WTO Trade Policy Review of Madagascar
Statement by U.S. Chargé d'Affaires David P. Shark
Geneva, February 19, 2001

Thank you Mr. Chairman. The United States welcomes to the first WTO Trade Policy Review of Madagascar the delegation from Antananarivo. We commend the Secretariat for its report on Madagascar's trade policy regime. We also greatly appreciate the Government 's report. These reports and the TPR process can be helpful not only in understanding and improving trade policy formulation and coordination, but also in the process of helping to integrate trade into national development strategies. We have produced a series of questions stemming from those reports and look forward to obtaining answers for these questions from Madagascar. We particularly look forward to learning in greater specificity about Madagascar's trade liberalization policies and practices.

The United States and Madagascar have developed friendly relations and strong economic ties which are being strengthened even further. Part of this is our rapidly growing commercial relationship. United States imports from Madagascar are estimated to be more than $100 million in 2000 with U.S. imports of manufactured products, which includes textiles, growing from around $20 million in 1998 to more than $80 million in 2000. Expanded trade with Madagascar and other sub-Saharan African countries is also a goal of the African Growth and Opportunity Act (AGOA) of 2000, which will allow Madagascar to export a wider range of products to the United States duty free. The AGOA has significantly expanded market access for countries in Africa and should assist in governments' efforts to further diversify exports. In addition in 1998, the US Overseas Private Investment Corporation signed a bilateral Investment Incentive Agreement with Government of Madagascar.

In recent years, U.S.economic assistance to Madagascar has totaled more than $20 million annually. In addition to working together to ameliorate health and protect natural resources, the US and the Madagascar have taken steps to improve the climate for private initiative. This has included among other activities support for commercial law reform, and strengthening the capacity of Malagasy research institutions to conduct policy analysis.

While Madagascar is a least-developed country it is making noticeable progress towards increasing economic growth. Since 1996 Madagascar has intensified its economic reform efforts and its growth rates have been rising steadily, from less than 2 percent in 1995 to more than 5 percent in 1999. Since 1997 economic growth has been outstripping population growth. At the same time macroeconomic stabilization and fiscal reform supported by international financial institutions led to a fall in inflation from 45 percent in 1995 to less than 8 percent in 1999.

An important element contributing to this growth has been increased trade liberalization which Madagascar has been undertaking, especially since 1996. Licensing and prior authorization have been abolished and importers are able to obtain foreign currency freely. Several state-owned companies have been privatized under a program launched in 1996. Madagascar liberalized international air transport services in 1997. In 1999 Madagascar simplified its tariff structure into four bands, reducing its average tariff rate by two percent in the process. In November 2000 Madagascar started to use the valuation method based on the transaction value for imports. The United States commends Madagascar for these steps as well as for the steps it has taken to liberalize its agricultural sector in recent years. We understand the importance of this sector given that more than 80 percent of the population lives in rural areas and that Madagascar's future economic development is tied to growth in this sector.

As a result of Madagascar's continued progress in economic reform the country is in line to be considered to receive additional debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. As part of this in late November Madagascar completed an interim Poverty Reduction Strategy Paper (PRSP) and is presently scheduled to try to complete a final PRSP by May 2001. This relief would cushion the economic effects of foreign debt and encourage the mobilization of resources to improve economic capacity and competitiveness.

Madagascar and the WTO

Madagascar has said that the chief objective of its trade policy is to contribute to poverty reduction; to allow the commercial and private sectors to be the driving force in economic growth. The US strongly supports this objective and the government's orientation towards the implementation of a liberal trade policy. To achieve this we are supportive of Madagascar's efforts to increase its participation in the multilateral trading system through the WTO. We share Madagascar's view that trade related capacity building is important for increased trade liberalization in least developed countries.

The United States was pleased that Madagascar participated in the Integrated Framework Trade-Related Technical Assistance by preparing an assessment of its needs for trade related assistance, which is included in the Secretariat report. We think it commendable that in the context of this Trade Policy Review the WTO undertook a mission to see what assistance could be provided on a long-term basis. We note that Madagascar has prepared an Interim Poverty Reduction Strategy Paper (PRSP) and hope that trade can be further mainstreamed into Madagascar's broader development assistance strategies as part of the PRSP process.

