Trade Policy Review Body TRADE POLICY REVIEW · RESTRICTED WT/TPR/S/378 28 August 2018 (18-5366) Page: 1/84 Trade Policy Review Body TRADE POLICY REVIEW REPORT BY THE SECRETARIAT

RESTRICTED

WT/TPR/S/378

28 August 2018

(18-5366) Page: 1/84

Trade Policy Review Body

TRADE POLICY REVIEW

REPORT BY THE SECRETARIAT

VANUATU

This report, prepared for the first Trade Policy Review of Vanuatu, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from Vanuatu on its trade policies and practices.

Any technical questions arising from this report may be addressed to Mr Masahiro Hayafuji (tel.: 022 739 5873); Mr Arne Klau (tel.: 022 739 5706); and Ms Zheng Wang (tel.: 022 739 5288). Document WT/TPR/G/378 contains the policy statement submitted by Vanuatu.

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

WT/TPR/S/378 • Vanuatu

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CONTENTS

SUMMARY ........................................................................................................................ 7

1 ECONOMIC ENVIRONMENT ........................................................................................ 11

1.1 Main Features of the Economy .....................................................................................11

1.2 Recent Economic Developments ...................................................................................12

1.3 Developments in Trade and Investment ........................................................................15

1.3.1 Trends and patterns in merchandise and services trade ................................................15

1.3.2 Trends and patterns in FDI .......................................................................................17

2 TRADE AND INVESTMENT REGIMES........................................................................... 19

2.1 General Framework ....................................................................................................19

2.2 Trade Policy Formulation and Objectives ........................................................................20

2.3 Trade Agreements and Arrangements ...........................................................................21

2.3.1 WTO ......................................................................................................................21

2.3.2 Regional and preferential agreements ........................................................................22

2.3.2.1 Regional trade agreements (reciprocal) ...................................................................22

2.3.2.1.1 MSG Trade Agreement ........................................................................................23

2.3.2.1.2 PICTA ...............................................................................................................23

2.3.2.1.3 PACER and PACER Plus .......................................................................................24

2.3.3 Other agreements and arrangements .........................................................................24

2.4 Investment Regime ....................................................................................................25

2.4.1 Business licence ......................................................................................................25

2.4.2 Foreign direct investment (FDI) .................................................................................26

3 TRADE POLICIES AND PRACTICES BY MEASURE ........................................................ 31

3.1 Measures Directly Affecting Imports ..............................................................................31

3.1.1 Customs procedures, valuation, and requirements .......................................................31

3.1.2 Rules of origin .........................................................................................................32

3.1.3 Tariffs ....................................................................................................................32

3.1.3.1 Applied MFN tariffs ................................................................................................32

3.1.3.2 Tariff bindings ......................................................................................................35

3.1.3.3 Preferential tariffs .................................................................................................35

3.1.3.4 Tariff exemptions and concessions ..........................................................................35

3.1.4 Other charges affecting imports .................................................................................35

3.1.5 Import prohibitions, restrictions, and licensing ............................................................36

3.1.6 Anti-dumping, countervailing, and safeguard measures ................................................37

3.2 Measures Directly Affecting Exports ..............................................................................38

3.2.1 Customs procedures and requirements .......................................................................38

3.2.2 Taxes, charges, and levies ........................................................................................38

3.2.3 Export prohibitions, restrictions, and licensing .............................................................38

3.2.4 Export support and promotion ...................................................................................39

3.2.5 Export finance, insurance, and guarantees ..................................................................39


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3.3 Measures Affecting Production and Trade .......................................................................39

3.3.1 Incentives ...............................................................................................................39

3.3.2 Standards and other technical requirements ...............................................................39

3.3.3 Sanitary and phytosanitary requirements ....................................................................40

3.3.4 Competition policy and price controls .........................................................................42

3.3.4.1 Competition policy ................................................................................................42

3.3.4.2 Consumer protection legislation ..............................................................................43

3.3.4.3 Price controls........................................................................................................44

3.3.5 State trading, state-owned enterprises, and privatization .............................................44

3.3.5.1 State trading arrangements ...................................................................................44

3.3.5.2 State-owned enterprises (SOEs) and privatization .....................................................44

3.3.6 Government procurement .........................................................................................46

3.3.7 Intellectual property rights ........................................................................................47

3.3.7.1 Legislative and institutional framework ....................................................................47

3.3.7.2 Industrial property rights .......................................................................................48

3.3.7.3 Copyrights and related rights .................................................................................48

4 TRADE POLICIES BY SECTOR ..................................................................................... 50

4.1 Agriculture, Forestry, and Fisheries ...............................................................................50

4.1.1 Agriculture ..............................................................................................................50

4.1.1.1 Features ..............................................................................................................50

4.1.1.2 Agriculture trade ...................................................................................................51

4.1.1.3 Domestic policies ..................................................................................................51

4.1.1.4 Support levels ......................................................................................................52

4.1.1.5 Border measures ..................................................................................................53

4.1.1.6 Selected subsectors ..............................................................................................54

4.1.1.6.1 Coconut ............................................................................................................54

4.1.1.6.2 Cocoa ...............................................................................................................54

4.1.1.6.3 Kava .................................................................................................................54

4.1.1.6.4 Cattle ...............................................................................................................55

4.1.2 Fisheries .................................................................................................................55

4.1.2.1 Features ..............................................................................................................55

4.1.2.2 Fisheries trade ......................................................................................................56

4.1.2.3 Domestic policies ..................................................................................................56

4.1.2.3.1 Institutional and legislative framework ..................................................................56

4.1.2.3.2 Management plans .............................................................................................58

4.1.2.3.2.1 The National Deep-Bottom Fish Fishery Management Plan ....................................58

4.1.2.3.2.2 Revised tuna fishery management plan ..............................................................60

4.1.2.4 Border measures ..................................................................................................60

4.1.2.5 Support ...............................................................................................................60

4.2 Mining and Energy ......................................................................................................61


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4.2.1 Electricity ...............................................................................................................61

4.3 Manufacturing ............................................................................................................63

4.4 Services ....................................................................................................................63

4.4.1 Main features and GATS commitments .......................................................................63

4.4.2 Financial services .....................................................................................................65

4.4.2.1 Banking ...............................................................................................................66

4.4.2.2 Insurance ............................................................................................................67

4.4.3 Telecommunications .................................................................................................69

4.4.3.1 Main features .......................................................................................................69

4.4.3.2 Information and communication technologies (ICT) and the UAP.................................71

4.4.4 Transport ................................................................................................................73

4.4.4.1 Civil aviation ........................................................................................................73

4.4.4.2 Maritime transport ................................................................................................74

4.4.5 Tourism ..................................................................................................................76

4.4.5.1 Main features .......................................................................................................76

4.4.5.2 Institutional and regulatory framework ....................................................................77

5 APPENDIX TABLES .................................................................................................... 81

CHARTS

Chart 1.1 Production composition of merchandise trade, 2016 .................................................16

Chart 1.2 Direction of merchandise trade, 2016 .....................................................................16

Chart 2.1 Registration process .............................................................................................28

Chart 3.1 Distribution of MFN tariff rates, 2012 and 2018 .......................................................34

Chart 4.1 Growth rates, 2010-17 .........................................................................................50

Chart 4.2 Exports of main agricultural products, 2012-16 .......................................................51

Chart 4.3 Domestic support to agriculture, 2015 ....................................................................52

Chart 4.4 Average tariff rates of WTO agricultural groups, and fish and fishery products .............53

Chart 4.5 Slaughtered cattle ................................................................................................55

Chart 4.6 Electricity demand and customer numbers, 2006-16 ................................................62

Chart 4.7 Telecommunication indicators per 100 inhabitants, 2016 and 2017 ............................70

Chart 4.8 Number of passengers using the three international airports, 2011-15 .......................73

Chart 4.9 Visitor arrivals by air, 2013-17 ..............................................................................77

Chart 4.10 Visitor arrivals by air, 2017 .................................................................................77

TABLES Table 1.1 GDP by economic activity, 2010-16 ........................................................................11

Table 1.2 Selected economic and financial indicators, 2013-18 ................................................13

Table 1.3 Central Government budgetary operations, 2013-17 ................................................14

Table 1.4 Balance of payments, 2013-18 ..............................................................................14


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Table 1.5 Trade in services, 2010-15 ....................................................................................17

Table 1.6 Foreign direct investment, 2010-16 ........................................................................18

Table 2.1 Major trade and investment related legislation .........................................................20

Table 2.2 Notifications to the WTO, 24 August 2012 – 27 June 2018 ........................................21

Table 2.3 Overview of Vanuatu regional trade agreements, 2018 .............................................22

Table 2.4 Selected categories of business licences..................................................................25

Table 2.5 Business activities reserved only for Ni-Vanuatu citizens ...........................................26

Table 2.6 Reserved activities open to foreign investment above a minimum threshold ................27

Table 2.7 FDI investment procedure .....................................................................................29

Table 3.1 Summary analysis of Vanuatu's MFN tariff, 2018 .....................................................32

Table 3.2 Structure of Vanuatu's tariff ..................................................................................34

Table 3.3 Products for which applied rates exceed bound rates, 2018 .......................................35

Table 3.4 Excise duties, 2018 ..............................................................................................36

Table 3.5 Import restrictions ...............................................................................................37

Table 3.6 Export restrictions ................................................................................................38

Table 3.7 Sectoral legislation with competition related provisions .............................................42

Table 3.8 Legislation with consumer protection related provisions ............................................43

Table 3.9 CGBE performance indicators, FY2014 ....................................................................44

Table 3.10 Main IP laws, and treaty membership ...................................................................47

Table 3.11 Duration of protection for industrial property rights ................................................48

Table 3.12 Duration of copyright protection ...........................................................................49

Table 4.1 Imports and exports of fish and fisheries products, 2012-16 .....................................56

Table 4.2 Fisheries laws ......................................................................................................57

Table 4.3 Fishing licence fees ..............................................................................................57

Table 4.4 Main measures ....................................................................................................58

Table 4.5 Area restriction for local fishing vessels ..................................................................59

Table 4.6 Electricity tariff structure for Port Vila, Malekula and Tanna .......................................63

Table 4.7 Vanuatu's services indicators, 2012-16 ...................................................................64

Table 4.8 Gross assets of Vanuatu's financial system, 2012-17 ................................................65

Table 4.9 Legislation ..........................................................................................................66

Table 4.10 Banks' financial soundness indicators, 2012-17 ......................................................67

Table 4.11 Insurance service providers .................................................................................68

Table 4.12 Premiums for insurance companies.......................................................................69

Table 4.13 Telecommunication indicators, 2014-17 ................................................................69

Table 4.14 Current telecom licensees ...................................................................................70

Table 4.15 Major origins of imports, and export destinations for cargo transported by air ...........74

Table 4.16 Vanuatu: Absolute and relative contribution of the tourism sector, 2017 ...................76

Table 4.17 Key tourism indicators 2013-17 ...........................................................................77


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BOXES Box 1.1 Cyclone Pam and the role of trade in natural disasters ................................................12

APPENDIX TABLES

Table A1.1 Merchandise exports by products, 2012-16 ...........................................................81

Table A1.2 Merchandise exports by country, 2012-16 .............................................................82

Table A1.3 Merchandise imports by products, 2012-16 ...........................................................83

Table A1.4 Merchandise imports by country, 2012-16 .............................................................84


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SUMMARY

1. Since Vanuatu's accession to the WTO in 2012, its economy has grown at an average annual rate of around 2.3%. Vanuatu's GDP per capita is now some US$2,900. Most of the population live in rural areas where subsistence farming, fishing and the production of cash crops such as kava, coconut and cocoa are the main sources of livelihood. However, strong population growth and a rapid urbanization rate are exercising increasing pressure on land and other natural resources. The

authorities expect that Vanuatu will graduate from LDC status in a few years.

2. Vanuatu has a high risk of natural disasters, especially from cyclones, earthquakes, volcano eruptions, and tsunamis. In 2015, large parts of the country were devastated by Category 5 Cyclone Pam. Infrastructure and transport links among islands also remain a challenge.

3. Inflation averaged some 2% annually over the review period. Public debt has increased

greatly over recent years, mainly due to rising expenditure and lower income levels arising from

Cyclone Pam, from around 26% of GDP at end-2015 to 51% in 2017. Vanuatu's current account deficit amounts to around 10% of GDP.

4. Trade is very important for Vanuatu's economy; the combined value of exports and imports equalled around 106% of GDP in 2016, up from 93% in 2011. Tourism, cattle and logs are the main exports; Vanuatu's main trading partners include Australia, Fiji and New Zealand. Foreign direct investment is significant, with the main subsectors being tourism, telecommunications, food, and wood processing. Vanuatu's vulnerability to natural disasters and the weakness of its

infrastructure are some of the challenges it faces in attracting more investment.

5. The Ministry of Foreign Affairs, International Cooperation and External Trade is responsible for formulating and coordinating Vanuatu's international trade policy; the Ministry is also responsible for bilateral, regional and multilateral trade and investment negotiations. Vanuatu's Trade Policy Framework, which was prepared in 2012 and is currently being updated, has the

objectives of, inter alia, mainstreaming trade into Vanuatu's national development strategy, and enhancing development through increased exports of goods and services. Vision 2030, its policy

document, aims to achieve stability, sustainability and prosperity for the country by 2030 through, inter alia, increasing trade and investment opportunities and reducing barriers, increasing access to markets for exports, requiring all new trade agreements to demonstrate tangible benefits in the national interest, and stimulating economic diversification.

6. Vanuatu acceded to the WTO on 24 August 2012; it is in the process of establishing a Permanent Mission in Geneva to foster its participation in the WTO. At the time of accession to the

WTO, Vanuatu committed to submit notifications. It has submitted few notifications to the WTO; as at 31 December 2017, notifications were outstanding in the areas of: agriculture (export subsidies); IPR (Article 69 in conjunction with the TRIPS Council Decision of 1995); the TRIMs Agreement; import licensing procedures; quantitative restrictions; customs valuation; rules of origin; the Integrated Database for imports for 2016; subsidies and countervailing measures; state trading enterprises; and GATS. While Vanuatu has not yet ratified the Trade Facilitation

Agreement, it has notified its Category A, B, and C commitments to the WTO. It has not been

involved in any dispute settlement cases.

7. Vanuatu grants at least MFN treatment to all of its trading partners. It is party to several overlapping regional agreements. Under the Melanesian Spearhead Group (MSG) Trade Agreement, the Pacific Island Countries Trade Agreement (PICTA), and the Pacific Agreement on Closer Economic Relations, it has preferential trade agreements with other countries and territories in the South Pacific. Vanuatu also benefits from some non-reciprocal preferential trade arrangements, including the Generalized System of Preferences offered by some WTO Members.

Australia and New Zealand provide duty-free and quota-free market access to Vanuatu exports under the South Pacific Regional Trade and Economic Cooperation Agreement (SPARTECA), while the European Union provides duty-free and quota-free access to Vanuatu exports under the Everything but Arms initiative.

8. Under the Business Licence Act, foreign investors must obtain, inter alia, a certificate from the Vanuatu Investment Promotion Authority before applying for a business licence. Most business

activities are open to foreign investment. For activities such as tourism, retail shops, coastal


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shipping, and certain professional or business services, foreign investment is allowed as long as the operation meets minimum thresholds specified in the relevant legislation. Some activities are reserved for Vanuatu citizens. These include businesses engaged in the export of sandalwood and kava; manufacturers of handcrafts and artefacts; service providers of kava bars, road transport, residential building and construction, and commercial cultural feasts; commercial fishing in Vanuatu's inshore waters; and the small scale production of sawn timber.

9. In 2013, Vanuatu adopted legislation to give effect to the WTO Agreement on Customs Valuation. The average time for customs clearance in Port Vila was three days and seven hours in 2017; according to the authorities, this was greatly reduced with the inauguration of a new berth in 2018.

10. Vanuatu's simple average applied MFN tariff is 9.3% in 2018, up from 9.2% in 2012; the small increase is due mainly to changes in the HS nomenclature. All but two tariff lines are

ad valorem. The highest rates, of 75%, 55%, and 40%, apply to 56 tariff lines, comprising tobacco products and alcoholic and non-alcoholic beverages. 26% of tariff lines are duty-free. Vanuatu does not use tariff rate quotas or seasonal tariffs. It has bound all of its tariff lines. For three tariff lines, applied rates exceed bound rates.

11. A value-added tax of 15% applies to all goods and services, except those that are exempted or zero-rated. Excise duties apply to tobacco products and alcoholic beverages. A law on trade contingency measures was enacted in 2013; no measures have yet been taken. Import

prohibitions apply to, inter alia, certain agricultural products. Certain goods, including alcohol, certain drugs, certain foods, right-hand drive motor vehicles, and certain whiskies, are subject to import licensing.

12. Exporters are required to register in ASYCUDA World. An export duty of 5% plus VT 3,000 per cubic metre is applied to wood in the rough or roughly squared. Licences are required for exporting cattle, cocoa beans, cocoa, copra, lavender oil, and tea-tree oil. Vanuatu does not

provide any export subsidies. It does not have any public finance, insurance, or guarantee

schemes for exporters. Export prohibitions apply, inter alia, to certain marine animals.

13. Vanuatu does not have any major incentive schemes, as it does not levy income tax on individuals or companies. Import tariffs are exempted on materials used for tourism, manufacturing or processing, and mineral exploration. The Bureau of Standards, established in August 2017, oversees the development and adoption of standards. Several pieces of legislation make up the SPS regime, which is overseen by Biosecurity Vanuatu. No TBT or SPS notifications

have been submitted to the WTO. Standard setting is in the early stage of development. No specific trade concerns have been raised against Vanuatu's TBT or SPS measures. The authorities indicate that a Competition and Consumer Protection Act, with provisions on price controls, is being drafted.

14. Various state-owned enterprises dominate sectors such as broadcasting, postal services, and transport. Their activities accounted for around 2% of GDP in recent years. Their performance has

been declining, resulting in significant costs to the Government. According to legislation,

discrimination against foreign participation is not allowed; about 60% of government procurement is provided by foreign suppliers. Vanuatu is not party to the Agreement on Government Procurement. More than half of the public procurement processed by the Central Tender Board was through open tendering. Vanuatu's IPR legislation covers the main areas of the TRIPS Agreement. The Vanuatu Intellectual Property Office, the institution responsible for protecting IP rights, was established in 2012. It is in the process of setting up a Patent Division and a Design Division, and its Trademark Division was set up a few years ago. IPR enforcement at the border is the

responsibility of Customs, which requires importers to prove the genuineness of their goods. Vanuatu's IPR regime is in the early stage of development. The authorities consider that more technical training is needed to improve IPR protection.

15. Agriculture plays a key role in Vanuatu's economy, with around 80% of the population depending on subsistence farming. The agriculture sector (including fisheries and forestry)

accounts for more than 20% of GDP and virtually all of merchandise exports. The simple average

applied MFN tariff rate on agricultural tariff lines (WTO definition) is 16.9%, higher than the average rate on non-agricultural tariff lines (8%). Imports of beef originating in Europe, and copra


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are prohibited. The main agricultural export items are copra, kava, coconut oil, cocoa, and beef, while the main agricultural import items are rice, pastry, chicken meat, wheat flour, beverages and cigarettes. Agricultural development has been constrained by, inter alia, a lack of access to finance, and land disputes. The Agriculture Sector Policy, covering the period between 2015 and 2030, suggests using tax incentives to reduce business costs. According to Vanuatu's notification to the WTO, all its support measures have been under the "Green Box", and the majority were for

crop extension, pest and disease control, and training.

16. Licences are required for commercial fishing, and licensing fees, an important source of government revenue, are higher for foreign vessels than for local ones. Difficulties facing the fisheries sector include a lack of data, difficulties for fishermen in obtaining bank loans and insurance coverage, and a lack of infrastructure and transport links among islands. Vanuatu currently has no fish processing factories; the export of fish is minor. Imports of fish originate

mainly from Australia and New Zealand. The fishing and trading of sea cucumber and green snail

are banned, and the exportation of coconut crab and rock lobster is prohibited. Duty-free fuel was provided to fishing vessels until 2017.

17. A significant constraint for business in Vanuatu is the availability, cost and reliability of electricity and other utilities: 83% of rural households lack access to electricity, compared to 20% of urban households. The main energy source is diesel combustion, contributing to about 80% of the total electricity generated, while windmills, and hydro and solar power produce the rest. The

Utilities Regulatory Authority (URA) regulates the provision of electricity in Vanuatu. Electricity tariffs are either reviewed or set by the URA. Small customers are charged significantly less than the regional average due to cross-subsidization from large and business customers, who pay significantly more than the regional average.

18. The services sector, accounting for about two thirds of Vanuatu's GDP, is a net foreign exchange earner. Services exports accounted for 87% of Vanuatu's total exports (of goods and services) in 2017. Vanuatu made specific GATS commitments in 10 services sectors, and

scheduled horizontal commitments on commercial presence and the presence of natural persons for all 10 sectors.

19. The financial services sector is overseen by the Reserve Bank of Vanuatu (RBV), which is the Central Bank. Under the Financial Institutions Act, there is no difference between capital requirements applied to locally-owned banks and those applied to foreign owned ones. Three of the four commercial banks operating in Vanuatu are foreign owned. Their performance has been

improving after Cyclone Pam, due mainly to the RBV's accommodative stance in the aftermath of the cyclone, when it lowered the statutory reserve deposit requirement and the liquid asset requirement. During the review period, interest rates remained high and large interest rate spreads persisted, reflecting the high cost and high risk of credit, arising from small scale, vulnerability to shocks, and the geographic dispersion of the islands. The insurance sector remains small.

20. The telecommunication services sector has been developing fast, with significant increases

in subscribers and market revenue; the mobile penetration rate increased from 12% in 2007 to 85% in 2017 while, during the same period, the fixed line penetration rate fell from 4.6% to 1.6%. Any person, local or foreign, may apply for a telecommunications licence issued by the Telecommunications and Radiocommunications Regulator (TRR) – the sectoral regulator. Two companies provide fixed line, mobile and Internet services; both are foreign invested.

21. To facilitate Vanuatu's ICT development, which faces geographical and topographical challenges as the population is spread across numerous islands, the Government launched a

Universal Access Policy, with the aim of making ICT available to 98% of the population by 2018. The authorities state that the target has already been reached, as ICT is available to 98.8% of the population.

22. Transport services remain a major constraint to economic development. Airports Vanuatu Limited (AVL), a government-owned company, operates three international airports in Vanuatu.

The other 26 domestic airfields are regulated by the Civil Aviation Authority Vanuatu, the sectoral

regulator. Air Vanuatu, a government-owned enterprise, provides air services linking Vanuatu's islands. Reflecting the costs incurred when providing universal transport services, the Government


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provides loans and guarantees to Air Vanuatu to help cover its losses. Foreign participation in cabotage is allowed, if provided for under the Air Services Agreement (ASA) between Vanuatu and the country from which this foreign carrier originates.

23. Maritime transport is of vital importance to Vanuatu, as the country is composed of 83 scattered islands. Under the Maritime Sector Regulatory Act No. 26 of 2016, which entered into force in 2017, the Office of the Maritime Regulator (OMR) was set up to administer domestic ship

registration. Vanuatu Maritime Services Limited (VMSL), a domestic private company, is contracted by the Government as the international shipping registry administrator. Foreign investment is allowed in coastal shipping (excluding vessels that exclusively provide transport to foreign tourists) only when the carrying capacity of the vessel is above 80 tonnes. Vanuatu has no legislation on cabotage; in practice, foreign vessels are not allowed to provide cabotage services in Vanuatu, except during particular periods such as natural disasters.

24. Tourism is the mainstay of the economy and a major foreign exchange earner. The number of tourist arrivals, mainly from Australia, New Caledonia and New Zealand, recovered in recent years from a significant drop in 2015 caused by Cyclone Pam. Some types of tourism services (such as tour agents, tour operators, commercial cultural feasts, guest houses, bungalows, and hotels and motels) are reserved for Vanuatu citizens; foreign investment is allowed if the annual turnover is above a certain threshold. The sector is dominated by foreign investment, while local investors remain in smaller, less capital intensive businesses. Accessing capital is one significant

constraint for establishing or expanding businesses owned by Vanuatu citizens. The Government developed the Vanuatu Strategic Tourism Action Plan 2014-2018 as a guideline for the development of tourism services.


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1 ECONOMIC ENVIRONMENT

1.1 Main Features of the Economy

1.1. The Republic of Vanuatu is an island nation located in the South Pacific Ocean, east of northern Australia, east of Papua New Guinea, southeast of Solomon Islands, and west of Fiji. Port Vila, on the island of Efate, is the capital. The archipelago is composed of about 82 islands of which 65 are inhabited and 14 have surface areas of more than 100 square kilometres. Most of the

islands are mountainous and of volcanic origin, and have a tropical or sub-tropical climate. Total land surface is about 4,700 square kilometres.

1.2. Vanuatu's population is about 270,000. With more than 100 languages spoken, Vanuatu's linguistic density is among the highest in the world. Most of the population lives in rural areas where subsistence farming, fishing and production of cash crops such as kava, coconut and cocoa

are the main sources of livelihood. However, strong population growth, of some 2.3% annually,

and a rapid urbanization rate are exercising increasing pressure on land and other natural resources.

1.3. As in the case of some other small island developing States, Vanuatu is faced with various specific challenges including: high cost of public service provision reflecting its geographical setting of dispersed islands; a narrow economic base; and a vulnerability to external economic shocks. Located on the Ring of Fire, the country is highly susceptible to both hydro-meteorological (tropical cyclones, floods) and geophysical disasters (volcano eruptions, earthquakes, and resulting

tsunamis and landslides).

1.4. Vanuatu's economy is based mainly on agriculture, fishing, tourism and offshore financial services, while the role of manufacturing is limited (Table 1.1). Tourism is the main generator of foreign exchange, benefiting mostly from visitors from Australia and New Zealand. In 2016, estimated GDP per capita was about US$2,900. Vanuatu is a least developed country; the

authorities expect it to graduate from LDC status in 2020.

Table 1.1 GDP by economic activity, 2010-16

2010 2011 2012 2013 2014 2015 2016

GDP by economic activity at current basic prices (%)

Agriculture, forestry and fishing 21.9 24.2 26.7 26.7 26.8 23.1 22.2

Crop production 17.4 19.4 20.9 21.1 20.9 19.9 19.1

Mining and quarrying 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Manufacturing 5.1 4.5 3.8 3.4 3.5 3.5 3.4

Electricity, gas and water supply 2.0 2.1 2.1 2.0 2.0 2.0 2.0

Construction 5.9 3.7 2.1 2.9 3.1 5.9 5.7

Services 65.0 65.5 65.3 64.9 64.5 65.4 66.6

Wholesale and retail trade; repair of motor vehicles

16.4 16.5 18.4 18.1 18.8 19.1 20.3

Transportation and storage 5.7 5.9 5.6 5.2 4.9 3.9 4.2

Accommodation and food services 5.1 4.9 5.3 5.4 5.2 4.5 4.6

Information and communication 5.2 5.5 4.0 4.4 4.5 4.6 4.6

Finance and insurance 6.7 7.5 7.1 7.7 7.4 8.7 8.7

Real estate 6.7 6.6 7.3 7.2 7.4 8.0 7.8

Professional, scientific, technical and administrative services

3.3 3.3 2.7 2.7 2.6 2.6 3.4

Government services 14.0 13.2 12.9 12.4 11.7 12.1 11.3

Education, health, recreation, and other services

1.7 2.0 2.0 1.9 2.0 1.9 1.8

GDP by economic activity at constant 2006 prices (annual % change)

Agriculture, forestry and fishing 4.8 6.1 2.2 4.8 4.2 -15.8 5.1

Crop production 3.8 6.0 -0.2 3.5 2.6 -9.3 5.9

Mining and quarrying -27.3 -18.8 46.2 -15.8 -12.5 -21.4 72.7

Manufacturing 86.5 -8.6 -13.8 -6.2 0.7 -4.5 2.9

Electricity, gas and water supply 7.3 2.5 -2.4 1.9 -1.6 -2.5 11.9


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2010 2011 2012 2013 2014 2015 2016

Construction -11.2 -36.3 -44.3 45.3 9.7 101.6 2.0

Services 3.0 3.2 4.4 0.1 2.4 2.0 2.9

Wholesale and retail trade; repair of motor vehicles

8.3 4.8 6.6 -0.8 5.1 3.5 2.4

Transportation and storage 0.1 3.1 28.9 -22.6 -5.9 -4.0 1.3

Accommodation and food services 1.8 -1.0 4.4 3.7 1.3 -9.7 3.7

Information and communication 0.0 7.3 -8.4 8.3 7.9 7.0 6.0

Finance and insurance -1.9 9.1 -0.1 8.1 -0.3 6.8 0.2

Real estate 5.9 3.1 9.1 1.8 2.7 1.8 3.6

Professional, scientific, technical and administrative services

-5.0 4.7 -20.0 -0.9 -1.2 9.7 18.3

Government services 5.3 -4.1 2.0 6.4 1.8 1.6 1.8

Education, health, recreation, and other services

-10.6 14.4 1.4 -5.6 8.8 -4.1 -7.4

Source: Vanuatu National Statistics Office online information.

1.5. In 2010, the latest year for which figures are available, 10.7% of the population lived below the national poverty line; life expectancy was some 72 years, and the adult literacy rate was some

85%. In UNDP's 2016 Human Development Index, Vanuatu ranked 134th of 188 countries and territories. The labour market is characterized by a high degree of informality.

1.6. The Reserve Bank of Vanuatu (RBV), Vanuatu's central bank, is responsible for the formulation and implementation of monetary policy. The main objectives of monetary policy are (1) a low and stable inflation rate (defined as an annual change in the Consumer Price Index within the 0 to 4 percent range), and (2) maintaining a sufficient level of foreign exchange reserves (defined as a minimum threshold of 4 months of import cover). A Statutory Reserve

Deposit and open market operations are the main monetary policy instruments. Vanuatu's

currency (the vatu) is pegged to an undisclosed basket of currencies.

1.2 Recent Economic Developments

1.7. In March 2015, category 5 cyclone Pam caused extensive damage on all islands (Box 1.1). The cyclone led to a slowdown in GDP growth to about 0.2% in 2015. As at mid-2018, most reconstruction works had been completed or were near completion.

Box 1.1 Cyclone Pam and the role of trade in natural disasters

According to the UN World Risk Index, Vanuatu is the world's most at-risk country for natural disasters, facing the specific risks of cyclones, volcano eruptions, earthquakes, and tsunamis. In March 2015, category 5 Cyclone Pam struck the whole country, with estimated wind speeds of 250 km/h and wind gusts that peaked at around 320 km/h, causing widespread devastation and extensive damage. An estimated 65,000 people – about a quarter of Vanuatu's total population – were displaced from their homes. Approximately 17,000 buildings were damaged or destroyed, including houses, schools, clinics, and other medical facilities.

