RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/80
19 January 2001
(01-0082)
Trade Policy Review Body
TRADE POLICY REVIEW
MADAGASCAR
Report by the Secretariat
This report, prepared for the  Trade Policy Review of Madagascar, 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 the Government of Madagascar on its
trade policies and practices.
Any technical questions arising from this report may be addressed to
Mr. J. Degbelo (tel. 739.55.83) or Mr. C. Boonekamp (tel. 739.52.26).
Document WT/TPR/G/80 contains the policy statement submitted by the
Government of Madagascar.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Madagascar.Madagascar WT/TPR/S/80
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS vii
(1) T HE ECONOMIC ENVIRONMENT vii
(2) I NSTITUTIONAL FRAMEWORK vii
(3) T RADE POLICY INSTRUMENTS viii
(4) S ECTORAL TRADE POLICY DEVELOPMENTS ix
(5) T RADE POLICIES AND TRADING PARTNERS x
I. ECONOMIC ENVIRONMENT 1
(1) M AJOR FEATURES OF THE ECONOMY 1
(2) E CONOMIC DEVELOPMENTS 3
(3) T RADE PERFORMANCE 4
(i) Trade in goods 5(ii) Trade in services 8
(4) S
AVINGS AND INVESTMENT 9
(5) O UTLOOK 9
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 10
(1) I NSTITUTIONAL FRAMEWORK 10
(2) F ORMULATION AND IMPLEMENTATION OF POLICIES 10
(3) P OLICY OBJECTIVES 11
(4) L AWS AND REGULATIONS 12
(i) Trade legislation 12(ii) Investment regime 12
(iii) Mining 13
(iv) Export-processing zones 13
(5) T
RADE AND INVESTMENT AGREEMENTS AND ARRANGEMENTS 14
(i) Multilateral agreements 14(ii) Trade-related assistance 15
(iii) Regional agreements 20
(iv) Other trade agreements or arrangements 22(v) Trade disputes and consultations 23(vi) Investment agreements or arrangements 23
III. TRADE POLICIES BY MEASURE 24
(1) I
NTRODUCTION 24
(2) M EASURES DIRECTLY AFFECTING IMPORTS 24
(i) Registration and documentation 24(ii) Inspection, customs valuation, and customs clearance 25(iii) Tariffs 26(iv) Rules of origin 30(v) Anti-dumping, countervailing and safeguard measures 30
(vi) Prohibitions, quantitative restrictions and licensing 30
(vii) Standards and other technical requirements 30(viii) Government procurement 31WT/TPR/S/80 Trade Policy Review
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Page
(ix) Local content requirement 32
(3) M EASURES DIRECTLY AFFECTING EXPORTS 32
(i) Regulations 32(ii) Export duties and taxes 33(iii) Prohibitions, licensing and other measures restricting exports 33
(iv) Export subsidies 33
(v) Duty and tax concessions 33(vi) Export promotion, financing, and assistance 34
(4) M
EASURES AFFECTING PRODUCTION AND TRADE 34
(i) State trading, public enterprises, and privatization 34
(ii) Subsidies and other forms of production assistance 35
(iii) Price regulation and competition policy 35(iv) Measures for the protection of intellectual property rights 35
IV. TRADE POLICIES BY SECTOR 37
(1) I
NTRODUCTION 37
(2) A GRICULTURE AND RELATED ACTIVITIES 37
(i) General 37
(ii) Policy by product category 39
(3) M INING AND ENERGY 43
(i) Mining 43(ii) Energy 44
(4) M
ANUFACTURING 46
(5) S ERVICES 46
(i) Financial services 46(ii) Tourism, restaurant, and hotels 50(iii) Telecommunications 51(iv) Transportation 52
BIBLIOGRAPHY 55
APPENDIX TABLES 57
CHARTS
I ECONOMIC ENVIRONMENT
I.1 Madagascar's real GDP growth, 1995-2000 2
I.2 Imports by origin, 1990 and 1999 5I.3 Imports by major commodity group, 1990 and 1999 6I.4 Exports by destination, 1990 and 1999 7I.5 Exports by major commodity group, 1990 and 1999 8
III. TRADE POLICIES BY MEASURE
III.1 Applied MFN tariff rates, by HS section, 2000 27
III.2 Applied MFN tariff distribution, 2000 28III.3 Tariff escalation by 2-digit ISIC division, 2000 29Madagascar WT/TPR/S/80
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Page
IV. TRADE POLICIES BY SECTOR
IV.1 Tariff averages in the manufacturing sector, ISIC (Rev.2), 2000 47
IV.2 Tourism service earnings in Madagascar, 1991-99 50
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Social and economic indicators 3
I.2 Inflation rate, 1995-99 4I.3 Balance of payments, 1995-99 5I.4 Imports by major commodity group, 1990-99 6I.5 Exports by major commodity group, 1990-99 7I.6 Services account, 1995-99 8
