Feb 21, 2020 Last Updated 3:53 AM, Feb 21, 2020

2019 was meant to mark the end of the PNG government’s 20-year Tariff Reduction Program (TRP), introduced in 1999 and designed to reduce tariffs gradually to a uniform 10% across the different tariff categories. In fact, 2019 was the second year the government deviated from the TRP, with more tariff rate increases introduced in addition to those of 2018. In total, the PNG government has instituted 323 tariff line increases in the past two years. Tariffs are taxes that increase prices consumers and producers pay for imported goods and inputs. The reason for the tariffs, according to the Customs Tariff Amendment (2019) Act, is to “provide relief to local pioneer industry and existing local manufacturers from cheap imports”. In my recent discussion paper, “Predicting the Impact of PNG’s 2018 and 2019 Tariff Increases: A Review of PNG’s Trade Policy History”, I undertook an analysis of the likely impact of these tariff increases by reviewing PNG’s trade protection history.

A quick glance at products enjoying recent tariff rate increases gives some idea of the products and industries PNG intends to promote. These include frozen meat, packaged fruit and vegetables, sugar and confectionary, flour, cereals, women’s handbags, various wooden products, garments and fabric, beverages, smoked fish, soap and plywood furniture. The average (unweighted) tariff rate increase in 2018 was 7%, and this doubled to 14% in 2019. But there were some substantial increases. In particular, a 25% tariff introduced on various milk products – previously tariff free – clearly intended to benefit PNG’s first joint venture dairy enterprise, Ilimo Dairy Farm. While there were no further tariff increases in the 2020 budget, there were no tariff reductions either.

Have protections for the manufacturing sector in PNG historically encouraged the economy to grow? A Tariff Review Taskforce established in 2003 to evaluate the effects of reduced tariff rates on PNG’s different sectors found that for the manufacturing sector, the industries that expanded the slowest were those subjected to some of the highest tariff rates, such as tuna and mackerel canneries. High tariffs also had a negative effect on export industries, the taskforce argued, by causing the price of imported inputs to increase. Furthermore, large capital-intensive producers were more adversely affected due to higher input costs, compared to smaller, labour-intensive producers.

The argument in favour of tariffs imposed temporarily to allow a certain industry to become competitive is known as the infant industry argument. The goal of infant industry protection is to ensure that industrial capability is developed in its initial stages of operations. Once these industries can compete against rival companies, the tariffs are lifted.

In East Asia successful economies like Korea and Japan historically used trade protections, while in Latin America many poorly performing economies also used trade protections. The degree to which protections helped or harmed growth in both instances is contested. PNG, however, historically has a poor record in selecting ‘winning industries’, with the cement and sugar industries prominent examples of industries that failed to become competitive under high tariffs. A key test to tell whether the infant industry argument holds is to ask whether the industry is competitive after tariffs have been gradually reduced. The TRP was in many ways a test to see which industries were ‘winners’ and which were not.

For example, Ramu Agri-Industries (RAI) lodged a complaint in 2013 when tariff rates were reduced to 40%, arguing that its products were no longer competitive. This complaint came after RAI (formerly Ramu Sugar Limited) had been producing sugar for 31 years, having enjoyed import bans, tariffs as high as 85%, and pioneer industry status. The reasons why the sugar industry did not become competitive were inadequate climate conditions, sugar disease, and low world sugar prices. RAI has since reduced sugar production by converting 2,500 hectares of sugar cane into oil palm, which has been doing well in PNG. Perhaps without protection RAI would have converted more land to oil palm earlier.

Another example is PNG Halla Cement, a joint venture between a South Korean company and the PNG government. PNG Halla enjoyed an import ban and then high tariffs on cement imports in the 1980s. Lack of competitiveness caused the government to divest its stake in the company in 2000.

The intention of the 2018 and 2019 tariff increases to grow the manufacturing sector is good, and as a revenue source for a government that has run budget deficits for the past seven years, tariffs do appear attractive. However, as PNG trade history indicates, several industries singled out for high levels of trade protections in the past have failed to thrive.

