VZCZCXYZ0007
PP RUEHWEB

DE RUEHSV #0027/01 0220508
ZNR UUUUU ZZH
P 220508Z JAN 09
FM AMEMBASSY SUVA
TO RUEHC/SECSTATE WASHDC PRIORITY 0972
INFO RUCPDC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC 0178
RUCPCIM/CIMS NTDB WASHDC

UNCLAS SUVA 000027 
 
STATE FOR EB/IFD/OIA AND EAP/ANP 
PLEASE PASS TO USTR 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EINV KTBD OPIC USTR FJ
SUBJECT: Tonga Investment Climate Statement 2009 
 
REF: SECSTATE 123907 
 
¶1. Paragraph 2 contains the text of the 2009 Investment Climate 
Statement for Tonga, per reftel. 
 
¶2. Begin text: 
Openness to Foreign Investment 
 
The Government of Tonga seeks to be welcoming to business and 
investors.  Many Tongans have lived in or visited the United States, 
and American products are readily recognized. 
 
Legislation simplifying foreign investment and streamlining business 
registration procedures came into effect April 1, 2007.  Tonga 
became the 151st member of the WTO in June 2007. 
 
In November 2006, a pro-democracy demonstration degenerated into a 
large-scale riot.  Rioters destroyed or damaged some 80% of the 
capital's central business district.  Reconstruction has begun, 
aided in part by government secured funds providing low interest 
loans for reconstruction projects. 
 
New customs and excise regulations that came into effect on July 1, 
2008 grant exemptions from import duty on capital goods. 
 
The Ministry of Labour, Commerce and Industries (MLCI) administers 
Tonga's foreign investment policy and regulations.  Foreign invested 
businesses must obtain and hold valid foreign investment 
registration certificates.  The application fee is about US $50 and 
can be obtained by applying to the Secretary of the MLCI. 
Certificates are valid until the business terminates activity.  If a 
business does not commence activity within a year after a 
certificate is issuance, the certificate becomes invalid. 
 
After obtaining a foreign investment certificate, an investor must 
apply for a business license.  The application, which must be 
accompanied by a valid foreign investment registration certificate, 
can be made to the Business Licensing Officer at the MLCI.  Licenses 
cost about US $38, renewals about US $33, and expire on December 31 
each year. 
 
The MLCI also processes company registrations.  A foreign company 
that wishes to do business in Tonga must apply for incorporation 
under Part XVIII of the Companies Act 1995.  The applicant must 
first reserve the company name at a cost of about US $37.  The fee 
to register is about US $373.  For a company to qualify as a "Tongan 
company," the majority share-holder must be Tongan. Partnerships and 
sole proprietors need not register but must have a valid business 
license. 
 
Land cannot be bought or sold in Tonga, but may be leased through 
formal lease arrangements.  Leases are usually 50 years in duration, 
although the law permits terms up to 99 years.  The government has 
designated areas for small industry development, known as Small 
Industry Centers, on the two main islands.  Foreign investors are 
prohibited from doing business in certain sectors.  An updated list 
of these sectors can be obtained from the MLCI. 
 
 
Conversion and Transfer Policies 
 
The National Reserve Bank of Tonga exercises control on foreign 
receipts and payments.  Repatriation of funds, including dividends, 
profits, capital gains, interest on capital and loan repayment and 
salaries, is permitted, with the following exceptions: 
 
--when an industrial enterprise is partly financed by locally raised 
capital (including working capital), in which case the repatriation 
of funds will be related to the extent of foreign financing; that 
is, repatriation will be regulated on a pro-rata basis; 
 
--in respect of capital gains, the amount eligible for repatriation 
will be restricted to the amount transferred inward through the 
banking system or by other approved methods; and 
 
--expatriate employees will be allowed to remit overseas wages and 
salaries received in Tonga up to the amount on which income tax has 
been paid. 
 
Obtaining foreign exchange is not difficult. 
 
Expropriation and Compensation 
 
Expropriation has not recently been an issue in Tonga. 
 
Dispute Settlement 
 
Tonga has a robust judicial system, staffed at the highest level by 
expatriate judges.  The country's legal system is generally capable 
of enforcing contractual rights.  Tonga has no formal bankruptcy 
law.  There have been no high-profile investment disputes over the 
last five years.  Legislation states that the provisions of the 
United Kingdom's Arbitration Act 1996 governs arbitration under 
Tonga's Foreign Investment Act.  Tonga ratified the Convention on 
the Settlement of Investment Disputes in 1990. 
 
Performance Requirements and Incentives 
 
Investment incentives include: 
 
-- Guaranteed long-term space and land leasing in the Small 
Industries Center, a 12-acre industrial estate, located about one 
kilometer from the center of Nuku'alofa; 
 
-- Residential and work visas for foreign investors and their 
families for as long as the enterprise is in operation; 
 
-- Priority for electricity, telephone, and water connections. 
 
Technical and promotional assistance from the MLCI is available to 
help prospective investors identify, evaluate and set up industries. 
 Once a business license is obtained, the business can operate. 
 
Although the Foreign Investment Act specifies activities reserved 
for local businesses and included a list of these activities, the 
government allows full ownership by a foreign investor in cases 
where manufacturing activities use imported raw materials for 
export, or where the investments are too large for local investors. 
Projects are considered on an individual basis.  The government 
generally encourages joint ventures. 
 
Right to Private Ownership and Establishment 
 
Both foreigners and domestic investors have equal rights for 
incorporating/establishing entities.  Foreign investment legislation 
that came into effect in 2007 contains a list of thirteen business 
activities reserved solely for Tongans and separate list of business 
activities open to foreign investors.  Tonga's Business Licenses Act 
has a separate list of activities reserved for Tongans. 
 
