projects, boost state-owned enterprises' (SOEs) performance, and increase efficient delivery for projects and services (Section 3.3.5).

2.44. Under the Companies Act, 1997 (amended in 2014), before commencing operations, foreign and domestic investors must register with the IPA. Foreign firms can either incorporate as a new PNG entity or register as an overseas company. They must apply for certification within one month, and approval is decided within 35 days; most applications take about two weeks (down from three weeks). If approved, the IPA issues a certificate of incorporation, showing the entity or firm's corporate status, and a certificate of foreign enterprise, permitting foreign enterprises to carry on business in PNG and displaying the firm's business activity, its principal location, and other terms and conditions. The IPA must be notified of substantial foreign equity changes, and investors wishing to expand, diversify or change location must obtain approval. Firms must meet six-monthly reporting requirements, and the IPA conducts annual provincial database surveys. Foreign enterprises carrying out business without IPA certification will be asked to comply and, failing that, will be prosecuted. Table 2.5 shows IPA approvals during 2014-18.

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Table 2.5 IPA approvals by type, 2014-18

Type 2014 2015 2016 2017 2018 Certification 147 443 470 407 194 Re-certification 9 60 79 73 44 Expansion 36 23 0 101 94 Diversification 18 11 0 137 54 Others 8 2 0 52 22 Total 218 539 549 770 408

Source: Information provided by the authorities.

2.45. Legislation guarantees the security of foreign investors, including against expropriation, cancellation of contracts and discrimination, through MFN treatment, and through PNG's membership of the Multilateral Investment Guarantee Agency (MIGA). Bilateral investment treaties (BITs) can also be agreed upon, to guarantee investments of bilateral partners. Investment disputes can be settled through diplomatic channels, or through domestic/international courts, or adjudicated at the International Centre for the Settlement of Investment Disputes (ICSID) or other international adjudication mechanisms/courts, and/or other alternate dispute resolution mechanisms as agreed by the disputing parties.

2.46. Non-PNG citizens may not own land (Land (Ownership of Freehold) Act, 1976). Some 97% of land is customary-owned, and the need to negotiate with traditional owners to use rural land has discouraged FDI, as it is expensive and creates uncertainty. The Government assists investors in large projects considered essential for economic growth in these negotiations. Foreigners may lease government-owned land, usually for 99 years, for specified purposes, e.g. residential, business or for "special purposes". All leasehold and freehold land is registered, and leasehold land is transferable. The Government has tried to reduce land tenure problems by forming industrial and rural development centres and free-trade zones to grant leasehold land to exporters.

2.47. PNG grants various tax incentives to both local and foreign investors. General tax incentives apply across all sectors but there are also sector-specific incentives (Table A2.1); these incentives are currently being revised, with World Bank support. PNG has no investment performance requirements.

2.48. PNG is a member of the MIGA and the ICSID, and is in the process of acceding to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). It is also considering alternate arbitration and conciliation rules in line with the UNCITRAL Model Law on International Commercial Arbitration.

2.49. PNG has double taxation treaties with Australia, Canada, China, Fiji, Germany, Malaysia, Singapore, and the United Kingdom. Agreements with Indonesia and Thailand are pending signing and ratification by Parliament, to be incorporated into domestic legislation (PNG Income Tax (International Agreements)).

2.50. PNG has negotiated no BITs, but has investment promotion and protection agreements (IPPAs) with the United Kingdom, Australia, Malaysia, and China.

2.51. In general, PNG's RTAs in force do not currently have investment provisions. However, the MSG was recently extended to cover cross-border investment (Table 2.3).

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3 TRADE POLICIES AND PRACTICES BY MEASURE

3.1 Measures Directly Affecting Imports

3.1.1 Customs procedures, valuation, and requirements

3.1. The legal and institutional framework governing the customs clearance of imports and exports has remained broadly unchanged since the separation of the PNG Customs Service and the Internal Revenue Commission (IRC) in 2009. Anyone wishing to import or export goods for commercial purposes must obtain a taxpayer identification number (TIN) from the IRC and register with the PNG Customs Service. No fees are levied for the registration procedure.

3.2. Unless they have duly licensed in-house personnel, importers are required to engage the services of professional customs brokers. To obtain a licence, customs brokers must successfully undergo technical training by the PNG Customs Service. Customs brokers must pay an annual licence fee of PGK 1,000 and provide a bond of PGK 20,000 to be allowed to lodge import/export declarations. In February 2019, there were 141 licensed customs brokers in PNG. According to the authorities, customs brokers compete freely; their fees are not regulated and there are no geographic restrictions on their operations within the country.

3.3. Commercial imports are cleared on the basis of: a declaration; suppliers' invoices; a packing list; and a bill of lading (or air waybill). Where applicable, the supporting documentation must also include: an import licence and/or permit; a certificate of origin; or an SPS certificate. Consignments valued at less than PGK 1,000 may be cleared by direct payment at a Customs counter, without lodging a declaration through a customs broker.

3.4. Import and export declarations are assigned to one of four selectivity lanes: green (immediate release), blue (post-clearance audit), yellow (documentary check) and red (documentary and physical checks). The assessment methodology is based on a matrix of risk indicators, comprising the importer's and the customs broker's characteristics and prior record, as well as the consignment's nature and origin. During 2012-17, the share of import declarations assigned to the red lane fluctuated between 10.9% and 28.2%, whereas post-clearance audits were rare (Table 3.1).

Table 3.1 Distribution of declarations by selectivity lane, 2012-17

Selectivity lanes Total Year Type Unassigned Green (%) Red (%) Yellow (%) Blue (%) declarations (%) 2012 Import 80.32 10.89 8.62 0.11 0.06 122,541 Export 1.08 10.15 88.66 - 0.10 13,630 2013 Import 75.70 13.17 11.12 - 0.01 130,493 Export 1.01 10.41 88.58 - 0.01 13,406 2014 Import 60.38 28.24 11.38 - - 271,884 Export 0.97 10.28 88.75 - - 13,699 2015 Import 72.42 15.32 12.24 - 0.03 129,391 Export 1.49 10.44 88.07 - 0.01 13,128 2016 Import 72.78 14.68 12.54 - - 56,032 Export 2.00 10.34 87.66 - - 14,716 2017 Import 79.84 11.07 8.82 0.11 - 115,622 Export 6.90 9.82 83.20 0.11 0.01 18,042

Source: PNG Customs Service.

3.5. PNG ratified the WTO Agreement on Trade Facilitation (TFA) on 7 March 2018. In 2016, it notified its category A commitments1 under the TFA, which cover some 21% of all notifiable items.2 The PNG Customs Service has also implemented a procedure for the pre-arrival processing of cargo manifests. According to the authorities, the main challenges faced in implementing the TFA relate to the establishment of mechanisms for the processing and paperless exchange of supporting

1 WTO document WT/PCTF/N/PNG/1, 8 June 2016. 2 TFA database. Viewed at: https://www.tfadatabase.org/members/papua-new-guinea.

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3.6. The PNG Customs Service migrated its automated customs system to ASYCUDA++ during 2005-14, and launched an upgrade to the Internet-based version, ASYCUDA World, in April 2018. Due to connectivity challenges, the roll-out of ASYCUDA has not yet reached four of PNG's 22 entry ports. As at February 2019, the electronic and manual channels for the submission and processing of customs declarations operated in parallel. Plans for a single window system remained at the conceptual stage.

3.7. The 2019 World Bank Doing Business survey ranks PNG 140th out of 190 economies on the trading across borders indicator. On average, importing merchandise is estimated to require 72 hours and USD 790 for "border compliance", and 120 hours and USD 85 for "documentary compliance". On exportation, the corresponding figures are 42 hours and USD 660, and 96 hours and USD 75, respectively.3 Although no time-release studies have been carried out to date, the PNG Customs Service estimates the average import clearance time at 42 hours.

3.8. According to the authorities, PNG applies the WTO Customs Valuation Agreement, and uses the transaction value of goods as the primary method of calculation. However, it is unclear what legal provisions on customs valuation are currently in force. In principle, the dutiable value of all imports is the sum of the purchase cost and all expenses incurred for insurance and freight up to the point of entry. In the absence of satisfactory proof of insurance, the cost of insurance is calculated as 0.5% of the cost of freight. Consignments can be released under bond prior to the final determination of duties.

3.9. In case of disagreement with customs decisions, importers must first lodge an appeal at the port of entry, which could subsequently be escalated to the Customs Service headquarters. Once the avenues of redress within the PNG Customs Service have been exhausted, traders may appeal to the courts. A Customs Review Tribunal, foreseen in a 2007 amendment of the Customs Act, has not yet been assigned any personnel. According to the authorities, appeals are generally resolved within the PNG Customs Service. Most appeals relate to classification matters, followed by valuation disputes and rejected refund requests.

3.1.2 Rules of origin

3.10. PNG does not maintain rules of origin for non-preferential purposes.4 As a signatory to four RTAs, it applies their respective preferential rules of origin.5 Whenever membership overlaps give rise to parallel sets of rules of origin, preferential treatment is applied on the basis of the documentation provided for customs clearance. No certificate of non-manipulation is required to confer originating status to imports that reach PNG after transit or transhipment through a third country.

3.1.3 Tariffs

3.11. According to the available data, taxes on international trade accounted for approximately 20% of fiscal revenue during the period under review. Import and export duties' joint contribution to total tax revenue increased from 4.9% in 2012 to 7.2% in 2018, with the latter component becoming increasingly important (Table 3.2).

3.12. In 1999, PNG embarked on a path of autonomous tariff liberalization, through the implementation of a Tariff Reduction Programme (TRP) in several phases. However, in the 2018 National Budget, the authorities announced the suspension of the TRP's last phase, pending a review by the Department of Treasury as to whether greater exposure to international competition had indeed fostered a more efficient and productive private sector. In 2017-18, the tariff rates on certain imports were already revised upwards, with a view to protecting domestic manufacturers

3 Data for Doing Business 2019 are current as of May 2018. For PNG's country profile, as well as notes on the methodology and its limitations, see: http://www.doingbusiness.org/content/dam/doingBusiness/country/p/papua-new-guinea/PNG.pdf. 4 WTO document G/RO/N/32, 30 April 2001. 5 WTO document WT/TPR/S/239/Rev.1, 8 February 2011.

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- 32 - and the local oil refinery, and discouraging the consumption of goods that may pose significant health risks.

Table 3.2 Tax revenue, 2012-18

2012 2013 2014 2015 2016 2017 2018a Total tax revenue (PGK million) 8,148.3 8,588.5 9,596.0 8,804.6 8,421.6 9,141.4 9,956.5 Taxes on income, profits and 5,875.1 6,081.3 7,107.3 5,894.2 5,286.2 5,317.4 5,691.9 capital gains Taxes on goods and services 2,183.1 2,549.2 2,883.6 2,941.1 2,584.1 3,255.1 3,542.3 GST 1,236.0 1,217.2 1,668.8 1,567.0 1,442.6 1,868.8 2,086.6 Imports .. 1,065.0 1,077.1 1,220.7 1,001.6 .. .. Domestic .. 152.2 591.7 346.3 441.0 .. .. Excise tax 855.3 814.4 889.2 802.0 875.9 1,105.0 1,091.2 Imports 294.8 272.5 250.6 298.7 272.2 347.8 297.3 Domestic 560.5 541.9 638.6 503.3 603.7 757.2 793.9 Import duties 223.0 257.2 273.2 249.1 242.9 260.3 321.7 Export taxes 179.9 211.7 274.5 316.2 294.0 297.3 390.6

.. Not available. a Estimates. Source: Department of Treasury, National Budget (various issues) and PNG Customs Service, Annual Report (various issues).

3.13. PNG grants at least most favoured nation (MFN) status to all its trading partners, including those that are not WTO Members. Its 2019 applied MFN customs tariff is based on the 2017 version of the Harmonized Commodity Description and Coding System (HS), and comprises 5,830 lines at the eight-digit level. Some 98.6% of all tariff lines, including duty-free ones, have ad valorem rates (Table 3.3); 82 lines carry specific rates. Most non-ad valorem import duties apply to certain alcoholic beverages, tobacco, and poultry meat. There are no seasonal tariffs, or tariff quotas.

Table 3.3 Structure of MFN tariff, 2010 and 2019

MFN applied Final bounda 2010 2019 Bound tariff lines (% of total lines) 100.0 100.0 100.0 Simple average rate (%) 5.1 3.9 (4.0) 33.6 (34.0) WTO agricultural products 12.5 10.1 (11.0) 44.0 (45.7) WTO non-agricultural products 3.9 2.8 31.9 Duty free tariff lines (% of all tariff lines) 76.7 74.0 0.0 Simple average of dutiable lines only 22.6 15.6 (16.0) 33.6 (33.9) Tariff quotas (% of all tariff lines) 0.0 0.0 0.0 Non-ad valorem tariffs (% of all tariff lines) 1.0 1.4 1.6 Domestic tariff "peaks" (% of all tariff lines)b 14.4 17.0 (17.2) 0.0 (0.2) International tariff "peaks" (% of all tariff lines)c 14.4 3.3 (3.5) 71.9 (72.5) Nuisance applied rates (% of all tariff lines)d 0.0 0.0 (0.1) 0.03 Standard deviation 10.1 7.6 (8.9) 18.9 (21.2) Total number of tariff lines 5,447 5,830 5,830e Ad valorem rates (> than 0%) 1,212 1,431 5,737 Duty free rates 4,178 4,317 0 Specific rates 57 82 89 a Based on 2019 tariff schedule. b Domestic tariff peaks are defined as those exceeding three times the overall simple average applied rate. c International tariff peaks are defined as those exceeding 15%. d Nuisance rates are those greater than zero, but less than or equal to 2%. e Four tariff lines consist partly of an ad valorem rate and a specific rate. Note: Calculations of averages are based on national tariff lines at the 8-digit level, excluding specific rates. The 2010 tariff is based on HS07 and the 2019 tariff is based on HS17 nomenclature. Figures in brackets include AVEs for specific rates, as available, based on 2017 import values and volumes provided by the authorities. Source: WTO Secretariat calculations, based on data provided by the authorities.

3.14. The computed average tariff rates for PNG are biased downwards, due to the lack of ad valorem equivalents (AVEs) to most non-ad valorem duties. Excluding AVEs, the simple average applied MFN tariff is 3.9%, down from 5.1% in 2010. Over the same period, the simple average rate

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- 33 - on dutiable lines decreased from 22.6% to 15.6%. Some 74% of tariff lines are duty free (down from 76.7% in 2010), and 3% of all lines carry rates of 25% or higher (Chart 3.1). Overall tariff dispersion remains relatively wide, with ad valorem rates ranging from zero to 50% (Table 3.4). Tariff protection remains most pronounced in agriculture: the average applied rate on agricultural products (WTO definition) is 10.1% (down from 12.5% in 2010), whereas the corresponding average for non-agricultural products stands at 2.8% (down from 3.9% in 2010).

Chart 3.1 Frequency distribution of MFN tariff rates, 2019

Note: Figures in parentheses denote the share of total lines. Source: WTO Secretariat calculations, based on data provided by the authorities.

Table 3.4 Summary analysis of MFN tariffs, 2019

Range Duty of Number of Average Range Standard free bound linesa (%) (%) deviation (%) rates (%) Total 5,830 (82) 3.9 0-50 7.6 74 11-100 HS 01-24 1,128 (79) 11.9 0-40 10.7 31.6 11-100 HS 25-97 4,702 (3) 2.1 0-50 5.2 84.5 11-100 By WTO category WTO agricultural products 899 (79) 10.1 0-40 1.2 45.7 11-100 Animals and products thereof 125 (19) 5.8 0-20 1.3 52.8 11-55 Dairy products 23 0.0 0 0.0 100.0 11-45 Fruit, vegetables, and plants 224 19.9 0-40 0.7 18.8 11-100 Coffee and tea 32 18.9 0-25 0.4 6.3 45-100 Cereals and preparations 114 (6) 5.3 0-25 1.4 61.4 11-55 Oil seeds, fats, oils and their products 117 6.6 0-25 1.6 68.4 11-55 Sugars and confectionary 25 12.0 0-30 1.0 44.0 75 Beverages, spirits and tobacco 87 (52) 8.9 0-25 0.9 17.2 11-55 Cotton 5 0.0 0 0.0 100.0 11 Other agricultural products, n.e.s. 147 (2) 4.3 0-25 1.6 66.0 11-55 WTO non-agricultural products 4,931 (3) 2.8 0-50 2.1 79.2 11-100 Fish and fishery products 298 14.1 0-25 0.2 4.4 11-55 Minerals and metals 941 1.4 0-30 3.5 90.5 11-90 Chemicals and photographic supplies 983 0.9 0-15 3.5 92.4 11-55 Wood, pulp, paper and furniture 311 7.5 0-50 1.2 41.2 11-100 Textiles 602 1.5 0-15 2.6 86.9 11-75 Clothing 238 14.3 0-15 0.2 3.8 35 Leather, rubber, footwear and travel goods 167 2.3 0-15 2.2 82.0 30-55 Non-electric machinery 535 0.1 0-15 8.9 98.7 11-55 Electric machinery 261 0.0 0 0.0 100.0 11-55 Transport equipment 189 0.3 0-10 6.1 97.4 11-75

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Range Duty of Number of Average Range Standard free bound linesa (%) (%) deviation (%) rates (%) Non-agricultural products, n.e.s. 389 (1) 1.4 0-30 3.2 89.5 11-100 Petroleum 17 (2) 0.0 0 0.0 88.2 30- 40 By ISIC sector ISIC 1 - Agriculture, hunting and fishing 419 (8) 12.9 0-40 13.2 36.3 11-100 ISIC 2 - Mining 99 0.1 0-15 0.5 99.0 11-75 ISIC 3 - Manufacturing 5,311 (74) 3.2 0-50 6.5 76.6 11-100 Manufacturing excluding food processing 4,552 (3) 2.1 0-50 5.3 84.2 11-100 Electrical energy 1 0.0 0 0.0 100.0 30 By stage of processing First stage of processing 819 (8) 9.2 0-40 11.9 51.8 11-100 Semi-processed products 1,845 1.4 0-50 5.1 90.8 11-100 Fully processed products 3,166 (74) 3.9 0-30 6.6 70.0 11-100 By HS section 01 Live animals and products 420 (24) 11.0 0-25 6.8 25.0 11-55 02 Vegetable products 323 15.0 0-40 15.0 38.1 11-100 03 Fats and oils 81 8.2 0-25 11.0 60.5 11-55 04 Prepared food, beverages and tobacco 304 (55) 10.3 0-30 7.7 26.0 11-100 05 Mineral products 163 (2) 0.2 0-10 1.2 96.9 11-90 06 Chemicals and products thereof 892 (1) 0.5 0-15 2.5 95.3 11-55 07 Plastics, rubber, and articles thereof 247 1.5 0-15 3.9 85.8 30-55 08 Raw hides and skins, leather, and their products 73 5.6 0-15 6.9 58.9 30-55 09 Wood and articles of wood 133 12.5 0-50 9.9 6.8 90-100 10 Pulp of wood, paper and paperboard 159 3.0 0-15 4.6 70.4 11-55 11 Textiles and textile articles 834 4.9 0-15 6.8 64.7 11-55 12 Footwear, headgear, etc. 52 4.8 0-15 5.3 53.8 40-55 13 Articles of stone, plaster, cement 149 1.7 0-15 4.1 85.2 30-75 14 Precious stones and metals, pearls 55 7.6 0-30 13.1 74.5 11-55 15 Base metals and articles thereof 583 1.0 0-30 3.5 91.3 11-55 16 Machinery, electrical equipment, etc. 798 0.1 0-15 1.1 99.1 11-55 17 Transport equipment 200 0.3 0-10 1.6 97.5 11-75 18 Precision equipment 212 0.0 0 0.0 100.0 11-55 19 Arms and ammunition 18 0.0 0 0.0 100.0 30 20 Miscellaneous manufactured articles 127 4.8 0-30 7.4 67.7 30-75 21 Works of art, etc. 7 0.0 0 0.0 100.0 30 a Figures in brackets refer to number of tariff lines with a specific rate. Note: Calculations exclude non-ad valorem rates. The 2019 tariff schedule is based on the HS17 nomenclature. Source: WTO Secretariat calculations, based on data provided by the authorities.

3.15. PNG has bound 100% of its tariff lines. Some 98.4% of all tariff lines are bound at ad valorem rates ranging from 11% to 100%. Non-ad valorem bindings apply to certain poultry items, tobacco products, alcoholic beverages, mineral waters, and matches. The simple average bound rate on agricultural products (WTO definition) is 44%, whereas the average on non-agricultural products is 31.9%. On average, the gap between the bound and applied rates stands at some 29.7 percentage points (up from 27.7 percentage points6 in 2010), affording PNG considerable scope to increase applied tariffs (Chart 3.2).

3.16. On 23 tariff lines (up from 14 in 2010), applied rates exceed PNG's bindings. In addition, unit differences preclude meaningful comparison between applied and bound non-ad valorem rates on 34 additional tariff lines. PNG has bound "other duties and charges" at zero.

6 The percentage point difference was calculated on the basis of the 2010 version of the HS nomenclature.

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Chart 3.2 Average applied MFN tariff rates by HS section, 2019

Note: Calculations exclude non-ad valorem rates. Figures in parentheses denote the respective HS section's average bound rate. Source: WTO Secretariat calculations, based on data provided by the authorities.

3.1.4 Other charges affecting imports

3.1.4.1 Border levies

3.17. Every declaration entry lodged into the customs system is subject to a processing fee of PGK 30. The fee does not apply to low-value consignments cleared by direct payment at a PNG Customs counter (Section 3.1.1). A fee of PGK 300 is levied whenever an importer requests an advance ruling.

3.1.4.2 Internal taxes

3.18. Excise taxes are levied on a range of products, whether imported or manufactured domestically, including alcoholic beverages, tobacco, perfumes, pearls, precious stones and metals, certain consumer electronics, gaming equipment, arms and ammunition, petroleum products, and motor vehicles.7 Most excise tax rates are ad valorem, ranging from 10% to 150%. The tax base for imports is the c.i.f. value. Locally-manufactured products are taxed on the basis of the ex-factory price, which is adjusted every six months to reflect changes in the CPI. Specific rates apply to alcoholic beverages, tobacco, and petroleum products.