I.7 Consumption, investment, and savings, 1995-99 9
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVESII.1 Trade-related laws 12
II.2 Firms and investment in export-processing zones, 1994-99 14
II.3 Selected notifications by Madagascar 15
III. TRADE POLICIES BY MEASUREIII.1 Percentage of total tax revenue derived from import taxes, 1990-99 24
III.2 Main features of Madagascar's MFN tariff, 2000 28
III.3 Industrial property rights (since 1994) 36
IV. TRADE POLICIES BY SECTORIV.1 Exports of selected agricultural products, 1995-99 39
IV.2 Mining production, 1995-98 43
IV.3 Mineral exports, 1995-98 43IV.4 Summary of Madagascar's specific commitments in services 48IV.5 Tourism in Madagascar, 1992-99 51
APPENDIX TABLES
IV. TRADE POLICIES BY SECTOR
AIV.1 Applied MFN tariff averages, including the import tax, by ISIC (Rev.2), 2000 59Madagascar WT/TPR/S/80
Page vii
SUMMARY OBSERVATIONS
(1) THE ECONOMIC ENVIRONMENT
1. Madagascar is an island republic
located in the Indian Ocean, off the east coast
of Africa. With a GNP per capita of US$260 in1998, Madagascar is a least developed
country.  Subsequent to independence in 1960,
Madagascar followed a socialist model of
economic development.  The failure of this
strategy has led to the implementation of aseries of economic reforms (supported by
international financial institutions) since 1982.
The pace of reform has accelerated since
1998.
2. The reforms have contributed to GDP
growth of over 3.5% a year over the past few
years, and higher growth rates are forecast
through 2001.  Inflation has been reduced
from an annual rate of 45% in 1995 to 7.6% in
1999, but the current account situation
remains difficult, with deficits close to
SDR 200 million a year since 1995.Madagascar is heavily indebted and its debt
service limits financing for development.
Madagascar is in line to receive debt relief
under the IMF and World Bank Heavily
Indebted Poor Countries (HIPC) Initiative.
3. Agriculture (including fishing,
livestock, and forestry) contributes some 30%
to Madagascar's GDP, and accounts for about
40% of the value of merchandise exports.
Climatic conditions have made agriculturalproduction unpredictable;  they have
contributed to fluctuations of export earnings,
and to food shortages, in recent years.
Manufacturing, dominated by light industries
(e.g. food processing, textiles, clothing,footwear, and beverages), represents some
12% of GDP and nearly 60% of merchandise
exports in value (mostly textiles and apparel
goods).  Development of the sector is
constrained, inter alia, by poor infrastructure
and high transportation costs.  The mining
sector, centered around chrome ore andgraphite, is still underdeveloped despite its
potential.  The services sector accounts for
around 52% of GDP, with large potential stillunexploited in the tourism subsector.
Madagascar is a net importer of services.
4. Madagascar’s main trading partners
are the European Union, the United States,
and Japan.  Madagascar's exports are
primarily agricultural commodities, mainlyshrimps, coffee, vanilla, cloves and clove
essence.  Machinery, transport equipment,
food, fuel, and chemicals are the major
imported products.  Due to the decline in
agricultural production during the past fewyears, largely attributable to climatic
conditions, food and foodstuffs imports have
increased.
(2) I
NSTITUTIONAL FRAMEWORK
5. The 1998 Constitution of the Republic
of Madagascar calls for a parliamentary
regime with a separation of powers among the
executive and legislative bodies.
Madagascar’s President and members of the
National Assembly are elected by direct
popular vote;  the President is elected for a
five-year term renewable only once, and theAssembly Deputies for four-year terms.  The
President serves as Head of State, and
appoints a Prime Minister, who, with the
consent and approval of the President,
appoints a Cabinet.  The Prime Minister andthe Cabinet constitute the Council of
Government, which is responsible for
government policy and its formulation.  The
National Assembly exercises legislative power.
