For starters, the Comprehensive Economic Cooperation and Partnership Agreement between India and Mauritius is rather slim. It is far less ambitious than the negotiations between the two countries over the years would have suggested. As per the India government’s release issued after the signatures, the agreement will cover exports of just 310 items from India and 615 by Mauritius. Even then, it is difficult to see how the prosperous Indian Ocean island with a population of just 1.3 million and a GDP of $14 billion can ratchet up a supply line to flood the Indian markets.
A substitute FTA
“The deal could help New Delhi to not only enter the African market but also tap into Europe, without having to sign a free trade agreement
with either,” said Rajeev Kher, former commerce secretary. Mauritius is a signatory to the African Continental Free Trade Area agreement. The main objectives of the pan-African agreement is to create a single continental market for goods and services, with free movement of business persons and investments. Trade under the African Free Trade Area began from January this year. Mauritius is also eligible for trade preferences with the European Union under the Interim Economic Partnership Agreement it has signed since March 2018. And again from January this year, Mauritius and the UK will trade under the United Kingdom - Eastern and Southern Africa Economic Partnership Agreement.
These are all free trade or the more ambitious versions, economic partnership agreements which India has baulked from signing. In 2019, it walked away at literally the eleventh hour from the proposed 16-nation Regional Comprehensive Economic Cooperation agreement. It has failed to complete the signing of all other trade agreements with other countries. This is because India has had stiff difficulty convincing domestic economic constituencies to sign on to any such major deal. Mauritius could instead be a stepping stone for Indian companies with global ambitions to offer a range of products and infrastructure services in these countries with Port Louis as their base.
“We do not have a donor-recipient relationship with Africa but consider them as our partner countries,” said Rahul Chhabra, secretary, economic relations, Ministry of External Affairs at a Ficci event. There are 75 Indian projects running in 48 African countries for about $13 billion. Yet, for all the brave words, most African countries are not enthused about Indian investments, and are looking to China instead. As Kher said, the India-Mauritius deal might thus offer a sort of back door entry to world trade.
For goods flowing into India through the deal, this could be messy. The key clause to watch out for in this context is the one on domestic value addition or that of rules of origin. The clause lays down the extent of value addition a trade partner has to offer on a product or service before it can qualify for preferential trade under any agreement.
Indian traders and other interest groups have long insisted that the government should write in a stiff local content or rules of origin to thwart the chance of third countries routing their business through such free trade agreements. It is difficult to expect, however, that Mauritius will have domestic entities that can do substantial value add even for the slim lines of business that India has opened for free trade with it. While such opportunities may not be cut and dried the agreement does mention rules of origin. Here too, India has walked the extra mile giving Mauritius a two-year time frame to set up an Automatic Trigger Safeguard Mechanism to mutually monitor “a limited number of highly sensitive products”. Among other areas the agreement covers
are those of technical barriers to trade, sanitary and phytosanitary measures, dispute settlement, movement of natural persons, telecom, financial services, customs procedures and cooperation.
A commerce ministry official said there were strategic interests behind the signing of the agreement by India after staying away from the game for a long time. One of them is to make it clear to the world that India shall remain willing to engage in such deals. India has not pushed ahead with even simple trade deals like those with Russia or Peru. The other is to cement its economic relations with the islands of Indian Ocean that China has been making deep inroads into.
The announcement of the agreement comes on the heels of several measures New Delhi has announced to push investment into the country. These announcements have come in the budget for FY22 and in the mini budgets unveiled earlier. The agreement follows a similar template and is expected to magnify the noise around them.
Comparison with Singapore:
In this context, it is in the financial sector where as a signalling tool the India-Mauritius trade deal could be a big news.
Mauritius’ position as an offshore tax friendly conduit of finance into India finally ended in 2017. It was because of a change in tax laws made by India in 2017. Under the double taxation avoidance agreement signed between the two nations in 1981, Mauritius based companies were exempted from having to pay capital gains tax. This allowed round tripping of money to Indian stock markets and it took India the better part of two decades to wipe out this concession. It hurt Mauritius even more as the international intergovernmental finance policing body, the Financial Action Task Force put Mauritius in the grey list, countries whose record to curb money laundering is suspect. Pakistan is also in that list.
To re-emerge as a responsible financial centre to tap the African markets, Mauritius will prize India as a partner nation. India has a strong voice in FATF and so the agreement is most useful for the island to advertise. India can now ensure that the old tax evasion culture does not return and yet Mauritius blooms as an offshore financial centre to work in tandem with India’s on shore emerging financial hub, the GIFT city in Gandhinagar.
There is consequently little for Singapore to be worried from the new India-Mauritius treaty. Singapore is now not only a favourite destination for foreign investors wishing to put money into India but offers several specialised services. It is the preferred arbitration centre for disputes about Indian markets like the Amazon-Future deal while more Indian start ups prefer its tax treatment compared with the rules back home. DBS Bank of Singapore has become the first overseas bank to buy out an Indian entity, the Lakshmi Vilas Bank. Of the total foreign direct investment into India, Singapore ranks at the top followed by the US. Mauritius has moved to the fourth position.
Since the Indian agreement with Singapore has checks and balances to ensure there was no repeat of the Mauritius misadventure, there is consequently no possible cause for concern, say commerce ministry officials.