Category : Trade Agreement
At the request of the Economic Development Board (EDB) of Mauritius and funding from the World Bank Group, International Economics Consulting Ltd. (IEC) has conducted an analysis for Trade in Services opportunities in the context of the Mauritius-China Free Trade Agreement (FTA). The analysis is centred around five key elements namely: accounting services, medical services, higher education services, life, and non-life insurance services, and banking services. The Mauritius-China FTA, signed in October 2019 and entered into force on 1st January 2021, is one of the latest instruments leveraged by China in order to expand its sphere of influence in Africa. Mauritius is the only African country with which China has entered an FTA.
In recent years, Mauritius has reinvented its economy, transitioning from an industrial economy focused on sugarcane and textile production to a fully-fledged services economy. In 2020, the share of the country’s services value-added as a percentage of GDP was at 68%, reflecting a 22% rise from 1990. Trade in Services is the key driver of Mauritius’ external trade and Mauritius is a net exporter of services, having recorded a balance of trade estimated at USD 820 million in 2019. The export of financial services has been one of the fastest-growing services exports in the country, increasing at a rate of 10% every year. On the other hand, China, despite being the world’s largest exporter of goods is a net services importer. In 2019, Trade in Services accounted for a mere 5.2% of the country’s GDP. This is in stark contrast to other leaders in the region such as India and Japan where trade in services for the same period made up more than 12% and 8% of GDP respectively. In 2019, China has imported USD 500 billion of services in contrast to USD 193 billion in 2010, resulting in a CAGR of approximately 10%. With exports, an increase of 4.7% was noted across the same period. China’s imports of services mainly involve travel services while exports are mostly concentrated around other business services, travel, and transportation services. In the context of ‘Trade in Services’ with Mauritius, some of the sectors with export potential include business services whereby China imported USD 47 billion worth of services from Mauritius in 2019. During the same period, insurance services worth USD 11.6 billion were also imported by China, followed by another USD 2.1 billion worth of financial services. Between 2010 and 2019, financial and business services have been gradually increasing, reflected in CAGR of 5% and 3% respectively in contrast to insurance services where a decline of 3% was observed. Overall, between the period 2010 and 2019, China’s imports from Mauritius have been increasing by over 9% annually.
Given the expanding levels of trade between the two countries, both are likely to benefit from the FTA. In terms of Trade in Services, both countries have agreed to remove restrictions across more than 100 service sectors, including financial services, telecommunications, Information and Communications Technology, Professional Services, and Health services amongst others. China’s services liberalisation commitments under this FTA widely exceed its WTO accession commitments, having eased many restrictions in the services sector. Mauritius will hence benefit from reduced tariffs on its exports to China. Despite the limited capacity of production in Mauritius, the FTA could still lead to an increase in Mauritius’ exports to China. Another noteworthy aspect of the FTA is that Mauritius has granted complete access to its markets to Chinese medicine providers and has undertaken commitments to strengthen cooperation and exchanges in traditional Chinese medicine. China will also derive benefits from this FTA through Mauritius’s strong diplomatic influence across the African continent. Having Mauritius as a preferential trading partner will be beneficial to China in its future negotiations with other African states such as South Africa, Nigeria, and Kenya where Chinese interest has been expanding.
China’s services market is considered to be one of the most restrictive in the world and according to the OECD Services Trade Restrictiveness Index (STRI), China ranks as the world’s 5th most restrictive country, with a score of 0.42. Restrictiveness is prevalent across all sectors of its service economy, including digital trade. The European Centre for International Political Economy (ECIPE) claims that China applies some of the most restrictive policies in the areas of digital trade and e-commerce, making it very burdensome and costly for companies. In this context, Mauritian service providers will benefit from a competitive edge against competitors from third-party countries. Cooperation in the e-commerce sector is an area of interest to both Mauritius and China under this FTA. Both parties have agreed to exchange and share information on e-commerce policies, laws and regulations, practical experiences, and research and training. Both parties also undertake to improve the management of e-documents related to trade in a bid to create a conducive e-commerce environment that will improve efficiency and lead to market expansion.
Finally, an analysis of the Schedule of Commitments of the five sectors analysed in this report, indicates that there is no preference margin gained, and, in some cases, the Agreement requires more stringent market access conditions to Mauritius compared to the member states part of the Regional Comprehensive Economic Partnership (RCEP) with China. For instance, in the Insurance Services sector, there is some level of preference margin for RCEP firms. Regarding life insurance, Mauritian firms are allowed 51% foreign ownership in a joint venture with the partner of their choice, and this cap is eliminated after three years whilst firms from RCEP countries can establish as a branch or as a foreign-invested enterprise with no form of establishment restrictions. Moreover, in regard to non-life insurance, Mauritian firms are restricted to providing services only in health, individual/group, and pension/annuities insurance to foreigners and Chinese while RCEP firms can provide a much broader range of non-life insurance services. On the other hand, in regard to accounting services, China offers the same treatment to Mauritius as it does to RCEP parties. A similar situation is observed in medical services and higher education services, with China tabling the same commitments across the Mauritius-China FTA and the RCEP and granting the same level of liberalisation to Mauritian services providers. As far as banking services are concerned, the Mauritius-China FTA provides more details concerning the licensing criteria in the FTA than in the RCEP. More generally, however, over the past years, China has opened its banking sector to foreign competition and has eliminated numerous long-standing barriers for foreign banks, which will facilitate entry for Mauritian providers even further.