RESTRICTED
WORLD TRADE WT/TPR/G/36
6April 1998
ORGANIZATION(98-1316)
Trade Policy Review Body Original: English
TRADE POLICY REVIEW
THE KINGDOM OFLESOTHO
Report bytheGovernment
Pursuant totheAgreement Establishing theTrade Policy Review Mechanism (Annex 3ofthe
Marrakesh Agreement Establishing theWorld Trade Organization), thepolicy statement bythe
Government ofLesotho isattached.
Note:Thisreport issubject torestricted circulation andpress embargo untiltheendofthemeeting
oftheTrade Policy Review Body onLesotho.TheKingdom ofLesotho WT/TPR/G/36
Page 3
TABLE OFCONTENTS
Page
I. EXECUTIVE SUMMARY 5
II. THE TRADE AND ECONOMIC POLICY ENVIRONMENT 7
III. SECTORAL POLICIES 8
IV. TRADE POLICIES AND PRACTICES BYMEASURES 12TheKingdom ofLesotho WT/TPR/G/36
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I. EXECUTIVE SUMMARY
1. Since thisisthefirsttimeLesotho isparticipating intheTrade Policy Review Mechanism
(TPRM) under theauspices oftheWorld Trade Organization, itisimportant todeclare thatthe
Government oftheKingdom ofLesotho subscribes totheprocess asithasputafocus onthetransparency
andunderstanding ofthetrade policies andpractices byMember States. TheGovernment welcomes
theopportunity ofparticipating inthereview concurrently withother partners oftheSouthern African
Customs Union (SACU). Thisarrangement willprovide forabetter understanding ofthekeyfactors
influencing thetradeandindustrial development policy environment inLesotho inthecontext ofSACU.
2. When Lesotho attained independence inOctober 1966, there wasvirtually noindustrial base.
Therefore, theeconomic developments realized inthepost-independence erashould beassessed against
thisstateofaffairs. Thepolitical environment thatprevailed fordecades inthesouthern African region,
especiallytheapartheidsysteminSouthAfrica,alsoimpactedontheeconomicdevelopmentsinLesotho.
Thefundamental change inthegeo-political situation inthesouthern African region since theearly
partof1994 raised hopes andaspirations fornewstrategies foreconomic revolution.
3. Theinitial industrial development strategy adopted bytheGovernment wasbiased towards
import substitution. Thiswasnotbyaccident butwasmeant tocushion thenegative impact ofthe
policies andactions ofthehighly state-controlled andsupported commodity boards oftheRepublic
ofSouth Africa, themajor trading partner. Inpursuit ofimport substitution policy, industries such
asflourmills, breweries, abattoir, cannery ofvegetables andfruit, andceramic andbrick production
plants were established during late1970s through the1980s.
4. Ayearfollowing attainment ofindependence sawtheestablishment oftheLesotho National
Development Corporation toinitiate, promote andfacilitate thedevelopment ofthemanufacturing and
processing industries, mining, andcommerce inorder toraisethelevelofincome andemployment
inLesotho. Incarrying outitsmandate offacilitating expansion ofcommerce andprocessing industries,
thecorporation formed joint-ventures byproviding either 100% orpartequity and/or management
toabout fifteen subsidiaries andfourteen associate companies within twelve years ofitsestablishment.
Thecorporation, asthepivot ofdevelopment andfacilitation offoreign private investment, underwent
aseries ofstrategic changes dictated bythedomestic policies andtheeconomic changes intheregion.
Theexport-led growth became thekeystrategy oftheLNDC withemphasis onprocessing and
manufacturing industries during 1980s todate.
5. Industrialization hasbeenattached highest priority inthefaceofthedeteriorating agricultural
productionduetoperiodicdroughts,adversesoilerosionandpoorfarmingsystemsresultingindeclining
yields andtheyear-by-year increasing unemployment. Withthesteady riseintherelative contribution
ofmanufacturing tothegross domestic product (GDP) during the1980s todate(14% in1989 and
17%in1995), theshare ofagriculture andforestry declined from21%in1989to11%in1995. The
manufacturing sector sustained realgrowth ratesofover20% ayearoverthepastdecade. Clothing
andfootwear industries established byforeign direct investment dominated thesector andledinterms
ofvolumes andearnings ofexports.
