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Palau is a presidential republic in free association with the United States, which provides defense, funding, and access to social services. Legislative power is concentrated in the bicameral Palau National Congress. Palau's economy is based mainly on tourism, subsistence agriculture and fishing, with a significant portion of gross national product (GNP) derived from foreign aid. The country uses the United States dollar as its currency. Tourist activity focuses on scuba diving and snorkeling in the islands' rich marine environment, including its barrier reefs' walls and World War II wrecks.
The population enjoys a per capita income twice that of Micronesia as a whole. Long-term prospects for the key tourist sector have been greatly bolstered by the expansion of air travel in the Pacific, the rising prosperity of leading East Asian countries and the willingness of foreigners to finance infrastructure development.
Palau mainly exports fish and related products. Major export partners are Japan, the US, Mexico, Cote d'Ivoire, Guam, Hong Kong, Philippines, Germany.
Palau's main exports are:
- Non-fillet Fresh Fish
- Raw Tobacco
- Iron Gas Containers
- Fermented Beverages
- Video Cameras
- Scrap Iron
- Fruit Juice
- Baked Goods
- Scrap Aluminium
Palau's economy is mainly dependent on tourism. Tourist activity focuses on scuba diving and snorkeling in the islands' rich marine environment, including its barrier reefs' walls and World War II wrecks. The government is the largest employer, relying heavily on U.S. financial assistance.
That's why to fulfill all the tourists' needs and maintain the growth of this sector, Palau's imports are concentrated on oil, cars and machines, food, water and drinks.
The service sector dominates the Palauan economy, contributing more than 80% of GDP and employing three-quarters of the work force. The government alone employs nearly 30% of workers. One of the government's main responsibilities is administering external assistance. Under the terms of the Compact of Free Association with the United States, Palau will receive more than $450 million in assistance over 15 years, $30 million per year, and is eligible to participate in more than 40 federal programs. The first grant of $142 million was made in 1994. Further annual payments in lesser amounts will be made through 2009. U.S. grants in 1999 totaled $24 million.
Construction is the most important industrial activity, contributing over 9% of GDP. Several large infrastructure projects, including the rebuilding of the bridge connecting Koror and Babeldaob Islands after its collapse in 1996 and the construction of a highway around the rim of Babeldaob, boosted activity at the end of the 1990s.
Agriculture is mainly on a subsistence level, the principal crops being coconuts, root crops, and bananas. Fishing is a potential source of revenue, but the islands' tuna output dropped by over one-third during the 1990s. There are no Patent Laws in Palau.
Palau's major imports include oil, water, machinery and equipment. Japan, the US, Singapore and Republic of Korea are major import partners of Palau. It is a member of the Pacific Island Countries Trade Agreement (PICTA).
Palau's main imports are:
- Refined Petroleum
- Flavored Water
- Electric Generating Sets
- Spark-Ignition Engines
- Electric Motors
- Rolled Tobacco
- Frozen Bovine Meat