RESTRICTED WORLD TRADE WT/TPR/S/134 14 June 2004 ORGANIZATION (04-2473) Trade Policy Review Body TRADE POLICY REVIEW BELIZE Report by the Secretariat This report, prepared for the first Trade Policy Review of Belize, 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 the Government of Belize on its trade policies and practices. Any technical questions arising from this report may be addressed to Mr. Karsten Steinfatt (022 739 6759), Mr. Diego Iribarren (tel. 022 739 6392) and Mr. Raymundo Valdés (tel. 022 739 5346). Document WT/TPR/G/134 contains the policy statement submitted by the Government of Belize. Note: This report is subject to restricted circulation and press embargo until the end of the meeting of the Trade Policy Review Body on Belize. Belize WT/TPR/S/134 Page iii CONTENTS Page SUMMARY OBSERVATIONS I. II. III. vii (1) INTRODUCTION vii (2) ECONOMIC ENVIRONMENT vii (3) TRADE AND INVESTMENT POLICY FRAMEWORK viii (4) MARKET ACCESS IN GOODS viii (5) OTHER MEASURES AFFECTING TRADE ix (6) SECTORAL POLICIES ix ECONOMIC ENVIRONMENT 1 (1) OVERVIEW 1 (2) RECENT ECONOMIC DEVELOPMENTS (i) Structure of the economy (ii) Production and employment (iii) Fiscal policy (iv) Monetary and exchange rate policy (v) Balance of payments and external debt 1 1 4 4 6 8 (3) MERCHANDISE TRADE AND INVESTMENT FLOWS (i) Composition and geographical distribution of trade (ii) Foreign direct investment 9 9 12 (4) OUTLOOK 12 TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES 14 (1) OVERVIEW 14 (2) TRADE POLICY FORMULATION AND IMPLEMENTATION (i) General legal and institutional framework (ii) Trade policy objectives and implementation 15 15 17 (3) FOREIGN INVESTMENT REGIME 18 (4) INTERNATIONAL RELATIONS (i) World Trade Organization (ii) Preferential trade agreements (iii) Preferential trade arrangements 19 19 22 24 (5) TRADE RELATED TECHNICAL ASSISTANCE 25 TRADE POLICIES AND PRACTICES BY MEASURE 26 (1) OVERVIEW 26 (2) MEASURES DIRECTLY AFFECTING IMPORTS (i) Procedures (ii) Customs valuation (iii) Tariffs (iv) Other charges affecting imports (v) Rules of origin 27 27 28 29 35 37 WT/TPR/S/134 Page iv Trade Policy Review Page (vi) (vii) (viii) (ix) (x) IV. Import prohibitions Other import restrictions and licensing Contingency measures Standards and technical regulations Sanitary and phytosanitary standards 38 38 41 41 44 (3) MEASURES DIRECTLY AFFECTING EXPORTS (i) Procedures (ii) Export taxes, charges and levies (iii) Export prohibitions, restrictions, and licensing (iv) Duty and tax concessions (v) Export promotion, credit, insurance, and guarantees (vi) Measures applied in third markets 47 47 48 48 48 54 54 (4) MEASURES AFFECTING PRODUCTION AND TRADE (i) Competition policy (ii) Government procurement (iii) Incentives (iv) State-owned and state trading enterprises, and privatization (v) Intellectual property rights 54 54 57 59 60 61 TRADE POLICIES BY SECTOR 66 (1) OVERVIEW 66 (2) AGRICULTURE AND RELATED INDUSTRIES (i) Features (ii) Policy objectives (iii) Key subsectors 67 67 69 70 (3) ENERGY (i) Features (ii) Legal and institutional framework 75 75 76 (4) MANUFACTURING 77 (5) SERVICES (i) Features (ii) Banking and other financial activities (iii) Telecommunications (iv) Transport (v) Tourism 78 78 80 84 87 89 REFERENCES 93 APPENDIX TABLES 95 CHARTS I. ECONOMIC ENVIRONMENT I.1 I.2 Merchandise trade by product and by partner, 2002 Belize's exports to the United States by preferential agreement and product, 2001 10 11 Belize WT/TPR/S/134 Page v Page III. TRADE POLICIES AND PRACTICES BY MEASURE III.1 III.2 III.3 Frequency distribution of MFN tariff rates, 2004 Tariff escalation by ISIC 2-digit industry, 2004 Goods subject to licensing requirements by HS section, April 2004 31 32 39 TABLES I. ECONOMIC ENVIRONMENT I.1 I.2 I.3 I.4 I.5 I.6 I.7 Basic economic indicators, 1997-02 Structure of GDP 1997-03 Small economy indicators, 2000 Financial accounts of the Central Government, 1997-01 Main monetary indicators 1997-02 Balance of payments, 1997-02 Foreign direct investment 1997-02 II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES II.1 Belize's notifications under the WTO Agreements, February 2004 III. TRADE POLICIES AND PRACTICES BY MEASURE III.1 III.2 III.3 III.4 III.5 III.6 III.7 III.8 III.9 III.10 III.11 III.12 III.13 Summary analysis of Belize’s tariff, March 2004 Products for which the applied MFN tariff rate exceeds the bound rate, March 2004 Excise taxes, March 2004 Goods subject to revenue replacement duty (RRD), March 2004 Prohibited goods, March 2004 Import restrictions, March 2004 Mandatory and voluntary standards, March 2004 Sanitary and phytosanitary requirements for imports, March 2004 Programmes involving export duty and tax concessions, March 2004 Products subject to price controls, March 2004 Principal features of the tender procedure, March 