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PRESS RELEASE
PRESS/TPRB/87
5 November 1998 Trinidad
and Tobago should diversify exports away from oil to ensure economic stabilty Back to top
Trinidad and Tobago should reduce
its excessive dependence on the production and export of fuels which makes it vulnerable
to world market prices. A new WTO report and the first on Trinidad and Tobago's trade
policies and practices praises the country's liberalization and deregulation since the mid
1980s but warns that the annual economic growth of more than 3 percent between 1994 and
1997 could slow given forecasts for lower oil prices in the medium-to-long term.
The WTO Secretariat report and a
policy statement prepared by the Government of Trinidad and Tobago will provide the basis
for a discussion at the WTO on 12 and 13 November 1998.
The WTO report notes that Trinidad
and Tobago's economy grew rapidly between 1973 and 1982, mainly thanks to high oil prices
and increased foreign investment and consumption. However, falling oil prices, thereafter,
resulted in contracting output, declining per capita income, high unemployment, rising
current account deficits and loss of foreign exchange reserves. In response, Trinidad and
Tobago introduced in 1988 a programme of structural reform and liberalization, which was
further strengthened in the 1990s. As a result, numerous restrictions to trade were
eliminated and the overall average level of tariff protection was reduced.
According to the WTO's report,
Trinidad and Tobago derives most of its income from oil and oil-based products and
petrochemicals, with exports of fuel accounting for over 20% of GDP and 73% of foreign
exchange earnings. Most of Trinidad and Tobago's fuel goes to the United States. Concerned
by its strong dependence on a single product and market, Trinidad and Tobago is acting to
diversify its economy away from the petroleum sector, by developing non-oil manufacturing
activities as well as services, such as trans-shipment and trading.
The oil and gas sector attracts the
most foreign investment. Currently, more than half of foreign investment is in the energy
sector and related downstream activities, with the United States being the largest foreign
investor. In order to increase and diversify its level of foreign and domestic investment,
the Government of Trinidad and Tobago is actively working on a new, more efficient and
transparent way of attracting investment.
The trade surplus enjoyed by
Trinidad and Tobago throughout the first half of the 1990s is giving way to a trade
deficit. In the last two years, imports grew faster than exports and were fuelled by rapid
increases in consumer and capital goods as the economy has expanded and the local currency
appreciated in real terms. Between 1993 and 1997, imports more than doubled, while exports
increased by around 50%. In 1997 the trade deficit totaled US$610 million. This is set to
decrease slightly in 1998.
The report notes that Trinidad and
Tobago is a founding member of the Caribbean Community and Common Market (CARICOM) and as
such adopted CARICOM's Common External Tariff (CET) in 1991 and implemented between 1995
and 1 July 1998 the four-phase schedule of CET reductions. As a result of this
implementation, Trinidad and Tobago lowered its maximum tariff on industrial goods from 35
to 20%. In the case of agricultural goods, CET rates now range between 0 and 40%. The
average applied CET Most-Favoured-Nation (MFN) tariff is currently 9.1%, down from 11.2%
in 1997. For agriculture, the average is 19.1% (down from 19.6%) and for industry, 7%
(down from 9%). In general, the tariff structure offers higher protection to final
consumption goods and agricultural products than to inputs and capital goods. Final goods
that compete with domestic or CARICOM production face the highest rates.
The report adds that Trinidad and
Tobago applies import surcharges on a number of agricultural products. While the
Government plans to eliminate or reduce some of these surcharges, some will remain. For
example, import surcharges of 60% on sugar, 75% on icing sugar, and 86% on some poultry
cuts are expected to remain in place beyond 2004, considerably exceeding the 15% level
bound during the Uruguay Round and included in Trinidad and Tobago's schedule of
concessions.
The contribution of agriculture and
food processing to GDP is just above 5%, but the sector employs some 14% of the labour
force. While sugar is the main agricultural export, Trinidad and Tobago is a net importer
of agricultural products (mainly cereals, dairy products, oil seeds and vegetables).
Exports of sugar depend primarily on the quota arrangements with the European Union and
the United States which offer guaranteed prices above world levels.
The report states that while
Trinidad and Tobago has notified to the WTO that it maintains no export subsidies, it
applies a number of incentives, including tax concessions and duty-free access for imports
of inputs and capital goods. Some are geared to promoting exports, others are designed to
promote the development of specific industries or sectors. The government plans to
eliminate export allowances by the year 2000.
The services sector accounts for
over 60% of its GDP and around 75% of total employment. Financial services are
particularly important accounting for 11.5% of GDP. Activity in services has been largely
liberalized, and market access is fairly open in most sub-sectors. Under the GATS,
Trinidad and Tobago made specific commitments on several services sectors, including
tourism, business (including professional), transport and financial services. Trinidad and
Tobago's Schedule includes horizontal commitments on commercial presence and the presence
of natural persons. Trinidad and Tobago also participated and presented offers in the
subsequent WTO negotiations on telecommunications and financial services. In
telecommunications, the partial privatization had led to a temporary de facto monopoly in
the provision of basic telephony services, but this monopoly is expected to be dismantled
by 2009.
The report also notes that 24
companies currently operate under a free-zone régime. Total exports from free-zone
enterprises have risen from US$6 million in 1993 to US$38 million in 1996. The
establishment and administration of Free Zones is regulated by the Trinidad and Tobago
Free Zones Company, which reviews applications taking into account foreign exchange
earning capacity and employment generation potential. No sectoral limitation is applied.
Companies granted approved status are allowed to supply domestically a maximum of 20% of
goods produced, subject to the payment of import duties
Trinidad and Tobago has updated its
domestic legislation regarding intellectual property rights to bring it in line with the
TRIPS Agreement. The registration of patents, trademarks and industrial designs is
administered by the Intellectual Property Registrar-General, within the Ministry of Legal
Affairs.
The report concludes that while
Trinidad and Tobago's economy was considerably liberalized and deregulated since the mid
1980s, the government will only ensure long-term economic stability by diversifying away
from oil products. This effort, the report states, will be helped by open access to
markets for its non-fuel exports.