6. Themulti-million Lesotho Highlands Water Project launched in1986didnotonlysignificantly
contribute totheimpressive economic growth ofLesotho buthasenhanced tourism attraction through
improved infrastructure accessing theproject area. Thehighest GDP growth since 1990, ofabout
12.3%, wasattained in1996. In1994 and1995, realGDP growth of11.9% and9%respectively,
wererealized. Thegrowth ofthemanufacturing, thetertiary andconstruction sectors wereessential
tosustain theimpressive growth intheGDP since 1993.WT/TPR/G/36
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7. Theoverall fiscal balance improved fromadeficit of5%ofgross national product (GNP) in
1988/89 toasurplus of3%in1995/96. Inflation declined from 17%toasingle digitof9%over
thesame period. Thebalance ofpayments improved steadily andnetofficial reserves rosetoseven
months ofimports inthefiscal year1995/96.
8. External public debtasapercentage ofGNP was41.9% in1994, 39.6% in1995 and43.2%
in1996. Debt Service Ratios of2.9%, 3.6% and3.8% wererecorded intheyears 1994, 1995 and
1996, respectively.
9. Therecenteconomicdevelopmentandsuccessfulmanagementoftheeconomyhasbeenachieved
through economic reforms implemented under successive structural adjustment programmes since
1988/89. Thestructural adjustment programmes supported bytheInternational Monetary Fund (IMF)
under itsconcessional facilities, Structural Adjustment Facility (SAF) Enhanced Structural Adjustment
Facility (ESAF) forthefirstsixyears, andunder stand-by arrangements treated asprecautionary by
Government inthelastthreeyears weresupported alsobytheWorld Bank, andother official creditors
andcooperating partners.
10. However, theperformance inthestructural reform wasweaker thanexpected. Keystructural
reforms including preparations fortheintroduction ofthevalue added tax(VAT) andprivatization
ofgovernment-controlled enterprises weredelayed. Thestructural weaknesses inpublic sector resource
management, thepublic utility sector andthedomestic financial system restrained economic expansion
andemployment creation.
11. Despite therobust economic growth realized andthesuccess ofthestabilization policy measures
adopted, Lesotho faceschallenges posed bybothexternal andinternal factors. Onthedomestic front,
highlevelofunemployment (about 35-40%) aggravated bythedecline intheemployment ofBasotho
migrant workers inSouth Africa 'smining industry istheformidable challenge. Thescaling down
oftheLesotho Highlands Water Project related construction andtheuncertainty offavourable climatic
conditions conducive forincreased agricultural output arealsothreats totheeconomy.
12. Inparticular, theexternal threats derive fromthepotential erosion ofthepreferential position
onLesotho 'sexports toNorth America andEurope, andtheintertwinement oflesotho 'seconomy with
theSouthern African Customs Union (SACU). Lesotho 'sattraction forforeign investment in
manufacturingwasenhancedamongotherincentivesbyGSPtoitsexportstoNorthAmericaandEurope.
Theerosion ofsuchGSParrangements willdefinitely force Lesotho toadopt improved competitive
measures. Theuncertainty ofmaintaining SACU revenues asasignificant contributor toLesotho 's
taxrevenue inthenearfuture isanother critical challenge.
13. Toaddress these challenges, Lesotho iscommitted totheformulation andmanagement of
WTO-friendly regional instruments inthesouthern African region. Currently, Lesotho isfully
participating inthenegotiations oftheSouthern African Development Community (SADC) Trade
Protocol, oneoftheinstruments meant todeepen economic integration intheregion. With regard to
SACU, Lesotho partakes intherenegotiations ofthearrangement withaview thatitshould be
democratized, thatitshould provide forequitable share ofthebenefits accruing based onacleanformula,
andthatthearrangement should beconsistent withregional andglobal trade agreements binding on
members.
