WORLD TRADE ORGANIZATION

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1 WORLD TRADE ORGANIZATION RESTRICTED WT/TPR/S/90 5 October 2001 ( ) Trade Policy Review Body TRADE POLICY REVIEW MAURITIUS Report by the Secretariat This report, prepared for the second Trade Policy Review of Mauritius, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from the Government of Mauritius on its trade policies and practices. Any technical questions arising from this report may be addressed to Mr. J. Degbelo (tel ) or Mr. C. Boonekamp (tel ). Document WT/TPR/G/90 contains the policy statement submitted by the Government of Mauritius. Note: This report is subject to restricted circulation and press embargo until the end of the meeting of the Trade Policy Review Body on Mauritius.

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3 Mauritius WT/TPR/S/90 Page iii CONTENTS Page SUMMARY OBSERVATIONS vii (1) THE ECONOMIC ENVIRONMENT vii (2) INSTITUTIONAL FRAMEWORK vii (3) TRADE POLICY INSTRUMENTS viii (4) SECTORAL TRADE POLICIES ix (5) TRADE POLICY AND TRADING PARTNERS x I. ECONOMIC ENVIRONMENT 1 (1) MAJOR FEATURES OF THE ECONOMY 1 (2) RECENT ECONOMIC DEVELOPMENTS 3 (3) TRADE PERFORMANCE AND INVESTMENT 4 (i) Trade in goods and services 5 (ii) Investment 6 (4) OUTLOOK 8 II. TRADE REGIME 9 (1) INSTITUTIONAL FRAMEWORK 9 (2) POLICY FORMULATION AND IMPLEMENTATION 9 (3) TRADE POLICY OBJECTIVES 11 (4) LAWS AND REGULATIONS 12 (5) TRADE AGREEMENTS AND ARRANGEMENTS 14 (i) Multilateral agreements 14 (ii) Regional agreements 16 (iii) Other agreements or arrangements 21 III. TRADE POLICIES AND PRACTICES BY MEASURE 23 (1) INTRODUCTION 23 (2) MEASURES DIRECTLY AFFECTING IMPORTS 24 (i) Registration, documentation, and procedures 24 (ii) Tariffs, other duties, and taxes 25 (iii) Rules of origin 32 (iv) Local-content and local-purchase requirements 33 (v) Import prohibitions, restrictions, and licensing 33 (vi) Contingency trade remedies 36 (vii) Government procurement 37 (viii) Other measures 38

4 WT/TPR/S/90 Page iv Trade Policy Review Page (3) MEASURES DIRECTLY AFFECTING EXPORTS 38 (i) Registration, documentation, and procedures 38 (ii) Export taxes, charges, and levies 38 (iii) Export prohibitions, licensing, and other restrictions 38 (iv) Export subsidies, and duty and tax concessions 39 (v) Export promotion and assistance 41 (vi) Other provisions 42 (4) MEASURES AFFECTING PRODUCTION AND TRADE 42 (i) Incentives 42 (ii) Standards and other technical requirements 43 (iii) Competition policy and regulatory issues 47 (iv) State-owned enterprises and privatization 50 (v) Intellectual property rights 51 IV. TRADE POLICIES BY SECTOR 54 (1) INTRODUCTION 54 (2) AGRICULTURE AND RELATED ACTIVITIES 54 (i) Overview 54 (ii) Key subsectors 57 (3) MANUFACTURING 66 (4) SERVICES 70 (i) Overview 70 (ii) Tourism 71 (iii) Financial services 73 (iv) Telecommunications and postal services 76 (v) Transport 78 REFERENCES 81 APPENDIX TABLES 83 CHARTS III. TRADE POLICIES AND PRACTICES BY MEASURE III.1 Applied MFN tariff distribution, III.2 MFN tariff distribution by sector, IV. TRADE POLICIES BY SECTOR IV.1 Sugar proceeds, IV.2 Average comparative prices for raw sugar, IV.3 Distribution of tourist arrivals by country of residence,

