Solomon Islands WT/TPR/S/45
Page 39
III. TRADE POLICIES AND PRACTICES BY MEASURE
(1) INTRODUCTION
1. Trade taxes are the Solomon Islands' main intervention measures and the Government's
principal source of revenue, currently accounting for more than half of total tax income.  Although
import duties were cut in March 1998, the simple average MFN rate is 22.7%.  Rates range from a
minimum of 5% to a maximum of 70%, the latt er applying to many food items and consumer
products.  Much higher composite duties (excluded from the estimated total average) apply to
alcoholic beverages, motor vehicles and used clothing.  Export taxes apply to a wide range of primary
products, especially round logs (at a rate of 35% or 38%), uncanned fish (5% or 10%) and traditional
agricultural commodities such as copra and palm oil (5%).  While reliance on trade taxes has been
declining in recent years, thereby mitigating their import substitution and export restraining effects,
the Government's continued heavy dependence on these taxes for revenue is a major constraint on
trade liberalization.  Thus, trade liberalization and tax reform are closely intertwined.
2. While tariffs are almost exclusively ad valorem , the transparency of the tariff system has in
the past been greatly undermined by the widespread use of discretionary exemptions and remissions,
which have been used, inter alia , to provide investment incentives and to benefit certain activities
when the government reasonably expects that a commercial advantage can be developed.  The
Government has recently taken steps to remove these exemptions.  It is also considering the
introduction of preshipment inspection services, using a private contractor, as a means of improving
the effectiveness of customs duty collection.
3. Apart from tariffs, imports face very few formal trade barriers.  There are no import quotas,
for example, and only a small number of items are prohibited or subject to licensing, mainly for
health, safety or, in the case of certain agricultural products, such as meat, for quarantine reasons.Similarly, exports are generally free from quantitative controls and receive no financial assistance
other than an income tax holiday on profits derived from exports from three to six years, depending
upon the level of local value added.
4. Tax relief, often on an ad hoc and discretionary basis, has been the main instrument used to
financially assist domestic industries.  Such relief includes excise tax concessions and exemptions aswell as income tax holidays.  As in the case of trade tax measures, there are strong grounds for
doubting the economic effectiveness of these internal tax relief measures.
5. The Government attempts to influence the allocation of resources through the widespread use
of tax measures and price controls (which apply ma inly to a few staple foods and energy items), and
by taking a direct role in trading, especially production.  There are many state-owned  enterprises andstatutory authorities, some of which have monopoly rights.  A price stabilization scheme for copra
(and, from 1999, cocoa) supports domestic farm incomes, and exports are controlled by a statutory
monopoly.  Furthermore, the Government, primarily through the Investment Corporation, participates
directly in a number of commercial operations, frequently as a joint-venture partner.
6. Most state-owned enterprises and joint ventures have performed poorly.  The Government is
currently assessing the desirability and feasibility of corporatizing, if not privatizing, several
operations (notably telecommunications and Solomon Islands Plantation Limited).  Privatization,
accompanied by improved corporate governance, could enhance competition within the economy,
thereby making it more attractive to foreign investment and fostering its long-term development.WT/TPR/S/45 Trade Policy Review
Page 40
(2) MEASURES DIRECTLY AFFECTING IMPORTS
(i) Registration and documentation
7. There are no registration requirements for importers in the Solomon Islands.
8. To clear goods through customs, importers must have a commercial invoice and a freight
declaration form verifying the freight costs where this is not specified on the invoice.  These
documents must be submitted to Customs, together  with a completed customs form for ‘Entry for
Home Consumption’ (Form C15).  For restricted impor ts, a relevant permit or licence, issued by the
appropriate ministry, must also be supplied by the importer.  Quarantined items also require the
importer to have a phytosanitary certificate issued by the relevant authorities in the exporting country.
9. Customs generally accepts the importer’s declared values and product descriptions as
indicated on the invoice.  It has only limited capacity to check declarations, and adequate physicalinspections of consignments and audits rarely occur in practice because of scarce human and financial
resources.  Authorities believe that there may be substantial tariff evasion, through either
misdescription/classification of goods or under-invo icing.  According to au thorities, imports are
normally cleared within 24 hours of the importer providing the necessary documentation.  Goods not
claimed within ten days are despatched to storage warehouses and kept for one month before beingsold.
10. Customs currently operates a manual system of processing and recording import clearances.
It is intended to introduce shortly UNCTAD’s computerized Asycuda system.  This is expected to
facilitate entry and collection of import (and export) data.
1
11. According to the authorities, the Solomon Islands does not maintain any minimum import
prices on imported products.  There are no prior import deposit requirements.
(ii) Tariffs and surcharges
(a) General features
12. The Department of Customs and Excise is part of the Ministry of Finance.  It is responsible
for collecting taxes on imports and exports, as well as excise taxes levied on domestically produced
beer and various tobacco products.  Under the Customs and Excise Act of 1978, excise duties can
only be applied to domestic goods;  imports are subject to tariffs, but not excise taxes.  Tariffs serve adual purpose in the Solomon Islands.  As a tax largely on consumption, tariffs are a major source of
government revenue;  they can also protect domestic industries from foreign competition and thus
may impair economic efficiency (Box III.1).
                                                     
1ASYCUDA, the Automatic System for Customs Data, is a computerized customs management system
that covers most foreign trade pro cedures, including the production of trade statistics.  Devised by UNCTAD,
the system has been adopted by many developing countries through technical assistance projects which providethe software free of charge.  Countries are generally required to meet the costs of computer hardware andinternational and national experts required to implement the system and to train local personnel.Solomon Islands WT/TPR/S/45
Page 41
Box III.1:  The advantages of lower, more uniform tariffs
The extent to which a country’s efficiency of resource us e is reduced by its tariff structure will depend upon
both the level of tariffs and the degree of non-uniform ity between these duty rates.  For any given average
tariff rate, the wider the disparities in  tariff levels, especially between goods that are close substitutes in both
consumption or production, the more distorting will be  the tariff structure.  Thus, a movement towards a
lower and more uniform tariff would be expected in general to impr ove resource allocation and raise
economic welfare.  This is because a uniform tariff structure will have less influence on the private decisions
by producers and consumers, and allow resources to be directed more by market outcomes.
A non-uniform tariff is often supported on the grounds of providing a cascading or escalating tariff to
encourage downstream processing.  Such a tariff structure provides much lower duty rates on raw materials
with progressively higher tariffs being applied throug h to the final processed product.  However, by
providing greater incentives to produce downstream pr oducts, an escalating tariff risks generating inefficient
activities that become dependent on government assistance.  What may be mild escalation in nominal tariff
terms can provide very high effective (net) assistance to downstream activities.  For example, a firm facing
an average tariff duty on inputs of 10% and producing an output protected by a 50% tariff, would receive a
rate of effective protection anywher e from 50% to over 500%, depending on  its level of value added.  High
and disparate tariffs foster inefficiency and penalize efficient activities, including export industries, by
promoting a high-cost economy, thereb y impairing the competitiveness of exporters.  Taxes on imports are, in
effect, shifted onto exports.
As well as promoting efficiency gains, a low uniform ta riff is simpler and easier to administer.  It removes
many of the incentives for making false Customs descri ptions and classifications.  Moreover, by treating all
producers and importers equally, it is likely to re duce lobbying or "rent seeking" pressures on the
Government and make it easier to reject pleas for special treatment.
It is often argued that adopting a low uniform tariff would entail a substantial reduction in government
revenue compared to a current system of high tariffs, especially on consumer and so-called luxury goods.
However, this may not be the case.  At lower tariffs , import volumes will increase, as domestic consumers
purchase more and local suppliers produce less.  This  shortage in domestic production will be met by
imports. As tariffs are lowered, it is possible that import quantities could rise sufficiently to raise tariff
revenue, depending upon market conditions .  This would especially be the case if special duty exemptions and
concessions, which seem to be a co mmon feature of high and di sparate tariff structures, were eliminated at
the same time.  Such concessions are liable to make  the tariff structure more disparate and undermine
transparency and economic efficiency.
This is the case in the Solomon Islands where beca use of the proliferation of exemptions and remissions on
import duties, the average tariff in 1996 was of the orde r of 10%.  This suggests that a uniform tariff of 10%
to 15% could be set without significantly reducing government revenue, provided that the many tariff
concessions were abolished (Walker, 1997).  Although a lower uniform tariff rate would be economically
desirable so as to remove the costs imposed by tariffs on exporting activities, such a level nevertheless offers
a feasible means of transition to a less di storting, low and uniform tariff structure.
The above analysis suggests that uniform tariffs shoul d be a policy goal, even though demand elasticities (a
measure of the extent to which demand for a product va ries with changes in price) will differ across goods.