3.19. PNG introduced a value added tax, called the Goods and Services Tax (GST), in 2004. The GST is levied at the rate of 10% on the supply of goods and services, including on their importation. The tax base for the GST on imports is the c.i.f. value plus any import and excise duties. For domestically-supplied goods and services, the tax base is the sale price.

3.20. Zero-rated supplies, eligible for refund of the GST paid on inputs, include: all exports; prescription drugs and medical equipment; goods (excluding cars) and services used solely by a mining, petroleum or gas company; and crude oil. The supply of financial, educational, and medical services, as well as the provision of housing or a motor vehicle as part of an employment contract, are GST-exempt.

7 The PNG Customs Service is responsible for the licensing and control of local manufacturers of excisable goods. In addition to obtaining an annual licence, these manufacturers must provide a bank guarantee in an amount determined by the Commissioner of Customs.

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3.1.5 Duty and tax concessions

3.21. PNG grants tariff preferences in the framework of the RTAs to which it is a party (Section 2.3.2). Duty and tax concessions are also granted under various initiatives aimed at promoting investment or achieving social objectives (Section 2.3.3). During 2012-17, forgone revenue from concessions on imports ranged between 15.5% and 68.4% of revenue collections by the PNG Customs Service, and between 4.6% and 18% of total tax revenue (Table 3.5).

Table 3.5 Forgone revenue from imports, 2012-17

2012 2013 2014 2015 2016 2017 Total concessions on imports (PGK million) 633.4 434.4 1,727.1 400.8 425.9 553.2 Import duty 27.5 30.7 30.0 25.2 27.6 24.1 GST on imports 588.8 384.4 1,687.2 364.1 370.8 489.0 Excise tax on imports 17.2 19.3 9.9 11.5 27.4 40.2 Memo: Import concessions/total fiscal revenue (%) 7.8 5.1 18.0 4.6 5.1 6.1 Import concessions/fiscal revenue from customs (%) 25.3 18.4 68.4 15.5 17.6 33.1

Source: PNG Customs Service Annual Report (various issues), and data provided by the authorities.

3.1.6 Import prohibitions, restrictions, and licensing

3.22. PNG has not submitted any notifications to the Committee on Import Licensing since 1998. At that time, it had affirmed the absence of procedures relevant to the Agreement on Import Licensing Procedures.8 Nevertheless, prior authorization and/or licence requirements remain in place for certain imports, mainly for security, public health and environmental reasons. For example, medicines may only be imported by a practitioner certified by the National Department of Health.

3.23. Prohibited imports include pornographic materials, counterfeit bank notes or coins, recreational drugs, narcotics, certain weapons, matches containing white or yellow phosphorus, non- biodegradable plastic shopping bags, and machines for games of chance.9

3.24. In August 2015, PNG imposed a moratorium on the issuance of import permits for fresh foods, including fruit, vegetables and uncooked poultry, with the stated aim of fostering domestic production and further protecting biosecurity. In November 2015, the moratorium was revised to allow one company to import bulb onions, capsicum and tomatoes. The import ban was lifted, at least partially, in January 2016.10

3.1.7 Anti-dumping, countervailing, and safeguard measures

3.25. PNG has no legal and institutional frameworks for the application of anti-dumping, countervailing, and safeguard measures. According to the authorities, a draft Anti-dumping and Countervailing Measures Act and a draft Safeguards Measures Act are undergoing legislative approval. To date, no contingency actions have been taken.

3.1.8 Other measures affecting imports

3.26. PNG applies the trade sanctions adopted by the United Nations. According to the authorities, it is not a party to any countertrade or offsetting arrangements, or agreements aimed at influencing the quantity or value of goods or services exported to its market.

8 WTO document G/LIC/N/2/PNG/1, 17 February 1998. 9 PNG Customs Service online information. Viewed at: http://customs.gov.pg/wp- content/uploads/2018/06/pages_05_commercial_trade_and_compliance_2_prohibitions_1_prohibited_imports. pdf. 10 Papua New Guinea Today, Tomscoll opens PNG Market on Bulb Onion, uncooked poultry. Viewed at: https://news.pngfacts.com/2016/01/tomscoll-opens-png-market-on-bulb-onion.html.

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3.2 Measures Directly Affecting Exports

3.2.1 Customs procedures and requirements

3.27. The registration and customs clearance procedures for exports are similar to those for imports (Section 3.1.1), requiring notably a declaration, a commercial invoice, a packing list, a bill of lading/airway bill and, where applicable, original export permits and/or licences.

3.28. Exporters wishing to benefit from preferential access to foreign markets may obtain the necessary certificate of origin from the PNG Customs Service. The Department of Commerce and Industry (DCI) issues certificates of origin for trading partners' GSP schemes.

3.2.2 Taxes, charges, and levies

3.29. PNG applies ad valorem export taxes on crocodile skins (5%), jewellery and articles of gold or silver (5%), and certain ores and concentrates (5%). Since January 2018, unprocessed old-growth logs (except plantation logs) are subject to a progressive export tax, whose rates increase with the f.o.b. price.11 Previously, exports of unprocessed logs were taxed at an ad valorem rate of 32.5%. A log export development levy of PGK 8 per m3 also remains in force.

3.30. In principle, export taxes are applied on the relevant exports' f.o.b. value. However, a provision in the Customs Tariff Act stipulates that a different export value may be set by ministerial decision, published in the National Gazette.12 According to the authorities, this provision has never been used.

3.2.3 Export prohibitions, restrictions, and licensing

3.31. PNG maintains export prohibitions on illicit drugs. In addition, a ban on exports of round logs is scheduled to come into effect in 2020. Export controls and restrictions are also in place, largely for the purposes of protecting wildlife, cultural heritage, and the environment. Controlled exports require a prior authorization or a permit issued by the respective competent authority.13

3.2.4 Export support and promotion

3.32. During the period under review, PNG notified to the WTO Committee on Subsidies and Countervailing Measures an amendment to the Income Tax Act, repealing an export subsidy provision as of 1 January 2015. Several updates on implementation were also submitted.14 In a separate notification, PNG affirmed that, during 2015-16, it did not grant or maintain any export subsidy which operates to increase exports from, or to reduce imports into, its territory.15

3.33. PNG maintains an income tax concession allowing for the double deduction of expenditure on export market development. The tax savings must not exceed 75% of incurred eligible expenditure, which includes that on overseas publicity and advertising, market research, tender preparation, samples, trade fairs and exhibitions, overseas sales offices, and certain travel.

3.34. Although the relevant legislation dates from 2000 (Table 2.1), there are no free zones in operation in PNG.

11 National Budget (2018), Volume 1: Economic and Development Policies. Viewed at: http://www.treasury.gov.pg/html/national_budget/2018.html. 12 PNG Customs Service online information. Viewed at: http://customs.gov.pg/wp- content/uploads/2018/09/PNG-Customs-Tariffs-HS-2017-version.pdf. 13 PNG Customs Service online information. Viewed at: http://customs.gov.pg/wp- content/uploads/2018/06/pages_05_commercial_trade_and_compliance_2_prohibitions_2_prohibited_exports. pdf. 14 WTO documents G/SCM/N/243/PNG, 3 August 2012; G/SCM/N/253/PNG and G/SCM/N/260/PNG, 26 July 2013; and G/SCM/N/284/PNG, G/SCM/N/290/PNG, G/SCM/N/299/PNG, 21 November 2017. 15 WTO document G/SCM/N/315/PNG, 17 November 2017.

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3.2.5 Export finance, insurance, and guarantees

3.35. According to the authorities, no export finance or risk mitigation facilities with state involvement exist at the national level.

3.3 Measures Affecting Production and Trade

3.3.1 Incentives

3.36. PNG maintains a range of tax and tariff concessions under various initiatives aimed at promoting investment or achieving social objectives (Section 2.3.3). In principle, fiscal incentives apply equally to domestic and foreign-owned businesses. Some of these may be granted by industry, type of activity, or on a company-specific basis. Statistics on forgone revenue from fiscal concessions applied domestically were not available.

3.37. The Industrial Centres Development Corporation (ICDC), established in 1990, is in charge of setting up and managing industrial centres (ICs), with a view to fostering private-sector investment, employment and income generation, economic diversification, and the development of secondary economic centres. Intended as incubation spaces for small to medium-sized companies, ICs offer their users (resident companies) access to serviced land and facilities, and a streamlined framework for doing business.

3.38. In February 2019, there was one operational IC in PNG, the Malahang Industrial Centre in Lae (Morobe Province), and another three were in different stages of deployment. IC performance indicators were not available.

3.3.2 Standards and other technical requirements

3.39. The National Institute of Standards and Industrial Technology (NISIT) remains in charge of standards development, conformity assessment, accreditation, and metrology services. According to the authorities, NISIT carries out the testing and certification of imports and goods in the domestic market on an ad hoc basis, typically when requested by government agencies or consumer protection organizations.

3.40. Lacking sustainable financing and long-term premises for the establishment of its facilities, NISIT has been facing significant challenges regarding human and material resources, which have undermined its ability to deliver on its mandate. The 2019 National Budget has set aside additional resources, which should enable NISIT to restructure, grow its personnel (from 27 to 117 staff members within three years), and build capacity. A state-owned building has also been allocated for NISIT labs and an office complex, with relocation to the new premises expected by April 2019. The authorities would welcome additional trade-related technical assistance for a review of the existing quality infrastructure, and the elaboration of a national quality policy and its implementation.

3.41. NISIT represents PNG in relevant activities at the regional level, including in the framework of the Asia-Pacific Economic Cooperation (APEC), the Pacific Area Standards Congress (PASC), the Asia Pacific Metrology Programme (APMP), the Asia-Pacific Legal Metrology Forum (APLMF), and the Asia Pacific Laboratory Accreditation Cooperation (APLAC). It is a correspondent member of the International Organization for Standardization (ISO), the International Bureau of Weights and Measures (BIPM), and the International Organization of Legal Metrology (OIML). NISIT is signatory to the International Laboratory Accreditation Cooperation Mutual Recognition Arrangement (ILAC MRA), but its status has been suspended since August 2017 due to underperformance stemming from inadequate resources and facilities for the carrying out of its work.

3.42. NISIT serves as the national TBT enquiry point on standards and conformity assessment. PNG has not made any TBT notifications nor has it been the object of any TBT-related specific trade concerns since its last Review.

3.43. NISIT is a signatory to the WTO Code of Good Practice for the Preparation, Adoption and Application of Standards.16 Standards development is a demand-driven process that commences

16 WTO document G/TBT/CS/N/170, 29 September 2006.

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- 39 - with the submission of a proposal to NISIT by any interested party. Seven technical committees, with broad stakeholder representation, consider the adequacy of international norms or the need for PNG to develop its own standards. In principle, draft standards are made available for public comment for 60 days. The final draft is endorsed by the NISIT Council and approved by the line minister before publication. While the mechanism for the elaboration and adoption of national standards has not changed during the review period, the authorities have indicated that the NISIT Council had not been operational for several years.

3.44. National standards may be declared as technical regulations by the competent line ministries and departments, generally following a public consultation process. Notices of adopted technical regulations, standards and conformity assessment procedures are published in the National Gazette. NISIT is also responsible for maintaining a comprehensive database of standards, technical regulations and conformity assessment procedures in force in PNG. According to the authorities, the database's implementation is underway. Relevant statistics were not available.

3.45. In principle, an accreditation division within NISIT operates the PNG Laboratory Accreditation Scheme (PNGLAS) and is responsible for the accreditation of testing and calibration laboratories, and certification bodies. However, the authorities have indicated that NISIT's accreditation functions have not been operationalized. PNG recognizes certificates issued from signatories of the ILAC MRA.

3.3.3 Sanitary and phytosanitary requirements

3.46. There was little change to PNG's SPS regime during the period under review; the legislation in force remains outdated, and a range of capacity weaknesses are yet to be addressed. The National Agriculture Quarantine and Inspection Authority (NAQIA) remains in charge of animal health and plant protection, including veterinary drugs and organic fertilizers. Biosecurity aspects of fish and fish products are the joint responsibility of NAQIA and the National Fisheries Authority. The National Department of Health is responsible for food safety and pharmaceutical products. The Conservation and Environment Protection Authority (CEPA), restructured in 2016, is in charge of wildlife and biodiversity protection, and the control of pesticides and inorganic fertilizers.

3.47. The DCI remains PNG's SPS notification authority, and the Department of Foreign Affairs and Immigration maintains the only enquiry point. PNG has not made any SPS notifications nor has it been the object of any SPS-related specific trade concerns since its last Review. According to the authorities, PNG observes the standards, guidelines, and protocols of the International Plant Protection Convention (IPPC), the World Organisation for Animal Health (OIE), and the Codex Alimentarius Commission (CAC).

3.48. A system of import permits issued by NAQIA remains in place for: live animals, animal products, fish and fish products, plants, timber, plant products, biological organisms, sand, stone and gravel. Import permit applications must be lodged at NAQIA's head office in Port Moresby, either by post or over the counter. The typical processing time is four to five working days.17 In some cases, prior approvals by other competent authorities are also required.18 Import permits are valid for three months, and specify the quantity and country of origin of the authorized good. According to the authorities, an electronic system for the issuance of import permits is being developed but progress is hampered by the lack of a sustainable funding arrangement.

3.49. NAQIA conducts a risk assessment whenever an import or transhipment permit application concerns a good or a supplier which has not been previously analysed. The assessment may involve an evaluation visit by a NAQIA officer to the overseas authority in charge of SPS control and the exporter's production facilities. The import risk assessment process may take from 6 to 18 months to complete. In most cases, the assessment costs, including travel and accommodation of the officer sent on an overseas inspection, are met by the applicant. In case of a favourable risk assessment, NAQIA issues a protocol setting out the product-specific import requirements.

17 A fast-track procedure for the issuance of import permits within 24 hours is in place for consignments that require urgent clearance. 18 Examples of authorities involved in the approval process include: CEPA (wildlife species, micro-organisms and biological control agents); the National Fisheries Authority (aquatic species); and the National Department of Health (rice).

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3.50. The original import permit and the requisite exporting-country documentation stipulated therein must be presented upon the consignment's arrival at the point of entry into PNG for documentary checks.19 NAQIA may carry out quarantine inspection of certain consignments before they are cleared for entry, based on the country of origin and the importer's past biosecurity compliance record. According to the authorities, approximately 30% of import consignments are subject to biosecurity inspections before clearance.

3.51. PNG has not enacted any legislation on genetically modified organisms (GMOs). According to the authorities, GMO imports are cleared for entry without any specific controls. PNG maintains import bans on: fresh poultry products and semi-cooked pork products from several Asian countries; bananas from Australia; and potatoes from New Zealand and certain Australian states. The issuance of import permits for barracuda fillets from Australia and New Zealand has been suspended.

3.52. NAQIA carries out the optional certification of exports' pest and disease status, and certifies the quality of exported cocoa beans under a long-standing arrangement with the Cocoa Board. Exporters must make their own arrangements to obtain information on the import requirements of the destination market, and communicate them to NAQIA for the purposes of the certification process.

3.53. According to the authorities, plant and animal health surveillance activities on the domestic market have been hampered by resource constraints and statutory limitations to NAQIA's enforcement powers. PNG's laboratory diagnostics capacity is limited to highly pathogenic avian influenza, Newcastle disease and histamine (fish and fishery products). All other diagnostics are performed at overseas laboratories.

3.3.4 Competition policy and price controls

3.54. The Independent Consumer and Competition Commission Act (ICCC Act), enacted in March 2002, has the primary objectives of: enhancing welfare through the promotion of competition, fair trading and consumer protection; promoting economic efficiency in terms of industry structure, investment and conduct; and protecting the nation's long-term interests with regard to the price, quality and reliability of significant goods and services. Application of the Act commenced in January 2003, with the establishment of the Independent Consumer and Competition Commission (ICCC), a statutory body. The ICCC's mandate comprises: competition and consumer protection enforcement; administering price controls; and regulating certain markets.

3.55. The Treasury Minister may declare certain goods, services, entities, and industries to be regulated by the ICCC. The ICCC can adopt different approaches, depending on the regulatory needs. Several SOEs in monopoly or market dominance positions have been declared regulated entities and remain subject to regulatory contracts, which stipulate prices and quality standards for a period of up to ten years. As at February 2019, such entities comprised PNG Ports Corporation Ltd20, Post PNG Ltd, Motor Vehicle Insurance Ltd, and PNG Power Ltd.21 In 2015, the ICCC switched from using regulatory contracts to applying a maximum average price for the supply of water and sewerage services by two SOEs with regional monopolies (Water PNG Ltd and Eda Ranu Ltd).

3.3.4.1 Competition policy

3.56. In principle, no sector of the economy is exempted from the application of the ICCC Act, which also applies to SOEs that engage in commercial activities in competition with private firms. As in other jurisdictions, export-oriented anti-competitive practices (including cartels) that have no effect on the domestic market are exempted from the Act's application.

3.57. The ICCC Act prohibits conduct or arrangements that would harm competition in PNG. Price-fixing (including collusive tendering) and resale price maintenance arrangements are

19 Processed goods originating from third countries/territories that have been re‐exported from Australia to PNG do not need SPS certification, if they are accompanied by a protocol certifying that the consignment had been cleared for entry into Australia. 20 Some services provided by PNG Ports Corporation Ltd, including pilotage and storage facilities, are not covered by the regulatory contract. 21 New entrants in the electricity industry must apply for a licence from the ICCC, but may set their prices independently. As at February 2019, nine licences had been issued.

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- 41 - prohibited per se. Other anti-competitive conduct (including exclusionary practices and abuse of market power) and economic concentrations (mergers or acquisitions) are prohibited if deemed, in an effects-based assessment, to substantially lessen competition in the relevant market.22 The ICCC may authorize certain conduct (unless prohibited per se) or an economic concentration if it deems that the generated public benefits would outweigh the anti-competitive effects.

3.58. PNG maintains a voluntary notification system for economic concentrations. If in doubt about a proposed transaction's likelihood to substantially lessen competition, the merging parties can apply to the ICCC for an assessment. Mergers completed without notifying the ICCC could be investigated ex post. According to the available enforcement activity statistics, during 2011-17 merger control accounted for a significant share of the ICCC's workload (Table 3.6).

Table 3.6 Competition enforcement, 2011-17

2011 2012 2013 2014 2015 2016 2017 Total complaints/requests received 6 1 5 3 6 4 4 Inquiries concluded 6 1 5 3 6 4 4 Abuse of market power 3 0 3 1 2 1 1 Other anti-competitive practices 3 1 2 2 4 3 3 Authorization granted 1 0 0 0 0 0 0 Mergers 4 4 2 4 8 3 8 Authorization granted 1 1 1 2 0 0 3 Clearance granted 1 2 1 1 5 2 5 Blocked 0 0 0 0 0 0 0 Market studies 0 0 0 0 1 1 3

Note: An authorization is granted whenever the ICCC finds a substantial lessening of competition, but deems that its effects are outweighed by public benefits. Clearance is granted whenever the ICCC assessment finds that a proposed merger would not result in a substantial lessening of competition. Source: ICCC.

3.59. In July 2018, the National Executive Council (NEC) approved a switch from the voluntary to a compulsory pre-merger notification system, which will enter into force following publication in the National Gazette. The amendment will require prior notification of any concentration that either exceeds the transaction value threshold of PGK 50 million, or would likely result in the acquirer's market share increasing by 50% or more.23 According to the authorities, a recent a competition and consumer protection review by the Department of Treasury has recommended further improvements to the existing legal and institutional framework; their implementation is forthcoming.

3.60. The ICCC investigates alleged contraventions of the ICCC Act (fact-finding and analysis) but must bring any cases that raise competition concerns before the National Court for adjudication.24 Decisions on both liability and any remedies are taken by the National Court. Remedies include: injunctions to suspend conduct until the case is adjudicated; pecuniary penalties of up to PGK 10 million per firm and PGK 500,000 per individual; orders for divestiture of assets; and banning individuals from managerial posts for up to five years. Decisions of the National Court may be appealed to the Supreme Court.25

3.61. The ICCC can undertake studies of economic competition in a particular sector, either ex officio or at the Department of Treasury's request. Typically, such studies are intended to provide the Government with evidence-based policy options, or to assess the need for a change of regulatory approach. When a market study identifies obstacles or restrictions to competition, it also formulates recommendations for their removal. However, the Government is not required to act on the ICCC's recommendations.

22 The ICCC Act does not explicitly define "substantial lessening of competition" and "substantial market power". 23 Failure to comply with the pre-merger notification requirement will be liable to a fine of PGK 750,000. 24 Failure to comply with an ICCC investigation is considered a summary offence, carrying a maximum penalty of PGK 50,000 or imprisonment for up to six months. 25 According to the authorities, once the court has found an infringement of the ICCC Act, it is, in principle, possible for private parties to initiate legal proceedings for the recovery of damages. However, no party has initiated such proceedings to date.

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3.62. According to the authorities, the ICCC has developed a cooperation agreement template but has not yet entered into any formal international cooperation arrangements. It is also struggling to participate in the work of the International Competition Network.

3.3.4.2 Price controls

3.63. Pursuant to the Price Regulation Act 1949, PNG maintains price controls on several goods and services, as declared by the Treasury Minister. The ICCC sets: maximum wholesale and retail mark- ups for certain fuels (petrol, diesel, kerosene, and Jet A1); maximum rates for water and sewerage services; and maximum public motor vehicle and taxi fares. It monitors the prices of rice, flour and sugar, as well as stevedoring and handling charges (only at the ports controlled by PNG Ports Corporation Ltd), without regulating them.

3.3.5 State trading, SOEs, and privatization

3.64. PNG has not submitted to the WTO any notifications on state-trading entities. According to the authorities, no public entities or SOEs have any exclusive rights to import, export or supply on the domestic market a particular good or service.

3.65. In June 2015, with a view to ensuring the efficient management of state-owned commercial assets, PNG established a framework that consolidated: all state interests in oil and gas projects under Kumul Petroleum Holdings (KPH); all state interests in mining projects under Kumul Minerals Holdings (KMH); and all remaining SOEs under Kumul Consolidated Holdings (KCH). As at December 2018, the KCH portfolio of companies alone had combined assets of PGK 9 billion and 7,117 employees.26

3.66. State involvement remains prevalent in many sectors of the economy and, in some cases, continues to crowd out private entrepreneurs. SOEs have commercial operations in, inter alia, energy, mining, water and sewerage, telecommunications, aviation, harbour facilities, financial services, and agriculture and food processing (Table 3.7). The authorities have taken some steps to encourage PPPs and to facilitate the entry of private suppliers in power generation and telecommunications. Nevertheless, a number of SOEs continue to benefit from soft budget constraints and access to concessional finance arrangements.