Communication across the country was crippled, with only one cellular tower in Port Vila remaining operational, and the power grid was devastated. Four days after the storm, nearly 60 inhabited islands remained cut-off from the outside world. The total economic damage caused by Pam was estimated at approximately VT 48.6 billion, equivalent to about 64% of GDP. The most affected sectors were agriculture and tourism, which contracted by 15.8% and 9.7% respectively. Merchandise exports and income from tourism declined substantially, while imports surged due to reconstruction needs. The Government's responses to the disaster included: support for household reconstruction by temporarily suspending VAT and import duties on construction materials; steps taken by the Reserve Bank of Vanuatu to alleviate liquidity constraints by reducing the Statutory Reserve Deposit requirement; and the implementation of a business continuity plan for banks to ensure that most households and businesses had enough physical currency. Also, one week after the cyclone hit, the Government allowed contributors to the Vanuatu National Pension Fund to withdraw up to 20% from their retirement accounts for emergency expenditure. These ex-post responses were generally considered successful. However, experience from Cyclone Pam also highlights the importance of ex-ante measures for countries that are prone to natural disasters, such as resilient infrastructure, the availability of internal and external emergency funds or fiscal buffers, risk assessment and planning, and diversification of economic activity.


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Beyond the specific experience of Vanuatu, natural disasters may pose important challenges to any country's trade regime. Entry issues for humanitarian goods and services fall within the ambit of measures regularly discussed at the WTO.a Onerous inspection and documentation requirements may delay the entry of relief items. High import tariffs on relief items may push up costs for responders if they are not exempted. Where tariff exemptions may be available, difficulties in applying them can add further delays. Specialized personnel can face regulatory barriers due to issues related to the recognition of their qualifications and licensing or permit requirements. In small countries with infrastructure challenges, customs authorities and the transport sector may also face serious capacity constraints.

a Roberts, Michael and Mohammed, Nazia, "Trade Issues Affecting Disaster Response", WTO Staff Working Paper 2017-07.

1.8. The exchange rate of the vatu against the US dollar has been relatively stable since 2015.

Accommodative monetary policy played a crucial role in supporting economic recovery and financial stability after cyclone Pam. Since 2017, however, excess liquidity in the banking system

has been associated with the building up of inflationary pressure. Inflation fluctuated around 1% in most years up until 2016, before increasing to over 3% in the second quarter of 2017 (Table 1.2).

Table 1.2 Selected economic and financial indicators, 2013-18

2013 2014 2015 2016 2017a 2018b Output and prices (annual percentage change)

Real GDP 2.0 2.3 0.2 3.5 4.2 3.8

Consumer prices (period average) 1.5 0.8 2.5 0.8 3.1 4.8

Consumer prices (end period) 1.5 1.1 1.5 2.1 3.8 4.6

Government finance (% of GDP)

Total revenue 21.4 23.5 31.9 30.8 31.5 31.6

Taxes 17.2 17.4 16.3 16.3 17.4 17.8

Other revenue 2.0 2.0 5.5 5.3 5.2 5.2

Grants 2.2 4.1 11.8 8.3 8.3 8.2

Expenditure 21.7 28.5 41.5 36.9 38.9 39.5

Expense 20.7 21.8 23.1 24.8 27.0 28.6

Net acquisition of non-financial assets 1.0 6.6 18.3 12.1 11.9 11.0

Net lending (+)/borrowing (-) -0.2 -5.0 -9.6 -6.1 -7.5 -8.0

Public and publicly guaranteed debt

(end of period)

23.1 28.7 42.4 48.8 51.0 53.7

Domestic 7.8 7.8 7.5 8.5 8.0 7.6

External 12.6 16.3 30.5 37.6 40.4 43.7

Publicly guaranteed debt 2.8 4.6 4.4 2.8 2.6 2.4

Money and credit (annual percentage change) Broad money (M2) -6.4 8.5 23.1 10.6 2.4 11.3

Net foreign assets -14.8 -14.5 71.6 46.5 -6.6 12.7

Domestic credit 2.7 9.3 -7.4 -10.2 10.9 10.1

Of which: Credit to private sector 2.0 9.0 1.4 1.3 4.3 4.1

Interest rates (%, end of period) Deposit rate (vatu deposits) 1.9 2.6 2.3 1.6 .. ..

Lending rate (vatu loans) 10.5 10.3 10.0 9.9 .. ..

Exchange rates

Vatu per US$ (period average) 94.5 97.1 107.0 109.3 107.8 ..

Vatu per US$ (end of period) 97.3 102.7 109.6 113.1 106.5 ..

Real effective exchange rate (average)

98.9 98.1 100.3 102.3 102.2 ..

Memorandum items

Nominal GDP (in billions of vatu) 75.8 79.1 82.8 87.3 93.7 101.9

Nominal GDP (in millions of US$) 802 815 774 798 870 957

.. Not available.

a Estimate b Projection

Source: IMF (2016), Vanuatu: 2018 Article IV Consultations.

1.9. Government revenues remain at relatively low levels. In the aftermath of cyclone Pam,

grants have been playing an important role in financing reconstruction works (Table 1.3). In order to increase fiscal income, the Government raised the VAT rate in January 2018, from 12.5% to


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15% (Section 3.3.1), and also uses economic citizenship programmes.1 The Government aims to introduce corporate and personal income taxes in 2019.

1.10. Government expenditure rose significantly in 2015 to finance reconstruction, and has remained at these high levels since then. In August 2015, the Government launched the Vanuatu Infrastructure Strategic Investment Plan 2015-2024, aimed at developing urban and rural areas, improving living standards, and delivering community services. The plan outlined the

Government's priorities for both economic and social infrastructure, and laid out how to fund and implement these investments.

Table 1.3 Central Government budgetary operations, 2013-17

2013 2014 2015 2016 2017

Total revenue 16,247 18,585 26,424 26,872 29,514 Taxes 13,069 13,747 13,467 14,231 16,276 Other revenue 1,514 1,561 3,209 5,403 5,417 Grants 1,664 3,277 9,748 7,238 7,821 Expenditure 18,339 22,518 34,344 32,207 36,509 Expense 15,694 17,268 19,152 21,629 25,317 Compensation of employees 8,438 8,582 8,893 9,107 9,967 Use of goods and services 4,144 5,185 5,843 5,995 8,131 Interest payment 555 573 700 908 949 Grants 1,600 2,035 2,530 3,217 2,408 Social benefits 346 241 476 1,542 2,664 Other expense 612 652 710 860 1,198

Net acquisition of nonfinancial assets 2,644 5,250 15,191 10,578 11,192 Gross operating balance 553 1,317 7,272 5,243 4,197 Net lending (+)/borrowing (-) -2,092 -3,933 -7,919 -5,335 -6,995 Net acquisition of financial assets -343 460 5,682 3,050 1,470

Net incurrence of liabilities 1,428 3,607 12,425 9,002 7,173 Domestic 306 263 32 1,453 105 Foreign 1,121 3,344 12,393 7,549 7,068


1.11. Vanuatu's public debt stood at around 51% in 2017, up from 26% at end-2015. Public and publicly guaranteed debt increased sharply from 2014 mainly due to disbursements for reconstruction and infrastructure projects, though most of the new external borrowing was highly concessional. Against the background of strongly increasing foreign debts, Vanuatu prepared its first debt management strategy in August 2015. With eight to nine months of imports, Vanuatu

has adequate reserves.

1.12. Vanuatu's current account has traditionally featured a deficit, which was particularly marked in 2015 and 2017, when it was equivalent to 10.6% and 9.0% of GDP, respectively (Table 1.4). The deficit was financed by official transfers, foreign investment inflows, and remittances.

Table 1.4 Balance of payments, 2013-18

(US$ million, unless otherwise indicated)

2013 2014 2015 2016 2017a 2018b Current account balance -26 -2 -82 -32 -78 -88 Trade balance -223 -197 -269 -264 -320 -264 Exports of goods (f.o.b.) 45 63 39 50 52 60 Imports of goods (f.o.b.) -268 -260 -308 -314 -373 -324 Services balance 190 166 104 179 215 151 Receipts 331 307 283 330 347 337 of which: travel 288 257 183 204 222 250 Payments -142 -141 -179 -152 -132 -186 Primary income -11 4 7 7 2 2 Receipts 33 36 36 36 39 43 Payments -45 -33 -29 -30 -37 -41

1 Under these programmes, the Government offers honorary citizenship to foreign investors against a

one-time contribution, ranging from US$200,000 for a single person application to US$280,000 for a family with elderly parents. "Honorary citizenship" offers most Vanuatu citizens rights, with the exception of voting and political involvement. The application process requires a background check, including of financial resources and criminal record, and takes between one and two months, making it one of the most fast-track citizenship programmes in the world. However, citizens of North Korea, Yemen, Syria, Iraq, and Iran are not allowed to apply.


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2013 2014 2015 2016 2017a 2018b Secondary income 18 26 76 46 25 24 Official 17 22 39 38 23 22 Private 1 3 37 8 2 2 Capital and financial account 58 43 118 95 124 81 Capital account 21 32 84 48 82 36 of which : Official capital transfers (net) .. .. .. 47 35 34 Financial account .. .. .. 47 42 45 Foreign direct investment .. .. .. 55 33 38 Portfolio investment .. .. .. -11 -11 -11 Other investment .. .. .. 3 20 19 Net errors and omissions -36 -34 51 -61 55 0 Overall balance -5 6 87 1 100 -6 Financing: 5 -6 -64 -1 -100 3 Change in international reserves (- = increase) 5 -6 -87 -1 -100 6

Memorandum items: Gross international reserves 179 184 269 267 368 361 In months of prospective imports 5.4 4.5 6.9 6.4 8.6 8.2 Current account balance (% of GDP) -3.3 -0.3 -10.6 -4.1 -9.0 -9.2

Exchange rate (vatu per US$, period average) 94.5 97.1 107.0 109.3 107.8 .. Exchange rate (vatu per US$, end of period) 97.3 102.7 109.6 113.1 106.5 .. Public external debt (% of GDP) 12.6 16.3 30.5 37.6 40.4 43.7

.. Not available.

a Estimates. b Projections.


1.13. According to the IMF, the outlook for Vanuatu's economy is that it will fully recover from the effects of Cyclone Pam in the near future, with an estimated real GDP growth rate of 4% in both

2017 and 2018.2 Inflation is expected to rise to 4.8% in 2018, mainly due to the increase in value-added tax from 12.5% to 15% in January 2018, before reverting to lower levels in the

medium term. The current account deficit is expected to widen to around 9% of GDP in 2017 and 2018, due to the high import content of the projects to scale up infrastructure. The fiscal deficit is expected to remain high, at around 7-8% of GDP, also reflecting reconstruction and infrastructure expenditure. The possibility of further natural disasters remains an important downside risk to all

projections.

1.3 Developments in Trade and Investment

1.3.1 Trends and patterns in merchandise and services trade

1.14. Trade is significant for Vanuatu's economy; the combined value of exports and imports equalled over 106% of GDP in 2016, up from 93% in 2011. This increase is mostly due to the strong growth of imports, while exports stagnated during the period under review. Cyclone Pam led to a contraction of exports in 2015, while imports increased strongly.

1.15. Vanuatu has not submitted any data to the UN Comtrade database since 2012. The authorities indicate that they intend to resume data submission in the near future.

1.16. Merchandise exports are heavily concentrated in a few items. Based on data from the National Statistics Office, Vanuatu's goods exports are dominated by agricultural products, particularly coconut products, kava, beef, cocoa, timber, and coffee (Table A1.1 and Chart 1.1).

1.17. Australia, New Caledonia, and other members of the Melanesian Spearhead Group (Papua New Guinea, Fiji, and Solomon Islands) are the main destinations for Vanuatu's

merchandise exports (Table A1.2 and Chart 1.2).

1.18. Imports are dominated by manufactured goods, food products and live animals (Table A1.3 and Chart 1.1). They mainly come from Australia, Fiji, New Zealand, and Singapore (Table A1.4 and Chart 1.2).

2 IMF, Vanuatu 2018 Article IV Consultation Press Release and IMF Country Report No. 18/109.


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Chart 1.1 Production composition of merchandise trade, 2016

Source: WTO calculations, based on online data from the National Statistics Office of Vanuatu.

Chart 1.2 Direction of merchandise trade, 2016

a Including Solomon Islands, Fiji, and Papua New Guinea.

Source: WTO calculations, based on online data from the National Statistics Office of Vanuatu.

1.19. Vanuatu's service exports grew strongly between 2010 and 2013, but contracted in 2014 and 2015. In 2015, they were dominated by tourism, which accounted for some 80% of service exports (Table 1.5). Imports of services grew constantly during the review period; they mainly comprised transport services, travel and other business services.

Beef & veal

5.8%

Cocoa

7.5%

Copra

31.9%

Sawn timber

2.3%

Chart 1.1 Production composition of merchandise trade, 2016

Exports

Total: US$50.2 million Total: US$368.5 million

Beverages &

tobacco 3.2%

Food & live animals

21.1%

Basic manufactured

products 18.4%

Imports

Other

19.8%

Other

16.4%

Mineral fuels

8.5%

Chemicals

6.5%Coconut oil

10.6%

Kava

22.1%

Source: WTO calculations, based on data taken online from the National Statistics Office of Vanuatu.

Machines &

transport equip.

25.9%

EU-28

4.0%

MSG membersa

8.8%

New Zealand

3.0%

Australia

17.4%

Chart 1.2 Direction of merchandise trade, 2016

Exports

Source: WTO calculations, based on data taken online from the National Statistics Office of Vanuatu.

Total: US$50.2 million Total: US$368.5 million

New Zealand

11.5%

Australia

22.9%

Japan

5.6%

Imports

Other

55.8%

Other

16.4%

New Caledonia

1.3%

Fiji

11.8%

Japan

1.9%

New Caledonia

9.0%

a Including Solomon Islands, Fiji, and Papua New Guinea.

Hong Kong,

China 2.8%

Singapore

8.3%France

5.2%


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Table 1.5 Trade in services, 2010-15

(US$ million)

2010 2011 2012 2013 2014 2015

Total credit (US$ million) 276.7 283.2 301.8 352.4 333.7 282.9

% of total credit

Maintenance and repair 0.0 0.0 0.0 0.0 0.0 0.0

Construction 0.1 0.1 0.1 0.1 0.1 0.1

Transport 11.4 11.7 10.7 9.6 13.5 12.1

Passenger 9.1 9.2 8.8 7.7 8.2 9.1

Freight 1.0 1.0 0.9 0.8 0.7 0.6

Other (including postal and courier) 1.3 1.4 1.1 1.1 4.6 2.4

Travel 78.5 78.8 80.0 81.4 77.1 80.5

Business 7.6 8.0 8.5 6.4 5.0 5.5

Personal 70.9 70.7 71.5 75.0 72.1 74.9

Insurance and pension services 0.1 2.4 2.5 1.8 1.0 0.0

Financial services 3.7 2.0 2.3 1.3 1.3 1.6

Charges for the use of intellectual property 0.1 0.1 0.1 0.0 0.1 0.1

Telecommunications, computer, and information services

2.2 1.1 0.5 0.5 1.6 2.6

Other business services 1.9 2.3 1.5 1.3 1.2 1.1

Personal, cultural and recreational services 0.0 0.1 0.1 0.0 0.1 0.1

Government services 2.0 1.6 2.2 3.9 4.1 1.9

Other 10.2 12.7 12.2 9.9 9.1 14.3

Total debit (US$ million) 124.6 145.0 145.9 149.1 144.9 179.0

% of total debit

Maintenance and repair 0.0 0.0 0.0 0.0 2.3 0.9

Construction 0.1 0.1 0.1 0.1 0.1 0.1

Transport 53.5 50.8 49.3 49.0 51.3 59.7

Passenger 3.2 3.0 3.8 3.5 2.8 2.3

Freight 38.1 36.7 35.0 35.4 34.9 39.1

Other (including postal and courier) 12.1 11.1 10.5 10.1 13.6 18.3

Travel 23.9 24.3 25.4 27.7 25.4 16.8

Business 7.2 7.2 6.7 7.0 7.1 5.3

Personal 16.7 17.1 18.7 20.7 18.3 11.5

Insurance and pension services 3.6 6.8 6.9 5.9 3.9 2.4

Financial services 2.9 2.1 3.5 4.3 1.6 0.8

Charges for the use of intellectual property 0.1 0.2 0.1 0.1 0.1 0.1

Telecommunications, computer, and information services

10.7 10.1 9.7 7.7 5.7 4.3

Oher business services 4.2 4.6 4.3 4.2 8.2 13.8

Other 1.0 1.0 0.6 1.0 1.4 1.0

Source: IMF online information.

1.3.2 Trends and patterns in FDI

1.20. The most recent peak in foreign direct investment into Vanuatu was in 2012, amounting to US$78 million (Table 1.6). The FDI inward stock was US$545 million in 2016; the main subsectors for FDI in Vanuatu were tourism, telecommunications, food, and wood processing. According to the authorities, the main investing countries are Australia, Japan, China and New Zealand. Vanuatu's vulnerability to natural disasters, the weakness of its infrastructure, its geographical isolation, and poorly protected property rights are some of the potential hindrances to investment.

1.21. Outward FDI is negligible and has not exceeded US$2 million in any year since 2011; the

stock of outward investment in 2016 was US$24 million.


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Table 1.6 Foreign direct investment, 2010-16

(US$ million)

Year 2010 2011 2012 2013 2014 2015 2016b FDI inflows 70a 78a -19a -18a 29a 32 FDI outflows 1a 1a 0.5a 1a 2a 1 FDI inward stock 454a .. .. .. .. .. 545 FDI outward stock 23a .. .. .. .. .. 24

.. Not available.

a Asset/liability basis. b Estimates.

Source: UNCTAD, FDI/MNE database. Viewed at: http://www.unctad.org/en/Pages/DIAE/FDI%20Statistics/FDI-Statistics.aspx.

http://www.unctad.org/en/Pages/DIAE/FDI%20Statistics/FDI-Statistics.aspx


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2 TRADE AND INVESTMENT REGIMES

2.1 General Framework

2.1. The Republic of Vanuatu is a parliamentary democracy. Under the current Constitution, which was adopted in 1980 when the country became independent, the national political structure consists of a legislative, an executive, and a judiciary branch.1

2.2. The head of the country is the President, who is elected for a term of five years by a

two-thirds majority of an electoral college.2 The power of the President is primarily ceremonial; the President appoints the Chief Justice of the Supreme Court, and three other justices. The current President has served since July 2017.

2.3. The legislative branch is a unicameral Parliament consisting of 52 members, all of whom are

elected every four years. The Parliament makes laws by passing bills introduced by one or more members, or by the Prime Minister or a minister. When a bill is passed by the Parliament, it must

be presented to the President, who assents to it within two weeks. If the President considers the bill to be inconsistent with a provision of the Constitution, the Supreme Court needs to be referred to for its opinion. The bill must not be promulgated if the Supreme Court considers it inconsistent with the Constitution.

2.4. The head of the executive branch is the Prime Minister, who is the head of Government and is elected by a majority vote of a three-quarters quorum of the Parliament. The Prime Minister and the Council of Ministers form the central government. The national Council of Chiefs (Malvatu

Mauri), elected by district councils of chiefs, advises the Government on matters relating to Vanuatu citizens' culture and language.

2.5. The head of the judicial branch is the Chief Justice of the Supreme Court, which consists of the Chief Justice and other judges. Two or more members of the Court may constitute a Court of

Appeal. Magistrate courts handle routine legal matters. Vanuatu's legal system is based on both British common law and French civil law. Village or island courts, presided over by local chiefs, deal with questions of customary law.

2.6. International treaties and agreements must be ratified before they can be invoked before courts in Vanuatu. Ratification procedures involve the preparation of a bill with the treaty attached to it in French and in English. A bill is debated in Parliament prior to its passage. A bill passed by the Parliament is forwarded to the President for assent and publication in the Official Gazette, before its entry into force.

2.7. If the laws of Vanuatu are found to contradict international treaties or agreements, the

provisions of the international treaty or agreement prevail. Provisions of the WTO Agreement, including Vanuatu's accession protocol, must be applied uniformly throughout its customs territory. In cases where WTO provisions are not applied, or are applied in a non-uniform manner, central

authorities would act to enforce WTO provisions; affected parties would not need to petition throughout the courts.3

2.8. According to the World Bank's Doing Business Report, in 2018 in Vanuatu, resolving a standard contract enforcement legal dispute takes 430 days and costs 56% of the value of the

claim (the East Asia and Pacific average was 566 days and 47% of the claim).4 According to the report, in 2018, Vanuatu stood at 135th out of 190 economies on the ease of enforcing contracts.

1 WTO document WT/ACC/VUT/17, 11 May 2011. The Constitution of Vanuatu is accessible at:

http://www.wipo.int/wipolex/en/text.jsp?file_id=195747#LinkTarget_720. 2 The electoral college consists of 52 members of Parliament and 6 presidents of local government. 3 WTO document WT/ACC/VUT/17, 11 May 2011. 4 World Bank (2017), Doing Business 2018 – Reforming to create jobs. Viewed at:

http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Annual-Reports/English/DB2018-Full-Report.pdf.

http://www.wipo.int/wipolex/en/text.jsp?file_id=195747#LinkTarget_720

http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Annual-Reports/English/DB2018-Full-Report.pdf

http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Documents/Annual-Reports/English/DB2018-Full-Report.pdf


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2.9. Acts passed by the Parliament are available online on the Government's website.5 Vanuatu's main trade and investment related legislation is listed in Table 2.1.

Table 2.1 Major trade and investment related legislation

Subject Legislation Investment Vanuatu Foreign Investment Promotion (Amendment) Act No. 23 of 2008;

Business Licence (Amendment) Act No. 34 of 2010; Excise (Amendment) Act No. 30 of 2010; Value Added Tax (Amendment) Act No. 3 of 2007

Trade Customs (Amendment) Act No. 20 of 2007; Import Duties (Amendment) Act No. 29 of 2010;

Import of Goods Control (Amendment) Act No. 37 of 2010; Export Duties (Amendment) Act No. 25 of 2007

Source: Information provided by the authorities of Vanuatu.

2.2 Trade Policy Formulation and Objectives

2.10. The formulation and coordination of Vanuatu's trade policy is mainly under the authority of the Ministry of Foreign Affairs, International Cooperation and External Trade, which is also responsible for bilateral, regional and multilateral trade and investment negotiations. Under the direction of the Ministry of Tourism, Trade, Commerce, Industry and Ni-Vanuatu Business,

Vanuatu's Trade Policy Framework was prepared in 2012, and is in the process of being updated. The objectives of the Framework are to, inter alia, mainstream trade into Vanuatu's national development strategy, enhance development through increased exports of goods and services, and facilitate increased flows of Aid for Trade.

2.11. The National Trade Development Committee (NTDC), established in 2012 and comprising both public and private sector representatives, oversees trade development in Vanuatu. Other ministries, departments and agencies involved in trade-related activities include: the Ministry of

Finance and Economic Management; the Ministry of Agriculture, Livestock, Forestry, Fisheries and Biosecurity; the Ministry of Infrastructure and Public Utilities; the Ministry of Lands and Natural Resources; the Ministry of Climate Change and Natural Disaster; and the Reserve Bank of Vanuatu.

2.12. Vanuatu's policy document, Vision 2030, sets the target of achieving a stable, sustainable and prosperous country within 15 years (from 2016 to 2030), through, inter alia, encouraging trade, promoting investment, and providing economic opportunities for all members of society.6 It

aims to, inter alia, increase trade and investment opportunities and reduce barriers, including through the use of Aid for Trade; increase access to markets for Vanuatu exports; require all new trade agreements to demonstrate tangible benefits in the national interest; and stimulate economic diversification to spread the benefits of growth and increase economic stability.

2.13. The authorities indicate that the National Industry Policy (NIP) issued in 2011 provides guidelines for the development of local manufacturing industries, including promoting and

protecting infant industries in Vanuatu. Sectoral trade policy objectives were set out in various sectoral policies such as the Agriculture Sector Policy (2015-2030), the Livestock Policy (2015-2030), the Fruits and Vegetables Strategy (2017-2027), the National Coconut Strategy (2016-2025), the Forest Policy (2013-2023), the National Kava Strategy (2016-2025), the National Cooperatives Policy (2017-2022), and the Strategic Tourism Action Plan (2013-2018).

2.14. Vanuatu ratified the United Nations Convention against Corruption (UNCAC) in 2010. In 2011, the Government established the Office of the Government Chief Information Officer (OGCIO)

to facilitate the development of information and communication technology used by government agencies, so as to enhance efficiency and improve transparency (Section 4.3.3.2).7 The Government also completed a Right to Information Policy in 2013, and a Right to Information Act was passed by the Parliament in 2017, with the aim of improving transparency.

5 Viewed at: http://www.paclii.org/vu/legis/num_act/. 6 Vanuatu 2030 – The People's Plan. Viewed at:

https://www.gov.vu/attachments/article/26/Vanuatu2030-EN-FINAL-sf.pdf. 7 Transparency International (2014), National Integrity System Assessment 2014 – Vanuatu. Viewed at:

https://www.transparency.org/whatwedo/publication/vanuatu_national_integrity_system_assessment_2014.

http://www.paclii.org/vu/legis/num_act/

https://www.gov.vu/attachments/article/26/Vanuatu2030-EN-FINAL-sf.pdf

https://www.transparency.org/whatwedo/publication/vanuatu_national_integrity_system_assessment_2014


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2.15. The authorities are making efforts regarding anti-money laundering (AML) and combating the financing of terrorism (CFT) to prevent the laundering of proceeds of corruption. According to an IMF report, Vanuatu was included in the Financial Action Task Force's (FATF) gray list in February 2016 after the authorities agreed to an action plan addressing significant AML/CFT deficiencies. Measures adopted include the amendments to the legal framework on AML/CFT.8

2.3 Trade Agreements and Arrangements

2.3.1 WTO

2.16. On 24 August 2012, Vanuatu became the 157th Member of the WTO.9 Vanuatu committed that it would fully apply all WTO provisions from the date of its accession, and did not require recourse to any transitional period except on intellectual property and on the publication of trade information. Vanuatu bound all of its tariff lines, and the average final bound rate is 40.2%

(Table 3.2). It grants at least MFN treatment to all its trading partners. Vanuatu made specific

GATS commitments on 10 services sectors (Section 4.3). In January 2018, Vanuatu notified to the WTO its commitments in Categories A, B, and C with indicative dates for implementation (for Categories B and C); it has not yet ratified the Trade Facilitation Agreement.10

2.17. In WTO negotiations, Vanuatu is a member of the following groups: ACP (African, Caribbean and Pacific countries with preferences in the European Union); G-90 (African group + ACP + least developed countries (LDCs)); and LDCs.

2.18. Since its accession, Vanuatu has not been involved in any WTO dispute settlement cases

either as a complainant, a respondent, or a third party.11

2.19. Vanuatu has submitted a number of notifications to the WTO (Table 2.2). However, as at 31 December 2017, notifications were outstanding in the areas of: agriculture (export subsidies); IPR (Article 69 in conjunction with the TRIPS Council Decision of 1995); the TRIMs Agreement;

import licensing procedures; quantitative restrictions; customs valuation; rules of origin; Integrated Database for 2016 imports; subsidies and countervailing measures; state trading enterprises; and GATS. At the time of accession to the WTO, Vanuatu committed to submit all

initial notifications required by any Agreement constituting part of the WTO Agreement.12

Table 2.2 Notifications to the WTO, 24 August 2012 – 27 June 2018

Legal provision Description of requirements WTO document and date

Agreement on Agriculture Article 18.2 – DS:1 Domestic support G/AG/N/VUT/1, 20 July 2016 Agreement on the Implementation of Article VI of the GATT 1994 (Anti-Dumping Agreement) Articles 16.4 & 16.5 Has not established any competent authority

to initiate and conduct an anti-dumping investigation, and has not taken any anti-dumping action

G/ADP/N/193/VUT, 27 July 2016

Article 18.5 No relevant laws and/or regulations G/ADP/N/VUT/1, G/SCM/N/1/VUT/1, G/SG/N/1/VUT/1, 25 July 2016

Agreement on Subsidies and Countervailing Measures Article 32.6 No relevant laws and/or regulations G/ADP/N/VUT/1, G/SCM/N/1/VUT/1,

G/SG/N/1/VUT/1, 25 July 2016 Article 25.11, 25.12 No relevant authority, no action taken G/SCM/N/202/VUT, 22 July 2016 Agreement on Trade Facilitation WT/L/931 Notification of Categories A, B and C

commitments G/TFA/N/VUT/1, 10 January 2018

Agreement on Safeguards

Article 12.6 No relevant laws and/or regulations G/ADP/N/VUT/1, G/SCM/N/1/VUT/1, G/SG/N/1/VUT/1, 25 July 2016

8 IMF (2016), Vanuatu 2016 Article IV Consultation, IMF Country Report No. 16/336, October. 9 WTO online information. Viewed at: https://www.wto.org/english/news_e/pres12_e/pr671_e.htm. 10 WTO document G/TFA/N/VUT/1, 10 January 2018. 11 WTO online information. Viewed at:

https://www.wto.org/english/thewto_e/countries_e/vanuatu_e.htm. 12 WTO document WT/ACC/VUT/17, 11 May 2011.

https://www.wto.org/english/news_e/pres12_e/pr671_e.htm

https://www.wto.org/english/thewto_e/countries_e/vanuatu_e.htm


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Legal provision Description of requirements WTO document and date

Agreement on Trade-related Intellectual Property Rights (TRIPs) Article 63.2 Laws and regulations IP/N/1/VUT/1, 10/10/2014

Copyright & Related Rights Act No. 42 of 2000

IP/N/1/VUT/C/1, 22/10/2014

Berne Convention for the Protection of Literary and Artistic Works (Ratification) Act No. 16 of 2012

IP/N/1/VUT/C/2, 22/10/2014

Designs Act No. 3 of 2003 IP/N/1/VUT/D/1, 22/10/2014 Geographical Indications (Wine) Act No. 53

of 2000 IP/N/1/VUT/G/1, 22/10/2014

Circuit Layouts Act No. 51 of 2000 IP/N/1/VUT/L/1, 22/10/2014 Convention Establishing the World

Intellectual Property Organization (Ratification) Act No. 13 of 2012

IP/N/1/VUT/O/1, 18/11/2014

Patent Act No. 2 of 2003 IP/N/1/VUT/P/1, 22/10/2014 Trademarks Act No. 1 of 2003 IP/N/1/VUT/T/1, 22/10/2014

Trademarks Act No. 1 of 2003 – Declaration of Convention Countries Order No. 40 of 2012

IP/N/1/VUT/T/2, 22/10/2014

Trademarks for Goods and Services (Fees) Regulation (Amendment) Order No. 116

IP/N/1/VUT/T/3, 22/10/2014

Trade Secrets Act No. 52 of 2000 IP/N/1/VUT/U/1, 22/10/2014

Source: Vanuatu's notifications to the WTO.

