Category : Trade Agreement
International Economics Consulting Ltd. (IEC), at the request of the Economic Development Board (EDB) of Mauritius and funding from the World Bank Group, conducted an analysis for Trade in Services Opportunities in the context of the Comprehensive Economic Cooperation and Partnership Agreement (CECPA) between India and Mauritius. The analysis focuses on five main services areas incorporated under the CECPA namely: accounting services, medical services, higher education services, life, and non-life insurance services, and banking services. The CECPA, which was signed in February 2021 and entered into force in April 2021, has the potential of turning Mauritius into a gateway for Indian businesses and investors to access opportunities in Africa by taking advantage of the newly signed and ratified African Continental Free Trade Area (AfCFTA).
In recent years, Mauritius has transformed itself into a fully-fledged services economy. Between the period 1990 and 2020, the value-added of the services industry as a % of GDP has increased from 46% to 68%. Trade in Services has been on the rise globally owing largely to growth in digital technology, changing demographic and consumption patterns, increasing incomes, and globalisation. Mauritius is no exception to this trend and Trade in Services is the key driver of the island’s external trade. The country is a net exporter of services and in 2019, it recorded a positive balance of trade at USD 820 million. Mauritius’s trade policy is based on trade openness and active engagement at multilateral and bilateral levels. The island state’s current trade policy stance focuses upon the diversification of its markets and one of its main objectives is to become a hub for trade and investment in Africa. India, for its part, is amongst one of the fastest-growing economies in the world, having the fifth-largest economy by nominal GDP, surpassing countries such as France and the United Kingdom. The services sector is also a key driver of the country’s economy, constituting 12% of the country’s GDP in 2019 in contrast to the 13.5% global average. India is equally a net exporter of services. Based on figures from 2018, the sectors with the most export from Mauritius to India included accounting services with Indian imports amounting up to USD 9.1 billion followed by USD 3.2 billion spent on financial services. However, imports for accounting and financial services have experienced a decline between 2010 and 2019, registering a Compound Annual Growth Rate (CAGR) of -7.5% and -7.1% respectively.
India is said to have one of the most restrictive services markets in the world. Based on the figures from the OECD Services Trade Restrictiveness Index (STRI), India classifies as the third most restrictive country in this regard, with a score of 0.49. Some of the most restrictive sectors include accounting, insurance and banking services, and the digital sector. India charges high tariffs on digital goods and imposes numerous other barriers such as taxation and subsidies. Against this background, the CECPA, which covers 94 sectors in all, is expected to give Mauritian service providers a competitive edge in contrast to other countries seeking to enter the services market in India. Mauritian service providers have access to 95 sub-sectors in 11 Indian service sectors, including business services, education, financial, health, and professional services whilst Indian service providers can access 115 sub-sectors from 11 Mauritian service sectors. Moreover, an analysis of the Schedule of Commitment indicates a moderate preference margin gained across the five sectors analysed in this study. The analysis was based on a comparison between the Schedules of Commitment by India in the CECPA and that of the ASEAN-India Trade in Services Agreement, given that the countries have a similar profile.
When it comes to accounting services, India has registered a great boost over the years and with the availability of a skilled workforce providing services at around 40-50% lower cost than in developed countries, there is a high level of competition in this sector. Although Mauritian firms can still enter the sector, the market remains more or less inaccessible for foreign accountants owing to various requirements imposed in the country. India offers similar treatment to Mauritius and ASEAN member states in this sector. Both Agreements have no restrictions to the provision of accounting services either through Mode 1 (Cross Border Supply) or Mode 2 (Consumption Abroad). This implies that Mauritian firms should be able to serve this market from Mauritius. However, when it comes to Mode 3 (Commercial Presence) and Mode 4 (Presence of Natural Persons), given that India indicates that these are ‘Unbound’ it means that India has the ability to impose as many restrictive measures as it desires in these areas. Based on these terms, one of the best opportunities for Mauritius would be to attract Indian firms to establish their presence in Mauritius in order for them to service the African market. Secondly, when it comes to the medical industry in India, it is subjected to many regulations and requirements. Unlike the previous sector, the medical services industry indicates some preference gain for Mauritius under the CECPA in comparison with the ASEAN agreement, particularly in Mode 3. For Mauritian service providers, commercial presence, under market access, is only linked to being incorporated in India, and transfer of technology needs to be undertaken. Yet, in ASEAN’s case, besides the other considerations applicable for Mauritius, foreign equity of up to 49% and approval of the Foreign Investment Promotion Board (FIPB) are required. IEC has conducted an in-depth analysis of the other remaining aforementioned priority sectors in order to assess the market access conditions and the preferential trade terms that Mauritius has been given under them. In brief, higher education services, as well as life and non-life insurance, are two areas where India has agreed to new commitments under the CECPA but did not include it under the ASEAN-India trade agreement. Both of these sectors are also relatively closed to foreign competition. The Life and Non-Life Insurances sector in India normally has one of the lowest insurance penetrations in the world at less than 4% and the market is almost closed to foreign competition. Finally, when it comes to banking services, both the CECPA and the ASEAN-India Agreement indicate a closed market with no commitments made by India under Mode 1 and Mode 2. The CECPA shows a limited liberalisation under Mode 3, especially in regard to the modes of the establishment. However, the banking sector in India overall imposes numerous restrictions on foreign banks. Hence, the CECPA will likely strengthen and enhance trade and economic cooperation between Mauritius and India and both countries have taken initiatives to liberalise and promote trade in services.