TRADE POLICY FRAMEWORK

  The limited size of Vanuatu’s domestic market implies that development opportunities ultimately depend on its ability to penetrate foreign markets. A Trade Policy Framework defi ning a national consensus on trade-based growth policies will signifi cantly help to achieve the ultimate purpose of an “educated, healthy, and wealthy” Vanuatu. The objectives of the Vanuatu Trade Policy Framework are to: mainstream trade into Vanuatu’s national development strategy; enhance development through increased exports of goods and services; guide and inform the workings of Vanuatu’s National Trade and Development Committ ee; inform trade negotiations; and facilitate increased infl ows of Aid for Trade (AfT). Over the last decade Vanuatu’s economic growth has been based on two sectors: services and construction. Within services, tourism-related activities are responsible for a signifi cant share of growth. Construction services have benefi ted from both public and private investments. Equally important, prudent fi scal and monetary policy and a series of key reforms opening up previously restricted markets have been crucial to sustain strong economic growth. With public and private investments set to continue in the context of an improved business environment, the economic outlook for Vanuatu is therefore positive, subject to the pursuit of continuous prudent fi scal policy and further economic reform. Whilst the contribution of services to Vanuatu’s GDP is around two times higher than goods, over the past decade exports of services generated foreign exchange receipts which were around fi ve times higher than those generated by goods. Tourism contributed for around 80 percent to Vanuatu’s export of services. The future tourism performance will be dependent on the ability to reduce market of origin concentration and to create stronger economic linkages with the local economy. The performance of other services will be crucially dependent on the ability to design and implement an overarching services policy, which is currently missing. Vanuatu trade in goods continues to be focused on primary products. This exposes the substantial failure of the import substitution policy followed so far, whilst calling for targeted support to enhance productive capacity and add value of goods with signifi cant export potential. The Vanuatu Government has already in place a signifi cant number of traderelated policies. The review of those polices, together with extensive national VI | EXECUTIVE SUMMARY VANUATU GOVERNMENT TRADE POLICY FRAMEWORK 2012 | VII consultations, has been instrumental to identify the key constraints, or barriers, preventing the further expansion of trade in goods and services (Barriers to Trade). The most signifi cant Barriers to Trade existing in Vanuatu relate to lack of suffi cient infrastructures, unresolved land issues, lack of a Competition Policy/ Law/Authority, Customs procedures still dependent on a pool of untrained/ uncertifi ed private agents, inadequate concession contracts for stevedoring services, lack proper of facilities to deal with Sanitary and Phytosanitary (SPS) issues and with Technical Barriers to Trade (TBT), lack of productive capacity and inadequate education/training of the Ni-Vanuatu workforce. Vanuatu needs to tackle those barriers if is to fi nd its way out of poverty and into development by boosting exports. Aid for Trade (AfT) represents one of the main tools available to the Vanuatu Government to address Barriers to Trade. Over the last decade Donor Partners came to increasingly appreciate the importance of eliminating Barriers to Trade. This is demonstrated by the fact that the steady increase in Offi cial Development Assistance was mostly due to additional AfT funds - currently standing at around 50% of Offi cial Development Assistance. Whilst AfT has so far privileged infrastructural projects it is recommended that Donor Partners positively consider the possibility of providing additional funds to the macro-area of productive sectors. Trade negotiations can also be used to address Barriers to Trade. Negotiations are a complex tool to achieve a straightforward objective: boosting the domestic economy by facilitating specialization in areas of comparative advantage. Vanuatu needs to frame negotiating proposals aimed at eliminating key Barriers to Trade in those areas, in particular on services and labor mobility. On the goods side, off ensive interests are more limited but benefi ts can be achieved if smart concessions on tariff liberalization are coupled with assistance to overcome Barriers to Trade related to Customs and SPS/TBT issues and to support truly infant industries. Thirty one high-level recommendations conclude the Vanuatu’s Trade Policy Framework. These include over-arching and sector-specifi c recommendations, recommendations to break specifi c Barriers to Trade, and recommendations on trade negotiations. These recommendations represent a comprehensive Trade Policy Framework suitable to guide public policy for the years to come. A TPF can only result in the development of a coordinated approach to trade and converging trade rules and regulations. By creating a national consensus around a small set of well defi ned priorities, the TPF aims to set the right conditions to overcome existing defi ciencies in trade planning and enhance the Government’s capacity to formulate, coordinate and implement trade policies for the benefi t of its own people. The TPF aspires to become the National Trade Constitution which will create the pre-conditions for the smooth and eff ective workings of Vanuatu’s National Trade and Development Committ ee (NTDC, or Vanuatu’s Trade Parliament). CHAPTER 01 1 | CHAPTER 01 | OVERVIEW If accompanied by the necessary structural domestic reforms and the right policy mix, the TPF can play an important role in promoting export-led growth, which will in turn lead to higher standards of living and welfare.