Table 3.7 State participation in the economy, 2019

State participation Enterprise Area(s) of activity (%) 2019 KCH Air Niugini Ltd 100 Air transport Water PNG Ltd (Eda Ranu Ltd) 100 Water supply and sewerage services Motor Vehicle Insurance Ltd 100 Compulsory third-party motor vehicle insurance National Development Bank (NDB 100 Development finance (credit and guarantees); Investment, People's Micro Bank) commercial banking services PNG Ports Corporation Ltd 100 Harbour management and maritime compliance authority; port operator (Section 4.4.4.3); harbour pilotage services PNG Power Ltd 100 Electricity generation, transmission, retail and distribution; technical regulatory functions (licensing electrical contractors, certifying electrical equipment, installation safety checks) Post PNG Ltd 100 Postal services; logistics and financial services Kumul Telikom Holdings Ltd 100 Fixed-line and mobile telecommunications (Telikom PNG, Bmobile, PNG (wholesale and retail); fibre-optic and satellite DataCo) infrastructure Kumul Agriculture Ltd (National 100 Agri-business Plantation Management Agency, Sepik Agro Industries, Central Dairy, Livestock Development Corporation) Pacific International Hospital 11.5 Healthcare services

26 KCH, Transforming today for a stronger PNG tomorrow, A year in review (2018).

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State participation Enterprise Area(s) of activity (%) 2019 Bank of South Pacific 18.2 Financial services PNG Dams .. .. Kumul Technology Dev Corp .. .. Government Stores .. Kumul Property .. .. KPH PNG LNG 16.57 LNG production, transportation and supply ...... KMH ......

.. Not available. Note: Known subsidiaries of main entities are listed in parentheses. Details on the portfolios of KPH and KMH were not available. Source: Information provided by the authorities.

3.3.6 Government procurement

3.67. PNG is not a party or an observer to the plurilateral Agreement on Government Procurement.

3.68. PNG's public procurement framework is being revamped following the adoption of a new National Procurement Act and an amendment to the Public Finance Management Act in September 2018. In January 2019, the Central Supply and Tenders Board (CSTB) became the National Procurement Commission (NPC), with authority to undertake procurement on behalf of all central, provincial and district government divisions, as well as previously-excluded SOEs and statutory bodies. To fulfil its mandate, the NPC is to establish a country-wide network of committees at the provincial and district levels. Entities with demonstrated in-house capacity may obtain certification to conduct procurement on their own behalf, subject to certain contract value thresholds (Table 3.8). All procurement contracts must be drawn, approved and cleared by the State Solicitor. The authorities expect the transition to the new public procurement framework to take approximately three years.

Table 3.8 Procurement proceedings limits, 2019

Entity type Maximum contract value Public and statutory bodies PGK 500,000, with a simplified system for contracts below PGK 5,000 NPC District Committee PGK 2.5 million NPC Provincial Committee PGK 5 million NPC Unlimited, but contracts over PGK 10 million must be approved the NEC and be signed by the Head of State

Source: Information provided by the authorities.

3.69. In principle, open tendering remains the main procurement method. The scope for exemptions via a certificate of inexpediency to tender has been reduced. Statutory provisions empowering the Minister for Finance or the NEC to issue such certificates have been repealed. Furthermore, the circumstances in which the NPC may grant certificates of inexpediency to tender (subject to ratification by the NEC) have been limited to: an emergency declared by the NEC; or negotiations for a loan to a public or statutory body. Summary statistics of contracts awarded during the review period and the procurement methods used were not available.

3.70. The National Procurement Act formally introduces provisions stipulating local preference margins and reserving certain tenders for PNG nationals. Bids by national suppliers with the appropriate capacity to fulfil the contract are eligible for a price preference of 15% for goods and 7% for works or services. A preference margin of 4% applies to all joint ventures that are majority- owned by national suppliers. In addition, contracts worth up to PGK 10 million can only be awarded to PNG citizens or 100% nationally-owned companies; those with a value greater than PGK 10 million but less than PGK 30 million are reserved for partnerships with at least 50% national participation.

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3.3.7 Intellectual property rights (IPRs)

3.71. In June 2016, PNG accepted the Protocol Amending the TRIPS Agreement, which took effect on 23 January 2017.27 No changes to the legal and institutional framework governing IP took place during the review period. The authorities are aware of the need to review the current outdated laws, to take account of technological change and align them with international treaties. This has prompted the drafting of a National IP Plan, with the aim of enhancing the utilization of IP and enabling PNG to meet its relevant international obligations.

3.72. The Intellectual Property Office of PNG (IPOPNG), within the Investment Promotion Authority (IPA), remains responsible for industrial property administration. IP Australia helps IPOPNG in the search and substantive examination of patent applications, under a cooperative arrangement renewed in 2017. Compulsory licensing provisions are set out in the Patents and Industrial Designs Act, 2000. There are no legal provisions on exhaustion of rights. A unit of IPOPNG also handles issues related to copyright and related rights. No provisions regarding the collective management of such rights are contained in the legislation.

3.73. In 2016, with the assistance of WIPO, IPOPNG completed an upgrade of its IP automation system, thereby eliminating the manual processing of patent and industrial design applications. Statistics on the various types of IP protection sought and granted during 2011-18 were not available.

3.74. Right holders may ask the PNG Customs Service to seize imports suspected of IPR infringement, subject to the provision of prima facie evidence. Ex officio action may also be taken, provided the right holder has registered with the PNG Customs Service and has signed a waiver protecting it from future court action resulting from any such seizure. According to the authorities, the duplication of IPR registration fees at IPOPNG and the PNG Customs Service acts as a disincentive to most right holders.

3.75. IP enforcement continues to face major challenges, including lack of human resources and funding; inadequate infrastructure for managing and administering IPRs; absence of IPR-related training and educational institutions and services; and lack of awareness among major stakeholders. The sale of counterfeit and pirated goods remains widespread.

27 WTO document WT/Let/1173, 29 November 2016.

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4 TRADE POLICIES BY SECTOR

4.1 Agriculture, Forestry, and Fisheries

4.1.1 Agriculture

4.1. PNG has abundant but underutilized agriculture land. An estimated 30% of PNG's land has moderate to very high agricultural potential. However, less than 4% of it is currently used for commercial agricultural production. Agriculture and related activities accounted for 18.0% of GDP in 2018 (Chart 1.1), and around 80% of the population farm for food or cash. The sector is dominated by small farms, averaging about one hectare. Subsistence or semi-subsistence farmers grow mostly sweet potatoes, bananas, yams, cassava, taro, coconuts, sugar cane, maize, and peanuts. Labour-intensive plantation estates and smallholders produce almost all the food consumed in PNG and over 80% of exported crops, mostly palm oil, coffee, tea, cocoa, copra, and rubber. Most cash crops are exported in raw form, and are transformed abroad into finished products for final consumption, which are then re-imported.

4.2. PNG's agricultural sector is generally much less productive, and therefore much less profitable, than agricultural sectors in many similar countries. For example, the current stocks of coffee and cocoa trees are old, and are therefore low-yielding. There is, therefore, considerable scope for expansion of PNG's agricultural output.1

4.3. During the review period, agriculture exports generally have fallen (Table 4.1), mainly as a result of a major drought in 2016-17 but also due to low productivity that reflects some of the key challenges facing the sector: inadequate R&D; poor application of technological improvements; lack of scale economies inherent in smallholder farming; and other major constraints, such as deficient transport facilities, unreliable and expensive utilities, prevalent crime and lawlessness, and insecurity of land ownership and tenure. Modernization of the agriculture sector could see a fundamental transformation, as millions of people would move from the informal subsistence sector to the formal economy.2

Table 4.1 Main agriculture exports, 2012-16 ('000 tonnes and PGK million) 2012 2013 2014 2015 2016 Palm oil Volume 483.0 487.2 514.8 486.9 147.2 Value 1,009.9 903.5 1,086.4 837.6 254.3 Coffee Volume 55.5 48.5 48.4 42.8 6.6 Value 478.5 336.7 450.3 393.5 60.1 Cocoa Volume 38.1 38.7 33.6 30.9 3.1 Value 182.6 206.0 243.1 255.7 26.0 Copra Volume 32.9 15.8 48.2 33.6 11.4 Value 33.1 13.2 63.7 45.0 15.2 Tea Volume 3.8 2.9 2.1 1.3 0.2 Value 11.7 10.4 8.4 4.9 0.9 Rubber Volume 5.1 3.4 3.2 2.2 0.2 Value 33.1 19.4 13.8 7.9 0.5 Copra oil Volume 22.0 13.5 11.1 14.6 6.4 Value 56.1 24.5 28.7 39.3 15.9 Source: Data provided by the authorities.

1 Department of National Planning and Monitoring (2010), Papua New Guinea Development Strategic Plan (DSP) 2010-30, Port Moresby. 2 Department of Commerce and Industry (DCI) (2017), Papua New Guinea: National Trade Policy (NTP) 2017-32, Port Moresby.

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4.4. The Department of Agriculture and Livestock (DAL) is responsible for the sector. The principal agricultural R&D agency is the state-owned National Agricultural Research Institute (NARI), which focuses on general activities and semi-subsistence smallholders. Crop-specific R&D and extension services are provided by non-profit statutory research institutions, i.e. the PNG Cocoa and Coconut Research Institute (CCI), the Coffee Research Institute (CRI), and the Oil Palm Research Association (OPRA)3, which are funded mainly by commodity levies. Governance issues have adversely affected R&D institutions (and commodity boards), largely due to political appointments of directors and politicization, making them almost dysfunctional. According to the authorities, the roles and functions of the DAL and other agencies within the sector need to be clarified in order to improve the delivery of the essential support functions of providing extension services, credit services and training.4

4.5. Major export tree crops are administered by statutory marketing boards, which report to the Government through the Minister for Agriculture and Livestock but maintain their autonomy through grower-controlled boards.5 The main boards are the Cocoa Board6, the Coconut Industry Corporation7, the Coffee Industry Corporation (CIC)8, the Spice Industry Board9, the Oil Palm Industry Corporation (OPIC)10, and the PNG Rubber Industry Corporation.11 The boards are established by legislation that provides broad powers, including: collecting levies from growers, exporters and importers to fund operations, including controlling sales, including exports, and associated licensing of traders and sellers; setting quality standards, conducting inspections, and certifying exports; providing farm extension services; and financially assisting growers, for example, to rehabilitate crops. Marketing functions are provided by licensed private operators, except for rubber, which remains the only state-controlled and managed industry.12 The efficiency and rationale for such marketing boards is questionable, and they may be impeding agricultural development.

4.6. All state interests in the agriculture sector are under Kumul Agriculture Limited (KAL), a subsidiary of Kumul Consolidated Holdings (KCH) (Section 3.3.5). All legal titles of agricultural assets, whether held directly or indirectly, are currently being transferred to KAL. These include: National Plantation Management Agency Limited, Sepik Agro Industries Limited, Central Dairy Limited, and the Livestock Development Corporation.13

4.7. Some of PNG's main laws and regulations regarding the agriculture sector are: the Export (Desiccated Coconut) Act, 1956; the Coffee Industry Corporation (Statutory Functions and Powers) Act, 1991; the Kokonas Indastri Koporesen Act, 2002 (coconut); the Cocoa Act 1991; the Cocoa Regulation, 1982; the Copra Act, 1953; and the Copra Inspection Regulation, 1982 (Table 2.1).

4.8. PNG's key policy objective for the sector is "to promote a vibrant and competitive integrated agriculture and food sector able to compete evenly against imports to promote food security, rural

3 The non-profit OPRA is privately funded by New Britain Palm Oil Ltd (NBPOL) and other palm oil-growing firms paying a per-tonne production levy. 4 Department of National Planning and Monitoring (2010), Papua New Guinea DSP 2010-30, Port Moresby. 5 The Minister of the DAL is the Chair of all the Commodity Boards. 6 The Cocoa Board, funded by an industry levy, regulates the growing, processing, marketing, and export of cacao, cacao beans, cocoa beans and cocoa products through licensing. The Board is undertaking a review of the cocoa industry legislative framework. There have been suggestions for better sectoral representation on the Board, particularly concerning the private sector. The Board of Directors currently has four representatives, while it should have seven. 7 The Coconut Industry Corporation (Kokonas Indastri Koporesen, or KIK) licenses buyers, manufacturers, processors, and exporters of coconut products. It also inspects and certifies exports of copra and coconut products for PNG quality standards. It is funded by an export levy, initially set at PGK 60 per tonne on copra, PGK 80 on coconut oil, and PGK 30 on other coconut products. 8 The CIC licenses coffee dealers (exporters, processors, and manufacturers) and inspects all premises, including roadside coffee buyers. Nationally owned firms, especially with broad-based grower shareholdings, receive preference regarding the issuance of manufacturing and processor licences. Licensed processors must sell to licensed exporters and meet the PNG Standards for Green Coffee and the Minimum Quality Standards for Unprocessed Coffee. 9 Exporters of processed and unprocessed spices, including vanilla, must be licensed by the Spice Industry Board (Spice Industry Act, 1989). 10 The OPIC provides extension services to smallholders, and is 50%-funded by NBPOL. 11 Rubber remains the only state-controlled and -managed industry, and is the responsibility of the Rubber Industry Board. 12 Government representatives also sit on these boards. 13 KCH (2018), Transforming today for a stronger PNG tomorrow: A year in review 2019, Port Moresby.

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- 47 - development and poverty alleviation". The National Trade Policy (NTP) 2017-32 calls for the following measures: support and grow the local stock-feed industry to supply the poultry and livestock industries; develop a list and/or guidelines to designate agriculture goods as "special products" and/or "sensitive products" which will be exempt from any tariff reduction commitments in PNG's various RTAs; establish adequate national standards for production and processing to maintain food quality and safety along the supply chain (including testing and verifying that imports meet national standards) and progressively implement these standards; establish clear criteria to use contingency trade measures to protect local agri-food industries against unfair trade practices and import surges if required; create special economic zones (SEZs) to promote the development of agri-manufacturing industries; simplify administrative processes and procedures to obtain export approvals and permits for agriculture products of export interest; and reintroduce price stabilization funds to protect farmers against agriculture commodity price downturns.14

4.9. The tariff is the main border measure assisting agriculture. On average, the MFN tariff on agriculture (WTO definition) is 10.1%, ranging from zero to 40%. Some 46% of the total agricultural products are duty-free. Applied tariffs are generally much lower than the corresponding bound rates, with an average applied tariff rate of 3.9%. PNG bound around one third of all its agricultural items at 45%; bindings for fruits and vegetables are high, up to 100%. The agricultural policy relies on the self-sufficiency-driven notion of food security, using high tariff barriers at the border for the targeted products (e.g. pork, poultry, and sugar).

4.10. Considering the policy emphasis on agriculture for export-driven growth (through exports of palm oil, coffee, cocoa, coconut, etc.), market access reforms through tariff reductions (including addressing tariff escalation) should assist economic development.

4.11. PNG is the only Pacific Island that has an aggregate measure of support (AMS) entitlement (its final bound total AMS is USD 34.2 million). Recently, it submitted its first domestic support notification to the WTO, covering the years 2013, 2014, 2016 and 2017. Its total AMS was USD 34.2 million in each of those years. Measures exempt from reduction commitments ("Green Box") were general services, mostly on cocoa- and coconut-related projects.15

4.12. PNG is still to submit other notifications to the Committee on Agriculture. It has not submitted any SPS notifications to date.

4.13. PNG is among the nine small and vulnerable economies (SVEs) who obtained the same treatment as LDCs and Net Food-Importing Developing Countries in the December 2015 Nairobi Ministerial Decision on Export Competition in the areas of export finance (allowance for a repayment term of between 36 and 54 months for export finance schemes covering products imported by these countries) and international food aid (the possibility of monetizing international food aid beyond the mere funding of transportation and delivery of food aid).

4.14. The National Agricultural Development Plan aims to develop a well-coordinated planning and implementation strategy, centred on research and extension, training and information, industrial tree crops, food and horticulture, spices and minor crops, livestock, apiculture and aquaculture, and regulatory and technical services. Transport infrastructure, a major impediment to agriculture, is being improved. Roads are critical to connect fertile regions of PNG with markets.16

4.15. General tax incentives apply across all sectors but there are also specific incentives for agriculture (Table A2.1).

4.16. Table 4.2 provides some of the key agriculture targets to be reached by 2030. PNG aims to achieve a five-fold increase in agricultural production between 2010 and 2030, create an estimated 267,400 additional jobs, and earn PGK 7.2 billion in additional national income by 2030. The substantial increase in agriculture is derived from a 180% rise in the use of land by agriculture, and from a 60% improvement in agricultural productivity.

14 DCI, Papua New Guinea: NTP 2017-32, Port Moresby. 15 No data was available for 2015. WTO document G/AG/N/PNG/1, 25 July 2018. 16 Without roads, fertile land will remain idle or underutilized, despite extension services. The better the roads, the easier it would be for farmers to supply markets, and the more profitable farmers would become.

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Table 4.2 Key agriculture targets for 2030

Indicator Baseline 2030 targets/objectives Meat production, including 407,000 tonnes in 4 million tonnes organic 2007 Coffee production 63,000 tonnes in 2008 500,000 tonnes Palm oil production 556,000 tonnes in 1.6 million tonnes 2007 Cocoa production 56,000 tonnes in 2008 310,000 tonnes (minimum of 100,000 tonnes required to allow the development of a local processing industry) Copra production 110,000 tonnes in 440,000 tonnes 2007 Horticultural production, .. Multiply by 5 including organic Rice production Domestic market Strengthen the bargaining power of local dominated by foreign growers, and encourage local processing entities Sago production .. Establish 2 large-scale sago plantations by 2030, and venture into full commercialization Staples (sweet potatoes, .. Increase production to levels sufficient to feed cassava, taro, bananas) the population, and supply downstream production industries Subsistence agriculture Most people in rural 70% of subsistence farmers to expand into areas depend on small and medium primary agricultural subsistence farming enterprises

.. Not available. Source: Department of National Planning and Monitoring (2010), Papua New Guinea DSP 2010-30, p. 90, Port Moresby.

4.17. According to the authorities, to achieve these targets, land reform will be necessary to provide the incentive to landowners to release their land for agricultural development. At the same time, extension services will assist land holders to replant with new, high-yielding varieties of coffee, cocoa and copra. Given that the yield of these new varieties will be at least twice that of current crops, extension services can be expected to yield a return of more than 100%. Implementing the international Codex food safety and fair trade standards will support the marketing of PNG's food exports, opening up profitable export opportunities for the agriculture and food sectors.17 Interventions that are non-discriminatory, transparent and cost effective will also be an important strategy over the next 20 years. For example, with the Government's support, the NARI has established that PNG's vanilla beans are high in vanilla content, despite being too short for export, thereby raising the possibility of domestic processing.18

4.1.2 Forestry

4.18. Forests cover approximately 25.8 million hectares, almost two thirds of PNG's total land area.19 Round logs are the main export, other exports include timber, plywood, and woodchip. Log exports account for 3% of total merchandise exports. PNG logging costs are reportedly higher than in other countries in the region, mainly due to difficult terrain and large distances from forests to log export centres. Forests are traditionally on customary owned land.

4.19. Logging is regulated by the PNG Forest Authority (the Forestry Act, 1991), in line with the National Forest Policy. In addition to annual royalties of some USD 6 million paid to landowners, and the provision of services and infrastructure in remote areas, the sector contributes substantially to government revenue through income tax and a progressive export tax on unprocessed old-growth logs (except plantation logs) (Section 3.2.2).

4.20. The Medium-term Development Plan 2016-17 indicated that, in the preceding years, forests had been degraded and depleted due to excessive logging, and called for this practice to be stopped.

17 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 18 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 19 Between 1977 and 2002, 15% of the natural rainforest was cleared, with 8% degraded to secondary forest. However, PNG still ranks among the top 20 nations in the world for forest cover.

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The Government decided to ban all round-log exports by 2020. In addition, a moratorium on the issuance of new logging permits is in place.20

4.21. An average MFN tariff of 7.5% is levied on wood, pulp, paper and furniture, with rates ranging up to 50% (Table 3.4).

4.22. PNG's key policy objective for the sector is "to promote a financially and economically sustainable forest industry through improved international market visibility". The NTP 2017-32 calls for: increased connectivity with the private sector, other government agencies, civil society and international organizations to encourage information linkages and transparency on international trade of forest and wood products; the marketing and promotion of wood products to maximize returns and minimize transfer pricing in the log export trade; and the encouragement of domestic processing of forest products wherever this is economically and financially viable.21

4.23. Table 4.3 provides some of the key forestry targets to be attained by 2030. PNG aims to achieve a forestry sector that is both sustainable and profitable for current and future generations through the following measures: establish a forest resource inventory to ensure policy decisions are well-informed; promote sustainable forest management through reforestation and afforestation programmes; prevent the felling of virgin forests unless the land is developed to provide sustainable jobs and income, whether through agriculture, plantation or other profitable land uses; pursue downstream processing of forest products such that 80% of PNG timbers are processed in PNG by 203022; strengthen the regulatory and policy framework, including ensuring compliance, to give full effect to government policy; and enhance the research and extension services of the forest industry to make it profitable and sustainable.23

Table 4.3 Key forestry targets for 2030

Baseline 2030 Key indicators Issues information targets/objectives Share of processed 21% in 2007; The share of processed timber in total 80% timber in the value processed timber exports is very low (e.g. in of total timber exports of Indonesia, the share rose from 10% to exports PGK 106 million 90% between 1978 and 1996). Share of log harvest .. A sustainable approach to forestry will Logs will be coming from virgin ensure that the benefits of investment in provided by forest the forestry sector continue into the plantations and future, and will help realize managed forests environmental benefits. Area of plantation 62,000 ha Insecure land tenure currently constrains Substantial increase forests investment in the plantation sector. in plantation forests

.. Not available. Source: Department of National Planning and Monitoring (2010), PNG DSP 2010-30, p. 94, Port Moresby.