It will become a bicameral body;  the Senatehas yet to be put into place.
6. Madagascar has a body of statutes
that govern import procedures, computation of
customs duties, foreign investment, business
licensing, intellectual property, competitionpolicy, and other related matters.
Madagascar has made considerable efforts to
create an environment conducive to private
investment, both domestic and foreign.
Foreign direct investment has been liberalized
since 1995.  With a few exceptions (including
in real estate and areas still under Statecontrol), 100% foreign ownership is permitted
in most economic activities.  Incentive schemesWT/TPR/S/80 Trade Policy Review
Page viii
are available for investment, mainly in
export-oriented activities.
7. Madagascar became a member of the
WTO on 17 November 1995, having signed the
Final Act of the Uruguay Round and the
Marrakesh Agreement on 15 April 1994.Madagascar grants at least MFN treatment to
all its trading partners.  As with other WTO
Members, Madagascar has adopted in their
entirety the results of the Uruguay Round.  As
a least developed country, Madagascarbenefits from the special and differential
treatment afforded developing countries in the
form of exemptions or delayed implementation
of certain provisions.  Madagascar is not
currently involved in any dispute settlementproceeding under the WTO.
8. Madagascar has participated in the
Integrated Framework for Trade-Related
Technical Assistance to Least Developed
Countries (IF) by preparing an assessment of
its needs for trade-related assistance.  Under
the IF, it has already received technicalassistance from international organizations,
including the WTO.  Madagascar is still in
need of substantial technical assistance in a
wide range of trade-related areas.
9. Madagascar is a member of the
Common Market for Eastern and Southern
Africa (COMESA), the Cross-Border Initiative
(CBI), and the Indian Ocean Commission
(IOC).  Under the Cotonou Agreement
(successor to the Lomé Convention), manyMalagasy exports to the EU enjoy
non-reciprocal preferential treatment in the
form of exemption from import duties.  Other
developed countries grant Madagascar’s
goods non-reciprocal preferential access totheir markets through the Generalized System
of Preferences.  Due to its narrow export base,
the benefits that Madagascar reaps from these
preferential arrangements have been minimal.
(3) T
RADE POLICY INSTRUMENTS
10. Madagascar has significantly
liberalized its trade regime in recent years.  Itspresent trade policy framework is essentiallybased on tariffs.  Export restrictions have been
eliminated, as have foreign exchange controls.
The Government has placed emphasis on
export promotion, but limited capacity has
constrained any significant export-led growth.
11. MFN customs tariff rates have been
organized into four bands ranging from zero
to 30%.  The tariff structure is somewhat
escalatory (in certain branches) with many
processed products accorded a higher
effective rate of protection along theprocessing chain.  The simple average of
applied MFN import duties (including an
import tax also ranging up to 30%) is 16.2%.
An import statistics tax of 2% and a customs
stamp duty of 1% also apply to imports.  Anexcise duty ranging to over 100% is levied on
petroleum, alcoholic and non-alcoholic
beverages, and tobacco products.  A value-
added tax of 20% is also collected.  Import
duties and taxes continue to constitute a
significant source of government revenue.
12. Madagascar has bound customs tariffs
at 30%, and other duties and charges at
250%, on all agricultural products (WTO
definition) and on imports of chemical
products (HS Chapters 28 and 29).  The
Malagasy authorities have a preshipmentinspection contract (which will expire in
April 2001) with Bureau Veritas Corporation.
Bureau Veritas is responsible for inspecting
all imports worth US$1,000 or more.
Madagascar still uses the Brussels Definitionof Value (BDV).  Madagascar intends soon to
adopt the transaction value in its customs
valuation.
13. All quantitative restrictions on imports
have been eliminated, except for prohibitionsor prior authorization requirements
maintained under international conventions
for health, phytosanitary or security reasons
or on products deemed strategic by the
Government (e.g. vanillin and precious
stones).  Madagascar has 63 official product
standards.  Most Malagasy standards arevoluntary and are based on either European
or international norms.  The Malagasy Bureau
of Standards (MBS) is responsible for issuesMadagascar WT/TPR/S/80
Page ix
related to standards.  The Ministry of Trade,
with the assistance of economic partners and
in collaboration with national technical
committees established under the Madagascar
Bureau of Standards, is developing national
standards for export goods.
