Putting our act together

Call for Review of Sugar Quotas: How did we manage to embark ourselves on such a Don Quixotic wild goose chase?

Our economic diplomacy has been a model for others.

Our negotiating strategy in respect of international trading agreements has been generally well couched, innovative and fairly successful. In spite of being a small country, we are known to box above our weight and very often Mauritius has taken and rallied support around cogent initiatives to uphold common interests in such diverse fora as the ACP-EU meetings or regional summits or the larger WTO forum. The synergic teaming up of the public and private sectors to establish a negotiating game plan aimed at opening up gainful export opportunities for our economic operators is a well oiled modus operandi of our economic diplomacy.

Over the last decades, trade agreements negotiated as well as the constant diversification of the economy have given impetus to growth, socio-economic development and generally improved the well being of the people. Mauritius enjoys the image of an intelligent, resourceful and fairly successful trade negotiator. This stems from a comprehensive and technical understanding of trade issues and the drivers of the negotiations as well as a diligent follow up of developments through market intelligence to be constantly au fait with the state of play of each trading arrangement. Regular meetings with stakeholders and economic operators ensure that all are briefed accordingly and can provide their inputs.

It was therefore a major glitch for Mauritius to be seen to request at the ACP-EU Joint Parliamentary Assembly (JPA) meeting held in Mauritius last week that the EU Commission, the EU Parliament and other institutions involved should consider reviewing the decision to abolish sugar quotas in 2017 when such a decision has already been jointly taken by the EU Parliament, the Commission and the Council since June 2013. In line with the EU Sugar Regime reform policy initiated in 2005 and the Commission’s legislative proposals for a reformed Common Agricultural Policy (CAP) after 2013 published in 2011, the sugar quotas were initially set to end in 2015. Pursuant to lobbying by both EU and ACP stakeholders, a limited reprieve was obtained with the abolition of sugar quotas postponed till 30 September 2017. The collective decision taken by the EU institutions in June 2013 to abolish sugar quotas in 2017 was confirmed by the European Commission in a public memo on the same date. In a press release shortly after, the ACP sugar supplying states said that they were appalled at the decision reached by the EU institutions to abolish sugar quotas and that once again the concerns of the ACP have not been taken into account in spite of numerous submissions made. In short, all this hullabaloo during the JPA meeting last week is tantamount to flogging a dead horse.

This incongruous situation begs the following questions. How did we manage to embark ourselves on such a Don Quixotic wild goose chase now? Who advised on such a course of action? Who wrote the keynote speech without checking the facts? Is there not a mechanism to check the content of policy statements which engage the country, especially in international conferences hosted by the country? For whom were the protagonists fighting this lost battle? How can this misguided and futile action help the 18,300 small sugar planters, most of whom are unable to eke out a net return in a context of rising costs and falling revenue from their small holdings?

The only meaningful way to help the small sugar planters and stem the growing trend towards abandonment of cane cultivation is to urgently address the long outstanding local issue of a real partnership of the small sugar planters into the sugar cane industry whereby they can also benefit from the value generated from their bagasse and molasses (and eventually other value added derivatives from the sugar cane biomass) to supplement their falling sugar revenue. To this end, a more potent action would be to canvass the EU as an accompanying measure for resources to fund the planters’ participation and stake in the cane sugar industry cluster ventures. This approach would give real substance to the policy of democratisation of the economy.

As a consequence of the reform, the marketing environment for sugar in the EU will become more and more competitive with bearish effect on prices. The rationalised and streamlined sugar sector will therefore become more dependent on the other streams of revenue from the sugar cane industry, its land assets and judicious investment and export of its expertise overseas to manage the future.

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India-mauritius DTAA: Need for a new approach

Our economic diplomacy and negotiating skills will again come under scrutiny and be tested in relation to the mature manner we handle and successfully conclude the protracted discussions on the India-Mauritius Double Tax Avoidance Agreement (DTAA).