4.1.3 Fisheries

4.24. PNG has extensive and valuable fisheries resources, ranging from inland river fisheries, aquaculture, coastal bêche-de-mer and reef fisheries to prawn trawling and large-scale deep-water tuna fishing (mainly skipjack and yellowfin). Tuna remains the main product of substantial commercial value. PNG's exclusive economic zone (EEZ), covering 2.4 million km2, is the second-largest in the South Pacific. Around 15% of the world's total tuna stock is found there. Seventy percent of the 550,000 tonnes of tuna caught annually is exported for processing. The average annual market value of the fisheries catch is estimated at PGK 790 million (2.3% of GDP). In 2017, marine product exports amounted to PGK 1.3 billion (6% of total merchandise exports).

4.25. The fishing sector currently provides around 10,000 jobs.24 Fishing is mainly conducted by artisanal communities in inland and shallow coastal waters, medium-sized domestic prawn and

20 DCI, PNG: NTP 2017-32, Port Moresby. 21 DCI, PNG: NTP 2017-32, Port Moresby. 22 Compared with the current situation where most exports are raw timbers, this strategy will create more than 10,000 jobs, and generate an additional PGK 300 million of national income. 23 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 24 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby.

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- 50 - long-line boats, and foreign purse-seine tuna operators. Commercial fishing is carried out by licensed medium-sized domestic prawn and tuna long-line operators, and large international purse-seine fleets in the deep-water tuna fishery.

4.26. The National Fisheries Authority (NFA), overseen by the National Fisheries Board, a non-commercial statutory body, is responsible, under the Ministry of Fisheries, for regulating and developing the sector (Fisheries Management Act, 2015, as amended, and related regulations, e.g. the Fisheries Management Regulation, 2016, as amended). It is self-financed, mainly from access fees from distant water fishing nation (DWFN) vessels.

4.27. Coastal fisheries contribute significantly to food security and community incomes. Small-scale non-commercial harvesting is an important activity. Around one quarter of households engage in fishing, 60% of which is on a subsistence basis. Some reef fish are exported, either frozen or chilled. While still relatively new, aquaculture, especially in barramundi and prawns, is developing, and a National Aquaculture Policy has been adopted. A pearl hatchery is also in operation.

4.28. Fish and fishery products are subject to an average MFN tariff rate of 14.1%, with rates ranging up to 25% (Table 3.4).

4.29. Fisheries management consists of several Fisheries Management Plans, designed to manage the main fisheries sustainably, based on estimates of total allowable catch (TAC). The regulatory instrument is vessel licences issued by the NFA. Fish exports must be licensed and quality inspected (PNG Standards of Fish and Fishery Products Regulation, 2009).

4.30. PNG signed the Interim Economic Partnership Agreement (IEPA) with the European Union in 2009. Under the global sourcing requirement of the IEPA rules of origin, PNG may catch fish anywhere in the world and export it to the European Union duty-free and quota-free, on the condition that it is substantially transformed in PNG. As a result, a number of fish canneries were established to benefit from the EU market, and about 10,000 new jobs were created. However, the canneries are under threat of scaling down their market share because the European Union has included fish products under its GSP+ scheme. According to the authorities, PNG will not be able to compete with its Asian competitors in the EU market because cost of production is much lower in Asia.25

4.31. General tax incentives apply across all sectors but there are also specific incentives for fisheries (Table A2.1).

4.32. PNG's key policy objective for the sector is "to support further growth and development of fisheries industry to maximize the returns on its resource, in terms of jobs and export earnings". The NTP calls for the following measures: establish marine industrial zones, including expediting the establishment and operation of the Pacific Marine Industrial Zone (PMIZ) in Madang and of the Wagang Dedicated Fish Port in Lae, to maintain its competitive position in current and future export markets; maintain export restrictions to encourage downstream processing and value adding onshore, wherever necessary; and identify and conclude RTAs to gain competitive advantages for fish exports.26

4.33. Table 4.4 provides some of the key fisheries targets to be attained by 2030. According to the authorities, to achieve these targets, maritime surveillance capacities need to be enhanced to oversee the sector; notably, the lack of policy enforcement is resulting in the loss of millions of Kina in illegal or under-reported fishing activities. Research, extension services and marketing capacities also need to be developed to support the industry in managing risks and in providing direction.27

25 DCI, PNG: NTP 2017-32, Port Moresby. 26 DCI, PNG: NTP 2017-32, Port Moresby. 27 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby.

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Table 4.4 Key fisheries targets for 2030

Baseline 2030 Key indicators Issues information targets/objectives Stock Under-exploited A key constraint in Gulf fishery is the use Increase catch by assessment of of annual licences instead of long-term 25%, and raise prawn fisheries licences. Fishers have little incentive to stock assessment to invest unless they can purchase long-term fully-exploited licences. Licence fees PGK 60 million in Licence fees are low, and create an PGK 600 million in generated from 2008 incentive to overfish. Raising fees will 2008 prices through tuna fisheries benefit PNG. Taxing catch or profit will the introduction of help sustain the fishery by reducing the the Parties to the incentive to overfish. Nauru Agreement (PNA) Vessel Day Scheme PNG-processed PGK 189 million, Most fish caught in PNG waters are Triple the volume fisheries exports 21,940 tonnes in handled or processed outside the country. and real value of 2007, comprising As a result, PNG's fish-processing industry processed fisheries 34% of total exports misses out on income and jobs. exports Quantity share Less than 1% in The majority of the catch is caught by Increase to at least of catch caught 2007 foreign vessels. For PNG to benefit more 20% by 2030 by PNG vessels from its fisheries, the share of catch from locally-operated fishing operations will need to increase.

Source: Department of National Planning and Monitoring (2010), PNG DSP 2010-30, p. 92, Port Moresby; and information provided by the authorities.

4.34. Licence fees, excise and other revenue-raising arrangements will also be revised to ensure that PNG is raising revenue efficiently but without discouraging domestic production.28 "Should PNG take the option of, for example, doubling revenues taken from the foreign tuna fleet, the Government would earn an additional PGK 60 million. By reinvesting this revenue, for example, in implementing the coastal fishers program, the gains would accumulate. A further PGK 10 million in other taxation revenues is anticipated by 2030, together with an additional PGK 80 million in real national income and almost 700 extra jobs".29

4.35. PNG local fishermen have exclusive rights to fish the 3-12 nautical mile-zone set aside for traditional fishing grounds. To assist fishers to profit from their traditional fishing grounds, fishing cooperatives can be set up that have responsibility for administration, marketing of local catches, providing cold storage and processing facilities, granting credit, and arranging the acquisition of pump boats and other equipment for its members.30

4.36. Marine industrial parks will be established to provide an outlet for local fishers that will support fishing incomes. The parks will also support the development of onshore processing, adding to PNG's manufacturing capacity. The PMIZ is the first such development. PNG aims to become the tuna capital of the world by taking the lead in the profitable production and the export of processed tuna.31

4.2 Mining and Energy

4.37. Although the Government's overarching goal is to encourage growth in the non-extractive sectors, mining, petroleum and gas continue to underpin PNG's economy. The main policy objective for the sector is to ensure the maximum benefit for current and future generations, and encourage downstream processing and value adding of mineral and petroleum resources. Mining remains an

28 More revenue could be obtained, for example, from Pacific tuna fishery by increasing the licence fees for foreign vessels. 29 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 30 The Government can facilitate such developments by encouraging joint ventures and by providing key port and jetty infrastructure. Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 31 Located north of Madang, it is envisaged the Zone will include several tuna factories, which will purchase fish from fishers, contributing to the incomes of local fishers. Other Pacific Island countries could also benefit, with the right to invest and operate in the PMIZ. Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby.

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- 52 - important contributor to the economy but very limited processing takes place in PNG, and more could be done to encourage further value adding and downstream processing onshore to create jobs.

4.38. The gas industry has recently become the key driver of growth in the economy, with the development of LNG projects, whereas oil reserves are projected to be depleted by 2026 unless new discoveries are made.32

4.39. All state interests in mining projects are under Kumul Minerals Holdings (KMH), and in oil and gas projects are under Kumul Petroleum Holdings (KPH) (Section 3.3.5).

4.40. General tax incentives apply across all sectors but there are also specific incentives for mining, petroleum and gas (Table A2.1).

4.2.1 Mining

4.41. PNG has been implementing the Extractive Industries Transparency Initiative (EITI) Global Standard since 2014.33 The statutory Mineral Resources Authority (MRA) aims to promote sustainable mining, and to regulate the industry to maximize opportunities (Mineral Resources Authority Act, 2005). It is largely funded by a levy of 0.25% on producer's assessable minerals income, including exports of alluvial gold (levied on the f.o.b. value). The MRA's Mining Advisory Council processes tenement applications for exploration and mining, and makes recommendations to the Minister of Mining. Applications for exploration licences require work programmes to be submitted, and a minimum annual expenditure.

4.42. Tenements are issued by the Mining Minister on recommendations from the Mining Advisory Council (MAC) (Mining Act, 1992), except for special mining licences, which are issued by the Head of State based on advice from the NEC. The types of tenements are:

• exploration licence – may be granted for up to two years, and extended for periods not exceeding two years;

• mining lease – usually issued for small to medium-scale alluvial and hard rock mining operations for up to 20 years, and may be extended for periods not exceeding ten years;

• special mining lease – generally issued to the holder of the exploration licence for large-scale operations for up to 40 years, and may be extended for periods not exceeding 20 years34;

• alluvial mining lease – only granted to a PNG citizen or a land group in respect of land owned by that person or land group for up to five years, and may be extended for periods not exceeding five years35;

• lease for mining purposes – granted to mining operations for constructing buildings and other improvements, or for buying operating plant, machinery, and equipment; installing mineral-treatment plants; the deposit of tailings or waste; constructing housing and other infrastructure required in connection with mining or treatment operations; transport facilities, including roads, airstrips and ports; or any other purpose ancillary to mining or treatment operations or to any of the preceding purposes approved by the Minister36; and

• mining easement – granted in connection with mining, treatment or ancillary operations conducted to construct and operate roads, aerial ropeways, power transmission lines, pipelines, conveyor systems, bridges or tunnels, waterways, or any other facility ancillary to

32 DCI, PNG: NTP 2017-32, Port Moresby. 33 PNG EITI online information. Viewed at: www.pngeiti.org.pog. 34 The exploration licence holder must also have a Mining Development Contract with the Government. Before granting the lease, the Minister must convene a development forum of stakeholders, e.g. lease applicant, landowners, and national and provincial governments. 35 A lease will not be granted over land already subject to another tenement (other than an exploration licence or a mining easement). The land must be a riverbed or be located within 20 metres of a riverbed, and must cover a maximum area of 5 ha. 36 The lease term will coincide with that of the special mining lease or mining lease covered by the lease for mining purposes.

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mining or treatment, or ancillary operations in connection with any of the preceding purposes approved by the Minister.37

4.43. PNG's key policy objective for the sector is "to double mineral exports, while minimizing the adverse impact on the environment". Table 4.5 shows some of the key mining targets to be achieved by 2030. Doubling mineral exports between 2010 and 2030 would lead to an increase in the national economic welfare in 2030 of PGK 1.9 billion, including PGK 790 million of extra tax revenues.38

4.44. The following strategies have been proposed to achieve such targets: strengthen the capacity of state institutions to administer and enforce mining regulations to ensure the Government's policy is implemented effectively; provide a simple and effective regulatory and policy framework to keep industry compliance costs to a minimum, to protect the environment and to ensure landowners and other stakeholders benefit; facilitate further exploration by simplifying and speeding up regulatory procedures; promote an integrated approach to mine development rather than an enclave approach, with the use of economic corridor zones to direct project revenues into areas with the greatest potential for sustainable development; develop and review appropriate mechanisms to address landowner participation39; and pursue manufacturing and SME strategies that encourage downstream processing for the smelting of minerals onshore, to add value to the natural resources.40

4.45. The MFN tariffs on mining products (major division 2 of ISIC) average 0.1%, with rates ranging up to 15% (Table 3.4).

Table 4.5 Key mining targets for 2030

Baseline 2030 Key indicators Issues information targets/objectives The value of PGK 9.2 billion in Mining has been a principal source of At least PGK 18 mineral exports 2007 government revenue since independence. billion Exploration PGK 213 million in Reserves at existing minerals projects are Sufficient expenditure 2008 being depleted. Exploration and investment exploration to reach in new projects will be required to expand production target the sector. Exploration 241 exploration The degree of exploration activity will Ongoing high level licences licences in 2009 determine future production. of exploration activity Number of mine 9 in operation, 4 To expand the sector, the number of mine Around 20 in sites under sites will also need to grow. operation development, 11 at advanced stage of exploration Government PGK 2.2 billion in The Government needs to balance the At least PGK 3 billion revenues from 2007 objective of securing maximum revenues a year mineral projects from mineral projects with the need to maintain incentives for businesses to invest in the industry. Sustainable .. Commercial deep-sea mining may A number of deep-sea commence in PNG waters within the next projects to have mining in PNG decade. commenced waters

.. Not available. Source: Department of National Planning and Monitoring (2010), PNG DSP 2010-30, p. 98, Port Moresby.

4.2.2 Oil

4.46. In 2005, PNG's first oil refinery commenced production, sourcing crude oil from both local oil fields and externally. The Napa refinery (foreign-owned, by Puma Energy) refines light "sweet" crude oil from Kutubu. PNG is self-sufficient in petrol, diesel, and kerosene. InterOil's 30-year government

37 The term will coincide with the term of the tenement covered by the mining easement. 38 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 39 According to the authorities, these issues are best resolved before the private sector becomes involved, to reduce the costs of investment and thereby attract more investors. 40 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby.

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- 54 - agreement, expiring in 2035, provides a monopoly, as distributors must purchase refined petroleum products from the refinery at import parity.

4.47. PNG's policy is based on the Oil and Gas Act, 1998, and is administered by the Department of Petroleum and Energy. Standard exploration licences are granted for an initial period of six years, followed by a five-year extension for half of the area. Three major distributors (Mobil, Total, and Puma Energy) sell to retailers, with Puma Energy being the dominant player. They distribute products from the refinery, either by ship for storage at smaller ports or direct to retail outlets by road, either themselves or using contract road or shipping companies. Most distributors own retail sites, operated on commission or as franchise outlets.

4.48. The Independent Consumer and Competition Commission (ICCC) monitors prices of petrol, diesel, and kerosene, and aviation fuel under the Government's import parity pricing agreement. It determines the selling prices of petroleum products ex-refinery, in consultation with the refinery's owner, and is currently reviewing the arrangements for the next five years. It publishes "indicative" maximum retail prices for petrol, diesel, and kerosene based on import parity prices and regulated margins.

4.49. Table 4.6 provides some of the key oil, refining and LNG targets to be achieved by 2030. By encouraging exploration and investment, the target is for 2009 levels of crude oil production to be maintained through to 2030, and for at least three large gas projects to be in operation. Sustaining production levels of crude oil at the 2009 level would result in further gains of PGK 0.8 billion in national income and PGK 0.5 billion in tax revenue by 2030. The need for specialized expertise and considerable resources means that the private sector will need to lead exploration and investment in the industry. The Government will work with landowners and other stakeholders to help break down barriers and pave the way for private-sector exploration and development of oil reserves.41

Table 4.6 Key oil, refining and LNG targets for 2030

Baseline 2030 Key indicators Issues information targets/objectives Volume of crude 16.8 million Production has been declining, as proven Sustain crude oil oil production barrels produced, reserves become depleted. Preventing production and and exports and 14.4 million further decline will require significant exports at 2009 barrels exported in investment in exploration. levels 2007 Remaining oil 859.5 million Remaining reserves are depleting, and Increase proven reserves barrels in 2006 there is insufficient investment in reserves by 60% exploration. Refinery 5.8 million barrels The capacity of the existing refinery is not 9 million barrels production of crude oil fully utilized. Future demand will rise rapidly processed processed in 2008 as PNG DSP implementation brings strong growth. Number of LNG Nil There is considerable potential for LNG At least 3 projects projects and potential for processing, including fertilizer production and LPG. Revenues .. It is crucial to ensure that the Government At least PGK 5 billion received from secures the maximum revenues from the a year petroleum gas projects, but not to the detriment of projects incentives for businesses to invest.

.. Not available. Source: Department of National Planning and Monitoring (2010), PNG DSP 2010-30, p. 96, Port Moresby.

4.2.3 Natural gas

4.50. PNG has substantial natural gas reserves. In addition to the LNG project headed by Exxon Mobil, two other projects are at an advanced planning stage: the Papua LNG project, headed by Total E&P from their Elk-Antelope gas fields; and the Pasca A offshore gas field, headed by Twinza

41 Careful management of the revenue flows will be required. Industry partners are to be strategically selected, based, inter alia, on proven performance, financial strength, and optimal investment returns to PNG. The Government will also need to work with provincial governments and landowners to assist them in planning for the prudent and productive use of the revenue proceeds. Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby.

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Oil. These projects are not just about extracting natural gas; it is anticipated that substantial downstream processing will be developed to convert the natural gas into processed petrochemical products, including liquefied petroleum gas (LPG). If these three major gas projects alone proceed, by 2030, PNG's national income would be expected to increase by PGK 9.7 billion, with PGK 5.1 billion in additional tax revenue.42 Moreover, there is strong potential for the development of many more gas projects, both upstream and downstream.43

4.51. The project headed by Exxon Mobil is expected to generate over PGK 5 billion a year in export revenues.44 It will pipe gas from the Western Province to an onshore LNG processing plant in Port Moresby within the PNG LNG Plant Site, for export to Asia, especially Japan, India, and China, from 2024. The project includes gas production and processing, onshore and offshore pipelines, and liquefaction facilities with an annual capacity of 2.7 million tonnes. It is estimated to cost USD 8 billion, and have a projected life of 20 years. The tax rate for the project is 30%, and the Government's expected maximum capital funding requirement is USD1.6 billion, which is expected to be in the form of 30% equity and 70% debt (as was the case with the PNG LNG project).

4.52. The Papua LNG project is a joint venture45 between Total E&P as the operator with 40.13%, ExxonMobil with 36.54%, Oil Search with 22.84%, and others with 0.5%. As permitted by the Oil and Gas Act, 1998, the State, through its nominee, is required to take up to 22.5% in any petroleum projects. Total E&P will be submitting a Field Development Plan, and is proposing to build two separate pipelines for the dry gas and the condensate. The condensate refining unit and the two LNG trains will be located in Central Province, adjacent to the PNG LNG Processing Plant, to export gas piped from the Elk-Antelope natural gas fields at an estimated cost of USD 9.3 billion. Construction is scheduled to start in 2021, with Front End Engineering Design (FEED) entry in 2019 and Flame Ionization Detection (FID) in 2020, and production is due to begin in 2024. The Gas Agreement is currently under negotiation between Total E&P on behalf of the Joint Venture Partner and the Government of PNG, represented by the State Negotiation Team led by the Chief Secretary to Government. The fiscal terms will be set for 20 years, including a company tax rate of 30% and certain exemptions applicable to large-scale projects. The Plant will expand to an annual capacity of 5.4 million tonnes. The LNG project may contribute some 15-20% of GDP by 2024.

4.53. The first offshore petroleum development in PNG by Twinza Oil, an oil and gas company based in Singapore. Twinza Oil is the operator for the Pasca Gas Field, discovered offshore in the Gulf of Papua. The initial development concept is to strip condensate and LPG from the gas-rich carbonate reservoir, and Phase 2 is to accelerate gas production based on a small-scale floating LNG concept. The project development cost is estimated at USD 1.5 billion, and will generate an estimated revenue of PGK 1 billion annually for the State. This project alone will de-risk the opportunity to development other offshore gas discoveries, including Flinders, Hagana and Pandora, all in the Gulf of Papua.

4.54. Revenues from the LNG sector are composed of royalties, corporate income tax, additional profits tax (APT), development levies, dividends, and various tax concessions aimed for investment incentives. Tax concessions granted to the PNG LNG project include: ten-year depreciation allowance from 2015 until 2024; additional capital uplift provisions from 2025 until 2029; exemption from GST, import duties, and export levies; if the development levy (which is tax deductible) is paid, then the royalty becomes creditable for corporate income tax purposes (i.e. it becomes an advance payment of future corporate income tax); calculation of royalties and development levies are based on a net concept (both are calculated at 2% of the wellhead value); infrastructure tax credit, through which petroleum firms can charge a 100% deduction on capital expenditure on infrastructure projects, to a maximum of 2% of the assessable income.46

4.55. According to the IMF, the current fiscal arrangements also include equity participation by PNG through the national oil company, which holds a 16.6% stake in PNG LNG. At the same time, the

42 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 43 For example, gas was discovered in Maruk, in the Fold Belt, in 2017, proving the petroleum potential of the region. Most discoveries are in the Fold Belt, with a few in the Foreland Basin and the off-shore shallow waters of the Gulf of PNG. Recently, Exxon Mobil and Total E&P have also been exploring in deep waters, after acquiring large blocks with completed 3D seismic data. 44 This is expected to attract new revenue flows to the State (taxes and dividends), to provincial governments, and to the traditional owners of the resource (royalties, dividends, and development levies). Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 45 The State, through Petromin Holdings Ltd, has a 20.5% equity, and the landowners a 2% equity. 46 IMF Country Report 17/411.

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- 56 - project enjoys a concessional APT, which has high thresholds and low tax rates by international standards. The 2015 Taxation Review Committee (TRC) recommended that, for future projects, a revamped APT be applied with a single threshold and a higher tax rate. It also recommended reducing the government equity participation in future projects. These changes were introduced in the 2017 budget.47

4.56. Also, according to the IMF, the current royalty and development levy scheme has yielded quite limited benefits; future agreements should apply specific levies based on volume or ad valorem levies. Average monthly royalty payments have been around USD 1 million and, as of September 2017, PGK 150 million had been received in trust accounts for each of the royalty and development levies. This is quite low, and reflects the method of determining levies in the PNG LNG project. Levies are based on wellhead value, allowing generous deductions of various costs in the calculations. This significantly reduces the value of the royalties, especially in the early years of the project, partly defeating one of the normal purposes of royalties, which is to ensure that the Government receives some benefits from the project from day one. With future LNG projects, it would be preferable to modify the royalty scheme to use a volume-based levy or a "field-gate"-based value, allowing fewer deductions.48

4.57. Since the petroleum industry is not a big employer and does not integrate well with the broader economy, the Government is to build the Petroleum Resource Area Economic Corridor. Through this Corridor, project-related infrastructure will be connected to the wider region, to provide access and opportunities to agricultural, manufacturing and tourism industries. A downstream petrochemical industry within the Corridor will be promoted, including the production of fertilizers and LPG for domestic use and export.49

4.58. Excise taxes of PGK 0.61 and PGK 0.06 per litre apply to petrol and diesel, respectively. No excise tax is levied on kerosene. All products are subject to 10% GST. Petroleum products and minerals, if imported, are duty-free.

