WORLD TRADE ORGANIZATION

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1 WORLD TRADE ORGANIZATION WT/TPR/S/198/Rev.1 11 June 2008 ( ) Trade Policy Review Body TRADE POLICY REVIEW Report by the Secretariat MAURITIUS Revision This report, prepared for the third 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 Mauritius on its trade policies and practices. Any technical questions arising from this report may be addressed to Mr. Jacques Degbelo (tel: 022/ ) or Ms. Ulla Kask (tel: 022/ ). Document WT/TPR/G/198/Rev.1 contains the policy statement submitted by Mauritius. Note: This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on Mauritius.

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3 Mauritius WT/TPR/S/198/Rev.1 Page iii CONTENTS SUMMARY OBSERVATIONS Page (1) THE ECONOMIC ENVIRONMENT vii (2) INSTITUTIONAL FRAMEWORK viii (3) TRADE POLICY INSTRUMENTS viii (4) SECTORAL TRADE POLICIES x (5) TRADE POLICY AND TRADING PARTNERS xi I. ECONOMIC ENVIRONMENT 1 (1) MAJOR FEATURES OF THE ECONOMY 1 (2) RECENT ECONOMIC DEVELOPMENTS 2 (3) TRADE AND INVESTMENT PERFORMANCE 5 (i) Trade in goods and services 7 (ii) Investment 10 (4) OUTLOOK 11 II. TRADE AND INVESTMENT REGIMES 12 (1) INSTITUTIONAL FRAMEWORK 12 (2) POLICY FORMULATION AND IMPLEMENTATION 13 (3) POLICY POLICY OBJECTIVES 16 (4) TRADE AGREEMENTS AND ARRANGEMENTS 17 (i) Overview 17 (ii) WTO 18 (iii) Preferential trade agreements and arrangements 21 (5) FOREIGN INVESTMENT REGIME 29 ANNEX II.1 AID FOR TRADE 33 III. TRADE POLICIES AND PRACTICES BY MEASURE 35 (1) INTRODUCTION 35 (2) MEASURES DIRECTLY AFFECTING IMPORTS 36 (i) Customs procedures, and valuation 36 (ii) Tariffs, other duties, and taxes 38 (iii) Duty and tax exemptions and concessions 44 (iv) Rules of origin 45 (v) Tariff preferences 46 (vi) Import prohibitions, restrictions, and licensing 47 (vii) Contingency trade remedies 51 (viii) Technical barriers to trade (TBT) 51 (ix) Health, sanitary, phytosanitary, and environmental protection measures 55 (x) Government procurement 57 (3) MEASURES DIRECTLY AFFECTING EXPORTS 59 (i) Registration and documentation 59 (ii) Export taxes, charges, and levies 60 vii

4 WT/TPR/S/198/Rev.1 Page iv Trade Policy Review Page (iii) Export prohibitions, restrictions, and licensing 60 (iv) Export subsidies, and duty and tax concessions 60 (v) Export promotion and assistance 62 (vi) Other provisions 63 (4) MEASURES AFFECTING PRODUCTION AND TRADE 64 (i) Incentives 64 (ii) State trading, state-owned enterprises, and privatization 64 (iii) Competition policy and price controls 68 (iv) Intellectual property rights 70 IV. TRADE POLICIES BY SECTOR 73 (1) INTRODUCTION 73 (2) AGRICULTURE AND RELATED ACTIVITIES 74 (i) Overview 74 (ii) Key subsectors 79 (3) MANUFACTURING 91 (4) ENERGY 95 (5) SERVICES 96 (i) Financial services 97 (ii) Telecommunications 102 (iii) Transport 105 (iv) Tourism 109 (v) Professionnal services 113 REFERENCES 117 APPENDIX TABLES 121

