Enhancing our external trade performance

Our salvage might come from accessing the privileges of working as part of a larger group to sharpen our potential to provide services in particular to the world

The Ministerial Conference (MC) of the World Trade Organisation (WTO) is taking place from 15th to 18th December in the Kenyan capital, Nairobi. It is the first such MC to be held in Africa. This conference is a follow-up on several international trade negotiations which have been taking place to sort out the persistent impasse between rich and less rich countries of the world in the facilitation of international trade.

As background, it may be recalled that over 100 countries grouped together, in the aftermath of the Second World War, to ease trade barriers (including high tariffs on imports and bureaucratic obstacles) countries were putting in place to protect themselves. The first attempt, known as the General Agreement on Tariffs and Trade (GATT) was initiated in 1944. Since then, there have been several rounds of talks, such as the Uruguay Round. The MC being held currently in Nairobi is meant to address differences left behind from the Doha Round which began 14 years ago in Qatar.

It is always a risk to oversimplify matters. But to sum up the situation, the tussle between rich and poor countries during international trade negotiations having the objective of establishing a common global trade policy is primarily about defending vested interests.

Rich countries like the US and EU have been pressing for others to open up their domestic markets to imports by eliminating tariff and non-tariff barriers. In particular, they’ve been pressing the less rich countries to open up their public tenders, liberalise access to their service sectors and abide by the strict respect for intellectual property rights.

Less rich countries have been asking for improved open access for their products to rich country markets and trade and technical support from the rich countries to be able to foster domestic product diversification. In particular, the less rich countries have put up a stiff resistance against opening up their domestic markets to heavily subsidized agricultural exports from rich countries. They fear that by opening up to such subsidized exports, they risk dumping of cheap agricultural exports on their home markets by rich countries, which could eventually destroy their domestic agricultural production and make them dependent on the rich countries for the same.

There are a number of behind-the-scene actors in these negotiations. These include rich-country multinational corporates looking to maintain their dominance of international markets for both goods and services. There are also officials from developing countries lobbying to be allowed to maintain their subsidies in agriculture and to lock out imports from other countries threatening their domestic manufacturing.

Most of the time, the negotiations have ended up in stalemate, with neither side willing to make concessions to the other. Such might be the fate of the current Ministerial Conference of Nairobi. So, the principal point of having an organisation like the WTO has been to refer to it international trade disputes for arbitration and, to a lesser extent, for improving international trade exchange.

Putting Mauritius in context

Given this state of affairs in the 162-strong WTO, can we in Mauritius sit back and relax until some breakthrough is made? The answer is ‘No’, the reason being that our international trade is extremely sensitive to our overall economic well-being.

Had it not been for trade openings we made in the 1980s in particular, our manufacturing sector would have been next to non-existent. Moreover, international trade negotiations are not simply about the export of goods. Trade negotiators have increasingly been focussing on the export of services.

Now, a country like Mauritius might hit a ceiling in the export of goods for not having paid enough attention all these years to diversification of our export products. The salvation will then come from all the openings that organisations like the WTO would make in the area of service exports. Service industries which have been on the WTO agenda include areas like finance, education and health care. As trade liberalisation proceeds apace, under the aegis of institutions like the WTO, a whole range of opportunities will open up involving in- and out-sourcing of services.

We need to acquaint ourselves fully with the parameters under which international trade in services will lift off. For example, specific professional certifications may be required for a local firm to supply services to other countries. By anticipating such requirements, we could place our labour force into a position of strength not only to penetrate outside markets but also to form part of qualified international service providers serving external markets. We’ll gather experience by so doing, no doubt. But we’ll also be re-orienting our labour force in avenues having potential to absorb them.

Facing up to international market realities

As far as exports of goods are concerned, Mauritius has been doing relatively well. Our total exports amounted to Rs 72.7 billion over the first 9 months this year, about Rs 2.5 billion higher than in the corresponding period last year. Within this figure, Export Oriented Enterprises (previously EPZ) accounted for Rs 37.1 billion of total exports, almost the same as in the first nine months last year.

This is a commendable achievement, given the not so rosy picture of current trends in international trade. There is a general slowdown. The value of goods shipped around the world shrunk by 13% during the first half of 2015, compared with what it was during the first half of 2014. In volume terms, international trade has been increasing so far in the year, but only at a fraction of its pace before the international crisis of 2008 set in. The current slowdown in the growth rate of international trade appears to be a long-term phenomenon.

Mature exporters of goods like China are facing falling external demand for export goods. This situation makes it clear that it is not in the enunciation of numerous potential projects that we risk running short. The crunch will come against generally falling international demand which dictates that we will have to be quite vigilant if only to maintain our share in global export markets. The competition is already tough and is going to be tougher so long the global economy remains in the downturn.

Innovative developments have taken place across countries to face this kind of situation. The world has gone through a great supply-chain revolution since many years now. Thus, a technology firm producing a computer will source several of its components from different sources in diverse countries, assemble it together in yet another country, before shipping it to several places around the world.

Our range of production being rather limited, we have barely joined this mutually supporting mainstream of global supply-chain of production. Due to this, we’ve stayed out of a constant learning process which reinvents goods and refashions them constantly to adapt to changing demand patterns from markets. We have some work to do to constantly adapt to changing external markets.

To diversify into services

Mauritius has been compensating over a long number of years for its inadequate goods’ market penetration by diversifying into services. That’s how we extended the scope of our tourism, of our exportable financial services and our ICT services. We may have little choice than to intensify our efforts to provide international services to keep the country’s balance of payments on an even keel.

But this is what developed countries have also been banking upon since long. Because they provide much more sophisticated services to the world and have been doing so longer than us, they have an advantage. With the help of technology, they’ve been making the most of their opportunities.

They’ve been dismantling all sorts of barriers such as improving in their favour regulatory rules to penetrate new markets. To cite an example, hospitals in America outsource patient monitoring to nurses in Malaysia, shift the diagnosis to technicians in India and consultations to doctors in Canada. Seamlessly, by eliminating all sorts of non-tariff barriers and onerous procedures imposed by government agencies.

Intense use of Information Technology has been opening up such diverse service trade channels. It is the price at which we could expand our own trade in international services. We cannot be there if we are doubtful about the standards of training of our doctors or if we are struggling to make children pass their primary school exams. The aim should be much, much higher to integrate the emerging market for international services.

Finally, at the lack of conclusiveness of several rounds of international trade negotiations, sets of countries have been busy forming their own exclusive preferential trade areas, agreeing to abide by mutually set rules of exchange. Examples include the recent Trans-Pacific Partnership joining 12 countries from America to Japan, passing through Singapore, Canada, Australia, New Zealand and Malaysia. The Trans-Atlantic Trade and Investment Partnership between the EU and America is also almost ready. Such arrangements will impact on our ability to expand services because the preferential trade areas tend to become nearly impenetrable to outsiders.

Other small countries – not necessarily small economies – have managed to join and take advantage of forming part of clubs of the sort. In the face of weak international demand, our salvage might come from accessing the privileges of working as part of a larger group to sharpen our potential to provide services in particular to the world. But, then, we should have all the qualifications for so doing.

* Published in print edition on 18 December 2015

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