Although setting higher tariffs on those products with  inelastic demand (small responsiveness to price
changes) may in principle distort welfare less and ma ximize tariff revenue, ta riff uniformity remains a
desirable policy objective.  This is because trying to  set tariff levels according to differences in demand
elasticities is in practice a high-risk strategy given that empirical measures of elasticities are inevitably
imprecise, and the potential resource costs of getting it wr ong are high.  Thus, tariff uniformity is a sensible
"rule of thumb" policy goal on efficiency grounds, and is also desirable on grounds of transparency and
administrative simplicity.WT/TPR/S/45 Trade Policy Review
Page 42
13. Trade (import and export) taxes are the primary source of government revenue.  Although
declining from a share of 66% in 1993, they still provide over half of total government tax revenue
(Chart III.1).  Import duties have been overtaken in revenue importance by the significant growth in
export tax receipts,  mainly from logs, since 1992;  however, the share of tariffs is estimated to have
increased in 1997 to approximately equal that of export taxes, owing to declining log export tax
receipts associated with falling world timber prices.  In 1998, log export tax receipts are projected toslump further to SI$30 million, leading to a further decline in export tax revenue.
010203040506070
1992 1993 1994 1995 1996 1997Tariffs Export taxes Trade taxes
Direct Business Direct Personal OtherPer cent
Note:      
Source : Tariffs include revenue from excise taxes.
Asian Development Bank, 1997;   Economic Report on Solomon Islands, 1998.Chart III.1
Share of Government tax revenue from trade taxes , 1992-97
14. Tariff policy is mainly the responsibility of the Minister of Finance.  All tariff changes,
including rate changes, can be effected by an order from the Minister of Finance.  The Government
introduced a revised tariff schedule, operative from March 1998.  Tariff revisions originated in the
Ministry of Finance, and arose from the Government’s response to a review of customs and excise
tariffs commissioned by the Ministry to rationalize the tariff structure (Walker, 1997).
15. Tariffs are levied on the c.i.f. (cost, insurance and freight) value of imports.  The Harmonized
System was adopted by the Solomon Islands in 1990, with variations at the subheading (five andsix-digit) level.  The subheading level was completely or partially used, except in many instances
where only the four-digit classification (with zeros added to make eight-digits) has been used without
any disaggregation.  Thus, although tariff rates are specified at the eight-digit level, the number of
tariff lines, at 2,360, is well below that of the standard HS.
16. The tariff schedule contains a single column that provides only the MFN rate.  Almost all
imports into the Solomon Islands enter at these rates;  preferential tariff rates are not recorded in the
schedule.Solomon Islands WT/TPR/S/45
Page 43
17. The Solomon Islands does not levy seasonal tariffs.
18. The tariff schedule contains no levies or charges in addition to tariffs on imported goods.  The
additional tax of 3% previously included in the tax schedule was replaced some years back with a 5%
surcharge on import duties.  However, in the 1998 Budget, the Government introduced a 10%
surcharge on all duty rates for revenue reasons.  Although intended as a temporary measure, no
termination date was announced.
(b) Tariff structure
19. Although the tariff structure was recently rationalized, rates remain relatively high and
non-uniform across commodities.  The average (unweighted) MFN tariff -  excluding duty
exemptions -  is currently 22.7%, and the dispersion index, as measured by the standard deviation, is
18.4 percentage points (Table III.1).  These figu res exclude the recent 10% across-the-board import
surcharge.2
Table III.1
Main features of the tariff structure, by HS section, 1998
(Per cent)
Section description Average MFN tariff rate Tariff range
All tariff lines 22.7 5-70
Live animals; animal products 53.7 5-70
Vegetable products 28.6 5-40
Animal or vegetable fats & oils 37.5 5-40
Prepared foodstuffs 40.8 5-70
Mineral products 12.2 5-40
Chemical products 16.3 5-70
Plastics, rubber and articles thereof 20.6 5-40
Rawhides, skins, leather, furskins 29.1 10-40
Wood and articles thereof 33.0 20-40
Pulp of wood or of other fibrous cellulose 19.8 5-40
Textiles and textile articles 28.1 5-70
Footwear, headgear, umbrellas 32.3 5-70
Stone, plaster, cement, asbestos, mica 17.1 10-40
Pearls, precious or semi-precious stones 67.8 10-70
Base metals 9.0 5-40
Machinery and mechanical appliances 15.8 5-70
Vehicles, aircraft, vesselsa.. ..
Optical, photographic, cinematographic, etc 23.8 5-40
Arms and ammunition 56.9 5-70
Miscellaneous manufactured articles 32.9 5-70
Works of art, collectors pieces 40.0 40-40
.. Not available.
a Not available because ad valorem equivalents of specific tariff duties could not be estimated.
Source: Secretariat estimates.
                                                     
2Also excluded are the high specific duties imposed mainly on imported alcoholic beverages and motor
vehicles, because current ad valorem  equivalents were not available.  However, the very high ad valorem
equivalents estimated by the authorities for 1996, at well over 100% for most of these products (section (d)below) indicate that their inclusion would substantially increase the tariff average.WT/TPR/S/45 Trade Policy Review
Page 44
20. The new tariff condensed the number of individual ad valorem  rates from around 20, ranging
from zero to 225%, to five rates of 5%, 10%, 20%, 40% and 70%.  The range of rates was
compressed, with many duties, including maximum rates, being lowered substantially.  Nevertheless,
although overall tariff disparities and unweighted average tariff levels would have fallen, duty rates
were increased on some goods.  Tariffs on all products previously duty free or dutiable at 2% were
increased to the minimum rate of 5%.
21. The modal tariff rate is 10%, which accounts for 27% of all items (Chart III.2).  This rate
covers a wide range of non-luxury goods in general use, including most machinery and spare parts,
where the Government believes that no case exists for protecting local industries.  The tariff rate of
40% covers 22% of items.  Some 39% of tariff lines have rates of either 5% or 10%, covering certain
basic foodstuffs and a range of manufactured inputs, respectively.3 The highest rates, of 40% and
70%, apply to 34% of tariff lines, and, according to the Government, cover mainly luxury products for
revenue reasons or to protect domestic industries.  The top tariff rate of 70% covers 12% of items and
includes a wide range of foods, perfumes, headgear , jewellery, consumer electronics and furniture.
0102030
5 1 02 04 07 0Per cent of tariff lines
Source: Secretariat estimates.Chart III.2
Tariff structure , 1998
Tariff rates
22. Almost all tariffs are ad valorem .  Exceptions include specific duties on excisable products
(beer and various tobacco products), as well as on  petroleum fuels, alcoholic beverages, video tapes
and bottled water.  Composite duties, involving a large specific element, also apply to new and used
automobiles, as well as other motor vehicles for transporting goods and special purpose vehicles, and
                                                     
3The lowest duty rate of 5% covers certain foodstuffs, such as rice, wheat, sugar, milk and margarine,
animal feeds, fertilizers, hand and power tools, renewa ble energy equipment, books, metals and other materials
for local manufacture, smaller outboard motors, chains aws, and spare parts for all chainsaws and outboard
motors.Solomon Islands WT/TPR/S/45
Page 45
to used clothing.  For example, duties of 20% plus SI$5,000 are payable on imported new automobiles
of engine capacity of 3,000 cc and below;  cars with a higher engine capacity are dutiable at 40% plus
SI$10,000.  Thus, within each engine group, tariffs are highest on relatively cheap new cars.  The
ad valorem  equivalent, for example, on an imported 15,000 cc car worth SI$25,000 would be 40%,
compared with 30% on 2,000 cc car valued at SI$50,000.  Moreover, higher ad valorem  duties apply
to new cars with engine capacities above 3,000 cc.
23. Although identical composite duties now apply to  imported second-hand automobiles, tariffs
still fall heaviest on this category.4  For example, the ad valorem  tariff equivalent on an imported
second-hand, small-engine car valued at SI$10,000 would be 70%, compared to 120% on a used car
worth SI$5,000.  Thus, the tariff structure on motor vehicles affects prices of cars depending upon
size and age.  It would tend to distort consumption away from used and large-engine vehicles.  Motor
vehicle tariffs therefore tend to be regressive consumption taxes, falling heaviest on relatively
low-income households who would usually be expected to purchase second-hand vehicles.
24. There is also a composite duty on used clothing of 70% plus SI$3 per kg., which is likely to
have raised tariff levels, in ad valorem  terms, above the previous duty rate of 110%.  The existence of
such composite duties is due to the difficulty of precisely evaluating certain second-hand items andthe resulting frequency of under-invoicing in such trade.
(c) Tariff escalation
25. The Solomon Islands five-tariff-rate structure contains built-in tariff escalation between semi-
processed and fully processed stages of production.  The simple average tariff on semi-processed
products is 15.4%, compared to 25.6% on fully processed products, reflecting the high tariffs of up to
70% on many processed food items and other consumer goods.  Such escalation is also evident in
many industrial chemicals and certain rubber products.  The past practice of granting duty exemptions
may have also added to the escalation of the tariff structure.