Maholopa Laveil is a Lecturer in economics at the School of Business and Public Policy at the University of PNG.

This article appeared first on Devpolicy Blog, devpolicy.org, from the Development Policy Centre at The Australian National University

 

Papua New Guinea has been advised to tweak its macroeconomic policy and throw more weight behind agriculture, as it has the potential to enable more diversified and inclusive development.  

The World Bank makes this recommendation  in its latest newsletter Pacific Possible. It warns of rising economic uncertainty and fragile growth in PNG and recommends that authorities focus on structural transformation of the economy, especially in the agriculture sector, to help absorb any shocks.  

"Around 87 per cent of Papua New Guineans live in rural areas, and 75 per cent of these are engaged in a variety of subsistence and cash income agriculture activities. Staple products are the main source of subsistence, provide food energy and protein, and are a source of food security for rural villagers when income-earning opportunities are limited," the reports states.

"While most rural villagers combine these traditional subsistence and cash income activities, there is a small but increasing number producing value-added products such as high-value coconut products and spices."

Agriculture is one of the priority sectors in the government’s Medium-Term Development Plan for 2018–22 (MTDP III.

"To utilise the potential of agriculture as a source of income and job creation, the authorities should consider a proposed set of policy options and responses for securing sustainable rural livelihoods in food and agriculture," the World Bank says.

The resource-rich nation of over eight million people is home to a number of multi-billion dollar minerals projects and is vulnerable to substantial commodity price shocks, natural disasters and uncertainty in the performance of new and existing minerals projects. 

Its agricultural sector includes fresh food and export products like coffee, cocoa, palm oil, and copra and copra oil. 

As climate change pushes focus of countries to transition to a green economy, many countries in Asia and the Pacific will experience a surplus of low-level skills increasing by 2020, revealed a specialist in environment and decent work.

Christina Martinez, International Labour Organisation’s (ILO) specialist in an email interview told Islands Business magazine that more than eight in every ten workers in the region were in either low-skilled occupations (16 per cent) or medium skilled occupations (67 per cent).

She said a major challenge for greening labour markets and job creation was to make sure workers, especially youth, had the right skills. “Skills shortages already present a major hurdle for the just transition to environmental sustainability, particularly for certain sectors and occupations,” she said “Occupations such as wind, wave and tidal power; renewable energies for manufacturing, construction and installation; expansion of the environmental industries; and the green building and construction sector,” she said. She shared that skills shortages will continue to increase, “particularly for jobs requiring highly skilled workers.”

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The new titanic challenge

Whether you live in a developed country or a developing one, imagine yourself on the grand Titanic ship that sank in 1912. The ice-berg that sank Titanic now eerily appears to be an anecdote to climate change. In the end, it need not matter what class one took a seat in, when the ship sank, it took down nearly everyone – despite the class. In this regard, countries that have not contributed significantly but are severely affected by climate change may go down first, but gradually, so will countries that have emitted the most greenhouse gases.

The world of work is now quickly changing in light of increasing rate of natural disasters amplified by a changing climate. Countries all around the world are being pushed out of their comfort zones, forcing them to adapt and become resilient whilst going through this change A green just transition is high on priority for both developed and developing regions. However, while transitioning to a low-carbon economy make for a healthy, safer and even more resilient community, and can bring opportunities for the future of work, new challenges stand in the way.

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Fiji urged to reopen credit bureau

THE Fijian Government will need to improve its land lease processes if it has to create a business friendly environment for the private sector, says the International Monetary Fund. And the IMF projects that Fiji’s economy would grow by around 3.5 per cent in the coming year and would maintain that growth in the medium term.

Improving land lease processes is one of the few conditions the team from the IMF who were recently in Fiji suggested to government from their preliminary findings on their annual country surveillance.

Murphy said in order for the private sector to thrive which would in turn drive economic recovery, conditions must be put in place to improve the business environment. While Murphy and his team acknowledged the existing mechanisms to use land and several efforts by the Fiji Government to improve leases like the introduction of a land bank, they heard from the private sector that lease processes were lengthy and time consuming.

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