Cyprus WT/TPR/S/25
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IV. SECTORAL TRADE POLICIES
(1) Overview
(2) Agriculture
1. Value added intheagricultural sector contributed £C196million tooverall economic activity
in1995, equivalent to5.5percentofGDP. Farming employed 30,472 persons, 10percentofthe
economically active population, testimony tothelabour-intensity ofthesector. Agricultural exports,
dominated bypotatoes, citrus andother fresh fruitandvegetables, accounted foralmost 46percent
oftotaldomestic exports in1995.
2. Farming inCyprus istypically carried outonsmall holdings, averaging 3.5hectares, and
restricting thescope formechanization. Crops account fornearly twothirds ofagricultural value added:
vegetables andmelons represent 43.2percent,fruitandtreecrops 33.7percentofcropoutput; the
percentage ofcultivated landunder irrigation, inwhat isclassified asasemi-arid climate was
22.5percentin1995. Boththeprovision ofirrigation water andloans forinvestment aresubsidized.1
Principal crops grown onirrigated landarecitrus fruit, potatoes andother fruits andvegetables.
Inaddition tograpes grown toproduce wine, citrus fruitandpotatoes arethemain export crops.
1Agricultural credit covers 80percentoftheinvestment; therepayment period is15years andthecurrent
interest rateis5percentcompared toamarket rateof9percent; water isprovided atadiscount.WT/TPR/S/25 Trade Policy Review
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3. Inlivestock, self-sufficiency ratios areintheorder of100percentforporkandpoultry, eggs
andmilk; beefandlambproduction isgenerally supplemented byimports. Theestablishment ofnew
animal husbandry operations issubject toapproval through aprocedure toassess environmental impact
(Chapter III(4)(vii)).
4. In1995, Cyprus harvested over3,000 metric tonnes offish. Nocatch quotas areinuse,but
fishing licences arelimited andgranted subject tospecific criteria toselected applicants. Cyprus aims
tobecome self-sufficient infresh fish. There isagrowing aquaculture sector; newprojects require
anenvironmental impact assessment.
(i) Market access
5. Under itsUruguay Round commitments, Cyprus hasceiling bindings ofbetween 30and
245percentonagricultural products andinthetarrification exercise tookthesame tariff equivalents
usedbytheEuropeanUnion(EU),convertingthespecificdutiesfromECUstoCypruspounds.In1996,
Cyprus 'simple average m.f.n. tariff onagricultural products (including onlyadvalorem rates) was
37.6percent; thepreferential tariff was23.3percentandapplies toimports from EUsuppliers.2
Many tariffs onagricultural imports aresubject tonon-advalorem duties; 44.5percentofagricultural
tarifflinescarry amixed, specific orcompound duty(Table IV.1). Theadvalorem component ranges
from alowof30percenttoahighof315percentformargarine. There isconsiderable dispersion
ofm.f.n. ratesbyproduct groups inthefarmsector; fruit, vegetables andtobacco carry average rates
above 60percent(tobacco alsohasveryfewadvalorem tariffs). Incontrast, cereals areduty-free.
Table IV.1
Trade andtariff dataforagricultural products
(PercentandUS$'000)
1996
HS DescriptionM.f.n.
(%)Pref.
(%)Max.
(%)Non-ad
valorem
(%of
Chapter)Imports
1995
(US$'000)Exports
1995
(US$'000)
01-24 Agricultural products 37.6 23.3 315.2 44.5 765,973.0 243,484.6
01 Liveanimals 23.9 15.6 75.0 55.3 1,665.1 1,377.7
02 Meat andedible meat offal 31.1 20.5 69.5 94.0 18,376.6 2,573.9
0201 Beefa25%+
£C2.7/kg.£C1.75/kg. £C0.5/kg.
(2,200 tons)... ... ...
03 Fish&crustaceans,
molluscs &other aquatic
invertebrate9.4 6.1 100.0 28.3 23,044.4 2,409.5
04 Dairy prod.; birds eggs;
natural honey; edible
prod. nes.22.5 14.4 76.6 74.1 22,018.3 12,509.9
ex0406 Haloumi 30%+
£C2/kg.19.5% +
£C1.5/kg.... ... ... ...
05 Products ofanimal origin,
nesorincluded9.1 5.7 35.2 0.0 1,102.0 215.7
(Table IV.Icont'd)
2These rates havebeencalculated bytheWTO Secretariat attheHSten-digit tariff linelevel. They exclude
thespecific component ofcompound duties andthespecific duty.Cyprus WT/TPR/S/25
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1996
HS DescriptionM.f.n.
(%)Pref.
(%)Max.
(%)Non-ad
valorem
(%of
Chapter)Imports
1995
(US$'000)Exports
1995
(US$'000)
06 Livetree&other plant;
bulb, root; cutflowers
etc.43.0 18.8 94.2 0.0 5,340.2 106.8
07 Edible vegetables and
certain roots andtubers67.7 40.6 152.3 40.4 13,260.5 102,821.6
08 Edible fruitandnuts; peel
ofcitrus fruitormelons78.7 38.0 129.5 44.6 8,086.2 43,375.0
09 Coffee, tea,mate and
spices33.9 23.8 108.5 0.0 9,133.9 464.3
10 Cereals 0.0 0.0 0.0 0.0 72,160.3 2.0
11 Prod. millindust.; malt;
starches; inulin; wheat
gluten19.1 13.1 48.0 19.0 3,862.5 135.9
12 Oilseed, oleagi. fruit;
miscell. grain, seed, fruit
etc.9.1 6.2 109.5 0.0 14,582.0 2,649.2
13 Lac;gums, resins &other
vegetable saps&extracts3.3 0.9 19.4 0.0 590.4 ...
14 Vegetable plaiting
materials; vegetable
products nes.1.2 0.8 1.5 0.0 260.9 2.3
15 Animal/veg. fats&oils
&theircleavage
products; etc.22.5 16.2 315.2 0.0 34,892.2 12,650.7
16 Prep. ofmeat, fishor
crustaceans, molluscs etc.19.6 12.8 100.0 19.9 14,863.0 187.6
17 Sugars andsugar
confectionery60.8 49.6 80.0 58.0 18,549.9 435.1
18 Cocoa andcocoa
preparations35.2 26.9 70.0 0.0 9,587.3 447.8
19 Prep. ofcereal, flour,
starch/milk36.6 19.0 100.0 10.7 25,222.3 2,610.4
1902 Pastaa62.8%+
£C625.5/ton49.5%+
£C492.75/ton16%
(65,000/kg.)... ... ...
20 Prep. ofvegetable, fruit,
nutsorother parts of
plants67.6 46.1 128.5 61.9 9,616.2 22,900.1
21 Misc. edible preparations 32.4 15.6 116.1 18.4 28,635.3 3,230.4
22 Beverages, spirits and
vinegar39.7 26.3 81.9 95.7 31,802.9 23,451.6
23 Residues &waste from the
foodindust.; prepared
animal fodder15.5 10.1 60.0 11.0 31,318.4 1,838.3
24 Tobacco andmanufactured
tobacco substitutes64.3 3.5 94.8 97.8 368,002.2 7,088.9
a TheEuropean Union quota rateisstated under theheading "Maximum".
Note: Based onHSten-digit level data.
Source: WTO Secretariat estimates based ondatareceived from Government ofCyprus.WT/TPR/S/25 Trade Policy Review
Page 46
6. Until thefirstofJanuary 1996, Cyprus maintained quantitative restrictions under itsimport
licensing system onawide number ofagricultural products.3These restrictions havebeenlargely
eliminated andtheonlyremaining agricultural product forwhich importers must obtain alicence is
rawgoundnuts (peanuts). Notified asatrade-related investment measure totheWTO, since 1992
importers havebeenrequired topurchase predetermined quantities oflocally grown groundnuts before
theyareallowed toimport.4
Sanitary andphytosanitary regulations
7. Allagricultural imports require animport permit, issued bytheDepartment ofAgriculture
(forplants), andofVeterinary Services (foranimals), stipulating thephytosanitary conditions.
Onarrival, allproduce isinspected, andcertificates verified.