2.3.2 Regional and preferential agreements

2.20. Vanuatu is party to some reciprocal regional trade agreements (RTAs), and it also benefits from some non-reciprocal preferential trade arrangements (PTAs) including the Generalized System of Preferences (GSP) offered by some WTO Members. Australia and New Zealand provide

duty-free and quota-free market access to Vanuatu exports under the South Pacific Regional Trade

and Economic Cooperation Agreement (SPARTECA), while the European Union provides duty-free and quota-free access to Vanuatu exports under the Everything-But-Arms (EBA) initiative and the GSP.

2.3.2.1 Regional trade agreements (reciprocal)

2.21. Vanuatu has engaged in RTAs, including: the Melanesian Spearhead Group (MSG) Trade Agreement, the Pacific Island Countries Trade Agreement (PICTA), and the Pacific Agreement on Closer Economic Relations Plus (PACER Plus). PACER Plus has not yet entered into force

(Table 2.3).

Table 2.3 Overview of Vanuatu regional trade agreements, 2018

RTAs Details MSG Trade Agreement Parties Fiji, Papua New Guinea, the Solomon Islands and Vanuatu Date of signature/entry into force 22 July 1993/1 January 1994 Date of WTO notification and legal coverage 3 August 1999

Enabling Clause Year of tariff elimination by Vanuatu 2012 Services covered No. The MSGTA3 was extended to cover trade in services,

labour mobility, and cross-border investment. WTO consideration status Summary Fact Sheet (goods) distributed Related WTO documents WT/COMTD/N/9 (7 October 1999), WT/COMTD/21

(7 October 1999) PICTA Parties Cook Islands, Fiji, Kiribati, Federated States of Micronesia,

Nauru, Niue, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu,

Date of signature/entry into force 18 August 2001/13 April 2003 Date of WTO notification and legal coverage 28 August 2008

Enabling Clause End of implementation period 2021 Services covered No. It is expected that the coverage will expand to include

trade in services, movement of capital and labour

http://www.paclii.org/vu/legis/num_act/gia2000264/





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RTAs Details WTO consideration status Factual presentation not distributed Related WTO documents WT/COMTD/N/29 (17 September 2008) PACER Plus Parties Australia, New Zealand, and Pacific Island countries

including Vanuatu Date of signature/entry into force Vanuatu signed in September 2017 Date of WTO notification and legal coverage Not in force Transition for full implementation 25 years after 2017 for non-LDCs, and from 2028 for LDCs Services covered Yes. Covering goods, services, investment, labour, SPS, and

aid. WTO consideration status N.A. Related WTO documents N.A.

Source: WTO Secretariat.

2.3.2.1.1 MSG Trade Agreement

2.22. The members of the MSG Trade Agreement include Fiji, Papua New Guinea, the Solomon Islands and Vanuatu. In 2016, the Agreement was revised with the intention of extending the coverage of goods to those covering trade in services, labour mobility, and cross-border investment. Vanuatu has not signed the revised Agreement.

2.23. Under the current MSG Trade Agreement that Vanuatu has signed, tariffs are eliminated on all products originating and exported from other parties, with the exception of wines, spirits, and tobacco. Parties committed that no quantitative import restrictions are applied (except for

BOP reasons) and no new export prohibitions or restrictions are imposed. Vanuatu authorities confirm that no such measures have been applied to date. The authorities state that, within the MSG countries, Fiji is the main destination for Vanuatu's exports, followed by Papua New Guinea and the Solomon Islands.

2.3.2.1.2 PICTA

2.24. PICTA is a trade agreement among the Forum Island countries (FICs), and is intended to gradually establish a free trade area among the 14 FICs. PICTA entered into force in 2003 after six

FICs ratified it; Vanuatu signed the Agreement in 2001, ratified it in 2005, and it entered into force on 21 July 2005. Amendments to PICTA have been agreed but have not entered into force through formal acceptance by all parties.13 PICTA covers trade in goods, with the exception of alcohol and tobacco products, government procurement rules, dangerous goods such as explosives, and other restrictions to protect human or animal health.

2.25. Under PICTA, its members are to eliminate tariffs on intra-regional trade by 2021. Tariffs on

"non-excepted" goods were to be removed by 2017 (2021 for LDCs including Vanuatu); and tariffs on "excepted products" (i.e. goods on a negative list) by 2021. For Vanuatu, the excepted products concern 18 tariff lines (HS eight-digit level): meat and edible offal; birds eggs; canned beef; fruit juices; ice cream; paints and varnishes; pigments used to manufacture paint, and dyes;

some fibreglass tanks; toilet paper; fibreglass boats; wooden furniture; plastic furniture; and prefabricated buildings. Among them, 14 lines are subject to ad valorem tariff rates, ranging from 25% to 50%; and 4 lines are subject to non-ad valorem tariff rates (VT 350/litre).14 The

authorities state that, apart from the list of "excepted goods", tariffs on other goods originating in PICTA countries enter Vanuatu duty free.

2.26. FICs are encouraged to convert specific tariffs to ad valorem rates by the start of the scheduled reductions. Any remaining non-ad valorem duties were to be phased out by 2017. Trade barriers other than tariffs, such as quotas, must be eliminated immediately on trade between the FICs.15 The authorities state that Vanuatu has converted all specific duties to ad valorem duties, and it does not impose any import quotas.

2.27. Under the PICTA framework, negotiations on trade in services were completed in 2012 when 12 of the 14 FICs signed a Services Protocol, which has not yet entered into force. The Protocol

13 WTO notification WT/COMTD/N/29, 17 September 2008. 14 WTO document WT/ACC/VUT/17, Annex 1, 11 May 2011, p.48. 15 Pacific Islands Forum Secretariat online information. Viewed at: https://www.forumsec.org/.

https://www.forumsec.org/


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stipulates that parties will provide each other with preferential treatment in trade in services, in the areas of professional, telecommunications, construction, financial, tourism and transportation services. Vanuatu participated in the negotiation, but has not ratified the amendments on the Protocol.

2.28. All MSG Trade Agreement members are signatories to PICTA. Under PICTA, the signatories are allowed to continue to reduce barriers among themselves at a faster pace than is provided

under PICTA.

2.3.2.1.3 PACER and PACER Plus

2.29. In August 2001, the Pacific Agreement on Closer Economic Relations (PACER) was signed, and it entered into force in August 2002. PACER is open to any Pacific Island country or territory, and it is an umbrella agreement between members of the Pacific Island Forum (PIF) and Australia

and New Zealand. PACER provides a framework for the development of trade cooperation and

gradual integration, to facilitate the PIF economies to gradually become part of a single regional market.

2.30. In September 2017, Vanuatu signed PACER Plus, an FTA involving Australia, New Zealand and Pacific Island countries. PACER Plus, which has not entered into force, is a reciprocal RTA and is to replace SPARTECA, a non-reciprocal agreement. PACER Plus covers trade in goods, trade in services, investment, labour, SPS measures, aid and other issues. The non-LDC signatories were to start reducing tariff rates from 2017 and must lower their tariff rates to zero by 25 years after

2017. LDCs in the region, i.e. Kiribati, Solomon Islands, Tuvalu, and Vanuatu, have a delayed timetable for tariff reductions: they commence lowering their tariffs from 2028, unless the country graduates from LDC status.

2.3.3 Other agreements and arrangements

2.31. Vanuatu is also a beneficiary of a number of non-reciprocal preferential trade arrangements. It benefits from GSPs from Australia, Canada, the European Union, Iceland, Japan, Kazakhstan, New Zealand, the Russian Federation, Switzerland, Turkey, and the United States. As an LDC, it

also benefits from duty-free treatment from Chile; China; India; Korea, Republic of; Kyrgyz Republic; Chinese Taipei; Tajikistan; and Thailand.16 The EBA Agreement had resulted in some exports from Vanuatu to the EU market, notably of coconut oil.17

2.32. In addition, under SPARTECA, a non-reciprocal trade agreement entered into force in 1981; Australia and New Zealand provide duty-free and quota-free access to all products originating in the 14 FICs, except sugar in the case of Australia. SPARTECA also includes provisions for economic

and technical cooperation, and safeguard provisions relating to dumping and subsidies and suspension of obligations. Rules of origin generally require at least 50% of the product's total factory cost to be from SPARTECA parties.

2.33. However, unilateral tariff reductions in Australia and New Zealand may lead to erosion of tariff preferences, and hence the declined relevance and importance of SPARTECA on exports from Vanuatu. The authorities indicate that Vanuatu has not actively utilized the SPARTECA preferences.

2.34. Vanuatu joined the PIF in 1982. This is an inter-governmental organization that aims to

increase sustainable regional trade (goods and services) and investment to promote pro-poor economic growth by lowering trade barriers, including both physical barriers (e.g. borders) and technical barriers (e.g. quarantine, import taxes and passport requirements).

2.35. Vanuatu has signed technical cooperation agreements with Fiji and Papua New Guinea, a technical aid cooperation agreement with New Caledonia, and an Agreement on Economic and Technical Cooperation with China. The Australia-Vanuatu Partnership Development Agreement was signed in 2009.18

16 WTO online information. Viewed at: http://ptadb.wto.org/Country.aspx?code=548. 17 WTO document WT/ACC/VUT/17, Annex 1, 11 May 2011, p.29. 18 WTO document WT/ACC/VUT/17, Annex 1, 11 May 2011, p.29.

http://ptadb.wto.org/Country.aspx?code=548


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2.4 Investment Regime

2.4.1 Business licence

2.36. Legislation regulating the business environment includes the Business Licence Act, the Vanuatu Foreign Investment Promotion Act, the Industrial Development Act, and the Labour (Work Permit) Act.19

2.37. The Business Licence Act defined 11 classes of business licences, and a number of

sub-categories within these classes (Table 2.4). Vanuatu has no special category of business licence for franchising, although its legislation does not prohibit local or foreign participation in franchising. Licensing authorities include the Director of Customs and Inland Revenue, provincial governments, and the Minister of Finance.20 Exporters of goods do not require business licences. Those who import goods, re-assemble and repackage them for export require a business licence.

Table 2.4 Selected categories of business licences

Category Description Fee Category D1 Importers licence:

Required for direct importation for resale (without transformation), wholesale or retail, including acting as agent in buying or selling of any merchandise to other businesses.

Annual fee VT 10,000 (US$100)

Category D2 Retailer or wholesaler licence: Required for wholesalers or retailers, excluding open-air vendors and mobile shops

Annual fee ranges from VT 20,000 (US$200) to VT 1 million (US$10,000), depending on the gross turnover of the business. An additional VT 100,000 (US$1,000) was levied on every non-citizen principal or partner engaged in category D2 business. Non-citizens and non-resident foreign investors pay an additional annual fee of VT 100,000 (US$1,000) for the processing of the investment application.

Category D5 Licence required for open-air vendors and mobile shops Category B Licences required for manufacturing industries and trade:

Required for the importation of materials and supplies used for manufacturing without a D1 licence. These enterprises are also allowed to sell their output, wholesale or retail, without a D2 licence, but only through one outlet – at the business headquarters or adjacent premises.

Source: WTO document WT/ACC/VUT/17, 11 May 2011.

2.38. The Business Licence Act was amended in 2010 and became the Business Licence (Amendment) Act. In accordance with the amended Act, a new category of business licence was issued to allow holders to engage in the import and export of goods without engaging in manufacturing or wholesale/retail (distribution).

2.39. Business licence fees are charged according to the type of business activity and the turnover of the business. Fees are exempted for: artists and sculptors; planters, farmers, dairy farmers, market and other gardeners, stock-breeders, and vegetable and fruit hawkers; and fishermen, if

the business gross turnover is less than VT 10 million. The following businesses are also exempted from the fee: export; credit unions registered under the Credit Union Act; religious missions;

19 Other relevant legislation includes the Immigration Act, the Vanuatu National Provident Fund Act, and

the Companies Act. 20 Customs online information. Viewed at: https://customsinlandrevenue.gov.vu/index.php/en/inland-

revenue/rates-taxes/business-license.

https://customsinlandrevenue.gov.vu/index.php/en/inland-revenue/rates-taxes/business-license

https://customsinlandrevenue.gov.vu/index.php/en/inland-revenue/rates-taxes/business-license


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teachers and professors in schools and institutions not conducted for profits; non-profit clubs; and charitable organizations.

2.40. The licence is valid for one year, renewable before 31 January of the following year. Renewal of approval from the Vanuatu Investment Promotion Authority (VIPA) is required for non-citizens. Any foreign investor wishing to invest in Vanuatu must obtain a certificate from VIPA, and a certificate of business name or a certificate of incorporation from the Vanuatu Financial

Service Commission (VFSC), before applying for a business licence issued by the Department of Customs and Inland Revenue (Section 2.4.2).

2.41. According to the Industrial Development Act No. 19 of 2014, industrial undertakings and internationally traded services in Vanuatu may be exempted from import tariffs, once they have a valid Industrial Permit. To apply, businesses must: obtain a certificate issued by VIPA and a Manufacturing Business Licence (Category B) from the relevant authorities; register with the

VFSC; and pay a fee of VT 2,000. Once all the requirements are met, the Department of Industry may issue a permit which is valid for five years.

2.42. The issuance of work permits is regulated under the Labour (Work Permit) Act, which contains a list of professions reserved for Ni-Vanuatus, such as able seaman/ordinary seaman; bricklayer; bus driver; clerical supervisor; dock worker; driver; hotel receptionist; housemaid; lorry or van driver; mason; painter; portable saw-miller; receptionist; street vendor; typist and waitress/waiter.

2.4.2 Foreign direct investment (FDI)

2.43. Fostering an open, transparent and conducive national policy environment for investment and promoting coherence in national and international investment policy is Vanuatu's key policy objective regarding FDI.21

2.44. Legislation currently in force concerning FDI in Vanuatu is the Foreign Investment Promotion Act, which entered into force in 2010. VIPA, established in 1998, became a statutory body in 2008 under the Ministry of Tourism, Trade, Commerce, Industry and Ni-Vanuatu Business.

VIPA aims to facilitate, promote and foster foreign investment in Vanuatu. It was established as an institution aimed at developing guidelines to promote FDI with a view to improving private sector growth and employment.22 It both promotes and regulates FDI inflow in Vanuatu through the registration of new and existing foreign investment. It is a liaising body between the Government and the private sector and other relevant agencies.

2.45. In addition to the Foreign Investment Promotion Act, investors in some services sectors are

also subject to legislation regulating these individual sectors (Section 4.3).

2.46. Foreign investment is open for most activities other than those on the Reserved and the Prohibited lists (Tables 2.5 and 2.6). For activities open to foreign investment, there are no foreign

investment equity restrictions.

Table 2.5 Business activities reserved only for Ni-Vanuatu citizens

Reserved sectors Trade

Export of sandalwood in stick and chip form, harvested from natural forests Local trading of sandalwood, harvested from natural forests Export of seeds and other minor forest products, harvested from natural forests Second hand clothing shops Export of kava in root, chip and stick form Manufacturing Manufacture of handcrafts and artefacts Services Kava bars

21 VIPA online information. Viewed at: http://www.investvanuatu.org/wp/investing/government-

support/. 22 VIPA online information. Viewed at: http://www.investvanuatu.org/wp/aboutvipa/our-history-

achievements/.

http://www.investvanuatu.org/wp/investing/government-support/

http://www.investvanuatu.org/wp/investing/government-support/

http://www.investvanuatu.org/wp/aboutvipa/our-history-achievements/

http://www.investvanuatu.org/wp/aboutvipa/our-history-achievements/


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Reserved sectors Open-air vendors, door-to-door sales, and mobile shops Road transport operators – the provision of any taxi or bus service, including airport road transfers and any other road transport service involving the guest of a hotel or other accommodation business Private security services including security guards Electricians and electro-technicians Residential building and construction Commercial cultural feasts Fishing Commercial fishing in Vanuatu's inshore waters as defined by the Maritime Zones Act (i.e. archipelagic waters including the first six nautical miles from land) Other Small scale production of sawn timber from natural forests using a portable sawmill (i.e. can be physically moved from one location to another in the forest)

Source: Information provided by the authorities.

2.47. Some business activities are open to foreign investors only as long as the operation is

sufficiently large. Foreign investment in these sectors are allowed if the investor is able to demonstrate over time that they exceed the specified minimum threshold.

Table 2.6 Reserved activities open to foreign investment above a minimum threshold

Activity Minimum threshold Tourism Tour agent (business that sells tourism services) Annual turnover of VT 20 million Tour operator (business that packages two or more travel services into a single product for the consumer, i.e. transport, accommodation, meals, entertainment, sightseeing)

Investment of VT 20 million

Guest house (business that provides simple accommodation using private or semi-private rooms and offers limited guest services)

50 beds or 10 rooms or annual sale turnover of VT 20 million

Bungalows (business that provides island-style accommodation in detached or semi-detached dwellings)

Annual turnover of VT 30 million

Hotels and motels (business that provides accommodation using private rooms and offers

amenities such as food, alcohol and other guest services)

Investment of VT 10 million, or annual turnover of VT 20 million

Other services Retail shops including general merchandise trading shops (excluding speciality shops)


Coastal shipping (excluding vessels that exclusively provide transport to foreign tourists)

Vessel size with carrying capacity of 80 tonnes

Other professional or business service Real estate agents; property managers; land and property developers; legal practitioners; accounting practitioners; engineering practitioners and services; architectural practitioners and services; surveyors and draftsmen; core drilling, assaying geological and prospecting support services; business and financial services and consultants; book keeping services; management services and consultants; advertising and marketing services and consultants; photocopying and duplicating services; typing and secretarial services; language translation and interpreting services; business security and protective services; debt collection and credit rating services; and other business and administrative services and agencies



2.48. The authorities are in the process of developing a National Investment Policy with a view to ensuring coherence in existing and future sectoral policies. VIPA has conducted reforms to improve

FDI inflows into Vanuatu. For example, in 2016, it removed the VT 5 million bank confirmation requirement for investors. In the same year, it also implemented a five-year Foreign Investor Approval Certificate (FIAC) that complements the five-year residency approval for an investor by


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the Department of Immigration. The VIPA application fee was increased from VT 25,000 to VT 120,000.

2.49. All land belongs to the indigenous population of Vanuatu. The Constitution stipulated that no land in Vanuatu can be owned by a foreigner. Foreigners have the right to lease land for a period of 75 years, in accordance with the Land Lease Act [CAP. 163]. A "subsidiary land rent payment" of 2-4% of gross annual turnover, paid to the custom landowners, applies to tourism leases.

2.50. The Foreign Investment Promotion Act sets out procedures for foreign investors to conduct businesses in Vanuatu (Chart 2.1).

Chart 2.1 Registration process

Source: Information provided by VIPA.

2.51. Applicants must submit their application in writing to VIPA, with the following information:

a. details of the investor(s);

b. proposed investment and its location;

c. type of business licence required;

d. amount and source of capital expenditure to be incurred;

e. projected return on the investment during the first three years; and

f. expected employment to be generated during the first three years of operation.

2.52. The time and fees required are different for each step in the process (Table 2.7).

Source: Information provided by the VIPA.

Chart 2.[registration process]

VFSC

Apply for a VIPA FIAC

VIPA

Department of Customs Department of Labour

Department ofImmigration

Register for a business/company name

Apply for a residency permit

Vanuatu National Provident Fund

Department of Customs

Register thecompany and employees

Register for VAT

Obtain abusiness licence

Apply for a workpermit for foreign workers


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Table 2.7 FDI investment procedure

Procedure Time to complete

Associated cost

FIAC 15 days VT 120,000

Company incorporation 3-5 days Based on authorized share capital: - Greater or equal to VT 30,000 if the authorized share capital is VT 35 million or less; - less than or equal to VT 250,000 if the authorized share capital is VT 300 million

Residency permit 5 days VT 57,600 per year Work permit 5 days VT 210,000 per year Business licence 1-2 days Greater or equal to VT 20,000 per business

category if the earnings are less than VT 10 million per year

VAT registration 2–3 days No fee Registration with the National Provident Fund

3-4 days No fee


2.53. VIPA is governed by a Board of Directors, which makes the overall decisions to approve investment application proposals. The Board evaluates the application, and may require the investor to submit an environment impact assessment. If a foreign investment project requires leasing land, a certificate to negotiate issued by the Minister of Lands will be needed, with which applicants may negotiate for a lease on a plot of custom land.

2.54. The length of stay allowed for foreigners with a residency permit is linked to investment in

Vanuatu:

a. An investment of VT 5 million (US$50,000) entitles the foreign investor to a one-year residency permit;

b. A higher initial investment, and an undertaking to maintain the investment at this level, ensures the foreign investor a longer residency permit;

c. A maximum-length (15 years) residency permit is issued to foreigners having invested more than VT 100 million (US$1 million), subject to annual renewal.

2.55. Vanuatu does not have complex investment incentive schemes. The business environment has the following features:23

a. No income or company tax for residents, including foreigners;

b. No capital gains tax;

c. No inheritance tax;

d. No foreign exchange controls or reporting requirements regarding the movement of funds;

e. Exemptions of import tariffs on tourism, manufacturing and processing, and mineral exploration; and

f. VAT levied at a rate of 15%.

2.56. In September 2017, an Investment Service Centre, which functions as a one-stop shop, was established by VIPA on a pilot basis so that investment information may be gathered in one location. Main government units involved in the one-stop shop service include the departments of

23 VIPA online information. Viewed at: http://www.investvanuatu.org/wp/investing/tax/.

http://www.investvanuatu.org/wp/investing/tax/


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Immigration and Labour, and the Vanuatu Tourism Office.24 The authorities indicate that much work and effort are needed for this service centre to be fully functional.

2.57. Vanuatu ranks 90th out of 190 economies on the World Bank's Ease of Doing Business Index in 2018.25 It ranks high in getting credit (29th) and paying taxes (57th), but low in dealing with construction permits (151st), trading across borders (143rd), enforcing contracts (135th), and starting a business (128th). It takes around 18 days to set up a limited liability company, involving

seven steps and costing 44% of per capita income.

2.58. Vanuatu does not have any bilateral or regional investment promotion or protection agreements.26 Vanuatu has not signed any double taxation avoidance treaties (DTAs) as the country applies no income tax. Disputes may be resolved through either the mediation procedure or the legal court procedure.

24 VIPA online information. Viewed at: http://www.investvanuatu.org/wp/vipa-one-stop-shop-service-

commences/. 25 World Bank (2017), Doing Business 2018 Vanuatu. Viewed at:

http://documents.worldbank.org/curated/en/953481510223151566/pdf/121108-WP-PUBLIC-DB18-VUT.pdf. 26 It negotiated bilateral investment treaties (BITs) with China (2006) and the United Kingdom (2003),

but has not signed them.

http://www.investvanuatu.org/wp/vipa-one-stop-shop-service-commences/

http://www.investvanuatu.org/wp/vipa-one-stop-shop-service-commences/

http://documents.worldbank.org/curated/en/953481510223151566/pdf/121108-WP-PUBLIC-DB18-VUT.pdf


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3 TRADE POLICIES AND PRACTICES BY MEASURE

3.1 Measures Directly Affecting Imports

3.1.1 Customs procedures, valuation, and requirements

3.1. All imported goods are subject to customs control. Importers are required to register in ASYCUDA World, where they are assigned a customs identification number (CIN). Foreign companies or individuals can apply for a CIN. Imported goods must be accompanied by: an import

declaration, the commercial invoice, a packing list, shipping documents (airway bills or bills of lading), and an import permit or licence if applicable. An import declaration is required for all imports above VT 10,000. The declaration can be submitted electronically; the fee is VT 1,000 per declaration. Vanuatu does not require pre-shipment inspection.

3.2. Most imports arrive by sea. Customs duties and internal taxes are collected by Customs and Inland Revenue (CIR), which has offices in Port Vila, Luganville and all provincial centres. The CIR

has a total of 90 staff. The use of a licensed customs broker is not mandatory. However, according to the authorities, in practice, only customs brokers and licenced personnel have access to the electronic system. There are 15 customs brokers in Vanuatu, most of whom are located in Port Vila.

3.3. The CIR maintains an electronic risk management system to identify high-risk shipments. Under these procedures, imports are assigned to one of three risk levels: red, yellow, or green. The level of risk is determined by the type of product, the country of origin, and past records of

the importer. Updates to the system are made on a quarterly basis.

3.4. Shipments classified as high risk (red) are subject to physical examination and documentary review. Medium-risk shipments (yellow) are subject to documentary review. Low-risk shipments (green) are not subject to physical examination or documentary review, unless randomly selected.

About 26% of consignments are directed to the red channel, and another 26% to the yellow channel, while 48% are allocated to the green channel. The authorities indicate that an increase in the share of the green channel is a policy objective.

3.5. All importers, customs brokers and manufacturers may apply to the CIR for an advance ruling on the classification of goods, the applicability of an exemption or concession, the country of origin of particular goods, or the valuation rule to apply to particular goods. A fee of VT 5,000 is payable for each application. A ruling is issued by the CIR within 40 days of the date of receipt of the request. For perishable goods, quick-release provisions can also apply.

3.6. According to the authorities, the average time for customs clearance is three days and seven

hours, as shown by a time release study carried out in 2017. The authorities indicate that a number of steps have been taken since then to reduce release times, including the inauguration of a new wharf and the introduction of ASYCUDA World, and that a new time release study is planned

for 2018.

3.7. Vanuatu adopted the Import Duties (Consolidation) (Amendment) Act of 2013 No. 29 to give effect to the WTO's Customs Valuation Agreement. The Act has not yet been notified to the WTO. In principle, the primary method of valuation is the transaction value of the imported goods; when

necessary, recourse to alternative methods follows the hierarchy set out in the WTO Customs Valuation Agreement. The dutiable value of all imports is the sum of the purchase cost and all expenses incurred for transport, insurance and freight up to the point of entry into Vanuatu. The authorities indicate that stand-alone legislation on customs valuation is planned.

3.8. In May 2014, Vanuatu benefitted from a WTO seminar to assess its needs with regards to trade facilitation and to help determine its category A commitments. Vanuatu notified its category A, B and C commitments in January 2018.1 Of its commitments under the Trade Facilitation

Agreement (TFA), 12 are in category A, 12 in category B, and 12 in category C. As at March 2018, Vanuatu had not ratified the TFA. Pursuant to Article 195 of the Customs Act, decisions by customs

may be appealed to a Customs Appeal tribunal within 30 days of receiving the administrative

1 WTO document G/TFA/N/VUT/1, 10 January 2018.


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decision. The authorities indicate that, as at mid-2018, no formal appeal procedures were in place, but that the drafting thereof is underway.

3.1.2 Rules of origin

3.9. Vanuatu does not maintain non-preferential rules of origin. As a party to the MSG Trade Agreement, the PICTA, and PACER Plus, Vanuatu applies preferential rules of origin.

3.10. Goods containing inputs from non-MSG countries qualify for MSG preferences if they have

been "sufficiently worked or processed". This criterion is met when the goods are classified under a different four-digit tariff heading from their non-MSG inputs.

3.11. Under PICTA, goods containing non-PICTA inputs must have been "substantially transformed" to qualify for preferential treatment. Substantial transformation occurs when the final

manufacturing process occurs in the exporting PICTA country, with at least 40% of material, labour, and overhead costs incurred in that country.

3.12. Under PACER Plus, the good must undergo a change of tariff classification, or at least 40% of value-adding must take place within the PACER Plus membership, with the last process of production taking place in a PACER Plus member.

3.13. To qualify for preferential treatment, importers must submit to Customs a certificate of origin issued by the competent authority of the exporting country.

3.1.3 Tariffs

3.1.3.1 Applied MFN tariffs

3.14. Vanuatu grants at least MFN tariff treatment to all its trading partners.

3.15. The 2018 tariff schedule comprises 5,502 tariff lines at the eight-digit level (Table 3.1). The tariff nomenclature is based on the Harmonized Commodity Description and Coding System (2017). The only non-ad valorem tariff rates concern two tariff lines at the eight-digit level (light oils and preparations) and involve specific duties; ad valorem equivalents (AVEs) were provided by the authorities. The simple average applied MFN rate increased slightly during the review period, from 9.2% in 2012 to 9.3% in 2018, mainly due to the transposition to HS 2017. Vanuatu does

not apply seasonal or variable tariffs, or tariff quotas. Tariffs apply on the c.i.f. value of goods.