Notes to Editors
The WTO's Secretariat report,
together with a policy statement prepared by the Trinidad and Tobago Government, will be
discussed by the WTO Trade Policy Review Body (TPRB) on 12 and 13 November 1998. The WTO's
TPRB conducts a collective evaluation of the full range of trade policies and practices of
each WTO member at regular intervals and monitors significant trends and developments
which may have an impact on the global trading system. The Secretariat report covers the
development of all aspects of each of Trinidad and Tobago's trade policies, including
domestic laws and regulations, the institutional framework, trade policies by measure and
by sector. Since the WTO came into force, the new "areas" of services and
trade-related aspects of intellectual property rights are also covered.
To this press release are attached
the summary observations from the Secretariat report and a summary of the government
policy statement. The full Secretariat and government reports are available for
journalists from the WTO Secretariat on request (call 41 22 739 5019). They are also
available for the press in the newsroom of the WTO internet site (www.wto.org). The
Secretariat report, together with the government policy statement, a report of the TPRB's
discussion and the Chairman's summing up, will be published in hardback in due course and
will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne,
1211 Geneva 21.
Since December 1989, the following
reports have been completed: Argentina (1992),
Australia (1989, 1994 & 1998), Austria (1992), Bangladesh (1992), Benin (1997),
Bolivia (1993), Botswana (1998), Brazil (1992 & 1996), Cameroon (1995), Canada (1990,
1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica
(1995), Côte d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican
Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993,
1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994),
Hungary (1991 & 1998), Iceland (1994), India (1993 & 1998), Indonesia (1991 and
1994), Israel (1994), Jamaica (1998), Japan (1990, 1992, 1995 & 1998), Kenya (1993),
Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia (1993 &
1997), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand
(1990 & 1996), Namibia (1998), Nigeria (1991 & 1998), Norway (1991 & 1996),
Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993),
Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), the
Solomon Islands (1998), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland
(1998), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 &
1995), Tunisia (1994), Turkey (1994 & 1998), the United States (1989, 1992, 1994 &
1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).
The
Secretariats report: summary Back to top
TRADE POLICY REVIEW BODY: TRINIDAD
AND TOBAGO
Report by the Secretariat Summary Observations
Since the mid 1980s, Trinidad and
Tobago has engaged in a process of liberalization and deregulation, which has led to the
elimination of a number of restrictions to trade and to a reduction in the average level
of tariff protection. Few non-price border restrictions to trade remain, and the amendment
of domestic legislation to incorporate Trinidad and Tobago's commitments under the
different WTO agreements has been virtually completed. No direct export subsidies are
granted; however, a complex system of investment incentives remains in place. Regional
trade liberalization undertaken in the Caribbean Community and Common Market (CARICOM) has
gone hand-in-hand with commitments under the multilateral trading system. Trinidad and
Tobago has been in the forefront of compliance with CARICOM's Common External Tariff (CET)
reduction commitments for industrial goods. Tariffs on agricultural goods remain above
average, however, and some products are subject to high import surcharges.
Economic environment
Trinidad and Tobago's economy
relies heavily on production and export of oil and natural gas. Proven oil reserves are
estimated at 12 years' supply at the current level of production, while proven natural gas
reserves have been estimated as sufficient for 55 years of output. Related industrial
activities include oil refining, gas processing and production of ammonia, urea, methanol,
iron and steel.
The economy grew rapidly between
1973 and 1982, triggered by high oil prices, leading to a substantial increase in
investment and consumption. Falling oil prices thereafter led to contracting output,
declining per capita income, high unemployment, rising current account deficits and loss
of foreign exchange reserves. In response, Trinidad and Tobago introduced in 1988 a
programme of structural reform and liberalization, aimed at restoring external balance,
reducing the public sector deficit, and improving financial intermediation. This reform
process was strengthened in the 1990s, when price controls were virtually dismantled,
import duties were reduced under CARICOM provisions and the role of the private sector in
economic activity enhanced. However, there remains a large participation of the State in
the oil/natural gas sector; overall, government consumption and investment represent
between one-fourth and one-third of GDP.
Annual economic growth accelerated
to over 3% a year between 1994 and 1997, as trade and investment liberalization took hold.
Tariffs were cut as a result of the implementation, starting in 1995, of the four-phased
reduction programme of CARICOM's CET, which has lowered the maximum tariff on industrial
goods from 35 to 20%; capital controls were removed; the fixed exchange rate régime was
replaced by a managed float; and a programme of privatization and liquidation of public
enterprises was put in place. GDP growth reached 3.2% in 1997, fuelled by an investment
and consumer spending boom. Initial forecasts point to an acceleration of growth in 1998,
reflecting the effects of massive investment in the oil/natural gas sector. These
forecasts may, however, need to be revised downward, to take into account the negative
effect of the recent decline in oil prices. Although below its peak, unemployment remains
high, at 13.5% at the end of 1997.
As a result of improvements in tax
collection, proceeds from privatization, and reductions in government subsidies and
transfers, Trinidad and Tobago has posted a budget surplus since 1995; the surplus reached
1.8 % of GDP in 1997. Lower oil prices may, however, have a negative impact on public
finances in 1998 and 1999.
External transactions in goods and
services represent over 100% of GDP, with exports of fuels, the main earner of foreign
exchange, accounting for over 20%. Low export diversification and strong dependence on the
oil/natural gas sector make Trinidad and Tobago vulnerable to external shocks. The strong
decline in oil prices occurring in 1998, while imports continue to increase, is likely to
have a negative impact on the current account. Moreover, Trinidad and Tobago's heavy
reliance on a single market, the United States, for exports may add to this
vulnerability, should the U.S. economy slow down.
