India-Mauritius CECPA: Opportunities & Implications
HE Ms S. B. Hanoomanjee, High Commissioner of Mauritius highlights some of the major advantages under the Comprehensive Economic Cooperation and Partnership Agreement (CECPA) recently signed between Mauritius and India, which encompasses trade in goods, services and economic cooperation. She further emphasizes on the growth potential that Mauritius offers as a vantage point to Africa.
Mauritius and India share a special and unique relationship that is anchored on deep bilateral ties, cultural affinities, as well as common values and interest. This proven relationship has been further reinforced over the years by high level political interactions, and signing of a wide array of bilateral agreements in various sectors, including education, health, maritime security, ICT, financial services, and many others. Trade and investment relations between both countries have also intensified over the years.
Total foreign direct investment from India to Mauritius, for the last five years, stood at more than US$ 50 million. There are currently around 64 Indian companies, and more than 7,800 Indian workers in Mauritius. India was the second most important trading partner to supply to the Mauritian market in 2020, with exports to the tune of nearly US$ 670 million, representing a major surge of nearly 230% from the 2005 export figure.
On the other hand, exports of Mauritius to India in 2020 were around US$ 14 million. Trade and economic relations between the two countries stretched to a new horizon last February, when the Comprehensive Economic Cooperation and Partnership Agreement (CECPA) was signed during the official visit of Dr. S. Jaishankar, Minister of External Affairs of India to Mauritius. The CECPA entered into force on the first of April, 2021.
The CECPA is a landmark achievement for both countries’ trade and economic relations as it opens new avenues for the business communities of both countries. It also provides an institutional framework that gives better predictability and certainty to the trade regime.
The world is confronted with an unparalleled international health crisis, resulting in the largest economic turndown since the Great Depression. As both countries, along with rest of the world, are grappling to cope with this unprecedented economic recession, CECPA will help to focus on the post-pandemic economic recovery and create an enabling environment for business between India and Mauritius to prosper.
Understanding the India-Mauritius CECPA
The three main components of CECPA are trade in goods, trade in services and the economic cooperation chapter. But the economic cooperation chapter, which has been finalized, will be incorporated within two years from the date of implementation of the agreement. The agreement also includes chapters on rules of origin, sanitary and phytosanitary measures, technical barriers to trade and dispute settlement. In addition, both parties have agreed to negotiate an automatic trigger safeguard mechanism for a limited number of highly sensitive products within two years of the signing of the agreement.
With respect to trade in goods, the agreement improves market access by eliminating or reducing tariffs on a number of products. It provides preferential access to some 300 products of interest to India, including tea, spices, beer, rum and spirits, special sugar, or ayurvedic products, plastic articles, iron and steel products, motor vehicle parts, furniture, amongst others.
Under the agreement, Mauritius has been given market access to India for around 600 products at preferential rates. Some of the benefits to Indian importers in sourcing from Mauritius at preferential rates are as follows:
• Special sugar – 40,000 tonnes at 10% duty, which is currently at 100% in India.
• Canned tuna – 7,000 tonnes and zero duty compared to 150% duty.
• High quality rum – 1.5 million litres at 50% duty as compared to the existing duty of 150%.
• Beer – 2 million litres of Mauritian beer at 25% duty compared to 150% duty.
• Fruit wine – 5,000 litres at 50% duty compared to 150% duty.
• Garments – 7.5 million pieces at zero duty.
Mauritius is well known for its high quality and niche products. For instance, Mauritian rum has been acclaimed globally, and was voted the best during the 2020 International Sugarcane Spirit Awards. In the same way, branded garments, which are sold in Europe and the US, can be sourced duty free from Mauritius.
Another significant advantage under CECPA is that it offers flexible rules of origin for a number of products. This is an important provision, as it allows use of non-originating materials to a certain percentage of the export price and product specific rules, which allow up to 35% value addition. This provision is particularly relevant in the context of value chain, if it intends to take advantage of the vast African market.
With respect to non-tariff barriers, besides providing improved access to the markets of both countries, CECPA also contains a framework to address any non-tariff barriers, sanitary and phytosanitary measures, technical boundaries to trade and trade facilitation measures. The agreement provides for the establishment of a high-powered joint trade committee, as well as subcommittees and the rules of origins, SPS and TBT chapters to ensure that any non-tariff barriers are sorted out as quickly as possible, so that there is no impediment to trade. These committees will be represented at a technical level from both sides.
The agreement also contains provisions to support customs procedures to be applied in a predictable, transparent and reasonable manner to facilitate trade. Furthermore, the chapter on SPS provides a framework for parties to conclude bilateral recognition arrangements of equivalence on SPS measures. Some of the products on which Mauritian authorities would like to have equivalence include, among others, seafood products, alcoholic beverages and tropical fruits. The Mauritian authorities are also considering signing a Memorandum of Understanding (MoU) on equivalence under the Technical Barrier to Trade (TBT) chapter.
The agreement does not cover only trade in goods, it also provides for an appropriate platform to expand bilateral trade in services between Mauritius and India. Mauritius has taken commitments to over 120 service sub-sectors, while India has committed to some 94 sub-sectors. Some of the key sectors include professional services, engineering, education, audio-visual and logistic services. So, this opens up good opportunities for Indian institutions, both in educational and medical field, to set up their business in Mauritius and explore the African market. The agreement also provides a framework to conclude bilateral agreements on the recognition of qualifications, licenses and registration of business in areas of mutual interest.