Table 3.1 Summary analysis of Vanuatu's MFN tariff, 2018

Number of lines

Average (%)

Range (%)

Coefficient of

variation

Duty free (%)

Total 5,502 9.3 0-75 1.0 26.0

HS 01-24 996 17.2 0-75 0.7 8.2

HS 25-97 4,536 7.6 0-55 1.0 29.8

By WTO category

WTO agricultural products 768 16.9 0-75 0.8 10.9

Animals and products thereof 117 19.5 0-30 0.5 4.3

Dairy products 22 14.5 5-15 0.1 0.0

Fruit, vegetables, and plants 212 22.6 0-30 0.4 7.1

Coffee and tea 24 23.3 15-30 0.3 0.0

Cereals and preparations 91 7.5 0-30 1.0 31.9

Oils seeds, fats, oil and their products 83 6.6 0-10 0.5 14.5

Sugars and confectionary 17 10.0 10-10 0.0 0.0

Beverages, spirits and tobacco 58 37.0 0-75 0.5 3.4

Cotton 5 10.0 10-10 0.0 0.0

Other agricultural products, n.e.s. 139 10.5 0-30 0.9 15.1

WTO non-agricultural products 4,734 8.0 0-55 0.9 28.5

Fish and fishery products 265 15.4 0-30 0.3 3.4


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Number of lines

Average (%)

Range (%)

Coefficient of

variation

Duty free (%)

Minerals and metals 907 7.4 0-25 0.8 29.2

Chemicals and photographic supplies 939 5.3 0-30 1.2 35.3

Wood, pulp, paper and furniture 286 12.1 0-30 0.7 21.0

Textiles 590 7.5 0-20 0.5 1.9

Clothing 224 15.4 15-30 0.2 0.0

Leather, rubber, footwear and travel goods 155 7.8 0-30 0.9 27.7

Non-electric machinery 539 3.3 0-25 1.6 63.8

Electric machinery 262 9.8 0-15 0.6 17.9

Transport equipment 171 9.7 0-40 1.0 37.4

Non-agricultural products, n.e.s. 380 9.5 0-55 1.3 45.5

Petroleum 16 8.1 0-38 1.2 6.3

By ISIC sector

ISIC 1 - Agriculture, hunting and fishing 401 15.0 0-55 0.8 14.5

ISIC 2 - Mining 96 3.3 0-15 0.9 38.5

ISIC 3 - Manufacturing 5,004 8.9 0-75 1.0 26.7

Manufacturing excluding food processing 4,394 7.7 0-55 1.0 29.6

ISIC 4 - Electricity 1 0.0 0-0 0.0 100.0

By stage of processing

First stage of processing 770 11.4 0-55 0.9 22.1

Semi-processed products 1,808 6.4 0-30 0.8 21.8

Fully processed products 2,924 10.5 0-75 0.9 29.7

By HS section

01 Live animals and products 379 15.6 0-30 0.5 5.3

02 Vegetable products 310 17.9 0-30 0.7 12.3

03 Fats and oils 48 6.5 0-10 0.7 29.2

04 Prepared food, beverages and tobacco 229 21.1 0-75 0.6 3.1

05 Mineral products 158 3.1 0-38 1.4 47.5

06 Chemicals and products thereof 869 5.1 0-30 1.1 30.7

07 Plastics, rubber, and articles thereof 215 8.1 0-30 1.0 33.5

08 Raw hides and skins, leather, and its products 69 4.1 0-15 1.6 72.5

09 Wood and articles of wood 122 14.7 0-30 0.3 5.7

10 Pulp of wood, paper and paperboard 143 8.0 0-30 0.8 35.0

11 Textiles and textile articles 809 9.5 0-30 0.5 0.1

12 Footwear, headgear, etc. 47 14.7 0-15 0.1 2.1

13 Articles of stone, plaster, cement 143 11.8 0-25 0.4 11.2

14 Precious stones and metals, pearls 53 4.9 0-20 1.8 75.5

15 Base metals and articles thereof 565 7.7 0-20 0.7 25.7

16 Machinery, electrical equipment, etc. 802 5.5 0-25 1.2 48.5

17 Transport equipment 182 9.7 0-40 1.0 37.9

18 Precision equipment 210 4.5 0-15 1.5 67.1

19 Arms and ammunition 18 52.8 15-55 0.2 0.0

20 Miscellaneous manufactured articles 124 13.7 0-30 0.7 18.5

21 Works of art, etc. 7 0.0 0-0 0.0 100.0

Note: Including AVEs for two specific rates under petroleum oils.

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

3.16. The coefficient of variation is 1.0, reflecting a relatively low degree of uniformity among rates (Table 3.2). The average applied tariff for agriculture (WTO definition) is 16.9%, higher than the average for non-agriculture (8.0%). Average tariffs are lowest on non-electric machinery

(3.3%), and highest on beverages, spirits and tobacco (37%).

3.17. 26% of all tariff lines are duty free. Around 24% of all tariff lines carry an MFN rate of 5%, some 16% have a rate of 10%, and around 23% have a rate of 15% (Chart 3.1). The highest ad valorem rates, of 75%, 55%, and 40%, apply on 56 tariff lines comprising tobacco products


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and alcoholic and non-alcoholic beverages. Tariff escalation exists between semi-processed and fully processed goods.

3.18. Income derived from imports is an important part of government revenue; in 2017, the combined share of tariffs and VAT on imports was equivalent to 47% of total fiscal revenue.

Table 3.2 Structure of Vanuatu's tariff

2012 2018 Final bounda

Total number of tariff lines 5,087 5,502 5,502

Simple average rate (%) 9.2 9.3 40.2

HS 01-24 18.3 17.2 48.5

HS 25-97 7.6 7.6 38.4

WTO agricultural products 17.7 16.9 43.6

WTO non-agricultural products 7.9 8.0 39.6

Duty free tariff lines (% of all tariff lines) 25.9 26.0 3.3

Simple average of dutiable lines only 12.4 12.5 41.5

Tariff quotas (% of all tariff lines) 0.0 0.0 0.0

Non-ad valorem tariffs (% of all tariff lines) 0.02b 0.04b 0.0

Domestic tariff peaks (% of all tariff lines)c 6.0 5.7 0.02d

International tariff peaks (% of all tariff lines)e 11.1 11.2 96.4

Nuisance applied rates (% of all tariff lines)f 0.0 0.0 0.0

Coefficient of variation 1.0 1.0 0.3

Note: 2012 and 2018 tariff schedules are based on HS07 and HS17 nomenclature, respectively.

a Final bound rates are based on the 2017 tariff schedule. All tariff lines are bound. b In 2012 and 2017, one and two tariff lines under Chapter 27 are specific, respectively. AVEs were

provided by the authorities and are included in the calculations. c Domestic tariff peaks are defined as those exceeding three times the overall simple average applied

rate. d One tariff line (certain grape must) is bound at 210%. e International tariff peaks are defined as those exceeding 15%. f Nuisance rates are those greater than zero, but less than or equal to 2%.

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

Chart 3.1 Distribution of MFN tariff rates, 2012 and 2018

(Number of tariff lines)

Note: Excluding one and two specific rates, respectively, for 2012 and 2018. The 2012 tariff is based on the HS07 nomenclature; the 2018 tariff is based on HS17. Figures in brackets refer to the percentage of total lines.

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

(25.9%)

(24.5%)

(17.6%)

(21.0%)

(4.6%)

(0.5%)

(5.0%)

(0.5%) (0.5%) (0.1%)

(26.0%)

(23.8%)

(16.1%)

(22.9%)

(4.8%)

(0.6%)

(4.7%)

(0.5%) (0.4%) (0.1%)

0

200

400

600

800

1,000

1,200

1,400

1,600

Duty free 5% 10% 15% 20% 25% 30% 40% 55% 75%

Number of tariff lines

Chart 3.2 Distribution of MFN tariff rates, 2012 and 2018

MFN 2012Total number of lines: 5,087

MFN 2018Total number of lines: 5,502

Note: Excluding one and two specific rates, respectively for 2012 and 2018. 2012 tariff is based on HS07 nomenclature; 2017 tariff is based on HS17. Figures in brackets refer to the percentage of total lines.

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


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3.1.3.2 Tariff bindings

3.19. Vanuatu has bound all of its tariff lines, mostly at rates of 35% (20% of all tariff lines), 40% (63% of tariff lines) or 60% (10% of tariff lines). The average final bound rate is 40.2%. 3.3% of tariff lines are bound at 0%. The average final bound tariff for agriculture (WTO definition) is 43.6%, higher than the average for non-agriculture (39.6%).

3.20. In general, applied tariff rates are within their bound rates. For three tariff lines, however,

the applied rates exceed their bindings (Table 3.3).

Table 3.3 Products for which applied rates exceed bound rates, 2018

HS code Product description MFN rate Bound rate 02071410 Chicken wings, cuts and offal, fresh or chilled 30% 20% 29397100 Alkaloids, natural or reproduced by synthesis, and their salts,

ethers, esters and other derivatives – cocaine, ecgonine, levometamfetamine, metamfetamine (INN), metamfetamine racemate, salts, esters and other derivatives thereof

5% 0%

29397900 Alkaloids, natural or reproduced by synthesis, and their salts, ethers, esters and other derivatives – other

5% 0%

Source: Data provided by the authorities.

3.21. Vanuatu has bound other duties and charges at zero.

3.1.3.3 Preferential tariffs

3.22. Vanuatu applies preferential tariffs to other members of the MSG, where almost all goods originating from the other MSG Members (Fiji, Papua New Guinea and Solomon Islands) are duty free. Exceptions to this include: all products under HS22 (beverages, spirits and vinegar) except

items classified under HS2201, 2202, and 2209; all products under HS24 (tobacco and manufactured tobacco substitutes); all products under HS27 (mineral fuels, mineral oils and

products of their distillation, and bituminous mineral waxes), and cane sugar (HS1701 1300 and 1701 1400).

3.1.3.4 Tariff exemptions and concessions

3.23. Part 2(A) of the Annex to the Import Duties (Consolidation) (Amendment) Act No. 33 of 2014 lists the goods that are eligible for import tariff and VAT concessions. Tariff concessions are available for goods imported for disabled persons, and medical supplies. Pursuant to Part 2(B) of the Annex, tariff and VAT concessions are also available for commercial samples. Furthermore, raw

materials for the manufacture of approved goods, and equipment used to establish a new manufacturing enterprise, can be imported tariff-free. Various institutions listed in Part 3 of the Annex are also exempt from paying tariffs and VAT on imports, including the Red Cross, registered churches, and youth organizations such as the scouts.

3.24. In the case of natural disasters, the Director of Customs, upon the suggestion of the National Disaster Management Office, may grant duty exemptions to certain tariff lines, provided that the goods are for disaster relief, are funded by foreign states or international organizations,

and are intended for free distribution for use in declared disaster areas. According to the authorities, this was the case, for example, after Cyclone Pam struck in March 2015.

3.25. Revenue forgone (including VAT and excise tax) due to exemptions and concessions amounted to VT 1 billion in 2013, VT 1.5 billion in 2014, VT 4 billion in 2015 (when Cyclone Pam struck), and VT 3.8 billion in 2016.

3.1.4 Other charges affecting imports

3.26. VAT of 15% applies on all goods and services, unless they are exempt or zero-rated. Until December 2017, the VAT rate had been 12.5%. The tax applies to imported and domestically

produced goods alike. On imports, VAT applies on the c.i.f. value of goods plus customs duties. VAT on imported goods is payable at the same time as customs duties. Imports are not charged


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VAT if they are valued at VT 10,000 or less. The income threshold for companies or individuals paying VAT is VT 4 million.

3.27. The following goods and service are exempt from VAT: financial services, donated goods and services sold by non-profit organizations, residential rental accommodation, and property that has been used for residential rental accommodation for at least five years.

3.28. The VAT zero rate applies to the international transportation of passengers and goods, and

goods or services supplied for approved aid projects.

3.29. Excise duties apply to alcoholic and certain non-alcoholic beverages, tobacco products, and certain firearms (Table 3.4). In addition, all vehicles are subject to a Vehicle Registration Fee, which is 7% of the retail price excluding VAT, import duty, and road tax.

Table 3.4 Excise duties, 2018

Product HS Code Excise duty rate Waters containing added sugar or sweetening matter, or flavoured

2202.10.00 VT 50/litre

Non-alcoholic beer 2202.91.00 VT 50/litre Beer made from malt, less than 10% by volume of alcohol

2203.00.10 VT 140/litre

Beer made from malt, 10% by volume of alcohol or more

2203.00.20 VT 300/litre

Wine of fresh grapes 22.04 VT 300/litre Vermouth and other fermented beverages

22.05 and 22.06 VT 300/litre

Ethyl alcohol 22.07 VT 200/litre Spirits, liqueurs, and other spirituous beverages

22.08 VT 200/litre if less than 10% by volume of alcohol; VT 420/litre if between 10% and 37% by volume of alcohol; VT 1,200/litre if more than 37% by volume of alcohol

Cigars, cheroots and cigarillos, containing tobacco

2402.10.00 VT 18,000 per kg

Cigarettes containing tobacco and other

2402.20.00 and 2402.20.90

VT 16 per piece

Other manufactured tobacco and manufactured tobacco substitutes; "homogenised" or "reconstituted" tobacco; tobacco extracts and essences

24.03 VT 4,000 per kg

Revolvers and pistols 9302.00.00 VT / 10,000 per piece


3.1.5 Import prohibitions, restrictions, and licensing

3.30. Pursuant to the Customs (Prohibited Import) Regulations Order No. 115 of 2014, the following items are subject to an import prohibition: (1) absinthe; (2) beef in any form originating from Europe, as set out under the Food (Control) Act [CAP 228] (Prohibition of Beef from Europe Order No. 53 of 2001); (3) copra; (4) any obscene material as described in the Obscenity Act [CAP 73]; (5) any offensive weapon as defined in the Restriction of Offensive Weapons Act [CAP 54] of 1969; (6) any ozone-depleting substances and synthetic greenhouse gases, as set out in the Ozone Layer Protection Act No. 27 of 2010; (7) wine with a false description and presentation, as

provided for in the Geographical Indications (Wine) Act [CAP 269]; and (8) various chemicals2. In addition, the Customs Act No. 7 of 2013 prohibits the importation of goods infringing intellectual property rights.

3.31. Certain goods are subject to import licensing (Table 3.5). The licences specify the conditions under which a product may be imported. Vanuatu has not notified its import licensing procedures

2 Hydrochlorofluorocarbons, methyl bromide, bromochloromethane, hydrofluorocarbons, and

perfluorocarbons.


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to the WTO, nor has it answered the questionnaire on import licensing. No information was made available on the cost of each permit or licence.

Table 3.5 Import restrictions

Goods restricted from importation

Authority responsible for issuing import permit or license

(a) Alcohol – Alcohol Importation Act [CAP 8] Minister of Finance and Economic Management

(b) Ammunition – Firearms Act [CAP 198] Firearm Licensing Officer, Vanuatu Police Force

(c) Animals and biological products - Animal Importation and

Quarantine Act [CAP 201]

Principle Veterinary Officer

(d) Currency or negotiable bearer instruments not less than the equivalent of VT 1,000,000 - Proceeds of Crime Act [CAP 284]

Financial Intelligence Unit

(e) Dangerous Drugs Act [CAP 12] Minister of Health (f) Devices and nets designed for trapping birds - Wild Bird

(Protection) Act [CAP 30] Director of the Department of Agriculture

(g) Explosives - Explosives Act [CAP 6] Minister of Internal Affairs (h) Fauna and flora - International Trade (Fauna and Flora) Act [CAP

210] Minister of Lands

(i) Firearms - Firearms Act [CAP 198] Firearms Licensing Officer, Vanuatu Police Force

(j) Food which is considered: i. injurious to health; ii. unfit for human consumption; iii. unclean, putrid, decayed or diseased

Chief Food Authority

(k) Right-hand drive motor vehicles - Import of Motor Vehicles (Control) Act [CAP 221]

Minister of Internal Affairs

(l) Pesticides - Pesticides (Control) Act [CAP 226] Pesticides Committee (m) Plants and plant products - Plant Protection Act [CAP 239] Minister of Agriculture (n) Whiskey or product purporting to be whiskey that has been

stored in wood for more than three years - Immature Whiskey (Prohibition) Act [CAP 7]

Director of Customs


3.1.6 Anti-dumping, countervailing, and safeguard measures

3.32. The Import Duties (Consolidation) (Amendment) Act of 2013 No. 29 is the legal basis for anti-dumping, countervailing, or safeguard measures. The legislation has not been notified to

WTO.

3.33. The designated authority responsible for the investigation is the Director of the department responsible for trade. The Act does not establish how dumping margins are calculated. If the authority has reasonable cause to suspect that there is dumping, subsidization or increased imports of the goods, it may, by a notice published in the Gazette, declare that an investigation be carried out. Such a notice may direct the customs authority to impose provisional payments for an

amount and a period specified in that notice. The authority may repeal or amend the notice at any time, with or without retrospective effect.

3.34. Decisions on definite measures are taken by the Council of Ministers; they must also be published in the Gazette. The duration of the measure is decided by the Minister of Trade. For countervailing measures, it may not exceed five years. For anti-dumping measures, it may exceed five years only if a review is initiated before the expiry of the initial period that determines that dumping of the goods is continuing. The initial duration of safeguard measures may not exceed

four years; extensions up to a total duration of 10 years are possible.

3.35. As at May 2018, Vanuatu has never imposed any anti-dumping, countervailing or safeguard duties.


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3.2 Measures Directly Affecting Exports

3.2.1 Customs procedures and requirements

3.36. Registration and documentation requirements are similar to imports (Section 3.1.1). Exporters are required to register in ASYCUDA World, where they are assigned a CIN. Foreign companies or individuals can also apply for a CIN.

3.37. For all exports, the bill of lading, commercial invoice, packing list, and customs declaration

must be lodged with the CIR. Additional information is required for exports of goods subject to licensing requirements (Section 3.2.3).

3.38. According to the authorities, customs clearance for exports usually takes less than one hour.

3.2.2 Taxes, charges, and levies

3.39. The legal basis for export taxes is the Export Duties (Amendment) Act No. 1 of 2006, Export

Duties [CAP 31], and the Export Duties (Amendment) Act No. 25 of 2007.

3.40. An export duty of 5% plus VT 3,000 per cubic metre applies on wood in the rough or roughly squared. Fiscal income derived from export duties amounted to VT 21.5 million in 2017.

3.2.3 Export prohibitions, restrictions, and licensing

3.41. Pursuant to the Customs (Prohibited Export) Regulations Order No. 114 of 2014, an export prohibition applies to acetic anhydride and any other explosive or its components.

3.42. Various products are subject to licences or permits upon export (Table 3.6). No information

was made available on the cost of each permit or license.

Table 3.6 Export restrictions

Items Goods Authority responsible for issuing permit or licence

(a) Cattle (cattle Export Act [CAP 97]) Minister of Agriculture (b) Cocoa beans (Cocoa Act [CAP 13]) Minister of Trade (c) Commodities (Vanuatu Commodities Marketing Board Act

[CAP 133]) a) Cocoa b) Copra c) Lavender oil d) Tea-tree oil

Vanuatu Commodities Marketing Board

(d) Cultural items (Preservation of Sites and Artifacts Act [CAP 39])

Minister of Environment

(e) Currency or negotiable bearer instruments not less than the equivalent of VT 1 million (Proceeds of Crime Act [CAP 284])

Financial Intelligence Unit

(f) Fauna and flora (International Trade (Fauna and Flora) Act [CAP 210])

Minister of Environment

(g) Kavaa (Kava Export Fee Order No. 17 of 1999 – Plant Protection Act [CAP 239])

Vanuatu Quarantine and Inspection Services

(i) Logs and flitches (Forestry Act [CAP 276]) Minister of Forestry

(m) Meat and meat products (Cattle (Export) Act [CAP 97]) Minister of Agriculture (o) Sandalwood (Forestry [CAP 276]) Minister of Forestry (p) Turtles embalmed with preservative substance

(Prevention of Cruelty to Animals [CAP 78]) Minister of Environment

(q) Aquarium fish, coconut crabs, rock lobsters, sea cucumbers

Minister of Agriculture

a Kava means natural extracts, dried roots, stumps, or basal stems from selected varieties of the plant species Piper methysticum; logs and flitches means any timber that has not been processed into plywood, veneer, planks or any other finished products except timber from coccos nucifera or santalum austro-caledonicum.



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3.2.4 Export support and promotion

3.43. Vanuatu does not provide any export subsidies. Exported goods and services are VAT zero-rated.

3.44. Public export support and promotion activities are limited. The Vanuatu Chamber of Commerce and Industry (VCCI) offers export-related services, such as training for businesses on marketing and quality assurance; it also provides general marketing advice.

3.45. Vanuatu does not have any export processing zones. The authorities indicate that studies are being undertaken to explore the possibility of establishing such a zone in Espiritu Santo.

3.2.5 Export finance, insurance, and guarantees

3.46. Vanuatu does not have any public finance, insurance, or guarantee schemes exclusively for exporters, nor does it have public finance schemes for domestic production.

3.3 Measures Affecting Production and Trade

3.3.1 Incentives

3.47. In 2017, Vanuatu's tax revenue was equivalent to 17.4% of GDP, up slightly from 17.2% in 2013 (Table 1.2). The biggest source of tax revenues was generated from VAT, while the combined share of tariffs and VAT on imports was equivalent to 47% of total fiscal revenue in 2017 (Section 3.1.3).

3.48. Vanuatu has no personal or corporate income tax. Taxes and fees levied include: VAT; import tariffs; excise taxes; vehicle registration fees; contributions to the National Provident Fund;

business licence fees; port dues, aviation charges, a departure tax on international airline passengers (included in the price of air tickets); and taxes on rent, land, the extraction of minerals, logging, and commercial fishing.

3.49. The Government is considering introducing income tax. Following the launch in August 2016, by the Council of Ministers, of a Revenue Modernization and Reform Programme, which aimed to "build an effective tax system", the Government announced that it was considering introducing personal and corporate income taxes; the top personal income tax rate was to be

aligned with the company income tax rate, which was suggested to be below the rate of Vanuatu's neighbours.3 The authorities indicate that the implementation of the income tax has been deferred to 2020.

3.50. Vanuatu does not have complex incentive schemes (Section 2.4.2). Some sectoral incentives were provided, to, inter alia, agricultural producers (Section 4.1.1.3). These incentives may take the form of exemptions from business licensing requirements, provisions of special

loans, and exemptions from import tariffs and other taxes.

3.3.2 Standards and other technical requirements

3.51. In August 2017, the Bureau of Standards was established under the Ministry of Tourism, Trade, Commerce, Industry and Ni-Vanuatu Business (MTTCINVB) in accordance with the Bureau of Standards Act No. 14 of 2016, which entered into force on 17 April 2017. Functions of the Bureau include overseeing the development and adoption of standards, the conformity assessment of traded goods and processing and manufacturing facilities, and the accuracy of weights and

measures.

3.52. At the time of its accession to the WTO, Vanuatu's only technical regulations were the National Building Code on constructions in main towns, administered by the city councils of Port Vila and Luganville, to protect life from cyclones and earthquakes; and some basic health

3 IMF (2016), Vanuatu Article IV Consultation 2016, IMF Country Report No. 16/336, October. According

to the IMF Report, among comparator countries, Fiji has the lowest rate, at 20% for resident companies and 17% for multinational headquarters.


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standards administered by the Ministry of Health.4 Since its accession, Vanuatu has not made any TBT notifications to the WTO.

3.53. The authorities indicate that a procedure to develop standards is being developed; whenever possible, Vanuatu standards are to be aligned with, or based on, international standards. For example, its technical regulations on food, meat, and cocoa were based on Codex, OIE, and International Cocoa Organization standards, respectively. The Kava Act, a technical

regulation specific to Vanuatu, was developed in 2002. The authorities are making efforts to bring the kava standard to the Codex to develop it into an international standard.

3.54. Vanuatu was not represented directly or regionally (through the South Pacific Forum) at any international standardization bodies. The authorities state that Vanuatu has applied to become an ISO member. Vanuatu committed to applying the Agreement on Technical Barriers to Trade (TBT) from its WTO accession date without any transitional period. It established a TBT enquiry point

within the Department of Trade, Industry and Investment, under the MTTCINVB.5 The Office of the Director of Trade is responsible for fulfilling its TBT notifications and enquiry point obligations. By the end of June 2018, no specific trade concerns had been raised against Vanuatu's TBT measures in the TBT Committee.6

3.3.3 Sanitary and phytosanitary requirements

3.55. The authorities state that, given Vanuatu's isolated location in the South Pacific, the Government considers that its SPS measures must reflect the need to use and preserve the

favourable pest status.7 Its SPS related legislation includes:

a. The Animal Importation and Quarantine Act of 1988, and regulations in Order No. 14 of 1994;

b. The Plant Protection (Amendment) Act of 2013, the Penalty Notice Regulation Order of

2014, and the Imports Specification (Plants) Manual;

c. The Food Control Act No. 21 of 1993, revised in 2009;

d. The Meat Industry Act [CAP 239], the Meat Industry (Approved Establishments)

Regulations Order 12 of 1994 and Order 48 of 2002, and the Meat Industry Regulations Order 9 of 1992 and Order 12 of 2005;

e. The Pesticides (Control) Act [CAP 226] (to be gazetted);

f. The Animal Disease Control Act [CAP 220]; and

g. The Kava Amendment Act of 2015.

3.56. The Biosecurity Department (Biosecurity) under the Ministry of Agriculture, Livestock,

Forestry, Fisheries and Biosecurity (MALFFB) was formerly known as the Vanuatu Quarantine and Inspection Services until 2013. Its two main offices are located in Port Vila and Luganville, with outposts located at "certified ports of entry".8 These ports were certified and approved by the Council of Ministers. Foreign vessels are allowed to enter and exit through these ports.

3.57. Biosecurity is responsible for implementing SPS provisions on animals and plants, and the Department of Health is responsible for food safety and hygiene management. The SPS enquiry point was established and entrusted to the Director of the Biosecurity Department.

4 WTO document WT/ACC/VUT/17, 11 May 2011. 5 WTO document WT/ACC/VUT/17, 11 May 2011. 6 TBT IMS Database. Viewed at: http://tbtims.wto.org/en/SpecificTradeConcerns/Search. 7 WTO document WT/ACC/VUT/17, 11 May 2011, p.20. 8 These include: Sola Port on Vanua Lava Island, Torba Province; Luganville Port on Santo Island,

Sanma Province; Litzlitz Port on Malekula Island, Malampa Province; Lapitasi Port on Efate Island, Shefa Province; Lenakel Port on Tanna Island, Tafea Province; and Anelcauhat Port on Aneytium Island, Tafea Province.

http://tbtims.wto.org/en/SpecificTradeConcerns/Search


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3.58. Importers must apply for a permit to import "approved animal products from approved countries" for quantities greater than 5 kg. Approved animal products are those commercially processed and packaged, with a certificate issued from the exporting country certifying that they are fit for human consumption. Approved countries are those free from foot-and-mouth disease without vaccination, and are recognized by the World Organization for Animal Health (OIE). Countries may be approved for some commodities, but not for others. Commercial importation of

live animals is restricted, and is limited to certain species only, and an import permit issued by Biosecurity is required.9

3.59. Importation of new products of animal origin, and products from a new import origin, must undergo an import risk analysis, which typically takes at least 18 months. Import risk analyses are conducted by Biosecurity in accordance with the standards of the OIE, Codex Alimentarius, and the International Plant Protection Convention (IPPC). The authorities indicate that, due to limited

human resources and a lack of access to up-to-date references, Biosecurity often uses risk

analyses completed by regional partners (e.g. New Zealandor Australia), and/or seeks technical assistance from regional intergovernmental agencies such as the Secretariat of the Pacific Community. In 2016, the Government launched its National Biosecurity Policy 2016-2030, to build Biosecurity into an adequately resourced and managed agency to deliver its services effectively.10

3.60. According to a time release study conducted by the Asian Development Bank (ADB) in July 2017, quarantine takes, on average, 3 days and 2 hours for imports arriving by air, and

11 days and 7 hours for imports arriving by sea. The study found that the procedure for obtaining a quarantine-based import permit was causing significant delays in the release of cargo, both at ports and at airports.11 At ports, once the cargo is cleared by Customs, due to a lack of space, containers need to be moved to owners' (importers') premises for SPS examination. According to the study, these cargos were often released by Customs without proper notification or examination by quarantine, i.e. Biosecurity.

3.61. Not all plants and plant products are allowed to enter Vanuatu. Biosecurity developed a

plant importation manual (Import Specification Manual). Importers are required to consult this Manual before importing plants and plant products into Vanuatu. The Plant Health Section under Biosecurity conducts import risk analyses for plants and plant products. For new plants that are not included in the Manual, an import risk assessment (IRA) is conducted in accordance with the International Standard for Phytosanitory Measures, and may take several months to complete.

3.62. The Food (Control) Act restricts businesses and persons from displaying, storing or selling

food unfit for human consumption. The Act is enforced by the Department of Health under the Ministry of Health, and by the municipalities and provincial authorities under the Ministry of Internal Affairs. Import permits for food and food products may be issued within 48 hours.

3.63. Vanuatu has been a member of the OIE since 1983, and sends monthly reports to the OIE on its disease status. It has been a member of the Codex Alimentarius Commission since 1995. It has also been a contracting party to the IPPC since 2007.

3.64. Vanuatu has not submitted any notifications to the WTO on its SPS measures. No specific

trade concerns were raised regarding Vanuatu's SPS measures in the SPS Committee.12

3.65. The Fisheries Act No. 10 of 2014 prohibits the imports of genetically modified aquatic organisms (Article 20). Vanuatu does not prohibit all living modified organisms (LMOs)/genetically modified organisms (GMOs), although their importation must go through a risk assessment process. The Vanuatu National Biosafety Framework outlines the pre-import risk assessment, as required under the Cartagena Protocol, for biological products. Biological products include GMOs (living or processed) for use as human food, animal feed, pharmaceuticals or other purposes. They

refer to any products derived or extracted from a biological organism including the whole organism or a part thereof, whether alone or in combination with other products of diverse origin.

9 Biosecurity online information. Viewed at: https://biosecurity.gov.vu/import-animal-and-animal-

product/. 10 Biosecurity, National Biosecurity Policy 2016-2030. Viewed at:

http://pafpnet.spc.int/attachments/article/820/VUBiosecurity%20Policy%202016%20-%202030.pdf. 11 ADB (2017), Time Release Study – Vanuatu. 12 SPS IMS database. Viewed at: http://spsims.wto.org/en/SpecificTradeConcerns/Search.

https://biosecurity.gov.vu/import-animal-and-animal-product/

https://biosecurity.gov.vu/import-animal-and-animal-product/

http://pafpnet.spc.int/attachments/article/820/VUBiosecurity%20Policy%202016%20-%202030.pdf

http://spsims.wto.org/en/SpecificTradeConcerns/Search


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3.3.4 Competition policy and price controls

3.3.4.1 Competition policy

3.66. At present, Vanuatu does not have a general competition law; it has some sector-specific legislation related to competition, and some consumer protection legislation. The Vanuatu Trade Policy Framework 2012 recommended the drafting of a competition law and policy, and the establishment of a competition authority. The authorities indicate that they are in the process of

preparing a Competition and Consumer Protection Act, with provisions on price controls.

3.67. The following sector-specific legislation contains competition related provisions, and sectoral regulators were set up under these legislation (Table 3.7):

a. The Telecommunications and Radiocommunications Regulation Act 2009, under which

the Telecommunications and Radiocommunications Regulator (TRR) regulates the telecommunication market;

b. The Utilities Regulatory Authority Act 2007, under which the Utilities Regulatory Authority (URA) regulates public utilities such as water and electricity; and

c. The Civil Aviation Act [CAP 258], under which the Civil Aviation Authority of Vanuatu (CAAV) regulates civil aviation services.

Table 3.7 Sectoral legislation with competition related provisions

Subject Telecommunications and Radiocommunications

Regulation Act

Utilities Regulatory Authority Act

Civil Aviation Act

Anti-competitive merger

The TRR's prior approval is required for the transfer of control of a telecom service provider if: - the person acquiring or transferring control is a dominant service provider; and - as a result of the transfer, a person would control service providers with 40% or more of gross revenue in the Vanuatu telecom market, or a person would be in a position of economic strength affording it the power to behave to some extent independently of competitors, consumers or end users.

n.a. n.a.

Cartel Telecom service providers must not engage in price fixing, market allocation or preventing or restricting the supply of any goods or services to or by another service provider.

Prohibits price fixing The Director of the CAAV authorizes agreements relating to international carriage by air in relation to tariffs and capacity.

Anti-competitive agreements or anti-competitive conduct

A telecom service provider must not engage in conduct which has the purpose, effect, or likely effect of substantially lessening competition in the telecom market.

n.a. n.a.

