Trade Compliance Center

CYPRUS

TRADE POLICY REVIEW SUMMARIES - 1997

SUMMARY

17 June 1997

CYPRUS WORKS ITS WAY TOWARDS EU MEMBERSHIP AND WTO CONFORMITY

Cyprus' trade policy is determined by two major goals: harmonizing its laws and policies with those of the EU, and ensuring the conformity of these laws and policies with the WTO Agreements. Salient features of Cyprus are the openness of its economy and the growing importance of its services sector, notes a new WTO Secretariat report on Cyprus' trade policies and practices.

The WTO's report and one prepared by the Government of Cyprus will be the subject of two days of discussion on 25 and 26 June 1997. Services, the report notes, account today in Cyprus for 70 per cent of both GDP and foreign exchange receipts. In the last decade, tourism and more recently business services for a booming offshore sector have become the main contributors to economic growth. As a result, Cyprus' per capita income has tripled from $4,570 in 1985 to around $13,650 in 1996. Tourism generates 40 per cent of current account receipt and more than 20 per cent of GDP. Led by tourism, services export earnings were nearly $3 billion in 1995, compared to $1.2 billion from merchandise exports.

According to the report, Cyprus suffers from a structural trade deficit. Merchandise imports represent nearly 40 per cent of GDP, outweighing exports by a factor of almost three. Although different sorts of export incentives exist, Cyprus is a net importer of manufactures. In 1996, merchandise exports amounted to $1.4 billion, imports were $3.9 billion and the current account deficit widened to 5 per cent of GDP.

Even though the share of Cyprus' exports to the EU has fallen in the last five years, the European Union is still Cyprus' most important trading partner. Cyprus has applied for EU membership and is harmonizing its laws, policies and institutional structure with the EU's "acquis communautaire". Cyprus already meets the Maastricht "convergence" criteria: inflation is low, the fiscal deficit stood at 2.9 per cent in 1996 and its public debt was reduced to 54 per cent of GDP in 1995. On the basis of the existing Customs Union Agreement, Cyprus will adopt the EU's Common Customs Tariff by the end of 1997. The process of harmonization of Cypriot standards with those of the EU was completed recently. Cyprus has adopted EC legislation on competition policy and is liberalizing its financial sector according to EU requirements. Cyprus has entered specific commitments on professional and financial services in GATS by which it generally accords national treatment. While financial and insurance services are open to foreign service suppliers, the telecommunications services sector is still controlled by a government monopoly.

The WTO report states that Cyprus, in order to conform with Uruguay Round commitments, abolished its discretionary import licensing and is in the process of revising its anti-dumping and countervailing legislation. It introduced a new foreign direct investment policy in 1997 and has made efforts to improve competition on the local market. Most price controls, for example, have been removed. A draft law on public procurement is with the legislature. The Government estimates that roughly 95 per cent of procurement is executed through competitive tendering.

In 1996, the average applied m.f.n. tariff was 16.4 per cent (7.2 per cent for the EU, a preferential supplier). In the same year, the Secretariat report notes, Cyprus' simple average m.f.n. tariff on agricultural products was 37.6 per cent while the preferential tariff, applicable to EU imports, stood at 23.3 per cent but there is a wide dispersion of m.f.n. tariffs. Close to half of agricultural tariff lines carry a compound or specific duty. Thus fruits, vegetables and tobacco carry average rates above 60 per cent. Exports subsidies of $17.5 million on agricultural products (mainly for vegetables, fruits and wine) will be progressively reduced by 24 per cent by 2004. For certain crops, semi-governmental organizations are the sole buyers and sellers. For example, the Cyprus Grain Commission is the sole importer of grains and the Vine Products Commission is the sole buyer of grapes. Cyprus' agriculture accounts for 5.5 per cent of GDP.

In its conclusions the report suggests that Cyprus could take further steps to conform with multilateral rules. Currently, Cyprus uses many non ad valorem duties which reduces the level of transparency in its import tariffs and still resorts to measures such as reduced tax rates for export manufacturing or preferential treatment for domestic content. The report suggests that because tariff quotas on certain farm products are underutilized, tariffs in these areas could be lowered with little effect on imports.

Note to Editors:

The WTO Secretariat's report, together with a report prepared by Cyprus will be discussed by the WTO Trade Policy Review Body (TPRB) on 25 and 26 June 1997. The WTO's TPRB conducts a collective evaluation of the full range of trade policies practices of each WTO member at regular periodic intervals and monitors significant trends and developments which may have an impact on the global trading system. The two reports, together with a report of the TPRB's discussion and of the Chairman's summing up, will be published in due course as the complete Trade Policy Review of Cyprus and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

The reports cover the development of all aspects of Cyprus' trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the "new areas" of services trade and trade-related aspects of intellectual property rights are also covered. Attached are the summary observations from the Secretariat and government reports. Full reports will be available for journalists from the WTO Secretariat on request.

Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991), Colombia (1990 & 1996), Costa Rica (1995), Cote d'Ivoire (1995), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993 & 1995), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 & 1995), Kenya (1993), Korea, Rep. of (1992 & 1996), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993), Morocco (1989 & 1996), New Zealand (1990 & 1996), Nigeria (1991), Norway (1991 & 1996), Pakistan (1995), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), South Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).