5 Mauritius WT/TPR/S/90 Page v Page TABLES I. ECONOMIC ENVIRONMENT I.1 Mauritius at a glance, I.2 Balance of payments, I.3 Foreign direct investment in Mauritius, I.4 Direct investment abroad, II. TRADE REGIME II.1 Main trade-related laws and regulations in Mauritius, as at May II.2 Status of selected notification requirements to the WTO, as at April II.3 Investment treaties and agreements, as of 30 November III. TRADE POLICIES AND PRACTICES BY MEASURE III.1 Scheduled territories, as at May III.2 MFN tariff escalation by ISIC 2-digit heading, 2000/01 29 III.3 Conditions on imports of controlled goods, as at May III.4 Quotas on potatoes, III.5 Activities of the Central Tender Board, III.6 Export-controlled goods, as at end III.7 Refunds under the Freight Rebate Scheme, III.8 Grants received by MEDIA, III.9 Compulsory standards, as at May III.10 Inspection, certification and treatment fees and charges, as at May III.11 Imports requiring origin labels, as at May III.12 Imported commodities subject to the maximum mark-up system, as at May III.13 Purchases by the State Trading Corporation, III.14 Onions and garlic imported by the Agricultural Marketing Board, III.15 Registration of intellectual property rights, IV. TRADE POLICIES BY SECTOR IV.1 Land conversion tax 56 IV.2 Subsidies for planting materials and products subject to price controls, IV.3 Basic statistics on the sugar industry, IV.4 Tea area, production and sales, IV.5 Tobacco and cigarettes, crops 62 IV.6 Food crops: area and production, IV.7 Census of animals belonging to members of the MMPA, IV.8 Manufacturing sector: basic statistics, IV.9 Main economic indicators of the EPZ sector, IV.10 Evolution of main EPZ clothing exports, IV.11 Utilization of U.S. quotas on textiles and clothing by Mauritius, IV.12 Main indicators in the tourism branch, IV.13 Main indicators of insurance services,

6 WT/TPR/S/90 Page vi Trade Policy Review Page APPENDIX TABLES I. ECONOMIC ENVIRONMENT AI.1 Commodity exports, AI.2 Commodity imports, AI.3 Exports by destination, AI.4 Imports by origin, III. TRADE POLICIES AND PRACTICES BY MEASURE AIII.1 MFN tariff statistics, by HS 2-digit, 2000/01 89 AIII.2 Excisable goods, locally manufactured or imported, 2000/01 93 AIII.3 Controlled imports, as at May AIII.4 Incentive schemes, as at May IV. TRADE POLICIES BY SECTOR AIV.1 MFN tariff statistics by ISIC categories,

7 Mauritius WT/TPR/S/90 Page vii SUMMARY OBSERVATIONS (1) THE ECONOMIC ENVIRONMENT 1. Sound macroeconomic policies have contributed to sustained strong economic performance in Mauritius for two decades; on average the economy has grown at nearly 6% a year. Concurrently, Mauritius has successfully diversified its economy away from sugar. Textiles and clothing, tourism, financial services, and sugar are now the four pillars of the economy. In consequence, the share of agriculture in real GDP has declined, from around 12% in 1990 to some 6% now. The services sector, dominated by tourism and financial services, is the most important in the economy, accounting for around 74% of real GDP. Services exports are more than one third of total foreign exchange earnings, with tourism contributing the largest and increasing share. Manufacturing is the source for some 75% of merchandise exports; it contributes around one fifth of real GDP, with textiles and clothing accounting for more than 40% of manufacturing output. 2. Nevertheless, Mauritius faces challenges. Its economy has elements of duality: companies producing for the domestic market are fairly highly protected, while export enterprises are granted incentives under various schemes, including the Export Processing Zone Scheme. This has led to tensions in resource allocation between the export and domestic sectors, and highlights the task of transforming the economy away from export- to outward-orientation. Mauritius has also become a "high-cost" producer, as real wages have grown faster than productivity. In addition, Mauritius faces a changing international environment, including the narrowing of preferences for some of its exports, and the consequent increase in competition. Added to these factors is a scarcity of arable land and of skilled labour. In response to these challenges, Mauritius has been promoting (mainly by means of incentives) domestic production of capital-intensive higher-valueadded goods and the geographical diversification of exports. There has also been a certain delocalization of low-value-added labour-intensive activities to neighbouring countries. 3. The high ratio of merchandise trade to GDP (around 90% on average since 1995) indicates the importance of external trade to Mauritius. Normally it has run trade deficits, which have been offset from time-to-time by traditional surpluses on the services account. The bulk of domestic production is exported, clothing accounting for some 60% of foreign exchange earnings from merchandise exports followed by sugar (22%). Mauritius' main imports include machinery and transport equipment, textiles, and food. 4. The European Union (EU) is Mauritius' major trading partner: it is the market for the bulk of Mauritius' sugar output and for a large share of textiles and clothing exports; it supplies around one third of Mauritius' imports. The major single destinations of Mauritian exports include the United Kingdom, France, and the United States. Delocalization of certain manufacturing activities (combined with their vertical integration) to neighbouring countries has contributed to the promotion of trade with countries such as Madagascar, to which Mauritius exports semi-finished products and yarns. The sources of imports are more diversified, with France being the only country supplying more than 9% of the total value of Mauritius' merchandise imports. (2) INSTITUTIONAL FRAMEWORK 5. The Republic of Mauritius is a multiparty parliamentary democracy. The Constitution is the supreme law, followed by the Acts, Regulations, and Rules. International treaties, including the WTO Agreements, must be enacted into domestic law to have standing before national courts. The Ministry of Industry, Commerce and International Trade is responsible for the formulation, review, and assessment of trade policies. The WTO Standing Co-ordination Committee, chaired by the Minister of