26. However, tariff de-escalation exists between raw materials and semi-processed products.  The
average tariff on raw materials is 29%, well above the 15.4% on semi-processed products.  This is
most pronounced in food items.
(d) Tariff bindings27. In the Uruguay Round, the Solomon Islands bound its entire tariff at ceiling rates generally
well above existing levels.  The ceiling bound rate was mainly 80%, with some important exceptions
(see below).  Thus, there is considerable scope to raise duties on most items without infringing tariff
commitments.
28. Lower bound rates of mainly 5%, 10%, 15% or 20% apply to a small group of agricultural
commodities, such as wheat, malt, margarine and sugar.  However, certain prepared foods, such as
breakfast cereals, and bottled water, were bound at ceiling rates of 150% and 120%, respectively.
Tariffs on excisable products of alcoholic beverages, including beer, and tobacco products were
bound at generally SI$15.00 per litre and SI$150.00 per kg.  Processed fishery products were bound at
120%.  A few industrial products were also bound at levels other than 80%. These includedpharmaceuticals and fertilizers (10%); certain optical products (15%); explosives (40% or
SI$10.13 per kg., whichever is the greater); certain recorded and unrecorded media (70% or SI$15.00
                                                     
4Previously, the composite duties on second-hand vehicles were substantially higher than on new cars.
The recent change to tariff rates therefore reduced , but did not remove, the bias against used cars.WT/TPR/S/45 Trade Policy Review
Page 46
each, whichever is the greatest); soaps and washing preparations (90%); certain photocopying
apparatus (110%);  and cinematograph film (SI$0.30 per 30 metres).
29. The authorities, through the South Pacific Forum, have inquired with the WTO Secretariat as
to the possibility of amending their bound tariff duties on tobacco products and alcoholic beverages.
They are concerned that the ceiling bindings set for these products as specific rates may, with inflation
over time, undermine the Government's revenue base.  The authorities would like to change the boundspecific rates on these products to alternate rates so as to prevent the bound rate, in ad valorem  terms,
from falling below current levels.
30. The ad valorem  rates that the authorities have requested to be added to the bound rates as the
minimum alternate duty are based on import data for 1996.  They are 591% for beer; 78% for wine;
625% for other beverages; 181% for ethyl alcohol; 306% for undenuded ethyl alcohol; and 304% forcigarettes.  In the case of tobacco and vermouth wines where there were no imports, the rates for
cigarettes (304%) and wine (78%) are to be used.  These proposed changes may have to be negotiated
with WTO members.
(e) Tariff preferences
31. The Solomon Islands applies MFN tariffs on imports from all countries, except
Papua New Guinea and Vanuatu who, as founding members of the Melanesian Spearhead Group, also
belong to the MSG Trade Agreement.  Eligible im ports from these two countries are duty free, and
have been expanded in coverage from three to 150 items, including live animals;  meat;  fish and fish
products;  fruit, nuts, vegetables and fruit juices;  Portland cement;  wood and wood products;  plastic
kitchenware;  steel tanks;  wire mesh;  ships and prefabricated steel buildings.
32. Following Fiji’s admission to the MSG in September 1996, it has recently negotiated
membership of the MSG Trade Agreement.  Fiji will now be required to allow eligible products to be
imported duty-free from other member states and the Solomon Islands will accord similar treatment to
Fijian imports.
33. A previous bilateral initiative by Fiji to form a bilateral trading arrangement was not accepted
by the Solomon Islands.  According to the authoritie s, the Government preferred to include Fiji in the
expansion of the MSG Trade Agreement.
34. Intra-MSG trade is small, and is likely to remain so in the foreseeable future.
(f) Tariff concessions
35. While statutory rates are enacted by Parliament, the Minister of Finance has discretion under
the Finance Act to grant full or partial exemptions from tariffs.  Partial or full exemptions are also
permitted under the Customs and Excise Act as investment incentives approved by the ForeignInvestment Board.  The wide use of these exemptions and remissions has substantially reduced
effective tariffs to well below statutory rates.  It is estimated that the effective tariff rate in 1996 after
allowing for exempt imports was only around 10%, while statutory levels were many times higher.
36. Such exemptions and remissions have undermined the transparency of the tariff regime, and
have made the tariff structure more distortive.  As well as eroding customs tariff revenue in adiscriminatory and at times obscure manner, they are open to misuse and political interference on
behalf of vested interests in ways that can harm competition and efficiency.  The authorities have
recognized this and have shortened the list of exemptions under the Customs Act, as noted below.Solomon Islands WT/TPR/S/45
Page 47
37. The Solomon Islands has no duty drawback scheme or related concessional scheme to relieve
exporters from duties on imported inputs.  Similarly, there are no arrangements to enable goods not
produced locally to be imported duty free.
Exemptions by the Minister of Finance
38. The Minister of Finance has wide discretionary powers to grant full or partial exemptions and
remissions of customs duties.  These exemptions may be granted to specific users, such that the tariffduty on identical imported products can differ.  This lack of uniformity in treatment between
businesses undermines competition and prevents the market from working efficiently.
Customs Act
39. Numerous exemptions remain in the tariff, despite the number being reduced in March 1998.
Full duty exemptions were removed on imports of certain agricultural machinery and tools for farm
use; fishing gear and deck equipment by commer cial fisherman; telecommunications equipment and
related items;  and on capital and equipment, for up to two years, used by a corporation employing
redundant public servants.  These exemptions are contained in an Annex to the Customs Schedule.
40. Partial exemptions, previously granted on tariffs above 5%, were also abolished on imports of
machinery, trucks, large trailers, equipment and ve ssels used in agriculture, forestry, fishing and
mining, as well as on machinery and equipment directly used in sawmilling, reafforestation and
manufacturing activities, including on raw materials.  Statutory corporations are no longer exempted
from one-half of the tariff duty rate.  However, the one-half exemption on fuel duty for locally
incorporated fishing companies, previously includ ed in separate investment agreements, is to be
written into the Customs Act.
41. Some of the remaining full duty exemptions appear difficult to justify.  These include
exemptions of duties on imported packaging, such as containers and coverings, used by manufacturers
to pack local products; printing paper and bookbinding materials used for printing and binding of
books, newspapers, magazines and directories; and, for up to two years, on goods (excluding motor
vehicles, tobacco products and alcoholic beverages) imported for tourist development.
Investment incentives
42. The Government is currently seeking to more clearly define and limit in time the import duty
concessions available to investors under the Investment Act.  At present, the Foreign Investment
Board can approve a range of tariff and other tax concessions as investment incentives to any investor
who applies for such incentives (Investment Act 1990) .  Subject to agreement by Customs, the Board
may approve exemptions of tariff duties, under the Customs and Excise Act, on goods comprising the
initial capital investment and inputs used in the fi rst two years of operations.  Any existing industrial,
commercial, business or service undertaking operating in the Solomon Islands may receive similar
investment incentives.  The Board may also negotiate special agreements, on behalf of the
Government, with mining enterprises or any other la rge-scale foreign investor for exemptions of tariff
duties beyond two years (Investment Amendment Act 1996).
(iii) Tariff quotas
43. According to the authorities, the Solomon Islands does not maintain tariff quotas on any
products.WT/TPR/S/45 Trade Policy Review
Page 48
(iv) Other levies and charges
44. The Customs and Excise Act allows excise taxes to be levied only on domestically-produced
goods.  Excise taxes currently apply to beer, at a rate of SI$3.50 per litre, and at a rate of
SI$10 per kg., on certain manufactured tobacco products of plug, fig, twist, stick, cake and coarse-cut
tobacco, including ready-rubbed tobacco for hand rolled cigarettes.  Cigarettes are not produced
locally and are therefore not subject to excise tax.  Exported goods are exempt from excise duties, asare goods manufactured as a cottage, village or cooperative industry and for private consumption.  As
announced in the 1998 budget, starting in 1999, the Solomon Islands will begin to apply excises at
identical rates on imported and domestically produced goods.
45. These excisable products, when imported, attract import duties that are normally higher than
the corresponding excises.  Imported beer is subject to a tariff of SI$12.00 per litre if containing above3% alcohol, or SI$6.00 per litre if below 3%.  Imports of tobacco products, including cigarettes and
ready-rubbed tobacco, are dutiable at SI$180.00 per kg., except for twig or stick tobacco, which is
dutiable at SI$130.00 per kg.  The difference between the excise duty rate levied on domestic
production and the customs duty paid on competing imports measures the protective component of the
tariff.  Domestic production of beer receives a protective tariff margin of SI$2.50 per litre on lightbeer, and of SI$8.50 per litre on full-strength beer.  Similarly, the local manufacture of certain tobacco
products from imported leaf is protected by a tariff of SI$120.00 per kg., on twig or stick tobacco, and
SI$170.00 per kg., on other tobacco products.