8. Cyprus hasapplied theprovisions oftheWTO Agreement ontheApplication ofSanitary and
Phytosanitary Measures (SPS) since 1January 1997. Cyprus isamember oftheEuropean Plant
Protection Organization (EPPO) andfollows thephytosanitary measures theorganization recommends.
Italsoapplies measures based ontheCodex Alimentarious but,given itsinsularity, itsregulations
aresometimes stricter thaninternational standards. Cyprus isfreefromDactulospharia vitifoliae so
prohibits imports ofgrapevine plants where thedisease exists. Imports ofplants andseeds aregoverned
bytheImportation ofProduce (Control) Orders (1957 to1994) andthePlant Prevention Disease Law.
Plants andseeds arealsosubject toquarantine regulations. Recently, ornanmental plants andseed
potatoes fromtheNetherlands wereintercepted forphytosanitary reasons. Importation ofseedpotatoes
fromcountries where thebacteria Glavibacter michiganese p.v.sepedonicum exists is,asrecommended
bytheEPPO guidelines, prohibited.
9. Import ofanimals andderivatives require animport permit fromtheDepartment ofVeterinary
Services, issued ifallconditions havebeensatisfied.5Thecountry oforigin forliveanimals andtheir
products mustbefreeofdiseases asspecified inListA.Liveanimals aresubject tospecified periods.6
10. Importedfoodstuffsmustbeaccompaniedbyahealthcertificateissuedbythecompetentauthority
inthecountry oforigin stating thattheyhavebeenproduced under hygienic conditions andarefitfor
human consumption. Imports arealsoinspected atthepoint ofentry ortheimporter 'swarehouse.
Cases where thecertificate hasbeenfalsified havebeendiscovered bytheinspection services, indicating
thatadditional border controls serve apractical purpose.
3Foralistofgoods subject toimport licensing, seeG/LIC/N/3/CYP/1, 27September 1995, Annex A.
4Thismeasure hasbeen notified under Article 5:1oftheWTO Agreement onTrade Related Investment
Measures (TRIMs). (G/TRIMS/N/1/CYP/2, 11November 1995)
5Thisregulationisbasedonthe"ImportationofAnimals,AnimalDerivatives,BiologicalProductsandAnimal
Feedingstuffs Order" issued according tothe"Contagious Diseases ofAnimals Law" (319/1987).
6Forexample, dogs andcats: 6months; horses: 21days; swine: 42days; poultry: 35days.Cyprus WT/TPR/S/25
Page 47
(ii) Domestic support
11. Under theWTO Agreement onAgriculture, Cyprus agreed toreduce levels ofdomestic support
toagriculturalproductsfromatotalof£C58.4millioninthebaseperiod(1986-1988)to£C50.6million
by2004.7Thetotalaggregate measure ofsupport (AMS) in1995amounted to£C36.5million, about
onesixthofagricultural value added (Table IV.2). Significant reductions havetaken place inthetotal
outlay onthefeedgrain subsidy, from£C17.9million ayearin1989-91 to£C11.3million in1995.
Administered prices, forwheat, barley, meatproducts andoliveoilaresetonthebasisofproduction
costs,calculatedbytheMinistryofAgriculture;accordingtotheauthorities,importpricesandconsumer
interests aretaken intoaccount. Thesubsidy toproduction isbased ontheadministered price minus
anexternal reference price, theimport price. Support tothefarmsector paidin1995, exempt from
reduction commitments, included anadditional £C58million spent onsupport services andarea
subsidies. Areasubsidies, in1995, included £C1.5million tocitrus growers and£C3.8million to
grape growers. Subsidies toinputs included asubsidy of£C22permetric tonne, toatotalof
£C938,000 in1995, forhay,inorder toencourage theuseofhayasanimal fodder inlieuofbarley
andother cereals.
Table IV.2
Domestic support, 1986-95
(£Cmillions)
Base period
1986-88 1990 1991 1992 1993 1994 1995
Cerealsan.a. 23.5 12.0 10.6 17.6 18.6 14.0
Wheat 0.7 ... ... ... ... ... 0.8
Barley 7.4 ... ... ... ... ... 10.6
Livestock 17.9 ... ... ... ... ... 11.4
CGC (operating expenses) n.a. 4.0 4.2 4.6 7.3 7.7 7.9
Vine productsb3.5 9.8 5.8 6.8 6.6 5.8 9.0
VPC (operating expenses) n.a. 0.9 0.8 0.6 0.7 0.9 1.0
Ground nuts 1.6 ... ... ... ... ... ...
Potatoesc... ... ... ... 3.0 ... 0.7
Olive oil 1.8 ... ... ... ... ... 1.7
Memorandum:
Total AMS: 58.4 36.5
n.a. Notapplicable.
... Notavailable.
a Includes subsidies tocereal growers andlivestock production (i.e.thefeedgrain subsidy).
b Thedatafor1990 to1995 alsoinclude areasubsidy payments, exempt from reduction commitments.
c Potatoes havenotbeenincluded inproducts subject toreduction commitments.
Note: Cyprus made itsreduction commitments onthebasis ofthedifference between future administered prices and
future external prices.
Source: Government ofCyprus.
7Schedule CVII, PartIV. However, itqualified thatitsreduction commitments were based onfuture
contemporaneous prices (i.e.thedifference between future administered prices andfuture external reference
prices).WT/TPR/S/25 Trade Policy Review
Page 48
12. Forcertain products, therearesixsemi-governmental organizations, established bylaw,which
aresolebuyers andsellers oftherespective crop(Chapter III(2)(vi)).8Themain objectives ofthese
organizations aretofacilitate product marketing andstabilize producer returns. Themarketing boards,
whichareresponsibleforexports,arecompulsoryforproducerswhonow,followinglegislativechanges,
comprise amajority oftheBoard.9TheCyprus Grain Commission, thesoleimporter ofgrains, and
theVineProducts Commission, aredirectly financed bytheGovernment; operating expenses ofthe
remaining marketing boards arefinanced byproducer levies.
13. Inaddition tothesemi-government organizations, thereisactive participation bycooperative
organizations inbothlocalandexport salesoffarmproduce.10Voluntary marketing associations or
cooperatives, established under theCooperatives Societies Law, andoverseen bytheDepartment of
Cooperative Development intheMinistry ofCommerce, areinvolved inlocalmarketing offreshfruit
andvegetables, accounting in1995 for20percentoflocal sales. Onecooperative isactive inthe
processing offruitandvegetables (preparation ofjuices andcanning) andaccounts for25percent
oflocalsalesandexports. Another cooperative society accounts for40and58percent,respectively
ofallexported citrus fruitandtablegrapes; closeto40percentofwineexports aresoldbycooperative
organizations.
14. Inthedomestic market, maximum profit margins aresetforlocally produced andimported
agricultural products (pork, chicken, eggs, potatoes andbeans) (Table III.7).
(iii) Export assistance
15. Export subsidies ofapproximately £C9million inthebaseperiod (1986-1988), mainly for
vegetables, fruitandwine, willbereduced progressively by24percentby2004 (Table IV.3).11
16. Thedirection ofagricultural policy isshifting asCyprus prepares foreventual entry intothe
EuropeanUnionand,exante,willapplytheprovisionsoftheCommonAgriculturalPolicy.In1994/95,
Cyprus increased subsidies tocertain products, suchascitrus andchanged thebasefrom production
toareacultivated.12
8TheCyprus Grain Commission, theVineProducts Commission, theCyprus potato marketing Board, Cyprus
Carrots andBeetroot Marketing Board, Cyprus Olive OilProducts Marketing Board andtheCyprus MilkIndustry
Organization.
9Private traders mayexport subject toapproval oftheBoard.
10There areseveral hundred registered cooperatives, including credit societies orbanks.
11Schedule CVII, PartIV,Section II.
12IMF (1996), p.3.Cyprus WT/TPR/S/25
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Table IV.3
Export subsidies, 1991-96
(Cyprus pounds andtons)
Uruguay Round Commitment Outlays
Product Base outlay
(£C'000)Base quantity
('000tons)1991 1992 1993 1994 1995 1996
Fruit 1,900 104 ... ... ... ... ... ...
Watermelons (£C'000)
(tons)... ... ... ... ... ... ... 26
849
Vegetables 3,900 144 ... ... ... ... ... ...