CORPORATIZATION/PRIVATIZATION OF STATE-OWNED ENTERPRISES 
 
A key aim of the government's on-going economic reform program is to 
corporatize and eventually privatize agencies that perform non-core 
government functions. 
 
Protection of Property Rights 
 
Tonga has legislation protecting patents, utility models, designs 
and trade marks.  A bill on enforcement and border measures has been 
endorsed by the cabinet and is currently under consideration. This 
legislation aligns Tonga's laws with its WTO obligations and 
contains stricter border controls for counterfeit products. 
Counterfeit products are widely available on the local market. 
 
Transparency of Regulatory System 
 
While it remains somewhat challenging to establish a business, the 
government has instituted reforms to make the procedures and 
processes easier and quicker for investors.  The World Bank lists 
Tonga as the 43rd easiest country in which to do business. 
 
It is not a practice in Tonga for parliament or government agencies 
to publish draft bills or regulations for public comment. 
 
Efficient Capital Markets and Portfolio Investment 
 
Foreign investors are generally able to obtain credit on the local 
market.  The Tonga Development Bank (TDB), with assets totaling 
around US $30 million, finances development projects that meet the 
TDB's criteria.  In December, 2007 the TDB had a loan portfolio of 
around US $25 million.  There are also three international 
commercial banks, which together had approximately US $160 million 
in domestic private sector loans outstanding in December 2007. 
 
Political Violence 
 
In November 2006, political protests degenerated into a large-scale 
riot.  Numerous buildings were attacked, looted and burned.  Rioters 
particularly targeted businesses associated with the royal family 
and businesses owned by ethnic Chinese and Indians.  Approximately 
80% of Nuku'alofa's central business district was destroyed or 
significantly damaged. 
 
Subsequent to the November disturbances, the government declared a 
state of emergency, empowering the Tonga Defence Services to restore 
law and order within 24 hours of the events.  The state of emergency 
has been repeatedly extended, most recently in November 2008 for 
another 30-day period.  Total damages were estimated to be about 
US$62 million.  Businesses have begun reconstruction, aided in part 
by funds obtained by Tonga's government and used to provide low 
interest loans for reconstruction. 
 
Corruption 
 
Corruption has not been specifically identified as an obstacle to 
foreign investment.  Both corruption and bribery are criminalized 
and prosecuted and the laws appear to be impartially applied. 
 
In July 2008, the Office of the Anti-corruption Commissioner was 
established, charged with investigating official corruption.  There 
are no international non-governmental "watchdog" organizations 
represented locally, and the country was ranked 138 out of 177 on 
Transparency International's Corruption Perceptions Index 2008. 
 
Bilateral Investment Agreements 
 
Tonga is party to a bilateral investment treaty with the United 
Kingdom.  It is not party to any other bilateral investment 
treaties. 
 
OPIC and Other Investment Insurance Programs 
 
Overseas Private Investment Corporation (OPIC) insurance is 
available to investors in Tonga, and OPIC provides political risk 
insurance, finance, direct loans and loan guarantees. 
 
Labor 
 
The 2006 Census placed the unemployment rate at 4.9%.  This rate 
does not reflect the significant number of people who are 
underemployed.  Just over 60% of people in paid employment are male. 
Over two-thirds of all employed people held paying jobs in the rural 
areas while the rest are in urban areas.  About half of those 
employed in the rural areas work in the agriculture industry. 
 
Wages and salaries are comparatively low.  Wages, salaries and other 
conditions of work in the private sector are a matter of direct 
negotiation between employers and workers. 
 
There are currently no trade unions in Tonga, although there is 
legislation permitting unions to form.  The Public Servants 
Association operates as a de facto trade union for civil servants. 
 
Local skilled labor is available in sufficient quantities to 
undertake most types of building work, except for some specialized 
skills and supervisory-level manpower, which is generally recruited 
from abroad. 
 
Foreign-Trade Zones/Free Ports 
 
Tonga does not operate any foreign trade zones or free port 
facilities. 
 
Foreign Direct Investment Statistics 
 
In its 2007 World Investment Report, the UN Conference on Trade and 
Development (UNCTAD) estimated 2006, foreign direct investment in 
Tonga sourced from transnational corporations to be US$51 million, 
equal to 22.6 per cent of GDP. 
 
The U.S. Commerce Department's Bureau of Economic Analysis records 
no U.S.-sourced FDI stocks for Tonga. 
 
According to the MLCI, over 150 foreign companies are currently 
registered in Tonga. Foreign businesses are largely in the retail 
sector, and many are owned by ethnic Chinese and Indians. 
 
Web Resources 
 
Regulatory authorities 
 
Ministry of Labour, Commerce and Industries, P.O. Box 110, 
Nuku'alofa, Tonga.  Tel: (676) 23 688; www.mlci.gov.to; 
 
Ministry of Finance and Economic Development, Nuku'alofa, Tonga. 
Tel:  (676) 23 066; www.revenue.gov.to 
 
National Reserve Bank of Tonga, Private Bag #25, Nuku'alofa, Tonga. 
Tel (676) 24-057; www.reservebank.gov.to 
 
Banks 
Tonga Development Bank, Hala Fatafehi, Nuku'alofa, Tonga.  Tel: 
(676) 23 333; Email: tdevbank@tdb.to; www.tdb.to 
 
Westpac Bank, Hala Taufa'ahau, Nuku'alofa, Tonga 
Tel: 
 
ANZ Bank 
 
CSMCGANN