46. Since 1992, a wholesale goods tax has applied on the sale of new and used products imported
or manufactured locally.  The original rates of 5 and 12% were changed in the 1998 Budget:  the rate
of 12% was increased to 15%, and the bottom rate of 5% raised to 10%, except on rice.  Exports are
exempt, provided the exporter is registered with the Commissioner of Taxation, as are goods
manufactured and sold by small businesses.  A sales tax is also levied on the purchase of certain
services: restaurants and car rental (10%);  telecommunications, security, accounting, real estate
agencies and professional services (5%);  tickets (SI$10);  rental movies (SI$2) petrol in Honiara
(7 cents per litre); and diesel in Honiara (10 cents per litre).  The 1998 Budget indicated that the tax
rates on some of these items would be increased.
47. Fees are levied by Customs on importers to partially recover the costs of customs services.
Hourly attendance and clearance fees, ranging from SI$22-28 and SI$60-100, respectively, apply for
services provided outside normal working hours.  Examination fees of SI$14-22 per examination also
apply.  In addition, rent and charges are applied as demurrage on a per cubic metre basis.
48. Licence fees are charged for permits for several activities, such as for fishing vessels and
obtaining work permits (SI$200 on application and SI$500 on two year approvals).
(v) Preshipment inspection
49. The Government is considering  the introduction of preshipment inspection services for
imports as a means of reducing tariff evasion and improving the efficiency of Customs.  It has
requested a private contractor, Société Générale de Surveillance (SGS), to assess the benefits ofintroducing such as system.
(vi) Customs valuation
50. Customs duties have been levied on the c.i.f. value of the imported product since 1987 when
the basis for duty calculation was changed from "selling price to purchaser".  The authorities have
indicated that  the method of customs valuation currently used is consistent with the former BrusselsSolomon Islands WT/TPR/S/45
Page 49
Definition of Value (BDV).  The Government inte nds to implement the requirements of the WTO
Customs Valuation Agreement by 2002.
51. In the event of a valuation dispute, Customs may determine values based on previous
shipments of similar imports.  It can also impose a deposit of 150% of the assessed duty on disputed
products, pending presentation of further data and invoices by the importer.  The importer may appeal
a valuation decision to the Comptroller of Customs, and take legal recourse in the courts, if necessary.However, very few customs valuation disputes occur in the Solomon Islands, according to the
authorities.
(vii) Import prohibitions, quotas and licensing
52. According to authorities, the Solomon Islands does not operate any quantitative restrictions
on imports.  Nor does it maintain embargoes on trade with any country.
53. All goods, except prohibited and restricted goods, may be imported under a general import
licence issued in 1996.  Restricted products that may only be imported under licence or special permit
include methylated spirits and ethyl alcohol, which can be imported only by the government
pharmacist;  spirits such as brandy, whisky and rum, which require a certificate of age of the spirits;
arms and ammunition, which require a licence issued by the Commissioner of Police;  andsecond-hand clothing for sale and public distribution which may be imported only with a fumigation
certificate issued by the competent authority in th e exporting country.  Imports of clothing for own
use are exempt from this requirement.
54. The Solomon Islands is a signatory to the Convention on International Trade in Endangered
Species of Wild Fauna and Flora (CITES) and recognizes all trade prohibitions currently in place
under this agreement.
55. The importation of some goods is prohibited on grounds of public safety.  These include all
types of dangerous drugs, and pornographic, indecent and obscene material.
(viii) State trading and countertrade
56. According to the authorities, there are only tw o state-trading enterprises in the sense of GATT
Article XVII operating in the Solomon Islands.  One of these, the government pharmacy, which
imports medicines duty free for public dispensing, has exclusive import rights on methylated spiritsand ethyl alcohol.  The other enterprise has an export monopoly (see section (3)(v)).
57. There is no countertrade between the Solomon Islands and other countries.  All trade is
conducted under normal commercial terms.
(ix) Import cartels
58. According to the authorities, there are no im port (or export) cartels or exclusive dealership
arrangements in the Solomon Islands.
(x) Standards and other technical requirements
(a) Standards, testing and certification
59. The Government does not set or impose any product standards.  There is no national
standards organization.  The Solomon Islands is not a member of the ISO and does not apply itsWT/TPR/S/45 Trade Policy Review
Page 50
international standards.  Occasionally, imported consignments of food may be inspected by the
Ministry of Health to ensure that they comply with domestic health standards and are fit for human
consumption.
60. However, a few standards, based on international norms, are set for reasons of health and
safety on chemical and hazardous fertilizers and herbicides; construction equipment and hardware for
buildings; and for environmental standards.  Accord ing to the authorities, there is no distinction
between imported and domestically produced goods in the application of these standards.
(b) Marking, labelling and packaging
61. There are no such requirements imposed by the Government.  All such arrangements are
determined between the buyer and seller.
62. Origin markings are required by Customs on imported goods for statistical purposes only.
(c) Health, sanitary and phytosanitary regulations
63. Quarantine and other sanitary/phytosanitary regulations are governed principally by the
Agricultural Quarantine Act of 1982 and the Agricu ltural Quarantine Order of 1986.  Legislation will
need to be amended to take into account obligations under the WTO Agreement on the Application of
Sanitary and Phytosanitary Measures;  the authorities are currently seeking technical assistance forthis purpose.
64. A licence issued by the Ministry of Agriculture is required for imports of plants, animals and
their produce, and earth, which may be subject to specified conditions of quarantine, testing and
treatment as deemed appropriate.  Importers of plants require a phytosanitary certificate duly signed
by the relevant authority in the country of origin.  An import licence will not be issued on these goods
if the Minister is of the opinion that such importation is likely to introduce any pest or disease.
Imports of prohibited goods or goods in contravention of licensing conditions may be either seized,destroyed or re-exported.  Importers pay prescribed fees and charges to help recover the costs of
inspection, treatment, fumigation and destruction.
65. Imports of animal products, including meat and meat products, dairy products, eggs, butter,
hides and skins, are subject to quarantine requirements (Table III.2).  Imports other than from
Australia and New Zealand require a licence, except for hermetically sealed meat and meat productsimported from the United Kingdom, Fiji, Papua New Guinea and Vanuatu; milk and milk products
from the United Kingdom, Canada, the United States, Norway, Sweden and Japan;  and meat and
bone meals from Vanuatu, Papua New Guinea and Fiji.
66. All such imports of Australian and New Zealand origin are unrestricted, except for fertile
poultry eggs, hides and skins, and New Zealand pigmeat, unless these are certified as being stored at-20 C for 30 days prior to export.
67. Imports of birds nests, bone curios and artefacts are prohibited except from Pacific island
nations.
68. Imports of honey from Australia or New Zealand are unrestricted.  All other honey imports
must be licensed in accordance with the Honey B ee Act.  According to the authorities, quarantine
arrangements for honey are based on an appropriate pest risk assessment that is consistent with WTO
principles.  All honey imports, including those from Australia and New Zealand, must have a
certificate of pest risk analysis.Solomon Islands WT/TPR/S/45
Page 51
Table III.2
Quarantine entry requirements
Product Unrestricted Restricted (import licence required)
Meat and meat products (fresh,
frozen or chilled)Australia & New Zealand (except pig from New
Zealand)All other countries
Meat and meat products (cooked, not
requiring refrigeration, uncanned)Australia & New Zealand (except pig from New
Zealand)All other countries
Meat and meat products (canned, not
requiring refrigeration)Australia, United Kingdom,
Fiji, PNG, VanuatuAll other countries
`
Butter Australia & New Zealand All other countries
Cheese Australia & New Zealand Other countries
Milk and milk products Australia, New Zealand, United Kingdom,
Canada, United States, Norway, Sweden, JapanAll other countries
Non-fertile poultry eggs ( cooked or
uncooked, for consumption)Australia & New Zealand All other countries
Fertile poultry eggs None All countries
Egg products (commercially packed) Australia & New Zealand All other countries
Meat and bone meals Australia, New Zealand, Vanuatu, PNG, Fiji All other countries
Sausage casings (ovine origin) Australia, New Zealand All other countries
Animal hair Anthrax-free countries, with formalin
fumigationProhibited
Hides and skins None All countries
Brown eggs All countries:  formalin fumigation required None
Bone curios and artefacts Pacific island countries:  formalin fumigation
required;  articles must be free of blood and
tissueProhibited
Feathers All countries, free of blood and tissue, with
formalin fumigationNone
Birds nests None Prohibited
Pet foods As per meat products As per meat products
Honey Australia & New Zealand All other countries
Source: Government of the Solomon Islands.
(xi) Government procurement
69. The Solomon Islands is not a member of, nor an observer to, the WTO Plurilateral Agreement
on Government Procurement.  It does not intend to become a signatory to this Agreement until
multilateral disciplines covering procurement are developed.
