II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES. (1) General Framework

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1 Mauritius WT/TPR/S/5 Page 21 II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES (1) General Framework 1. After settlement by the Dutch (1638 to 1710), Mauritius was colonized by the French in 1766, and in 1810, following the Napoleonic wars, the island came under British rule. Under the Treaty of Paris (1815) the French legal system was preserved and cultural rights safeguarded. In 1885 Mauritius adopted its own Constitution allowing for representative government. Independent from the United Kingdom since 12 March 1968, Mauritius is a multi-party parliamentary democracy which, following constitutional amendments, became a Republic on 12 March The President, who is the Head of State, is elected by a majority of all the members of the Assembly for a term of five years. The President, appoints as Prime Minister the member of the National Assembly who appears to him best able to command the support of the majority of the Assembly. The Deputy Prime Minister, Attorney-General, and other Ministers, of whom there may not be more than 24, are appointed by the President, on the recommendation of the Prime Minister. The Cabinet, consisting of the Prime Minister and the Council of Ministers, is collectively responsible to the National Assembly. The Assembly, whose term is five years, consists of 62 elected representatives; in addition, up to eight "best losers" may be appointed to ensure fair and adequate representation of each community Legislative power is exercised by Parliament, composed of the President and the National Assembly. Bills, except those relating to the Constitution, require only a simple majority. Regulations are made under specific provisions provided for in an Act and are also published as Government Notices in the Government Gazette. The Constitution is the Supreme Law of the country. Amendments regarding some provisions of the Constitution require a three-quarter majority and, in respect of other provisions, a two-thirds majority, in the National Assembly. 4. International treaties, including those relating to trade, are signed by the President, or his representative and, generally, have to be ratified by Parliament. The legislative process requires that international treaties become part of domestic law. Government has, in principle, agreed to enact necessary legislation for the incorporation of the WTO Agreement into domestic legislation. 5. The judiciary in Mauritius consists of the Supreme Court, a Court of Civil Appeal, a Court of Criminal Appeal and lower courts. The Chief Justice of the Supreme Court is appointed by the President following consultations with the Prime Minister. 2 (2) Structure of Trade Policy Formulation and Implementation 6. Primary responsibility for the formulation of trade policy lies with the Ministry of Trade and Shipping, which is also the authority empowered to sign trade agreements. 3 Periodic consultations 1 The Constitution; and Economist Intelligence Unit (1995). 2 The President also appoints an Ombudsman, who cannot be a government official. This office investigates complaints and allegations of injustice, fraud or corruption brought against any officer or authority in the exercise of their administrative function. 3 The Ministry of Trade and Shipping consists of six divisions: Foreign Trade, Import, Prices and Consumer Protection, Legal Metrology, Industrial Property and Shipping.

2 WT/TPR/S/5 Page 22 Trade Policy Review are held with other Ministries, including Finance, Economic Planning and Development, Agriculture, Health, Industry and External Affairs, as well as the Department of Customs and other public agencies. 7. The private sector, including the Chamber of Commerce and Industry, contributes to the formulation of trade policy, through direct consultations with the Ministry and through the Joint Economic Council which meets to co-ordinate economic policy, including trade There are no permanent advisory or review bodies empowered to consider trade policies. 5 However, sub-committees were set up, under the aegis of the Ministry of Trade and Shipping, in the course of the Uruguay Round to co-ordinate a negotiating position. These committees still meet to deliberate the legislative and policy changes required to meet WTO obligations and adopt appropriate policies in the areas of textiles, agriculture, services, intellectual property and the implementation of the Uruguay Round Final Act. An Industrial Council, with representatives from various government agencies, advise the Ministry of Industry on the appropriate incentive framework to develop the industrial sector. Incentives available under the Agricultural Development Certificate Scheme are subject to review to ensure that objectives are met by the Ministry of Agriculture and Natural Resources whose recommendations are submitted to the Ministry of Finance for approval. A joint private/public High- Powered Committee advises the Government on agriculture policy. 