In the coming year we will spend roughly $5 million on technical assistance on WTO related issues for Africa. The United States is also committed to providing effective assistance through the WTO's own programs and is providing a $650,000 direct grant to the WTO to support technical assistance for African countries, including Madagascar and for the development and production of computer-based training on WTO agreements. Such assistance will help Madagascar and other members take advantage of open markets and further liberalize.
Turning to the built-in agenda negotiations on services, we are pleased that Madagascar has shown that it is determined to open up its economy, by fully participating in initiatives and agreements on the promotion of multilateral, regional and bilateral trade. We welcome the support of the Africa Group, to which Madagascar belongs, in the GATS negotiation. The United States also believes that Madagascar's participation in the WTO's modern agreements on basic telecommunications, financial services and information technology would send a powerful signal to international investors about its commitment to create an enabling climate for trade and investment.

On-Going Matters of Concern

The legal and regulatory environment can be a source of frustration for foreign investors in Madagascar. Security of contracts are not always assured by the existing legal system, although reform efforts are underway. Some important needed reforms are also occurring in the area of customs procedures in Madagascar. A good customs system can be helpful in trying to attract and increase trade and investment. Implementation of the WTO Agreement on Customs Valuation can be a simple, but important step towards customs reform. Implementation of the Agreement generally requires the undertaking of various techniques considered and can serve to launch further progress in overall customs improvements. We suggest that Madagascar explore with the Members of the Committee on Customs Valuation how it could assist Madagascar in ensuring compliance with the obligations in that Agreement. The Committee has already proven itself to be adept at creatively engaging in problem-solving of this nature.

We recognize that Madagascar has been increasing its activity in the standards and technical requirement area. We urge Madagascar to notify the WTO of its Technical Barriers to Trade (TBT) Agreement enquiry point and its implementation and administration of the TBT Agreement. If technical assistance is needed to meet these obligations, the US notes the recent completion of the Second Triennial Review of the TBT Agreement and encourages Madagascar to submit specific requests for technical assistance to the TBT Committee to help meet its TBT obligations.

Problems with notifications and other implementation difficulties stem partly from the general lack of information and knowledge of the officials in the numerous responsible ministries dealing with the various WTO agreements. The US urges Madagascar to quickly establish a national committee to follow the implementation of the WTO agreements.

Madagascar's commitments under GATS are limited and fall far short of its current levels of openness in services. We encourage to expand its commitments, believing that it can enhance its own competitiveness in the global economy by allowing its consumers ready access to better, cheaper, and more diversified services. In addition over half of government revenue is derived from taxes on trade. Madagascar could increases its competitiveness by further lowering rates of taxation on trade to reduce costs of production.

The Secretariat's report notes that Madagascar's development has been constrained by poor infrastructure and one of its challenges is the rehabilitation and extension of infrastructure. We encourage Madagascar as well the multilateral agencies and donors to see that policies and resources are in place that encourage improvements by the public and private sector in infrastructure.

The Government's privatization program has resulted in almost 50 companies being privatized or liquidated since 1997. We urge Madagascar to continue with this program and privatize companies such as Air Madagascar and Telecom Malagasy before the end of 2001.

By addressing these concerns, Madagascar should continue to make further progress towards increasing trade, investment and economic growth generally.

CONCLUSION

In spite of its poverty Madagascar has made substantial economic progress in recent years, and there continues to be encouraging developments. The country has significant economic potential that stems from an industrious, competitive labor force and a variety of natural resources. In the short and medium terms, considerable economic growth can arise from greater effective allocation and use of these resources, chiefly through privatization and liberalization of the productive sector. Madagascar has already taken many steps itself to liberalize its economy and we have been supportive of these actions. We look forward to working with Madagascar to assist it further move in this direction and believe that this trade policy review discussion can help in this effort.