Vine products 1,360 15.4 ... ... ... ... ... ...
raisins (£C'000) ... ... 180 ... 64 35 169 227
bulkwine (£C'000)
(thousand litres)... ... ... ... 155
1,192874
6,723697
5,361675
5,193
grape must (£C'000)
(tons)... ... 107
5,350100
5,00071
2,210291
4,477324
4,985380
5,840
Table grapes (£C'000)
(tons)... ... ... ... ... ... ... 6
132
Groundnuts (£C'000)
(tons)... ... ... ... 100
320... 62*
195...
Pigmeat (£C'000)
(tons)600 1.0 ... ... ... 60
550... ...
Poultry 300 0.5 ... ... ... ... ... ...
Sheepmeat 250 0.25 ... ... ... ... ... ...
Beef 250 0.25 ... ... ... ... ... ...
Cheese 90 1.0 ... ... ... ... ... ...
Halloumi (£C'000)
(tons)... ... 100
1,024132
1,375201
1,623146
1,560357
1,86086
972
* Paidbased onGovernment decision taken in1993.
... Notavailable.
Note: Groundnuts (HS1202) arenotincluded intheexport subsidy commitments made byCyprus under theAgricultural Agreement.
Source: MilkIndustry Organization, Minstry ofCommerce, Annual Reports various; G/SCM/N/16/CYP, 19November 1996; and1994
Annual Report oftheMinistry ofAgriculture (inGreek).
(a) Cereals
17. Production, distribution, processing, storage, import andexport ofcereals (wheat, wheat flour
by-products, barley andcorn) areunder thecontrol oftheCyprus Grain Commission (CGC), which
isthesoleimporter ofgrains. TheCGC imports about 80percentofitsneeds forlocalconsumption;
Cyprus imports ninetimes asmuch wheat asitproduces domestically butlocally grown barley accounts
foronethirdoflocalconsumption.13Imports areeffected through international tender: buying-lots
arebetween 18,000 metic tonnes and25,000 metric tonnes pertender; participants mustbeonaregister
ofapproved cereal companies. Suppliers include Argentina, Canada, Romania, Ukraine, the
United Kingdom andtheUnited States. Although there arefewexports, private traders areallowed
toexport grains, withpermission from theCommission.
131990-94 averages.WT/TPR/S/25 Trade Policy Review
Page 50
18. TheCGC operates aprice support scheme forgrain producers andsellsgrain atlower than
world prices tosubsidize animal feedandthelivestock sector. TheCommission, directly financed
bytheGovernment, purchases alllocally produced cereals, wheat andbarley, atprices fixed annually
bytheCouncil ofMinisters. Itsellscereals tofourmillsandfeedmillsalsoatfixedprices; e.g.barley,
bought from theproducer at£C118.65 pertonne issoldtofeedmills at£C42pertonne. In1995,
support payments toproducers amounted to£C0.8million forwheat and£C10.6million forbarley;
thefeedgrain subsidy amounted to£C11.4million.14Wheat prices cover theoperating costs ofthe
Commission; feedcereals (corn andbarley), mostofwhich areimported dutyfree,aresoldatless
thanthepurchase price, withtheGovernment financing thedeficit. Operating expenses ofthe
Commission were £C7.8million in1995, upfrom £C4million in1990.15Notonlydoes the
Government effectively subsidize imports, butitappears thatprofits onwheat gotocross-subsidize
salesoffeedgrains.
19. Pasta (HS1902) maybeimported within thetariff quota (65,000 kg.)at16percentduty;
outside thequota, theadvalorem component ofthecompound dutyis49.5percentforEUsuppliers
and62.8percentform.f.n.suppliers.Importsin1996filledthequota;betweenJanuaryandJuly1996,
Cyprus imported £C100,000 worth ofpasta, mainly from EUsuppliers, andcollected £C100,000
ofduty.16
(b) Animal anddairy products
20. In1995,CyprusimportedUS$22millionofdairyproducts(HS04)andexportedUS$12million.
Imports ofmeat(HS02)were US$18 million, compared toUS$2 million ofexports.
21. Theaverage m.f.n. tariffs (using theadvalorem component only) formeatanddairy products
in1996 were31.1percentand22.5percent,respectively. Minimum 1996applied m.f.n. rateson
cheese average typically 12percentplus£C0.87/kg.; preferential rates were 8percentplus
£C0.57/kg17;maximum rateswere 30percentplus£C2/kg. and19.5percentplus£C1.30/kg.
Inthefirsthalfof1996, effective dutycollected onallcheese imports, mainly fromEUsources, was
24percent.18
22. Preferential tariffquotas apply tocertain agricultural imports fromtheEU.Certain processed
agricultural products (icecream, pasta andcheesepuffs) which were under import quota until1996
(Chapter III(2)(iii)) areunder tariffquota forEUsuppliers. Thelocalicecream manufacturing industry
receivesprotectionthroughatariffquotaonEUimportsof60,000kg.at30percentor£C0.15perkg.,
whichever ishigher (60percentifcontaining cocoa). Theout-of-quota rateforicecream from the
EUis65percentand£C300pertonne -acompound duty; them.f.n. rateis81.9percentand
£C602.60 pertonne. Dutyrelief onanumber ofimported inputs, e.g.chocolate, fruitpulpandmilk
powder, isavailable tothemanufacturing industry.
14Theproducer price forwheat wassetat£C141.50 pertonne, theexternal reference price used is
£C63.11/tonne; barley producers were paid £C118.65 pertonne, import (external reference price
£C38.43 tonne).
15Government ofCyprus.
16Data provided bytheDepartment ofCustoms andExcise.
17Cyprus hasbound itstariffs oncheese atcompound duties, 30percentplus£C2,033/tonne.
18Calculated bytheWTO Secretariat, based oncustoms data.Cyprus WT/TPR/S/25
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23. Afurther example ofapreferential tariffisbeef(meat ofbovine animals HS0201): according
tothe1996Customs Tariff, m.f.n. imports aredutiable at25percentplus£C2.70perkg.;imports
from theEUaredutiable at£C1.75perkg.andwithin thetariff quota of2,200 tonnes, dutiable at
areduced rateof£C0.50perkg.In1996, 941tonnes ofbeefwereimported. Cyprus alsomaintains
aglobal tariff quota of1,100 tonnes offrozen lamb, withduties at£C0.32/kg. forEUsuppliers and
£C0.50/kg. form.f.n. suppliers. 1996 imports amounted to394tonnes.
24. Local production andconsumption ofcows'milkisorganized bytheCyprus Milk Industry
Organization, founded in1969. Itadministers milkquotas, introduced in1990, forfarmers butdoes
notparticipate ininternational trade, which islefttoprivate traders. Itisthesolecollector ofcows'
milkwhich itdelivers toprocessors onadaily basis. Farmers arepaidafixed price (£C0.155/litre)
which issetaccording tocostofproduction plusamargin of£C0.018 tocover operating expenses
oftheOrganization. Surplus milkisprocessed attheOrganization 'sEdam cheese producing factory,
which in1995 showed anoperating loss.
25. Apolicy toreduce beefanddairy production hasbeenrecently introduced.19Thespecific goals
ofthispackage aretoreduce thenumber ofmilking cows andbeefproduction byanaverage of
20percent,stabilize totalmilkproduction ataround 130million litres(annually milkproduction rose
from100million litresin1991to135million in1995) andstabilize domestic Edam cheese production
at1,700 tonnes. Initial non-recurring costisestimated at£C3.5million andannual expenditure is
estimated at£C3.25million untiltheobjectives havebeenachieved.20
26. Onlypasteurized milkissubject toretail pricecontrols; according totheauthorities, theretail
price ofimported cheese inmost cases islower thanthatlocally produced evenwithhigher import
duties oncheese.21Exports ofHalloumi, thetraditional localcheese (which hastrademark protection
intheUnited States), aided bysubsidies, totalled £C937thousand between 1991 and1995.22
27. Subsidies arealsopaidontheexport ofpork(£C60,000 on550tonnes in1994, equivalent
toC£109pertonne).
(c) Fruit andvegetables
28. Citrus fruitproduction in1994(including oranges, lemons, grapefruit andmandarins) amounted
to150,000 metric tonnes, ofwhich roughly 80,000 tonnes wereexported 42,000 tonnes wereprocessed
and28,000 tonnes consumed locally (Chart IV.2).