Exclusive dealing Prohibited Prohibited n.a.


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Subject Telecommunications and Radiocommunications Regulation Act

Utilities Regulatory Authority Act

Civil Aviation Act

Abuse of dominant market power

The TRR may declare a service provider "dominant"; said provider must not abuse dominancy by restricting the entry of any person into a telecom market, providing unjustifiable bundling of services, or engaging in unreasonable price discrimination.

n.a. n.a.

General access to essential facilities or key infrastructure

A dominant service provider is deemed to abuse its dominance if it denies access to essential facilities or key infrastructure to another service provider.

n.a. n.a.

n.a. Not applicable.


3.3.4.2 Consumer protection legislation

3.68. Vanuatu does not have a general consumer protection law. A number of pieces of legislation contain consumer protection related provisions (Table 3.8):

a. The Telecommunications and Radiocommunications Regulation Act 2009;

b. The Utilities Regulatory Authority Act 2007;

c. The Food (Control) Act 1993; and

d. The Weights Act [CAP 43].

Table 3.8 Legislation with consumer protection related provisions

Legislation Consumer protection related provisions Telecommunications and Radiocommunications Regulation Act 2009

Prohibits: - unfair dealing, including sending unrequested or inaccurate invoices, and

engaging in providing a telecom service that is "misleading or deceptive, or is likely to mislead or deceive";

- unauthorized collection or disclosure of personal information; and - unjustified discrimination by dominant service providers regarding terms

and quality of services. Requires:

- service providers to have end-user complaint and dispute resolution procedures;

- customers are given reasonable advance notice of any change in a telecom service provided to end-users that alters the quality or functionality of the service;

- accurate and current information about a service is provided to consumers at the point of sale;

- a service provider must allow a customer to inspect its records relating to a telecom service provided to that customer, and to promptly correct or remove consumer information in those records that is shown to be incorrect; and

- an advertisement for a telecom service must not state or imply that the service is free of charge, unless the service is entirely and unconditionally free.

Utilities Regulatory Authority Act 2007

- it is an offence for a utility to engage in any conduct that is misleading or deceptive, or is likely to mislead or deceive a consumer; and

- the URA may, upon request, assist a person to resolve any dispute in respect to a regulated services.

Food (Control) Act 1993 Regulates the quality and safety of food, and prohibits manufacturing, importing, selling, or distributing of any food unfit for human consumption, or adulterated or non-compliant with the Act or relevant regulations. No person may label, package, treat, process, sell or advertise any food in a manner that is false, misleading, deceptive or likely to create an erroneous impression regarding its character, value, quality, composition, merit, or safety.


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Legislation Consumer protection related provisions Weights Act [CAP 43] Prohibits the giving of the short weight of goods, and having any false weight or

false weighing instruments.


3.3.4.3 Price controls

3.69. Vanuatu's Price Control Act [CAP 86] enables prices to be controlled in relation to any goods or services. However, the authorities state that this Act has never been implemented due to a lack

of budget allocation. In February 2018, the Minister of Finance and Economic Management appointed an Interim Price Controller, with the intention of setting up a Price Control Bureau and of implementing the Act. The authorities indicate that the Bureau is soon to be operational.

3.70. The Vanuatu Commodities Marketing Board (VCMB) used to regulate the "beach"

(farm-gate) price of copra on an ad hoc basis (Section 4.1.1.4); when the world price of copra fell, the VCMB could use EU funds to stabilize copra prices. This was stopped a few years ago, and the

VCMB was in the process of being liquidated (Section 3.3.5). Regarding public utilities, the URA checks price adjustments for electricity (Section 4.2).

3.3.5 State trading, state-owned enterprises, and privatization

3.3.5.1 State trading arrangements

3.71. At the time of Vanuatu's WTO accession, only the VCMB had exclusive rights relating to the import or export of certain goods.13 The VCMB was established in 1981 to buy, sell and stabilize prices of copra, cocoa, and kava. It had sole purchasing rights on copra and cocoa for export.

From 2011, the VCMB was in the process of being liquidated, although it seems that no progress has been made since then. Vanuatu has not notified any state trading arrangements to the WTO

since its accession. At the time of accession to the WTO, Vanuatu committed to notify any enterprise falling within the scope of Article XVII.14

3.3.5.2 State-owned enterprises (SOEs) and privatization

3.72. There are currently seven active SOEs, which are locally referred to as commercial government business enterprises (CGBEs) (Table 3.9). According to the IMF, CGBEs play an

important role in the economy; they account for about 7% to 8% of the total stock of fixed capital, and dominate several sectors including banking, broadcasting, postal services, and transport.15 In FY2014, the CGBEs contributed 2% to GDP.16 Among the seven CGBEs, the three largest ones (National Bank of Vanuatu, Air Vanuatu (Operations) Ltd., and Airports Vanuatu Ltd.) comprised 96% of total CGBE assets.17

Table 3.9 CGBE performance indicators, FY2014

Name of company

Ownership (%)

Return on

equity (%)

Return on

assets (%)

Total assets

(VT million)

Total revenue

(VT million)

Total liabilities

(VT million)

Average return on

assets FY2008/14

(%) Airports Vanuatu Ltd.

100 1 1 4,436 737 1,143 1

Air Vanuatu (Operations) Ltd.

100 NE (18) 4,755 5,139 5,392 (13)

National Bank of Vanuatu

100 5 1 10,158 992 9,040 1

13 WTO document WT/ACC/VUT/17, 11 May 2011. 14 WTO document WT/ACC/VUT/17, 11 May 2011. 15 IMF (2016), Vanuatu Article IV Consultation 2016, IMF Country Report No. 16/336, October. 16 ADB (2016), Finding Balance 2016 – Benchmarking the performance of State-owned enterprises in

Island countries. Viewed at: https://www.adb.org/sites/default/files/publication/192946/finding-balance-2016-soe.pdf.

17 IMF (2016), Vanuatu Article IV Consultation 2016, IMF Country Report No. 16/336, October.

https://www.adb.org/sites/default/files/publication/192946/finding-balance-2016-soe.pdf

https://www.adb.org/sites/default/files/publication/192946/finding-balance-2016-soe.pdf


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Name of company

Ownership (%)

Return on

equity (%)

Return on

assets (%)

Total assets

(VT million)

Total revenue

(VT million)

Total liabilities

(VT million)

Average return on

assets FY2008/14

(%) Vanuatu Agriculture Development Bank

100 1 1 449 138 52 (5)

Vanuatu Broadcasting and Television Corporation

100 (3) (2) 371 134 83 1

Vanuatu Post 100 n.a. n.a. n.a. n.a. n.a. 11 National Housing Corporation

100 n.a. n.a. n.a. n.a.

n.a. (1.3)

Portfolio (16.8) (3.7) 20,171 7,140 15,711 (1.3)

NE Negative equity. n.a. Not available. ( ) = negative.

Source: Information provided by the authorities of Vanuatu.

3.73. The CGBEs' financial performance has been declining in recent years. They added 0.24% to

Vanuatu's GDP for every 1% share of the total fixed capital stock they held, indicating a significant productivity cost for the economy.18 Only three CGBEs generated a positive return (Table 3.9): the largest – the National Bank of Vanuatu – was the most profitable. There are also three inactive CGBEs: Metenesal Estates Ltd., Vanuatu Livestock Development Ltd., and the VCMB. The authorities state that, legally, the three still exist, but are not in operation.

3.74. According to the IMF, the poor financial performance of the CGBEs resulted in them being a

significant and ongoing cost for the Government, with government transfers to CGBEs averaging

2.3% of general government expenditure during FY2010/14.19 The Government further provided a loan of VT 478,045 to Air Vanuatu in 2015/16, and another loan of VT 99,497 to Vanuatu Broadcasting in 2017. Among the major reasons for CGBE losses are the community service obligations (CSOs), which involve activities operating on non-commercial or subsidized terms, and which are a significant burden. From 2008 to 2014, Air Vanuatu accounted for 94% of the total CGBE losses; its CSOs amounted to VT 176 million in 2013 alone, and resulted in a VT 1.4 billion

loan and a VT 2.2 billion guarantee from the Government. The financial performance of the National Bank of Vanuatu has also been declining in recent years, partly reflecting its rural outreach expenditures (costing VT 1.7 million in 2014).

3.75. The Government has been making efforts to improve the performance of the CGBEs. For example, it adopted a Government Business Enterprises Policy in 2013, which required CGBEs to operate as commercial entities. The Policy also stipulated the setting up of a range of monitoring and governance mechanisms, such as appointing a CGBE Minister, and establishing a framework

for financing CSOs. However, implementation of this Policy has been weak.20 For example, the CGBE Monitoring Unit established under this reform Policy remains under-resourced. No CGBE Minister has been appointed, and the performance of CGBEs continues to be supervised by their line ministries. In 2011, a bill was passed by Parliament to liquidate the VCMB; however, no action has been taken to date. The authorities state that no liquidation process has started because the repealed VCMB Act has not been gazetted.

3.76. The authorities state that a bill on CGBEs, based on the CGBE Policy, is scheduled to be

submitted to Parliament in 2018. The bill requires CGBEs to achieve a return on equity that is sufficient to cover their costs, and defines the role of the Monitoring Unit to ensure that the Unit has a direct reporting line to the CGBE Minister.

18 IMF (2016), Vanuatu Article IV Consultation 2016, IMF Country Report No. 16/336, October. 19 IMF (2016), Vanuatu Article IV Consultation 2016, IMF Country Report No. 16/336, October. 20 IMF (2016), Vanuatu Article IV Consultation 2016, IMF Country Report No. 16/336, October.


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3.77. The authorities indicate that no major privatization plan is in place, except the restructuring of some CGBEs such as the Vanuatu Agriculture Development Bank (VADB), and the National Housing Corporation.

3.3.6 Government procurement

3.78. Vanuatu has an open public procurement regime, where discrimination against foreign participation is not allowed. At the time of its accession to the WTO, Vanuatu committed not to

impose any discrimination against foreign participation in its government procurement.21 About 60% of government procurement is provided by foreign suppliers. The authorities state that most government procurement projects are for consultancy services, and are funded by donors. They state that, in 2016, a total of VT 1.4 billion of public procurement was processed by the Central Tender Board (CTB), more than half of which (54%) was through open tendering.

3.79. The CTB, a parastatal organization operating under the Ministry of Finance and Economic

Management (MFEM), awards tenders for ministries and agencies at the central government level. Procurement by CGBEs is not covered by public procurement. The CTB is also in charge of the registration and grading of contractors, although this is not a compulsory requirement for contractors to participate in government procurement. The CTB reports to, and is responsible for, the Council of Ministers, who can accept or reject a CTB approval. The Chairman of the CTB is appointed from the public sector. The CTB is currently reviewing the public procurement guidelines, which is a purchasing manual first issued in 2002, with a view to expanding coverage

to the procurement of works.

3.80. The CTB considers that government procurement needs to follow the principles of seeking the best value for money, and seeking to promote open and effective competition.22 Government procurement is grouped into two types: low-value (where the value is below VT 5 million), and high-value procurement (where the value is equal to or greater than VT 5 million). The Public Finance Management Act and its regulations (the Financial Regulations) outline the purchasing,

approval, and payment procedures for goods and services with a value below VT 5 million. The

Government Contracts and Tenders Act [CAP 245] No. 40 of 2013 and the Tenders Regulation Order No. 40 of 1999 outline the procedures for the payment of goods and services with a value greater than VT 5 million.

3.81. All contracts with a value greater than VT 5 million must be considered by the CTB, and be subject to open and competitive bidding, unless the CTB decides otherwise. For example:

a. for large and complex tenders, selective tendering may be used where pre-qualification

is required, to ensure that invitations to bid are issued to those suppliers/contractors with adequate capabilities and resources;

b. where it is not feasible to fully define the technical or contractual details to elicit competitive tenders, a two-stage tender may be applied, so that only those that submitted acceptable technical proposals in the first stage may submit tenders in the

second stage; and

c. under exceptional circumstances, limited tender may be applied subject to the approval

of the CTB.23

3.82. For contracts with a value below VT 5 million but greater than VT 100,000, procurement entities must issue at least three requests for quotations, with brief contract terms and conditions. The purchase must be approved by the Director General of the line ministry or his/her representative. For contracts with a value below VT 100,000, procurement entities must issue a local purchase order, which may be approved by an official with the appropriate delegated financial authority working for the procurement entity.

21 WTO document WT/ACC/VUT/17, 11 May 2011. 22 CTB online information. Viewed at: https://doft.gov.vu/index.php/procurement-tender-government-

guidelines/tender-board. 23 CTB online information. Viewed at: https://doft.gov.vu/index.php/procurement-tender-government-

guidelines/tender-board.

https://doft.gov.vu/index.php/procurement-tender-government-guidelines/tender-board





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3.83. There is a complaint review mechanism provision in the Government Contract and Tenders Act. Since 2012, there have been no major procurement disputes that led to court.

3.84. Apparently, Vanuatu does not intend to apply for accession to the WTO GPA.24

3.3.7 Intellectual property rights

3.3.7.1 Legislative and institutional framework

3.85. The first intellectual property (IP) legislation was introduced in 2000. Prior to that, Vanuatu

was using UK legislation to protect IP rights (IPRs). IP related legislation was promulgated or revised during Vanuatu's WTO accession process. In 2014, the country notified its laws and regulations on IPRs to the WTO (Table 3.10).

Table 3.10 Main IP laws, and treaty membership

Laws and regulations Patents Patents Act No. 2 of 2003

Patents Act No.2 of 2003 – Declaration of Convention Countries Order No. 42 of 2013

Patents (Amendment) Act No. 14 of 2011 Trademarks Trademarks Act No. 1 of 2003

Trademarks Act No. 1 of 2003 – Declaration of Convention Countries Order No. 40 of 2012

Trademarks for Goods and Services (Fees) Regulation (Amendment) Order No. 116 of 2012

Trademarks for Goods and Services (Fees) Regulation Order No. 15 of 2012

Trademarks Act No. 1 of 2003 – Establishment of Intellectual Property Office Order No. 24 of 2012

GIs Geographical Indications (Wine) Act No. 53 of 2000 Designs Designs Act No. 3 of 2003

Designs Act No.3 of 2003 – Declaration of Convention Countries Order No.41 of 2012 Circuit layouts

Circuit Layouts Act No. 51 of 2000

Trade secrets

Trade Secrets Act No. 52 of 2000

Copyright Copyright and Related Rights Act No. 42 of 2000 Treaty membership Berne Convention for the Protection of Literary and Artistic Works (Ratification) Act No. 16 of

2012 Convention Establishing the World Intellectual Property Organization (Ratification) Act No. 13 of 2012

Source: WTO document IP/N/1/VUT/1, 10 October 2014. WIPO online information. Viewed at: http://www.wipo.int/wipolex/en/profile.jsp?code=VU.

3.86. The Vanuatu Intellectual Property Office (VanIPO) is the institution responsible for protecting IPRs. VanIPO was established in March 2012, and is operating as a unit within the corporate service of the MTTCINVB. In August 2017, VanIPO signed a technical agreement with WIPO to establish an Intellectual Property Automation System for registering trademarks, patents and designs.25 The authorities state that, currently, there are 8,694 trademarks, 129 patents, and 2 designs registered.

3.87. VanIPO is in the process of setting up a Patent Division and a Design Division; the Trademark Division is already functioning and has witnessing an increase in trademark registrations.

3.88. IPR protection at the border is managed by Customs, which requires importers to prove the genuineness of their goods. IPR infringing goods are destroyed. The authorities consider that more technical training is needed to boost the capacity of their staffs to improve IPR protection.

24 WTO document WT/ACC/VUT/17, 11 May 2011. 25 Vanuatu Daily Post online news, 14 August 2017. Viewed at: http://dailypost.vu/news/a-trademark-

registering-system-for-vanuatu/article_c529e66e-7204-59fe-a840-4b7603b4345e.html.




http://www.wipo.int/wipolex/en/profile.jsp?code=VU

http://dailypost.vu/news/a-trademark-registering-system-for-vanuatu/article_c529e66e-7204-59fe-a840-4b7603b4345e.html

http://dailypost.vu/news/a-trademark-registering-system-for-vanuatu/article_c529e66e-7204-59fe-a840-4b7603b4345e.html


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3.3.7.2 Industrial property rights

3.89. Under the Patents Act No. 2 of 2003, all patents registered in the United Kingdom are protected in Vanuatu.

3.90. The Trademarks Act 2003 allows for independent applications to be made to the Register. Previously, only marks registered in the United Kingdom were allowed to be registered in Vanuatu. The Act:

a. introduced independent registrations and examination systems;

b. allowed for the registration of service marks;

c. may prescribe signs that cannot be used as a trademark or part of a trademark;

d. set up an opposition procedure to the registration of a trademark (within 28 days of publication in the Gazette);

e. allowed for the removal of a trademark from the Register for non-use of the mark;

f. allowed for the registration of collective trademarks;

g. incorporated provisions governing the registration of trademarks involving indigenous culture;

h. allowed for marks registered in Madrid Convention countries to be recognized in Vanuatu; and

i. allowed for all trademarks registered under the previous Registration of United Kingdom Trademarks Act (Cap 81) to remain registered in Vanuatu, provided that they are

renewed once the duration of the 10-year protection lapses.

3.91. Patents are protected for 20 years, while trademarks, GIs, and designs are protected for 10 years, renewable indefinitely for 10-year periods (Table 3.11).

Table 3.11 Duration of protection for industrial property rights

Industrial property rights

Duration of protection

Patent 20 years from the date of filing Trademarks 10 years upon registration, renewable indefinitely for 10-year periods GI 10 years of protection from the date of filing, renewable indefinitely for 10-year periods

Designs 10 years of protection from the date of filing , renewable indefinitely for 10-year periods

Trade secrets The owner of a trade secret has the right to that secret remaining undisclosed

Source: Industrial property rights legislation, and information from the authorities.

3.3.7.3 Copyrights and related rights

3.92. While copyright cannot currently be registered in Vanuatu, the authorities are preparing to establish a Collective Society for copyright owners to register and commercialize their works.26 The Vanuatu Copyright Management Society Act was passed by Parliament in 2017. For most copyright, protection is for the lifetime of the last surviving author plus 50 years (Table 3.12).

26 WTO document IP/N/1/VUT/1, 10 October 2014.


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Table 3.12 Duration of copyright protection

Copyright and related rights Duration of protection

Works of joint authorship The lifetime of the last surviving author and for 50 years after his/her death

Collective works (other than a work of applied art) and audiovisual works

For 50 years after the date on which the work: - was made; - was first made available to the public; or - was first published, whichever is the latest

Works published anonymously or under a pseudonym

For 50 years after the date on which the work: - was made; - was first made available to the public; or - was first published, whichever is the latest

Works of applied art For 25 years after the making of the work Any other works The lifetime of the author and for 50 years after his/her death

Source: Copyright and Related Rights Act No. 42 of 2000.


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4 TRADE POLICIES BY SECTOR

4.1 Agriculture, Forestry, and Fisheries

4.1.1 Agriculture

4.1.1.1 Features

4.1. Vanuatu is an agriculture-based economy, with 80% of the population depending on subsistence agriculture. Total land area is about 1.2 million hectares, of which 40% is arable

agricultural land, making it about 10 hectares per household. More than 90% of the land is customarily held, while the other 10% is government owned or leased. One third of the cultivable customary land area is being farmed.1

4.2. The agriculture, forestry and fisheries sector accounted for around 22% of GDP in 2016, and for almost all merchandise exports (Table A1.1). The sector has been growing faster than the overall economy in most of the years between 2010 and 2016, except in 2015 (Chart 4.1). In

2016, value-added in agriculture, forestry and fisheries recovered from a decline in 2015 (caused by Cyclone Pam) by registering a positive growth of 5.1%: crop production grew by 5.9%, followed by animal production (2.6%), fishing (3.9%), and forestry (0.7%).2 Crop production accounted for a dominant share (80%) of total agricultural output in 2016.

Chart 4.1 Growth rates, 2010-17

Source: Vanuatu National Statistics Office online information, World Bank database, and IMF online information.

4.3. Agriculture in Vanuatu is divided into three subsectors: a labour-intensive subsistence sector, a semi-commercial sector, and a commercial sector. The subsistence subsector is predominantly

centred on root crops (taro, yam, cassava, and sweet potato (Ipomoea batatas)) for consumption

and cultural purposes, and is characterized by a total reliance on rain irrigation and rudimentary tools. The semi-commercial agricultural activities are concentrated near urban centres, and are comprised of, inter alia, green leafy vegetables, cabbages, tomatoes, capsicum and eggplant, as well as spice and herb cultivation. The commercial subsector is based on a limited range of traditional cash crops including cocoa, kava, coffee, and coconut, and some new cash crops such as pepper and vanilla. Beef production is growing in importance. The development of the commercial subsector is closely related to, inter alia, fluctuations in world commodity prices and

emerging markets for novel crops.

4.4. Most agricultural activities in Vanuatu make use of rudimentary hand tools, leading to low and irregular production. Production is also constrained by, inter alia: lack of land, lack of improved farming skills, climate vulnerability, difficulties in accessing credit, and infrastructure and related transport costs, and hence difficulties in accessing trade and marketing opportunities.

1 MALFFB, Vanuatu Agriculture Sector Policy 2015-2030. Viewed at:

https://malffb.gov.vu/doc/Vanuatu_Agriculture_Sector_Policy.pdf. 2 Vanuatu Statistics Office (2017), Statistics Release: Gross Domestic Product 2016.

-20%

-15%

-10%

-5%

0%

5%

10%

2010 2011 2012 2013 2014 2015 2016 2017

Real GDP

Agriculture, forestry and fishing

Crop production

Services

Source: Vanuatu National Statistics Office online information, World Bank database, and IMF online information.

Chart 4.1[Growth rates, 2010-17]

https://malffb.gov.vu/doc/Vanuatu_Agriculture_Sector_Policy.pdf


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4.1.1.2 Agriculture trade

4.5. During the period under review, main agricultural export items were: copra, kava, coconut oil, cocoa, and beef (Chart 4.2). The fluctuation in export value reflects both changes in production, and variation in international prices. Vanuatu's main agricultural export markets include: Australia, the European Union, Japan, other MSG member countries (e.g. Fiji, Papua New Guinea and Solomon Islands), New Caledonia and New Zealand.

Chart 4.2 Exports of main agricultural products, 2012-16

(VT million)

Source: Vanuatu National Statistics Office, Quarterly Statistical Indicators July-September 2017.

4.6. In 2016, Vanuatu's main agricultural import items were rice, pastry, chicken meat, wheat flour, beverages, and cigarettes, among others.3

4.1.1.3 Domestic policies

4.7. The main legislation regulating the agriculture sector, according to the authorities, is the National Agriculture Bill. Responsibility for Vanuatu's agricultural policy lies with the Ministry of Agriculture, Livestock, Forestry, Fisheries and Biosecurity (MALFFB). The Department of Agriculture and Rural Development (DARD) within the MALFFB aims to build a robust and

competitive agriculture sector.

4.8. Access to credit for rural development is a major constraint for producers. The MALFFB is working with the Vanuatu Agriculture Development Bank to consider avenues where access to credit for rural producers could be enhanced. Climate change and climate variability add to the difficulties in Vanuatu's agricultural development.4 For example, disaster risk management

requires strong collaboration among various stakeholders, and changing climatic conditions and

natural hazards have implications for the transportation of agricultural produce from rural areas to markets in the main urban centres. Poor road conditions and deteriorating wharfs, jetties and shipping routes have added significantly to transportation costs.

4.9. Against this background, the Government issued its Agriculture Sector Policy 2015-20305, which is a guideline with suggestions regarding, inter alia, institutional arrangements, extension and training, finance and investment, land use, R&D, production and market access, food security, climate variability and climate change. In particular, the following suggestions were made: the use

of tax holidays and tax exemptions to reduce business costs in agriculture, such as an exemption from all taxes including import tariffs on agriculture inputs, e.g. tools, machinery, seeds, fertilizers, pesticides, and fuel; and an exemption from all licensing requirements on agricultural businesses

3 FAO online statistics. 4 MALFFB, Vanuatu Agriculture Sector Policy 2015-2030. Viewed at:

https://malffb.gov.vu/doc/Vanuatu_Agriculture_Sector_Policy.pdf. 5 MALFFB, Vanuatu Agriculture Sector Policy 2015-2030. Viewed at:

https://malffb.gov.vu/doc/Vanuatu_Agriculture_Sector_Policy.pdf.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Copra Kava Coconut oil Cocoa Beef Coffee

2012 2013 2014 2015 2016

Chart 4.2 [Exports of main agricultural products, 2012-16]

Source: Vanuatu National Statistics Office, Quarterly Statistical Indicators July-Septermber 2017, Emailed on 5 Feb 2018.

VT million




- 52 -

for the first three years of operation. The authorities indicate that these policies still need to be implemented, and that, up to now, duty exemptions need to be officially requested and the process is very slow.

4.10. The authorities consider that, in order to facilitate market access for Vanuatu agricultural products, export and domestic markets need to be identified and strengthened, ensuring the products' compliance with food hygiene standards. From this perspective, they plan to establish a

Vanuatu National Marketing and Consumer Cooperative Federation (VNMCCF) to facilitate market access and improve the livelihood of the people.6

4.11. The Agriculture Sector Policy also required the authorities to develop strategies for commodities in the agriculture sector. So far, a coconut strategy and a kava strategy have been issued (Section 4.1.1.6). The authorities state that they are planning to develop strategies for other commodities such as cocoa, coffee, and onions.

4.12. The Tanna Coffee Development Company (TCDC), previously state-owned, was privatized and all its exclusive rights and privileges revoked. It is no longer a state trading company, and any company can now produce coffee, and import or export coffee to or from Vanuatu.7 The authorities state that they are not aware of any other state trading arrangements.

4.1.1.4 Support levels

4.13. Vanuatu notified to the WTO its domestic support to the agriculture sector in 2015; according to the authorities, all support measures were in the Green Box category. Among the

VT 368.46 million of support, most was used for crop extension, pest and disease control, and training (Chart 4.3).8

Chart 4.3 Domestic support to agriculture, 2015

Source: WTO document G/AG/N/VUT/1, 20 July 2016.

4.14. At the time of accession to the WTO, the authorities stated that Vanuatu provided virtually no monetary grants to agricultural producers. In 2012, agricultural producers were among the

businesses eligible for incentives offered through the Business Licence Committee, and the Customs Department. These incentives included exemption from business licensing requirements, special loans at relatively low interest rates from commercial banks, and special exemptions accorded by the customs and tax authorities.9 It is not clear to the Secretariat if these incentives are still offered.

6 MALFFB online information, MALFFB Corporate Plan 2014-2018. Viewed at:

https://malffb.gov.vu/index.php?id=6. 7 WTO document WT/ACC/VUT/17, 11 May 2011. 8 WTO document G/AG/N/VUT/1, 20 July 2016. 9 WTO document WT/ACC/VUT/17, p.23, 11 May 2011.

Research10.8%

Training22.5%

Pest and disease control29.8%

Crops extension30.0%

Livestock extension6.9%

Chart 4.3 [Domestic support to agriculture, 2015]

Source: WTO document G/AG/N/VUT/1, 20 July 2016.

https://malffb.gov.vu/index.php?id=6


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4.15. At the same time, the authorities also state that Vanuatu had aid-financed domestic support programmes for agriculture.10 Small-holders of coffee were provided with free planting materials and a subsidy on the purchasing price. The Vanuatu Commodities Marketing Board (VCMB) regulated the "beach" (farm-gate) price of copra on an ad hoc basis by using surpluses generated from trading activities and transfers of Lomé Convention funds from the commodity price stabilization scheme (Stabex) of the European Union. No information was made available to the

Secretariat as to whether these prices are still regulated.

4.1.1.5 Border measures

4.16. The simple average applied MFN tariff rate on agricultural tariff lines (WTO definition) is 16.9% (in 2018), higher than the average rate on non-agricultural tariff lines (8%) (Table 3.1). Tariff rates range from zero to 75% for agricultural products; the highest tariff rates are on beverages, spirits and tobacco (Chart 4.4). 10.9% of agricultural tariff lines are duty free, less

than the duty-free percentage for non-agricultural tariff lines (28.5%).

Chart 4.4 Average tariff rates of WTO agricultural groups, and fish and fishery products

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

4.17. Vanuatu does not apply any tariff quota on its agricultural products. It does not have any non-ad valorem agricultural tariff lines.

4.18. Import prohibitions are maintained on the grounds of protecting public health, safety, morals and the environment. Absinthe, beef originating in Europe, copra, and wine with a false description and presentation as provided for in the Geographical Indications (Wine) Act are

prohibited from importation (Section 3.1.5). Certain agricultural goods are subject to import licensing (Table 3.5).

4.19. Some agricultural products, such as cattle, cocoa and cocoa beans, copra, lavender oil, tea-tree oil, kava, meat and meat products, and turtles embalmed with preservative substances, are subject to export licensing requirements (Table 3.6). Apparently a fee is collected, although no information is made available on the cost of each licence (Section 3.2.3). In 2012, exporters of

kava were required to obtain an authorization from the Biosecurity Department at a cost of VT 30,000 (US$300), and were also required to pay a facility fee of VT 80,000 (US$800), payable in instalments, to the Biosecurity Department. Revenues from licensing fees collected from coffee exportation covered the cost of quality control.11 It is not clear to the Secretariat if these fees have been maintained or terminated.

10 WTO document WT/ACC/VUT/17, p.23, 11 May 2011. 11 WTO document WT/ACC/VUT/17, p.17, 11 May 2011.

0% 5% 10% 15% 20% 25% 30% 35% 40%

Total

WTO agricultural products

Animals and products thereof

Dairy products

Fruit, vegetables, and plants

Coffee and tea

Cereals and preparations

Oils seeds, fats, oil and their products

Sugars and confectionary

Beverages, spirits and tobacco

Cotton

Other agricultural products, n.e.s.

WTO non-agricultural products

Fish and fishery products

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

Chart 4.4 [Average tariff rates of WTO agricultural groups, and fish and fishery products]


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4.1.1.6 Selected subsectors

4.1.1.6.1 Coconut

4.20. Coconuts account for most of the land area devoted to crops in Vanuatu. A 2007 agriculture census recorded around 9.7 million coconut trees planted on about 119,384 hectares of land, representing 24% of good agricultural land.12 The authorities state that Vanuatu had a capacity to produce 760 million coconuts per year while in reality around 300 million coconuts were produced.