5 Mauritius WT/TPR/S/198/Rev.1 Page v CHARTS Page I. ECONOMIC ENVIRONMENT I.1 Structure of merchandise trade, I.2 Direction of merchandise trade, III. TRADE POLICIES AND PRACTICES BY MEASURE III.1 Breakdown of applied MFN rates, III.2 Tariff escalation by ISIC 2-digit industry, IV. TRADE POLICIES BY SECTOR IV.1 Mauritius' tariff by ISIC classification, I. ECONOMIC ENVIRONMENT TABLES I.1 Mauritius at a glance, I.2 Main economic indicators, I.3 Balance of payments, I.4 Foreign direct investment, II. TRADE AND INVESTMENT REGIMES II.1 Main trade-related laws and regulations, December II.2 Most recent notifications to the WTO, January ANNEX II.1: AID FOR TRADE II.1 Trade-related investment needs, III. TRADE POLICIES AND PRACTICES BY MEASURE III.1 Total import tax revenue, III.2 Structure of MFN tariff, III.3 Summary analysis of MFN applied tariff, III.4 Rules of origin under preferential trade agreements 45 III.5 Summary analysis of MFN applied tariff and preferential tariffs, III.6 Import prohibitions, III.7 Conditions on imports of controlled goods, November III.8 Selected technical regulations, November III.9 SPS measures notified, III.10 Thresholds for major contracts, III.11 Controlled export goods, July III.12 Export processing zones, III.13 Purchases by the State Trading Corporation, III.14 State-owned corporations, III.15 Imported commodities subject to the maximum mark-up system, December III.16 Automatic Price Mechanism (APM), October III.17 IPR-related statistics,

6 WT/TPR/S/198/Rev.1 Page vi Trade Policy Review IV. TRADE POLICIES BY SECTOR Page IV.1 Main aggregates of the agricultural sector (including fisheries), IV.2 Agricultural production, IV.3 Food crops: area and production, IV.4 Parastatal bodies intervening in non-sugar agricultural activities, November IV.5 Sugar production and trade, crop years IV.6 Institutions intervening in the sugar industry, IV.7 Subsidies provided by the sugar industry on local market sales, IV.8 Tobacco and cigarettes production, and IV.9 Livestock and dairy products, IV.10 Fisheries production and trade, IV.11 Main indicators of the manufacturing sector, IV.12 Electricity tariffs, IV.13 Selected telephone and internet tariffs, IV.14 Merchant fleet and port traffic, IV.15 Main tourism indicators, I. ECONOMIC ENVIRONMENT APPENDIX TABLES AI.1 Structure of exports (including re-exports), AI.2 Structure of imports, AI.3 Destination of exports (including re-exports), AI.4 Origin of imports, III. TRADE POLICIES AND PRACTICES BY MEASURE AIII.1 Applied MFN tariff averages by HS2, AIII.2 Incentive schemes, July AIII.3 Excisable goods, December AIII.4 Controlled imports, November IV. TRADE POLICIES BY SECTOR AIV.1 Applied MFN tariffs, by ISIC Rev.2 category,

7 Mauritius WT/TPR/S/198/Rev.1 Page vii SUMMARY OBSERVATIONS (1) THE ECONOMIC ENVIRONMENT 1. Mauritius has a relatively diversified economy based on its four traditional pillars: sugar, textiles and clothing, tourism, and financial services. This structure is the heritage of preferential access to certain key markets, as well as the incentive schemes (mainly the Export Processing Zone (EPZ) Scheme), aimed at export-oriented manufacturing. This, together with fairly high protection granted to companies producing for the domestic market, had created an economy with elements of duality. This economic regime has been challenged by what is known in Mauritius as the "triple shock", i.e. preference erosion following multilateral liberalization of trade in textile and clothing items, and the reform of the EC sugar regime, and rising international oil prices. In response, Mauritius has undertaken bold reforms aimed at liberalizing its trade regime, thus dismantling the dualism and boosting competitiveness. The reforms also aim to transform Mauritius into a duty-free island. 2. The reforms have begun to bear fruit, with real GDP growth at 5.1% on average (per year) since 2003, up from an average of 2.2% in 2001 and This recent performance has been based mainly on the strong growth in the services sector and the recovery of the textile industry. During most of the period under review, macroeconomic policies have contributed to containing inflation, to some 6.5% per year. However, it rose to 8.9% in 2006 because of higher oil prices, an increase in excise duties on products such as alcoholic beverages and cigarettes, the reduction of subsidies on others (including rice, wheat flour and bread), an the increase in freight costs, and the depreciation of the Mauritian rupee. The central government fiscal deficit remained relatively high (above 5% of GDP) throughout most of the period under review. However, it is estimated to have decreased to 4.3% in 2006/07 and is expected to remain around 3.8% in 2007/08, due to the revival of economic growth, and increased public revenue. Mauritius' external debt is manageable; its debt service ratio is around 6% (down from 7% in 2001). 3. Mauritius is an upper-middle-income country. In its 2006 Human Development Report, the UNDP ranked Mauritius the highest among the sub-saharan African countries. Mauritius' GDP per capita in 2007 was US$5,807 (up from US$3,788 in 2001). Services are the most important sector in terms of contribution to GDP (almost 70% in 2006). The sector is dominated by financial services and tourism; the latter has become the single largest source of foreign-exchange earnings, before clothing and sugar (the leading agriindustry). The fisheries subsector remains small, and exploitation has been depleting traditional resources. Manufacturing contributes about one fifth of GDP, with textiles and clothing accounting for around one third of manufactured production. Efforts are being made to transform Mauritius into a cyber-island and make information and communication technology (ICT) the fifth pillar of the economy. 4. The high ratio of trade in goods and services to GDP (around 120% on average) reflects the importance of external trade for Mauritius, given its small domestic market and its limited natural resources, including land. Mauritius has traditionally run trade deficits, which have been occasionally offset by traditional surpluses on the services account. Manufactures account for the bulk of Mauritian merchandise exports (around 70% of the total value), with clothing accounting for some 36% of foreign exchange earnings from merchandise exports, followed by sugar (16%). Mauritius' main imports include machinery and transport equipment, radio/television transmission apparatus, textiles, and chemicals. 5. The EC is Mauritius' major trading partner: it imports the bulk of Mauritius' sugar and a large share of its textiles and clothing items, and supplies around one third of Mauritius' imports. The major destinations of Mauritian exports are the United Kingdom,