14. InlinewithLesotho 'scommitment torulesofthemultilateral trading system, acomprehensive
review ofthemajor administrative barriers toinvestment inLesotho, "Red Tape Analysis", was
undertaken in1997. Onthebasis ofthereport, theGovernment isintheprocess ofputting upanTheKingdom ofLesotho WT/TPR/G/36
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action programme tocurtail cumbersome bureaucratic procedures pertaining toestablishment and
operations ofcompanies. Inthesame vein, theCompanies Act,1967, hasbeenreviewed inorder
toalign itwithpresent regional andglobal agreements towhich Lesotho iscommitted, aswellasto
reducecomplexitiesandcostsforstartingandregistrationofcompanies.Theimportandexportlicensing
system hasbeenreduced tointernationally acceptable controls pertaining toenvironmental, social,
economic, andhealth andnational security concerns.
15. TheGovernment ofLesotho remains committed toconsolidate onitssuccesses andtoaddress
structural weaknesses. Reduction ofunemployment through special programmes ishighonthenational
agenda. Tocreate more employment, theGovernment willcontinue toplace priority oncreating an
enabling environment through adopting thelegislation thatfacilitates flowofprivate investment capital.
Thepresent investment incentive package isbeing reviewed withthepurpose ofimproving itinthe
faceoftheglobal competition inattracting foreign investors andtheerosion ofsome oftheconditions
thatinthepastmade Lesotho thebestplace toinvest. Thegoalofbringing thesmall, medium and
micro enterprises fromthemargins intothemainstream ofeconomic activity istheimportant component
oftheprivate sector development strategy.
16. Government isfurther committed totheadoption ofprudent fiscal measures andtocurbing
expenditure tosustainable levels inlightofthepossible decline inthereceipts fromSACU collections.
Transfers topublic enterprises willbereduced while ensuring thattheon-going public enterprise reform
andprivatization programmes areaccelerated andthecompetitiveness oftheeconomy isimproved.
17. Inaddressing theadverse impact ofthecurrent utility services andtariffs ontheeconomy,
Government intends toprivatize theLesotho Telecommunications Corporation andtoconsider similar
action inthecaseoftheLesotho Electricity Corporation andWater andSewerage Authority (WASA).
Removal ofthestructural rigidities willcontinue toform Government focus.
II. THE TRADE AND ECONOMIC POLICY ENVIRONMENT
18. Thecurrent blueprint foreconomic development inLesotho istheSixth National Development
Plan, covering theperiod 1996/97 to1998/99. ThisPlanrunsconcurrent toandinconsonance with
thePublic Sector Investment Programme (PSIP). Itfollows theFifthFiveYearPlan, which covered
the1991/92-1995/96 period. TheSixth Planrunsforthree years anditrollsunlike previous plans
which were fixed forfiveyears.
19. TheFifth Plancoincided withtheimplementation oftheEnhanced Structural Adjustment
Programme (ESAP) during 1991/92 and1993/94 fiscal years. ESAP followed theStructural Adjustment
Programme (SAP) which existed during thelastthree years oftheFourth Plan, 1987/88-1990/91.
DuringthelasttwoyearsoftheFifthPlan,1994/95-1995/96,theGovernmentofLesothowasonstandby
annual arrangements withtheInternational Monetary Fund tosustain themomentum ofthesuccess
achieved through SAPandESAP pertaining tooverall management oftheeconomy.
20. Theprincipal goaloftheFifth Planwaspoverty reduction. Thetarget forannual growth in
GDP wassetat7%withhighpriority attached toagriculture andindustry asthekeysectors withthe
potentialtoincreasetheproductivebaseoftheeconomy.Institutionaldevelopmenttoenhanceproduction
ofgoods andservices, improved management inthepublic sector andrestructuring ofthepublic service
andquasi-governmental organizations were themain strategies oftheFifth Plan.
21. Thetheme oftheSixth Planis"Sustainable Human Development (SHD)". Theplancontinues
fromtheprevious plantofocus onpoverty reduction through creation ofremunerative employment,WT/TPR/G/36
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provision ofsocial services, especially primary health careandeducation tothemajority ofthe
population.