Mauritius: A key business partner for India
Mauritius is one of the best places to invest in Africa. Democratic principles, rule of law and political stability create a conducive business environment for investors. Mauritius is ranked 1st in Africa and 13th globally in the World Bank Ease of Doing business ranking in 2020. Furthermore, Mauritius’ government is continuously working on implementing reforms and streamlining procedures to make the country even more business friendly. Adding to this, Mauritius has one of the fastest transshipment facilities in the region. Consignments can be transshipped immediately from one vessel to another, provided all formalities are completed beforehand. In a matter of time, the sailing time from India to Mauritius has been reduced to seven or eight days by the new India-Africa service launched by the Mediterranean shipping company.
Moreover, Mauritius offers an attractive taxation policy. With a harmonized rate of 15% of corporate tax, companies are exempted of capital gains tax and tax on dividends. Import of machinery, equipment and raw materials are exempted from customs duties. Foreign investors have the possibility to maintain 100% shareholding in all joint ventures. Companies investing in pharmaceutical products, medical devices, high-tech products and food processing benefit from a special incentive of 8 year tax holiday.
The government of Mauritius has recently embarked on an ambitious project to develop a pharmaceutical and life science Park. This project is designed to encourage investment in manufacturing of medicines for the African region, and also to stimulate research and development. Government is providing a series of incentives, including exemption on registration fees, land transfer taxes and tax credits. Corporate tax of 3% will be levied instead of the usual 15%. Investors will also benefit from eight-year tax holidays. In addition, government has just launched an expression of interest from potential investors for another project, namely the pharmaceutical and biotechnology industry, focusing on the production of vaccines.
The priority areas are COVID-19 vaccines, vaccines for immunization programs in Africa and preventive vaccines. Here also, the government is providing a host of incentives such as exemption on registration fees, land transfer taxes and VAT on construction. Investors will be eligible to a premium investor certificate and will be allowed a full tax credit on the cost of acquisition of patents. Companies engaged in the sector will also benefit from a reduced corporate tax of 3%, instead of the usual 15%. In addition, government will provide a seed capital of MUR 1 billion to the Mauritius Institute of biotechnology for setting up of a manufacturing plant for the local production of COVID-19 vaccines and other pharmaceutical products.
Access point to the African continent
The agreement also has a broader regional dimension, which could be of vital interest to Indian businesses wishing to tap the vast African market. Africa represents a market of 1.3 billion consumers, which is projected to reach 1.7 billion by 2030.
Africa’s consumer spending is currently US$ 1.4 trillion, and is projected to reach US$ 7 trillion by 2030, in view of the fast-rising middle class and growing purchasing power. Indian businesses can team up with Mauritian businesses, and move part of their manufacturing processes to Mauritius to benefit from preferential market access to the African market. This is possible, as Mauritius has duty free access to a market of 450 million consumers by virtue of its membership to the SADC and COMESA region in Africa.
In addition, with the implementation of the African Continental Free Trade Area (AfCFTA) agreement from 1st January 2021, to which Mauritius is a party, this opens market opportunities on a much wider scale. Mauritius could thus be an important gateway between India and Africa. The flexible rules of origin embedded in the agreement, together with a framework to address SPS and NTBs would facilitate this process of big change.
Currently, Africa imports only 5.6% of its products from India. There are several products that India could easily export to Africa, using Mauritius as a production base, thus benefiting from the preferential margin in the African market. As per a study conducted by the World Bank, Mauritius enjoys significant preference margin over its competitors in selected products, which could be partly manufactured in India, with value addition in Mauritius, and which can thereafter be exported to Africa.
These include, amongst others, medical devices, pharmaceutical products, paints, fabrics, electric cables, aluminum products, plastic tubes, glass articles, furniture, household appliances, electric conductors, vehicles, cars, buses, motorcycles and optical fibers. Some of the selected African countries that can be immediately explored are Kenya, Madagascar, Mozambique, Botswana, Tanzania, South Africa, and Seychelles.
India-Mauritius ties: From the mind to the heart
So, let me conclude by saying that Mauritius echoes the spirit of India. The Indo-Mauritius people constitute nearly 70% of our population. When Prime Minister Modi visited Mauritius in 2015, he called Mauritius the ‘Chhota Bharat’. Mauritius is home to Indians just as it is for Mauritians in India. Mauritius-India relations are unique in the sense that they transcend from the mind to the heart.
Both countries are connected by their ancestral, cultural and historical affinity. As a result, the landscape of Mauritius has a very strong Indian influence. Besides English and French, Hindi is commonly spoken. Some people even speak Tamil and Telugu languages and culture, therefore, would not be a barrier. The multilingualism aspect of Mauritius makes it an even more attractive investment destination to tap the African Francophone countries.
The Government of Mauritius is also facilitating import of labor in sectors where there is scarcity of expertise by issuing relevant work and residence permits. So, I, therefore, invite Indian companies to explore the business opportunities that Mauritius can offer in a safe and secure environment, which is further enhanced by the CECPA.
The author is High Commissioner of Mauritius to India. Views expressed are personal.