2004 Belize's membership in intellectual property protection treaties, March 2004 Overview of IPR protection, March 2004 IV. TRADE POLICIES BY SECTOR IV.1 IV.2 IV.3 IV.4 IV.5 IV.6 Agricultural production in Belize Belize's sugar exports Artisanal fisheries production High seas fisheries Summary of Belize's commitments under the GATS Selected telecommunication indicators, 1995-00 1 2 3 5 7 9 12 21 30 33 36 36 38 40 43 44 49 56 58 61 62 67 72 74 75 79 85 APPENDIX TABLES AIII.1 AIII.2 Items with specific duties, March 2004 Goods subject to licensing requirements, March 2004 97 98 Belize WT/TPR/S/134 Page vii SUMMARY OBSERVATIONS (1) INTRODUCTION 1. Belize has taken significant steps to liberalize most aspects of its trade regime while seeking to maintain high levels of protection for a few selected domestic activities. Legislative reforms have been implemented to improve market access in both goods and services. Average applied MFN tariffs are down to 11.3%, although this average would be higher if two taxes applied only to imports were included. However, Belize subjects certain imports, mostly agricultural products, to non-automatic licensing requirements, in some cases amounting to outright prohibitions. Moreover, the availability of foreign exchange is subject to restrictions. Partly to offset the anti-export bias resulting from its import regime, Belize offers tax concessions, some granting export subsidies. The aforementioned measures tend to distort resource allocation and undermine the transparency of the trade regime notwithstanding Belize's clear liberalization efforts. 2. Trade plays an important role in Belize's economy, with exports and imports equivalent to just over 120% of GDP. Economic growth has been vigorous, reflecting rising exports and an expansionary fiscal stance. Fiscal and monetary policies, however, appear to need further tightening in view of the substantial current account and fiscal deficits and the sharp increase in the public debt. Moreover, market competition in areas such as financial services and electricity appears limited. Further structural reforms are thus needed to consolidate Belize's recent economic gains so as to ensure sustainable long-term development. Enhanced multilateral commitments could play a useful role in this respect by bolstering the predictability of reforms for traders and investors. (2) ECONOMIC ENVIRONMENT 3. Belize's economy grew at an average rate of 7.2% a year over 1997-03. This growth was maintained in spite of repeated adverse weather, underpinned by export increases and an expansionary fiscal policy. The latter has contributed to an increase in the current account deficit, which was equivalent to almost 18% of GDP in 2002, the last year for which data are available. External borrowing is a significant source of financing for the current account. As a result, by the end of 2003, public and publicly guaranteed external debt stood at the equivalent of some 90% of GDP. This sizeable debt and the persistent current account deficit creates the risk of balance-of-payment difficulties. 4. Although fiscal and monetary policies have been tightened, further fiscal and structural reforms would help ensure the sustainability of macroeconomic policies in the long-run. This would also assist in lowering the domestic cost of capital, which is vital as scarce access to long-term financing is seen as possibly the most important constraint on Belize's growth and competitiveness in world markets. 5. The foreign exchange system comprises the official market, the private foreign exchange houses (cambios), and a parallel market. In the official market, the Central Bank conducts operations with the public sector and commercial banks at a fixed exchange rate of two Belizean dollars to one U.S. dollar. Sales to commercial banks are limited to private sector transactions deemed essential and to ad-hoc sales aimed at preventing the parallel market rate from depreciating. The fixed exchange rate, combined with the liberalization of the import regime, has helped to keep inflation low. However, Belize's foreign exchange practices may encourage rent-seeking and constitute a hidden but significant barrier to trade. 