22. ThePlanaccords priority tosustaining momentum achieved during theFifthPlanintheareas
ofsound macroeconomic management through fiscal discipline andprudent, appropriate monetary
policies.Commercializationandprivatizationofgovernment-controlledenterprisesisanotherkeystrategy
oftheSixth Plan. Regional economic integration isanareaofimportance inthecurrent plan. The
strategyaddressesimprovementofspecialbilateraleconomicintegrationarrangementswithSouthAfrica,
other SACU members andSADC. Thispursued withaviewtoallow Lesotho totakefulladvantage
ofitsrelative competitive edgewhich willresult inimproved resource allocation anduse,andoffer
Lesotho 'sproducts expanded markets andbetter access tocapital markets intheregion.
23. Thecurrentplancontinueswiththeimprovementintheeffectivenessofpublicservicetoenhance
aco-ordinated approach informulating andimplementing sectoral programmes andshifting thecivil
service from administrative/procedural orientation toward achievement andmore public-responsive
orientation. Inthecontext ofpoverty reduction, theSixth Planplaces importance onthestrategies
meant forcreation ofanenabling environment for:thedevelopment ofthesmall, medium andmicro-
enterprises, promotion oflabour-intensive community development projects, increased flowofprivate
foreign investment andimproving agricultural output through emphasis onexport andfurther
liberalization ofmarketing arrangements. Theplanfurther callsforactions toreduce environmental
degradation.
24. Theeconomic reform process supported bytheIMF, theWorld Bank andother cooperating
partners oftheGovernment oftheKingdom ofLesotho waslaunched in1990/91 andformed partof
theFifthandSixthPlans.Relativelyhighgrowthratesandsubstantialbalanceofpaymentsimprovements
were achieved during 1990/91-1996/97.
25. Theperiod 1990/91-1996/97 wasmarked byrelatively highgrowth rates andsignificant
improvementinthebalanceofpaymentsdespiteconstraintsimposedbyseveredroughtsandretrenchment
ofBasotho working inSouth Africa 'smining industry. RealGDP andGNP grew ataverage rates
of7.8% and4.1%, respectively. In1996, realgrowth ratesof12.3% GDP and9.3% ofGNP, were
realized. Themajor stimulants ofthese growth rateswere: theconsiderable amount ofinvestment
intheLesotho Highlands Water Project andrelated construction ofroads, construction ofseveral
Government office buildings, significant growth intheexport-oriented manufacturing subsector and
recovery ofagriculture from thedrought thatoccurred intheearly partof1990s decade.
26. Consumer prices inflation dropped from17.9% in1991to9.1% in1996. Thecurrent account
deficit,includingunrequitedtransfersbutexcludingflowsrelatedtotheLesothoHighlandsWaterProject
(LHWP) dropped from25.5% ofGNP in1990/91 to5.5% in1996/97. Domestic savings registered
arapid growth which narrowed thegapbetween savings andinvestment. Thelarge pre-SAP budget
deficit levels wereeliminated through rationalization ofgovernment expenditure andimproved revenue
collection.
III. SECTORAL POLICIES
(a) Agriculture
27. Agriculture remains important inLesotho asisprovides employment forover50%ofthe
workforce. Italsomeets slightly above 30%ofthenational foodrequirements. However, thesector
hasbeen plagued byperiodic seasonal droughts whose impact negated theeffects ofimprovedTheKingdom ofLesotho WT/TPR/G/36
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infrastructure, improved extension services, useofhighyielding hybrid seeds, promotion ofuseof
fertilizers andimproved access tocredit. Thebumper cropwasrealized in1994/95 while 1995/96
sawagricultural output ofabout anaverage ofthelasttenyears. Thiswasaresult ofreturn of
favourable rains.
28. Government hastaken stepstoremove distortions caused bythe1980s policy ofself-sufficiency
inagricultural production. Thedistortions relate tosetting ofproducer prices above import parity
prices, import controls onmaize andwheat andtheirproducts. In1996, thepriceofwhole grain (maize
andwheat) wasliberalized andrestrictions onimportation ofmaize andwheat grains andtheirproducts
were removed except forissuing permits forstatistical purposes.
29. Thecurrent emphasis isonexploiting fullyLesotho 'scomparative advantage intheproduction
ofhigh-value crops including asparagus, flowers andtemperate fruits. Thegovernment iscommitted
tothecreation ofconducive conditions forlong-term foreign anddomestic investment intheagricultural
sector.