8 WT/TPR/S/198/Rev.1 Page viii Trade Policy Review France, and the United States. As the bulk of exports are denominated in euro, the appreciation of the euro has increased the total value (in Mauritian rupees) of these exports. The sources of imports are more diversified. China has become the biggest single source supplying around 10%, followed by South Africa, and France. Other major import sources include India and Germany. The share of Middle-East countries has increased considerably, reflecting mainly the increase in oil prices. (2) INSTITUTIONAL FRAMEWORK 6. The Constitution is the supreme law of the Republic of Mauritius, followed by Acts of Parliament, and secondary legislation (regulations, rules and orders). Treaties, including the WTO Agreements, must be enacted into domestic law to have standing before national courts. The legislative process in Mauritius is subject to some delays: several laws already being prepared at the time of the previous Trade Policy Review of Mauritius in 2001, not yet been adopted or implemented. This legislation includes, inter alia, antidumping, countervailing and safeguard measures, competition, and veterinary services; certain laws on intellectual property rights, adopted in 2002, are still not applied, and the Plant Breeders Rights Bill, drafted in 2003, has not yet been adopted. 7. The Ministry of Foreign Affairs, International Trade and Cooperation, through its Trade Policy Unit (TPU), has primary responsibility for the formulation, review, and assessment of trade policies. The Ministry chairs also the WTO Standing Coordination Committee comprising representatives from the public and private sectors. The Committee deals with the implementation, follow-up, and coordination of trade policy issues covered by the WTO Agreements. Specific meetings to discuss bilateral and regional trade issues are convened on a regular basis by the TPU. The Ministry of Industry, Small and Medium Enterprises, Commerce and Cooperatives is in charge of regulating the local market, including issues such as import and export controls. The Board of Investment (BOI), operational since March 2001, is the apex governmental agency responsible for promoting and facilitating investment. Under the authority of the Ministry of Finance and Economic Development, the BOI aims to promote Mauritius as an international business centre. With the exception of specified activities (mainly in the tourism subsector), foreigners are free to invest in almost all areas open to Mauritians. 8. Mauritius is an original member of the WTO and grants at least MFN treatment to all its trading partners. It is not a signatory to any of the Plurilateral Agreements but it is an observer to the Committee on Trade in Civil Aircraft. Mauritius has also signed the Ministerial declaration on Trade in Information Technology. 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. It is an active defender of the interest of developing countries in general, and "small vulnerable economies" (SVES) in particular, and considers that improved market access without the capacity to produce is meaningless. Therefore, Mauritius deems it vital for the international community to engage in supporting developing countries to address their supply-side constraints, improve the competitiveness of their goods and services, and upgrade their standards and technical regulations. It considers that preferences cannot be seen as part of a permanent arrangement, and calls for concrete trade-related solutions to their erosion. Mauritius is a member of, inter alia, the Common Market for Eastern and Southern Africa (COMESA), the Southern African Development Community (SADC), and the Indian Ocean Commission (IOC). (3) TRADE POLICY INSTRUMENTS 9. Since its last TPR in 2001, Mauritius has undertaken some major trade-related reforms. With the aim of transforming Mauritius into a duty-free island, its maximum