19Decision oftheCouncil ofMinisters No.44.301, 22May 1996.
20G/AG/N/CYP/2, 11February 1997. These resource retirement andproduction-limiting measures are,in
accordance withArticle 6.5andAnnex 2,paragraph 10oftheWTO Agreement onAgriculture, exempt from
reduction commitments.
21G/STR/N/1/CYP, 17October 1995.
22Halloumicheesecarriesapreferentialdutyof19.5percentplus£C1.50/kg.andanm.f.n.dutyof30percent
plus£C2/kg.WT/TPR/S/25 Trade Policy Review
Page 52
29. Although Cyprus would appear tohaveacomparative advantage intheproduction offresh
fruitandvegetables, withexports in1995 equal to27.5percentofdomestic production, theaverage
1996m.f.n. tariffforfreshfruit(78.7 percent), freshvegetables (67.7 percent)andfruitandvegetable
preparations, including juices (67.6 percent), werewellabove theaverage foragricultural products,
of37.6percent. Corresponding preferential rates forthese products in1996 were 38percent,
40.6percent46.1percent(Table IV.1).23Forbothunprocessed andprocessed fresh fruitand
vegetables, compound tariffs apply frequently: non-advalorem tariffs cover between 40and60percent
oftarifflines. Seasonal tariffs, intheformofcompound duties, apply tovarious agricultural imports:
inthecaseoftomatoes, inthesummer months thespecific component increases byafactor offive
to£C1,036.7/tonne. Offseason, thespecific component applies onlybelow acertain minimum price.24
30. Various regional andlocalmarketing associations, established under theCooperatives Societies
lawandeligible forsubsidized financing, areinvolved inthelocalmarketing offreshfruitandvegetables
andin1995 accounted forabout 20percentofthelocalsupply. In1994, £C1.5million inincome
support, through areasubsidies, wasprovided tocitrus growers.
23Theaverages arecalculated ontheadvalorem duties andtheadvalorem component ofthecompound duties,
therefore, averages arebiased andlikely tobeunderestimated.
24Forexample, from January through April, thespecific ratedoesnotapply ifentry price is£C534/tonne
orhigher.Cyprus WT/TPR/S/25
Page 53
31. TheCyprus Potato Marketing Board, asemi-governmental organization, incorporated in1964,
regulatessupplyandthegrading,packing,transport,storage,andlocalandexportmarketingofpotatoes.
TheBoard operates aprice stabilization fund, financed through producer levies which alsocover the
operating costsoftheBoard. Production ofpotatoes, carrots andbeetroots isplanned afterestimating
export quantities.25Alarge proportion ofpotato production isexported, withexports effected by
theBoard.26In1996, Cyprus produced 210,000 tonnes ofpotatoes andexported 178,000 tonnes
(Chart IV.3).
32. Forgrapes, there aretwosemi-governmental bodies, theVineProducts Commission (VPC)
andtheTable Grapes Export Commission, toregulate andcontrol thevineandwineindustry. The
former, established in1965, tookoverfunctions previously performed bytheGovernment, which still
finances allofitsactivities. Thelatter, established in1991byLaw61/91, representing theGovernment
andgrowers andexporters oftablegrapes, isauthorized tocoordinate, regulate andcontrol theexport
oftablegrapes.
33. TheVineProducts Commission actsasanintervention body topurchase surplus production
ofgrapes intheformofrawgrape alcohol orraisins. Private export ofrawgrape alcohol iscurrently
prohibited; while private traders mayexport raisins, infact,theVPCaccounted forallraisin exports
between 1992and1994. TheCommission issues licences toproducers, administers subsidy schemes
25In1994, beetroots were exported at£C192.22 pertonne, andtheproducer received £C148.66.
26Private traders areallowed toexport potatoes tocertain destinations, subject toapproval oftheMarketing
Board.WT/TPR/S/25 Trade Policy Review
Page 54
andadvises theGovernment onpricing andotherpolicies. TheCommission recommends totheCouncil
ofMinisters minimum prices tobepaidtogrowers forwinegrapes, alcohol andraisins. Land devoted
toproducing grapes hasdeclined overtime; in1994, 19,300 hectares werecultivated forgrapes, table
grapes represent onlyasmall share ofthetotal. In1995, subsidies tovinegrowers amounted to
£C3.3million paidondeliveries tothewineries.27Direct export subsidies amounted to£C697,000
(£C0.13x5,361,154 anhydrous litres) onbulkwineand£C370,000 ongrape must. Theareasubsidy
forthecropyear1994was£C1.9million on106,310 acres (£C17.5peracre)andaspecial subsidy
tocompensate forlosses fromdrought of£C14peracre. Total subsidies tovineandvineproducts
in1995 amounted to£C8.5million.
34. Cyprus doesnotexport olive oilaslocalprices -producer prices andlocalselling prices are
fixedbytheOlive Products Marketing Board prices -areonaverage much higher thantheinternational
price.28
(3) Manufacturing
35. Manufacturing asashare ofCyprus 'GDP amounted to12.5percentandemployed 15.6per
centofthelabour force in1995 (Table I.1). Cyprus isasignificant netimporter ofmanufactures,
withimports some ninetimes more important thanexports. Furthermore domestically produced
manufactured exports fellfromtheequivalent ofUS$310million in1990toUS$268million in1995;
re-exports, primarily cigarettes andconsumer goods, overtook domestic exports in1992andcontinue
togrow.
36. Thefoodandclothing sectors account forclose tohalfofmanufacturing output. Theclose
tiesbetween thefarmsector andprocessing industries, andtheexistence ofprice controls onvarious
locally produced agricultural goods, suggest thatprotection forthefoodindustry ishighandthemarket
remains onewithafocus onimport competition (Chart IV.4).
37. Industry hashighlabour andproduction costs. Investment propensity islowandhasbeen
negativelyaffectedbylowprofitabilityprospects,whiletheinterestrateceilingkeepsbanksfromlending
tohigh-risk ventures. Thetraditional industries (clothing andfootwear) areonasecular decline as
measured bybothoutput andexports, butthere hasbeensome growth inthechemicals andrelated
businesses (Table IV.4). Theauthorities admit thathighimport protection hasfavoured theability
ofconsumer industries tosupply thedomestic market; asprotective barriers havebeenlowered demand
hasbegun toswitch toimports andtheincreased competition from customs union withtheEUwill
bring about further adjustment pressures. There issome government intervention forindustrial
restructuring -£C900,000 since 1992 (Chapter III(4)(i)) -andstateexpenditure orrevenue forgone
onindustrial estates andthefreetrade zonehasamounted tosome £C11million since the1960s.
27Thisrepresents, on88,115 tons, £C37pertonne. In1994 atonne ofwine grapes wasvalued at£C114.
28G/STR/N/1/CYP, 17October 1995. The1996 tariff onolive oilwas307percent.WT/TPR/S/25 Trade Policy Review
Page 56
Table IV.5
Trade andtariff dataforindustrial products
1996
HS DescriptionMFN
(%)Pref.
(%)Max.
