The Federated States of Micronesia (FSM) is a Pacific island nation that relies heavily on imports due to its limited natural resources and small domestic manufacturing base. This reliance on imported goods means that the customs and import duties system plays a crucial role in regulating the flow of products into the country, while generating revenue for the government. The tariff rates in Micronesia are structured to support domestic economic needs, safeguard local industries, and meet international trade commitments.
Micronesia’s tariff system is primarily governed by the National Government through the Department of Finance and Administration. Import duties in the FSM are based on the Harmonized System (HS) Codes, which classify products by their nature and intended use. Goods imported to Micronesia are subject to import duties, but the country also maintains special arrangements with certain trade partners, particularly the United States, which affect tariff rates on specific products.
Introduction to Micronesia’s Customs Tariff System
Micronesia has a relatively simple tariff structure designed to accommodate the needs of a small island economy. Given the limited industrial base and the significant reliance on imports, the government has established a tariff system that ensures the flow of essential goods while maintaining a balance with local economic priorities. The Federated States of Micronesia (FSM) has a small but growing population that depends on imports for most consumer goods, foodstuffs, industrial materials, and energy resources.
The customs duties in Micronesia are relatively straightforward and range from low to moderate levels depending on the product category. Essential items like food and medicine often benefit from reduced or zero tariffs, while luxury or non-essential goods may face higher duties. The government also applies certain preferential treatment to products imported from the United States due to the Compact of Free Association (COFA) agreement, which grants specific trade benefits between the FSM and the U.S.
Although there is a limited domestic manufacturing sector in Micronesia, the country’s location in the Pacific and its membership in regional trade agreements have influenced its tariff policies. With the aim of diversifying its economy and enhancing infrastructure, Micronesia has worked to establish customs policies that allow for both economic protection and the encouragement of trade.
Tariff Categories and Duty Rates
The FSM classifies imports into various categories based on product types. Each category carries its own tariff rate, which can be influenced by the necessity of the goods, their contribution to local economic activities, or any special trade arrangements in place.
1. Agricultural Products
Agricultural products are a significant category of imports for Micronesia, which has limited domestic agricultural production due to its small land area, varied topography, and reliance on imports to meet food security needs. The FSM imports a variety of foodstuffs, such as rice, meat, fruits, vegetables, and processed foods. The government applies tariffs to agricultural imports in a manner that protects local agricultural initiatives while ensuring that essential food items remain affordable for the population.
Major Agricultural Products and Duties
- Rice:
- Import Duty: 5–10%
- Special Notes: Rice is a staple food in Micronesia and is one of the most imported agricultural products. The tariff is kept relatively low to ensure that rice remains affordable to the population.
- Meat (Beef, Pork, Poultry):
- Import Duty: 10–15%
- Special Notes: Meat imports from countries like the U.S. and Australia are taxed at moderate levels. Processed meats often carry higher duties compared to fresh cuts.
- Fresh Fruits and Vegetables:
- Import Duty: 10–20%
- Special Notes: Fresh produce like bananas, tomatoes, and potatoes are subject to moderate duties. However, certain fruits that are difficult to grow locally may have lower duties to ensure year-round availability.
- Canned and Processed Foods:
- Import Duty: 15–25%
- Special Notes: Import duties on processed and canned goods vary based on their classification. Non-perishable foods such as canned fish and vegetables are essential, and as such, tariffs may be lower to ensure consistent supply.
2. Machinery and Industrial Equipment
Micronesia relies on a variety of machinery and industrial equipment to support its infrastructure development, agriculture, energy, and construction sectors. Due to its dependence on imports for industrial equipment, the tariff rates for machinery and industrial goods are generally kept at moderate levels.
Major Machinery Products and Duties
- Construction Equipment (Excavators, Cranes, Bulldozers):
- Import Duty: 5–10%
- Special Notes: Equipment used for public infrastructure development, such as road construction and utility expansion, may benefit from lower tariffs to encourage growth in the building and construction sectors.
- Agricultural Machinery (Tractors, Cultivators):
- Import Duty: 10–15%
- Special Notes: Agricultural machinery is essential for improving local farming capabilities, and these items are typically subject to lower duties to support agricultural growth.
- Generators and Electrical Equipment:
- Import Duty: 5–12%
- Special Notes: Electrical equipment, including generators and transformers, are vital for Micronesia’s energy infrastructure. Therefore, they are generally subject to moderate tariffs to make them more accessible.
3. Automobiles and Vehicles
The automobile market in Micronesia is an important category of imports, with vehicles being used both for personal transportation and for commercial purposes. The government applies higher import duties to vehicles to manage environmental impact, reduce congestion, and protect local transport policies.
Major Automobile Products and Duties
- Passenger Vehicles (Cars, SUVs):
- Import Duty: 25–40%
- Special Notes: High tariffs are applied to luxury vehicles, with special exemptions or reductions for vehicles used in public transport or environmentally friendly cars.
- Commercial Vehicles (Trucks, Buses):
- Import Duty: 20–30%
- Special Notes: Commercial vehicles used for cargo or public transport may be taxed at lower rates to support economic activities and infrastructure development.