8 WT/TPR/S/90 Page viii Trade Policy Review Industry, Commerce and International Trade, and comprising representatives from the public and private sectors, deals with the implementation, follow-up, and coordination of trade policy issues falling under the WTO Agreements. Given Mauritius' membership of several groupings, a Regional Co-operation Council, chaired by the Minister responsible for Foreign Affairs, has been established to forge a coherent regional strategy for the country. 6. The Board of Investment (a one-stop shop) became operational on 15 March 2001 under the authority of the Finance Minister. It aims to promote Mauritius as an international investment, business, and service centre. With the exception of specified activities in the tourism subsector, acquisition of real estate, and activities still under state monopoly, foreigners are free to invest in almost all areas open to Mauritians. 7. Mauritius is an original Member of the WTO and an ITA signatory. It accords at least MFN treatment to all its trading partners. As a small-island developing country with limited natural resources, Mauritius relies on international trade, and participates actively in the multilateral trading system and in various regional groupings to, inter alia, secure and increase market access for its products. Mauritius believes that nonreciprocal trade preferences are still important to its economy and that they should be enhanced and consolidated. It is also of the view that in considering any future multilateral trade negotiations, priority should be given to implementation issues and to difficulties faced by "small and vulnerable economies". 8. Mauritius is a member of, inter alia, the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC), the Indian Ocean Commission (IOC), and the Regional Integration Facilitation Forum (RIFF). Mauritius considers its participation in regional agreements as a step towards building resilience for full integration into the world economy. Nevertheless, membership of various regional agreements with differences in geographical coverage, trade liberalization agenda, provisions on rules of origin, and in goals, is difficult to manage. (3) TRADE POLICY INSTRUMENTS 9. Since its last Trade Policy Review in 1995, Mauritius has continued to implement trade-related reform, although border protection remains relatively high in some areas. A reduction in maximum tariff rates, and an increase in the number of duty-free lines, have contributed to lowering the simple average MFN tariff to some 20%; this is fairly high, particularly given that over 50% of lines bear a zero rate. Nearly all rates are ad valorem; these rates range to 80%, with high dispersion. Specific duties are collected on two tariff lines, with the highest ad valorem equivalent being around 360%. Since 1995, the number of tariff bands has remained unchanged at eleven, including the zero rate and the ad valorem equivalents of the two specific duties. Using the WTO definition, the simple average tariff is 20.5% on agricultural imports, and 19.8% on imports of nonagricultural products. 10. Mauritius has bound nearly 15% of all its tariff lines. It bound tariffs at a ceiling rate of 65% on some 1.6% of its total tariff lines for non-agricultural products; all agricultural tariff lines (WTO definition) are bound at ceiling rates ranging from 37% to 122%. Other duties and charges on all these products are bound at zero or 17%. An increase in the coverage of bindings and the narrowing of the gap between bound and applied rates would enhance predictability of Mauritius' tariff regime. 11. Mauritius has taken steps to harmonize differing customs duties based on source ("scheduled", i.e. Commonwealth and certain major trading partners, and "nonscheduled" territories, i.e. other countries). As from the 2000/01 Budget, the tariff differential has been reduced from 20 to 10 percentage points and applies to only one band: products