Until 1997, Trinidad and Tobago
generally posted a trade surplus. Recently, however, imports have grown much faster than
exports, fuelled by rapid increases in consumer and capital goods, as the economy has
expanded and the local currency has appreciated in real terms. Between 1993 and 1997,
imports more than doubled, while exports increased by around 50%, and in 1997 a trade
deficit of US$610 million was registered. In 1998, a trade deficit, albeit smaller than in
1997, is again forecast. The current account, in surplus for most of the 1990s, recorded a
deficit of US$708 million (12.1% of GDP) in 1997. The capital account, fed by direct
investment flows mainly to the oil/natural gas sector, has registered a surplus since
1996, peaking at US$619 million in 1997, leading to a substantial accumulation of net
foreign exchange reserves, which stood at the equivalent of over four months of imports at
end-1997.
Trade policy regime and
objectives
One of the Government's main
policy concerns is to diversify the economy away from its dependence on the petroleum
sector, by developing non-oil manufacturing activities as well as services, such as
transhipment and trading. Other concerns include increasing the level of foreign and
domestic investment, generating permanent employment opportunities, and promoting food
security. The Government also aims to improve the regulatory, legal and fiscal framework
for growth in the energy sector; to maximize local crude oil production; to increase
refining capacity; and to develop downstream natural gas-based industries.
Trinidad and Tobago, a GATT
contracting party since October 1962, became a WTO Member on 1 March 1995. MFN treatment
is accorded to all its trading partners. As a result of the Uruguay Round, most industrial
tariffs are bound at a ceiling rate of 50%; some products are bound at 70%. There is a
substantial gap between bound rates and applied tariffs, which peak at 30%. All
agricultural lines are bound, mostly at 100%. Other duties and charges are bound at 15%.
Trinidad and Tobago has revised and amended several pieces of domestic legislation to
comply with its obligations under the WTO. Thus, anti-dumping legislation and regulations
have been amended to conform to the WTO Anti-dumping Agreement; new Patent and Copyright
Acts have been adopted, and legislation regarding trademarks and industrial designs
amended to conform to the TRIPS Agreement. Legislation with respect to trade secrets and
unfair competition has also been put in place.
Under the GATS, Trinidad and Tobago
made specific commitments on tourism, business (including professional), educational,
health-related, recreational, research and development, recreational, cultural and
sporting, transport and financial services. Trinidad and Tobago's Schedule includes
horizontal commitments on commercial presence and the presence of natural persons.
Trinidad and Tobago also participated and presented offers in the subsequent WTO
negotiations on telecommunications and financial services.
To date, Trinidad and Tobago has not
been involved directly, as either plaintiff or defendant, under the GATT or WTO dispute
settlement mechanisms.
Trinidad and Tobago, a founding
member of CARICOM, adopted CARICOM's CET in 1991, implementing the four-phase schedule of
CET rate reductions between 1995 and 1 July 1998. Deeper integration among CARICOM
countries is expected to result from reforms aimed at consolidating the CARICOM Single
Market and Economy (CSME). Two protocols amending the CARICOM Treaty signed in 1997, are
expected to lead to free movement of goods, services and capital, while further steps are
being taken to liberalize movement of persons. Schedule I of the CARICOM Treaty allows a
few national exceptions to the duty-free entry of goods from other CARICOM member states;
for Trinidad and Tobago these are milk and cream, tyre repair materials, and rubber tyres.
However, Trinidad and Tobago has chosen not to use this exception, and is in the process
of eliminating Schedule I.
CARICOM has preferential trade
agreements with Colombia and Venezuela. Under the Agreement with Colombia, Trinidad and
Tobago, as a CARICOM medium-development country, has bound duty-free access bilaterally as
of 1 June 1998 on a number of products, most of which are already imported duty free.
Actual concessions have been granted on a small number of products, including skipjack and
bonito, and knives and cutting blades for kitchen appliances and lawn mowers. Phased,
bound duty reductions will be extended from 1 January 1999 to another group of
products, including precious stones, some kinds of coated electrodes and rods, and a group
of non-competing inputs and capital goods. Unilateral preferential market access to
Venezuela is granted under the CARICOM/Venezuela Agreement on Trade and Investment.
The Foreign Investment Act of 1990
is expected to be replaced by a new Investment Promotion Act, now in draft, which seeks to
diversify export-related foreign investment. Currently, more than half of foreign
investment is in the energy sector and related downstream activities; the United States is
the largest foreign investor, mainly in the petroleum sector. There are no restricted
sectors for foreign investment; however, approval is required for acquisition of
commercial and residential land exceeding a certain area, or where a licence is needed
(e.g. for drilling, mining or establishment of a bank by any investor, domestic or
foreign; or for acquisition of more than 30% of a publicly held local company by a foreign
investor). Trinidad and Tobago has bilateral investment agreements with Canada, France,
the United Kingdom and the United States; agreements with Argentina, Hungary,
Italy, the Netherlands and Venezuela are under negotiation. Investment issues are also
covered in CARICOM's agreements with Colombia and Venezuela. In addition to the treaty
with other CARICOM members, double taxation treaties have been signed with Canada,
Denmark, France, Germany, Italy, Norway, Sweden, Switzerland, United Kingdom, United
States and Venezuela.
Trade policy by instrument
Border measures
Trinidad and Tobago adopted
CARICOM's CET for all goods, except a group of mainly agricultural products (List A) and
industrial goods (List C) in 1991. Between 1995 and 1998, maximum import duties for
industrial products were lowered from 35% to 20% in four phases. Maximum applied rates for
agricultural goods have remained at 40% during the whole implementation period. As a
consequence of these reductions, Trinidad and Tobago currently has an unweighted average
MFN tariff of 9.1% (slightly higher if ad valorem equivalents of specific duties are
included). Nominal protection is higher for agricultural products, with an average rate of
19.1%, while industrial imports face an average tariff of 7%. The tariff structure offers
higher protection to final consumption goods and agricultural products than to inputs and
capital goods, which are either duty-free or subject to a 2.5 % tariff. Final goods that
compete with domestic or CARICOM production face the highest rates. Exceptions to the CET,
including some motor vehicles, electrical appliances, and jewellery, are charged rates of
up to 30%.