9. When legislation is required to implement trade policies, Bills must be submitted to the Solicitor- General for vetting, then approved by the Cabinet and passed by Parliament. An examination to determine which trade laws need to be brought into conformity with WTO obligations has, to date, identified the Customs, Copyright, Patent and Trade Mark Acts for review (Table II.1 lists the main laws related to trade). 10. The Schedules to the Customs Tariff Act 1970, as amended in 1994, set out customs duties and specific concessions and exemptions. According to Section 15 of the Customs Tariff 1988, the Minister of Finance may amend the Schedules by regulation. Ad hoc tariff changes require only the approval of the Minister, whose discretionary power is used sparingly, and come into force upon publication in the Government Gazette. In addition to the existing tariff exemptions and concessions in the Tariff Act, temporary exemptions or concessions on duties may be requested from a Committee within the Ministry of Finance. If the Committee's recommendations for the concession is approved, the concessional rate may be issued as an amendment to the Customs Schedules. 11. Incentive schemes involving tariff reductions or exemptions made available on specified products for manufacturing firms are recommended by the Ministry of Industry and Industrial Technology, those under agricultural incentive schemes are recommended by the Ministry of Agriculture. All recommendations require approval by the Ministry of Finance prior to entering into force. 4 The Joint Economic Council (JEC) is a joint private sector/government body designed to promote the interests of the private sector and free enterprise in Mauritius by, inter alia, putting forward recommendations regarding legislation and other measures. In addition to the Mauritius Chamber of Commerce and Industry, its membership includes the Mauritius Chamber of Agriculture, the Mauritius Sugar Producers' Association, the Mauritius Export- Processing Zone Association, the Association des Hôteliers et Restaurateurs de l'ile Maurice, the Mauritius Bankers' Association, the Insurers' Association and the Mauritius Employers' Federation. 5 A National Economic Development Council, with members appointed by the Prime Minister, acting in their personal capacity, provides a forum for debate on vital economic issues with a mandate to develop a "strategic plan" for improving economic performance.

3 Mauritius WT/TPR/S/5 Page 23 Table II.1 Trade laws and regulations in Mauritius Customs procedures and valuation The Customs Act 1988 Customs Regulations 1989 The Customs Tariff Act 1994 Taxes and charges The Sales Tax Act 1982 The Excise Act 1994 Export duties The Sugar Act 1959 The Sugar Industry Efficiency Act 1988 The Sugar Industry Efficiency Amendment Act 1993 Import and export control The Supplies Control Act 1974 Standards and regulations The International System of Units Act 1983 The Mauritius Standards Bureau Act 1993 The Food Law 1995 The Legal Metrology Act 1985 Industrial incentives The Freeport Act 1992 The Industrial Expansion Act 1993 Competition law Fair Trading Act 1979 Consumer Protection Act 1991 Source: Information provided by the authorities. (3) Trade Policy Objectives (i) General 12. For more than ten years the trend of economic policy in Mauritius has been towards promoting a liberal trading environment with a strong emphasis on export orientation. In 1992 the legislative and regulatory framework for offshore and free-port activities was put in place in order to diversify the economy by generating backward linkages into local business services, and to position Mauritius as a regional trading centre. Regional (inter-african) trade co-operation is viewed as an important vehicle for increasing competitiveness and expanding markets. 13. The Government's overall aim is the continued industrialization, modernization and diversification of the economy by creating an environment for "flexible specialization", although it maintains a pragmatic approach towards adopting policies. 6 The current long-term goal of trade policy within the context of overall economic policy is the integration of the offshore and domestic markets, a goal which will tend to reduce the overt emphasis on export orientation. This trend was initiated with the adoption of the Industrial Expansion Act (1993) which explicitly extends previous export incentives to local industry (Chapter IV(4)(ii)). An Ad Hoc Committee, within the Ministry of Finance, is in charge of tariff restructuring and intends to further reduce dispersion while, according to the authorities, deliberately building in tariff escalation to promote domestic value added. The significant revenuegenerating effects of tariffs for government income represents a potential constraint to the process of duty reduction. 6 Republic of Mauritius (1993a), p. 145