(b) Environmental andLand
30. Environmental degradation manifested bysoilerosion andlossofsoilfertility, lossofnational
andhistoric heritage, andindustrial pollution, among others, isthegreat concern oftheGovernment
ofLesotho. Over-grazing oftherangelands, removal oftreeandvegetation cover bytheruralpopulation
duetolackofenergy sources, andrapid water run-off during rainy seasons aretheprincipal causes
ofannual lossofsoilestimated at40million tons. Effective management oflandandreversing
environmentaldegradationis,therefore,imperativeinLesotho.Tothisend,theGovernmentformulated
theNational Environmental Action Plan(NEAP) in1989, which provides foraframework forthe
integration ofenvironmental considerations intotheplanning anddecision-making process forsocial
andeconomic development andfortheimplementation ofAgenda 21.
31. Inrecognition thatthemajor constraints intheimplementation ofNEAP arerural poverty,
weak institutional capacity, pooroutreach andeducational programmes andinsufficient preparedness
todealwithclimaticuncertainties,theGovernmentsolicitedsupportoftheUnitedNationsEnvironmental
Programme (UNEP) andothercooperating partners, toaddress theseproblems. Measures taken include
environmental education andtraining, protection andmanagement ofwater resources, landmanagement
andenergy conservation. ANational Environmental Youth Corps programme waslaunched in1995
withthepurpose ofcreating employment andincome foryoung people intherehabilitation ofland
andrecycling ofagricultural andindustrial materials. Further, aspecial programme toaddress
environmental issues surrounding theLesotho Highlands Water Project hasbeenestablished.
32. Government willcontinue toaccord highpriority totheRange Management AreaProgramme
toimprove andmaintain productive capacity oftherangelands andtopromote self-reliance andincreased
incomes ofthecommunities whose rangelands provide fortheirlivelihood. Inthisregard, accurate
stocking ratesandbetter grazing plans willcontinue tobethekeystrategy.
33. Thecomplexity ofthelinkages ofrural poverty andenvironmental degradation hascaused
theGovernment toadopt arange ofactivities designed toimprove thesituation. These include:
- agricultural production through conservation
- theRange Management Programme
- theNational Environmental Youth Corps ProgrammeWT/TPR/G/36
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- seeking alternative sources ofenergy toshrub andgestative cover which include
medicinal andedible wildplant sources
- landuseplanning andrationalization oflandallocation
- on-formal education programme thattargets herdboys whoplayamajor rolein
rangelands utilization, and
- environmental rehabilitation programme tobesupported byLesotho Highlands Water
Revenue Fund.
(c) Tourism
34. Though thepotential ofthetourism industry hasnotyetbeenfullyexploited, thispotential
liesinthescenic beauty ofthelandscape, richfloraandfauna, andhistoric andcultural heritage. The
development oftheLesotho Highlands Water Project hasconsiderably enhanced thetourism potential
ofthecountry. Tourism contributed 2.8% and1.5% ofGDPandGNP, respectively, onaverage over
theperiod 1981-93. In1995, itcontributed 1.9% ofGDP and1.3% ofGNP.
35. Themain objectives oftheSixth Planastheypertain todevelopment oftourism are:
- tocreate employment opportunities andincomes
- toincrease earnings offoreign exchange, and
- topromote thepreservation ofthehistorical andcultural heritage
36. Alarge number ofmicro-projects havebeenlaunched bytheGovernment torehabilitate and
reconstruct important tourism infrastructure andfacilities serving thesector. These include: thenational
museum, thenational archives, several specific areas-based cultural centres, parks, rehabilitation of
historic fossilized foot-prints androckpaintings. Visarequirements forentry intoLesotho havebeen
relaxed tofacilitate entry oftourists. Theprocedures required forresidence andwork permits are
being addressed tofacilitate investment inthesector.
(d) Employment andLabour
37. Lesotho 'sbasic strength liesinitsliterate anddexterous labour-force which hasamply
demonstrated acceptable productivity levels within areasonable period oftraining. Inorder toaddress
theunemployment situation andtomaintain thefavourable qualities ofthelabour force, theGovernment
continues toemphasize skills development andtheOccupational Safety andHealth Programme designed
toimprove working conditions andtheenvironment forworkers. Inthisregard, theNational Advisory
Council onOccupational Safety andHealth wasestablished in1991.