- Motorcycles and Scooters:
- Import Duty: 10–15%
- Special Notes: Motorcycles are generally taxed at moderate rates, reflecting their popularity for personal transportation in more rural and remote areas.
4. Chemicals and Pharmaceuticals
Micronesia imports a significant amount of chemicals and pharmaceuticals, particularly for healthcare and agriculture. The government typically imposes low or no tariffs on essential products like medicines to ensure their accessibility for public health.
Major Chemicals and Pharmaceutical Products and Duties
- Pharmaceuticals (Medicines, Vaccines):
- Import Duty: 0–5%
- Special Notes: Given the importance of pharmaceuticals for public health, medications, and medical supplies are generally exempt from customs duties or taxed at very low rates.
- Fertilizers and Pesticides:
- Import Duty: 5–10%
- Special Notes: Fertilizers and pesticides are essential for agriculture in Micronesia and are generally taxed at low rates to support local food production.
- Industrial Chemicals:
- Import Duty: 5–15%
- Special Notes: Industrial chemicals are subject to varying import duties depending on their use and essentiality in local industries.
5. Electronics and Electrical Goods
Consumer electronics and electrical goods, such as computers, household appliances, and mobile phones, are key imports for Micronesia. The government applies moderate tariffs on these goods, aiming to promote access to technology while ensuring fair competition in the local market.
Major Electronics and Electrical Goods and Duties
- Consumer Electronics (TVs, Radios, Smartphones):
- Import Duty: 15–30%
- Special Notes: Higher import duties are applied to luxury electronics such as high-end televisions and smartphones, while more essential electronic items like basic mobile phones may benefit from reduced tariffs.
- Household Appliances (Refrigerators, Air Conditioners):
- Import Duty: 20–25%
- Special Notes: Household appliances like refrigerators and washing machines are generally taxed at higher rates, though energy-efficient models may qualify for reduced duties.
- Electrical Parts and Components:
- Import Duty: 5–12%
- Special Notes: Parts and components for repairs or upgrades are generally taxed at lower rates to promote technological advancement.
6. Clothing and Textiles
Clothing and textiles are an important category of imports, as local production of garments and fabrics is minimal in Micronesia. Import duties for these products vary based on their nature, with fashion and luxury goods taxed at higher rates.
Major Clothing and Textile Products and Duties
- Clothing (Men’s, Women’s, Children’s Apparel):
- Import Duty: 20–30%
- Special Notes: Tariffs on imported clothing are moderate, with higher rates applied to more fashionable or luxury items.
- Textile Materials (Fabrics, Yarn):
- Import Duty: 10–15%
- Special Notes: Textile raw materials are taxed at moderate rates to support local garment production and manufacturing.
7. Alcohol and Tobacco
As part of its efforts to curb consumption and generate revenue, the government of Micronesia applies higher tariffs on alcohol and tobacco products.
Major Alcohol and Tobacco Products and Duties
- Alcoholic Beverages (Beer, Wine, Spirits):
- Import Duty: 40–50%
- Special Notes: Alcoholic beverages, especially spirits and imported wines, are taxed heavily as part of public health policy.
- Tobacco Products (Cigarettes, Cigars):
- Import Duty: 25–40%
- Special Notes: Similarly, tobacco products face high import duties in an effort to control consumption and generate government revenue.
8. Special Import Duties for Certain Countries
Under Micronesia’s trade arrangements, certain products imported from countries like the United States benefit from reduced or preferential tariff rates.
U.S. Imports and Tariff Reductions:
- United States:
- Special Notes: Micronesia benefits from the Compact of Free Association (COFA) with the United States, which allows for preferential treatment of U.S. goods, including reduced tariffs on a range of consumer goods, industrial machinery, and medical products.
Country Facts
- Formal Name: Federated States of Micronesia
- Capital City: Palikir
- Three Largest Cities: Weno, Kolonia, and Pohnpei
- Per Capita Income: USD 3,500 (approx.)
- Population: 105,000 (approx.)
- Official Language: English (official), with local languages including Chuukese, Pohnpeian, Kosraean, and Yapese
- Currency: United States Dollar (USD)
- Location: Micronesia is located in the western Pacific Ocean, about 2,600 kilometers (1,600 miles) east of the Philippines and 1,000 kilometers (620 miles) north of Papua New Guinea.
Geography, Economy, and Major Industries
Geography
The Federated States of Micronesia is a nation composed of four states: Yap, Chuuk, Pohnpei, and Kosrae. These states consist of numerous islands and atolls spread across a large area of the Pacific Ocean. The nation is characterized by tropical rainforests, mountainous islands, and pristine coral reefs.
Economy
Micronesia’s economy is heavily reliant on imports, aid, and remittances from citizens working abroad. The major sectors include agriculture, fisheries, tourism, and government services. However, the country faces challenges such as geographic isolation, a small domestic market, and reliance on foreign assistance.
Major Industries
- Fishing: Micronesia has abundant marine resources and fishing is a key part of the economy.
- Agriculture: Limited agricultural activity, mostly subsistence farming, with some production of coconuts, taro, and bananas.
- Government Services: The public sector is a significant employer, funded partly by U.S. aid under the Compact of Free Association.