(%)Unbound
(%of
Chapter)Non-ad
valorem
(%of
Chapter)Imports
1995
(US$ '000)Exports
1995
(US$ '000)
25-97 Industrial products 10.9 3.0 100.0 21.1 1.7 2,946,671.2 286,468.5
25 Salt;sulphur; earth &ston.; plastering
mat.; lime&cem.3.6 2.2 40.0 28.1 5.9 7,801.2 20,571.5
26 Ores, slagandash. 0.0 0.0 0.0 0.0 0.0 327.2 ...
27 Mineral fuels, oils&product oftheir
distillation;etc.1.9 0.3 13.0 80.8 0.0 287,214.6 8,621.8
28 Inorgn chem; compds. ofprec. met.,
radioact. elements etc.5.8 0.6 31.5 0.0 0.4 14,075.9 90.0
29 Organic chemicals. 7.1 0.7 18.5 0.0 0.9 37,510.9 59.3
30 Pharmaceutical products. 6.5 1.0 11.2 0.0 2.2 63,582.6 39,737.0
31 Fertilisers. 4.4 0.2 9.4 0.0 0.0 19,383.1 340.8
32 Tanning/dyeing extract; tannins &derivs.;
pigm. etc.9.0 3.0 16.5 26.1 0.0 17,579.7 1,627.3
33 Essential oils&resinoids; perf.,
cosmetic/toilet prep.16.4 8.5 50.0 20.7 0.0 38,683.5 4,898.2
34 Soap, organic surface-active agents,
washing prep., etc.11.5 4.9 50.2 46.2 0.0 14,213.8 1,929.8
35 Albuminoidal subs.; modified starches;
glues; enzymes.10.3 2.1 16.0 10.0 0.0 4,649.9 119.0
36 Explosives; pyrotechnic prod.; matches;
pyrop. alloy; etc.12.8 4.7 31.2 41.7 20.0 2,335.9 190.9
37 Photographic orcinematographic goods. 9.2 2.6 13.8 0.0 15.5 14,438.2 3.9
38 Miscellaneous chemical products. 5.9 0.8 19.2 0.7 6.8 32,538.9 5,800.1
39 Plastics andarticles thereof. 11.1 2.2 31.3 6.1 0.0 116,197.5 9,924.9
40 Rubber andarticles thereof. 6.7 2.2 30.0 4.4 0.0 39,116.5 1,629.5
41 Rawhides andskins (other thanfurskins)
andleather.2.6 0.1 6.9 14.5 0.0 13,798.7 4,071.6
42 Articles ofleather; saddlery/harness; travel
goods etc.18.2 10.0 34.0 66.3 0.0 7,149.3 463.1
43 Furskins andartificial fur;manufactures
thereof.7.0 3.1 21.6 11.4 0.0 1,298.4 11.0
44 Wood andarticles ofwood; wood charcoal. 8.8 2.5 54.0 21.7 8.8 61,329.7 589.8
45 Cork andarticles ofcork. 6.3 0.9 11.0 0.0 0.0 1,287.0 ...
46 Manufactures ofstraw, esparto/other
plaiting mat.; etc.8.8 3.8 20.2 63.6 0.0 1,414.6 19.7
47 Pulpofwood/of other fibrous cellulosic
mat.; waste etc.0.0 0.0 0.0 0.0 0.0 3,542.6 14.6
48 Paper &paperboard; art.ofpaper pulp,
paper/paperboard.9.9 1.5 40.0 22.6 0.0 105,292.8 13,704.5
49 Printed books, newspapers, pictures
&other product etc.5.9 2.3 14.8 42.9 0.0 35,668.3 1,662.2
50 Silk 9.2 3.4 13.1 0.0 0.0 1,440.1 ...
(Table IV.5 cont'd)Cyprus WT/TPR/S/25
Page 57
1996
HS DescriptionMFN
(%)Pref.
(%)Max.
(%)Unbound
(%of
Chapter)Non-ad
valorem
(%of
Chapter)Imports
1995
(US$ '000)Exports
1995
(US$ '000)
51 Wool, fine/coarse animal hair,
horsehair yarn&fabric.7.7 0.4 17.0 0.0 0.0 5,883.7 326.8
52 Cotton. 7.9 0.0 9.8 0.0 1.7 33,368.1 0.5
53 Other vegetable textile fibres; paper yarn
&woven fabric.6.0 1.6 12.5 0.0 0.0 1,658.3 96.2
54 Man-made filaments. 8.5 0.0 10.7 0.0 4.8 19,953.5 17.4
55 Man-made staple fibres. 9.2 0.0 10.7 0.0 2.8 92,368.3 189.0
56 Wadding, felt&nonwoven; yarns; twine,
cordage, etc.10.5 2.5 25.6 34.9 0.0 7,932.9 131.2
57 Carpets andother textile floor coverings. 19.9 8.1 25.5 62.3 0.0 9,265.8 ...
58 Special woven fab.; tufted tex.fab.; lace;
tapestries etc.15.9 3.0 60.0 38.8 0.0 5,334.9 124.9
59 Impregnated, coated, cover/laminated textile
fabric etc.9.6 1.6 18.9 0.0 0.0 5,325.3 20.5
60 Knitted orcrocheted fabrics. 11.4 0.0 11.6 0.0 0.0 14,434.9 11.8
61 Art.ofapparel &clothing access, knitted or
crocheted.49.9 16.3 60.0 100.0 0.0 30,672.7 20,614.5
62 Art.ofapparel &clothing access, not
knitted/crocheted.54.3 17.3 60.0 100.0 0.0 35,103.9 78,095.2
63 Other made uptextile articles; sets; worn
clothing etc.17.2 6.2 60.0 70.2 1.1 10,188.4 4,453.2
64 Footwear, gaiters andthelike; parts of
sucharticles.23.3 13.8 34.2 100.0 72.8 28,925.3 10,996.0
65 Headgear andparts thereof. 10.4 4.2 20.1 0.0 0.0 1,985.7 14.9
66 Umbrellas, walking-sticks, seat-sticks,
whips, etc.10.3 3.0 11.0 0.0 0.0 1,184.7 0.1
67 Prepr. feathers &down; arti.flower;
articles human hair.19.8 9.9 21.4 0.0 0.0 1,169.0 ...
68 Art.ofstone, plaster, cement, asbestos,
mica/sim. mat.6.8 2.4 30.0 0.0 0.0 25,080.0 680.7
69 Ceramic products. 10.1 2.7 30.0 18.9 0.0 40,062.7 260.3
70 Glass andglassware. 9.0 1.8 40.0 43.3 0.5 26,268.6 142.3
71 Natural/cultured pearls, prec. stones
&metals, coinetc.12.4 9.1 36.4 28.9 0.0 44,756.9 1,393.7
72 Ironandsteel. 4.7 0.2 8.5 0.0 0.0 89,863.2 1,484.7
73 Articles ofironorsteel. 9.9 1.6 32.0 0.8 0.8 61,443.6 3,345.8
74 Copper andarticles thereof. 5.9 1.4 23.0 0.0 1.1 11,625.2 65.4
75 Nickel andarticles thereof. 5.9 2.0 22.7 0.0 3.0 647.5 ...
76 Aluminium andarticles thereof. 14.2 2.4 32.0 33.0 1.1 43,425.0 3,339.8
78 Lead andarticles thereof. 5.3 0.9 9.5 0.0 0.0 1,376.8 ...
79 Zincandarticles thereof. 5.7 1.1 10.2 0.0 0.0 417.2 22.3
(Table IV.5 cont'd)WT/TPR/S/25 Trade Policy Review
Page 58
1996
HS DescriptionMFN
(%)Pref.
(%)Max.
(%)Unbound
(%of
Chapter)Non-ad
valorem
(%of
Chapter)Imports
1995
(US$ '000)Exports
1995
(US$ '000)
80 Tinandarticles thereof. 4.5 1.3 8.9 0.0 0.0 92.1 526.5
81 Other basemetals; cermets; articles
thereof.5.2 0.8 11.1 0.0 0.0 38.3 ...
82 Tool, implement, cutlery, spoon &fork,
ofbasemet.etc.6.1 0.9 18.3 0.0 0.0 15,948.3 101.9
83 Miscellaneous articles ofbasemetal. 7.8 2.7 30.0 0.0 1.4 18,059.8 1,378.5
84 Nuclear reactors, boilers, mchy. &mech.
appliance; parts.6.1 1.5 80.0 17.7 0.0 342,982.8 17,513.2
85 Electrical mchy. equip. parts thereof;
sound recorders etc.10.4 3.1 31.0 0.5 0.0 304,051.2 4,582.7
86 Railw./tramw. locom., rolling-stock &parts
thereof; etc.3.9 0.1 6.1 0.0 0.0 144.5 ...