38. Thepopulation ofLesotho isyoung; oftheapproximately 2million people in1996, 41%is
made upofyoung people under theageof14,and55% arepersons aged between 15and64.
Unemployment isbetween 35and40%. Conscious oftheneedtogenerate employment opportunities,
theGovernmentattachesimportancetopromotinglabourintensiveinvestment,particularlyinthebuilding
andconstruction, agriculture andindustry sectors. Labour management programme formanintegral
partofthestrategy.
39. Labour management programmes embody promotion ofjobcreation, human resources skill
development, improved occupational safety andhealth andpromotion ofgood industrial relations.
Inthiscontext, Ntlafatso Skills Training Centre wasestablished tocreate apoolofskilled labour
especially foryouth withprimary andsecondary education whoenter thelabour force, theLabour
Code wasenacted in1993 anditprovides foratripartite arrangement forlabour dispute settlementsTheKingdom ofLesotho WT/TPR/G/36
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between theGovernment, Organized Labour andEmployers Associations. TheLabour Court was
established in1994withamandate topromote social justice through improvement ofindustrial relations
byadjudicating disputes ofemployers andworkers.
(e) Trade andIndustry
40. Trade andmanufacturing industry sectors haverecorded significant absolute growth since the
startofthedecade. Therelative contribution ofthetrade sector toGDP rosefrom 7%in1980 to
10%in1990 andmaintained thisleveloftheshare ofGDP between 1990 and1996. Thegrowth of
trade gapfellfrom 30%in1991 toabout 20%in1995 duetothesubstantial increase intheexport
ofthemanufacturing goods during theperiod. Lesotho nowisthebiggest exporter ofclothing inAfrica.
41. Themanufacturing sector inLesotho performed wellbetween 1980and1996. While therelative
contribution oftheprimary sector (agriculture andmining) toGDP decreased from 32%in1980 to
14%in1996, thecontribution ofthemanufacturing sector increased from 6.5% in1980 to16.5%
in1996. Themanufacturing sector performed wellevenunder recession intheeconomies ofthemajor
trading partners which wasexperienced during 1989-92.
42. Thedirection oftrade hasrecently changed withdecreased dependence ontheSACU asthe
mainmarket forLesotho 'sproducts. Lesotho 'stotalexports totheUnited States ofAmerica increased
fromM23millionin1989toM197millionin1996,whileexportstoEuropedecreasedfromM57million
in1989toM42million in1996duetorejection ofthethirdrequest ofLesotho fortheEuropean Union
derogation ofrulesoforigin. Exports totheSACU market rosefromM90million toM152 million
inthesame period. Inall,SACU 'sshare ofLesotho 'sexports dropped fromover80%inthe1980s
tojustabout 60%inthe1990s.
43. Theexport andgrowth strategy adopted byGovernment wasthekeydrive toexpansion of
theexport industries. Theinvestment incentives package andnatural attributes ofLesotho alsoproved
tobevaluableforencouragingflowofprivateinvestmentespeciallyintextilesandclothing.Thepackage
encompasses;
- a15%corporate taxonmanufacturing industries withnowithholdings taxes
- exemption ofgeneral salestaxonmachinery formanufacturing
- a50%skills training grant,
- freemovement andrepatriation ofcapital, dividends andprofits,
- concessional loans and/or equity participation facility,
- exemption ofduties onimportation ofinputs intothemanufacturing ofclothing forexport,
- GeneralizedSystemofPreferencesaccordedLesothoproductsinNorthAmerica,Europe,Japan,
Commonwealth countries andSADC countries,
- freemarket access totheSACU,
- protection offoreign investment through Lesotho 'smembership oftheMultilateral Investment
Guarantee Agency (MIGA),
- provision ofadvanced serviced factory shells,
- proximity totheports ofSouth Africa, and
- costeffective, literate anddexterous labour force.