70. Government procurement contracts of between SI$2,000 and SI$10,000 are let by open tender
by the Tenders Board, in accordance with financial regulations stipulated by the Ministry of Finance.
Contracts of SI$10,000 and above must be submitted to the Central Board of the Ministry of Finance.WT/TPR/S/45 Trade Policy Review
Page 52
(xii) Local-content requirements
71. According to authorities, the Solomon Islands has no local-content requirements for domestic
production.
(xiii) Rules of origin
72. The MSG Trade Agreement between the Solomon Islands, PNG, Vanuatu and recently Fiji,
stipulate certain rule of origin requirements base d on changes in HS (6-digit) classifications.  Goods
must meet these rules to be eligible for preferential tariff access to the Solomon Islands market.
(xiv) Trade remedies
73. The Solomon Islands has no legislation in its Customs Act either on safeguards or on
anti-dumping and countervailing actions.  Thus, it maintains no such measures on imports.
(xv) Measures implemented in exporting countries
74. The Government has no agreements with foreign governments or enterprises designed to
influence the quantity or value of goods and services exported to the Solomon Islands.  According to
the authorities, no firms operating in the Solomon Islands are party to any such VER arrangements.
(xvi) Other measures
75. The Solomon Islands does not operate any free-trade zones or free ports, nor does it maintain
any surveillance measures on imports.
76. No import restrictions are, or have been, applied by the Solomon Islands under WTO
balance-of-payments provisions.
(3) M EASURES DIRECTLY AFFECTING EXPORTS
(i) Registration requirements
77. Exporters do not need to be registered.  All commodities, except logs, are exported under
General Authority issued by the Central Bank under the Exchange Control Regulations.  Exportsgenerally require an export shipping bill and a commercial invoice.  In the case of logs, exporters
must also produce tally sheets, a price certificate from the Commissioner of Forests as well as
Specific Authority from the Central Bank.  The Bank grants such authority following consultation
with the Commissioner of Forests on indicative world log prices.  From 1997, Special Authority from
the Central Bank is also required for export of gold and other minerals.
(ii) Export taxes
78. The Solomon Islands imposes export taxes, principally for revenue purposes, on the f.o.b.
value of a range of products (Table III.3).  Export tax remissions and exemptions, especially on fish
products and until recently on logs, have benefited certain activities and producers, and reducedSolomon Islands WT/TPR/S/45
Page 53
export tax levels to well below scheduled rates.5 It was announced in the 1998 Budget that export
taxes would be raised by two percentage points on certain items, including palm oil and copra.
Table III.3
Export taxes, 1998
(per cent)
HS tariff item Commodity description Rate (%)
0105.000 Live poultry Free
01.06 Other live animals
Reptiles and insects; wild or domesticated birds 10
03.01 Live fish
Ornamental and other live fish 10
03.02 Fish, fresh, chilled or frozen
Skipjack, bonito, tuna, bill fish and sword fish 5
Fish fillets and other fish meat (whether or not minced) 5
Fish, dried, salted or in brine 5
Other fish including reef-fish 10
03.06 Crustaceans of all kinds, whether in shell or not, including lobsters, crabs, crayfish,
shrimps and prawns
Live and aquarium crustaceans, fresh, chilled, frozen, dried, salted or in brine crustaceans 10
Farmed or cultivated crustaceans Free
03.07 Molluscs of all kinds, whether in shell or not, including oysters, scallops, mussels, clams,
cuttlefish, squid, octopus and beche-de-mer
Molluscs, live, aquarium and fresh, chilled, frozen, dried, salted or in brine 10
Culture clams whether or not for aquarium purposes Free
04.09 Natural honey Free
05.07 Tortoise shell, unworked or simply prepared 10
05.08 Coral and similar materials
Coral of all kind 10
Shells, trochus, greensnail and blacklips 30
Other shells Free
07.01 Vegetables Free
07.14 Manioc Free
08.01 Coconut Free
08.03 Bananas Free
08.04 Pineapples, avocados, guavas, mangoes, citrus fruit Free
08.07 Melons, pawpaw, all spices, rice Free
12.03 Copra below SI$350 per tonne Free
Copra above SI$350 per tonne 5
Palm nuts and kernels Free
14.02 Rattans 30
15.11 Palm oil 5
15.13 Coconut oil Free
16.14 Prepared or preserved fish in tin Free
18.01 Cocoa beans 2.5
19.02 Noodles Free
Table III.3 (cont'd)
                                                     
5The Government in early 1998 extended to all companies a remission of 50% of the export tax on logs
to provide temporary relief from the slump in log export prices and to help clear stockpiled logs;  stocks stood atan estimated 150,000 cubic metres in October 1997.WT/TPR/S/45 Trade Policy Review
Page 54
HS tariff item Commodity description Rate (%)
22.02 Aerated waters, soft drinks Free
22.03 Beer Free
23.08 Flours, meals and pellets of meat or meat offals of fish Free
23.06 Oil-cake of coconut Free
24.03 Manufactured tobacco Free
26.04 Nickel ores and concentrates Free
26.16 Alluvial gold Free
27.01 Minerals Free
32.08 Paints Free
34.01 Soap Free
41.03 Crocodile skin 10
44.03 Wood in rough, round logs
Below SI$250 per cubic metre 35
Above SI$250 per cubic metre 38
44.07 Processed lumber Free
44.12 Plywood, etc Free
44.20 Wood carvings Free
46.01 Plaits, matting material, etc Free
62.01 Apparel and clothing accessories Free
71.08 Refined gold 20
72.04 Metal waste and scrap – ferrous SI$1.50 per  tonne
74.04 Copper waste and scrap 15
76.02 Aluminium waste and scrap 15
97.06 Antiques 10
Note: Excludes the increase in export duties of 2 percentage points on certain items, such as palm oil and copra, announced in t he 1998
Budget.  Commodities with a free rate of export tax nevertheless remain listed in the Export Schedule annexed to the Customs
Tariff and may therefore have the rate increased at any time.
Source: Government of Solomon Islands.
79. Export taxes represent a significant share of government revenue, mainly from taxes levied on
fish and log exports, the latter having been increased substantially since 1992 to tax what were seen as
significant rents earned by exporters (Chart III.3).  These export taxes are used to capture the resource
rents associated with natural-resource-based products, and to promote downstream value added.
However, like import tariffs, export taxes are distortive and an inefficient means of taxing resourcerents;  they may also constitute a disincentive to conserve natural resources since they do not
discourage over-production.  Export taxes compound the anti-export bias inherent in the Solomon
Islands system of import duties.  They also benefit what may be inefficient domestic downstream
processors by providing access to raw materials, such as fish and round logs at below world prices
(Box IV.3)), and may require special measures to be introduced to control tax evasion.
80. Export taxes on frozen tuna are assessed by customs using a benchmark price of SI$1,800 per
tonne.  However, payment is adjusted to actual prices, after shipment.Solomon Islands WT/TPR/S/45
Page 55
88%91%
90%98%
94%
95%
12%9% 10%
2%6%5%100%100%
100%100%
100%
100%
0102030405060708090
1992 1993 1994 1995 1996 1997SI$ million and per cent
aSource :Estimates.
Asian Development Bank, 1997; Economic Report on Solomon Islands, 1998.Chart III.3
Com position of ex port taxes , 1992-97
Logs 
Other
Total
aa
(iii) Export prohibitions, controls and licensing
81. Exports of war relics, bait fish, traditional artefacts and any wildlife under Annex I of CITES
are prohibited (Section 37 of Customs and Excise Act).  Laws relating to environmental and resourceprotection maintained by the Fisheries Department also control exports of endangered species, such as
bêche-de-mer and trochus shells.
82. Export licences are applicable to round logs and gold, as well as other minerals from 1997.
Special authority is needed from the Central Bank, and a licence issued by the Department of Forests
or the Department of Mines, respectively, to export logs and gold.  This is primarily designed tocontrol transfer pricing and the evasion of export taxes through under-pricing of log and gold exports.
(iv) Export quotas and voluntary restraints
83. The Solomon Islands maintains no export quotas or voluntary export restraints, according to
the authorities.
(v) State trading
84. The Commodity Export Marketing Authority has exclusive rights over the export of copra
and cocoa as part of the Government’s marketing and price stabilization arrangements for thesecommodities.WT/TPR/S/45 Trade Policy Review
Page 56
(vi) Export subsidies
85. The Solomon Islands does not provide export subsidies.  However, full income tax relief may
be granted by the Commissioner of Taxation following  approval by the Foreign Investment Board on
export profits.  The tax holiday period commences when the firm first exports, and is tied to the level
of local value added.  A six-year holiday is granted for firms with local value added of 75% and over,
and three years for firms with 25% to 40% loca l value added.  Firms exporting their total output
receive tax relief for five years, irrespective of the degree of local value added.  These time periods
may be extended by the Board for up to five years where the firm is undertaking substantial additional
investment, and has met its conditions under the original project.  The income tax relief is available
widely to firms exporting manufactured or processed goods, fresh seafood or fresh agricultural
produce.