14. Madagascar does not have legislation
on anti-dumping, countervailing or safeguard
measures.  Its competition legislation dates
from the 1970s;  two bills are to be adopted to
revise this legislation.  Madagascar is neitheran observer nor signatory to the WTO
Plurilateral Agreement on Government
Procurement.  Ministries are responsible for
their own  procurement, subject to regulations
issued by the Ministry of Economy andFinance.  In general, tenders are either open
or selective;  single tenders are limited to
emergency situations.  Preferential margins
may be granted to local tenderers under credit
agreements concluded between the
Government and donors.
15. Several state-owned companies have
been either privatized or liquidated under a
programme launched in 1996.  Certain
companies supplying services (e.g. air
transport and telecommunications services) or
operating in the agriculture sector are to beprivatized before the end of 2001.  Almost all
sectors of the economy are covered by the
programme.
16. In Madagascar, intellectual property
right protection is shared by the OfficeMalagasy du Droit d'Auteur (OMDA), which
is responsible for copyrights, and the Office
Malgache de la Propriété Industrielle
(OMAPI), which is responsible for industrial
property rights.  Madagascar is a member ofthe World Intellectual Property Organization
(WIPO), and a signatory to several
international conventions on intellectual
property.  Madagascar is revising its
legislation to meet its obligations under the
WTO Agreement on Trade-Related Aspects of
Intellectual Property Rights (TRIPS) by 2006.(4) S
ECTORAL TRADE POLICY
DEVELOPMENTS
17. The Malagasy Government has been
liberalizing most economic sectors since the
mid 1990s.  In agriculture, most marketing
boards have been liquidated and pricecontrols abolished on virtually all products.
Monopolies held or exclusive rights exercised
by state-owned companies, which are still
operating in the agriculture sector, have
virtually been abolished.  These companies(HASYMA for cotton, and SIRAMA for sugar)
are to be privatized before the end of 2001.
Nevertheless, the vacuum left by the boards
has not been filled;  this has limited the
positive impact of the reforms on agriculturaloutput.  Tariff protection in agriculture
(including fishing, livestock, and forestry)
averages 17.7%.
18. Government policy in manufacturing
is primarily based on incentives provided
under the export-processing-zone regime, and
therefore intends to make the sector export-oriented.  Customs duties on manufactured
imports average 16.2%, and are escalatory in
the main branches of the sector, including
textiles and leather products.
19. Steps have been taken, including
enactment of new legislation, to develop the
mining sector.  Furthermore, the
implementation of the privatization
programme has contributed to significant
liberalization of the services sector;  thenational carrier (Air Madagascar), the airport
authority (ADEMA), and Telma (the
incumbent supplier of basic
telecommunications services, currently owned
at 66% by the State), are among thecompanies earmarked for privatization before
the end of 2001.  Madagascar's commitments
under the GATS, limited to certain business
activities, do not reflect its liberalization
efforts in the services sector.WT/TPR/S/80 Trade Policy Review
Page x
(5) TRADE POLICIES AND TRADING
PARTNERS
20. Trade liberalization has been central
to the economic refo rms implemented by
Madagascar since 1982;  this indicates
Madagascar's confidence in competitivemarkets.  In addition to its WTO membership,
Madagascar has increasingly participated in
regional trade agreements with a view to
increasing trade flows and better exploiting its
comparative advantages.  Overall, the reformshave fallen short of reducing poverty in
Madagascar.
21. Once completed, the ongoing
implementation of the privatization
programme will further liberalize theeconomy, including the services sector, and
contribute to a better allocation of resourcesand improvement of international
competitiveness of Malagasy products.  The
competition policy may need to be adapted to
the new economic environment through the
enactment of the two bills that have been
awaiting adoption for some years.  This willensure that privatization does not result in the
transfer of monopolies originally held by
state-owned companies to private enterprises.
22. Improvement of the low level of
Madagascar's multilateral commitments,mainly under the GATS, would create
confidence in the irreversibility of the reforms,
render them more credible, and enhance
Madagascar's adherence to the WTO
principles.  Madagascar would appreciatetechnical assistance to make the WTO rules
more widely known domestically.