Key points
- Tariffs alone can’t build competitiveness. Papua New Guinea’s businesses also face high transport costs, energy expenses and regulatory complexity.
- Policy uncertainty affected investment. 61% of surveyed firms said ad hoc tariff revisions from 2018 to 2020 affected their investment decisions.
- Growth was stronger during the tariff reduction programme period, but tariffs were not the only factor. Commodity cycles, major resource projects and COVID-19 also shaped the results.
- Future tariff policy should be predictable and evidence-based. The report calls for gradual tariff rationalization, targeted support and lower business costs.
The report reviews Papua New Guinea’s tariff reduction programme, known as the TRP, from its liberalization phase to its suspension and partial reversal after 2018.
Its central message is clear: tariff policy matters, but tariffs alone cannot build competitiveness. Businesses also face structural barriers, including high transport costs, energy expenses and regulatory complexity.
Tariff policy became less predictable
Papua New Guinea used the TRP to lower tariffs and open the economy. By 2015, average tariffs had fallen to around 3.2%, making the country one of the most open economies in the region.
But the final stage of tariff cuts was suspended in 2018. The government then raised tariffs on selected products, citing the need to protect infant industries and boost revenue.
The policy shift created uncertainty. 61% of surveyed firms said ad hoc tariff revisions from 2018 to 2020 affected their investment decisions. The report says future tariff policy should be gradual, predictable and evidence-based.
Growth was stronger, but tariffs were not the only factor
Papua New Guinea’s economy grew by an average 6.3% a year during the active TRP period, compared with 2.0% after the suspension. But the report cautions that this difference should be interpreted carefully.
Commodity cycles, major resource projects and the COVID-19 pandemic also shaped the results. Imports fell from a high of about $8 billion in 2012, despite gradual tariff reductions. Exports expanded, driven by mining, oil and gas.
The report’s modelling shows that a 1% increase in tariffs is associated with a 2.1% decrease in import value, on average. But tariff changes had only limited effects on major trading partners, suggesting that wider economic conditions mattered more.
Structural costs held firms back
Business views were mixed. During the TRP period, 36% of firms said they benefited from tariff reductions, mainly through lower input costs. But 55% said they saw no benefit.
After tariff increases from 2018, 53% of surveyed firms reported negative effects. Firms also pointed to deeper constraints: high transport and logistics costs, expensive imported inputs, policy unpredictability and regulatory burdens.
The report says Papua New Guinea should focus less on shielding firms and more on helping them compete. This means improving infrastructure, power supply and customs processes, while lowering costs for key imported inputs.
Revenue and welfare gains were limited
The report finds that tariff liberalization cost Papua New Guinea little in revenue terms. Simulations show tariff cuts during the TRP reduced revenue by about $7.8 million a year, or just over 1% of tariff revenue.
After 2018, higher tariffs were expected to raise revenue. But collections were about $15.6 million lower than they would have been under 2018 baseline tariffs. The report links this mainly to the sharp cut in tobacco duties, lower import volumes and likely evasion incentives.
Consumer welfare also showed trade-offs. Simulations show a net welfare loss of around $5.9 million during 2010–2018, driven mainly by sustained high tariffs on beverages and tobacco.
Build competitiveness, not tariff walls
The report recommends a predictable path of tariff rationalization, a more competitive business environment, targeted support for infant industries, safeguards for consumer welfare and food security, stronger regional integration, better trade defence capacity and regular evidence-based reviews.
The broader lesson is that Papua New Guinea needs an open but strategic trade policy. Tariffs can support development goals, but only if they are stable, targeted and backed by action to reduce the real cost of doing business.