Quantitative restrictions have
largely been dismantled since 1990. Import surcharges are currently applied on a number of
agricultural products. These were originally expected to be eliminated by December 1994,
but this elimination was postponed, although certain surcharges were gradually reduced or
phased out. Under a schedule established in 1995, surcharges on bovine meat and milk were
to be eliminated by 1998; and those on vegetables and fruit are to be eliminated by 1999.
Import surcharges on certain other products will remain after that date; some will be
subject to reductions by 2004, but some will remain. For example, import surcharges of 60%
on sugar, 75% on icing sugar, and 86% on some poultry cuts are expected to remain in place
beyond 2004, considerably exceeding the 15% level bound during the Uruguay Round and
included in Trinidad and Tobago's schedule of concessions.
According to the authorities,
Trinidad and Tobago is de facto applying the WTO Agreement on Customs Valuation, although,
under the Agreement, Trinidad and Tobago, as a developing country, has until end-1999 to
bring its valuation system into conformity with the Agreement.
The Trinidad and Tobago Bureau of
Standards (TTBS), under the Ministry of Trade and Industry is the enquiry point under the
WTO Agreement on Technical Barriers to Trade. Standards are compulsory where they affect
the health and safety of consumers or where they can prevent fraud and deception. The TTBS
has also the right to test against standards for quality and grading, and is authorised to
accept foreign certificates. Environmental standards, using ISO 14000 guidelines, were
adopted in 1997, and are the domain of the Environmental Management Authority.
Trinidad and Tobago is not a
party to the plurilateral Agreement on Government Procurement. Government procurement is
not included in the scope of CARICOM, although an action plan to create a central regional
information-coordinating agency has been launched. Procurement for governmental agencies
is regulated by a Central Tenders Board. Tenders are either selective or competitive, and
are open to foreign suppliers. However, a preferential margin of 10% is accorded to local
suppliers of goods and services, and, in some cases, if tenders go to foreigners, a local
agent may be required.
According to the authorities,
anti-dumping legislation has been brought into conformity with the relevant WTO Agreement.
The Anti-Dumping and Countervailing Duties Act (No.11 of 1992), notified to the WTO in
March 1995, was substantially amended in 1995; however, the amendment has not yet been
notified. To date, the only anti-dumping action taken by Trinidad and Tobago has been an
investigation on imports of cheddar cheese from New Zealand, initiated in
September 1996. In this case, a margin of dumping of 13.93% was calculated; however,
no duty was imposed, since the New Zealand Dairy Board undertook to increase its price of
cheddar cheese exported to Trinidad and Tobago by the amount of the calculated margin of
dumping.
Licences are still needed for the
importation of some products, namely those included in the Import Negative List,
originally used to manage a system of quantitative restrictions to protect infant
industries, and now used mainly for licensing purposes. Currently, the List includes
livestock, meat, fish, sugar, oils and fats, motor vehicles, cigarette papers, small ships
and boats, and pesticides; it does not apply to CARICOM imports, except of oils and fats.
Measures affecting exports,
production and trade
Trinidad and Tobago applies no
export taxes, but a system of export licensing for a number of products, mainly for
security and health purposes but also to control the re-export of capital goods imported
under preferential conditions, is in effect. There are no export quotas, except those
determined under bilateral arrangements, nor specific export performance requirements.
Trinidad and Tobago has notified the
WTO that it maintains no export subsidies. However, a number of incentives are applied,
including tax concessions and duty-free access for imports of inputs and capital goods.
Some are geared to promoting exports, such as export allowances (in the form of tax
credits) under the Corporation Tax Act and the Finance Act; others are designed to promote
the development of specific industries or sectors, such as the customs duty concessions
for imports of capital goods for a wide range of approved manufactured activities. The
Government plans to eliminate export allowances by the year 2000, although Trinidad and
Tobago, as a developing country, is required to comply fully with the disciplines of the
WTO Agreement on Subsidies and Countervailing Measures only in 2003. Duty concessions
under these schemes have, in some cases, already been wiped out by the elimination of
tariffs on non-competing inputs and capital goods.
The establishment and administration
of Free Zones is regulated by the Trinidad and Tobago Free Zones Company, which reviews
applications taking into account foreign exchange earning capacity and employment
generation potential. No sectoral limitation is applied. Companies granted approved status
are allowed to supply domestically a maximum of 20% of goods produced, subject to the
payment of import duties. Since 1997, certificates of origin have been required for goods
manufactured in the Free Zones. There are currently 24 companies operating under the
free-zone régime, with exports totalling US$38 million in 1996.
Although most price controls have
been eliminated, and only the prices of sugar, pharmaceuticals, and school books remain
directly regulated, a number of goods and services are subject to administered prices.
These include certain agricultural products (i.e. coffee, milk, cocoa, etc.), for which
guaranteed prices are paid to producers; the ex-refinery prices of certain fuels; and
utility fares.
Trinidad and Tobago has updated its
domestic legislation regarding intellectual property rights to bring it in line with the
TRIPS Agreement. The registration of patents, trademarks and industrial designs is
administered by the Intellectual Property Registrar-General, within the Ministry of Legal
Affairs.
Measures by sector
Agriculture
The contribution of agriculture
and food processing, beverages and tobacco to GDP, is just above 5%, but the sector
employs some 14% of the labour force. Agricultural exports are dominated by sugar. The
main exports of processed products are beverages and prepared cereals. Trinidad and Tobago
is a net importer of agricultural products; the main imported goods are cereals, dairy
products, oil seeds and vegetables.
In the Uruguay Round, Trinidad and
Tobago bound its tariffs on all agricultural products at ceiling rates of 100%, with the
exception of seven items bound at higher levels; these include poultry, cabbage, lettuce
and coffee. Applied tariffs on agricultural products vary between 0 and 40%; in 1998,
Trinidad and Tobago's simple average MFN tariff on agricultural products was 19.1%. The
highest tariffs are applied to edible fruit and nuts, fish products, edible vegetables,
animal and vegetable fat and oil, and meat and edible meat offal.