87 Vehicles o/t.railw./tramw. roll.-stock, pts.
&accessories.16.1 4.5 34.0 100.0 0.5 370,871.5 87.0
88 Aircraft, spacecraft, andparts thereof. 5.6 1.6 13.7 37.1 0.0 2,755.9 ...
89 Ships, boats andfloating structures. 8.2 4.3 22.1 55.2 0.0 15,311.4 25.0
90 Optical, photo, cine, meas., checking,
precision, etc.7.1 1.7 19.5 0.0 0.0 56,887.9 166.6
91 Clocks andwatches andparts thereof. 17.8 9.3 36.4 10.4 0.0 12,976.5 2.8
92 Musical instruments; parts andaccess.
ofsucharticles.9.6 3.4 11.4 0.0 0.0 2,525.9 4.0
93 Arms andammunition; parts and
accessories thereof.14.6 7.9 45.0 53.8 7.1 125,670.9 2,258.9
94 Furniture; bedding, mattress, matt.
support, cushions etc.13.8 7.3 40.0 94.1 0.0 39,739.4 15,621.5
95 Toys, games &sports requisites; parts
&access thereof.14.6 6.8 33.0 17.9 1.2 30,357.4 251.8
96 Miscellaneous manufactured articles. 11.1 3.9 34.4 15.4 7.1 14,960.8 1,862.4
97 Works ofart,collectors pieces andantiques. 10.6 7.1 100.0 64.3 0.0 1,704.0 178.2
Note: Based onHSten-digit level data, excluding petroleum products (i.eHS2709-2710).
Source: WTO Secretariat estimates based ondatareceived from Government ofCyprus.
40. Clothing imports from m.f.n suppliers bearanaverage dutyofover50percent, anda
maximum of60;fibres andfabrics carry much lower duties. Non-MFA quotas andminimum import
prices wereabolished witheffect from1January 1996.29Attheendof1995, Cyprus notified theWTO
thatitwasintegrating 16.4percentofits1990textiles andclothing imports intoGATT 1994.30Ithas
retained therighttousetheprovisions ofthetransitional safeguard mechanism onproducts covered
29G/TMB/N/69/Add.1, 9February 1996.
30G/TMB/N/137, 16February 1996.Cyprus WT/TPR/S/25
Page 59
intheAnnex oftheAgreement onTextiles andClothing.31Tariff quotas forEUsuppliers (under
"safeguard" measures, Table III.5) apply oncertain products, including terrytowelling, panty hose
andstockings, aswellasonfootwear, which isalsosubject toliberal useofcompound duties.
41. Thechemicalsindustryhaslowtariffprotection(e.g.pharmaceuticalproductscarriedanaverage
m.f.n. tariff in1996of6.5percent)andtariffs arebound. AscanbeseenfromTable AI.1, exports
ofchemicals havegrown rapidly during the1990s, accounting in1995for10.9percentofdomestic
exports. Themetals andminerals industry alsoexhibits lowtariffbarriers andahighlevelofbindings.
Production isprimarily aimed atsatisfying local needs, although exports ofcement represented
3.3percentofdomestic exports in1995.
(4) Services
42. Thetertiary orservices sector inCyprus dominates current economic activity. Over60percent
ofGDP(includinggovernmentservices)derivesfromservicesactivitiesandthevariousbranchesemploy
around 64percentofthetotalgainfully employed population (Chart IV.5). Non-factor (commercial)
service receipts farexceed merchandise exports; ledbytourism receipts, these amounted tonearly
US$3 billion in1995, compared toUS$1.2 billion from merchandise exports (Table I.3).
43. Under theGeneral Agreement onTrade inServices (GATS), Cyprus scheduled specific
commitmentsinprofessionalandfinancialservices.Thecommitmentsinprofessionalandotherbusiness
services, including computer services generally accord national treatment; employment offoreigners
("presence ofnatural persons") issubject totherelevant legislation. Forsomeservices, (e.g.taxagents)
aneconomic needs testmayberequired (forfurther details seeGATS/SC/25).
(i) Tourism
44. Tourism generates 40percentofCyprus 'current account receipts and54percentofinvisibles
receipts (US$ 1.8billion in1995), more than20percentofGDP andemploys onefourth ofCyprus '
labour force.
45. InJuly1996, theGovernment announced athree-year plantoupgrade thetourism industry,
including interest subsidies forimprovements inexisting establishments, encouragement ofinvestment
ininfrastructure, andexemptions fromimport duties onhotelequipment forrenovation.32Since 1993,
a3percentfeelevied onhotelandrestaurant bills, tofinance theCyprus Tourism Organization (CTO)
hasbeensuspended. Tocompensate, theGovernment makes direct transfers totheCTO, which
amounted to£C12.5million in1994 and£C10.8million in1995.
46. Thecurrent tourism policy regarding foreign investment provides foramaximum of49percent
participation inhotels, although 100percentmaybeallowed inprojects suchasgolfcourses andtheme
parks. However, theceiling onforeign equity intourism andtravel agencies, aswellasrestaurants,
remains subject toa49percentlimit.
31G/TMB/N/146, 6March 1996.
32Budget speech 1996.Cyprus WT/TPR/S/25
Page 61
50. Offshore enterprises without alocaloffice arenotallowed toemploy expatriate stafforenjoy
duty- orVAT-free privileges. Legislation tomake money laundering acriminal offence wasenacted
inApril 1996 andinvestigative units havebeensetup.Thelawstipulates thatreported suspicions
ofmoney laundering cannot betreated asabreach ofconfidentiality andgives courts thepower to
order thedisclosure ofinformation. Banks arerequired toappoint compliance officers; failure to
complywithsurveillancemeasures,customeridentificationandinternalcontrolprocedures,ispunishable.
51. Ofthe"offshore enterprises" established since1976, some1,180 maintain staffed offices located
onbusiness premises ontheisland andopen during office hours. Theremainder operate from the
offices oftheiraccounts orlawyers, whoprovide administrative services. Thetotalnumber ofstaff
employed bytheoffshore sector isintheorder of7,440 (5,200 foreigners and2,200 Cypriots). Foreign
exchange receipts from "offshore businesses" amounted toanestimated £C170million in1996.
(iii) Financial services
52. FinancialliberalizationisoneofthecornerstonesinCyprus'policyreformtowardsharmonization
ofitsinstitutional framework withtheEuropean Union.34Inpreparation, financial supervision of
institutions isbeing strengthened through legislation.
53. AdraftBanking Law-expected tobeenacted during 1997-based ontheEU'sFirstandSecond
Banking Directive, enhances theCentral Bank'ssupervisory authority overcommercial banks and
provides forthecreation ofadeposit insurance scheme. ThedraftLawprovides thatthepolicy with
respect tothegranting ofbanking licences isdetermined bytheCentral Bank afterconsultation with
theMinister ofFinance. Indeciding whether tograntalicence, theCentral Bankmaytaketheeconomic
needforthebanking services intoaccount, aiming toensure anadequate range ofchoice tothepublic
while keeping thebanking system profitable andsound.
(a) Banking
54. Thebanking system inCyprus consists ofonshore banks, specialized financial institutions,
offshore banks andcooperative credit institutions. Atpresent, thesector includes eight commercial
banks, ofwhich twoarebranches offoreign banks; twolocally incorporated banks aresubsidiaries
ofmajor banks intheUnited Kingdom andGreece.35Inaddition tocommercial banks, there aretwo
government controlled financial institutions, theCyprus Development Bank andtheHousing Finance
Corporation, aswellas359cooperative credit andsavings institutions; these latter control about
35percentoftotaldomestic deposits. Concentration inthebanking sector isrelatively high: thetwo
largest commercial banks control twothirds oftotaldeposits; ifthecooperative banks areincluded,
theformers 'market share isreduced to43percent.
55. TheCentral Banksupervises bothonshore andoffshore banks. Minimum reserve requirements
fordomestic banks arecurrently fixed at7percentofdeposit liabilities. Thecapital adequacy ratio,
inaccordance withguidelines issued bytheBasle Committee onBanking Supervision, hasbeenfixed
at8percent; forholding companies, theratioiscalculated onaconsolidated basis.36Guidelines on
concentration oflending orinvestments alsofollow theBasle Committee 'srecommendations.
34TheTreaty onEuropean Union provides forunrestricted capital movements andpayments transfers.
35Theshare oftotal banking assets which were foreign-owned was11.2 percentin1995.
36Thecapital adequacy ratio istheratio ofthecapital basetotheweighted riskassets.WT/TPR/S/25 Trade Policy Review
Page 62
56. Under theBanking Business (Temporary Restrictions) Law(1939) licensing requirements for
foreign banks arethesame asthose fordomestic banks. Foreign banks mayestablish bothbranches
andsubsidiaries. Thesame capital-asset andmaximum lending limits apply toforeign anddomestic-
owned banks. Branches offoreign-owned banks require nominimum capital; locally incorporated
banks, whether foreign ordomestic, require aminimum paid-up capital of£C3million. Nodistinction
ismade between domestic andforeign banks interms oftheservices theycanprovide, ortheirsources
offunds; foreign banks mayparticipate onaparwithdomestic banks inexport credit schemes.