This is the result of an ageing population of trees that were mostly planted during the colonial era, and other factors such as land disputes.13 In addition, coconuts are underutilized in Vanuatu. It is estimated that 58% of coconuts are never harvested, as they are left to germinate in the plantations.14

4.21. In 2016, about 40% of Vanuatu exports came from the coconut harvest: copra accounted

for 32% of total merchandise exports, and coconut oil for 11%. The bulk of copra was exported to

India, Indonesia and the Philippines.15 Despite this dominancy, coconut rehabilitation programmes remained stagnant over the last 30 years in all major copra producing islands, with only a very small percentage of farmers engaging in coconut replanting programmes. The authorities state that they were making efforts to replant trees: in 2016, a total of 120,000 coconut seed nuts were planted and, in 2017, a total of 119,000 coconut seed nuts were distributed and planted. Copra production recovered strongly in 2016, following a rise in the average price (from VT 35,000 to VT 51,000 per tonne).16

4.22. Vanuatu Copra & Cocoa Exporters Ltd (VCCE) exports 52% of the copra and 80% of the cocoa in Vanuatu. It provides finance to agents to purchase copra from farmers from all the islands.17 The supply of raw materials is the most significant constraint on exports, followed by inadequate equipment, shortage of skills and shortage of working capital.18

4.23. A Vanuatu National Coconut Strategy 2016-2025 was issued in 2016 by the DARD as a

roadmap to revitalize the coconut sector. Its focus is to diversify the sector rather than relying on copra as the only coconut based product. In particular, considering the challenges associated with

shipping and transportation costs and the distance from major markets, the Strategy highlights the linking of the coconut sector to the tourism industry.19

4.1.1.6.2 Cocoa

4.24. In Vanuatu, around 2,500 hectares of land is used for cocoa plantations. Farmers tend to have very small plots, and production has been limited due to low yield, as trees were old and unproductive.20

4.25. The DARD aims to facilitate the development of cocoa production and trade through, inter alia, distributing cocoa seeds for planting, improving cocoa quality, and encouraging small scale cocoa processing. Cocoa seedlings and planter bags were distributed to farmers: 500,000

cocoa seedlings in 2016 (200,000 in 2017), and 300,000 planter bags in 2016 (100,000 in 2017).

4.1.1.6.3 Kava

4.26. Kava is a plant of the Pacific whose roots are used to produce a drink with anaesthetic and spiritual properties. Domestic demand for kava was estimated to be about three times its export

value. This is likely due to the high demand in the domestic market from a growing tourism sector. The share of kava exports to total merchandise exports varies significantly, from 4.2% in 2015 to

12 Vanuatu National Coconut Strategy 2016-2025. 13 MALFFB online information. Viewed at: https://malffb.gov.vu/index.php?id=1. 14 Vanuatu National Coconut Strategy 2016-2025. 15 Vanuatu National Coconut Strategy 2016-2025. 16 Vanuatu Statistics Office (2017), Statistics Release: Gross Domestic Product 2016. 17 Government of Vanuatu, Vanuatu Business Cost Competitiveness. 18 Government of Vanuatu, Vanuatu Business Cost Competitiveness. 19 Vanuatu National Coconut Strategy 2016-2025. 20 Vanuatu Statistics Office (2017), Statistics Release: Gross Domestic Product 2016.



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22% in 2016. This jump may be attributed to the lift of a ban by the European Union on kava importation.21

4.27. Quality and quantity are considered by the authorities as two of the challenges facing the kava sector. Vanuatu has around 80 varieties of kava, and fast-growing varieties are often not recommended for the beverage market. Thus, the MALFFB issued a National Kava Strategy 2016-2025, to improve quality.22 Measures suggested in the Strategy include the development of a

Kava Quality Management Plan, and the translation of the Kava Act into Bislama (the local language in Vanuatu). In 2015 and 2016, the DARD carried out a kava campaign, aimed at promoting the 10 best kava varieties. The Kava Act was developed in 2015 with at the aim of improving kava quality.

4.28. The Government is also linking the development of kava production and trade with the tourism sector. Kava bars are reserved for Vanuatu's citizens (Section 2.4.2).

4.1.1.6.4 Cattle

4.29. Cattle production has been growing in importance in recent years. The number of heads slaughtered recovered in 2016 after having been in decline since 2013 (Chart 4.5).

Chart 4.5 Slaughtered cattle

Source: Vanuatu National Statistics Office. Statistics released on 18 January 2018.

4.30. Commercial livestock production has been the mainstay of meat protein providers to Vanuatu and export markets. The sector is constrained by the lack of farm land and properly

managed land leases, ambiguous incentives schemes set up by the Government, as well as a lack of access to capital. With a view to facilitating the development of this subsector, the Government

issued its National Livestock Policy 2015-2030 in 2015.23

4.1.2 Fisheries

4.1.2.1 Features

4.31. Data from the Vanuatu National Statistics Office indicate that, in 2016, the fisheries sector contributed 3.9% to GDP, and, as of March 2017, live fish trade contributed 3% to total exports.

About 70% of rural households were engaged in fishing activities.24 In addition, access fees paid

21 MALFFB online information: "With a ban imposed by the European Union lifted soon due to legal

action, its importance as a cash crop is gradually accelerating further". Viewed at: https://malffb.gov.vu/index.php?id=1.

22 Vanuatu National Kava Strategy 2016-2025. 23 Vanuatu National Livestock Policy 2015-2030: https://pafpnet.spc.int/pafpnet/images/articles/policy-

bank/vanuatu/National%20Livestock%20Policy_Dec2015%2027_01_16.pdf. 24 FAO online information, Fishery and aquaculture country profiles – the Republic of Vanuatu. Viewed

at: http://www.fao.org.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2012 2013 2014 2015 2016

Number of heads

Weight in tonnes

Source: Vanuatu National Statistics Office. Statistics released on 18th January 2018.

Chart 4.5 [Slaughtered cattle]


https://pafpnet.spc.int/pafpnet/images/articles/policy-bank/vanuatu/National%20Livestock%20Policy_Dec2015%2027_01_16.pdf

https://pafpnet.spc.int/pafpnet/images/articles/policy-bank/vanuatu/National%20Livestock%20Policy_Dec2015%2027_01_16.pdf

http://www.fao.org/


- 56 -

by foreign fishing vessels have been making significant contributions to government revenue: in 2017, the Vanuatu Fisheries Department collected VT 441 million in license fees from both foreign and Vanuatu-flagged vessels, most of which were foreign owned.

4.32. Commercial food fish catch (i.e. deep-water demersal fish, reef fish and coastal pelagic) is sold mainly in urban and suburban parts of Vanuatu. Vanuatu also exports live non-food fish for aquarium purposes.

4.33. Offshore fisheries target species including certain species of tuna (albacore, skipjack, and yellow fin) and giant squid. Coastal fisheries target species including reef fish, coastal pelagic fish and invertebrates that include trochus, lobsters, coconut crabs and other crustaceans. Both fishing and trading activities of sea cucumber (until a new management system is set up) and green snails (2017-2020) were banned in 2017, because stocks were low.

4.34. A licence is required for commercial fishing. Deep bottom longline fishing and the use of

scuba gear for fishing is banned. According to the authorities, difficulties facing the development of the fisheries sector include a lack of data (e.g. data on species caught, the size and/or length of the fish caught, the total number of fishermen and fishing vessels, and the frequency of fishing trips), and the difficulty for fishermen to get bank loans and insurance coverage.

4.35. Infrastructure and transport links among islands also remain a challenge, adding to the cost for fishermen to access markets. The lack of sufficient infrastructure in terms of roads, wharfs and market facilities, and the lack of proper ice plants and storage facilities led to difficulties in quality

control, as well as low income for fishermen.25 The authorities state that Vanuatu currently has no fish processing factories. In addition, the majority of Vanuatu's fishing vessels are open skiffs, ranging in length from 5 to 8 metres. While such vessels are affordable and economical to operate, they are not suitable for long fishing trips.

4.1.2.2 Fisheries trade

4.36. Vanuatu generally has a trade surplus in fish and fish products, although their export value declined significantly in 2016 (Table 4.1).

Table 4.1 Imports and exports of fish and fisheries products, 2012-16

2012 2013 2014 2015 2016 Exports (VT million)

Live fish 136 88 142 116 53 Shellfish 27 30 44 27 21 Fish, other than live 185 139 10 0 14 Share in total merchandise exports (%)

Live fish 2.7 2.4 2.3 2.7 1.0 Shellfish 0.5 0.8 0.7 0.6 0.4 Fish, other than live 3.6 3.8 0.2 0.0 0.3

Source: FAO estimates, and the National Statistics Office of Vanuatu.

4.37. The authorities state that Vanuatu's main export markets are Japan for tuna fish and the

United States for live non-food fish. Vanuatu imports fish mainly from New Zealand and Australia.

4.1.2.3 Domestic policies

4.1.2.3.1 Institutional and legislative framework

4.38. The Vanuatu Fisheries Department (VFD) under the MALFFB aims to "ensure sustainable management, development and conservation of fish resources to achieve maximum social and economic benefits to Vanuatu for the present and future generations". Its core activities include formulating policies, regulations and legislative framework, providing scientific and development

advice to fisheries development, and where necessary assisting in supporting fisheries development programmes.

25 MALFFB online information, Vanuatu National Deep-Bottom Fish Fishery Management Plan. Viewed at:

https://www.cbd.int/doc/meetings/mar/soiws-2016-05/other/soiws-2016-05-vanuatu-13-en.pdf.

https://www.cbd.int/doc/meetings/mar/soiws-2016-05/other/soiws-2016-05-vanuatu-13-en.pdf


- 57 -

4.39. The Fisheries Act No. 10 of 2014 is the primary legal instrument for the management, development and conservation of fisheries resources. The Fisheries Regulation Order No. 28 of 2009 provides the regulatory framework. In addition, there are a number of acts regulating the fisheries sector (Table 4.2).

Table 4.2 Fisheries laws

Acts Descriptions Decentralization and Local Government Regions Act (1997)

Empowers provinces to pass by-laws regulating fishing activities within their six-mile provincial waters, and to issue fishing licences

Environmental Protection and Conservation Act CAP 283

Contains a range of general provisions relating to the protection and conservation of the environment. It provides for the establishment of community conservation areas and of environmental impact assessments

Maritime Zone Act No. 6 of 2010 Establishes a series of zones in Vanuatu waters from the archipelagic baseline. From this baseline the seaward limits of a State's territorial waters, contiguous zone and exclusive economic zone are measured

Foreign Investment Promotion Act, 2010 Provides for activities and industries reserved exclusively for citizens of Vanuatu. For instance, fishing within the archipelagic waters is reserved for Vanuatu's citizens

Source: MALFFB online information, Vanuatu National Deep-Bottom Fish Fishery Management Plan. Viewed at: https://www.cbd.int/doc/meetings/mar/soiws-2016-05/other/soiws-2016-05-vanuatu-13-en.pdf.

4.40. When the Fisheries Act was promulgated in 2014, Vanuatu was removed from the EU illegal, unreported and unregulated (IUU) fishing activities yellow card, which had been issued by the

European Union in 2012. Also in 2014, a Fisheries Management Advisory Council was established to provide recommendations to the Director of the VFD on policy matters relating to fisheries conservation and management.

4.41. Vanuatu's Maritime Act established Vanuatu as an open registry nation for ships. Up till now, the Vanuatu International Shipping Registry (VISR) has had 94 fishing vessels registered. According to the Fisheries Act 2014, there are two types of licences for vessels conducting commercial fishing or related activities in Vanuatu waters:

a. a local fishing licence for vessels fully owned by a Vanuatu citizen; and

b. a foreign fishing licence for vessels not fully owned by a Vanuatu citizen (Article 35).

4.42. These licences are valid for a maximum of one year. Depending on the type of licence, fees are levied (Table 4.3). Foreign fishing vessels (50% domestic landing or 100% overseas landing), locally based foreign fishing vessels, and local fishing vessels pay different fees to the VFD.

Table 4.3 Fishing licence fees

Fees for foreign fishing licences Fishing category Size of vessel in

gross registered tons (GRT)

Fees payable (50% domestic landing) (US$)

Fees payable (100% overseas landing) (US$)

Locally based foreign fishing vessel (US$)

Tuna longline <100 GRT 20,000 45,000 12,000 ≥100 GRT and <400 GRT

30,000 60,000 15,000

≥400 GRT 67,000 67,000 21,000

Purse seine - 50,000 50,000 20,000

Pole and line - 8,000 8,000 4,500

Other methods - 8,000 8,000 4,500

Research fishing 5,000 5,000 5,000 Exploratory and test fishing

8,000 8,000 5,000

Seasonal sport fishing (3 months)

n.a. n.a. 500



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Fees for foreign fishing licences

Fees for local fishing vessel licences

Efate and Luganville, excluding offshore islands and rural Santo: licence fees (VT)

Other islands: licence fees (VT)

≤ 8 metres 20,000 10,000 > 8 metres 20,000 + 5,000 per metre over

8 metres 10,000 + 2,500 per metre over 8 metres

Sport fishing 50,000 30,000

n.a. Not applicable.

Source: The VFD and the Pacific Islands Forum Fisheries Agency (2014), Revised Tuna Fishery Management Plan. Fisheries Regulations Order No. 22 of 2009, schedules 3, 5, and 11.

4.43. According to the Fisheries Regulations Order No. 22 of 2009, after each fishing trip, operators of foreign fishing vessels must pay: up to 5% of the total value of the catch caught

within Vanuatu waters, and landed domestically; or 5% of the total value of the catch caught within Vanuatu waters, and landed overseas. According to the authorities, however, these measures have not been applied in practice.

4.44. In 2017, the MALFFB issued the National Fisheries Sector Policy 2016-2031.26 The focus is

on sustainable stock management and biodiversity conservation, as well as:

a. advancing small-scale sustainable domestic fisheries and aquaculture development using local operations; and

b. acknowledging the need for larger commercial fishing ventures to promote employment and improve livelihoods, and ensure food security.

4.45. Under the Policy, measures regulating the fisheries sector include mainly: a licensing programme for all commercial fishing vessels; limitations on fishing operations; and a total

allowable catch for foreign fishing, locally based foreign, local, and sport fishing vessels. Many of the measures were adopted in the management plans for different fisheries subsectors.

4.1.2.3.2 Management plans

4.46. The Fisheries Act requires the Director of the VFD to prepare a plan for the management and development of all designated fisheries. Several plans have been prepared as follows.

4.1.2.3.2.1 The National Deep-Bottom Fish Fishery Management Plan

4.47. In 2016, the VFD launched its National Deep-Bottom Fish Fishery Management Plan, which gives details of main management measures, such as: licensing; area restriction; data collection; and gear restriction (Table 4.4).27

Table 4.4 Main measures

Main measures Description Licensing Vessels ≥8 metres long must apply for a licence Area restriction Certain fishing vessel sizes are restricted to certain areas Data collection Data collection in fishery has been implemented through two means: licence applications;

and duty-free fuel as an incentive for fishermen to submit dataa Gear restriction A ministerial order (Conservation and Management Measure for Deep-Bottom Fish Fishery

Order No. 87 of 2012) prohibits the use of deep-bottom longline gear and restricts the number of hooks on a vertical dropline to 10

a The authorities indicated that duty-free fuel to fishing vessels was discontinued in 2017.


26 MALFFB (2017), Vanuatu National Fisheries Sector Policy 2016-2031. 27 MALFFB online information, Vanuatu National Deep-Bottom Fish Fishery Management Plan. Viewed at:





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4.48. Under the VIPA Act, deep bottom snappers are reserved for citizens of Vanuatu. In accordance with the Deep-Bottom Fish Fishery Management Plan issued by the MALFFB, two types of licences are applied in this type of fishing:

a. a local fishing licence, issued by the Director of the VFD and required for all fishing vessels involved in the harvesting of deep-bottom fish species, with a fee collected by the VFD; and

b. a provincial access permit, issued by the relevant provincial government, for all fishing vessels wishing to conduct fishing and fishing related activities, with fees collected by the relevant provincial government.28

4.49. The number of licences is limited to the total number of vessels listed in the vessel register. The Director of the VFD monitors the deep-bottom fish fishery catch in all locations comprising

more than 20% of issued licences. The ruby snapper, the saddle-back snapper, and the comet

grouper are indicator species; a minimum of 50% of the catch of these species must be measured for length and weight, and their otoliths must be extracted. No further licences may be issued if the Director determines that:

a. 25% of the ruby snapper catch has a fork length of less than 54 cm;

b. 25% of the saddle-back snapper catch has a fork length of less than 33 cm; or

c. 25% of the comet grouper catch has a fork length of less than 44 cm.

4.50. In these cases, licences are not issued until appropriate limit reference points for the

deep-bottom fish fishery are set and accepted, or the trend in the proportion of juveniles in the catch decreases to below the above levels over a five-year period.

4.51. If the latest annual catch record of the deep-bottom fish fishery in the fishery waters clearly exceeds the average yearly catch record of the past five years, the Director will review the impact of this catch, and may reduce the total number of licences approved. The Director may apply additional limits to fishing with the approval of the Minister of the MALFFB and after consultation with the provincial governments, the relevant fishers' associations, key stakeholders and the

Fisheries Management Advisory Council (FMAC), if he/she is of the opinion that it is in the interests of the sustainability or economic viability of deep-bottom fish fishery in Vanuatu.

4.52. The Plan also outlines an area restriction, based on the size of the fishing vessel (Table 4.5).

Table 4.5 Area restriction for local fishing vessels

Fishing category Fishing vessel <10 metres ≥10 metres >15 metres Artisanal fishing vessels No restriction Outside 6 nautical miles Outside 12 nautical miles

Commercial fishing

vessels (e.g. Lady Christina, Ocean Fishing Ltd.)

Comply with provincial

by-laws, if applicable

Outside 6 nautical miles Outside 12 nautical miles


4.53. Regarding data collection, the VFD is to carry out a survey in collaboration with relevant provincial governments, fishermen's associations, individual fishermen and communities to determine the total number of fishing vessels engaged in each type of fishing; and the VFD is to design, develop, update and maintain a register of fishing vessels involved in each type of fishing.29 The authorities indicate that the survey has not yet been conducted.

28 MALFFB online information, Vanuatu National Deep-Bottom Fish Fishery Management Plan. Viewed at:

https://www.cbd.int/doc/meetings/mar/soiws-2016-05/other/soiws-2016-05-vanuatu-13-en.pdf. 29 MALFFB online information, Vanuatu National Deep-Bottom Fish Fishery Management Plan. Viewed at:






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4.1.2.3.2.2 Revised tuna fishery management plan

4.54. In 2014, the VFD, with the assistance of the Pacific Islands Forum Fisheries Agency (FFA), issued a revised tuna fishery management plan. The plan revised the management limits in Vanuatu's longline fishery exclusive economic zone (EEZ), taking into account bio-economic analyses. The plan stipulates various strategies for the conservation and management of Vanuatu's fishery resources, through imposing a maximum number of licences and total allowable catch for

some tuna species, as well as designating areas closed to or restricting fishing. It revised the licensing fees for foreign fishing vessels, locally based foreign fishing vessels, and local fishing vessels (Table 4.3). According to the plan, no more than 70 fishing licences are to be issued each year under Vanuatu's longline fishery EEZ.30 If the VFD receives more applications for licences, priority is given to: first, local fishing vessels; second, locally-based foreign fishing vessels; and third, foreign fishing vessels. The authorities state that the number of fishing licences fell from

107 in 2012 to 69 in 2015, then rose to 90 in 2016 and 171 in 2017.

4.1.2.4 Border measures

4.55. The simple average MFN tariff rate on fish and fishery products is 15.4% in 2018, higher than that on non-agricultural tariff lines (simple average 8%), but lower than that on agricultural tariff lines (simple average 16.9%). Tariff rates range from zero to 30%, with 3.4% of fishery tariff lines duty free. More than 80% of all fishery tariff lines are at a rate of 15%. Six lines are at a tariff rate of 30%:

a. HS 0306.15: frozen Norway lobsters;

b. HS 0306.16: frozen cold water shrimps and prawns;

c. HS 0306.17: frozen other shrimps and prawns;

d. HS 0306.34: live, fresh or chilled Norway lobsters;

e. HS 0306.39: other, including flours, meals and pellets of crustaceans, fit for human consumption; and

f. HS 0306.92: lobsters.

4.56. Export of commercial species of fisheries products requires a licence, which is valid for one year. Currently sea cucumber and green snails are banned from fishing and trade, and exports of coconut crab and rock lobster are prohibited.

4.1.2.5 Support

4.57. During the review period, the following supports were provided to Vanuatu's tuna fish

sector:

a. Duty-free concessions: to encourage participation in the development of the domestic tuna industry, all locally-based vessels with a valid commercial fishing licence are eligible for duty exemption on fuel and fishing gear, including bait, fishing equipment and spare parts, for their fishing operations.

b. Infrastructure development: the VFD gives preference to infrastructure development plans when allocating its budget.

c. Foreign investment: the VFD provides information and support to the Vanuatu Foreign

Investment Board to attract foreign investment in the tuna industry. Joint ventures with a significant involvement of Vanuatu companies and individuals are given preference.

30 VFD and Pacific Islands FFA (2014), Revised Tuna Fishery Management Plan, August.


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d. Legislation to facilitate fish exports: the Tuna Management Advisory Committee (TMAC) actively supports the development and implementation of health and other legislation to ensure that food safety requirements of importing countries are met.

e. Vanuatu's citizens crewing requirements: all Vanuatu-flagged fishing vessels and all locally-based foreign fishing vessels are obliged to employ Vanuatu's citizens as officers and fishing crew, and the employment of Vanuatu's citizens on foreign fishing vessels

operating in the EEZ is strongly encouraged. Local vessels must be crewed by Vanuatu's citizens, including masters and engineers wherever possible.31

4.58. According to FAO online information, fishery was a significant source of rural income on certain islands in the 1980s and 1990s. This was achieved because the Government used technical assistance funds to subsidize the fishery sector for over 15 years. However, when donor support expired, most of the rural fishing centres were closed. Fishery operations continued on the islands

of Efate, Espiritu Santo and Malekula, where fish transportation and other operational costs make fishery commercially viable.32

4.2 Mining and Energy

4.2.1 Electricity

4.59. The Department of Energy, within the Ministry of Climate Change and Natural Disaster, is responsible for the development of energy policies, legislation and regulations to guide the development of energy services in Vanuatu.33 In 2013, the Government developed a National

Energy Road Map (NERM) with a view to energizing Vanuatu's growth and development through the provision of secure, affordable, widely accessible, high quality, and clean energy services. The NERM was updated in 2016; according to it, 83% of rural households still lacked access to electricity, compared to 20% of urban households.34 A significant constraint for business in Vanuatu is the availability, cost and reliability of electricity and other utilities.35

4.60. The Utilities Regulatory Authority Act No. 11 of 2007 established the Utilities Regulatory Authority (URA). In accordance with the Act, the URA regulates certain utilities, in particular the

provision of electricity and water services. Its core functions include: monitoring and enforcing existing concession contracts, which include checking price adjustments, monitoring service standards and technical performance; renegotiating tariffs with utility providers; and managing consumer complaints.36 Other relevant legislation includes: the Electricity Supply Act No. 21 of 2000 (CAP 65), the Government Contracts and Tenders Act No. 10 of 1998, the Tenders Regulations Order No. 40 of 1999, and the Public Finance and Economic Management Act No. 6 of

1998.37

4.61. Between 2006 and 2016, the average annual growth rate of electricity demand was 3.4%, while that for annual customer number growth was 5.8% (Chart 4.6). The authorities indicate that, over the 10-year period, compared with an annual GDP growth rate of 3%, a 1% increase in GDP was associated with a 1.1% increase in electricity consumption. Electricity demand dropped

significantly in 2015 due to Cyclone Pam. In 2016, the economy, and the electricity demand, gradually recovered.

31 FAO online information, Fishery and aquaculture country profiles – the Republic of Vanuatu. Viewed

at: http://www.fao.org. 32 FAO online information. Viewed at: http://www.fao.org/fi/oldsite/FCP/en/VUT/profile.htm. 33 DOE online information. Viewed at: https://doe.gov.vu/index.php?r=site/about. 34 Department of Energy (2016), Updated Vanuatu National Energy Road Map 2016-2030, June. 35 Government of Vanuatu, Vanuatu Business Cost Competitiveness.. 36 URA (2017), Preliminary Decision and Notice of Request for Comments – Case U-0006-15 in the

matter of UNELCO's electricity tariff review, September. Viewed at: http://www.ura.gov.vu/attachments/article/100/U-0006-15%20-%20URA%20Preliminary%20Decision%20UNELCO%20Electricity%20Tariff%20Review.pdf.

37 URA online information. Viewed at: http://www.ura.gov.vu/index.php?option=com_content&view=article&id=52&Itemid=226&lang=en.

http://www.fao.org/

http://www.fao.org/fi/oldsite/FCP/en/VUT/profile.htm

https://doe.gov.vu/index.php?r=site/about

http://www.ura.gov.vu/attachments/article/100/U-0006-15%20-%20URA%20Preliminary%20Decision%20UNELCO%20Electricity%20Tariff%20Review.pdf


http://www.ura.gov.vu/index.php?option=com_content&view=article&id=52&Itemid=226&lang=en


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Chart 4.6 Electricity demand and customer numbers, 2006-16

Source: URA (2017), Preliminary Decision and Notice of Request for Comments – Case U-0006-15 in the matter of UNELCO's electricity tariff review, September. Viewed at: http://www.ura.gov.vu/attachments/article/100/U-0006-15%20-%20URA%20Preliminary%20Decision%20UNELCO%20Electricity%20Tariff%20Review.pdf.

4.62. The Government granted three electricity concessions for Port Villa, Malekula and Tanna to UNELCO (Concessionaire) in 1986 and 2000 under various concession contracts.38 These contracts specified rules regarding service coverage, quality of service, and the maximum tariffs to be

charged. In 2011, the Pernix Group – a power company from the United States – was accepted to provide electricity services in Luganville, Santo Island, including the generation, transmission, distribution, and billing and collection of payments through its local subsidiary, Vanuatu Utilities and Infrastructure (VUI) Limited. In addition, a variety of small-scale arrangements exist for the supply of electricity.

4.63. By September 2017, the main energy source was diesel combustion, which contributed to about 80% of the total electricity generated. Windmills generated about 9% of electricity, while

hydro and solar power contributed about 8% and 3%, respectively.39

4.64. The Government, with the support of the private sector and donor partners, has launched five renewable projects, which are now in the completion stage. Another two are about to be built. UNELCO has sought alternative sources to supplement its traditional means of power supply source, including using coconut oil. In Luganville, hydropower generates up to 84% of power during the rainy season. The VUI provided micro-solar installations to over 155 off-grid households, and maintains these facilities at zero cost to the users.

4.65. According to UNELCO, electricity tariffs are based on the conditions stipulated in the concession agreement with the Government, and are regularly reviewed (about every five years) by the URA. The last tariff review took place in 2010/11. UNELCO tariffs are adjusted monthly,

mainly to reflect diesel price changes. The current tariff structure adopted by UNELCO contains separate customer categories. Each category has different fixed and variable cost charges, and the charges are referenced to price P (Table 4.6). The first block small domestic customers are

supported by cross subsidization: they pay 34% of the actual costs, while the third block small domestic customers pay three times the actual cost. High voltage, business licence holders, and other low voltage users also pay the fixed tariff per kilovolt ampere per month.

38 UNELCO is a subsidiary of France's Suez. VIPA online information. Viewed at:

http://www.investvanuatu.org/wp/investing/infrastructure/. 39 URA (2017), Vanuatu Monthly Energy Market Snapshot in September 2017. Viewed at:

http://www.ura.gov.vu/attachments/article/106/2017%2009-%20Monthly%20Energy%20Market%20Report%20-%20September%202017%20-%20English.pdf.

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Demand (MWh)

Customer numbers

Source: URA (2017), Preliminary Decision and Notice of Request for Comments – Case U-0006-15 in the matter of

UNELCO's electricity tariff review, September. Viewed at: http://www.ura.gov.vu/attachments/article/100/U-

0006-15%20-%20URA%20Preliminary%20Decision%20UNELCO%20Electricity%20Tariff%20Review.pdf [26/02/2018]

Chart 4.6 Electricty demand and customer nubmers, 2006-16

(MWh) (Numbers)



http://www.investvanuatu.org/wp/investing/infrastructure/

http://www.ura.gov.vu/attachments/article/106/2017%2009-%20Monthly%20Energy%20Market%20Report%20-%20September%202017%20-%20English.pdf

http://www.ura.gov.vu/attachments/article/106/2017%2009-%20Monthly%20Energy%20Market%20Report%20-%20September%202017%20-%20English.pdf


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Table 4.6 Electricity tariff structure for Port Vila, Malekula and Tanna

Type of customer Type of variable tariff Variable tariff level

Per kWh/month Fixed tariff per

kVa/month Small domestic customers 1st block (0–60 kWh) 0.34 × P

0 2nd block (61–120 kWh) 1.21 × P 3rd block (121+ kWh) 3 × P

Other low voltage users Single block 1.21 × P 5 × P Business licence holders Single block 0.87 × P 20 × P Sports fields Single block 1 × P 0 Public lighting Single block 0.54 × P 0 High voltage Single block 0.70 × P 25 × P

Source: UNELCO Tariff Application V2 2016-2021. The URA (2017), Preliminary Decision and Notice of Request for Comments – Case U-0006-15 in the matter of UNELCO's electricity tariff review, September. Viewed at: http://www.ura.gov.vu/attachments/article/100/U-0006-15%20-

%20URA%20Preliminary%20Decision%20UNELCO%20Electricity%20Tariff%20Review.pdf.

4.66. According to a UNELCO report, electricity bills paid by domestic customers contain: VAT at a rate of 15%, a fixed charge of 3.9%, a fuel excise tax of approximately 8%, a subsidy for small domestic customers of approximately 3%, a subsidy for Tanna and Malekula concessions of about 3%, funding for rural electrification of approximately 3%, and a new (from 2017) URA surcharge of 2%. This surcharge, mandated on all utility invoices, applies to the other elements that constitute the utility invoices, and the proceeds are remitted to the URA.40

4.67. The VUI does not have a concession agreement with the Government. It is an operation and

management arrangement. Tariffs in Luganville are set by the URA, not by the VUI. The authorities indicate that electricity tariffs in Luganville are much lower than in Port Vila, Malekula and Tanna, as electricity is mainly generated by hydropower in Luganville.

4.68. According to a report by the URA on the regional comparison of electricity bills, in June

2017, small domestic customers in Vanuatu were charged significantly less than the regional average, due to cross-subsidization from large and business customers. Other low voltage users, who were relatively high domestic users in Vanuatu, were charged significantly more than the

regional average, and subsidize other users; some business customers paid below the Pacific average rate, while some paid over it.41

4.3 Manufacturing

4.69. In Vanuatu's economy, the role of manufacturing is limited. In 2016, manufacturing accounted for 3.4% of GDP (3.8% in 2012).