44. Government iscommitted tomaintaining momentum achieved inthepasttenyears inexpansion
ofthemanufacturing sector, especially inclothing, footwear andconsumer electrical/electronics through
export-led growth strategy. Thelocally resource-based industries suchasclay-based brick production
andmineral water bottling willalsocontinue tobeaccorded highpriority. Among other principalWT/TPR/G/36
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ingredients toinvestment attraction, itisrecognized thatpolitical andpolicy stability, security oflife
andproperty, sound industrial relations, elimination ofcumbersome administrative procedures required
forestablishing industries, improved fiscal andfinancial incentives andimproving efficiency, reliability
andcosteffectiveness ofutilities arenecessary toattract investment intheindustrial sector. Commitment
oftheGovernment inthisregard isnotspared.
IV. TRADE POLICES AND PRACTICES BYMEASURES
45. Lesotho 'seconomy isvulnerable toexternal threats notably theprocess ofreduction ofthe
SACU tariffs, which willimpact onthecustoms receipts, theretrenchment ofBasotho working inthe
mining industry ofsouth Africa thatwillresult inadecline inmigrant mine workers 'remittances,
anddeclineinconstructionactivityassociatedwiththeLesothoHighlandsWaterProjectatthecompletion
ofPhase 1A,which willcause adropincustoms revenue fromtheproject 'srelated imports. Possible
changesinthetradingregimeasaresultoffree-tradenegotiationsbetweenSouthAfricaandtheEuropean
Union, between SACU andZambia andamong SADC members states willalsohaveabearing on
Lesotho 'seconomy.
46. Itisagainst thebackground reflected above thatthetrade policy ofLesotho aimsat;
- preserving andmaintaining external competitiveness,
- strengthening thebalance-of-payments position,
- diversifying export products andmarkets,
- developing theexport capacity ofthesmall, medium andmicro-enterprises,
- improving onfaircompetition andeasyaccess totheretail andwholesale services, especially
bytherural population, and
- improving onefficiency ofallocation anduseofresources byremoving trade distortions.
47. TheGovernment iscommitted tothedevelopment oftheprivate sector astheengine ofeconomic
growth. Theprivatization programme isakeyinstrument fordiscontinuing theGovernment 's
involvement indirect investment, ownership andmanagement ofenterprises buttheGovernment will
retain theroleofcreating anenabling environment forprivate sector participation. Systematic decontrol
andderegulation ofmarketing, where appropriate, willcontinue tobepursued.
48. Theexport sector isimportant toLesotho, given thesizeofthecountry andtheopenness of
theeconomy. Inrecognition ofthelarge deficit onthecurrent account averaging 17%ofGNP over
theperiod 1990-96, theGovernment attaches high priority tothedevelopment ofexports by
diversificationofLesotho'smanufacturingindustriesandmarkets.Hence,notonlyeffectiveparticipation
ofLesotho intheregional andglobal trade andinvestment arrangements isimportant butalso
management ofthese arrangements isessential. Inthisregard, Lesotho actively participates inthe
renegotiation oftheSACU agreement, SADC Trade Protocol andEU-ACP post-Lomé Convention
proposals andmonitors abidance oftrading partners totheWTO rules.
49. Currently, Lesotho 'spolicies andpractices arelargely influenced bytheSACU arrangement
andinparticular bySouth Africa 'spractices. TheStructural Adjustment Programmes alsoplayed a
great partinshaping current practices which affect import andexport flows. Therecent emphasis
ofSADC ondeepening economic integration intheregion willalsohaveagreatbearing onthedirection
andnature ofLesotho 'strade policies andpractices.TheKingdom ofLesotho WT/TPR/G/36
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50. Thegeneral trade policy environment isliberal. Import permits areautomatically issued for
industrial products ifenvironmental, safety forhuman andanimal health, national security andsocial
moral criteria aresatisfied.
51. With regard totheagricultural sector, thepresent import controls andrestrictions arethe
remnants ofthepastimport substitution policy anddictates oftrade andinvestment regimes applied
intheregion, especially inSouth Africa. Suchregimes werecharacterized byhightariffandnon-tariff
protection
(a) Agriculture
52. Liberalization oftrade intheagricultural sector wasinitiated in1996 withwhole grains and
theirproducts. Price fixing andimport restrictions were removed. Theremaining controls areon
importation ofpoultry eggs, rawmeat, andmilk. Themain reason istocushion theimpact ofthe
existing control measures being practised inSouth Africa inthesame subsectors andforthefactthat
intensive livestock production istheprincipal income-generating industry forthesmall agricultural
holders.