86. All firms may also deduct for income tax purposes 150% of any expenditure incurred on
export marketing and promotion, including overseas advertising and trade fairs.
(vii) Duty drawback and tax concessions
87. The Solomon Islands presently has no duty drawback or tariff concession schemes.
Therefore, exporters are not entitled to any reimbursement of tariff duties paid on imported inputsused in processing exports.
88. Exports are exempt from excise and other commodity taxes.  However, since petroleum fuels
are subject to import tariffs and not excise taxes, exporters are not exempt from these tariffs unless
special approval is granted, for example, by the Minister of Finance (Section 8 of the Customs and
Excise Act).  Exports of logs by major logging companies, and of canned fish, benefit from excise
duty exemptions on fuel products.
(viii) Export finance, promotion and processing zones
89. The Central Bank does not operate any credit financing or insurance facilities for exporters.
(ix) Export-processing zones
90. The Solomon Islands has no export-processing zones.
(x) Other measures
91. There are no export cartels in the Solomon Islands.
(4) INTERNAL MEASURES
(i) Taxation concessions and subsidies
92. As indicated above, the Government extends financial assistance often on a discretionary
basis, to industry mainly through a range of tax concessions.  These special concessions assist
selective recipients in the same way as direct government outlays, either by reducing their taxpayments overall or, as in the case of accelerated depreciation arrangements for income tax purposes,
by deferring tax payments.
6 Tax concessions erode the tax base, and the revenue forgone has been a
                                                     
6Deferred tax payments assist recipients by providing them with an interest-free loan.  The amount of
this assistance, and the cost to the Government, is the value of the interest rate concession.Solomon Islands WT/TPR/S/45
Page 57
major contributor to the Government’s perilous budgetary position.  Many other tax concessions
extended to certain taxpayers as investment incentives and for various other reasons, remain in force,
and may prove difficult to terminate in the short term, such as the 50% exemption on fuel duties
granted to certain loggers.
93. Various types of tax concessions are available in the Solomon Islands, which in the past were
granted without any well-defined criteria being applied.  As noted above, the Minister of Finance haswide discretion to extend tariff, export and excise tax concessions.  Moreover, although the list has
been reduced, the Customs Act also provides for exemptions of import duties for tourism
development for two years and on printing paper and bookbinding materials.  Another major source of
tax concessions is the Foreign Investment Board, which grants investment incentives to foreign and
domestic investors (see Chapter II, section 8).  Such selective tax concessions that are not available toall impede efficient market outcomes, as recipients benefit at the expense of other activities.
94. The widespread and discretionary use of tax concessions by the previous government has
seriously undermined the efficiency of the commodity tax system.  Past governments have used these
incentives to protect and promote the activities of individual firms, often in conflict with national
economic interests.  The estimated value of remissions and exemptions on Customs duties in the firstten months of 1997 was over SI$80 million, of which almost SI$20 million was for log export duties,
SI$6 million on beer and food and SI$16 million on vehicles and equipment.  This represented about
40% of estimated total collectable customs revenue.
7  A more efficient method of promoting
economic activities would be simply to reduce and rationalize tax rates.
95. The current Government recognizes that the lack of transparency by the previous government
in providing these incentives reduced their effectiv eness.  It has established an inter-ministerial
committee to examine appropriate criteria for using such concessions, and to review their justification.The committee comprises of senior officials from the Ministry of Commerce, Employment and
Tourism and the Ministry of Finance and is due to report to government shortly.  The stated objective
is to review the existing procedures for tax concessions, remissions and concessions to ensure that
they are granted within transparent policy guidel ines only in cases where they are in the national
interest.  It intends to introduce legislation soon to gazette all tax and duty incentives on acase-by-case-basis with an appropriate explanation of their rationale.
(ii) Research and development
96. The Government provides very limited direct funding to research and development activities.
The Ministry of Agriculture funds some scientific research in sectors of direct relevance to the export
sector.  Government expenditure on agricultural research, including wages, was around SI$1.5 millionin 1995.
(iii) Competition policy
97. There is no specific competition law in the Solomon Islands.  The only laws protecting
consumers from unfair trade practices are the Consumer and Protection Act, which prohibits the sale
of unsafe and poor quality products, and the Weights  and Measures Act.  However, the Government
intends to take the necessary further steps to ensure that consumers are protected against unfair trade
practices.
                                                     
7Government, Inception Report, Statement by Minister of Finance on The Position and Short-Term
Outlook for Public Finance, p. 2.WT/TPR/S/45 Trade Policy Review
Page 58
(iv) Price control
98. The Government controls maximum wholesale and retail prices on a range of staple items,
including certain brands and types of milk, tinned meat and fish, sugar, soap, rice, cooking oil, curry
powder, biscuits, liquid petroleum gas, petroleum products, bread, electricity and water charges
(Table III.4).  The responsible Minister, the Mi nister for Indigenous Business Development, may
apply price restrictions on any good or service, under the guidance of the Prices Advisory Committee(The Price Control Act of 1982).  Goods curr ently subject to these arrangements, and the
corresponding price limits are contained in the Pr ice Control (Application to Goods and Restriction of
Prices) Order of 1987.  Price controls apply to Honi ara and the six main provincial centres of Gizo,
Auki, Tulagi, Kirakira, Buala and Lata.  They are not applied outside these areas because of
enforcement and administration difficulties.
Table III.4
Price controls in Honiara
Product description Maximum wholesale price (maximum
percentage mark-up)Maximum retail price (maximum percentage
mark-up)
Milk – powder & condensed Landed cost plus 10% Cost into store plus 10%
Meat – corned beef, ox & palmcorned beef, Ma ling luncheon
meat, Peck’s braised steak &
onionsLanded cost plus 10% Cost into store plus 10%
Fish – canned tuna Landed cost plus 6% Cost into store plus 9%
Fish – canned mackerel Landed cost plus 10% Cost into store plus 13%
Sugar Landed cost plus 10% Cost into store plus 13%
Flour Landed cost plus 10% Cost into store plus 13%
Bath soap Landed cost plus 10% Cost into store plus 13%
Washing soap Landed cost plus 10% Cost into store plus 13%
Rice – local purchases Landed cost plus 6% Cost into store plus 9%
Rice – direct imports Landed cost plus 9% Cost into store plus 9%
Cooking oil Landed cost plus 10% Cost into store plus 13%
Curry powder Landed cost plus 10% Cost into store plus 13%
Cabin or navy biscuits Landed cost plus 10% Cost into store plus 13%
Bread SI$0.45 per loaf SI$0.50 per loaf
SI$0.90 per loaf SI$1.00 per loaf
Liquid petroleum gas Landed cost plus 6% Wholesale price plus handling charges plus 15%
Petroleum motor spirit 115.32 cents per litre 151.15 cents per litre
Distillate 109.49 cents per litre 149.62 cents per litre
Kerosene     99.5 cents per litre Cost into store plus 15% (packaged product) and
20% for bulk sales
Source: Government of Solomon Islands.
99. The maximum prices of controlled goods, with the exception of petroleum products, are set
by applying prescribed upper percentage mark-ups to cover overheads and profit.  The maximumwholesale price is determined by applying the mark-up to the item’s landed duty-paid cost, or itsSolomon Islands WT/TPR/S/45
Page 59
factory costs if produced locally.  The maximum retail price is set by applying this mark-up to the
retailer’s "cost into store" (wholesale price plus transportation costs).  These percentage mark-ups
vary across products and provincial regions and are higher at the retail level.
100. Maximum fixed wholesale and retail prices are set for petroleum products (petrol, diesel and
kerosene).  Landed costs of the two importers of these products is reviewed quarterly, and onshore
costs and return on investment revised annually.  The current maximum wholesale and retail pricesfor petrol are 115.32 and 151.15 cents per litre, respectively; for diesel 109.49 and 147.62 cents per
litre;  and for kerosene the prices are 99.5 and 115.15 cents per litre.
101. The Authorities see these price control measures as striking a balance between consumer and
business interests in markets where it is felt that prices may otherwise be too high, due to low
competition, insufficient information, shortages or protected businesses.  The Governmentnevertheless has signalled its intentions to move away from reliance on price regulation and controls,
believing that these distort the market.  The Govern ment intends to review the Price Control Act and
the coverage of items.
(v) Corporatization and privatization
102. State-owned public enterprises and statutory authorities occupy a prominent position in the
Solomon Islands.  They number over 30 and contribute significantly to GDP.  Over 20 statutory
authorities, responsible to relevant ministries, provide key services.  These include electricity
(Solomon Islands Electricity Authority), water (Solomon Islands Water Authority), ports (Solomon
Islands Ports Authority), postal services (Solomon Islands Postal Corporation), broadcasting
(Solomon Islands Broadcasting Commission), c opra and cocoa marketing (Commodity Export
Marketing Authority) and the Livestock Development Authority.  These authorities are a major drain
on public finances.