4 WT/TPR/S/5 Page 24 Trade Policy Review (ii) Mauritius in the Uruguay Round 14. The authorities note that during the Uruguay Round negotiations Mauritius sought to safeguard its rights under existing trade agreements and to secure special and differential treatment as a small island developing country. 15. Mauritius bound rates on ten (four-digit) industrial products tariff items (or 76 six-digit tariff lines, equal to 1.5 per cent of its tariff) (Chapter IV(2)(ii)(b)); bindings on customs duties are at ceiling levels, set at 65 per cent, and a bound rate of 17 per cent has been scheduled under "other duties and charges". 16. In agriculture, Mauritius has made full use of the exemptions allowed to developing countries. Accordingly, while Mauritius does not have specific reduction commitments in respect of domestic support and export subsidies, it is nevertheless constrained by the general disciplines under the Uruguay Round Agreement on Agriculture; for example, the use of export subsidies other than those under the provisions of Special and Differential Treatment, such as certain marketing-cost reduction and transportation measures, is prohibited. In the area of agricultural import tariffs, all rates have been bound at a ceiling level of 122 per cent, with the exception of 17 items of meat, dairy products, vegetables, fruit and grain bound at 37 per cent and seven items, covering tea and tropical or preserved fruit and juice, bound at 82 per cent. According to the authorities, these bindings afford protection to tea and agro-industry products and to poultry and sugar Under the General Agreement on Trade in Services (GATS), Mauritius made significant commitments in tourism and telecommunications (Chapter V(4)(i) and (ii)). In telecommunications, market access is governed by the licensing requirements of the Telecommunications Act Under its commitments, Mauritius is obliged to maintain transparency and to allow interconnection with public networks and the cross-border movement of information. 18. The Mauritian authorities are generally satisfied with the results of the Uruguay Round, particularly the strengthened trade rules and disciplines. Nevertheless, they have some concern that the phasing-out of the Multifibre Arrangement (MFA) will erode the preferential access that Mauritius' exports of textiles and clothing enjoy under the Lomé Convention into the EU market; and that the implementation of the Agreement on Agriculture, together with the reform of the EU sugar régime, will weaken the price Mauritius receives for its sugar exports to the EU. The authorities also suggest that as a net food importer Mauritius could be adversely affected by the higher food prices that might result from the Agreement on Agriculture. (iii) Sectoral 19. Mauritius' policy objectives in the agricultural sector include its modernization and increased efficiency, including the provision of inputs at reasonable prices, and diversification, while increasing the profitability of the sugar sector in light of possible reductions in guaranteed prices for exports to the EU. Major policy instruments adopted towards these goals include fiscal incentives (corporate tax reductions, dividend and duty exemptions on imported equipment) available since 1983 for non-sugar agriculture under the Agricultural Development Incentive Scheme, and reduced export duties on sugar (Chapter IV(3)(ii)). 7 Republic of Mauritius (1994b).

5 Mauritius WT/TPR/S/5 Page In order to encourage local production and reduce food imports, the Government has set guaranteed prices for certain food crops. State-trading operates in the marketing of imported and locallygrown foods, several of which are under price control, as are imports of staple rice and flour. Consumer subsidies for these latter products were eliminated in 1993 but reinstated in Use of the interlines of sugar cane fields for the production of food crops for local consumption has been successful in certain cases, increasing the return to agricultural land, and the export of horticultural crops has been assisted by the introduction of an air freight rebate scheme in With an industrial sector dominated by labour-intensive clothing manufactures, and the Government's past emphasis on export-led growth, diversification is considered vital in light of changes in the international trading environment. Current policies focus less on providing fiscal advantages solely on the basis of export performance and more on the integration of the industrial base. Various incentive schemes, consolidated under the Industrial Expansion Act 1993, extend fiscal and duty exemptions to domestic industries adopting skill- or capital-intensive technologies or those catering to EPZ firms (Chapter IV(4)(ii)). Measures to enhance labour productivity include a government-assisted skills training programme (Chapter IV(4)(i)). Electronics, printing and jewellery have been identified as priority sectors where Mauritius may develop a competitive advantage, and accordingly, additional financial benefits are accorded to those industries (Chapter V(3)(ii)(b)). In the largest manufacturing sector, textiles and clothing, the plan is to foster inter-linkages within the sector so that greater specialization, economies of scale and product differentiation can occur. Measures are being adopted to reorient the sector towards more up-market goods, pursue a more aggressive marketing strategy, upgrade skills and restructure production facilities to encompass higher technology and automation. 