9 Mauritius WT/TPR/S/90 Page ix liable to the MFN tariff rate of 65% carry a lower rate of 55% when they are imported from scheduled territories. Differing excise duties also apply to imports and locally produced goods. In September 1998, a valueadded tax of 10% replaced the sales tax; it applies to imports and locally produced goods. Customs duties and taxes account for some 50% of total tax revenue. Since 1 January 2000, Mauritius has applied the provisions of the WTO Customs Valuation Agreement. 12. The liberalization reforms have fallen short of further dismantling non-tariff measures maintained on various grounds. The number of products subject to import ban, or import control by means of permit, has increased. Import quotas still apply to tablepotatoes and salt. Several parastatal bodies, including the State Trading Corporation and the Agricultural Marketing Board, purchase, import, and store "strategic" products (including flour, ration rice, petroleum products, cement, table potatoes, onions, and garlic). Price controls, consisting of a fixed maximum price system (on imports and locally produced goods) and a maximum percentage mark-up system (only on imports), are also maintained on some of the strategic products; the controls are to be abolished gradually after the enactment of competition legislation, a draft of which is being vetted by the Office of the Attorney General. A permit is required for the exportation of products of "strategic importance" and of goods eligible for preferential-quota treatment in importing countries. Mauritius applies no duties, taxes or charges to its exports. 13. Incentives (including duty and tax concessions) are available under various schemes to local producers, mainly manufacturers, and to exporters, with a view to encouraging investment and improving the international competitiveness of Mauritian products. In addition, partial refunds of air freight costs are granted to exporters of selected agricultural products. The incentives, together with elimination/reduction of tariffs on inputs, increase effective protection for local processing industries. 14. Mauritius does not have legislation on contingency trade remedies; it has not taken any anti-dumping, countervailing or safeguard actions. The legislation on government procurement has been revised several times in recent years; a High Powered Committee is currently reviewing the legislation, to ensure conformity with international norms and practices. Twelve compulsory standards (up from seven in 1995) apply both to imports and locally produced goods. 15. Mauritius has revised its Copyright Act. Further, with a view to meeting its obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Mauritius is also finalizing new legislation on patents and trade marks, and is drafting legislation on industrial designs, geographical indications, and layout design of integrated circuits. Counterfeiting mainly affects copyrights and trade marks. (4) SECTORAL TRADE POLICIES 16. Agriculture, though declining in share, remains a leading sector of the Mauritian economy. The export-led strategy implemented by Mauritius, and preferential market access provided by developed countries have contributed to the diversification within and away from the sugar industry. The 1988 Sugar Efficiency Act has also played a role by promoting sugar and non-sugar agriculture; the Act provides for a land conversion tax on the use of agricultural land for other purposes, and tax rebates for cultivation of crops other than sugar cane. Other incentives available to producers of agricultural goods include the Agricultural Development Scheme and the Technology Diffusion Scheme. The Freight Rebate Scheme is available to exporters of selected agricultural products. 17. For food security purposes, import, export, and price controls are maintained, and strategic reserve stocks are required, on

10 WT/TPR/S/90 Page x Trade Policy Review certain agricultural products. Public enterprises, including marketing boards, still hold a monopoly over the importation of certain food products, including flour and certain rice. Customs tariffs on agricultural imports range from zero to 80%; the 80% rate applies, inter alia, to cane or beet sugar, chemically pure sucrose (in solid form), and molasses resulting from the extraction or refining of sugar. Imports of some products are prohibited, including sugar and chocolate confectionery; quotas are maintained on imports of potatoes and on exports of chilled fish. 18. Export Processing Zones companies account for the bulk of manufacturing, which is dominated by textiles and clothing. In response to the changing international environment (e.g. the dismantling of the Multifibre Arrangement and post Lomé ACP-EU Agreements), and to rising production costs, Mauritius' manufacturing policy has focused on market and product diversification (e.g. sectoral integration and shift to higher-value products, delocalization of low-cost activities to neighbouring countries), and on improvement of competitiveness (through, inter alia, various incentive schemes, and elimination or reduction of customs tariffs on inputs and equipment). Certain manufactured products are subject to import and export controls, to the maximum mark-up (under price controls), and to compulsory standards. Customs tariffs on manufactured products range from zero to 80%, with the highest rates applying to textiles, clothing and leather products, as well as to metallic and non-metallic furniture and fixtures. The highest ad valorem equivalent of the two specific duties on manufactured products (about 360%) applies to straps of thong-type sandals. 19. Mauritius is a net exporter of services. Commitments made by Mauritius under GATS largely reflect the current state of liberalization of the sector; monopolies or exclusive rights held by public enterprises limit competition in certain branches (telecommunications, postal, and transportation services) and contribute to high production costs. Measures affecting presence of natural persons are unbound. Mauritius maintains MFN exemptions on financial services under Article II of GATS. (5) TRADE POLICY AND TRADING PARTNERS 20. Mauritius' participation in the multilateral trading system and in various regional agreements reflects its interests as a small, export-oriented economy with advantages in a few products, sugar, textiles and clothing in particular. As part of its economic success is due to preferential market access granted by major trading partners, Mauritius is taking steps to adjust to changes in this international environment. 21. The adjustment needs to emphasize the streamlining and rationalization of existing incentives so as to lessen the aspects of duality and improve resource allocation. The resultant reduction/elimination of duty and tax concessions could contribute to reducing the public deficit and to facilitating further tariff reforms, which are currently hampered by fiscal concerns as customs duties account for about 50% of tax revenue. 22. Elimination of non-tariff barriers and of differing customs duties (by source) would enhance the transparency of Mauritius' trade regime. The regime might also play a greater role in attracting investment as more tariffs are bound, the gap between applied and bound rates narrows, and GATS scheduling increases, including perhaps in the context of introducing greater competition in service subsectors such as telecommunications. Overall, such adjustments could contribute to an improved exploitation of Mauritius' comparative advantages, and facilitate the transformation from an export- to an outwardoriented economy.