4.2.4 Electricity

4.59. PNG has 503 MW of electricity generation capacity, about half of which is provided by the private sector. Hydropower generates just under half of all electricity, followed by diesel generators with around one third50, and the rest comes from gas and geothermal sources.51 Electricity supply is unreliable and is very expensive for the quality of service, thus raising the costs of doing business in PNG.

4.60. The average daily peak load demand for electricity is estimated at 290 MW. A buffer between this demand and total capacity is needed to ensure sufficient supply when there are demand spikes, when supply is compromised due to maintenance, or when capacity is reduced by cyclical events such as reduced water flows in dry seasons. Currently, over 80% of households use primitive energy sources, such as wood.52

4.61. Electricity is supplied by the SOE PNG Power Ltd (PPL) (Electricity Commission (Privatization) Act, 2002). PPL, a subsidiary of KCH, owns and operates 27 distribution systems, of which 10 are part of the inter-provincial power grid (the Ramu system), and the remainder are independent. While PPL has been corporatized and prepared for privatization, this has yet to happen. PPL has been under financial stress, and has had difficulties in servicing government loans and overseas borrowings. A foreign-owned independent power producer (IPP), Hanjung Power Ltd, generates about 4% of PNG's electricity from its Kanudi thermal plant. It supplies power to PPL under a power purchase agreement.

47 IMF Country Report 17/411. 48 IMF Country Report 17/411. 49 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 50 Diesel is dominant in off-grid applications. 51 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 52 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby.

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4.62. As a service provider in the generation, transmission, distribution, and retailing of electricity, PPL is regulated by the ICCC.53 The ICCC has issued licences to PPL to sell, generate, transmit, and distribute (Electricity Industry Act). Maximum average electricity tariffs are set on a "bundle" basis, using a formula that adjusts for changes to variables such as the local, Australian, and U.S. CPI, fuel prices, Kina to Australian dollar and U.S. dollar exchange rates, and the cost of purchased power from the IPP. PPL uses some 70 million litres of fuel annually, and fuel price movements have a strong effect on its costs. PPL also performs the technical regulatory role on behalf of the ICCC, including approving licences for electrical contractors, and certifying electrical equipment and appliances for sale.

4.63. The Electricity Management Committee (EMC) was established, under the Electricity Industry Policy, 2015, as the overarching coordinating body. It has the objectives of improving access, reliability, and affordability of power for the population. It covers the Rural Electrification Programme and the National Electrification Roll-Out Programme (NEROP).54

4.64. PNG's key policy objectives for the sector are "for all households to have access to a reliable and affordable energy supply, and sufficient power is generated and distributed to meet future energy requirements and demands". Table 4.7 provides some of the key energy targets by 2030.

Table 4.7 Key energy targets for 2030

Key indicators Baseline information 2030 targets/objectives Access to electricity 12.4% of households At least 70% of households Gas, hydro and other renewable Gas: 72 MW Gas: 390 MW generation capacity Hydro: 217 MW Hydro: 1,020 MW Other renewable: 56 MW Other renewable: 500 MW Diesel and coal generation 158 MW grid connected by Less than 40 MW capacity through capacity diesel generation diesel generation and 30 MW through coal generation National grid Does not exist All major towns and cities to be on the national grid, which will feed off an electricity super corridor Easipay domestic customers 4% of households (51,000 Most households to have access to (prepaid power) households) Easipay

Source: Department of National Planning and Monitoring (2010), PNG DSP 2010-30, p. 77, Port Moresby.

4.65. By 2030, energy demand is estimated at five times current levels: 52% of electricity is expected to be generated using PNG's considerable potential for hydro schemes55; around 25% will come from renewable sources (e.g. geothermal, wind, and biomass)56; the use of gas for electricity generation will significantly rise57; and diesel will account for only 2% of the generating capacity.58

4.66. By 2030, a key target is that over 70% of households and 100% of businesses will have access to reliable, affordable and clean modern energy sources. This will require the expansion of electricity services to households at an average annual rate of 10.5%. In most places, access to electricity will be through the grid but, for some remote areas, off-grid electricity systems will need

53 The ICCC has issued electricity undertaker licences to PNG Sustainable Energy Ltd and PNG Forest Products Ltd. While the latter has a generation, distribution, and retail licence, it may operate only in the Western Province, in the area designated in each licence. 54 Membership of the EMC comprises the Secretaries, or their respective senior delegates, of the Departments of Communication, Information Technology and Energy; Finance; Treasury; National Planning; and the President of the Chamber of Commerce and Industry. 55 PNG expects to build a 60 MW hydro facility, together with its transmission infrastructure, at a cost of over PGK 1.5 billion in 2009 prices, with key private-sector participation. In five phases, 800 MW of hydro electricity generating capacity will be either built or upgraded. Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 56 In addition, biofuels will be developed as an alternative energy source to fossil fuels for transport. 57 Gas is a cheap energy source, and is easier and cheaper to install than other technologies such as hydro. 58 Diesel- and heavy fuel generated-electricity is expensive, and has been one of the main reasons for the high cost of energy. By 2030, diesel generators will be phased out and retained mainly for back-up purposes.

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- 58 - to be developed.59 Strong private-sector participation through PPPs will be promoted to construct transmission lines and to build electricity generation capacity. The benefits of achieving the 70% electricity coverage target will be the creation of over 100,000 additional jobs and a rise in national income of more than PGK 2.9 billion.60

4.67. The MFN tariff on imports of electricity is zero (Table 3.4).

4.3 Manufacturing

4.68. The manufacturing sector has developed on the back of PNG's comparative advantage in agricultural and resource-based industries. In particular, the largest manufacturing export commodities are palm oil, copra oil, processed timber and, most recently, refined petroleum. Processed tuna is another rapidly-growing export industry.61 PNG imports most processed food, clothing and footwear, and most of the inputs to industry and commerce.

4.69. The DCI is responsible for the sector.62 The Manufacturers Council (a private-sector organization) promotes manufacturing and downstream processing. Some of the main problems facing the sector include a small, fragmented domestic market; short supply of skilled labour and high labour costs; expensive land, housing, transport and utilities; and inappropriate technology.63

4.70. The tariff is the main border measure assisting the manufacturing sector. On average, the MFN tariff on manufacturing (major division 3 of ISIC) is 3.2% (2.1% excluding food processing), with rates ranging up to 50% (Table 3.4). The manufacturing industry has been urged to adopt cost- reducing, efficient techniques on the factory floor and within management, to prepare for foreign competition when protective tariffs are phased out.

4.71. General tax incentives apply across all sectors but there are also specific incentives for manufacturing (Table A2.1).

4.72. PNG's key policy objectives for the sector are "to double the manufacturing sector's contribution to the GDP by 2025 and to generate significantly more employment". The NTP calls for the following measures: reintroduce the trade defence legislation to protect local manufacturing industry against unfair trade practices; develop a clear policy stance on "parallel imports" to support the growth and development of the domestic industry; the Intellectual Property Office (IPO) and PNG Customs will acquire appropriate external technical assistance and capacity building to strengthen enforcement of intellectual property rights (IPRs) under the Aid for Trade Initiative and other programmes; the National Institute of Standards and Industrial Technology (NISIT) will develop national standards and technical regulations for locally-manufactured products, to promote consumer health and safety; support the Buy PNG-made Initiative; the Department of Treasury will address PNG's high cost of production by attracting private investment in key infrastructural services; and PNG Customs, the manufacturing industry and other relevant agencies will expedite the clearance of imports of basic inputs into production, by simplifying, streamlining and automating the administrative requirements to obtain import permits.64

4.73. Table 4.8 provides some of the key manufacturing targets to be achieved by 2030. It is estimated that manufacturing production will treble by 2030. In particular, export-led manufacturing growth is expected to create 177,500 additional jobs and PGK 5.8 billion of additional real national income.

59 An electricity super-corridor will be built that passes through the areas where electricity can be generated at lowest cost, with a national grid feeding off it, and transmission lines passing through each of the economic corridors. 60 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 61 Each of these key export products relies on PNG's large agricultural and resource base, and shows the importance of manufacturing exports in moving the economy from primary industries into higher value-added processing industries. 62 DCI online information. Viewed at: http://www.destinationpng.com/section-4/department-of- commerce-and-industry/. 63 DCI online information. Viewed at: http://www.destinationpng.com/section-4/department-of- commerce-and-industry/. 64 DCI, PNG: NTP 2017-32, Port Moresby.

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Table 4.8 Key manufacturing targets by 2030

Baseline 2030 Key indicators Issues information targets/objectives Value of Estimated at Some of the key impediments are Access to PGK 12 billion in manufacturing PGK 4 billion in land; law and order; and inefficient 2009 prices production 2009 regulations. Dealing with these will attract investment to manufacturing. Value of PGK 1.6 billion in Manufactured exports are narrow but PGK 5 billion in 2009 manufacturing 2007 expanding. They are dominated by prices exports downstream processing of oil, fisheries and agriculture. Investment in .. The Government needs to promote a Triple current manufacturing conducive business environment, enabling investment the growth of manufacturing industries.

.. Not available. Source: Department of National Planning and Monitoring (2010), PNG DSP 2010-30, p. 102, Port Moresby.

4.74. To achieve such targets, a central strategy will be to encourage exports by allowing local producers to specialize in those industries where they have a comparative advantage. Addressing land and law and order issues, and facilitating development in the informal sector and of SMEs, will also be crucial, as these will lower the cost of doing business. It will also be necessary to remove regulatory constraints, particularly for export-oriented businesses. Joint ventures between foreign and local investors will also be encouraged as a means of combining local knowledge with foreign capacity.

4.75. The manufacturing sector will continue to be based on PNG's comparative advantage in agricultural and resource commodities. However, the sector is to be transformed from current light manufacturing industries into higher value production.65 The Government is to assist in this process by improving infrastructure, reducing regulatory costs, and giving incentives to attract larger FDI inflows, particularly within economic corridors and special areas such as the PMIZ.66

4.4 Services

4.4.1 Overview

4.76. The services sector is, increasingly, the largest contributor to GDP, with a 41.2% share in 2018 (33.3% in 2008). Wholesale and retail trade is the most important subsector, followed by administrative and support activities (Chart 1.1). In 2017, PNG ranked 148th among world exporters of commercial services, and 102nd among world importers of commercial services (considering EU member States as one, and excluding intra-EU trade).67

4.77. PNG is a net importer of services, with a deficit of USD 1.3 billion in 2018 (Table 1.2). It has been estimated that the reduction of services imports could save USD 5-10 billion within ten years. Since this new wealth would hinge on new economic activity in PNG, more than 100,000 jobs could be created over that same period through the SME Policy.68

4.78. In general, services are not covered in PNG's RTAs. However, it is expected that the coverage of the PICTA will expand to include trade in services and, while the MSGTA excludes services, it has been agreed to consider a multilateral air services agreement (Table 2.3).

4.79. PNG's has identified the following services to be prioritized, to maximize job creation and GDP growth: utility services (electricity, gas, water and waste services); construction and infrastructure

65 Expansion of cocoa production will allow a domestic processing industry to be developed. PNG's vast natural gas resources will be used to produce LNG and other petrochemical by-products from the LNG process (e.g. fertilizers and LPG). Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 66 As PNG develops its electricity super-corridor, powered by clean renewable energy, it will become an attractive destination for electricity-intensive industries such as aluminium smelting. Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 67 WTO online information. Viewed at: http://stat.wto.org/CountryProfile/PG_E.htm. 68 DCI, PNG: NTP 2017-32, Port Moresby.

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- 60 - services; wholesale and retail services; hotel and food services; tourism and hospitality services; transport, postal and warehousing services; financial and insurance services; rental, hiring and real estate services; professional, scientific and technical services; administrative and support services; public administration and safety; education and training services; health care and social assistance services; and arts and recreational services. The Government will assist such activities by: ensuring that trade in services commitments in current/future trade agreements reflect the market access and national treatment limitations in the specific sectors identified in the SME Policy; supporting the creation of a consultative mechanism for the services industry; improving data on trade in services; and establishing mutual recognition agreements (MRAs) with its trading partners for the recognition of qualifications of professionals.69

4.80. PNG has not submitted GATS offers on services in the Doha negotiations. Its commitments have not changed from those scheduled in the Uruguay Round, which covered a limited number of sectors.

4.4.2 Financial services

4.81. The BPNG, the central bank, is the prudential regulator of the financial sector, and is responsible for the financial system's stability (Central Banking Act, 2000). It regulates banks and finance companies (Banks and Financial Institutions Act, 2000), life insurance companies (Life Insurance Act, 2000), superannuation funds (the Superannuation (General Provisions) Act, 2000), and savings and loan societies (Savings and Loan Society Act, 1995). Government policy is to maintain an "open" regime for establishing banks and other financial institutions that meet the licensing criteria.

4.82. BPNG's prudential supervision aims to minimize bad loans and to protect depositors from poor financial practices and management. Its supervisory framework includes strict entry criteria, off-site surveillance, on-site examinations, and enforcement and compliance. Off-site supervision covers analysis to ensure specific requirements are met on capital levels, large exposures, and concentration; provisioning of asset quality and classification; foreign exchange and single currency exposure; and diversification of investments. On-site verification, involving reviewing the institution's operations, policies, and procedures, is performed if problems are detected. External auditors must submit reports to the BPNG on the institution's financial performance and adherence to prudential standards, directives and guidelines. According to the BPNG, this is consistent with international best practice.

4.83. PNG's financial sector comprises 4 commercial banks; 12 licensed financial institutions (LFIs) (i.e. finance companies), including 5 micro banks; 22 savings and loan societies; 5 life insurance companies, 1 reinsurer and 5 life insurance brokers; and various superannuation funds, trustees of superannuation funds, investment managers, and fund administrators. Commercial banks continue to dominate the sector in terms of total assets, with 92.4% of the total in 2017 (91.8% in 2012). Life insurance companies had only 1.3% of total assets in 2017 (Table 4.9).

Table 4.9 Total assets of banks and insurance companies, 2012-17 (PGK million) 2012 2013 2014 2015 2016 2017 Banking industry 26,175.7 29,146.3 30,307.6 33,490.7 36,546.3 37,538.6 Commercial banks 24,033.8 26,813.5 27,797.4 30,892.4 33,984.5 34,675.0 LFIs 1,110.0 1,237.3 1,316.0 1,373.0 1,231.0 1,454.2 Micro banks 147.5 156.1 216.8 220.8 264.2 270.7 Savings and loan societies 884.4 939.4 977.4 1,004.5 1,066.6 1,138.7 Life insurance companies 444.1 441.0 464.1 408.9 377.0 496.0

Source: Data provided by the authorities.

4.84. There are no restrictions on foreign ownership of financial institutions, as long as they are registered and incorporated with the Investment Promotion Authority (IPA). However, any ownership above 15% must meet the fit and proper requirements of the BPNG. At the time of licensing, all proposed shareholders are subject to the fit and proper requirements.

69 DCI, PNG: NTP 2017-32, Port Moresby.

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4.85. While most financial services are available, their supply is limited. Overseas investors may not be able to secure substantial funds locally. New operations would normally need to bring funds from overseas to establish projects.

4.86. The depth of services remains thin and underdeveloped in rural areas, where the financial sector has failed to reach the majority of the population. Microfinance has been growing rapidly to bridge this gap, but much remains to be done. The capital market, including the Port Moresby Stock Exchange, is small but growing. According to the DSP 2010-30, significant progress is needed to extend the availability of low-cost financial services to the general population. Informal financial institutions (e.g. informal microfinance societies) that operate savings, credit and other financial services are relied upon to extend financial services to the grassroots economy. To this end, a suitable regulatory framework will need to be designed and implemented.70

4.87. In 2015, the Financial Analysis and Supervision Unit (FASU) was established under the Anti-Money Laundering and Counter Terrorist Financing (AML/CTF) Act, 2015. The FASU has the primary responsibility for the collection of financial intelligence and information, and the analysis, dissemination, and exchange of such financial intelligence with law enforcement and regulatory authorities, both at home and abroad.71

4.88. General tax incentives apply across all sectors but there are also specific incentives for financial services (Table A2.1).

4.4.2.1 Banking

4.89. PNG has four commercial banks: the locally-owned Bank South Pacific Limited remains the largest in terms of assets, while the other three, Westpac (PNG) Limited, ANZ (PNG) Limited and Maybank (PNG) Limited, are subsidiaries of international banks. The National Development Bank (NDB) is the development finance institution of PNG.72

4.90. According to the IMF, PNG's banking system is sound, profitable, and well-capitalized (Table 4.10). Banks continue to hold excess liquidity because of weak demand for loans. Three banks (two Australian and one domestic) dominate the financial system, and have maintained high capital adequacy, a healthy return on assets, and moderate non-performing loan (NPL) ratios, despite the weak economy. However, there is need to enhance the quality of supervision, notably in risk identification and assessment.73

4.91. PNG remains among the most underbanked countries on several indicators (numbers of branches, ATMs, and loan penetration). BPNG is actively engaged in a programme to strengthen financial inclusion, education, and improvement in the capital market. Banks hold only around half of their assets as loans, with the rest held largely as short-term securities and cash. A new Treasury bill and Treasury bond (TAP) facility by BPNG was introduced in April 2016 to help promote financial inclusion and deepening.74

4.92. The minimum paid-up equity capital of banks is PGK 15 million. The minimum paid-up equity capital for finance companies is PGK 1.5 million. All banks must maintain minimum capital adequacy ratios of 6% for leverage capital, 8% for Tier 1 risk-based capital, and 12% for total risk-based capital. Only PNG-incorporated entities may hold a bank licence, i.e. foreign branches are not allowed. Applicants must submit a viable business plan, and an institution will generally not be considered to be in PNG's best interests if it holds over 40% of all bank and finance company deposits. A business plan must also be submitted when opening a branch or significantly changing operations, such as an amalgamation. Licences must be renewed annually. There are no

70 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 71 The FASU is also responsible for developing and maintaining PNG's AML/CTF supervision and compliance framework for all financial institutions and designated non-financial businesses or professions. BPNG online information. Viewed at: https://www.bankpng.gov.pg/wp-content/uploads/2014/06/External- Advertisement_Analysts-AML-CTF-Supervision-Compliance-Division_wo.pdf. 72 Since its establishment in 1967, the NDB has provided up to 31% of loans to the agriculture sector and 69% to SMEs. KCH (2018), Transforming today for a stronger PNG tomorrow: A year in review 2019, Port Moresby. 73 IMF Country Report 18/352. 74 IMF Country Report 17/411.

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- 62 - joint-venture or foreign ownership controls. While the number of bank licences is not limited, in principle, it appears that obtaining one may not be free of political influence.

Table 4.10 Financial soundness indicators, 2012-17 (%) 2012 2013 2014 2015 2016 2017 Capital adequacy Capital to risk-weighted assetsa 28.0 27.9 34.5 33.4 37.0 38.1 Tier 1 capital to risk-weighted assets 20.1 21.0 27.2 27.6 29.8 30.8 Asset quality NPLs to total loans 2.0 1.2 1.4 2.6 2.7 2.6 Past-due loans to total loans 2.8 2.2 2.7 3.9 6.7 5.0 Provision for losses to NPLs 170.9 288.0 240.9 143.8 164.5 183.2 Earnings and profitability Return on assets 2.3 2.4 2.0 1.7 2.2 2.2 Return on equityb 23.7 21.2 26.2 21.4 16.7 24.3 Liquidity Liquid assets to total assets 56.6 55.2 51.5 49.0 46.9 46.1 Loan-to-deposit ratio 46.9 50.3 57.2 60.5 63.3 65.6 Other Capital to total assetsa 13.6 15.2 16.1 15.4 16.3 17.9 Risk-weighted assets to total assets 48.7 54.5 46.8 46.2 43.9 47.0 a Capital base includes Tier 1 and 2 capital. b Return on equity is calculated with Tier 1 capital. Note: Fourth quarter data for each year. Source: IMF Country Report 18/352.

4.4.2.2 Insurance

4.93. There are 14 insurance companies (though some are inactive) and 1 reinsurer (Pacific Reinsurance Ltd) registered with the IPA.75 They are predominantly subsidiaries or branches of foreign insurance companies.

4.94. The Office of Insurance Commissioner, under the Department of Treasury, regulates non-life insurance, while life insurance is regulated by the BPNG. The Insurance Act, 1995 governs the non-life sector, and the life sector is covered by the Life Insurance Act, 2000. Under the Insurance Act, general insurers and brokers pay a levy to the Insurance Commissioner's Fund (capped at 1% of total premiums), but this requirement does not apply to life insurance companies. Only PNG-incorporated firms may sell life insurance policies or act as insurance brokers; foreign branches cannot be licensed. Licences must be renewed annually. Licence holders must maintain statutory funds that ensure adequate capital to support solvency. Minimum capital is set at PGK 2 million for general insurers and PGK 4 million for life insurers.

4.95. Risks must be insured with PNG insurers, unless local insurers have insufficient capacity, e.g. PNG airline carriers must use local underwriters, which allegedly raises insurance costs. Brokering services are provided by international groups and local firms. Most high-risk insurance is placed offshore. Reinsurance must be placed through Pacific Reinsurance Ltd, unless rejected, when it can be placed overseas.

4.96. The state-owned Motor Vehicle Insurance Ltd (MVIL), a subsidiary of KCH, has statutory monopoly for the supply of compulsory third-part motor-vehicle insurance (Motor Vehicles (Third Party Insurance) Act, 1995, Chapter 295). It is regulated by a regulatory contract that controls premiums, using a maximum average net premium set by the ICCC.

4.4.3 Telecommunications and postal services

4.97. Overall, PNG's telecommunications market has grown during the last few years. The number of subscribers in the mobile market increased from 2.7 million in 2012 to over 4.0 million in 2017 (Table 4.11). The percentage of individuals using the Internet also rose, from 3.5% to 11.2%

75 Pacific Reinsurance Ltd is 52% state-owned through the Motor Vehicle Insurance Ltd (MVIL), with the remaining equity held by foreign PNG subsidiaries.