22. By setting up the offshore business and free-port authority in 1992, Mauritius is trying to take advantage of its location in developing the tertiary sector of its economy. Its geographic situation in the Indian Ocean lends itself to free-port activities, trans-shipment and re-export, and its distance from other markets does not present a cost impediment to the provision of offshore financial services. In addition to free-port and offshore services, the Government seeks to encourage the development of support services to industry, liberalize the financial sector, inter alia, through the eventual merging of onshore and offshore banking facilities, assist the growth of tourism through incentives towards hotel development and modernization, improve regional transportation links and adopt market opening measures in the telecommunications sector. (4) Trade Agreements (i) Multilateral agreements: GATT and the WTO 23. On gaining independence on 12 March 1968, Mauritius applied the GATT de facto; on 2 September 1970 Mauritius succeeded to the GATT under Article XXVI:5 (c). 8 Mauritius signed the Marrakesh Agreement and the Final Act and became a founding member of the World Trade Organization. A Sub-Committee on the legal aspects of the WTO Agreement is assessing the need for adapting the provisions of domestic legislation to conform to WTO obligations. 8 BISD 18S/23; 16S/12.

6 WT/TPR/S/5 Page 26 Trade Policy Review (ii) Regional agreements (a) The Lomé Convention 24. The most important inter-regional agreement to which Mauritius is a signatory is the EEC-ACP Agreement (known as the Lomé Convention) between 70 African, Caribbean and Pacific (ACP) States and the European Union Under the Sugar Protocol annexed to the Lomé Convention, Mauritius benefits from guaranteed prices (significantly higher than world prices) for a set volume of sugar exported to the EU (Chapter V(2)(i)). Clothing exports which meet the rules of origin enjoy duty and quota-free access under the Convention. Lomé IV, covering a ten-year period beginning on 1 March 1990, improved the provisions of access by reducing restrictions on certain agricultural products, e.g. molasses, fruit and vegetables. 10 The gradual abolition of quotas on rum and a liberalization of the origin criteria on fishery products, along with an automatic derogation from the quota for canned tuna, represent other improvements of particular relevance to Mauritius. 26. An additional aspect of the Lomé Convention is the financing made available by the European Union, primarily under its main assistance vehicle, the European Development Fund (EDF). Under Lomé III ( ), the EDF programmed ECU 31 million for industrial and agricultural diversification in Mauritius. Under Lomé IV, ECU 34 million (out of a total ECU 10 billion for ACP States) has been allocated to Mauritius to continue these diversification projects, of which 14 million is allocated to irrigation, 5 million to road construction and 4 million to solid waste management. The European Investment Bank (EIB) has allocated a further ECU 20 million; these commercial loans tend to be channelled to the Development Bank of Mauritius. (b) The Common Market for Eastern and Southern Africa 27. Mauritius is also a party to the regional co-operation agreement which promotes trade between eastern and southern African states. The Common Market for Eastern and Southern Africa (COMESA) which came into force in December 1994 replaced the Preferential Trade Area for East and Southern Africa (PTA) (Table II.2). Under the COMESA Treaty, member States have undertaken to phase out all customs duties and equivalent charges on imports from members by the year 2000 and establish a common external tariff by A target was set for member States to apply a 70 per cent reduction rate (reduction from the 1984 base rate) by October Mauritius applied this rate from 25 November Mauritius ratified the Yaoundé Convention in 1970, the first Commonwealth country to establish formal trade relations with the EEC, two years before Britain joined. 10 GATT (1991), p Initially, the PTA applied tariff reductions only on selected products; this was extended to all goods in It should be noted that neither the PTA nor the COMESA Treaty have been notified to the GATT/WTO.