(b) Tariff Policy
53. Lesotho hasnoindependent tariff policy. TheSACU agreement hasaccorded South Africa
thediscretion todetermine tariff policy, setting andaltering thecommon external tariff forSACU.
Assuch, Lesotho likeother members ofSACU applies tariffs, excise, anti-dumping, countervailing
andsafeguard duties togoods imported fromthirdcountries asdetermined forSACU bySouth Africa.
Forthisreason,thetariffpolicyappliedbyLesothodoesnotnecessarilyreflectthedevelopmentpriorities
ofthecountry. Thislossoffiscal discretion forms partoftheSACU renegotiations.
54. TheSACU agreement allows forLesotho tolevyadditional duties onimports inorder toprotect
strategic, infant industries. However, thisprovision hasnever beeninvoked. Theprincipal reasons
forreluctance ininvoking suchaprovision are:theadministration andcostofcollecting additional
duties could notbeafforded, theperiod allowed forprotection wasthesame, eight years irrespective
ofthenature ofanindustry tobenursed, anditwasrequired thattheduties collected bedeposited
totheSACU revenue pooltobeshared byallmembers inaccordance withtheformula. Thislast
requirement wasdifficult toentertain inthatsuchtransfers aftertaxing Lesotho 'sconsumers andnot
being usedtosupport thesame infant industry would notbejustified. Thepotential smuggling that
could becaused bypricedisparity alsoposed adifficulty ininvoking the"infant protection" provision
intheSACU agreement.
55. Inview ofthenumerous andcumbersome tariff linestomanage andthecomplexibility of
managing toomany specific duties, consultations havebeencarried onbetween Lesotho andSouth
Africa torationalize thetariff structure. Thepurpose istosimplify thetariff lines, remove specific
duties byconverting them intoadvalorem ratesandremove protection oncommodities notproduced
andwhich havenosubstitutes intheSACU.
56. Thediscretion given toSouth Africa todetermine tariffpolicy didnotabsolve SACU members
fromthemanagement tariffs. Control andelimination ofsmuggling ofgoods andtariff evasion isthe
collective responsibility ofallmembers. Tariff evasion hasbeenaddressed byLesotho inseveral ways.
Afirmofauditors andforensics from South Africa wasengaged tofindtheloopholes andreflect on
action tobetaken. Theadministration oftheExport andImport Legislation wastransferred fromthe
Customs andExcise Department totheMinistry ofTrade andIndustry inorder toinstitute amechanismWT/TPR/G/36
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ofchecks andbalances inthesystem. TheCustoms andExcise Department isnolonger issuing import
permits.TheCustomsandExciseDepartmentonlyadministerstheclearingdocuments.Officer-friendly
guidelines andprocedures formanaging thetariffs havebeendeveloped toensure thatmisrepresentation
andmisclassification ofgoods areavoided. Lesotho works closely withSouth Africa onincidences
ofdiversion andtrans-shipment ofgoods.
57. Trade history inLesotho records thatthecountry hasbeenanopen economy withminimal
non-tariff barriers byregional standards. There arenoformal import quotas andnostatetrading bodies.
Import andexport procedures aretransparent andtimesaving. There arenoexport taxesandcontrols.
58. Thelocation ofLesotho hasnaturally caused South Africa toproviding anexternal protection
forsub-standard imports intoLesotho aswellaspreventing dumping from thethird countries. As
such, thestandards applied havebeenthose oftheSouth Africa 'sBureau ofStandards. Currently,
therules oflocalcontent arenotapplied inLesotho.
59. Inthecontext ofglobalization ofworld economy andtheopening ofSouth Africa 'seconomy,
Lesotho isintheprocess ofestablishing theStandards andQuality Assurance legislation, reviewing
theintellectual property rights legislation andformulation ofcompetition legislation. Inviewofthe
factthatthecountryhasnoexperienceincountervailingandanti-dumpingmanagement,intensivetraining
ofthetrade promotion officers willbeembarked oninthisregard aswellastraining onmanagement
oftheWTO rules.
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