Quantity-based measures, previously
applied under the Negative List, were converted to equivalent tariffs in accordance with
the Uruguay Round Agreement on Agriculture. Some agricultural products are subject to
import surcharges; in 1998, surcharges are applied to various parts of poultry (100%),
sugar and icing sugar (60-75%), vegetables (15%) and fruit (5%). Surcharges on fruit and
vegetables will be removed by 1999, and those on poultry parts will be reduced in 2004;
surcharges on sugar and icing sugar are not subject to reduction. Import duties on
alcoholic beverages are set at specific rates, ranging from TT$4.75 per litre for beer to
TT$40.00 per litre for cordials and liqueurs. Alcoholic beverages that are locally and
regionally produced face excise duties.
Sugar is the main agricultural crop.
Exports depend primarily on the quota arrangements with the European Union and the United
States, which offer guaranteed prices above world levels. Trinidad and Tobago has been
allocated an export quota of 47,556 tons of raw sugar by the European Union under the
Sugar Protocol to the Lomé Convention, and an additional 10,000 tonnes under the Special
Preferential Sugar Arrangement. The United States allocated Trinidad and Tobago a quota of
14,201 tonnes of raw sugar for fiscal year 1997, of which 13,576 tonnes were exported.
Refined sugar is exported to other CARICOM countries, but is also imported when domestic
production is insufficient to meet export quotas and domestic demand. Some
29,000 tonnes of raw sugar and 9,105 tonnes of refined sugar were imported in 1997.
As noted, imports of raw sugar are subject to a customs duty of 40%, and an additional
charge of 60%. Imports of refined sugar face a 15% import tariff.
Agricultural incentives include
subsidies for soil conservation, equipment and machinery, agricultural vehicles and wheel
tractors, as well as price support for sugarcane, coffee, cocoa, milk, oranges,
grapefruit, paddy, copra and sorrel. Payments granted for price support reached
TT$35.97 million in 1997, while input subsidies totalled TT$0.4million; together
these payments account for some 1.8% of agricultural GDP.
Manufacturing
The manufacturing sector is
heavily dependent on oil refining and petrochemicals; petroleum-related manufacturing
accounts for two-thirds of total manufacturing GDP. The 1998 average MFN tariff on imports
of industrial products (HS Chapters 25-97, covering both manufacturing and mining) was
7.0%, with a peak of 30% and a minimum rate of zero. The highest tariffs are applied on
arms and ammunition, clocks and watches, works of art, clothing and apparel articles,
carpets, furniture, toys, footwear, soap and leather goods. A number of incentive schemes
are available for manufacturers; thus, customs duty concessions are granted to imports of
machinery, equipment and materials for a wide range of approved manufacturing activities.
Relief from corporation tax and customs duty is granted to approved enterprises for a
period of up to 10 years.
Petroleum-related manufacturing
includes a refinery, 13 petrochemical plants, a natural gas liquid recovery plant and
electricity power plants. Refining activities have fallen considerably from their peak in
the 1960s, but the decline has been reversed in the mid 1990s. On the other hand,
petrochemical output has been rising considerably; currently Trinidad and Tobago is the
world's second largest producer of ammonia, and third largest producer of urea.
Non-petroleum manufacturing activities are concentrated in cement, iron and steel.
Mineral Extraction
The extractive sector
contributed 14.4% to GDP in 1996, while employing under 4% of the labour force; the sector
also generates most foreign investment inflows. Hydrocarbons account for almost the whole
of the sector's output. Oil production has declined from its peak in the 1970s;
conversely, natural gas production has been increasing since 1978. However, the sector
still accounted for 22% of government revenue and 73% of foreign exchange earnings in
1997.
The tax régime in the petroleum
industry is based on a three-tier system consisting of two profit-based corporation taxes
(the Petroleum Profits Tax, set at 50% of taxable profits, and an Unemployment Levy, set
at 5% of taxable profits), three production-based taxes (a Royalty, a Petroleum Production
Levy, a Petroleum Impost) and an income-based tax, (the Supplemental Profits Petroleum
Tax. Profits accruing from exploration, production and refining activities are subject to
the Petroleum Profits Tax and taxed at 50%, while profits accruing from petroleum
marketing and distribution, for which the state-owned National Petroleum Marketing Company
of Trinidad and Tobago and the National Gas Company have the monopoly, are taxed, since
1997, at a rate of 35%, since they are subject to the Corporate Profits Tax. A system of
incentives and tax allowances are used to encourage investment in the energy sector,
including import duty and VAT exemptions, and deduction of capital expenditures incurred
on workovers, heavy oil projects and on a development dry hole for the computation of the
Petroleum Profits Tax.
Services
The services sector accounts for
over 60% of GDP and around 75% of total employment. Financial services are particularly
important, accounting for 11.5% of GDP. Activity in services has been largely liberalized,
and market access is fairly open in most sub-sectors; national treatment is granted to
foreign suppliers in most areas. The regulatory frameworks for financial services,
transport, and telecommunications have been strengthened. In telecommunications, partial
privatization had led to a temporary de facto monopoly in the provision of basic telephony
services by Telecommunication Services of Trinidad and Tobago (TSTT); this monopoly is
expected to be dismantled by 2009. Value-added services must use the network of TSTT.
Under the General Agreement on Trade
in Services (GATS), Trinidad and Tobago scheduled horizontal commitments regarding
commercial presence and the movement of natural persons for all sectors included in its
Schedule. With respect to commercial presence, the acquisition of over 30% of the equity
of publicly traded companies is subject to approval. Specific commitments were scheduled
in business services (including professional services, computer and related services,
research and development services, real estate and other business services); educational
services; financial services; health related and social services; tourism and
travel-related services; recreation, cultural and sporting services; and transport
services. Trinidad and Tobago Trinidad and Tobago presented a Schedule of Specific
Commitments in the Negotiations on Telecommunications, binding full competition in
value-added services, using TSTT's network, full competition on satellite-based mobile
services and fixed satellite services for public use. Trinidad and Tobago also submitted
an additional offer in the 1997 Negotiations on Financial Services, making commitments
only in reinsurance.