7 Mauritius WT/TPR/S/5 Page 27 Table II.2 Main trade-related elements of the COMESA Treaty Chapter Co-operation in Trade Liberalization and Development (Chapter 6) Content Reduction and elimination of tariff and non-tariff barriers; establishment of a common external tariff and rules of origin; rules on dumping, subsidies, safeguard measures and anti-competitive practices; m.f.n. principle and national treatment; trade promotion. Monetary and Financial Co-operation (Chapter 10) Clearing and payment system (e.g. Clearing House); harmonization of monetary and fiscal policies; formation of an exchange rate union; free movement of capital. Common Market Customs Co-operation (Chapter 7) Customs co-operation, harmonization of customs procedures and suppression of illicit traffic. Simplification and Harmonization of Trade Documents and Procedures (Chapter 9) Least-Developed Countries and Economically Depressed Areas (Chapter 22). Simplification and harmonization of trade documents. Measures to strengthen the capacity of the least-developed member States and economically depressed areas, particularly through encouraging investment, promoting new technologies, and supporting the activities of Chambers of Commerce and Industry. Development of the Private Sector (Chapter 23) Strengthening of the private sector; co-operation among Chambers of Commerce. Investment Promotion and Protection (Chapter 26) Promotion and protection of private investment; double taxation agreements; multilateral investment agreements. Free Movement of Persons, Labour, Services, Right of Establishment and Residence (Chapter 28) Progressive liberalization of movement of persons, labour and services within the COMESA area. Sanctions (Chapter 31) Enforcement of obligations under the Treaty. Implementation and Monitoring Arrangements (Chapter 32) Economic Community for Eastern and Southern Africa (Chapter 34) Periodic monitoring of the implementation of the Treaty. Progressive transformation into an Economic Community. Source: WTO Secretariat. 28. Non-tariff barriers on imports from fellow members are to be eliminated upon entry into force of the Treaty. Exceptions are possible on safety and security grounds and, for a specified period to be determined by the COMESA Council of Ministers, for reasons of infant industry protection and in the event of balance-of-payments difficulties. Safeguard measures are allowed for a period of up to one year in cases of serious economic disturbances; they must be taken on a non-discriminatory basis. Injurious dumping and trade-distortive subsidies are prohibited and may attract offsetting levies. Co-operation in the area of customs management is to be strengthened and member States are committed to simplifying and harmonizing trade documents and procedures, and combatting illicit traffic. 29. The COMESA Secretariat is mandated to follow up and monitor the implementation of the Treaty. To this effect, the Secretary-General is to prepare "a comprehensive and measurable implementation programme" with clear targets specified for two-year stages. The transition to a following stage is conditional on a finding by the Council of Ministers that the targets have been attained and member States' obligations fulfilled.

8 WT/TPR/S/5 Page 28 Trade Policy Review (c) The Indian Ocean Commission 30. Mauritius is a founding member of the Indian Ocean Commission (IOC), established in 1982, which includes Madagascar, the Seychelles, the Comoros, and France on behalf of Réunion. The IOC, whose secretariat is located in Mauritius, is the EU's main partner in regional co-operation in the Indian Ocean. The IOC has been allocated an aid budget of ECU 30 million under Lomé IV, which finances projects in various sectors, including fisheries, small craft industries, tourism and environmental protection and the promotion of regional trade and investment. 12 (iii) Bilateral trade agreements 31. Mauritius maintains bilateral trade agreements with the Central African Republic, Egypt, Hungary, Madagascar, Pakistan and Zimbabwe. 32. Mauritius is a beneficiary of the Generalized System of Preferences (GSP) Schemes of Australia, Austria, Canada, the European Union, Japan, Norway, Switzerland and the United States. 12 Mauritius participates in the Initiative to Facilitate Cross-Border Private Investment, Trade and Payments in Eastern and Southern Africa and the Indian Ocean, commonly referred to as the Cross-Border Initiative (CBI). Co-sponsored by the EC Commission, the International Monetary Fund, the World Bank and the African Development Board, the CBI represents a "pragmatic approach", within the framework of the COMESA, that strengthens the momentum towards economic integration already established within the objectives set by regional organizations: the PTA/COMESA, the Southern African Development Community (SAC) and the IOC. Sponsors have agreed to compensate participating countries for net losses incurred during the phase from liberalization to response in economic activity.