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International relations

Beijing expands Indian Ocean FTAs westward with Mauritius

Concern among small island nations over huge trade imbalances with China

Port Louis, the Mauritian capital, is getting busier as the free trade agreement with China comes into play, but observers are concerned that the balance of trade is already in Beijing's favor by a factor of over 30. (Photo by Yuji Kuronuma)

BANGKOK -- China's free trade agreement with the small island-nation of Mauritius came into effect in January, increasing the Asian powerhouse's presence in the Indian Ocean where its regional rival India has long dominated. 

The deal was signed in October 2019 and is the first for Beijing with an African country. It is expected to pave the way for China into the large and lucrative African market, and coincides with the launch of the African Continental Free Trade Area, home to an estimated 1.3 billion consumers.

China's commerce ministry is playing up the FTA with Mauritius as an extension of Beijing's "comprehensive strategic partnership." It adds a new territory to an expanding list of FTAs with bilateral partners and regional blocs that now totals 18. "The FTA provides a guidance and model for China-Africa trade and economic cooperation," the ministry said in a statement after the FTA came into effect. 

The Mauritian foreign affairs ministry has struck a similar tone, saying the island-nation will "benefit from immediate duty free access on the Chinese market on some 7,504 tariff lines." A further 723 Mauritius products will be made duty free over the next seven years, it said, with sugar, a major export, on the list.

But the FTA is already coming under scrutiny. What will be the dividends for China, with a population of 1.4 billion, and Mauritius, with a mere 1.3 million? In 2019, the year the FTA was signed, Mauritian exports to China were worth 1.1 billion Mauritian rupees ($28 million) while imports from the Asian superpower totaled 31.8 billion rupees, according to available records.

Observers in Mauritius point out that the 30:1 trade imbalance in 2019 worsened from the previous year when it was estimated to be 21:1 -- already massively in China's favor.

Mauritian policy analysts like Kris Valaydon question the high expectations of the government in Port Louis, the Mauritian capital. "Mauritius does not have natural resources, it has no bargaining power with China, and the goods it produces are more expensively produced in Mauritius," he told Nikkei Asia. "So it is difficult to understand the government's claim that the agreement represents great hope for the economic future if we stick to goods."

Mauritius's $14 billion economy is built on agriculture, financial services, a textile industry and tourism, so how will it benefit from the FTA? "The whole question of benefits should be viewed through the lens of realism," said Valaydon. "There is an obvious issue of the structural imbalance in capacity to enjoy whatever benefits can be reaped from an agreement between two parties with completely different profiles."

Not surprisingly, China's economic inroads in Mauritius have put pressure on India since New Delhi has has yet to complete its own FTA. The unfinished India-Mauritius Comprehensive Economic Cooperation and Partnership Agreement is intended to deepen historic ties between the two countries. Indians arrived on the island in British colonial times, and form the largest ethnic group.

"India does not have a great reputation when it comes to free trade deals, so it's not really a surprise that there is a China-Mauritius FTA in place while India continues to struggle," said Harsh V. Pant, professor of international relations at King's College London. "If India lags behind economically, it will certainly have a bearing on New Delhi's strategic calculus as it will impede India's ability to project its power."

According to Pant, Mauritius has been courted by India for its strategic value, and is "at the heart" of India's policy outreach to the wider Indian Ocean region. He reminds that it was in Mauritius that Prime Minister Narendra Modi first spoke of India's vision of SAGAR -- Security and Growth for All in the Region.

Modi's focus on the massive Indian Ocean southwest of India is being shaped by shifting geopolitical currents. The U.S. is promoting its Free and Open Indo-Pacific Strategy that is an effort to contain China's growing presence in the Indian and Pacific Oceans. India is also part of the Quad security group with Australia, Japan and the U.S. The four allies have carried out joint  military exercises in the Indian Ocean.

China's previous FTAs in the Indian Ocean have not been smooth sailing. Its first with the Maldives, which has an even smaller population than Mauritius, has run aground. It was signed in December 2017 under a cloud of controversy by Abdulla Yameen, the former president noted for being both strongly pro-China and autocratic. 

The text of the China-Maldives FTA was hurried furtively through the Maldivian parliament, and approved there without a quorum of lawmakers. A parliamentary oversight committee endorsed the deal after looking over its 1,000-plus pages in less than 10 minutes.

"The two countries signed a bilateral free trade agreement in December 2017, but it is pending ratification," an official from the Maldivian president's office told Nikkei. "We are still reviewing the document."

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