Conclusions
The economy of Trinidad and
Tobago has experienced considerable liberalization and deregulation since the mid 1980s,
and particularly since. Strong investment in the oil/natural gas sector has fuelled growth
since the mid 1990s, at the same time leading to a substantial increase in imports, which
added to high investment income outflows, has resulted in a current account deficit. The
recent strength of the Trinidad and Tobago dollar, which has resulted from the stringent
monetary policy conducted by the Central Bank, may aggravate the current account deficit.
Despite the current weakness of oil prices, Trinidad and Tobago's economy has been partly
shielded from negative effects by large direct investment inflows. However, the economy
remains vulnerable to external shocks due to its excessive dependence on the production
and export of fuels, and a prolonged situation of lower oil prices is likely to take its
toll on growth. Hence, to ensure long-run economic stability Trinidad and Tobago needs to
reinforce its current policy of diversifying away from the oil sector. This effort will be
helped by open access to markets for its non-fuel exports.
Government
report Back to top
TRADE POLICY REVIEW BODY:
Report by the Government
Introduction
Trinidad and Tobago, prior to
the 1980s pursued an industrialization policy based on import substitution, which involved
a strategy of utilizing relatively cheap labour combined with both local and foreign
investment, implementation of a regime of fiscal incentives including tax holidays and
duty concessions, and a system of quantitative restrictions in the form of a Negative
List. Although this strategy produced some measure of growth in the productive capacity of
the country, the meaningful diversification or transformation of the country's production
base was not realized.
Consequently, in the 1980s, with the
accrual of substantial windfall earnings from the increase in the price of petroleum on
the international market, the focus of the industrialization policy shifted to economic
diversification and transformation largely through investment in the energy-based sector.
Policy initiatives were also taken to stimulate development of the non-oil manufacturing
sector, with a focus on exports.
These initiatives to develop the
non-oil manufacturing sector via a trade liberalization regime were intensified largely
through a Structural Adjustment Programme (SAP) which was embarked upon by the Government
of Trinidad and Tobago in 1990. Within the context of the SAP, the Trade Reform Programme
has been specifically geared to foster improved efficiency in the operations of local
companies, expansion in export-oriented production in the manufacturing, services, tourism
and agricultural sectors, enhanced international competitiveness and increased export
earnings, all of which would contribute to sustained growth, increased generation of
employment and an overall improvement in the standard of living in Trinidad and Tobago.
The Trade Reform Programme
essentially seeks to transform the trade regime from one which was inward-looking to one
which is outward-looking, based on the principle of export-led growth and the development
of an investment regime with an improved legal, regulatory and institutional framework,
aimed at rendering the economy more attractive to export-led investment both local and
foreign.
Within the policy reform
environment, the private sector is expected to become the prime generator of economic
growth and development. The role of the Government has been redefined as a promoter and
catalyst of trade and industrial development. The Government's economic policies are
specifically designed to foster private sector growth and development by providing a
favourable climate for investment and commercial activities.
The Trade Reform Programme can be
categorized into six major areas of activity, namely trade liberalization, enhanced
competitiveness, sectoral programmes, market access opportunities, the Free Zones
Programme and institutional support measures and facilities. These trade policy measures
have been supplemented by a substantive reform of the financial, fiscal and investment
legislation, including the removal of foreign exchange controls and the flotation of the
local currency.
Economic Policy and Environment
Fiscal policy has been conducted
within the context of a comprehensive macro-economic structural adjustment programme and
the Government of Trinidad and Tobago continues to maintain a prudent fiscal strategy.
This strategy together with administrative restructuring of the revenue collecting
agencies, has resulted in an overall decrease in the fiscal deficit. The current account
balance of the central government has recorded a surplus in the last five years
contributing to improved national savings and a reduction in the investment/savings gap.
Monetary policy is being pursued
with the priority objective of maintaining exchange rate stability, and the enhancement of
the country's foreign reserves. The foreign exchange rate was liberalized in 1993 and
since then Trinidad and Tobago has adopted a floating exchange rate followed by the
removal of exchange controls on the current and capital accounts. The Central Bank
currently relies on the managing of liquidity and interest rate policy to achieve its main
objective of a stable and low rate of inflation. The monetary authorities are increasingly
adopting the use of open market operations as a tool for liquidity management, and
reducing dependence on the cash reserve requirement. It is expected the use of open market
operations will lower the cost of financial intermediation and therefore the cost of
borrowing. These monetary initiatives have been accompanied by legislative and
institutional reforms in the financial sector designed to facilitate the transformation of
the domestic capital market.
Government has also focused on the
provision of capital for the development of the small business sector. A Venture Capital
Act was recently introduced. It is designed to promote the injection of equity capital
into small and medium-sized enterprises, without the burden of excessive financial charges
which are usually associated with debt financing.
The development of the small
business sector is an essential prerequisite for the balanced development of the local
economy. It is evident that this sector will continue to be the foundation for the
Trinidad and Tobago economy by providing products and services and most importantly,
opportunities which would permit the small investor to gain a foothold in the local
market. In keeping with these goals, Government has improved the range of fiscal
incentives which are available to the small business sector and these initiatives have
already borne fruit. Figures supplied by the Small Business Development Company (SBDC)
indicate that loan applications have increased by 30% between January to March, 1998 when
compared with the same period in 1997.
The implementation of the programme
of structural reforms has impacted favourably on the economy. In 1997, Trinidad and
Tobago's economy recorded its fourth consecutive year of economic growth. Real output has
been growing by an average of 3% since 1994. This growth has been propelled by increased
exploration and production activity in the Petroleum Sector as well as expansion in the
output of the non-oil sector. In 1997, strong performances were recorded in the
manufacturing, construction, distribution and transport sub-sectors, while the tourism
sector displayed increased vibrancy.