4.4 Services

4.4.1 Main features and GATS commitments

4.70. The services sector accounts for about two thirds of Vanuatu's GDP (Table 4.7). In 2016, the main services subsectors were: wholesale and retail trade and repair of motor vehicles, government services, finance and insurance, and real estate. During the review period, growth rates of value added in many services subsectors were rather volatile, particularly the transport and storage services; the professional, scientific, technical and administrative services; and the information and communication services. The services sector, notably travel (particularly personal

travel), is a net foreign exchange earner (Table 1.5). Services exports accounted for 87% of Vanuatu's total exports (of goods and services) in 2017 (Table 1.4).

40 UNELCO online information. Viewed at: https://www.unelco.engie.com/en/electricity/electricity-rates. 41 URA (2017), Comparative Report Pacific Region Electricity Bills, June. Viewed at:

http://www.ura.gov.vu/attachments/article/106/Electricity%20Price%20Comparison%20-%20Pacific%20Area%20June%202017%20(2).pdf.



https://www.unelco.engie.com/en/electricity/electricity-rates

http://www.ura.gov.vu/attachments/article/106/Electricity%20Price%20Comparison%20-%20Pacific%20Area%20June%202017%20(2).pdf

http://www.ura.gov.vu/attachments/article/106/Electricity%20Price%20Comparison%20-%20Pacific%20Area%20June%202017%20(2).pdf


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Table 4.7 Vanuatu's services indicators, 2012-16

2012 2013 2014 2015 2016 Services (% of current GDP) 65.3 64.9 64.5 65.4 66.6 Wholesale and retail trade; repair of motor vehicles

18.4 18.1 18.8 19.1 20.3

Transportation and storage 5.6 5.2 4.9 3.9 4.2 Accommodation and food services 5.3 5.4 5.2 4.5 4.6 Information and communication 4.0 4.4 4.5 4.6 4.6 Finance and insurance 7.1 7.7 7.4 8.7 8.7 Real estate 7.3 7.2 7.4 8.0 7.8 Professional, scientific, technical and administrative services

2.7 2.7 2.6 2.6 3.4

Government services 12.9 12.4 11.7 12.1 11.3 Education, health, recreation, and other services

2.0 1.9 2.0 1.9 1.8

Services (% growth rate) 4.4 0.1 2.4 2.0 2.9 Wholesale and retail trade; repair of motor vehicles 6.6 -0.8 5.1 3.5 2.4 Transportation and storage 28.9 -22.6 -5.9 -4.0 1.3 Accommodation and food services 4.4 3.7 1.3 -9.7 3.7 Information and communication -8.4 8.3 7.9 7.0 6.0

Finance and insurance -0.1 8.1 -0.3 6.8 0.2 Real estate 9.1 1.8 2.7 1.8 3.6 Professional, scientific, technical and administrative services -20.0 -0.9 -1.2 9.7 18.3 Government services 2.0 6.4 1.8 1.6 1.8 Education, health, recreation, and other services 1.4 -5.6 8.8 -4.1 -7.4

Source: Vanuatu National Statistics Office online information; and data provided by the authorities.

4.71. Under the GATS, Vanuatu scheduled horizontal commitments on commercial presence and

the presence of natural persons for all sectors included in its schedule.42 Regarding commercial presence, government approval is required for all foreign investors under the Foreign Investment Act No. 15 of 1998 and its amendments, while the purchase of real estate is subject to limitations. The presence of natural persons is unbound, except for the entry and temporary stay of natural

persons with managerial and technical skills, which are in short supply in Vanuatu or of those who fall within the categories of: business managers; intra-corporate transferees; or certain professionals.

4.72. Vanuatu has made specific commitments under GATS in almost all services sectors:

a. business services (professional, computer and related, and other business services);

b. communication services (courier, telecommunication, and audiovisual services);

c. construction and related engineering services (general construction work for buildings,

and general construction work for civil engineering);

d. distribution services (commission agents, wholesale trade, retailing, and franchising services);

e. education services (primary education, secondary education, higher education, adult education, and other education services);

f. environmental services (sewage, refuse disposal, and sanitation and similar services);

g. financial services (all insurance and insurance related services, and banking and other financial services);

h. health related and social services (hospital services, and social services);

42 WTO document WT/ACC/VUT/17/Add.2, 11 May 2011.


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i. tourism and travel-related services (hotels and restaurants including catering, and travel agencies and tour operators services); and

j. transport services (air transport services).

4.73. Vanuatu's list of Article II (MFN) exemptions are cross-sectoral MFN exemptions; citizens and permanent residents of MSG countries may be granted a waiver from the normal investment and right of temporary sojourn obligations of Vanuatu law.

4.4.2 Financial services

4.74. Financial services (finance and insurance) accounted for 8.7% of GDP in 2016. In 2017, total assets of the financial sector were about VT 130 billion, of which commercial banks accounted for around 87%, while the insurance sector remains small (Table 4.8).

Table 4.8 Gross assets of Vanuatu's financial system, 2012-17

2012 2013 2014 2015 2016 2017 Total assetsa (VT billion) 95.6 100.6 104.3 120.2 121.8 130.3 Commercial banks 82.8 85.1 88.3 95.8 104.8 112.8 Credit institutions 0.5 0.6 0.8 0.7 0.8 .. Insurance companies 1.6 1.9 1.6 7.9 3.0 2.7 Vanuatu National Providence Fund 10.2 12.3 13.0 15.2 13.2 .. Market share Banks 86.5% 84.7% 84.7% 79.7% 86.0% 86.6% Insurance companies 1.7% 1.9% 1.6% 6.6% 2.5% 2.1%

a Includes other regulated financial institutions.

.. Not available.


4.75. Vanuatu undertook various financial services commitments under the GATS. With respect to banking and other related services (CPC 811-813), Vanuatu applies no market access limitations on services delivered via cross-border supply and consumption abroad43, while commercial presence requires banks to comply with the provisions of the relevant banking legislation. Vanuatu

applies no national treatment limitations on modes 1, 2 and 3 of banking and other related services.44 Vanuatu has bound market access and national treatment with respect to all insurance and related services (CPC 812) delivered via cross-border supply, consumption abroad, and commercial presence.45

4.76. Banks carrying out business in Vanuatu are supervised and regulated by the Reserve Bank of Vanuatu (RBV), which is the central bank. Offshore banks, which deal with non-residents, are also supervised and regulated by the RBV.46

4.77. In addition, the RBV regulates and supervises the non-deposit-taking financial services industry, including 12 insurance companies, the Vanuatu National Provident Fund (the Government's pension scheme), Credit Corporation Vanuatu Limited, the Agriculture Development Bank, and a number of credit unions. According to the IMF, the non-bank financial sector remains small and not sufficiently regulated.47

4.78. The Vanuatu Financial Services Commission (VFSC) was established in 1993 following the

enactment of the Vanuatu Financial Services Commission Act No. 35 of 1993. It administers certain legislation (Table 4.9). It is modernizing, with the support of the Asian Development Bank (ADB), the Companies Act, and the Companies (Insolvency and Receivership) Act. A bill for the regulation and supervision of trust and company service providers was passed by Parliament. The

43 The authorities stated there are restrictions on dividends payments and transfers for the purpose of

the maintenance of adequate capital. 44 The RBV deducts placements of funds offshore by subsidiaries and branches (with non-related

entities) on capital for the purpose of capital adequacy ratio. 45 WTO document WT/ACC/VUT/17/Add.2, 11 May 2011. 46 Offshore banks were previously supervised by the Vanuatu Financial Services Commission (VFSC). 47 IMF (2016), Vanuatu Article IV Consultation 2016, IMF Country Report No. 16/336, October.


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VFSC is also proposing to introduce a new Trustee Act. Amendments to the Business Names Act passed through Parliament and were gazetted in 2015.48

Table 4.9 Legislation

Laws and regulations administered by the VFSC Business Names (Amendment) Act No. 10 of 2015 Companies (Insolvency and Receivership) Act No. 3 of 2013 Companies Act No. 25 of 2012 Company and Trust Services Providers Act No. 8 of 2010 Charitable Associations (Incorporation) Act [CAP 140] and Amendments Credit Unions Act [CAP 256] and Amendmentsa

Dealers in Securities (Licensing) Act [CAP 70] and Amendments Electronic Transactions Act No. 24 of 2000 and Amendments E-Business Act No. 25 of 2000 and Amendments Foundation Act No. 38 of 2009 Incorporated Cell Companies Act of 2009 International Companies Act [CAP 222] and Amendments Insolvency (Cross-border) Act No. 4 of 2013 Mutual Funds Act No. 38 of 2005 Offshore Limited Partnerships Act No. 39 of 2009 Partnership Act [CAP 92] Personal Property Securities Act No. 17 of 2008 Protected Cells Companies Act No. 37 of 2005 and Amendments Trade Unions Act [CAP 161] United Trusts Act No. 36 of 2005

a The Credit Unions Act is being reviewed to improve prudential supervision and AML and CFT, and to transfer registration of credit unions to the RBV. Currently, credit unions are registered by the VFSC and supervised by the RBV.

Source: VFSC online information. Viewed at: http://www.vfsc.vu/laws-regulations/.

4.4.2.1 Banking

4.79. Five banks are licensed by the RBV: the National Bank of Vanuatu (NBV), the Australia and New Zealand Banking Group (ANZ), the BRED Vanuatu Limited (BVL), the Bank of South Pacific

(BSP), and the European Bank Limited (EBL). Currently, four of these serve the domestic market, while the EBL (now Wanfuteng Bank) is being restructured.

4.80. Three commercial banks – ANZ, BVL, and BSP – are foreign-owned. The NBV was a fully government-owned statutory organization, with a mandate to cater to Vanuatu citizens clients. It underwent ownership restructuring, and is now 70% owned by the Government, 15% owned by the National Provident Fund, and 15% owned by the International Finance Corporation. The NBV provides micro-finance, loans to SMEs, and commercial loans.

4.81. According to a Diagnostic Trade Integration Study (DTIS) Report, micro-finance products involved loans of up to VT 50,000 (US$500) for agricultural and retail purposes for individuals from

remote islands, with an annual interest rate of 27%; the level of arrears for these loans was low and the recovery rate was good. On the other hand, loan recovery from SMEs had proven problematic; SMEs with a turnover of more than VT 30 million made up 80% of NBV's SME clients.49

4.82. Banks' performance was affected significantly by Cyclone Pam in 2015; capital adequacy

ratios (CARs) declined between 2012 and 2015, while asset quality deteriorated as the non-performing loans ratio rose (Table 4.10). However, according to an IMF Article IV report, the financial soundness of the banks has been improving since the last quarter of 2015.50 The improvement was attributed to the RBV's accommodative stance in the aftermath of the cyclone, lowering the statutory reserve deposit (SRD) requirement and the liquid asset requirement (LAR) to alleviate potential liquidity pressure on banks.51

48 VFSC online information. Viewed at: http://www.vfsc.vu/about-us/new-developments-2/. 49 Department of Trade, Industry and Investment (2008), Vanuatu DTIS Report 2008, Port Vila. 50 IMF (2016), Vanuatu Article IV Consultation 2016, IMF Country Report No. 16/336, October. 51 IMF (2016), Vanuatu Article IV Consultation 2016, IMF Country Report No. 16/336, October.

http://www.vfsc.vu/laws-regulations/

http://www.vfsc.vu/about-us/new-developments-2/


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Table 4.10 Banks' financial soundness indicators, 2012-17

(%)

2012 2013 2014 2015 2016 2017 Capital adequacy Regulatory capital to risk-weighted assets 20.5 18.1 17.6 16.4 19.4 17.9 Regulatory Tier 1 capital to risk-weighted assets

18.3 15.9 16.7 16.2 16.4 15.6

Asset quality Non-performing loans net of provisions to capital

12 37.4 49.4 69.3 41.8 57.4

Non-performing loans to total gross loans 8.1 13.5 11.1 12.6 10.8 15.1 Earnings and profitability Return on assets 0.6 0.4 0.4 0.6 1.5 0.1 Return on equity 4.3 3.1 3.0 4.6 11.3 3.8 Interest margin to gross income 46.5 50.1 54.3 49.7 64.6 63.6 Non-interest expenses to gross income 52.4 46.9 55.2 51.4 64.8 63.2 Liquidity Liquidity assets to total assets (liquidity asset ratio)

18.8 26.1 23.8 26.2 32.9 35.5

Source: RBV.

4.83. Interest rates remained high on lending for business activities, and substantial interest rate spreads persisted, reflecting, inter alia, the high cost and high risk of credit potentially arising from small scale, vulnerability to shocks, and geographic dispersion of the islands.52

4.84. In accordance with the Financial Institutions Act of 1999, banks need to obtain a licence from the RBV to operate in Vanuatu once they meet prudential requirements. The RBV expanded the Basel II prudential requirements (on CARs, liquid asset ratios, exposures to capital

requirements) into prudential guidelines, and issued 11 prudential guidelines for domestic banks, and 12 for international banks.

4.85. The Financial Institutions Act of 1999 eliminated differences in capital requirements for locally-owned and foreign-owned banks, and stipulated that paid up capital and unimpaired reserves of VT 200 million were necessary for all banks and branches of banks.53 Offshore banks require a minimum paid up capital of US$500,000. The RBV imposes a minimum CAR of 12% for both domestic and international banks.

4.86. The authorities are considering ways to improve access to credit. Efforts include the establishment of a National Financial Inclusion Task Force in 2013, a separate Financial Inclusion Unit at the RBV in 2016, and financial literacy programmes operated by banks. Recently, the Vanuatu National Financial Inclusion Strategy (2018-2022) was also launched. Amendments to legislation relating to AML and CFT were completed in 2017. The RBV is drafting a new Credit Union Act to improve supervision.54

4.87. Offshore banking comprises seven banks (one is in the process of revocation, and another is

yet to be operational). They registered a decrease in asset size at the end of 2017. Total assets declined by 26.1% to US$78.8 million, compared to US$106.7 million in 2016, reflecting mainly decreases in loans and advances (by 29% to US$29.3 million), marketable securities (by 46.4% to US$9.2 million), and investment (by 28.6% to US$16 million). Total liabilities (excluding capital) also decreased by 32.3% to US$59.5 million in the same year. The annual loss was US$1.3 million, compared to an annual loss of US$1.5 million in 2016. The total capital base grew

by 2.4% to US$19.3 million. The RBV considered that the offshore banking industry was well capitalized, with a further CAR increase from 88% in 2016 to 98% in 2017.

4.4.2.2 Insurance

4.88. The insurance services sector is regulated under the Insurance Act No. 54 of 2005 and the Insurance Regulation Order No. 16 of 2006. The RBV is the insurance sector regulator.

52 IMF (2016), Vanuatu Article IV Consultation 2016, IMF Country Report No. 16/336, October. 53 WTO document WT/ACC/VUT/17/Add.2, 11 May 2011. 54 IMF (2016), Vanuatu Article IV Consultation 2016, IMF Country Report No. 16/336, October.


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4.89. The insurance sector is composed of insurance managers, insurance agents, an insurance loss adjuster, insurance brokers, captive insurers, external insurers, international insurers, and local insurance companies, as well as one reinsurance company and one protected cell company (Table 4.11). All are foreign-owned.

Table 4.11 Insurance service providers

Descriptions Companies Insurance managers

A person/entity licensed to act as an insurance manager to, or provide manager services for, external and captive insurers

International Finance Trust Company Limited (IFTC) Risk Management International Consulting Limited Ron Pattenden Willis New Zealand Thelma Tapasei

Insurance agents

A person/entity who, with the authority of an insurer but not being the employee of that insurer, acts on behalf of the insurer in establishing an insurance policy

ANZ Bank (Vanuatu) Limited John Lum & Associates Limited Sportscover Vanuatu Limited Surata Tamaro Travel Limited NBV EDNA Ratonel Credit Corporation Vanuatu Ltd. LT Equity Consultant Insurance Ltd.

Insurance loss adjusters

Assesses the amount of compensation that should be paid after a person has claimed on their insurance policy

McLarens Young (Vanuatu) Limited

Insurance brokers

Acts on behalf of a prospective customer and, with the prospective customer's authority, arranges insurance business with insurers, including making proposals and paying premiums

AON (Vanuatu) Limited Marsh Insurance Brokers Pty. Limited Willis New Zealand Limited Chartered Pacific Insurance Brokers Limited Aerosure Ltd. Arthur J Gallagher & Co. (Aust) Ltd. Poe-Ma Vanuatu Insurance Brokers Ltd.

Captive insurance

A licensed insurance company that carries out insurance business for the purpose of predominantly insuring interests: - in the parent company; - in companies that it is affiliated or associated with; or - in companies organized within a group or agency relationship

Biltmore Life Insurance Company Limited Boston Marks Insurance Limited Caledonian Insurance Co., Limited Oceania Insurance Limited Pacific Casualty & General Insurance Limited Orbit International Insurance PCC Ltd. Centron Insurance ICC Ltd. Platinum Insurance Ltd.

External insurance

An insurance company incorporated outside Vanuatu that is licensed to carry out insurance business in Vanuatu

Dominion Insurance Limited Society of Lloyd Underwriters Corp.

International insurance

An insurance company incorporated in Vanuatu that does not provide domestic insurance products in Vanuatu

Sportscover Insurance Ltd. Crown Insurance Services Limited Exsular Insurance Corporation Ltd.

Local insurance companies

A company incorporated in Vanuatu that carries out insurance business inside or outside Vanuatu

QBE Insurance (Vanuatu) Limited Vancare Insurance Ltd. Tower Insurance

Reinsurance Reinsurer EverBest Re Corporation Ltd. Protected Cell Companies (PCC)

A form of company structure. A single legal entity comprised of a core and several cells that are not legally separate from the core company

Orbit International Insurance PCC Limited

Source: Information provided by the authorities. And RBV online information. Viewed at: http://www.rbv.gov.vu/index.php?option=com_content&view=article&id=138&Itemid=117&lang=en

4.90. An insurance company may provide either life or general insurance, but cannot operate as a composite insurer. The authorities state that there is currently no life insurance operating in Vanuatu. An insurance company may not provide both insurance and banking services. Compulsory insurance products are: comprehensive third-party insurance for vehicles, as required

by the Traffic Act; and workers' compensation insurance, as required by the Labour Act.

4.91. Insurance premiums are set by the insurance companies. In 2016, the total gross premium in the domestic insurance market went up by 5% to VT 1.5 billion (Table 4.12). Total premiums

http://www.rbv.gov.vu/index.php?option=com_content&view=article&id=138&Itemid=117&lang=en


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transacted through insurance brokers for the domestic market fell from VT 1 billion in 2016 to VT 959 million in 2017. Total brokerage paid to brokers as at end-December 2017 was VT 188 million, an increase of 30% from 2016. Reinsurance, as provided by the EverBest Re Corporation Ltd., reached a peak in both its premiums and expenses in 2014. Offshore insurance experienced a dramatic decline in 2014, when its assets fell by 39% to US$10.2 million.

Table 4.12 Premiums for insurance companies

2012 2013 2014 2015 2016 2017 Gross premiums for domestic market (VT billion)

1.3 1.41 1.4 1.43 1.5 ..

Reinsurance Gross premium (US$ million) n.a.a 1.3 10.2 7.4 6.9 .. Expenses (US$ million) n.a.a 1.2 10.1 7.1 6.4 .. Insurance brokers Gross premium (VT million) 802.8 884.2 931.7 1,000 1,000 959 Brokerage (VT million) 206.8 123.1 179.5 147.3 144.3 188.3 International and captive aggregate

Assets (US$ million) 13.5 16.8 10.2 11 11.9 10.3 Liabilities (US$ million) 6.6 6.2 1.7 1.7 6.2 7.4 Net assets (US$ million) 6.9 10.6 7.3 9.3 5.7 2.9 Gross premium (US$ million) 7.4 6.1 12.2 9.2 4.1 4.3

a The reinsurance company obtained its licence in 2012.

.. Not available.


4.92. The authorities state that two insurers were heavily affected by Cyclone Pam in 2015.

Among the 777 claims, most (98%) were closed or settled. The authorities indicate that VT 5.5 billion (52%) of the original estimated total loss of VT 10.5 billion was paid by insurers.

4.4.3 Telecommunications

4.4.3.1 Main features

4.93. Since the introduction of competition in 2008, the promulgation of sectoral legislation and the establishment of the sectoral regulator in 2009, and the construction and launch of the ICN1 submarine cable linking Vanuatu and Fiji in 2014, the telecommunication services sector has been

growing fast, with significant increases in subscribers and market revenue (Table 4.13).

Table 4.13 Telecommunication indicators, 2014-17

2014 2015 2016 2017 Mobile subscriptions 159,148 180,424 218,603 232,564 Mobile data subscriptions (estimation) 5,000 35,000 60,000 78,000 Fixed Internet subscriptions 4,228 4,248 4,486 4,802 Fixed-line telephone subscriptions 5,382 4,632 4,555 4,424 Total mobile data downloads (MB) 16,251,427 85,435,487 272,693,622 663,137,541 Market gross revenues (VT billion) 3.89 3.95 4.48 5.12 Households with a computer .. .. 22.6% ..

Households with Internet access at home .. .. 29.4% .. Individuals using Internet .. .. 24% ..

.. Not available.

Source: Telecommunications and Radio-communication Regulator (TRR) (2017), Telecommunications Sector Report 2017. ITU ICT-Eye (http://www.itu.int/icteye). And information provided by the authorities.

4.94. The growth was mostly driven by the large increase in the use of mobile technologies, and mobile penetration went up from 12% in 2007 to 85% in 2017 (Chart 4.7).55 The increase in the number of mobile subscribers may be attributed to, inter alia: increased competition between mobile providers; the release of 4G licences; and increasing mobile network coverage under the

Government's Universal Access Policy (UAP), which gave more areas and people access to mobile

55 TRR (2017), Telecommunications Sector Report 2017.

http://www.itu.int/icteye


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services (Section 4.3.3.2).56 However, the number of fixed telephony subscribers reached its peak in 2008, with a penetration rate of 4.6%. Since then, the number of fixed telephone line subscribers has continued to decline, as consumers found it easier and more affordable to use mobile services. In 2017, the fixed line penetration rate fell to 1.6%.

Chart 4.7 Telecommunication indicators per 100 inhabitants, 2016 and 2017

Source: ITU online information and data provided by the authorities.

4.95. Vanuatu's telecommunication services sector is open. Under its GATS commitment, Vanuatu bound market access and national treatment with respect to the telecommunication services delivered via cross-border supply, consumption abroad, and commercial presence (from 2012).57 The telecommunications market, including that for mobile and fixed-line telephone services, is open to domestic and foreign service providers, subject to the relevant legislation and to Vanuatu's

GATS commitments.

4.96. The sector is regulated by the Telecommunications and Radiocommunications Regulation Act No. 30 of 2009. In accordance with the Act, a Telecommunications and Radio-communication Regulator (TRR) was established in 2009 to be the sectoral regulator issuing licences to telecommunication and radio-communication service providers. In 2015, the Telecommunications and Radiocommunications (Consumer Protection) Regulation Order No. 157 of 2015 was gazetted.

4.97. Any person, local or foreign, may apply for a telecommunications licence. It is valid for

15 years and is renewable, subject to approval by the TRR. The TRR charges a licence fee: 2.25% of the licensee's quarterly gross revenue. The fee is payable by all registered licensees (domestic and foreign) on a quarterly basis. All licences are unified – licensees choose the types of services they wish to provide. Currently, both Telecom Vanuatu Ltd. and DigiCel provide mobile, Internet, and fixed telephony services, while another six companies chose to provide Internet services only (Table 4.14).

Table 4.14 Current telecom licensees

Company Date issued Services provided Current status

If amended

Date amended

Telecom Vanuatu Ltd. 11/03/2008 Mobile/Internet/Fixed Operating DigiCel (Vanuatu) Ltd. 14/03/2008 Mobile/Internet/Fixed Operating Yes 22/09/2009 Telsat Broadband Ltd. 22/09/2009 Internet Operating

Wantok Network Ltd. 22/09/2009 Internet Operating Yes 31/04/2014, & 16/12/2016

Interchange Ltd. 22/09/2009 Internet Operating Yes 02/02/2010 Incite 30/09/2010 Internet Operating Spim Ltd. 01/04/2011 Internet Operating Global Telecom Pacific Ltd.

06/03/2015 Internet Operating

Source: TRR online information. Viewed at: https://www.trr.vu/en/telecom-industry/licenses/telecommunications-licence.

56 TRR (2017), Telecommunications Sector Report 2017. 57 WTO document WT/ACC/VUT/17/Add.2, 11 May 2011.

2016 2017

0

10

20

30

40

50

60

70

80

90

Fixed-telephone subscriptions

Mobile-cellular subscriptions

Fixed (wired)-broadband subscriptions

Mobile-broadband subscriptions

Chart 4.[] Telecommunication indicators per 100 inhabitants, 2016 and 2017

Source: ITU online information and data provided by the authorities.

https://www.trr.vu/en/telecom-industry/licenses/telecommunications-licence

https://www.trr.vu/en/telecom-industry/licenses/telecommunications-licence


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4.98. Telecom Vanuatu Limited (TVL) had, for many years, been the sole supplier of telecommunication services. In 2008, competition was introduced, and DigiCel entered the market. TVL is predominantly a fixed-line telephone service provider, while DigiCel supplies a small proportion of the fixed telephony service. They both provide mobile communication services. Both are foreign invested companies.

4.99. In 2014, the construction and launch of the ICN1 submarine cable stimulated a substantial

increase in access to, and usage of, the Internet, with increased availability of higher-speed Internet services on both fixed and mobile networks, and larger data download plans. In 2016, international bandwidth had grown by 650% since January 2014. The increased availability of mobile data, due to significant reductions in data and handset costs, and the increased network coverage, have encouraged consumers to use over-the-top (OTT) services58, and there has consequently been a decline in SMS messaging and in international call volumes. In addition, the

first Internet Exchange Point was launched in 2012, which also greatly strengthened the national

infrastructure in telecommunication services.59

4.100. Interchange Limited, a public-private company, completed its ICN1 submarine cable, linking Port Vila to Suva, in Fiji, in January 2014. Between 2014 and October 2017, telecom companies could lease the cable through a wholesaler – Fidelity Communication Corporation. Following an anti-competitive investigation on the price of bandwidth capacity at the wholesale level, TRR required that all proposed price and non-price terms and conditions of supply be

reviewed and approved by the TRR, with a view to ensuring that prices are cost based and not discriminatory. As part of the outcome of the investigation, Interchange Limited began offering capacity leases in October 2017, the price of which was approved by the TRR at US$285 per Mbps per month. Both TVL and DigiCel chose this capacity lease.

4.101. Interconnection, i.e. the physical linking of a telecommunication carrier's networks to another carrier's networks, allows the exchange of services, in particular voice, data and SMS traffic, to flow from one network to another. Interconnection charges are not set by the TRR; they

are formulated through commercial negotiations between the interconnecting parties. The TRR may mediate if the parties are not able to agree on interconnection terms or pricing. The TRR requests information from all licensees on a six-monthly basis, to enable monitoring of any cross-subsidization.

4.102. The TRR is also responsible for the management of the national spectrum in accordance with the Telecommunications and Radiocommunications Regulation Act, the Radio Apparatus

Licence and Spectrum Licence (Fees) Regulation, and other relevant legislation. The Act contains provisions related to competition and consumer protection (Section 3.3).

4.4.3.2 Information and communication technologies (ICT) and the UAP

4.103. Policies related to telecommunication services and ICTs are developed by the National ICT Development Committee, the Office of the Government Chief Information Officer (OGCIO), and the TRR. In 2013 and 2014, the Government launched a national ICT policy, a cyber-security policy,

and a UAP.

4.104. The National ICT Policy provides a roadmap for the development of the ICT sector around eight core priorities, i.e.:

a. access to ICT in education;

b. access to ICT infrastructure and devices;

c. e-government;

d. integration of ICT into sectoral policies (e.g. agriculture, trade, finance, forestry, health);

58 Examples of OTT services are Facebook, Messenger, and WhatsApp. 59 National Information and Communication Technology Policy, December 2013. Viewed at:

https://ogcio.gov.vu/images/Vanuatu-National-ICT-Policy-EN.pdf.

https://ogcio.gov.vu/images/Vanuatu-National-ICT-Policy-EN.pdf


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e. building trust, and mitigating risks related to ICT development;

f. developing locally relevant content;

g. building capacity, including literacy; and

h. establishing a platform for multi-sector coordination and collaboration.

4.105. Currently, the ICT-related legal framework contains:

a. the Telecommunication and Radiocommunications Regulation Act No. 30 of 2009;

b. the Telecommunications Act [CAP 206];

c. the Wireless Telegraph (Ships) Act [CAP 5];

d. the Electronic Transactions Act No. 24 of 2000 (as amended by the Statute Law (Miscellaneous) Provisions Act No. 2 of 2010), which regulates electronic transactions and related matters, including e-records, e-contracts, and e-signatures;

e. the E-Business Act No. 25 of 2000 (as amended by the E-Business (Amendment) Act

No. 17 of 2007); and

f. the Broadcasting and Television Act [CAP 214].

4.106. As part of the ICT policy, both the private and the public sectors have been implementing projects to further enhance the ICT sector. These include the Government Broadband Network (which connects all provinces), the Integrated Government (iGov) initiative, the provision of

4G services, and the E-Government Strategic Roadmap. The Government Broadband Network, badly damaged by Cyclone Pam, was rebuilt in November 2017. The private sector is expanding

the use of ICT in tourism and travel services, providing Internet banking, and launching online shopping tools.60

4.107. ICT development in Vanuatu faces a number of challenges, particularly geographical and topographical challenges, as the population is spread across numerous islands. The Government launched its UAP, with a target of making ICT available to 98% of the population by 2018.61 According to the TRR, the target has already been reached, as ICT is available to 98.8% of the population.

4.108. The UAP aims to expand telecommunications services to underserved and unserved areas, and the TRR was designated by the Government to implement this policy. In accordance with the UAP, telecommunication services covered by this Policy are provided to end users at geographically uniform prices.

4.109. The TRR followed a "play" or "pay" approach. Under the "play" approach, the TRR signed contracts with three UAP providers: TVL, DigiCel, and Telsat Broadband Ltd.62 These service

providers committed to building and expanding telecommunication infrastructures and/or upgrading services to underserved and unserved areas, at their own cost. The "pay" approach is where other service providers pay a levy imposed by the TRR: 4% of their annual net revenue. This levy is channelled to the UAP Fund, to facilitate the implementation of the UAP.