9 Mauritius WT/TPR/S/198/Rev.1 Page ix tariff rates have been reduced, and the number of duty-free lines increased to some 79% of all tariff lines. This has contributed to lowering the simple average MFN tariff (including ad valorem equivalents (AVEs)) from 19.9% in 2001 to 6.6% in The use of specific duties has, however, increased from two tariff lines in 2001 to 5.9% of total tariff lines in 2007, with their AVEs varying from 0.1% to 277.5%. Manufacturing (Major Division 3 of ISIC Revision 2) is the most tariff protected sector, with an average tariff of 6.8% and rates ranging up to 277.5%. Protection is especially high in footwear (50.7% on average), wearing apparel (34.3%), tobacco (27.9%), knitted and crocheted fabrics (27.7%), sugar products (25.7%), and beverages (23.6%). The tariff on agriculture, including fishing (Major Division 1 of ISIC Revision 2) averages 4.9%. Using the WTO definition, the simple average tariff is 8.5% on agricultural imports (down from 20.5% in 2001), and 6.3% on imports of non-agricultural products (down from 19.8% in 2001). Mauritius grants preferential tariff treatment to imports under the COMESA, SADC and IOC treaties, and on a bilateral basis to Pakistan. 10. Mauritius has bound 15.7% of all its tariff lines, at a ceiling rate of 65% on some 1.6% of tariff lines for non-agricultural products, and at ceiling rates ranging from 37% to 122% for all agricultural tariff lines (WTO definition). Other duties and charges (ODCs) are bound at 17% on all products subject to a tariff binding commitment, with the exception of frozen boneless bovine meat, milk and cream, processed cheese, seed potatoes, peas, maize, and printed matter, on which they are bound at zero. However, the cess of MUR 0.20 per kg and the 20% Tea- Board fee, levied on imports of tea, together exceed the bound level of ODCs on this product. The imposition of tariffs and ODCs has been reformed to conform with the MFN and national treatment principles of the WTO. In 2005, Mauritius eliminated the differentiation in tariff rates depending on the source of imports ("scheduled", i.e. Commonwealth and certain major trading partners, and "non-scheduled" territories, i.e. other countries). The same differentiation in the imposition of excise duties was eliminated in In July 2006, the differences between the rates of excise duties on imports and local goods were also eliminated. A VAT of 15% applies to both imports and domestically produced goods. 11. Several steps have been taken to accelerate customs clearance, including the introduction of the channel system in 2003, and of a new - Blue - channel (in August 2007) which allows for paperless customs clearance under the Cargo Fast Track Programme. Since 1 January 2000, Mauritius has been applying the WTO Customs Valuation Agreement. It maintains non-tariff barriers on various grounds. Imports of table potatoes and salt are still subject to quantitative restrictions, and numerous products remain subject to an import permit or ban. Several parastatal bodies, such as the State Trading Corporation and the Agricultural Marketing Board, still have exclusive rights to import some "strategic products" (including wheat flour, ration rice, petroleum products, seed potatoes, whole onions, and garlic). The State intervenes in economic activities through several other parastatal bodies, which market or supply products or services. 12. Export permits are required on products considered as "strategic" or "sensitive" to the economy, including meat products, rice, flour, and sugar, and goods eligible for preferential treatment in importing countries. Mauritius applies no duties, taxes or charges to its exports. The investmentpromotion strategy based on a multitude of incentive schemes has been replaced by a new one based on a low-tax regime and promotion of targeted projects. Nevertheless, several incentives continue to be granted to the agriculture sector under schemes such as the Agricultural Technology Diffusion Scheme, and the Freight Rebate Scheme (FRS). The latter provides partial refunds of air freight costs to exporters of selected agricultural products. Some new schemes have also been introduced (including some export promotion schemes). This, together with the