The growth in the economy has
impacted positively on both the unemployment and inflation rates. The annual average rate
of inflation has been on the decline, from 11.4% in 1993 to 3.7% in 1997. The reduced rate
of inflation was partly due to the reduction or removal of import surcharges on several
categories of capital and consumer goods. The rate of unemployment has also reflected a
significant contraction, from 22.4% of the labour force in 1989 to 15% in 1997.
Trade and Investment Policy:
The programmes undertaken by the
Government of Trinidad and Tobago since 1991 to diversify the economy and promote
sustainable export-led growth and development, have been undertaken within the context of
the global trend towards trade liberalization and the growing preponderance of mega
trading blocs. The basic element of the Trade Reform Programme include:
- The elimination of the Import Negative List;
- The reduction of the Common External Tariff (CET) on
imported goods;
- The removal of price controls:
- The removal of stamp duty on imported goods;
- The computerization of Customs import and export
procedures.
The Trade Reform Programme is
closely linked to initiatives to attract foreign investment and to facilitate the
development of the domestic industrial base. It is obvious that an essential prerequisite
for the take-off of the economy is a substantial pool of capital, which would be utilized
to fuel investment in the private sector. Such capital could be derived from both domestic
and foreign sources.
Trinidad and Tobago's investment
thrust is characterized as follows:
- the creation of a more investor-friendly climate in
the local economy. To this endthe Foreign Investment Act will be amended to ensure that it
is more promotional and less regulatory in nature;
- the continued effort on the part of the Government to
reduce the number and complexity of the bureaucratic procedures involved in investment and
business transactions. The objective is to make these procedures as simple and transparent
as possible;
- finally, Government will utilize the resources of its
overseas Missions and other related agencies to market the country as an attractive
location for investment.
In keeping with the above
guidelines, some of the major pieces of legislation which impinge on investment have been
either revised or amended. These include the Fiscal Incentives Act and the Value Added Tax
Act. The Government has also introduced an enhanced investment incentive framework and it
has reduced the maximum level of corporation tax from 40% to 35% in a bid to reduce the
cost of doing business.
Another key element in the quest to
attract foreign investors is the Free Zones Programme. This Programme in intended to
attract export-oriented firms which would not otherwise have located operations in
Trinidad and Tobago. The Programme in Trinidad and Tobago has developed quite differently
from other Caribbean Programmes and in the process, has created a vehicle for economic
development with particular features including the fact that all infrastructure is
currently provided by private investors and the jobs that are created are generally of a
high quality. The Programme is gradually becoming self-sufficient and is expected
eventually to reduce substantially its dependency on the Treasury. The Free Zones approach
will continue to be one of the main planks of the country's export strategy.
These trade and investment promotion
efforts will be complemented by a series of key strategies and measures among which would
be the procurement of enhanced market access opportunities for locally produced goods and
services, mainly through the process of negotiations, to the markets of targeted
countries.
Current Industrial Policy:
Trinidad and Tobago's industrial
policy focuses mainly on the development of non-oil manufacturing, non-financial services
and the small business sector. The policy is designed to create an expanded, diversified,
export-oriented non-oil sector. The policy objectives are to:
- generate sustained economic growth and balanced,
integrated development;
- encourage increased investment flows into
export-oriented production;
- expand the range of business activity in the non-oil
business sector;
- generate permanent employment opportunities;
- increase the export earnings of the non-oil business
sector ;
- ensure that economic development takes place in
harmony with national environmental considerations;
- mitigate the consequences of business failures;
- assist in the attainment of the country's food
security objective.
In support of this programme,
several strategies and measures will be implemented in order to assist the business sector
in its restructuring efforts, and therefore enabling the non-oil sector to become more
export-oriented. These strategies and measures address the following areas: investment;
human resource development; financing; business information; institutional and regulatory
reform.
Agricultural Policy:
In keeping with the objective of
trade liberalization in all sectors of the economy, Government has implemented a number of
reform measures in the agricultural sector. These include:
conversion of non-tariff measures
(e.g. negative list) to a tariff equivalent system, consistent with the GATT 1994
Agreement on Agriculture and to extend and strengthen trade and price liberalization in
the sector;
- phased reduction of the dispersion among tariff rates
and their average level;
- within the framework of establishing tariff
structures, maintenance of an open and transparent trade regime for agriculture with a
minimum of government intervention;
- restructuring and divestment of State-owned
enterprises.
External Trade Development -
Negotiations, Etc.:
Trinidad and Tobago's market
access strategies will be influenced by the ongoing process of liberalization and
globalization of the world economy and by the configuration of the international economy
into mega trading blocs. These developments have made it imperative for countries like
Trinidad and Tobago to accelerate the pace of integration into these blocs and into the
world economy or face the prospect of being marginalized.
It is significant to note that
Trinidad and Tobago's traditional markets are located within the Western hemisphere, the
European Union and CARICOM. Non-traditional country markets are located in economic blocs
such as MERCOSUR, the Andean Community, the Central American Common Market and the
Association of South East Asian nations, among others. Against this background, it is
imperative for Trinidad and Tobago to expand its export production in a bid to effectively
compete on the international market. Therefore, Trinidad and Tobago has adopted a dual
approach in order to maximize market access opportunities. Consequently, efforts are being
directed towards expanding market share for non-traditional products in traditional
markets, particularly where preferential market access arrangements are available (Lomé,
Caribbean Basin Initiative (CBI) and CARIBCAN), while seeking to penetrate non-traditional
markets in a sustained and aggressive manner.
It is important to note that
although the Government of Trinidad and Tobago is actively seeking to ensure that the
national trade policy objectives are achieved, the realities of the configuration of the
global economy may dictate, in most instances, that the negotiations of terms and
conditions of access to markets be undertaken on an inter-regional or bloc to bloc basis.
This has in fact been the case even in the pre-Uruguay Round scenario with respect to the
Lomé, CBI and Caribbean arrangements which were negotiated with the CARICOM group of
countries. It is the same with the current agreements between CARICOM, Venezuela, the
Dominican Republic and Colombia and the ongoing Free Trade Area of the Americas
negotiations. The necessity for inter-bloc negotiations in the current post-Uruguay Round
environment may become pronounced with the passage of time.