103. The Government also funds other enterprises through the operations of the Investment
Corporation of the Solomon Islands (ICSI), a wholly-owned statutory authority created under
legislation in 1988.
8  ICSI currently has equity holdings in ei ght main enterprises, with full ownership
in four:  Solomon Airlines, National Shipping Services, Sasape Marina, and Solomon Islands Printers
(Table III.5).
Table III.5
Share portfolio of Investment Corporation of Solomon Islands
Company name Ownership share (%) Equity holding (SI$’000)
Solomon Islands Plantation Ltd 30 19,162
Solomon Airlines Ltd 100 28,203
Solomon Telekom Company Ltd 58 18,149
Kolombangara Forest Products Ltd 49 7,204
Sasape Marina Ltd 100 591
Solomon Taiyo Ltd 51 4,163
Solomon Islands Printers Ltd 100 3,365
National Shipping Services Ltd 100 6,111
Air Pacific Ltd 0.2 70
Pacific Forum Line Ltd 0.2 57
TOTAL 101,228
Source: Government of Solomon Islands.
                                                     
8The Central Bank holds 10% of ICSI’s shares.WT/TPR/S/45 Trade Policy Review
Page 60
104. The ICSI has performed poorly in financial terms.  Annual capital injections from the
Government, totalling SI$15 million were needed from 1993 to 1996.  Although there have been no
further injections since then, ICSI has only two profitable investments, Solomon Telekom and
Solomon Islands Plantation Limited, which are both partially government-owned.  Dividends from
these entities have effectively cross-subsidized the ICSI’s debt and loss-making holdings in other
companies.  All four of its wholly-owned entities  have performed unprofitably, and the ICSI now has
large accumulated losses, amounting to SI$52.8 million at the end of 1995, the latest year for which
audited reports were available.  ICSI also has substantial debt of over SI$10 million with the National
Provident Fund (NPF) through issuing government- guaranteed bonds to repay outstanding debts and
to inject further funds into the fish cannery run by Solomon Taiyo.9
105. The NPF is a statutory body under the Ministry of Finance (and chaired by its Permanent
Secretary).  It runs a national savings scheme, receiving compulsory levies paid by employers and
employees.  It has become an important source of government-guaranteed loans for government
enterprises.  Outstanding loans to these enterprises amounted to SI$45.5 million in September 1997.
In addition to loans of SI$10 million to the ICSI, the NPF had lent funds to Solomon Taiyo and the
Solomon Islands Electricity Authority.  The Government is considering a debt-equity swap betweenthe ICSI and the NPF as a means of eliminating some of ICSI’s debt.
106. The poor financial performance of most government-owned enterprises is in many cases
symptomatic of poor management and operating inefficiencies.  In some cases, the ventures
themselves appear to have been highly questionable in terms of commercial soundness and viability.
Political and government interference in the ICSI’s operations has also at times undermined its
commercial independence by requiring it to meet social objectives and engage in uneconomic
transactions.  Direct control of the ICSI is exercised by the Government through the Minister ofFinance, who directly appoints the Board of Directors as well as the Chairman (who must be a
non-board member) and the Deputy Chairman.  The Government also has direct influence over the
management and operations of ICSI’s portfolio companies since their board members are appointed
by the ICSI board.
10
107. There is a need to improve the efficiency of utilities providing services.  Most services are
supplied to captive markets by State monopolies that are devoid of competitive pressures and
commercial disciplines.  This has been a major factor inhibiting growth in the Solomon Islands.
Access to good quality inputs at efficient prices would assist the international competitiveness of
domestic user industries; efficient provision at competitive prices is seen by potential foreign
investors as an essential precondition for investment.
108. Some limited privatization and divestment of government holdings occurred in the early
1990s (Solrice, Mendana Hotel, National Fisheries Development and the National Bank of Solomon
Islands).  Moreover, although a few government enterprises have been "corporatized", such as water
in 1994 (Solomon Islands Water Authority) and postal services in late 1996 (Postal Commission),
they remain under government influence and cont rol for important commercial decisions, such as
investment and setting pricing structures.  They are also frequently used by the Government to meet
non-commercial community service objectives.
                                                     
9The ICSI divested its holdings in Solomon Islands Supplies Limited in 1996 to its former management
and employees for SI$5.3 million, financed through an interest-free government loan.  ICSI  also sold itsshareholding in Lever Solomon Islands in 1996 to the Commodities Export Marketing Authority.
10For joint-venture companies, ICSI appoints two or three representatives, depending on the level of its
shareholdings.  In the case of fully-owned companies, the ICSI board appoints all board members.Solomon Islands WT/TPR/S/45
Page 61
109. The Government is currently reviewing its state-owned enterprises.  It is committed to
improving their efficiency, including through greater private-sector participation via privatization and
divestment.  However, despite stated intentions, little has happened so far.  Efforts to achieve priority
privatization of a few key services, such as increasing private ownership of Solomon Telekom, as part
of the 1998 Budget deliberations, appear to have stalled.  The Government reaffirmed its intentions in
the 1998 Budget to sell ICSI portfolio companies and shareholdings where possible, only retaining
small minority interests for a possible Unit Trust.  Solomon Telekom and Solomon Islands Plantations
Limited (SIPL) are expected to be privatized in late 1998 or early 1999.
110. Decisions on which entities privatize or divest should not primarily reflect revenue prospects,
but be aimed at making markets for key services more competitive and efficient.  A number of  ICSI’s
holdings, such as the timber operations of SIPL and Kolombangara Forest Products Limited (KFPL),would seem well suited for divestment and some form of private operation (Box III.2).
Box III.2:  Greater private-sector participation in public utilities
Increased private-sector participation is likely to br ing most efficiency benefits when it is accompanied by
efforts to make the market more competitive.
A number of different types of arrangements may be used to increase private-sector participation in public
utilities:
Service contract :  private firm supplies specific services, e.g. meter reading;
Management contract :  private firm takes over operation and maintenance of utility, and makes day-to-day
management decisions;
Lease contract : private firm leases facilities and operates and manages th e utility, includi ng financing of
working capital and replacement of assets;
Concession arrangement - build, operate and transfer (BOT) :  private firm acquires ownership of assets
and completely runs the u tility for a certain period, e.g. 20 years, and then tr ansfers utility back to public
authority;
Divestiture/privatization : private firm takes complete control of utility by purchasing assets.  Such firms may
be subject to specific regulatory controls on pricing behaviour, or fall under general anti-competitive
legislation that prohib its non-competitive pricing.
Source:  Asian Development Bank [or is it ADB?], 1997.
111. Privatization of some public utilities, such as ports, electricity and water, may raise legitimate
monopoly concerns that a single private supplier may charge inappropriately high prices to consumers
of essential services that are generally non-traded.  The domestic market in a small country like the
Solomon Islands are often seen as too small to support more than one supplier, especially where there
are significant economies of scale and scope.  While these are real concerns, they do not necessarilyjustify public provision.  Many utility services may be provided efficiently through commercial
presence of foreign investors.  The benefits from privatization may be substantially increased if
legislated barriers to competition are removed, such as foreign investment restrictions.
112. According to the authorities, the Solomon Islands Government intends to pursue a policy of
privatization that recognizes the very small size of the domestic capital market.  However, while theWT/TPR/S/45 Trade Policy Review
Page 62
Government will seek substantial overseas participation in its privatization programme, complete
privatization of major utilities is unlikely in the foreseeable future.  Although determined on a
case-by-case basis, it also appears that foreign ownership limits will apply to joint-ventures.  The
Government intends to divest a further 40% share of Solomon Telekom, probably to its joint-venture
partner, Cable and Wireless.  The estimated selling price is SI$6 million.
(vi) Agricultural marketing arrangements
113. The Commodities Export Marketing Authority was established by legislation in 1984 to
market a range of agricultural commodities, including copra and cocoa, palm oil, spices (chillies and
ginger), coffee and ngali nuts.  It has administered a price stabilization scheme for copra since its
inception, and a similar scheme for cocoa is to be introduced from 1999.  According to the authorities,
the Authority also supplies farmers with certain agricultural inputs, such as fertilizer, twine, bags anddrums, at cost.
114. The Authority has exclusive rights over exports of copra and cocoa:  it buys copra directly
from coconut growers or from small dealers, and is the only licensed exporter;  cocoa is exported by
the Authority and seven dealers licensed by it.  The Authority is being restructured to separate the
trading and commercial functions from its regulatory and administrative functions.  This will includehaving separate development funds for each commodity.