57. Locally-incorporated commercial (onshore) banks areauthorized dealers inforeign exchange.
Since mid-1994, regulations regarding deposits offoreign exchange havebeenloosened; banks no
longer arerequired toholdforeign exchange inliquid assets tothefullextent oftheirforeign exchange
deposit liabilities. Current guidelines onforeign exchange exposure limittheuncovered position to
15percentofthebank'scapital base. Authorized dealers areallowed tolendtonon-residents inforeign
currency upto20percentoftheirforeign exchange deposits; theymayalsogrant certain short-term
credit facilities inforeign currency toresidents, without reference totheCentral Bank. Other loans
orcredits inforeign currency maybegranted toresidents withprior approval oftheCentral Bank.
58. Cooperativebanks(cooperativecreditsocietiesandcooperativesavingsbanks)enjoyaprivileged
taxstatus, being exempt fromthe25percentcorporate income taxlevied oncommercial banks. Outside
thedirect prudential control oftheCentral Bank, cooperative banks arenotsubject tominimum capital
requirements noraretheliquidity ratioguidelines enforced. Operating under theCooperative Societies
Law(1987), cooperatives takedeposits andmake loans, mainly residential mortgages, toindividuals.
They dealonlyinlocalcurrency andarenotpermitted todobusiness inforeign currency. TheCentral
Cooperative Bankactsasaclearing house forcooperatives. Inthemid-Eighties, theCentral Cooperative
Bank wasplaced under thesupervision oftheCentral Bank ofCyprus.37TheCommissioner of
Cooperative Societies, whoistheheadoftheDepartment ofCooperative Development intheMinistry
ofCommerce, Industry andTourism, isincharge ofsupervising cooperatives: thisinvolves auditing
thebalance sheets onanannual basisandmonitoring liquidity onadailybasis. Cooperatives arealso
akeyintermediary between theGovernment andfarmers, extending loans tolocalfarmers withthe
funds provided bytheGovernment.
59. Aswiththecommercial banking sector, market share isconcentrated inasmall number of
cooperative banks; in1993, 20cooperatives accounted for58.2percentoftheloans inthesector.
60. Among specialized financial institutions, theCyprus Development Bank, owned bythe
Government withshares heldbytheEuropean Investment Bank (EIB), provides long-term financing
fordevelopment projects andtheHousing Finance Corporation low-interest loans forhousing.
61. Cyprus alsohasanumber of"offshore" banks withthefirst"offshore" banking business licence
granted in1982; atpresent thereare30offshore banking unitsandeightrepresentative offices. Total
assets of"offshore" banks wereUS$2.3 billion in1995. "Offshore" banks maydealwithresidents
inspecific cases, buttheresident mustobtain exchange control permission. Toensure thatprudent
policies arefollowed, theCentral Bankmonitors theoperations of"offshore" banks through bothon-site
inspections andreviews ofperiodic reports (e.g.monthly balance sheets andsemi-annual profit and
lossstatements) bythebanks.
37TheCentral Bank ofCooperatives isnowtreated asacommercial bank following theenactment ofLaw22
of1985 andLaw68of1987.Cyprus WT/TPR/S/25
Page 63
(b) Insurance
62. Cyprus made commitments, according national treatment, inboththelifeandnon-life insurance
sectors during theUruguay Round negotiations.38Allforms ofinsurance activities areopentoforeign
suppliers; thesector hasbeen further liberalized andisopen toforeign investment withupto
100percentforeign equity permitted under the1997 investment regime.
63. AllrisksintheRepublic mustbeinsured bylicensed insurance companies inaccordance with
theInsurance Companies Laws of1984and1990andtheInsurance Companies Regulations of1995.39
Third-partymotorvehicleinsurance(coveringdeath,bodilyinjuryandpropertydamagetothirdpersons)
iscompulsory bylaw.
64. Premiums forthese insurance activities areregulated. They aresetbyInsurance Companies
Regulations enacted byParliament andrepresent themaximum basic annual rates thatinsurance
companies maycharge. IntheRegulations anumber ofadverse features areincluded, which justify
anincrease inthebasic premiums withacorresponding rateofloading.
65. TheInsurance Supervisory Authority, within theMinistry ofFinance, licenses insurance
companies.AuthorizationbytheSuperintendentofInsuranceisaccordedasdefinedwithintheconditions
oftheInsurance Act;adequate reinsurance isacondition forgranting alicence. Solvency assessment
isakeycriteria intheapproval process; assets mustexceed liabilities bythegreater of£C100,000
or16percentofpremium income inthemostrecent fiscal year. Foreign insurance companies may
offertheirservices byincorporating locally orthrough theestablishment ofabranch oragency. Inorder
toestablish abranch oragency inCyprus, theforeign insurer musthavebeenauthorized tooperate
initshome country.
66. Lifeandmotor vehicle insurance provide thebulkofincome frominsurance activities. In1995,
gross premium income from allinsurance amounted to£C146.7 million, equivalent to3.8percent
ofGDP; 17percentofthiswasgenerated byforeign companies.
67. Actions tobeundertaken intheinsurance sector, withaviewtowards harmonization withEU
policy, include theadoption ofequivalent solvency margins andshare capital bytheendof1998 and
theabolition offixed premiums onthird-party motor vehicle liability.
(c) Securities trading
68. Theofficial stock exchange wasopened in1996, withaview inparttoattracting foreign
investors. Itoperates under lawsandregulations modeled along EUlines; insider trading isconsidered
acriminal offence. Upto49percentoftheissued capital ofpublic (listed) companies outside the
banking sector maybeowned bynon-residents. Forpublic companies inthebanking sector upto
15percentoftheissued capital maybeowned bynon-resients; ofthis,6percentmaybeowned
byforeign non-residents andtheother 9percentbyCypriot non-residents.40Investment companies,
whose shares aretraded ontheexchange, areallowed toinvest upto20percentoftheirportfolio
overseas. Offshore funds haverecently beenallowed tolistonthestock exchange.
38GATS/SC/25, 15April 1994.
39Thislegal requirement doesnotapply tointernational marine, airandtransit insurance: these risks may
beinsured intheinternational market byanyforeign insurance company.
40These percentages maybeexcluded withCentral Bank permission.WT/TPR/S/25 Trade Policy Review
Page 64
(iv) Transportation
69. Cyprus hasbeenasignatory totheCustoms Convention ontheInternational Transport ofGoods
Under Cover ofT.I.R. Carnets (T.I.R. Convention) since 1977. Transport hasbeenasubject of
discussion within thecontext ofthe"structured Dialogue" withtheEuropean Union; draftlegislation
isunder preparation towards adoption ofEUDirectives.
(a) Airtransport
70. Larnaca airport, builtin1975aftertheclosure ofNicosia airport, hasacapacity of3.5million
passengers; aproject toexpand capacity to12million by2026 isunder way. Papos International
Airport, operating since1983withacapacity of1.2million passengers, willbeexpanded to2.7million
capacity by2003. TheAirTransport Licensing Authority istheregulatory body, issuing licences to
airlines inaccordance withairservices agreements. Theflagcarrier, Cyprus Airways, which is
82percentgovernment owned, hasavirtual monopoly onairtransport, although thishasrecently
beensomewhat loosened. Thecostoftransport tends torepresent thelargest share oftheprice of
apackage tourtoCyprus and,according tothehotelindustry, restricted practices byCyprus Airways
havecostlostbookings forthehotelindustry. Charter flights carry themajority oftourists; in1996,
themonopoly oncharter flights from Russia andcertain airports intheUnited Kingdom waslifted.