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- 63 - during 2012-17. While the provision of O3b medium orbit satellite infrastructure has significantly improved the quality of services, access to the Internet remains difficult at reasonable speeds, and there are limitations on the international data gateway capacity, which also greatly reduces service quality.

Table 4.11 Telecommunications indicators, 2012-17

2012 2013 2014 2015 2016 2017 Subscribers Fixed telephony ('000) 139.0 140.0 145.1 150.0 154.0 158.0 Per 100 inhabitants 1.87 1.84 1.87 1.89 1.90 1.91 Fixed broadband ('000) 9.2 11.3 13.2 15.0 17.0 18.0 Per 100 inhabitants 0.12 0.15 0.17 0.19 0.21 0.22 Cellular mobile telephony ('000) 2,709 3,000 3,358 3,560 3,782 4,018 Per 100 inhabitants 36.46 39.51 43.31 44.45 46.78 48.70 Internet (% of people) 3.50 5.10 6.50 7.90 9.60 11.21 Source: World Telecommunications/ICT Indicators.

4.98. Kumul Telikom Holdings (KTH), a subsidiary of KCH, oversees all state interests in the information and telecommunication (ICT) sector. KCH is currently restructuring the three telecom entities (Telikom, Bmobile, and PNG DataCo) into one communications service provider, from wholesale services to retail mobile and fixed-line services.76

4.99. Telikom, a subsidiary of KTH, had the monopoly in local, national, and international mobile and fixed-line services until July 2007. Plans to privatize 51% of equity in Telikom to an overseas company were abandoned by the Government in the early 2000s. Telecommunications services have benefited from the introduction of private-sector competition in the mobile phone network since 2007, resulting in a substantial upgrade in the quality and reach of services and a significant decline in cost. However, broadband access remains expensive by international standards, given that the majority of Internet capacity consumed is delivered by satellite.77

4.100. On 3 March 2010, the National Information and Communications Technology Authority (NICTA) became the regulator for the sector (NICTA Act, 2009).78 NICTA has a three-tier horizontal licensing regime, based on the categorization of operator licensees as network licensees, applications-service licensees, and content-service licensees. It also regulates the radiofrequency spectrum, involving spectrum, apparatus, and class licences, and a mechanism for allocating the spectrum adopted. Interconnection charges are based on internationally accepted costing methodologies to achieve full cost recovery, with NICTA arbitrating on access disputes. Access providers may submit binding reference interconnection offers to NICTA for pre-approval for an appropriate time period (three to five years). The Reference Paper adopted by PNG in its GATS schedule requires the Government to publish interconnection or reference interconnection agreements.

4.101. NICTA grants four types of telecommunications licences, all valid for ten-year periods: General Telecommunications Carrier Licence (GL); Public Mobile Telecommunications Licence (MC); Value-added Services (carrier grade and ISP grade) Licence; and Restricted General Licence/Private Network Licence (RGC). No new GL or MC licences were issued in the review period.

4.102. Telikom's fixed-line services are regulated by a price cap arrangement that sets a future price path, minimum service standards, and future capital expenditure requirements. NICTA is to review whether the ongoing price regulation of Telikom's fixed network services is required. Based on proposals submitted by the mobile service providers, tariffs are approved by NICTA. Tariffs for mobile telephone services are revised continuously, for balancing.

4.103. The Universal Access Scheme, retaining mandatory roll-out obligations, was established to meet the Government's Community Service Obligations of providing Internet access and Voice over

76 KCH (2018), Transforming today for a stronger PNG tomorrow: A year in review 2019, Port Moresby. 77 Department of National Planning and Monitoring (2010), PNG DAP 2010-30, Port Moresby. 78 NICTA replaced the PNG Radio and Telecom Technical Authority (PANGTEL), and took over the relevant regulatory functions of the ICCC.

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Internet Protocol (VOIP) access to other areas, with all telecom operators to be eligible for funding. It is partially funded by an ad valorem levy on net revenues of licensed operators.

4.104. NICTA is implementing the following projects: expansion of mobile telephony and broadband services (3G or higher) to the widest population; expansion of access to (fixed) high-speed broadband Internet connectivity; ensuring the security of PNG cyber space (or Internet space); and laying of a new international submarine cable.79

4.105. PNG's key policy goal for the sector is to achieve "a modern and affordable ICT that reaches all parts of the country".80 Table 4.12 provides some of the key telecom targets to be achieved by 2030.

Table 4.12 Key telecommunication targets by 2030

Key Baseline 2030 Issues indicators information targets/objectives Access to a 150 mobile Mobile phone technology is superseding the land- 800 mobile telephone subscribers line network and, within a very short period of subscribers per 1,000 per 1,000 time, has connected over 1 million subscribers. people people This has had a very positive effect on the economy and on welfare. Access to the 2.3% of the Access to quality Internet services is very low, 70% of people use the Internet population use and this limits access to information, financial Internet Internet services, business, and education. Providing Internet access to the rural population is necessary to spur development. Media coverage 55% access to Many rural areas do not have media access, and 100% access to radio radio; 26% poor literacy levels further constrain access to and television access to information through the print media. Media access television is vital to ensure the population is kept informed.

Source: Department of National Planning and Monitoring (2010), PNG DSP 2010-30, p. 75, Port Moresby.

4.106. PNG aims to roll out the benefits of competition throughout the telecommunications sector, including all forms of Internet access, access to the international gateway, and the fixed-line phone service. Wherever the extension of phone, Internet and media services is less viable, PPPs will be encouraged. An important initiative for the extension of services into rural areas will be to secure satellite access. Additional strategies include: ensuring compliance with international ICT conventions, standards and practices; and promoting the expansion of a range of government services to rural communities using mobile phone and Internet technology (e-services).81

4.107. Post PNG Limited (Post PNG), created under the Postal Services Act, 1996 and a subsidiary of KCH, is responsible for providing postal services, including domestic money order (money remittances). It is subject to price control by the ICCC under the Price Regulation Act, 1949.

4.4.4 Transport

4.4.4.1 Overview

4.108. Inadequate public infrastructure, including regarding transport, impedes development and is a major barrier to trade, both domestic and international. Geography and poor transport infrastructure networks isolate large segments of the population from social services, regional markets, and income-earning opportunities. The coverage and quality of the transport networks lag behind most other countries in Asia and the Pacific, mainly because of a lack of sufficient investment over the past 30 years, which is compromising safety and security. It is very difficult to travel by

79 The Government is also discussing over a major undersea cable project from Sydney to Port Moresby, which would significantly improve connectivity and bandwidth. ADB online information. Viewed at: https://www.adb.org/sites/default/files/linked-documents/cps-png-2016-2020-ssa-01.pdf. 80 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 81 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby.

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- 65 - land between most provinces and to ports. In general, coastal shipping and aviation services are not cost-effective.82

4.109. The key policy goal for the sector is to "establish a transportation network that links all of PNG".83 In 2013, the Department of Transport published the National Transport Strategy84, which is to be implemented through medium-term transport plans; the current one is the Corporate Plan 2016-20. To assist construction of transport infrastructure, the Government intends to establish PPPs as a means of harnessing private investment and management in major projects. The new Plan aims for an effective transport system, where the modes of transport work in unison and the system connects all people in all parts of PNG by 2030.85

4.110. There are several agencies within the transport sector, including the Department of Transport, which has policy, planning and coordination roles; and the Department of Works and Implementation and the National Roads Authority, which are responsible for managing the construction and maintenance of the national road infrastructure. There are also statutory authorities (the National Road Safety Council, the National Maritime Safety Authority, the Civil Aviation Safety Authority, and the Accident Investigation Commission), which have key regulatory roles in managing safety; commercial government entities (PNG Ports Corporation Ltd, PNG Air Services Ltd, National Airports Corporation Ltd) that provide services and/or operate infrastructure on behalf of PNG; and other agencies, such as the ICCC in price and competition regulation, the MVIL which provides vehicle registration and insurance, and the PNG Royal Constabulary which enforces road rules. The Transport Sector Coordination, Monitoring and Implementation Committee (TSCMIC) coordinates transport planning and investment in the sector.86

4.4.4.2 Road transport

4.111. With about 8,460 km of national roads, PNG has one of the lowest road densities in the world. Only 28.7% of the roads are in good condition. Rural accessibility is low, with just 68% of the rural population living within 2 km of access to an all-season road. Moreover, the road transport infrastructure is inadequate both in terms of maintenance and nationwide connectivity.87

4.112. The National Transport Strategy considers the maintenance of roads to be the transport sector's greatest priority. Table 4.13 provides some of the key targets to be achieved by 2030. A comprehensive programme of rehabilitation and construction is envisaged, that will expand the national road network that is in good condition to 25,000 km by 2030. This is expected to directly contribute PGK 2.2 billion to PNG's income in 2030, and to create nearly 120,000 jobs. To finance the expansion and maintenance of the national road network, the Government will engage the private sector through PPPs.88

82 ADB online information. Viewed at: https://www.adb.org/sites/default/files/linked-documents/cps- png-2016-2020-ssa-01.pdf. 83 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 84 Department of Transport online information. Viewed at: http://www.transport.gov.pg/images/pdf/NTSThemes.pdf. 85 Department of Transport online information. Viewed at: http://www.transport.gov.pg/images/pdf/DoTCorporatePlan2016-2020.compressed.pdf. 86 The TSCMIC is chaired by the Secretary of the Department of Transport, with Secretary/CEO-level representation from transport sector agencies and the Departments of National Planning and Monitoring, Finance, and Treasury. 87 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 88 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby.

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Table 4.13 Key road transport targets by 2030

Baseline 2030 Key indicators Issues information targets/objectives Road network 8,460 km of PNG has one of the lowest road densities Triple national roads national roads (total in the world. The road transport network is to 25,000 km network: 30,000 the lifeline of most rural communities, km) providing people with access to markets and services. Percentage of 28.7% (2,512 km) Thousands of kilometres of roads have not 100% national roads been maintained. in good condition

Source: Department of National Planning and Monitoring (2010), PNG DSP 2010-30, p. 66, Port Moresby.

4.4.4.3 Maritime transport

4.113. Approximately 60% of the population resides on 6,500 km of coastline and waterways, often without access to roads or air transport. These communities, therefore, rely on water transportation, including for the delivery of goods and services.

4.114. Maritime shipping is regulated by the Department of Transport (Merchant Shipping Act (Chapter 242) consolidated to No. 11, 2003). The National Maritime Safety Authority (NMSA) handles safety (NMSA Act, 2003), and is responsible for the registration of domestic merchant vessels, and for controlling shipping pollution in PNG waters. The NMSA is a member of the International Maritime Organization.

4.115. Coastal shipping has been restricted to domestic-flagged and licensed ships since the early 1960s, to protect local shipping: i.e. cabotage is not permitted, as foreign vessels may unload cargo only in certain ports (e.g. Lae and Port Moresby); local freighters then distribute this cargo to other feeder ports. This is implemented by restricting the issuance of licences and permits to local shipping companies to operate on certain routes e.g. Laurabada Shipping for the Southern Region and Lutheran Shipping for the Northern Region. Temporary permits are issued to foreign firms to ferry overseas cargo directly to feeder ports under charter arrangements.

4.116. A licence is required to operate in the coastal shipping market. The licence is issued by the Minister for Works, Transport and Civil Aviation, based on the advice of the Coastal Trade Committee. Any foreign firm registered with the IPA that is competent and knowledgeable in shipping and has a registered office in PNG can be licensed. Licences are generally not restricted to routes. Consort provides most cargo services to the northern ports, and Laurabada Shipping Services (Steamships) to the ports in the Central, Western, and Gulf provinces. Rabual and Lutheran Shipping provide passenger services to regional ports. Maximum rates for coastal freight are set by the Department of Transport.

4.117. PNG Ports89, a subsidiary of KCH, operates 15 of PNG's 23 ports, including the three largest in Lae, Port Moresby and Kimbe. A few private ports are operated by companies for their own needs, and are regulated by the Department of Transport. Ports operated by PNG Ports have generally low cargo processing costs, and the national shipping market is competitive. However, international shipping is among the most expensive in the Pacific region, with low levels of competition. It takes 23 days to export goods from PNG (the same as the regional average).90

4.118. The ICCC regulates PNG Ports under a Regulatory Contract that sets the maximum prices PNG Ports can charge for essential port services (berth reservation, wharfage, and berthage) and stevedoring, and stipulates minimum service standards. The ICCC is also the licensing authority for essential port services, and such charges are reviewed annually based on CPI changes. Under the tariff structure, there are two tiers: tier 1 ports include the ports of Lae, Port Moresby, Kimbe, Samarai, and Aitape; and tier 2 ports comprise all other declared ports. PNG Ports performs the

89 PNG Ports is licensed as an essential port services operator, to provide wharfage, berthage, berth reservation services, and stevedoring services in declared ports. It also provides container storage and pilotage services as the sole declared Pilotage Authority by instrument of delegation under the Harbours Act, 1963. 90 ADB online information. Viewed at: https://www.adb.org/sites/default/files/linked-documents/cps- png-2016-2020-ssa-01.pdf.

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- 67 - harbour management functions for declared ports, and administers stevedoring licences by issuing five-year licences to private operators. Terminal handling and equipment handling are out-sourced to private operators. At the port of Port Moresby, licensed firms must use labourers from PNG Ports registered labour pool; the labourers are paid a minimum wage funded from a cargo levy of PGK 1.70 per tonne administered by PNG Ports.

4.119. Table 4.14 provides some of the key water transport targets to be achieved by 2030. Between 2010 and 2030, it is projected that cargo throughput at all of the ports will increase five-fold. This growth will be in both international cargoes and in domestic coastal cargoes. Assuming that the efficiency of port and other marine services improves by around 2% a year, it is estimated that marine infrastructure, including ports, will need to expand at least three-fold to support the growth in cargo throughput. Failure to expand port capacity will constrain export and import potential and increase costs throughout the country, thereby undermining economic development.91

Table 4.14 Key water transport targets for 2030

Baseline 2030 Key indicators Issues information targets/objectives Domestic water .. Water transport services provide the highways for Triple the number of transport communities who live on islands and in remote routes serviced and capacity coastal and river locations. The water transport the number of system is inadequate and requires more vessels, vessels, and more transport routes, more frequent services on upgrade the ports existing routes, and better ports and jetties. International 3 days The two principal ports are at Port Moresby and 1 day port turnaround Lae. Handling times at these ports are slow by times international standards.

.. Not available. Source: Department of National Planning and Monitoring (2010), PNG DSP 2010-30, p. 70, Port Moresby.

4.120. Investment is needed throughout PNG to rehabilitate and upgrade major ports. In Lae, work was completed in 2017 to expand the port's capacity, with the addition of an industrial trade facility currently in design. Port operations in Port Moresby have been relocated to Motukea Island to make way for the city's development. Madang's port also needs to be relocated, because its capacity is being constrained by its shallow waters. It is also important to strengthen the capacity of customs to inspect cargo, and stop illegal and contraband goods from entering PNG. Container scanning equipment is needed at the busiest ports, to speed up the flow of traffic through them, while at the same time improving the effectiveness of customs operations.92

4.121. For the purposes of passenger and local freight transport in maritime provinces, drive-on passenger vessels will be central for interconnection, as these enable the road and water transport networks to operate smoothly with one another. New transport routes will, therefore, need to be opened up, and more frequent services provided on existing routes. Partnership with the private sector will be crucial in raising the capacity of shipping services, as the private sector will be relied upon for much of the investment. There may be a case for introducing government-funded shipping services to facilitate the flow of people and cargo, particularly in remote regions of the 14 maritime provinces and the islands. To minimize the impact on the budget, the Government will pursue PPPs. It is expected that between 15 and 20 ships will be required over the next 20 years to serve the coastal regions.93

4.4.4.4 Air transport

4.122. Given the complexity of the topography and terrain, air transport for many remote areas will continue to be the only possible means to link to the main parts of the country. PNG has 22 international and regional airports (14 jet airports and 8 non-jet airports), owned and managed by the National Airports Corporation (NAC), and hundreds of rural airstrips. The overall condition of the NAC's airports has deteriorated over time, and they are beginning to pose a threat to safety.94

91 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 92 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 93 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 94 This situation was made worse by the introduction of Fokker 100 aircraft, which are much too heavy for the runways of most airports. Remedial action is needed to reverse the current situation and avoid

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PNG Air Services Limited (PNGASL) provides navigation services. International air traffic serving the international gateway (Port Moresby's Jacksons International Airport) is very expensive, with unit costs (per passenger, per nautical mile) on flights to Australia the most expensive in the Pacific.95

4.123. The Secretary of the Department of Transport is the licensing authority for foreign international airlines, as provided for under Section 186 of the Civil Aviation Act, 2000 (as amended). Two companies, the national carrier Air Niugini (National Airline Commission Act, 1973), which is a subsidiary of KCH, and the privately-listed carrier Airlines PNG, provide international services. Air Niugini96 and Qantas provide code-share services between PNG and Australia. During the last few years, increased competition has reduced airfares and freight charges across most sectors.97

4.124. The ICCC must approve code-share arrangements. National carriers providing international services must be majority PNG-owned and be less than 25% owned by a single foreign airline. International charter passenger, freight, and cargo air services are licensed on a case-by-case basis, to balance the commercial interests of existing operators for users and the economy generally. Majority-foreign-owned operators will not be licensed unless authorized by law or permitted under a state agreement.

4.125. Domestic aviation services are open to any licensed carrier on all routes. While several firms service more profitable routes (e.g. Port Moresby to Lae, and Port Moresby to Mount Hagen), Air Niugini is the dominant domestic carrier, with some 60-70% market share, especially on the major routes. Airlines PNG operates in competition with Air Niugini on most routes, and provides charter services to the mining sector. Foreign-owned companies may operate domestic services, provided they divest to majority-PNG equity within five years. Contracted charter services, including by mining companies, are only allowed as joint ventures, with a majority PNG-owned air service operator.

4.126. At many airports, Air Niugini and Airlines PNG operate their own terminal buildings, paying nominal leasing charges to the NAC. Elsewhere, the NAC provides the terminal space. Air Niugini has long-term leases at three terminal facilities owned by the NAC. Terminal space is allocated based on historical arrangements, seemingly at uneconomic charges that do not recover the NAC's costs of providing services at most airports.

4.127. The operation of international scheduled services is governed by bilateral air service agreements. These agreements set out the agreed routes and capacity entitlements that designated airlines are allowed to operate. Regulation of capacity entitlements and agreed routes are established through negotiations for designated airlines of bilateral partners to implement through memoranda of understanding (MOUs) reached, as opposed to having an open-ended agreement (open skies). The conduct of international non-scheduled air transport operations entering and departing PNG is approved by the Secretary of Transport pursuant to Section 201 of the Civil Aviation Act.98

4.128. Table 4.15 provides some of the key air transport targets to be achieved by 2030. With the support of the Asian Development Bank (ADB), the Government is investing close to PGK 2 billion in upgrading the 22 airports to comply with international safety and security standards and to serve future needs. Maintenance contracts will also be put in place to ensure the airports remain in good condition. The investment programme will initially concentrate on the five national airports of Port Moresby, Mount Hagen, Wewak, Hoskins and Gurney.99

accumulated cost implications. Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 95 ADB online information. Viewed at: https://www.adb.org/sites/default/files/linked-documents/cps- png-2016-2020-ssa-01.pdf. 96 Air Niugini's international destinations include Australia, Singapore, Japan, the Philippines, China, Malaysia, Fiji, and the Solomon Islands. 97 Significant airfare reductions have resulted from increased competition by Philippine Airlines and China Air Southern. 98 Department of Transport online information. Viewed at: http://www.transport.gov.pg/index.php/air- transport/international-air-transport-operations. 99 This investment is timely, as Jacksons Airport, for example, needs to be expanded to cater for the expected growth in domestic and international travel. Alternatives to Jacksons Airport are required in the region, with the capacity to handle large jets and international flights.

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Table 4.15 Key air transport targets for 2030

Baseline 2030 Key indicators Issues information targets/objectives Share of regional 7 out of 22 in Safety standards at 70% of the regional 100% airports meeting 2008 (32%) airports do not meet international international certification standards. certification Airports upgraded Only Port Regional airports do not have the 10 airports for higher seating Moresby handles capacity to handle larger planes and the upgraded to handle capacity large jets increased passenger numbers expected. larger jets Number of unused .. Most airstrips located in remote areas are Up to 50 airstrips not in use. These will be rehabilitated rehabilitated according to their economic viability, taking into account alternative options for access provided by improving road and water transport.

.. Not available. Source: Department of National Planning and Monitoring (2010), PNG DSP 2010-30, p. 72, Port Moresby.

4.129. The growth of tourism will require new international routes and appropriate airport infrastructure at key tourist destinations, including Alotau, Rabaul, Madang and Manus. International airports may also be required near cities, such as Lae, that are important hubs for international business. Regional airlines amongst Pacific Island countries should be encouraged, as they promote closer regional integration. The liberalization of PNG's air space and the promotion of a competitive airline market are vital for reducing the cost of travel and for improving service on domestic flights.

4.4.5 Tourism

4.130. The total contribution of travel and tourism to GDP was estimated at 1.8% for 2017, while total employment in the sector (including jobs indirectly supported by the industry) accounted for 1.6% of the total.100 In 2017, PNG earned USD 204.8 million in tourism receipts (up from USD 127.6 million in 2012), from 86,403 visitors (Table 4.16); some 48% arrived by air. In 2017, the average length of stay of a tourist was 10.3 days, while the average visitor spent USD 231 per day. The number of licensed beds rose from around 3,000 in 2012 to an estimated 6,500 in 2017. Tourists are predominantly from Australia (52%), followed by South East Asia (10%), North East Asia (9%), Europe (8%), North America (6%), and New Zealand (5%).

Table 4.16 Selected tourism indicators, 2012-17

2012 2013 2014 2015 2016 2017 Tourist arrivals 80,203 85,149 97,164 110,597 131,161 86,403 Per day expenditure (USD) 244 238 213 198 172 231 Tourist receipts (USD million) 127.6 138.0 153.3 180.0 216.7 204.8 Accommodation 50.0 54.1 60.1 70.6 85.0 80.3 Airfares 38.1 41.2 45.8 53.8 64.8 61.2 Food and beverages 12.7 13.7 15.3 17.9 21.6 20.4 Local transport 6.7 7.3 8.1 9.5 11.4 10.8 Domestic travel 6.0 6.5 7.2 8.4 10.2 9.6 Tours 4.5 4.9 5.5 6.4 7.7 7.3 Retail 4.2 4.6 5.1 6.0 7.2 6.8 Souvenirs 1.9 2.1 2.3 2.7 3.3 3.1 Other 1.6 1.8 1.9 2.3 2.8 2.6

Source: Information provided by the authorities.