6. Belize's trade balance has been consistently negative while the services balance is usually positive, due in large part to a surplus in tourist-related services. Exports encompass a relatively wide range of agricultural products (notably bananas, sugar, WT/TPR/S/134 Page viii frozen citrus products, and shrimp), which account for almost 80% of total merchandise exports. Sugar and banana exports are largely dependent on the preferential access granted unilaterally by the European Union and the United States. The largest export markets are the United States followed by the United Kingdom. The United States and Mexico are the first and second main suppliers. (3) TRADE AND INVESTMENT POLICY FRAMEWORK 7. Since independence in 1981, Belize has formulated and implemented its trade policy within a stable legal framework. Belize's trade and investment policy seeks to attract investment, deepen regional integration through participation in the Caribbean Community and Common Market (CARICOM), expand trade relations with other Central American countries and Mexico, and participate in the multilateral trading system. To those ends, Belize has undertaken legislative reforms affecting both its trade and investment regimes. 8. Belize became a GATT contracting party in 1983 and is an original Member of the WTO. In the context of its participation in the WTO, it has sought specific provisions for special and differential treatment for developing countries and the recognition of the special status and needs of small, vulnerable, developing economies. Belize took part in the Negotiating Group on Basic Telecommunications, and has ratified the Fourth Protocol to the GATS. Belize has submitted several notifications to the WTO but most remain outstanding, thus reducing the transparency of its trade regime. Belize has been involved as a third party in two dispute settlement cases in the WTO. Belize has no mission in Geneva. 9. Belize's trade policy is influenced by its participation in CARICOM. As part of CARICOM, Belize is negotiating or administering trade agreements at the bilateral and regional levels. Although Trade Policy Review regional cooperation in some of these negotiations gives greater weight to Belize's position and provides a useful lever to its limited human resource base, the burden of negotiating and administering a growing number of preferential agreements is of concern given Belize's limited institutional capacity in the area of trade. Belize's trade capacity has been the subject of various technical cooperation initiatives, including by the WTO. 10. Belize's investment regime offers an extensive programme to promote domestic and foreign investment. Belize also grants fiscal and other advantages to entities engaged exclusively in "international" or exportoriented activities. (4) MARKET ACCESS IN GOODS 11. Belize has made strides towards enhancing market access for goods, although a few areas remain largely closed to international competition. Applied tariffs have fallen in the context of reductions to CARICOM's Common External Tariff. In early 2004, Belize's simple average applied MFN tariff was 11.3%, not taking into account the specific rates applied to some 46 items. The average MFN tariff increases if account is taken of a 1% environmental tax applied to all imported but not domestically produced goods, and the revenue replacement duty, which applies to selected imports only at rates ranging from 5% to 50%. In contrast, excise taxes apply to domestically produced but not imported products. 12. The tariff structure shows escalation, although in some instances the escalation is reversed. Most tariffs are bound but at levels largely exceeding applied rates, which reduces the predictability of the import regime. Moreover, applied ad valorem tariffs on a small number of items exceed their bound rates; specific applied rates could also exceed their respective ad valorem bound levels if prices fell. Most imports originating in CARICOM enter Belize duty free. Belize WT/TPR/S/134 Page ix 13. Largely to protect domestic producers from external competition, Belize subjects imports of some 28 product categories to mostly non-automatic licensing requirements, in some cases amounting to outright prohibitions. A public body, the Belize Marketing and Development Corporation, is given priority in the allocation of licences for rice products when domestic shortages arise. The licensing system distorts incentives and, thus, resource allocation, while seriously undermining the transparency of Belize's trade regime. According to the authorities and private sector representatives, the degree of protection afforded to domestic products by Belize's trade policy measures, particularly licensing, is significantly reduced as a result of contraband. 14. Belize has no legislation on contingency measures and has refrained from using such measures to protect domestic producers. Belize has made significant efforts to implement its international obligations in the areas of technical regulations and standards and phytosanitary measures, including through initiatives to strengthen its institutional capacity in both areas. (5) OTHER MEASURES AFFECTING TRADE 15. Partly to offset the anti-export bias resulting from its tariff and licensing regimes, Belize offers qualifying firms duty and tax concessions through partially overlapping incentive programmes. Three of these were notified as export subsidy programmes within the meaning of the WTO Agreement on Subsidies and Countervailing Measures. Belize was granted an extension until 31 December 2004 to eliminate the three programmes, with the possibility of further extensions until the end of 2007. The tax revenue forgone as a result of duty and tax concessions could be significant, which is an important consideration in the light of Belize's fiscal position. 