10 WT/TPR/S/198/Rev.1 Page x Trade Policy Review grandfathering of companies eligible for defunct schemes (e.g. the EPZ Scheme), still makes the regime somewhat complex. 13. 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 still maintained on some strategic products, though the number of product groups covered has been decreased to eight and nine, respectively. Mauritius has no competition legislation per se, but a new Competition Bill has been prepared. 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 and a new Act, adopted in December 2006, is expected to be proclaimed shortly. There are 25 technical regulations (up from 12 in 2001) applying to both imports and locally produced goods. 14. Mauritius has enacted a number of new intellectual property laws, with the aim of bringing its legislation into conformity with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). It adopted legislation on patents, industrial designs and trade marks, and on protection against unfair practices. Copyrights are governed by the Copyright Act Two more laws - on layout designs of integrated circuits, and geographical indications - have also been adopted, but not yet promulgated. No protection is granted to plant varieties; a Plant Breeders Rights Bill, drafted in 2003, is being finalized. (4) SECTORAL TRADE POLICIES 15. Mauritius is a net-food-importing country. Agriculture (consisting mainly of sugar production) continues to be an important sector in terms of its share in exports and on account of its linkages with other sectors. In the light of decreasing prices on sugar, Mauritius' main export market, a new plan has been adopted to restructure the industry and ensure its long-term viability, while promoting alternative goods related to cane production. However, conversion of agricultural land to non-agricultural land is subject (with some exceptions) to a Land Conversion Permit and payment of land conversion tax. Exemptions from the land conversion tax are possible when the permit has been granted for the construction or setting-up, inter alia, of industrial estates, business parks, shopping malls, technology parks, hotels, golf courses, health institutions, or an agri-based activity. An attempt is also being made to transform Mauritius into a seafood hub by developing value-added fisheries and seafood-related activities. 16. For food security purposes, Mauritius continues to maintain import, export, and price controls, and/or strategic reserve stocks on agricultural products, such as cereals and cereal products, animals and animal products, sugar, spices, vegetables, and fruits. Marketing boards (e.g. the Agricultural Marketing Board and the State Trading Corporation) are still in place and hold monopolies over the import of products such as seed potato, whole onions, whole garlic, wheat flour, and ration rice. Incentives are granted to the agriculture sector to reduce production costs (e.g. input, and freight costs), though some incentives, such as those granted under the Agricultural Development Scheme, have been eliminated. Quotas are maintained on imports of table potatoes and salt, and on exports of chilled fish. Foreign exchange earnings from sugar exports must be sold on the local market. Tariff protection in agriculture (Major Division 1 of ISIC Revision 2) averages 4.9% (down from 14% in 2001), with rates ranging up to 30%. 17. The manufacturing sector has been dominated by textiles and clothing, followed by food production (including sugar milling, beverages, and tobacco), non-metallic minerals, and chemicals industries. EPZ companies have accounted for the bulk of production. Nevertheless, in order to enhance competitiveness in the context of rising production (labour) costs in Mauritius, most incentives granted to the sector, including

11 Mauritius WT/TPR/S/198/Rev.1 Page xi under the EPZ scheme, were abolished by the Finance Act In addition, nominal average tariff protection for the sector (Major Division 3 of ISIC Revision 2) has been lowered from 20.6% in 2001 to the current 6.8%. However, border protection for clothing and footwear remains high, mainly due to the introduction of specific duties with AVEs ranging up to 277.5%. After negative average annual real growth during , the sector seems to be recovering, with growth of around 4% in Import, export, and price controls, and/or technical regulations apply to various manufactured products. 18. The services sector is the largest contributor to Mauritius' GDP. Mauritius is a net exporter of services. Since its last TPR, it has undertaken reforms to strengthen its financial subsector. Air access policy has been relaxed somewhat to give a further boost to tourism. Major works have been undertaken at the port to increase its capacity with the aim of developing Port-Louis Harbour into a regional maritime hub. The ICT Act 2001 established the basis for liberalization of the telecommunications subsector by removing the exclusivity rights granted to Mauritius Telecom over fixed telecom services. In general, Mauritius' applied services regime is more liberal than its commitments under the GATS. However, monopolies or exclusive rights held by stateowned enterprises limit competition in branches such as postal services. Measures affecting presence of natural persons are unbound. On reciprocity grounds, Mauritius has maintained MFN exemptions (in financial services) under Article II of the GATS. (5) TRADE POLICY AND TRADING PARTNERS regional agreements reflects the importance of external trade to its economy. Therefore, it has reacted strongly to the changing international environment by radically reforming its trade regime. Major steps have been taken to boost competition, dismantle the dualism in the economy and improve resource allocation. These reforms could be anchored by the extension and improvement of Mauritius' binding commitments on goods and services at the WTO. 20. Mauritius trade regime would benefit from increased predictability if the gap between applied and bound rates were reduced, and the existing services commitments were modified to make them better reflect the current, more liberal regime applied in the sector. This is particularly the case for professional services, given Mauritius' increased use of imported labour and attempt to attract foreign professionals. Elimination of non-tariff barriers would enhance the transparency of Mauritius' trade regime. The credibility of the latter would also benefit from bringing the other duties and charges applied to imports to their bound level, and accelerating the legislative process. 21. 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 (such as building a customs union), is difficult to manage. Furthermore, Mauritius' plans to become a duty-free island would be difficult to reconcile with its participation in these regional agreements. 19. Mauritius' participation in the multilateral trading system and in various

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