60 National Information and Communication Technology Policy, December 2013. Viewed at:

https://ogcio.gov.vu/images/Vanuatu-National-ICT-Policy-EN.pdf. 61 TRR online information. Viewed at:

https://www.trr.vu/attachments/category/215/universal_access_policy.pdf. 62 TRR online information. Viewed at: https://www.trr.vu/index.php/en/telecom-industry/universal-

access/universal-access-policy.

https://ogcio.gov.vu/images/Vanuatu-National-ICT-Policy-EN.pdf

https://www.trr.vu/attachments/category/215/universal_access_policy.pdf

https://www.trr.vu/index.php/en/telecom-industry/universal-access/universal-access-policy

https://www.trr.vu/index.php/en/telecom-industry/universal-access/universal-access-policy


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4.4.4 Transport

4.110. Transport and storage accounted for 4.2% of GDP in 2016, down from 5.6% in 2012 (Table 4.7). The growth rate in this sector varies considerably; from a positive and significant growth at a rate of 28.9% in 2012, to a contraction at a rate of 22.6% in 2013. This was followed by further declines in 2014 (-5.9%) and 2015 (-4%), until it recovered in 2016 (1.3%). Transport services are a major constraint to economic development.

4.4.4.1 Civil aviation

4.111. Under Vanuatu's GATS commitment, it fully bound market access and national treatment with respect to the maintenance and repair of aircraft, and selling and marketing of air transport services delivered via cross-border supply, consumption abroad, and commercial presence.63

4.112. The Civil Aviation Authority Vanuatu (CAAV), under the Ministry of Infrastructure and Public Utilities, is the regulator on all civil aviation matters. In accordance with the Civil Aviation

Rules, the CAAV ensures that civil aviation meets the requirements of the Government and of the International Civil Aviation Organization (ICAO).64

4.113. There are 29 airports in Vanuatu. Airports Vanuatu Limited (AVL), a corporate set up and fully owned by the Government, with CAAV oversight, operates the three international airports at Port Vila (Bauerfield), Luganville (Pekoa), and Tanna (Whitegrass). Vanuatu Terminal Services Limited (VTSL), a subsidiary company under and fully owned by the AVL, provides, inter alia, international terminal cargo and freight forwarding services, and aircraft ground handling

services.65

4.114. The other 26 domestic airfields are regulated by the CAAV, and operated and maintained by the Public Works Department (PWD) under the Ministry of Infrastructure and Public Utilities. Maintenance is carried out by village-based contractors, and the CAAV assists by providing training

for the contractors. Ground handling services at these locations are the responsibility of the aircraft operators.

4.115. In 2015, a total of 491,427 domestic and international passengers were transported by air

carriers operating into and within Vanuatu (Chart 4.8). About 72% of passengers used the Bauerfield Airport, Vanuatu's principal gateway. This was followed by Pekoa Airport (20%), and Whitegrass Airport (8%). Airports levy a fee of VT 3,400 per departing international passenger, to cover its service and security charges.

Chart 4.8 Number of passengers using the three international airports, 2011-15


63 WTO document WT/ACC/VUT/17/Add.2, 11 May 2011. 64 Section 36 of the Civil Aviation Act refers to the New Zealand Civil Aviation Rules as the standard

operating rules in Vanuatu. 65 VTSL online information. Viewed at: http://www.vts.vu/.

2011 2012 2013 2014 2015

0

100,000

200,000

300,000

400,000

500,000

600,000

Bauerfield

Pekoa

Whitegrass

Chart 4.[] Number of passengers by three international airports in Vanuatu, 2011-15

Source: Information provided by the authorities

http://www.vts.vu/


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4.116. Information provided by the VTSL indicates that cargo transported by air reached its peak in 2016. In 2017, New Zealand was the largest export market for cargo transported by air from Vanuatu, and Australia was the second largest. Other main export markets included New Caledonia, the United States, the Solomon Islands, and Fiji (Table 4.15). In terms of imports, Australia was by far the biggest origin of imports, followed by New Zealand, New Caledonia, Fiji, and Papua New Guinea.

Table 4.15 Major origins of imports, and export destinations for cargo transported by air

(Kg)

2015 2016 2017 Exports 86,420 Exports 213,792 Exports 177,879 New Zealand 34,681 New Zealand 79,946 New Zealand 58,070 Australia 33,327 Australia 72,739 Australia 55,917 Solomon Islands 5,720 New Caledonia 29,578 New Caledonia 32,521 New Caledonia 4,767 United States 14,813 United States 13,319 United States 3,528 Fiji 6,344 Solomon Islands 8,480 Fiji 1,614 Germany 1,174 Fiji 8,363 Imports 279,065 Imports 849,144 Imports 764,131 Australia 170,376 Australia 524,666 Australia 489,130 New Zealand 63,586 New Zealand 215,966 New Zealand 179,553 Fiji 22,782 New Caledonia 44,890 New Caledonia 40,927 New Caledonia 15,941 Fiji 44,146 Fiji 29,582

Hong Kong, China 2,677 Papua New Guinea

7,846 Papua New Guinea 19,690

Papua New Guinea 1,237 Solomon Islands 3,858 Hong Kong, China 1,650 Solomon Islands 1,220 Japan 2,963 Solomon Islands 1,541 Hong Kong, China 1,834

Source: Information provided by the authorities (VTSL).

4.117. In addition to Air Vanuatu, other international airlines operating in Vanuatu include: Air

Caledonie, Fiji Airways and its subsidiary Fijilink, Air Niugini, Solomon Airlines, Virgin Australia, and Air New Zealand. The requirements for foreign airlines to operate international services to Vanuatu are outlined in the Civil Aviation Act and the Civil Aviation Rule. Four airlines provide charter services (Unity Airlines, Vanuatu Helicopter, Air Taxi, and Air Melanisie).

4.118. Air Vanuatu is fully owned by the Government. It provides universal transport services in Vanuatu, i.e. it provides air services among a number of Vanuatu's islands. Reflecting the cost

incurred when Air Vanuatu is fulfilling this community service obligation, the Government provides loans and guarantees to the company to help cover its loss (Section 3.3).

4.119. According to the authorities, foreign participation in cabotage is allowed, i.e. foreign airlines are allowed to provide services linking different islands within Vanuatu, if provided for under the Air Services Agreement (ASA) between Vanuatu and the country from which this foreign carrier originates.

4.120. Vanuatu signed bilateral ASAs with Australia, Fiji, Kiribati, New Caledonia, New Zealand, Papua New Guinea, Singapore, Solomon Islands, and Chinese Taipei. Of these, there have been no direct flights between Vanuatu and Chinese Taipei, or between Vanuatu and Kiribati. Vanuatu has adopted the Open Skies Policy, which has been captured in the Civil Aviation Act.

4.121. Vanuatu signed the plurilateral Pacific Islands Air Services Agreement (PIASA) on 16 August 2003. However, the PIASA never really took off, as Fiji, the hub in the Pacific region, has not yet signed it.

4.4.4.2 Maritime transport

4.122. Maritime transport is of vital importance to Vanuatu, as the country is composed of about 83 scattered islands. It is regulated in accordance with the Maritime Act, the Shipping Act, and the Ports Act. In 2016, the Maritime Sector Regulatory Act No. 26 of 2016 was passed by Parliament.

It went into effect in 2017. Under it, the Office of the Maritime Regulator (OMR) was set up in July 2017. The OMR administers domestic ship registration, shipping safety inspection and certification, while the Department of Ports and Marine under the Ministry of Infrastructure and


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Public Utilities administers port operations. The authorities state that they are currently reviewing maritime related legislation to streamline the legislative and institutional arrangements for maritime transport.

4.123. Vanuatu Maritime Services Limited (VMSL) is a domestic private company contracted by the Government as Vanuatu's international shipping registry administrator. It handles vessels' and seafarers' documentation, in accordance to International Maritime Organization (IMO) Conventions

and Treaties. Vanuatu's Recognized Classification Societies (International) assist with the registered ships' safety inspections and surveys for required standard certifications. The Vanuatu international shipping registry is open to ship owners of any nationality if the owner wishes to register their ship under the Vanuatu flag. The authorities indicate that the international shipping registry has a total of 599 vessels registered.66

4.124. The ports of Port Vila and Luganville are two international hubs for the entry and exit of

imports and exports and of passengers visiting by ships. The two ports have undergone significant improvements and expansion to cater for 20-foot containers. Currently, seven overseas shipping lines provide both container and general cargo international services to and from Vanuatu, via these two ports.67

4.125. Wharf infrastructure in the port of Port Vila, the major port in Vanuatu, was improved significantly, particularly regarding its cargo handling capacity, with the completion of the Lapetasi International Wharf in 2017: vessel turnaround time is between 12 and 24 hours. The Port Vila

Main Wharf is used for cruise ships and tankers, while Lapetasi International Wharf is used for international cargo vessels. Both wharfs are owned by the Government, and all port dues are collected by the Department of Ports and Marine.

4.126. The Luganville port is owned by the Government. After its renovation, which was completed in August 2017, two container ships, or one large cruise ship, are able to berth there. A large cruise ship terminal and two large warehouses for copra were also built.

4.127. In both ports, pilotage is compulsory for all international vessels, and is provided by the

Harbour Master of the Department of Ports and Marine.

4.128. Vanuatu's Maritime Act and the Maritime Regulations stipulate the annual tonnage tax for international registry, as well as fees for vessels.68 According to VMSL online information, a registration fee of US$0.35 per net ton, and an annual tonnage tax of US$0.25 per net ton, are collected.69

4.129. The authorities indicate that about 70 domestic shipping vessels provide transportation

services for passengers and cargo. The OMR collects fees for the registration, documentation, vessel surveys and crew licensing for domestic shipping vessels.

4.130. According to information provided by the VIPA, foreign investment is allowed in coastal

shipping (excluding vessels that exclusively provide transport to foreign tourists) only when the vessel's carrying capacity is above 80 tonnes (Table 2.6). Vanuatu has no legislation concerning cabotage rules. In practice, foreign vessels are not allowed to provide cabotage services in Vanuatu, although exemptions may be given for particular periods such as natural disasters.

66 According to UNCTAD, in 2017, Vanuatu was one of the top 25 "leading flags of registration countries

by value" (UNCTAD (2017), Review of Maritime Transport 2017. Viewed at: http://unctad.org/en/PublicationsLibrary/rmt2017_en.pdf.

67 VIPA online information. Viewed at: http://www.investvanuatu.org/wp/investing/infrastructure/. 68 Maritime Act (CAP 131). Viewed at: http://www.vanuatumaritimeships.com/Documents/Mari-Act.pdf.

Maritime Regulations. Viewed at: http://www.vanuatumaritimeships.com/Documents/mari-reg.pdf. 69 VMSL online information. Viewed at: http://www.vanuatumaritimeships.com/.

http://unctad.org/en/PublicationsLibrary/rmt2017_en.pdf

http://www.investvanuatu.org/wp/investing/infrastructure/

http://www.vanuatumaritimeships.com/Documents/Mari-Act.pdf

http://www.vanuatumaritimeships.com/Documents/mari-reg.pdf

http://www.vanuatumaritimeships.com/


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4.4.5 Tourism

4.4.5.1 Main features

4.131. The tourism sector is the mainstay of the Vanuatu economy. According to the World Travel and Tourism Council, the travel and tourism industry directly contributed 18% to GDP in 2017.70 Travel and tourism directly supported 11,000 jobs, 14.4% of total employment, while its total contribution to employment, including jobs indirectly supported by the industry, was 39% of total

employment (30,000 jobs). Moreover, the industry is a major foreign exchange earner, captures a significant share of capital investment, and accounts for more than 60% of total merchandise and services exports in 2017 (Table 4.16).

Table 4.16 Vanuatu: Absolute and relative contribution of the tourism sector, 2017

Absolute contribution

Relative contribution (% of total)

Direct contribution to GDP (US$ million) 144.6 18.2

Total contribution to GDP (US$ million) 365.7 46.1

Direct contribution to employment ('000 jobs) 11 14.4

Total contribution to employment ('000 jobs) 30 39.3

Capital investment (US$ million) 28.9 15.5

Visitor exportsa (US$ million) 254.2 61.6

a Visitor exports: Spending within the country by international tourists for both business and leisure trips, including spending on transport, but excluding international spending on education.

Source: World Travel and Tourism Council, Travel & Tourism Economic Impact 2018 Vanuatu. Viewed at: https://www.wttc.org/-/media/files/reports/economic-impact-research/countries-2018/vanuatu2018.pdf.

4.132. Tourism in Vanuatu suffered severely from Cyclone Pam in 2015 (Section 1), but has recovered in 2016 and 2017 (Chart 4.9). In 2017, visitors coming for vacations accounted for 76% of all visitor arrivals by air, followed by those coming to visit friends and relatives (8%), and arriving for business (7.6%). Tourists coming for education and sports accounted for about 6.9% of the total.

4.133. In 2017, Australia was the largest inbound market, accounting for more than half (53%) of all tourist arrivals, followed by New Caledonia (15%), New Zealand (11%), other Pacific countries (7%), and Europe (6%) (Chart 4.10).

4.134. The number of tourist arrivals by cruise ships is far greater than those arriving by air; in 2017, there were 109,108 international air arrivals, about one third of the number of cruise ship passengers (333,767) (Table 4.17). However, as cruise ship passengers spent on average one day

in Vanuatu, their total direct expenditure is less than the expenditure from overnight tourists arriving by air. International visitors by air spent an average of 11 days in Vanuatu.

4.135. There are both land-based tour operators, providing activities such as cultural products, village tours, and some traditional handicrafts; and marine-based tour operators organizing activities such as kayaking, paddle-boarding, kite-surfing, ocean swimming, sports fishing, and yachting. Accommodations range from larger scale (more than 100 rooms) family focused resorts to boutique resorts, as well as holiday homes, residential homes, and apartments for rent. The

occupancy rate for large scale resorts is approximately 60%, while the average hotel occupancy rate is around 35%.

70 WTTC (2018), Travel & Tourism Economic Impact 2018 Vanuatu. Viewed at: https://www.wttc.org/-

/media/files/reports/economic-impact-research/countries-2018/vanuatu2018.pdf.

https://www.wttc.org/-/media/files/reports/economic-impact-research/countries-2018/vanuatu2018.pdf





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Chart 4.9 Visitor arrivals by air, 2013-17


Chart 4.10 Visitor arrivals by air, 2017


Table 4.17 Key tourism indicators 2013-17

2013 2014 2015 2016 2017

Visitor arrivals by air 110,109 108,808 89,952 95,117 109,108

Average length of stay (days) 11.2 10.5 11.1 10.9 11.4

Cruise visitor arrivals 247,296 267,488 245,773 344,907 333,767

Number of port calls 254 244 226 296 268

Hotel occupancy rate (%) 35 35 35 35 35

Source: Vanuatu National Statistics Office online information, Statistics Update: International Arrival Statistics, February 2018. Viewed at: https://vnso.gov.vu/index.php/component/advlisting/?view=download&fileId=4652. And information provided by the authorities.

4.4.5.2 Institutional and regulatory framework

4.136. The responsibility for the tourism sector lies primarily with the Ministry of Tourism, Trade, Commerce, Industry and Ni-Vanuatu Business (MTTCINVB). The Department of Tourism (DOT), under the MTTCINVB, is responsible for policy setting regarding tourism development. The Vanuatu Tourism Office (VTO) is a statutory body within the MTTCINVB in charge of tourism marketing.

4.137. There are a number of private sector associations in the tourism sector, such as the Vanuatu Hotels and Resorts Association (VHRA), the Vanuatu Tour Operators Association (VTOA),

and the Vanuatu Island Bungalows and Tourism Association (VIBTA). The authorities state that representatives from each association are current members of the steering committees that look into setting the policy direction for the tourism industry.

2013 2014 2015 2016 2017

0

20,000

40,000

60,000

80,000

100,000

120,000

Vacation

Visiting friends and relatives

Business

Stop over

Other, incl. education, sport

Chart 4.[] Visitor arrivals by air, 2013-17

Source: Vanuatu National Statistics online information.

Chart 4.[] Visitor arrivals by air, 2017

North America 2.8%

Source: Vanuatu National Statistics online information.

China 3.3%

Australia52.6%

Japan 1.0%

New Zealand10.6%

New Caledonia14.5%

Other2.5%

Europe6.2%

Other Pacific countries6.6%

Total arrivals by air:

109,108

https://vnso.gov.vu/index.php/component/advlisting/?view=download&fileId=4652


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4.138. Legislation governing tourism includes the Environment and Conservation Management Act, the Foreshore Development Act, the Labour Act, the Companies Act, and the VIPA Act.71 Under the Tourism Council Act No. 23 of 2012, a national tourism council and six provincial tourism councils were established, with a view to enhancing the competitiveness of Vanuatu as a destination for tourists and investors. This Act also contains provisions on compulsory tourism accreditation.72

4.139. According to the Government's Business Cost Competitiveness Report, Vanuatu is seen as a relatively high cost destination.73 In addition, it is difficult for visitors to access the outlying islands' attractions: currently, most visitors (97%) stay in Port Vila.74 In 2013, the Government developed the Vanuatu Strategic Tourism Action Plan 2014-2018 (VSTAP) as a guideline for the development of tourism services.75 Projects in the VSTAP were mainly (60%) funded by a New Zealand aid programme. The VSTAP identified five key priorities:

a. delivering tourism benefits to the outer islands;

b. focusing on core markets such as Australia, New Caledonia, and New Zealand;

c. investing in the planning and building of infrastructure;

d. developing the Vanuatu Tourism Accreditation Committee; and

e. setting up a team to implement the VSTAP.

4.140. According to information provided by the authorities, by the end of February 2018, among the 23 projects listed in the VSTAP, 14 had been started (of which, 3 were completed) and 9 were

pending.

4.141. Investment in Vanuatu's tourism sector has been mainly conducted by foreign investment, while Vanuatu citizens investors are virtually all in smaller, less capital intensive businesses, such as taxis, buses, bungalows, tours and cultural shows. Foreigners are not allowed to own land, although they may lease it to build hotels or other facilities. Accessing capital is a significant constraint to establishing or expanding Vanuatu citizens' business;76 other constraints include lacking development plans, and the land tenure system. The authorities state that 80% of land is

customary land, making it hard for local people to use it as collateral if they wish to borrow start-up capital from banks.

4.142. Under its GATS commitment, Vanuatu applies no market access limitations on hotel and restaurant services (CPC 641) delivered via cross-border supply and consumption abroad, while commercial presence faces some constraints, and kava bar ownership is reserved for Vanuatu's citizens. Vanuatu applies no national treatment limitations on cross-border supply, consumption

abroad, or commercial presence regarding hotel and restaurant services. With respect to travel agencies (excluding tour operating services), Vanuatu fully bound both market access and national

treatment regarding these services delivered via modes 1, 2 and 3.77

71 DOT online information. Viewed at: https://tourism.gov.vu/investment.php. Other relevant legislation

includes the Public Health Act, the Physical Planning Act, the Land Leases Act, the Import Duties Exemption Act, the Minimum Wage Act, and the Vanuatu National Provident Fund Act.

72 MTTCINVB (2014), Vanuatu Strategic Tourism Action Plan 2014-2018. Viewed at: https://tourism.gov.vu/assets/docs/VSTAP_FINAL_Feb_2014.pdf.

73 Government of Vanuatu, Vanuatu Business Cost Competitiveness. 74 Vanuatu Daily Post, 17 March 2017. Viewed at: http://dailypost.vu/news/ifc-led-survey-

demonstrates-value-of-vanuatu-s-tourism-sector/article_b43b9a68-9d66-5a27-b26b-bd0c4ef5321b.html. 75 Ministry of Tourism, Industry, Commerce & Ni-Vanuatu Business (2014), Vanuatu Strategic Tourism

Action Plan 2014-2018. Viewed at: https://tourism.gov.vu/assets/docs/VSTAP_FINAL_Feb_2014.pdf. 76 MTTCINVB (2014), Vanuatu Strategic Tourism Action Plan 2014-2018. Viewed at:

https://tourism.gov.vu/assets/docs/VSTAP_FINAL_Feb_2014.pdf. 77 WTO document WT/ACC/VUT/17/Add.2, 11 May 2011.

https://tourism.gov.vu/investment.php

https://tourism.gov.vu/assets/docs/VSTAP_FINAL_Feb_2014.pdf

http://dailypost.vu/news/ifc-led-survey-demonstrates-value-of-vanuatu-s-tourism-sector/article_b43b9a68-9d66-5a27-b26b-bd0c4ef5321b.html

http://dailypost.vu/news/ifc-led-survey-demonstrates-value-of-vanuatu-s-tourism-sector/article_b43b9a68-9d66-5a27-b26b-bd0c4ef5321b.html




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4.143. The Foreign Investment Promotion Act reserves certain types of tourism services for Vanuatu's citizens:

a. Local tour agents, if the annual turnover is less than VT 20 million;

b. Local tour operators, if the investment is less than VT 50 million;

c. Commercial cultural feasts (Melanesian, Polynesian, etc.);

d. Guest houses with less than 50 beds or less than 10 rooms, or if the annual turnover is

less than VT 20 million;

e. Bungalows if the annual turnover is less than VT 30 million; and

f. Hotels and motels if the total value of the investment is less than VT 10 million or if the annual turnover is less than VT 20 million (Table 2.6).

4.144. Depending on the activities engaged in, and following a Tourism Product Classification System, tourism operators may need to apply for a Tourist Permit from the DOT.78 For activities

where such a Permit is required, the DOT checks the Vanuatu Tourist Operators Minimum Standards before making a decision on the issuance of the Permit.79 Under this System, tourist business activities are classified as:

a. Category D3, requiring a Tourist Permit: all tourist accommodation;

b. Category D3, not requiring a Tourist Permit: restaurants, catering services, cafes, bars, and takeaway outlets;

c. Category E3, requiring a Tourist Permit: travel agents; tour agents; tour operators;

other tourism support services (e.g, air tourism activities, water tourism activities, tourism yacht or boat charters, land transport services to tourists – bus or taxi, rental or hire services to tourists, and tours and transfer services);

d. Category E4, requiring a Tourist Permit: vehicle rental services; equipment rental services; boat rental services; other rental services;

e. Category G2, not requiring a Tourist Permit: personal, social and recreational and repair services; recreational and pleasure grounds and facilities; spas, beauty salons and

centres; barber and hairdressing services.

4.145. Foreign investors, having obtained a Tourist Permit from the DOT, must present it to the VIPA to apply for an updated VIPA certificate before applying for their business licence.80 Tourist Permits are renewed every two years with no equity or capital requirements.

4.146. The Investment Facilitation Section in the DOT is responsible for facilitating investment in the tourism and hospitality sector, by identifying potential investment opportunities and locations,

and searching for appropriate legal, financial and other professional services required to assist tourism projects.81 According to DOT online information, under the Customs Duty Exemption Act, the Director of DOT may approve duty exemption for goods imported exclusively for: the

78 DOT online information, Business License Application Process – Guidelines for Tourism Operators.

Viewed at: https://tourism.gov.vu/assets/docs/accreditation/2.%20Business%20Licence%20Application%20Process_V2_22Jan.pdf.

79 DOT online information, Vanuatu Tourism Accreditation – Information Pack. Viewed at: https://tourism.gov.vu/assets/docs/accreditation/1.%20Vanuatu%20Tourism%20Accreditation%20Info%20Pack_email.pdf.

80 DOT online information, Business License Application Process – Guidelines for Tourism Operators. Viewed at: https://tourism.gov.vu/assets/docs/accreditation/2.%20Business%20Licence%20Application%20Process_V2_22Jan.pdf.

81 DOT online information. Viewed at: https://tourism.gov.vu/investment.php.

https://tourism.gov.vu/assets/docs/accreditation/2.%20Business%20Licence%20Application%20Process_V2_22Jan.pdf


https://tourism.gov.vu/assets/docs/accreditation/1.%20Vanuatu%20Tourism%20Accreditation%20Info%20Pack_email.pdf

https://tourism.gov.vu/assets/docs/accreditation/1.%20Vanuatu%20Tourism%20Accreditation%20Info%20Pack_email.pdf





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construction of new hotels or resorts; the renovation and expansion of existing resorts; the addition of a minimum of 10 rooms; or new facilities to include a casino, gym or conference facilities.82 The authorities state that duty exemptions only apply to projects with an investment of over VT 4 million.

4.147. In 2013, when the VSTAP was launched, the Government also launched a National Cruise Tourism Action Plan. Under the Plan, a National Cruise Tourism Committee was established to

promote the uniqueness of Vanuatu among cruise companies as a preferred destination for cruise tourism.83 Key strategies identified in the Plan include: strengthening partnership relations between the Government and cruise companies; improving infrastructure such as wharfs; looking for niche market for Vanuatu exports, such as Tanna coffee and Vanuatu water; setting up a dedicated webpage to advertise Vanuatu as a cruise destination; and providing training to Vanuatu citizens crews.

4.148. In the same year, a Vanuatu Tourism Infrastructure Project (VTIP) was approved by the Vanuatu Council of Ministers, with the aim of increasing tourism's contribution to GDP through the promotion of sustainable international tourism, and contributing to a buoyant and resilient tourism sector that provides greater economic returns to Vanuatu's citizens. Various projects, such as the relocation of port gates, the construction of a new tourism building and parks, and the refurbishment of seawalls, are being undertaken under the VTIP.84

4.149. The Vanuatu Trade Policy Framework (TPF) (2012), the Government's policy document,

outlines the importance of tourism for Vanuatu, and the importance of creating a stronger link with the local economy, especially with agriculture. A study conducted by the IFC in 2015 found that imported food items were a significant cost driver for the tourism sector.85 More than half of fresh food items (including vegetables, fruits, meat and dairy, and herbs) used by hotels and restaurants were imported, while the other was produced locally. The Government has been making efforts to increase the provision of local products, including food items for tourists. In December 2016, the Vanuatu Agritourism Plan of Action was issued, and an Agritourism Steering

Committee was set up. In November 2016, an Agritourism Festival was held, where local producers exhibited their products to the tourism sector.86 Other activities included tours to local farms and to fish farms, measures to improve agriculture related infrastructure, including the irrigation system, and measures to improve inter-island transportation.

82 DOT online information. Viewed at: https://tourism.gov.vu/investment.php. 83 MTTCINVB (2012), Vanuatu's National Cruise Tourism Action Plan. Viewed at:

https://tourism.gov.vu/assets/docs/NationalCruiseActionPlan20012012.pdf. 84 Vanuatu Project Management Unit online information. Viewed at:

https://vpmu.gov.vu/index.php/projects/vtip. 85 IFC (2015), Vanuatu Agri-Tourism Linkages: A Baseline Study of Agri Demand from Port Vila's

Hospitality Sector. Viewed at: https://tourism.gov.vu/assets/docs/reports/VanuatuBaselineStudyOfAgriDemandinTourismFinal.pdf.

86 VIPA, Annual FDI report 2016. Viewed at: http://www.investvanuatu.org/wp/wp-content/uploads/2017/07/FDI-Annual-Report-2016-fin.pdf.


https://tourism.gov.vu/assets/docs/NationalCruiseActionPlan20012012.pdf

https://vpmu.gov.vu/index.php/projects/vtip

https://tourism.gov.vu/assets/docs/reports/VanuatuBaselineStudyOfAgriDemandinTourismFinal.pdf

http://www.investvanuatu.org/wp/wp-content/uploads/2017/07/FDI-Annual-Report-2016-fin.pdf

http://www.investvanuatu.org/wp/wp-content/uploads/2017/07/FDI-Annual-Report-2016-fin.pdf


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5 APPENDIX TABLES

Table A1.1 Merchandise exports by products, 2012-16

2012 2013 2014 2015 2016

Total (US$ million) 54.8 38.6 62.8 39.0 50.2

(% of total)

Copra 21.4 10.0 24.3 17.6 31.9

Kava 13.0 22.8 13.2 4.2 22.1

Coconut oil 22.9 12.6 17.7 19.4 10.6

Cocoa 5.1 8.0 7.4 7.8 7.5

Beef veal 10.2 8.9 7.2 8.1 5.8

Sawn timber 0.8 4.5 7.0 8.9 2.3

Coconut meal 1.8 6.2 1.9 7.8 1.7

Live fish 2.7 2.4 2.3 2.7 1.0

Root crops 0.0 0.0 0.0 0.0 0.5

shellfish 0.5 0.8 0.7 0.6 0.4

Fish, other than live 3.6 3.8 0.2 0.0 0.3

Coffee 0.1 0.2 0.5 0.3 0.2

Cowhides 0.5 0.8 0.4 0.4 0.1

Alcoholic beverages 3.2 3.2 0.0 0.0 0.0

Vanilla 0.2 0.2 0.1 0.0 0.0

Other products 13.8 15.5 16.9 22.1 15.6

Source: National Statistics Office of Vanuatu online information.


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Table A1.2 Merchandise exports by country, 2012-16

2012 2013 2014 2015 2016

(% of total)

Australia 21.7 23.5 28.6 26.9 17.4

New Caledonia 5.2 8.5 7.4 2.5 9.0

MSG membersa 14.0 17.8 8.8 9.3 8.8

EU-28 1.4 1.5 1.6 1.0 4.0

New Zealand 3.4 4.1 3.2 6.6 3.0

Japan 6.0 6.2 3.8 4.9 1.9

Korea, Republic of 0.4 0.2 0.4 0.1 0.0

Other 47.8 38.2 46.2 48.6 55.8

a Fiji, Papua New Guinea and Solomon Islands.



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Table A1.3 Merchandise imports by products, 2012-16

2012 2013 2014 2015 2016

Total (US$ million) 290.5 311.5 311.1 365.2 368.5

(% of total)

Food and live animals 19.7 20.6 19.6 21.0 21.1

Beverages and tobacco 4.3 3.9 3.9 2.8 3.2

Crude materials excluding fuels 1.6 1.7 1.6 1.9 1.9

Mineral fuels 17.2 15.6 17.5 10.6 8.5

Oils, fats and waxes 0.5 0.4 0.4 0.4 0.4

Chemical products 10.4 9.1 7.5 6.0 6.5

Basic manufactured products 13.3 13.4 12.0 24.6 18.4

Machines and transport equipment 22.2 23.4 26.4 23.6 25.9

Misc. manufactured goods 9.6 10.7 10.3 9.0 13.0

Other 1.2 1.1 0.9 0.1 1.1



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Table A1.4 Merchandise imports by country, 2012-16

2012 2013 2014 2015 2016

(% of total)

Australia 30.8 27.3 29.6 22.7 22.9

Fiji 7.8 9.4 9.3 9.4 11.8

New Zealand 12.7 12.5 11.9 12.3 11.5

Singapore 16.9 15.5 17.4 11.0 8.3

Japan 2.4 3.8 2.5 4.2 5.6

France 2.8 4.1 3.8 2.3 5.2

Hong Kong, China 1.8 1.9 2.2 2.4 2.8

New Caledonia 1.8 1.1 1.5 1.6 1.3

Other 23.0 24.3 21.8 34.2 30.6


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