115. The copra price stabilization scheme is aimed at smoothing out growers export returns from
fluctuations in world prices.  Although it has been self-funded in recent years, it received injections of
funds from STABEX in 1985 and 1989, and cash injections from the Government totalling
SI$7.7 million in 1990 and 1991 when the Development Price Support Fund (DPSF) became
insolvent.  Since 1991, copra export returns have substantially exceeded stabilized prices in each year,
except 1993;  in 1997 the DPSF balance was SI$30.7 million, equivalent to some 82% of copraexports in that year.  The Authority has recorded an overall loss on its operations in each year since
1993;  this has been met by a government grant amortized at approximately SI$1 million per year
116. The Authority declares monthly producer prices for copra based on the estimated f.o.b. price,
adjusted either by a stabilization levy or bounty.  The amount of the levy or bounty in any year is set
as 50% of the difference between the stabilized or threshold price and the comparable export pricereceived by the Authority.  The grower receives a bounty when the f.o.b. price falls below the
threshold return, and pays a levy when the price received exceeds the stabilized level (Chart III.4).
The threshold price is set each calendar year by averaging the f.o.b. prices of the previous five years.
The export price is the Authority average monthly c.i.f. price in U.S. dollars, adjusted to an f.o.b.
equivalent by deducting freight, shrinkage and discounts, and converted to S.I. dollars.  The declaredproducer price is reduced by the export tax paid by the Authority and its administrative costs.  It is set
for third-grade copra, and a premium of SI$20 and SI$30 per tonne is paid for second- and first-grade
copra, respectively.Solomon Islands WT/TPR/S/45
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0
Bounty paid when 
estimated f.o.b. price is 
below threshold price.Bounty calculated at 50% 
of difference between the 
threshold price and the 
estimated priceLevy collected when 
estimated f.o.b. price 
exceeds threshold priceLevy calculated at 50% of  
difference between 
estimated f.o.b. price and 
threshold priceEstimated f.o.b. price 
less
Average monthly c.i.f. price
(US$/tonne)
less
Freight/shrinkage/discount
add
Premium
converted to SI$
Estimated f.o.b. price 
less
Average monthly c.i.f. price
(US$/tonne)
less
Freight/shrinkage/discount
add
Premium
converted to SI$
PricePriceChart III.4
Illustration of the copra price stabilization scheme
Source :   Commodities Export Marketing Authority.
117. The stabilization scheme to be applied to cocoa from 1999 is intended to operate in the same
manner (Chart III.5).  However, the threshold or stabilization price is to be set as a moving average off.o.b. prices for the previous seven years.  Since cocoa exports are made by other licensed sellers, the
current export return will be their monthly average delivered-in-store (DIS) price to growers, adjusted
to an f.o.b. equivalent by adding the export tax, a management levy, fixed at SI$10 per tonne, and an
exporter’s margin, set at 24%.  The levy/bounty rate is to be 50% of the price on exported and
non-exported cocoa and nibs, and one third of this rate for residues.  The licensed exporter will paythe grower the assessed producer price (the DIS pri ce plus the declared bounty price or less the levy),
and will settle with the Authority each month.
118. The maximum value of the cocoa stabilization fund is to be limited to 125% of the average
value of cocoa exports in the preceding three years.  Any surplus will be returned to growers.
Maximum yearly pay-in or pay-outs have also been set at 50% of the fund’s balance to ensure that itis not rapidly depleted.  The cocoa fund is to be self-financing, but if reserves become depleted due to
a sustained fall in world prices, the Authority would request assistance from STABEX funds.WT/TPR/S/45 Trade Policy Review
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0
Bounty paid when 
calculated f.o.b. price is below threshold price.Bounty calculated at 50% of 
difference between threshold price and  estimated priceLevy collected when 
calculated f.o.b. price 
exceeds threshold priceLevy calculated at 50% of 
difference between calculated 
f.o.b. price and threshold priceCalculated f.o.b. price 
less
Average monthly DIS price
add
Management levy
add
Exporter's margin
add
Export tax
PricePriceChart III.5
Illustration of the proposed cocoa price stabilization scheme
Source :    Commodities Export Marketing Authority.Calculated f.o.b. price 
less
Average monthly DIS price
add
Management levy
add
Exporter's margin
add
Export tax
119. The Authority’s pooled expenses are met from its copra exports and other revenue.  In 1997,
these costs were SI$5.5 million, equivalent to about 15% of its copra receipts in that year.  Thiscompares to 16% in 1996 and 22% in 1995.  Thus, growers received about 85% of their export
receipts net of the Authority’s expenses in 1995.  However, this share fell to around 70% in 1997 after
allowing for the export tax (2.5%) and the levy paid to the stabilization fund.  Substantial stabilization
levies have been collected by the Authority continuously since 1993, averaging some 18% of export
sales, but reaching as high as 27% in 1995.
11  Since 1993, growers have received, on average, only
about 65% of export returns, after payment of levies, export taxes and the Authority’s expenses.
120. Although the stabilization levies will be returned to farmers as higher prices when the world
price falls to below the threshold level, they may still have undesirable effects by suppressing the
transfer of price signals back to growers.  For example, they are likely to mute the beneficial effects of
                                                     
11In that year, coconut growers received only about 60% of their export returns, net of the Authority’s
costs, stabilization levy and the export tax of 2.5%.Solomon Islands WT/TPR/S/45
Page 65
the recent currency devaluation on their export returns.  This affects grower’s supply responses, and
encourages them to produce less when world prices are high, and more when world prices are
depressed.  This may accentuate price instability.
121. Stabilization funds can accumulate large liabilities in times of sustained falls in world prices,
requiring substantial government funding.  This happened to the Authority in 1990 and 1991.
Moreover, monopoly marketing boards without competition can become inefficient and quite costlyoperations for farmers to finance.  Although the Authority’s costs may not currently be excessive,
running at about 15% of export receipts, they nevertheless operate at a loss, which is subsidized by the
Government, at about SI$1 million annually.
(vii) Other measures
122. The Development Bank of the Solomon Islands, a statutory body, was formed to provide
loans to indigenous peoples.  As at end-1996, it had outstanding loans of SI$32 million.  Its financial
position, while making small profits in recent years, remains tenuous, with almost 17% of its loans in
arrears.  It provides little lending to agriculture, with most recent lending directed towards commercial
and service activities in Honiara.  It maintains a minimum 35% equity requirement on all loans.  It
also administers a number of small credit schemes funded by aid agencies, such as the Credit Scheme
for Youth.
123. Since 1990, the Central Bank has funded a Small Business Finance Scheme administered by
the commercial banks as well as the Development Bank (since 1993).
12  The Scheme provides loans
of up to SI$200,000 to small businesses, including to joint ventures having at least 50% local
ownership.  There is an 80% loan guarantee for loans nominated by banks, and a 100% guarantee for
Small Manufacturing Industries (SMI) projects submitted  by the Ministry of Commerce,
Employment and Tourism.  It also provides a 6% interest rate subsidy and a 100% refinance facilityon request.  In 1996, new loans of SI$0.5 million were guaranteed by the Bank.  In total, the Bank has
approved 303 loans worth SI$11 million, and provided guarantees worth SI$4 million.  Most loans are
in the retail and transportation sectors.
124. There are two developed industrial estates in th e Solomon Islands at Honiara and Auki.  Other
sites have been earmarked for development at Lunga (Guadalcanal Province), Noro (Western
Province), Bina (Malaita province), Marou Bay (Makira Province) and Tulagi (Central Province);
however no action has been taken.
(5) I
NTELLECTUAL PROPERTY PROTECTION
125. The Solomon Islands intellectual property legislation comprises the Registration of
United Kingdom Patent Act of 1924;  the Registration of United Kingdom Trade Marks Act of 1939;and the Copyright Act of 1987.  However, the first two acts predate independence and therefore are no
longer applied.  The Government intends to bring its intellectual property legislation into conformity
with WTO obligations by 2002, well within its requirements under the TRIPS Agreement.
126. The only type of intellectual property legislation passed in the Solomon Islands is on
copyright.  It covers literary, dramatic, musical and artistic works as well as sound recordings,cinematograph films and broadcasts.  In the case of literary work, the period of protection is generally
50 years.  However, the legislation has not been implemented because it has not been gazetted.
                                                     
12The Scheme combined three earlier schemes.  These were the Small Loan Guarantee Scheme, the
Interest Rate Subsidy Scheme, and the Export Guarantee Scheme.WT/TPR/S/45 Trade Policy Review
Page 66
127. The Solomon Islands is not a member of the World Intellectual Property Organization
(WIPO);  neither is it a signatory to the Paris Convention, the Berne Convention, the Rome
Convention nor the Treaty on Intellectual Property in Respect of Integrated Circuits.
128. There are no provisions in the Customs and Excise Act for the seizure of imported goods that
infringe intellectual property rights restrictions apply to parallel imports.