Trinidad and Tobago's relations with
Third Countries is based on the recognition of its limited size, the openness of the
domestic and CARICOM markets, and the conviction that the growth and expansion of the
local productive base can only be realized by the penetration of foreign markets.
Trinidad and Tobago is a founding
member state of the CARICOM Grouping. CARICOM's focus is the conclusion of reciprocal free
trade agreements with the Latin American countries and the countries of the extra-CARICOM
Caribbean. Trinidad and Tobago, with its CARICOM partners, has entered into reciprocal
free trade agreements with Colombia and the Dominican Republic and will be seeking to
enter into similar agreements with the ANDEAN, Central American and MERCOSUR regional
groupings. Trinidad and Tobago will also shortly initiate direct bilateral free trade
negotiations with certain countries such as Mexico, Costa Rica and Panama..
Trinidad and Tobago is actively
involved in CARICOM's efforts to create a Single Market, a project which has been
accelerated as a direct consequence of international developments such as the proposed
establishment of the Free Trade Area of the Americas (FTAA) and other globalization
trends. A single market will allow CARICOM to optimize its limited financial and economic
resources in a bid to enhance its market leverage in the external trade negotiation
process.
Trinidad and Tobago is a beneficiary
of the CBI and CARIBCAN preferential agreements. The CBI Agreement offers duty free access
to exports of selected Caribbean and Central American countries into the market of the
United States of America. CARIBCAN offers a similar facility for Caribbean exports into
the Canadian markets. A number of products are excluded from preferential treatment.
However in 1998, methanol and lube oil, products of vital interest to Trinidad and Tobago,
were included under CARIBCAN.
It is important to note that with
the creation of the North American Free Trade Agreement (NAFTA), the preferential access
enjoyed by Mexico into the markets of Canada and the United States in respect of products
which have been excluded form the CBI and CARIBCAN, could erode the overall benefits which
Trinidad and Tobago and other beneficiaries presently enjoy under these agreements. In
addition, it is quite possible that foreign investors presently located in Trinidad and
Tobago and engaged in the manufacture of the products excluded under the CBI and CARIBCAN
might seek to locate in Mexico in order to enjoy the benefits of NAFTA market access. This
element of investment diversion has already been evident by the re-location of some
foreign operations from CARIBCAN beneficiary countries to Mexico. The result of such trade
and investment diversion could be a loss of employment, and to some degree of economic
dislocation. In the context of its production capability, Trinidad and Tobago is not
currently affected in any substantial manner as some other CBI and CARIBCAN beneficiary
countries have been.
In order to alleviate the possible
adverse effect of the relative advantage enjoyed by Mexicofrom its membership in NAFTA,
Trinidad and Tobago has joined its CARICOM partners in seeking to obtain "NAFTA
Parity" or enhancement of the CBI to include those products which are presently
excluded, with the aim of leveling the playing field for CARICOM exporters vis-à-vis
their Mexican counterparts.
Consistent with its trade policy,
the Government of Trinidad and Tobago has actively participated in the FTAA process at the
Ministerial, Vice Ministerial and Working Group levels during the preparatory phase. It is
prepared to participate in the second negotiating phase in a more focused manner, as part
of a co-ordinated CARICOM effort, in order to ensure that its interest and that of the
regional grouping is served, particularly as smaller economies, in the negotiating
process. The country's negotiating effort will be reinforced by the fact that it has been
nominated to hold the post of Vice Chairman of the FTAA negotiating group on Competition
Policy.
Trinidad and Tobago has benefitted
from the preferential duty free access granted to local products by the European Union
countries under the provisions of the Lomé Convention. Negotiations are currently
underway with respect to a successor arrangement to the Lomé IV Convention and Trinidad
and Tobago has joined with fellow ACP States in stressing a strategy for negotiations that
places importance on the following elements:
- ACP states should continue to negotiate the successor
agreement as part of a unified bloc;
- the need to recognise that certain ACP states are
smaller and more vulnerable and should be granted differential treatment;
- the extension of preferential access arrangements for
the entry of ACP products into the European market;
- removal or reduction of restrictive or non-tariff
barriers in the EU as they relate to Rules of Origin, technical restrictions to trade and
phytosanitary measures.
Trinidad and Tobago has for many
years been a net importer from many countries in the Far East including India, Japan,
Singapore, Hong Kong, China and Korea. In the future, Trinidad and Tobago will be
targeting Far Eastern countries as potential niche markets for non-traditional products
and for the expansion of market share with respect to its current exports. This group of
countries will also be targeted as potential sources of investment into Trinidad and
Tobago. The Republic of South Africa may also be targeted as a possible export market and
for possible joint venture investments by Trinidad and Tobago entrepreneurs
One of the major planks of Trinidad
and Tobago's trade policy initiative is the negotiation of Foreign Investment Protection
Agreements, referred to as Bilateral Investment Treaties, which have been concluded with
several countries in an effort to maximize the benefits which could be derived from its
trade and investment links with extra-regional trading partners. Trinidad and Tobago has
concluded Bilateral Investment Treaties with Canada, the United Kingdom, France and the
United States of America. Agreements with Germany, Venezuela, and Argentina, are currently
being negotiated.
An Intellectual Property Rights
Agreement has been concluded with the United States of America and consideration is being
given to entering into similar agreements with other countries. These agreements will
provide a measure of security to potential investors and technology providers, and thereby
improve the attractiveness of Trinidad and Tobago as a location for investment.
Trinidad and Tobago have entered
into Double Taxation treaties with Canada, Denmark, France, Italy, Norway, Sweden,
Switzerland, the United Kingdom, the United States, Venezuela and the Federal Republic of
Germany.
Conclusion: Back to top
The Government of Trinidad and
Tobago has formulated a Plan of Action designed to facilitate the meaningful integration
of the local economy into the globalized trading environment. This Plan of Action will be
supported by a negotiation process which will target specific countries and which will see
the country increasingly involved as an active player in multilateral fora such as the WTO
and FTAA. |
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