(b) Maritime transport
71. Maritime activities aremainly governed bytheMerchant Shipping Laws of1963, asamended.
Maritime policy isaimed atproviding incentives, modern infrastructure andappropriate legislation,
responsive totheneeds oftheinternational maritime community.41
72. Thecontribution ofshipping tothedomestic economy isestimated at£C50million, equivalent
toalittleover1percentofGDP. Responsibility forthedevelopment ofmaritime activities lieswith
theDepartment ofMerchant Shipping within theMinistry ofCommunications andWorks. The
Department 'sactivities include, interalia,registration ofships, administration andenforcement of
merchant shipping legislation, control ofshipping andenforcement ofinternational conventions.42
73. Seaborne traffic isserved byafullymodernized portsystem comprising themulti-purpose
ports ofLimassol andLarnaca (both free-trade zones), theindustrial portofVassiliko andthree
specialized oilterminals. Thetwomain ports, which handle thelion'sshare ofseaborne cargo, act
astransit andtransshipment centres fortheregion. Inthelastfewyears, over5,000 ships have called
atCypriot ports eachyear, while thetotalcargo handled amounts tomore than8million tonnes, about
halfofwhich istransit trade. Transit cargo receives special treatment, withberthing priority andspecial
ratesforlongtermstorage.
74. Cyprus maintains theworld 'sfourth largest openregistry. Attheendof1996, gross tonnage
ofthemerchant fleetamounted to25million gross tonnes.
41Asisalready thecaseforother sectors oftheeconomy, an"economic needs" testmaybeintroduced in
theshipping industry.
42CyprushasratifiedthemajorinternationalconventionsonmaritimesafetyandisapartytotheUNConvention
ontheLawoftheSea.Cyprus WT/TPR/S/25
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75. Inorder toregister aship, theowner must form aCyprus Shipping Company andapply to
theRegistrar ofCyprus Ships intheMinistry using locallegalservices. Vessels carrying thenational
flagmust bemajority-owned byCypriots through local incorporation; alternatively, non-resident
(offshore) status maybegranted ifallshares areheldbynon-residents.43Cypriot shipping companies
areexempt fromincome tax;offshore companies pay4.25percent. Close to100offshore enterprises
areinvolved inshipping-related services: e.g.shipmanagement andbroking andmarine insurance.
76. Parallel-in registration offoreign flagvessels, andparallel-out ofCypriot flagvessels, is
permitted. Parallel (bareboat) registration isadmissible withStates thathavelegislation comparable
toCypriotlegislation.Surveyingandmeasuringmaybecarriedoutbyanyofthenumerousclassification
societies recognized byCyprus.
77. Incentives toregister ships inCyprus include lowregistration feesandacompletely tax-free
status forshipping companies.44Thisincludes exemption from taxonprofits anddividends, capital
gains taxonthesaleofshiporshares, income taxoncrew wages, stamp dutyondeeds andestate
duty. Domestic shipping companies areeligible forpreferential taxtreatment through a30percent
reduction oftheannual tonnage taxiftheships areoperated byaCypriot shipmanagement company.
Additional refunds ofthistaxarepaidrelative tolength ofemployment ofCypriot nationals onthe
vessels.
78. While themerchant shipping lawsprovide that15percentofthecrewofaCypriot shipmust
beofCypriot origin, sincetherearenotenough localcandidates, other nationalities, whose "certificates
ofcompetence" arerecognized bytheGovernment, maybeemployed onlocally registered ships.
Agreements formutual recognition ofcertificates ofcompetence havebeenconcluded with47countries.
These agreements notonlysetstandards ofemployment butalsoinclude provisions forregulating
taxation, avoiding double taxation, andprotecting owners from delays inports.
79. While Cyprus isnotamember oftheUNCTAD Liner Code, itdoes maintain bilateral
cargo-sharing agreements withtwocountries, Syria andSriLanka; however, according tothe
Government thecargo allocation provisions havenever beenimplemented andtheprovisions willbe
abolished.
80. Cyprus limits cabotage, inland trucking andportservices tonationals, although theauthorities
mayapprove foreign participation ofupto49percentonacase-by-case basis. (Under thenew
investment regime, provided thatcertain prerequisites havebeenfulfilled, foreign participation ofup
to100percentmaybeapproved inthewholesale andretailtradesector.) Auxiliary services tomaritime
transportarenotasamatterofprincipleopentoforeignsuppliers,butdepotservices,freightforwarding,
andstorage andwarehousing services maybeoffered within theoffshore sector.45Anumber of
foreign-owned "offshore" companies areinvolved inauxiliary services, suchasshipmanagement,
chartering andunderwriting. Resident-owned firms actasforwarding agents, chandlers, surveyors,
andmanage warehousing facilities andperform shiprepair andsalvage operations.
81. Thestate-controlled Cyprus PortAuthority isthemonopoly provider ofanumber ofport
services, pilotage, towing, navigation aids,andberthing; provisioning, fuelling andemergency repair
services areprovided bytheprivate sector, subject toapproval bytheCyprus PortAuthority.
43Cypriots maynotownforeign flagvessels.
44Fees andTaxing Provisions 1992.
45S/NGMTS/W/2/Add.8, 6February 1995.WT/TPR/S/25 Trade Policy Review
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82. Following complaints bytheCyprus Chamber ofCommerce andIndustry, theCommission
fortheProtection ofCompetition isinvestigating a30percentriseinfreight charges from
1January 1996byfourlocalshipping companies which arebelieved tohandle 60percentoftheisland 's
export trade.46Legislation adopting EUCouncil Regulations 4056/86 onmaritime conferences and
870/95 onconsortia isexpected tobeenacted in1997.
(v) Telecommunications
83. The provision oftelecommunications services inCyprus iscurrently under a
government-controlled monopoly; inaddition, incontrast withEUdirectives andthetrend towards
privatization inmany telecommunications markets, theoperator exercises anumber ofregulatory
functions.
84. Under thejurisdiction oftheMinistry ofCommunications andWorks, theCyprus
Telecommunications Authority, established in1954under theTelecommunications Services Law, has
soleresponsibility fortheinstallation, operation andmaintenance oftelecommunications networks as
wellastheprovision ofalltelecommunications services. While theMinistry isdirectly responsible
forspectrum allocation, theAuthority setsprices, spectrum allocation andtypeapproval. Acosting
system tofacilitate cost-oriented pricing, which isoneoftheAuthority 'smainconsiderations insetting
prices, isbeing developed.
85. While Cyprus hasapenetration rateoftelephone linesabove theOECD average, partly as
aresult oflowlinerental charges, itsrevenues fromnon-voice (value added) services aresignificantly
below theOECD average; 5percentcompared to30percent. HalfoftheCyprus Telecommunications
Authority 'srevenue isderived frominternational telephone services; onaverage itcoststwice asmuch
tocallfrom Cyprus thantoCyprus; longdistance rates areusedtosubsidize verylowdomestic
charges.47AlltariffsforserviceshavetobeapprovedbytheHouseofRepresentatives,asdoinvestments
bythissemi-governmental organization, through thebudget approval process which canhamper the
flexibility oftheoperator torespond tochanging market conditions. Since June1989, provision,
installation andmaintenance oftelecommunications terminal equipment hasbeenliberalized andthe
Authority haswithdrawn fromterminal equipment sales. Terminal equipment mustbetype-approved
bytheAuthority, which alsocarries outequipment testing involving mainly access testing forinterface
requirements.
46EIU(1996) firstquarter.
47Cyprus Development Bank (1995).Cyprus WT/TPR/S/25
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REFERENCES
Central Bank ofCyprus (1995), Annual Report.
Central Bank ofCyprus (1996), Cyprus, ACentre forInternational Business.
Cyprus Development Bank (1995), Telecommunications Policy Review, December.
Economist Intelligence Unit, Cyprus: Country Report andCountry Profiles (various issues).
IMF(1996), Cyprus: Background Paper, 2January, Washington D.C.
Nicolaides, P.(1996), "Harmonization: WhyCyprus should playthesmart game", Hermes Cyprus
International, Summer, p.85.
Republic ofCyprus, Planning Bureau, Strategic Development Plan1994 to1998.
Republic ofCyprus (1995), Annual Report, Commission fortheProtection ofCompetition.
Republic ofCyprus (1995), Cyprus: AGuide toShipRegistration, Nicosia.
Republic ofCyprus (1995), Cyprus: TheWaytoFullEUMembership.
Republic ofCyprus (1996), Cyprus Diary 1995, June.
Trade Policy Review -European Union.