4.131. The Ministry of Culture and Tourism is in charge of the sector. In addition, the statutory PNG Tourism Promotion Authority (PNGTPA) conducts the overseas promotion and marketing of tourism. Tour operators are mostly locally-owned. Foreign-managed operators must be registered with the Investment Promotion Authority (IPA). Some have Australian offices to service customers directly,

100 World Travel and Tourism Council online information. Viewed at: https://www.wttc.org/- /media/files/reports/economic-impact-research/countries-2018/papuanewguinea2018.pdf.

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4.132. PNG is the largest island nation in the Pacific, with more than 600 islands, and is one of the most naturally beautiful countries in the world. It has over 700 bird species and 200 species of mammals, many of which are endemic to PNG. Moreover, it has an estimated 9,000 species of higher plants, and as many as 1,500 species of forest trees. The rich diversity also extends to the people, with over 800 indigenous languages and cultures.101 However, tourism remains very small by international standards. In fact, the country receives the second-lowest tourist numbers per head of population in the entire Asia-Pacific region.

4.133. Tourism continues to face many of the same hurdles confronting other sectors, including expensive air travel, law and order and security concerns, poor quality and expensive utilities, inadequate infrastructure (e.g. roads, tourism resorts), and insufficient foreign investment. To tackle these issues, the National Tourism Master Plan 2007-17 prioritized marketing, product development and investment, transport and infrastructure, human resource development, and institution/industry partnerships.

4.134. General tax incentives apply across all sectors but there are also specific incentives for tourism (Table A2.1).

4.135. The key policy objective for the sector is to "build a strong, vibrant, world class tourism sector". Table 4.17 provides some of the key tourism targets to be achieved by 2030. The target of 1.5 million visitors per year could be achieved by increasing both the capacity of the infrastructure and facilities to cope with the rise in tourists, and the appeal of the PNG experience for the visitor so that more visitors will want to come.102

Table 4.17 Key tourism targets for 2030

Baseline 2030 Key indicators Issues information targets/objectives Number of 121,000 in This target is modest in view of the tourism 1.5 million international 2008 potential of PNG. Cambodia, for example, visitors increased tourist arrivals from 220,000 in 1995 to 1.7 million in 2006.

Source: Department of National Planning and Monitoring (2010), PNG DSP 2010-30, p. 103, Port Moresby.

4.136. Transport and accommodation represent the core infrastructure needs of tourists. Airports and airlines will need significant upgrading to cope with the influx of tourists. In addition, new international airport facilities will be needed for key tourist destinations. To visit places of interest, road and water transport will also need to be upgraded. The development of the accommodation infrastructure will be private-sector-led. This will require improving investment conditions for the private sector, including addressing law and order, energy, and land issues. Joint ventures between local and foreign stakeholders will be encouraged, in order to marry local understanding of culture and business conditions with foreign expertise and capital. In addition, proactive initiatives and incentives to attract global hotel chains to PNG will be needed.103

4.137. An additional concern for the Government is to ensure that the benefits of tourism reach the poor. This requires an additional strategy to facilitate local market chains, so that sectors like agriculture, fishing and artefacts link to the tourism industry.104

101 PNG is full of interesting attractions, including trekking, cruising, surfing, fishing, birdwatching the world-famous birds of paradise, and diving in the coral reef coastline. 102 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 103 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby. 104 Department of National Planning and Monitoring (2010), PNG DSP 2010-30, Port Moresby.

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5 APPENDIX TABLES

Table A1.1 Merchandise exports by HS sections and major HS chapters/products, 2012-17

HS section/chapters/subheadings 2012 2013 2014 2015 2016 2017 Total exports (PGK million) 11,436.0 12,174.7 22,432.6 25,745.6 34,353.2 31,512.7 Total exports (USD million) 5,488.5 5,424.2 9,113.8 9,299.8 10,964.8 9,882.4 (% of total) 01 Live animals and products 2.5 3.2 2.1 1.4 20.4 2.3 030342 Yellowfin tuna, frozen 0.6 1.1 0.7 0.6 19.3 0.7 02 Vegetable products 4.9 2.6 2.0 2.0 2.4 2.1 0901 Coffee 4.2 2.3 1.7 1.8 2.1 1.5 03 Fats and oils 10.8 9.4 5.9 5.2 4.3 6.4 1511 Palm oil and its fractions 9.4 8.5 5.2 4.2 3.5 5.3 04 Prepared food, beverages and tobacco 3.6 3.9 2.1 2.1 2.4 3.0 1604 Prepared or preserved fish 1.8 2.1 1.0 0.9 1.1 1.8 05 Mineral products 17.3 9.9 50.3 52.1 33.1 49.1 26 Ores, slag and ash 12.3 8.1 16.1 4.8 5.1 8.5 260300 Copper ores and concentrates 6.9 5.5 13.7 4.8 4.8 6.3 27 Mineral fuels and oils 2.5 1.8 33.7 47.0 27.6 40.3 270900 Petroleum oils, crude 0.0 0.0 0.8 0.0 0.3 8.1 271111 LNG 0.0 0.0 30.6 45.9 24.2 28.9 06 Chemicals and products thereof 3.2 5.8 3.3 0.7 0.0 0.1 07 Plastics and rubber 1.2 0.3 0.1 0.1 0.1 0.1 08 Raw hides and skins; leather, furskins 0.0 0.0 0.0 0.0 0.0 0.0 09 Wood, cork, straw 5.0 5.1 3.3 4.0 3.3 3.3 44 Wood and articles of wood 5.0 5.1 3.3 4.0 3.3 3.3 10 Pulp of wood; paper and paperboard 0.1 0.0 0.0 0.0 0.0 0.0 11 Textiles and textile articles 0.0 0.0 0.0 0.0 0.0 0.0 12 Footwear, headgear, etc. 0.0 0.0 0.0 0.0 0.0 0.0 13 Articles of stone, plaster, cement 0.0 0.0 0.0 0.0 0.0 0.0 14 Precious stones and metals, pearls 27.4 33.5 20.0 17.1 19.0 23.2 7111 Base metals, silver or gold, clad 27.2 29.4 15.2 17.0 19.0 23.1 with platinum, not further worked than semi-manufactured 15 Base metals and articles thereof 2.2 3.3 3.1 2.8 1.8 3.8 75 Nickel and articles thereof 0.1 2.7 2.5 2.5 1.6 3.5 16 Machinery, electrical equipment 1.7 2.6 2.1 1.4 1.0 1.3 17 Transport equipment 19.5 20.0 5.4 10.8 12.0 5.1 88 Aircraft and parts thereof 7.6 8.5 4.8 10.2 10.8 4.6 89 Ships and other floating structures 11.7 10.8 0.3 0.5 1.1 0.4 18 Precision instruments 0.2 0.2 0.1 0.1 0.1 0.1 19 Arms and ammunition 0.0 0.0 0.0 0.0 0.0 0.0 20 Miscellaneous manufactured articles 0.0 0.0 0.0 0.0 0.0 0.0 21 Works of art, collectors' pieces and 0.0 0.0 0.0 0.1 0.0 0.0 antiques Not classified 0.1 0.1 0.0 0.0 0.0 0.0

Source: WTO calculations based on data received by the authorities.

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Table A1.2 Merchandise total exports by destination, 2012-17

2012 2013 2014 2015 2016 2017 Total exports (PGK million) 11,436.0 12,174.7 22,432.6 25,745.6 34,353.2 31,512.7 Total exports (USD million) 5,488.5 5,424.2 9,113.8 9,299.8 10,964.8 9,882.4 (% of total exports) Americas 3.4 3.0 1.2 1.0 1.2 1.2 United States 1.4 2.3 1.0 0.9 1.1 1.1 Other America 2.0 0.7 0.2 0.1 0.1 0.1 Europe 16.9 20.2 13.2 15.9 14.3 12.1 EU-28 16.5 18.4 12.3 15.7 14.2 11.9 Netherlands 4.3 2.2 2.6 1.8 1.8 3.2 Italy 1.1 1.6 1.2 0.8 0.9 2.3 United Kingdom 2.5 6.6 2.2 1.1 1.1 1.8 Germany 5.5 2.9 3.2 1.8 1.4 1.7 Spain 2.0 1.8 0.7 1.0 0.9 1.4 Belgium 0.6 1.8 1.4 1.2 0.9 1.2 France 0.1 0.7 0.4 0.1 0.1 0.2 EFTA 0.4 1.8 0.9 0.2 0.1 0.2 Switzerland 0.4 0.4 0.1 0.0 0.1 0.2 Other Europe 0.0 0.0 0.0 0.0 0.0 0.0 CIS 0.1 0.1 0.1 0.1 0.1 0.0 Africa 0.0 0.2 0.1 0.1 0.3 0.0 Middle East 0.5 0.7 0.1 0.5 0.0 0.1 Asia 79.1 75.9 85.3 82.5 84.1 86.6 China 9.6 7.7 8.6 13.9 13.0 13.1 Japan 9.6 12.1 30.6 28.5 17.0 19.8 Other Asia 59.9 56.1 46.1 40.1 54.1 53.7 Australia 32.1 44.5 24.1 19.0 21.9 28.3 Chinese Taipei 0.3 0.5 8.9 6.3 4.0 6.9 Singapore 15.1 2.2 2.2 3.1 3.1 5.2 Hong Kong, China 0.3 0.2 1.2 4.9 0.4 3.6 Philippines 3.2 3.0 4.4 1.8 20.9 2.9 Malaysia 1.9 1.5 0.4 1.0 1.0 1.7 India 3.7 1.4 1.7 1.3 0.7 1.7 Korea, Republic of 1.3 1.5 1.5 1.4 1.3 1.4 Thailand 0.5 0.4 0.3 0.1 0.3 1.2 Indonesia 0.8 0.2 0.9 0.5 0.1 0.3 Solomon Islands 0.2 0.2 0.1 0.1 0.1 0.2 Viet Nam 0.2 0.1 0.1 0.0 0.1 0.1

Source: WTO calculations, based on data provided by the authorities.

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Table A1.3 Merchandise imports by HS section and major HS chapters/subheadings, 2012-17

HS section/chapters/subheadings 2012 2013 2014 2015 2016 2017 Total imports (PGK million) 18,225.9 16,880.5 70,303.4 15,362.0 17,452.1 15,892.6 Total imports (USD million) 8,747.1 7,520.8 28,562.5 5,549.0 5,570.3 4,983.9 (% of total) 01 Live animals and products 2.3 2.9 0.6 3.1 3.1 3.2 02 Meat and edible meat offal 1.6 2.0 0.5 2.1 2.1 2.3 02 Vegetable products 4.0 4.7 1.2 6.2 5.9 5.4 10 Cereals 3.3 3.9 1.0 5.3 4.9 4.4 03 Fats and oils 0.6 0.5 0.2 0.8 0.8 0.8 04 Prepared food, beverages and tobacco 3.8 4.7 1.1 5.7 5.9 6.8 05 Mineral products 17.2 10.1 66.3 13.4 14.1 15.3 27 Mineral fuels and oils 16.6 9.1 65.8 11.6 12.7 14.0 271000 Petroleum oils, other than crude 6.5 7.9 2.6 10.3 6.4 9.0 270900 Petroleum oils, crude 5.1 0.9 63.2 0.8 5.9 4.7 06 Chemicals and products thereof 4.7 5.3 12.4 7.8 5.4 6.9 07 Plastics and rubber 3.7 4.1 0.8 4.2 3.9 4.7 08 Raw hides and skins; leather, furskins and 0.1 0.1 0.0 0.1 0.1 0.1 articles thereof 09 Wood, cork, straw 0.2 0.2 0.0 0.2 0.1 0.1 10 Pulp of wood; paper and paperboard 1.9 2.4 0.5 2.3 2.0 2.0 11 Textiles and textile articles 1.6 1.8 0.5 3.1 2.4 2.3 12 Footwear, headgear, etc. 0.5 0.5 0.1 0.6 0.5 0.6 13 Articles of stone, plaster, cement 0.7 0.8 0.3 1.0 0.8 0.8 14 Precious stones and metals, pearls 0.0 0.0 0.0 0.0 0.0 0.0 15 Base metals and articles thereof 10.1 7.9 1.8 7.7 7.1 8.3 73 Articles of iron and steel 7.1 4.6 1.0 4.0 3.9 4.4 16 Machinery, electrical equipment 30.4 24.2 5.6 26.1 19.9 27.2 84 Machinery and mechanical appliances 23.9 17.8 3.6 18.5 14.3 21.3 85 Electrical machinery 6.6 6.4 2.0 7.6 5.6 5.9 17 Transport equipment 15.0 26.6 7.9 13.5 24.5 12.1 87 Vehicles 8.2 6.7 1.2 6.2 4.9 5.9 88 Aircraft and parts thereof 2.9 13.8 5.7 2.9 17.0 1.2 89 Ships and other floating structures 3.6 5.9 0.9 4.2 2.5 4.9 18 Precision instruments 1.5 1.4 0.3 1.7 1.4 1.7 19 Arms and ammunition 0.0 0.0 0.0 0.0 0.0 0.0 20 Miscellaneous manufactured articles 1.4 1.6 0.3 2.0 1.9 1.3 21 Works of art, collectors' pieces and 0.0 0.0 0.0 0.0 0.0 0.0 antiques Not classified 0.1 0.1 0.0 0.4 0.1 0.2

Source: WTO calculations, based on data received by the authorities.

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Table A1.4 Merchandise total imports by origin, 2012-17

2012 2013 2014 2015 2016 2017 Total imports (PGK million) 18,225.9 16,880.5 70,303.4 15,362.0 17,452.1 15,892.6 Total imports (USD million) 8,747.1 7,520.8 28,562.5 5,549.0 5,570.3 4,983.9 (% of total imports) Americas 6.6 4.4 1.3 4.6 3.3 4.1 United States 5.9 3.4 1.1 4.0 2.9 3.4 Other America 0.8 1.0 0.2 0.6 0.4 0.7 Europe 8.6 15.6 6.0 4.5 17.4 3.7 EU-28 8.3 5.3 3.4 4.3 17.0 3.4 Germany 0.8 0.7 0.2 0.6 0.4 0.7 Italy 3.7 1.0 0.1 0.3 0.2 0.7 France 0.9 0.6 0.1 0.7 1.4 0.6 United Kingdom 1.0 1.3 0.2 0.7 0.3 0.5 Netherlands 0.4 0.3 0.1 0.6 0.4 0.4 EFTA 0.3 10.3 2.6 0.1 0.3 0.2 Other Europe 0.0 0.1 0.0 0.1 0.1 0.1 CIS 0.1 0.7 0.0 0.1 0.0 0.1 Africa 0.1 0.2 0.0 0.1 0.1 0.1 Middle East 0.8 0.7 0.1 0.9 0.5 1.6 Oman 0.0 0.0 0.0 0.0 0.0 1.1 Asia 83.7 78.4 92.5 89.9 78.7 90.4 China 6.7 8.4 2.4 12.6 10.4 10.8 Japan 6.0 5.1 0.8 3.6 3.4 3.8 Other Asia 71.1 64.9 89.3 73.6 64.8 75.8 Australia 33.9 34.0 18.6 32.2 30.6 33.8 Singapore 15.9 11.7 2.8 12.0 10.6 12.4 Malaysia 6.3 4.8 1.2 5.7 5.8 11.2 Indonesia 3.0 2.1 0.5 2.8 2.9 3.4 New Zealand 2.7 3.2 0.8 3.7 2.8 3.0 Thailand 3.0 2.5 0.4 2.6 2.9 2.9 Viet Nam 0.5 0.3 0.2 1.6 1.5 2.2 Hong Kong, China 1.3 1.6 0.6 1.7 1.4 1.5 Korea, Republic of 1.6 1.3 0.3 3.2 2.0 0.9 India 0.5 0.8 0.2 1.8 0.8 0.9 Pakistan 0.0 0.0 0.0 0.3 0.0 0.8 Philippines 0.7 0.5 0.1 0.6 0.9 0.8 Chinese Taipei 1.0 1.7 0.4 3.6 1.6 0.6 Papua New Guinea 0.2 0.0 62.8 0.4 0.1 0.6

Source: WTO calculations, based on data provided by the authorities.

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Table A2.1 Tax incentives, 2019

Name Description Condition(s) Provision(s) 1. General tax incentives applied across all sectors Reduction in effective The part of taxable income that: Schedule 1 of the income tax rates does not exceed PGK 10,000 is taxed Income Tax, payable by residents at 0%; Dividend exceeds PGK 10,000 but does not (Withholding) Tax exceed PGK 18,000 is taxed at 22%; and Interest exceeds PGK 18,000 but does not (Withholding) Tax exceed PGK 33,000 is taxed at 30%; Rates (2012 Budget) exceeds PGK 33,000 but does not (Amendment) Act, exceed PGK 70,000 is taxed at 35%; 2011 exceeds PGK 70,000 but does not exceed PGK 250,000 is taxed at 40%; and exceeds PGK 250,000 is taxed at 42% Reduction in effective The part of taxable income Schedule 1A of the income tax rates derived in PNG that: Income Tax and payable by non- does not exceed PGK 18,000 is Dividend residents taxed at 22%; (Withholding) Tax exceeds PGK 18,000 but does not Rates, 1984 exceed PGK 33,000 is taxed at 30%; exceeds PGK 33,000 but does not exceed PGK 70,000 is taxed at 35%; exceeds PGK 70,000 but does not exceed PGK 250,000 is taxed at 40%; and exceeds PGK 250,000 is taxed at 42% Accelerated and Capital assets can be written off at a Comments: mining, S. (Section(s)) 73-78 flexible depreciation faster rate than would otherwise be petroleum and gas of the Income Tax Act possible. companies – the Depreciation is normally calculated taxpayer must elect to S. 155F of the using the straight-line method based depreciate plant and Income Tax Act on effective life but: equipment with an • using a diminishing-value method, effective useful life of the percentage rate of less than 10 years depreciation can optionally be under the normal accelerated to 1.5 times that depreciation provision. under ordinary effective life; • depreciation deductions may be an In the case of extra 20% of the cost price for additional depreciation new capital plant or articles, being for industrial plant: eligible property, acquired in the (1) effective life must year of income. In the case of be more than tourism, the depreciation 5 years; and deduction may be an extra 55% of (2) the plant should be the cost price for new capital plant used in the or articles, being eligible property, manufacturing acquired in the year of income; process. • depreciation methods can be switched to maximize amounts to be depreciated; • taxpayers acquiring industrial plant may elect in any year to increase the amount of depreciation deductions by the lesser of the amount of the taxpayer's income remaining after all other deductions, or the remaining depreciable value of the plant; • for taxpayers in the tourism industry, this initial year additional depreciation was increased to 55% from 1 January 2007; • in the year of income in which expenditure is incurred, an extra 20% depreciation deduction is available for expenditure on existing plant for the purpose of fuel conservation; and

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Name Description Condition(s) Provision(s) • expenditure on acquiring the following types of new plant or articles is given a 100% deduction: - property used directly for agriculture production; and - property used for fishing by residents engaged in commercial fishing. Boats or ships and ancillary equipment used as dive boats by an accredited scuba diving/snorkelling operator The Rural Development An income tax exemption is provided Districts holding S. 45I–45M (Part III, Incentive on the net income of new businesses Petroleum Division 1B) of the that are not dependent on the Development Licences Income Tax Act, 1959 exploitation of natural resources, that or Special Mining are set up in specifically designated Leases are ineligible Income Tax underdeveloped areas for the Incentive. Regulation S. 6AA Industries extracting, Income earned by "rural development processing or industries" (as defined under the transporting PNG non- Income Tax Act) is exempt from renewable resources income tax for ten years from the are ineligible for the year the business commences Incentive. operation The income to be Losses arising from exempt activities exempted must be may be deducted against taxable derived in that district. income from other activities Regulation S. 6AA of The scheme is only available to new the Income Tax businesses in the specific rural Regulations prescribes districts listed in the Regulations the industries and districts eligible for the Incentive: (i) agriculture production; (ii) manufacturing; (iii) construction; (iv) hotels and restaurants; (v) transport storage and communication; (vi) financial intermediation; (vii) real estate, renting and business activities; and (viii) other community, social and personal service activities. Research and 150% income tax deduction for S. 95 of the Income development (R&D) expenditure on R&D undertaken Tax Act under an approved R&D plan. The Income Tax R&D incentive was phased out in Regulation 5L the 2014 Budget. However, as at December 2014, a large contingent liability of unprocessed claims remained. The Income Tax Regulations specify the types of activities that are eligible Infrastructure Tax An income tax credit (i.e. an offset to The Tax Credit S. 219C of the Credit income tax payable, rather than a allowable cannot Income Tax Act deduction) is available up to the exceed the tax payable value of 0.75% of assessable income in any one year. Income Tax derived in the year of income for Regulation 10F expenditure on prescribed Expenditure on infrastructure for mining, petroleum prescribed

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Name Description Condition(s) Provision(s) and gas operations. For primary infrastructure must production and large-scale tourist first be approved by facility operations, the tax credit the Department of available is up to 1.5% of assessable National Planning income. Unused credits can be and Monitoring. carried forward for two years. Expenditure in excess of the 0.75% and 1.5% limits can be carried forward to the following year

Expenditure incurred on the Tax Credit Scheme project in a year should not exceed these limits. Excess tax credit not allowed in the year due to credit exceeding tax payable is carried forward to following year Goods and Services Exported goods are not subject to All sectors. Division 6 of the GST Tax (GST) - Zero GST. Exporters receive a full refund of Act Rating of Exports GST paid on all inputs to production of exported goods or services 2. Fishing sector Exemption from Fishing operations carried out by non- S. 35A of the Income income/salary and resident companies and their Tax Act wages tax of certain employees are exempt from income income from fishing tax/salary and wages tax. operations This applies only to fishing operations under an agreement with the State 3. Financial sector Tax credit regarding The cost of expenditure for providing S. 219D of the banks' community extended or new banking facilities or Income Tax Act service obligations services in areas not adequately supplied with bank services can be offset against the income tax liability for the year the cost was incurred. Any excess is carried forward to be offset against the following year's tax liability Non–resident income Income earned by a non-resident who S. 36B of the Income from the sale of shares sells shares on the Port Moresby stock Tax Act exchange is exempt from income tax 4. Manufacturing sector Wage subsidy for new Taxpayers who manufacture new The Commissioner Industrial manufactured products products may receive a monthly wage General must first Development (Wage subsidy, for five years from the agree to list the Subsidy) Act, 1984 commencement of operations. For product as a "new each citizen employee, a subsidy is manufactured paid which is a proportion of the product". minimum wage relevant to that area. Goods to be imported The subsidy is phased out over the which form the main five-year period: components used to manufacture the Year 1: 40% of relevant minimum proposed new product wage for each employee which are already Year 2: 30% subject to Customs Year 3: 20% tariff protection are Year 4: 15% specifically excluded Year 5: 10% in the legislation from being listed as new manufactured products, and the Commissioner General cannot legally list such products for the subsidy. Export Sales Incentive Offers exemption of income tax from S. 45A-Ha of the the sale of qualifying export goods Income Tax Act prescribed under the Income Tax Regulation (Regulation 10A) Double deduction for Provides for double deduction for S. 72C of the Income export market export market development Tax Act development costs

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Name Description Condition(s) Provision(s) expenditure regarding the export of goods manufactured in PNG.