16. Although export taxes remain specified in some statutes, they are not currently being collected. Export prohibitions and restrictions reflect international commitments and security considerations, except in the case of a few agricultural products, which are subject to non-automatic export licensing. 17. Belize does not have domestic competition policy legislation, but is working towards the adoption of such legislation in the context of CARICOM. This is an important initiative in view of the high levels of concentration in the domestic market, which could deny consumers the benefits of Belize's trade liberalization efforts. Price controls are enforced only with respect to a handful of goods, although regulations define administrative prices or mark-ups for several other products. 18. Belize is not a party to the Plurilateral Agreement on Government Procurement. Its main laws in this area date back to the colonial era. To increase transparency and accountability in government procurement, Belize established the Office of the Contractor General in 1999. 19. Belize has applied the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights since 2000, when it adopted new legislation covering the major areas referred to in the Agreement. (6) SECTORALPOLICIES 20. Agriculture is a key contributor to employment and export earnings. During the last six years agricultural output has expanded despite the effects of inclement weather and shifting market conditions. Domestic support to agriculture is granted mainly through tariffs and non-automatic import licensing. The latter is used to restrict the importation of products such as fruit and vegetables, peanuts, sugar, beans, maize, rice, corn, poultry, hams, milk, beer, and bottled water. The licensing system has increased the price paid by Belizean consumers for various basic foodstuffs, while providing domestic producers little incentive to increase productivity. The WT/TPR/S/134 Page x authorities believe that non-automatic licensing is required because tariffs alone could not protect the targeted products against foreign competition. At the same time, they consider that the effect on prices and consumers has been reduced by informal imports. 21. Electricity is transmitted and distributed by a single private operator, which also generates about half of the electricity required to meet domestic demand, the rest being met by imports. Electricity rates are high by regional standards, possibly reflecting the de facto monopoly in transmission and distribution. There is no domestic production or refining of hydrocarbons but there are provisions in this area that would favour the purchase of domestically produced goods and services over imported inputs. 22. The services sector accounts for about 59% of Belize's GDP and a quarter of total employment, and is the single largest foreign exchange earner. Belize's Uruguay Round GATS commitments cover only some professional services. Belize took part in the extended GATS negotiations on basic telecommunications, and adopted the Fourth Protocol and the Reference Paper in 1997. 23. In the financial sector, foreign service providers play an important role, and receive Trade Policy Review national treatment. There is also an important international (offshore) sector, which enjoys several tax exemptions. The domestic banking sector is small and highly concentrated. 24. The telecommunications sector has undergone gradual liberalization, but some services are still provided through monopolies established by law. Most telecommunication markets in Belize are supplied by a single operator, as newly licensed providers are yet to start functioning. The cost of telecommunication services appears to be high. 25. Air and marine transport services are vital for Belize given the key role of international trade in its economy. The operation of Belize's main harbours was transferred to the private sector in 2002, and that of its international airport in 2003. New plans for improved terminal facilities are under way and are expected to improve Belize's positioning in the regional tourist market. Tourism has become the largest foreign income earner and the authorities have placed it at the centre of Belize's growth strategy. There are no restrictions on the participation of foreign firms in maritime or air transport services, or in tourism-related activities.