The Commissioner General can limit deductions considered to be excessive. The tax saving from the double deduction cannot exceed 75% of the actual costs incurred.

Reimbursements to the taxpayer are not included 5. Agriculture sector Tax deductibility of A 100% deduction is provided for The deduction is S. 97 of the Income certain agricultural expenditure by a PNG taxpayer reduced by the amount Tax Act development expenses engaged in primary production on: of expenditure that the (a) eradicating animal or vegetable taxpayer has recouped pests; from the Government, (b) destroying and removing an authority or any indigenous wood, scrub or other person undergrowth; (c) destroying weeds or plants detrimental to the land; (d) preparing the land for agriculture; (e) ploughing and grassing the land for grazing purposes; (f) draining swamps or low-lying lands where this improves the agricultural or grazing value of the land; (g) preventing or combating soil erosion, other than by erecting fences; (h) constructing dams, tanks, irrigation channels, bores, wells or similar structural improvements to conserve or convey water for use in primary production on the land; (i) constructing levee banks or similar improvements; (j) constructing roads, including bridges, culverts or similar works forming part of a road; (k) planting trees, including the purchase of seeds, seedlings, cuttings and similar material; (l) constructing or altering fences with the sole purpose of preventing animal pests coming onto the land; or (m) constructing or improving plantation employees' accommodation (subject to certain conditions) Passing through to Tax deductions available to The company must S. 97A of the Income shareholders of tax agricultural companies for make a declaration to Tax Act deductions for expenditure on agricultural the Commissioner agricultural companies development under S. 97 of the General that it is Income Tax Act and for depreciation relinquishing of agricultural plant and equipment deductions in favour of can be passed through directly to its shareholders. shareholders for deduction at shareholders' marginal tax rates Agricultural extension 150% deduction for expenditure on Extension services S. 97B of the Income services agricultural extension services must be undertaken Tax Act undertaken under an approved plan under a plan approved by a committee chaired Income Tax by the Department of Regulation 5M Agriculture and Livestock. The Income Tax Regulations specify the

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Name Description Condition(s) Provision(s) types of activities that are eligible. Detailed guidelines on the types of expenditure that can be undertaken are available from the Department of Agriculture and Livestock. Concessional tax rate A 20% income tax rate was provided (a) The capital cost S. 1 and Schedule 4.9 on income from new for ten years for new primary was to be at least of the Income Tax, agricultural activities production projects that commenced PGK 5 million; Dividend construction, clearing or planting (b) The project was to (Withholding) Tax and between 1 January 2004 and be in an area Interest (Withholding) 31 December 2006 where production Tax Rates Act of the crop/livestock had not previously occurred (or had not been carried out on a large scale); and (c) The project must not have been an extension or development of an existing primary production project. 6. Tourism sector Concessional tax rate Provides for a tax rate of 20% to This tax rate is only S. 154E-154G of the for new or taxpayers whole sole income is applied for 10 years Income Tax Act substantially improved derived from the operation of such from the time income large-scale tourist facilities and who are registered for is first derived, and is accommodation such purposes with the IRC. for the provision of facilities temporary Large-scale tourist accommodation accommodation in PNG facilities are for the provision of temporary accommodation in PNG, and: (a) construction must have commenced between 1 January 2007 and 31 December 2011; (b) must involve expenditure of USD 10 million or more; and (c) must provide 150 rooms or more for such accommodation Zero-rated customs Zero-rated customs tariff duties on Customs Act, 1990 tariff duties on interior furnishings, wetsuits, products imported by photography film and photography tourism sector stock Accelerated Provides for accelerated depreciation S. 73–78 of the depreciation for the purchase of new capital assets Income Tax Act in the tourism sector, and boats and ships used by an accredited dive or snorkelling operator

Zero-rated airfares International air fares and ship fares, including travel into and out of PNG, are zero-rated. The GST Act zero- rates domestic air travel within PNG, where that travel is taken as part of an international air service. For example, if a foreign tourist purchases a holiday to PNG from Air Niugini which includes international and domestic fares as part of his/her visit to PNG, all the airfares (including those for domestic flights inside PNG) are zero-rated. The GST Law is consistent with common international practice in this regard.

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Name Description Condition(s) Provision(s) Duty-free shops The GST Act zero-rates goods sold by an incoming or outgoing duty-free shop to inbound or outbound air travelers. The shops must be licensed under the Customs Act to operate as duty-free shops. Items bought at the outgoing (only one in PNG) duty-free stores must be exported by the purchaser. In PNG, this can only be done in the passenger's carry-on baggage as the only duty-free store in PNG is located in Jacksons Airport (i.e. after passing through outgoing immigration). Items bought at the incoming (only one in PNG) duty-free store must fall within the duty-free concession or passenger allowance, otherwise duty will be calculated on the excess. There is no facility for sending packages, etc.

GST-free shopping Goods purchased by a tourist from a from retailers (not retailer (not a duty-free shop) and duty-free shops) sent directly by the retailer to the overseas address are zero-rated. The retailer must provide evidence of export. Duty, however, cannot be refunded to the consumer, as it would already have been paid by the importer or manufacturer of the goods.

Tax-free importation of Goods imported by travelers as part goods by tourists of their accompanied baggage are exempted from GST and duty, as prescribed in the Customs Personal Effects Rules. The allowances provide for GST and duty concession on all new goods (excluding tobacco, alcohol and perfumes) to a total value of PGK 1,000 per traveler over the age of 18 and PGK 500 for those under 18.

A traveller of any age may import, free of GST and duty, among other things, a personal computer, a still or video camera and work tools, provided they are not new or in commercial quantity and are intended for the traveller's own use. Crews of vessels and aircraft have slightly different allowances.

GST exemption for any International travel in and out of PNG, purchase made by a domestic travel (within PNG by air or foreign tourist prior to sea) and temporary accommodation arrival in PNG are exempt from GST, provided that the passenger benefiting from the zero-rating is not a resident of PNG and the purchase of the travel or accommodation was made prior to the visitor's arrival in PNG.

Purchase through a travel agent of travel or accommodation by non- residents intending to visit PNG is treated as being made by the visitor directly from the airline or hotel operator. Such purchases are zero- rated (GST-free) if made before the visitor reaches PNG.

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Name Description Condition(s) Provision(s) Accommodation or travel can include incidentals, such as insurance, food, beverages, tours, activities and airport transfers, which are provided "inclusive" of the accommodation or travel package price. Where the incidentals are sold by the accommodation or travel provider to the intended visitor (prior to their arrival in PNG), their value will not be subject to GST. These package items are incidental if their total value is less than half the total package price. If the incidentals are sold separately to the visitor by someone other than the accommodation or travel provider, they will remain subject to GST. It is emphasized that GST is applied in all cases where the visitor purchases accommodation or travel after arriving in PNG.

"Unstructured arrivals" refers to independent travellers, who fly in to PNG and then purchase accommodation and sea or air travel within PNG. Their domestic travel and accommodation is subject to GST.

Special concessions for A GST and duty zero-rating is ship and aircraft stores extended for goods for use in ship or aircraft stores for consumption outside PNG on an aircraft or ship travelling to a destination outside PNG (this covers fuel, food, beverages and other consumables). Ship and aircraft stores include all the goods necessary to maintain the ship and the aircraft, and to sustain their crew and passengers. They should not be confused with duty-free shops on the ships or aircrafts.

Stores that sell consumables (alcohol, cigarettes, perfumes, jewellery, clothes, etc.) to passengers are only duty-free as long as they have not landed. Once they have landed, the goods are subject to duty and GST if they exceed the limits allowed under the concessions of the Custom Regulations mentioned previously. For example, if a traveller purchases three litres of alcohol duty-free on an aircraft, Customs will charge duty on the one litre purchased in excess of the two litres allowed if they are brought on-shore.

These shops cannot trade while the ship or aircraft is in port or at the airport. They may only operate when the ship or aircraft has cleared the port or the airport and is on an international voyage.

Special concessions for Yachts and other small craft that boats imported by arrive in PNG but are not intended for visiting yacht import are treated as any other enthusiasts commercial vessel or aircraft. No duty is charged, and the vessel is allowed to travel between Customs ports on what is called an inter-port clearance.

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Name Description Condition(s) Provision(s) Yachts may visit non-Customs ports only with the permission of the principal officer at the port of entry (the Collector), and must abide by any conditions attached to that permission.

If a vessel has entered PNG temporarily but, after such enquiries as he thinks appropriate, the Collector has reason to believe that the vessel might have been imported, he may serve a notice requiring the owner or operator to either export the vessel or enter it for home consumption and pay the duty and GST owed, within 30 days. If the vessel remains in PNG after this time without being entered, it shall be forfeited to the State.

Allowances for cruise The Collector may issue permission vessels and charter for a charter vessel or aircraft to flights arrive or depart from PNG using non- Customs ports or airports. S/he may impose any conditions to the permission that s/he thinks are appropriate, in order to protect revenue and ensure compliance with Border Security and Customs-related legislation.

Examples of conditions may include the vessel or aircraft operator paying appropriate costs for the services of Customs officers or employing security personnel to ensure no unauthorized activities occur at the non-Customs ports or airports 7. Petroleum, gas and mining sector Additional deduction Expenditure incurred by a taxpayer Expenses which have S. 155A and S. 155C for exploration for the purpose of exploration in PNG been transferred to of the expenditure for minerals, petroleum or gas can be another taxpayer, or Income Tax Act deducted from the income of the amounts recovered, development project derived from are excluded from the that exploration licence area during allowable deduction the course of the life of the project, for a period of 20 years pursuant to the issue of a Resource Development License.

Expenditure incurred in relation to other exploration areas which have been surrendered can also be claimed.

This deduction is in addition to the normal business deductions Tax losses Taxpayers involved in mining, S. 101(3) of the petroleum and gas operations can Income Tax Act now carry forward tax losses indefinitely. Other companies are subject to a 20-year limitation

Additional deduction Mining, petroleum and gas S. 155N of the for exploration companies may claim a deduction for Income Tax Act expenditure exploration expenditure. Exploration expenses for a project other than the resource project may be deducted from income of the project Fiscal stability The fiscal stability provision allows Mining and petroleum Resource Contracts provision the State to enter into an agreement companies have the Fiscal with the resource company which option of applying for Stabilization Act, guarantees the fiscal stability of the fiscal stability for the 2000

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Name Description Condition(s) Provision(s) project in respect of duplicable taxes, original financing duties, fees and other fiscal imposts, period or 20 years, Income Tax, the rates at which such taxes, duties, whichever is less. Dividend fees and other fiscal imposts will be (Withholding) charged, and the manner in which Gas companies can Tax and Interest liability in respect thereof will be apply for a period of (Withholding) calculated in the event of a change in time necessary to Tax Rates Act the applicable law after the effective produce a volume or date of the agreement quantity of resource as defined in the relevant gas agreement to be a foundation volume or quantity for that long- term gas project. Where such a provision applies, a 2% premium applies to the income and profit tax rates. Exemption from In addition to the exemption from Additional exemption S. 40AA of the Income Tax/Salaries Income Tax/Salaries and Wages Tax on international fares Income Tax Act and Wages Tax of of one annual leave fare from the is granted if the certain travel benefits place of employment to the place of hardship and origin or recruitment, employees of remoteness of the resource companies are entitled to: employment location (1) Exemption from said taxes on from urban centres their domestic fares within PNG; can be demonstrated. and (2) An additional exemption on their Apply to petroleum international fares and gas and mining companies. Amortization – Provides for allowable capital Applies only to the LNG S. 158J of the Income allowable capital expenditure for taxpayers in the LNG Project. Tax Act expenditure Project Company Tax holiday for the Provides for a 0% tax rate for the S. 6C of the Income Ramu Nickel Project Ramu Nickel Project for the period of Tax, Dividend the tax holiday Withholding and Interest (Withholding) Tax Act, 1984 Import duty Provides for an exemption from S. 9B of the Customs exemptions for the import duties for LNG Project Tariff Act LNG Project companies, with a broad-ranging exemption for any of their affiliates or any person engaged by an LNG Project Company, where the goods are to be used in, or consumed for, the initial construction of the Project, and any subsequent phase of the Project whose total cost exceeds USD 50 million Stamp duty concession The stamp duty on the transfer of Applies to the mining, Stamp Duties Act on transfer of mining mining information for both petroleum and gas schedule information exploration and development licences sectors has been limited to PGK 10,000.

This was designed to encourage mining, petroleum and gas exploration Stamp duties If an exploration Stamp Duty Act concession on transfer licence is transferred schedule of exploration licences for the historical cost of obtaining the mining information, total stamp duties to be paid will be: (1) a PGK 10,000 incentive rate for the mining information transfer; and (2) an incentive rate of

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Name Description Condition(s) Provision(s) PGK 10,000 for the transfer of the licence; or (3) a total of PGK 20,000.

If an exploration licence is transferred for more than the historical cost of obtaining the mining information, total stamp duties to be paid will be: (1) a PGK 10,000 incentive rate for the mining information transfer: and (2) an incentive charge of 2% applied on the excess between the price charged and the historical cost (instead of 5% previously). Stamp duties If a development Stamp Duties Act concession on transfer licence is transferred, schedule of development total stamp duties to licences be paid will be: (1) a PGK 10,000 incentive rate for the mining information transfer; and (2) an incentive rate of 2% of the licence value, instead of the 5% usually charged on transfers of real property valued at over PGK 140,000. Stamp duties Transfers resulting from company The parent company Stamp Duties Act concession for intra- reorganization, or what is known as must own at least 95% company transfers "intra-group" transfers, attract a of the subsidiary(ies). concessional stamp duty that is limited to PGK 600 per transaction up At least 20% of the to a maximum of PGK 12,500 issued capital or voting rights of the ultimate parent company must have held a minimum of 20% of the issued capital or voting rights for at least three years prior to the date of the application for exemption.

The conveyance must not have the purpose or effect of avoiding or delaying the payment of any tax under the Income Tax Act, 1959.

The companies must operate as an intra- group operation for a period of 5 years,

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Name Description Condition(s) Provision(s) otherwise the full stamp duty and penalties will apply. Stamp duties This provides for various available Applies to the mining, Stamp Duty Act concession concessions on the transfer of mining petroleum and gas schedule information of exploration licences sectors. and of development licences Zero-rating of GST on Goods or services, other than cars, Applies to registered S. 7(f) and 20(d) of goods supplied to supplied to a resource company for holders of mining, the Goods and resource companies use in resource operations are zero- petroleum or gas Services Tax Act rated for GST tenements. The goods must be used for the resource operations.

Applies to the mining and petroleum sectors. 8. Personal income tax exemptions Exemption of certain An exemption from the general rule Exemption from S. 29 of the Income income/allowance from that the value of all benefits of a various taxes. Applies Tax Act Salaries and Wages taxpayer be subject to the Salaries across all sectors. Tax and Wages Tax (S. 65E). These include: - various allowance pensions paid under various pre-independence acts; - allowances provided by the State for the education of dependents; - allowances otherwise paid to help meet the cost of educating an employee's child (not including tertiary study); - the retirement benefits of Members of Parliament; and - subsidies provided by an employer to assist an employee to buy their first home Exemption of certain Exemption on income received by Exempt from various S. 40 of the Income scholarship income way of scholarship, bursary or other taxes. Applies across Tax Act educational allowance all sectors. Exemption of certain As with S. 29 of the Income Tax Act, S. 40AA of the travel benefits provides an exception to the general Income Tax Act rule that benefits are included in an individual's assessable income where an individual is provided with: - one annual leave fare (for an employee and their family) from his/her place of employment to their place of origin or recruitment; - additional leave fares for workers in the mining and petroleum sector; - additional leave fares for those, to the satisfaction of the Commissioner, are working in remote and/or hostile conditions; and - recreational fares and accommodation not exceeding the value of those above 9. Incentives for public good purposes. Including exemptions for international organizations/aid– related exemptions Exemption for non- Exemption from various taxes. S. 20 of the Income residents assisting a Tax Act Commission of Inquiry Exemption from Salaries and Wages Tax on income earned by a foreign resident in PNG in assisting a Commission of Inquiry Exemption for 2015 Exemption from income tax on the S. 22B of the Income Pacific Games 2015 Pacific Games Limited and Tax Act exemption on the income of competitors.

Exemptions from various taxes

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Name Description Condition(s) Provision(s) Income tax exemption Exemption on income tax for S. 25 and S. 25A of for religious, scientific religious, scientific or public the Income Tax Act or public educational educational institutes, public hospitals institutions, hospitals and approved charitable bodies and charitable bodies Exemption of trade Exemption from income taxes for S. 26 of the Income unions employees of trade unions or similar Tax Act associations.

Exemptions from various taxes Exemption of certain Provides for an exemption from S. 27 of the Income non-profit bodies income tax for a society, association Tax Act (taken straight from or club that is not carried on for the Australian tax purposes of profit or gain to its legislation in 1959) individual members.

Exemptions from various taxes Exemption for scientific Exemption from income tax for funds S. 28 of the Income research funds that are established to assist public Tax Act universities or hospitals to undertake scientific research Exemption for certain Exemption from income tax on the S. 31 of the Income international trade income of: Tax Act financial institutions - the Multilateral Investment Guarantee Agency (WB group); - the Export Finance Insurance Corporation of Australia; and - the European Investment Bank Exemption of saving Exemption from income tax on the S. 40A of the Income and loans societies income of savings and loans societies. Tax Act

Exemptions from various taxes Exemption to facilitate Administered by the Treasurer. S. 6 of the Loans loan or assistance Provides for an exemption from any (Overseas Borrowing) agreements rate, charge, tax, duty, levy, fee or Act, 1973; and S. 6 of imposition where provided for under a the Loans (Overseas loan agreement. Borrowing) (No. 2) Act, 1976 Exemptions from various taxes S. 8 of the Loans and Administered by the Treasurer. Assistance Provides for an exemption from any (International rate, charge, tax, duty, levy, fee or Agencies) Act, 1971 imposition where provided for under a loan or assistance agreement Exemption for the Administered by the Minister for S. 7 and 8 of the United Nations Foreign Affairs and Immigration, United Nations and provides for the exemption of the Specialized Agencies United Nations, and its property, from (Privileges and direct taxes, import taxes, and taxes Immunities) on the sale of property in certain Act, 1975 circumstances Exemption for the Incorporates the Agreement to S. 4 of the Asian Asian Development Establish ADB into PNG law. This Development Bank Bank includes broad exemption from Act, 1971 taxation under Article 56: - exemption for the Bank from all Asian Development taxation and customs duties; Bank (Privileges and - exemption from taxation on the Immunities) salaries of ADB employees; and Regulation, 1976 - exemption from taxes on any obligations and securities issued or guaranteed by the Bank, and on interest and dividends on those obligations and securities Exemption for IMF Incorporates the IMF Agreement into S. 8 of the PNG law. Article IX includes the International Financial Fund's immunities from taxation. This Organization Act, includes: 1975 - exemption for the Fund from all taxation and customs duties; - exemption from taxation on the salaries of Fund employees;

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Name Description Condition(s) Provision(s) - exemption from taxes on any obligations and securities issued or guaranteed by the Fund, and on interest and dividends on those obligations and securities Exemption for Administered by the Minister for For an organization S. 2, 4, 5 and 6 of the designated aid Foreign Affairs and Immigration. S. 2 granted designated aid Aid Status (Privileges organizations gives the Head of State the power to status, an exemption and Immunities) Act, grant an organization "designated aid from import duty, 1977 status". This provides a range of excise and GST is exemptions, including; available on the - exemption from taxation on importation or salaries, and the right to bring in purchase of vehicles, goods import duty-free when first plant and equipment to arriving (S. 4); and be used for performing - exemption from import duty, excise functions under aid and GST on the importation of a with the State. motor vehicle (S. 5) Exemption of Exemption on the income of S. 39 of the Income international prescribed organizations of which PNG Tax Act organizations is a member, along with the salary and allowances of officers of those organizations working in PNG Exemption for certain Administered by the Minister for Defence (Visiting visiting defence forces Defence. Provides for the exemption Force) Act, 1975 from import duties or taxes associated with the importation of any goods required by a friendly visiting force (S. 32) This may be limited under an agreement with the Minister.

S. 44 also gives the Minister the power to enter into an agreement with the visiting force to exempt the members of the force from income tax and import duties/excise/GST associated with the importation of personal goods and motor vehicles Other exemptions for Exemptions from income tax, S. 37 and 38 of the visiting defence including Salary and Wages Tax, on Income Tax Act personal the pay and allowances paid to certain defence force personal Exemption for Peace Exemption from income tax on the S. 19B of the Income Corps volunteers salary and wages paid to Peace Corp Tax Act volunteers in PNG.

Exemptions from various taxes Exemption of certain Exemptions from income tax and S. 22 of the Income providers of technical Salary and Wages Tax on income Tax Act assistance derived under prescribed technical assistance agreements a Part B of S. 45 was eliminated as from January 2015. Source: Information provided by the authorities.

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