Lately, there have been lots of hype and in some cases ‘aggro’ in respect of the perceived intent of India to erode the competitive advantages of our DTAA with India. India granted this unique concession to Mauritius as far back as 1983 with Congress in power and Pranab Mukherjee, the present President of India, as Minister of Finance. However we must remember that we are now, more than 30 years later, in a new liberalized world context. We cannot still suffer from the hangover of milking our way from another ‘non reciprocal preferential agreement’. India, a BRICS country, is a global player with massive investments in countries across the world. She has signed a total of 88 DTAAs with a long list of countries of which 85 are in force but which contain less benefits than ours and the DTAAs with Cyprus and Singapore.

The international financial crisis and its excesses by banks leaving governments and the taxpayer in the developed economies to hold the can and foot the bill have put the financial world under hostile scrutiny. As a backlash, regulators across the world are making banks pay for their past misdeeds in respect of inter alia mis-selling US mortgage bonds, the rigging of Libor and interest rates and other risky transactions on derivatives and power trading. The US regulators, who are more aggressive than those in Europe, have imposed significantly heavier penalties than those meted out in Europe. In 2013, a record amount of more than US $43 billion have been paid by banks as penalties imposed by regulators as authorities collaborate across continents to clean up the financial sector.

In Europe, in the context of large fiscal deficits, the focus has been inter alia on taxing financial transactions which countries with a robust financial sector such as England are against and on a witch hunt on companies domiciled in tax havens. There is growing hostility against tax havens and their decried role in helping those that have to evade their tax responsibility in the context of the financial crisis. There is mounting pressure on these tax havens fuelled by data sold by whistle blowers, to share information on account holders.

There is also a growing view especially in the wake of information revealed on paltry taxes paid by Starbucks in the UK when it is one of their most profitable markets, that companies and multinationals should pay appropriate taxes in the countries they are profitably operating in. In the context of the arduous uphill battle to get out of the financial crisis and ease the heavy burden of the people afflicted by unemployment or reduced income, Governments now consider that commensurate taxpaying by profit making companies should be part of corporate social (and moral) responsibility.

In India, there have been intermittent adverse press reports alleging links between, for example, those involved in the major 2G auction scam which caused a loss of some US $28 billion to India in 2010 and companies domiciled in Mauritius as well as tax evasion through the incorporation of companies in Mauritius. There have also been press articles on profit taking by foreign institutional investors operating from Mauritius who trade on the Indian stock exchange which caused heavy losses in the wake of the resulting stock market slump, to Indian savers who have a well established culture of investing their savings and pension pots in stocks. Have our supervisory financial authorities been vigilant and thorough enough to respond to and allay India’s apprehensions? Furthermore, various factors such as a review of national policy on mining permits following a spate of corruption cases and environmental concerns relating to mining in tribal areas, a new Acquisition of Land Bill voted in August 2013 which establishes stiff terms of acquisition of land and compensation in India and a slower rate of growth have dampened the flow of Foreign Direct Investment in India.

Successive Indian Prime Ministers have assured Mauritius that our interests under the DTAA will not be harmed. In view of the special ties between our two countries, the onus is on us to ensure that we operate the offshore sector with due diligence in a responsible manner bearing in mind the concerns of India. It is important that we put in place a strengthened mechanism to ferret out any dubious investments to India through Mauritius so as to beef up confidence in our ability to police and manage our offshore sector with the highest standards of probity and rigour to ensure that only bona fide investments are channelled through it to India.

In view of the sensitive nature of the negotiations, it is equally important that we field a new negotiating team comprising tax and financial experts devoid of the arrogance witnessed in public declarations lately. We have to ensure that bloated egos do not derail what should be constructive discussions among long-standing friends. We must engage negotiations on the premise that both parties will clearly spell out any problems and expeditiously seek acceptable solutions in a manner which does not water down the benefits derived by both countries. They must also address the issue of the Damocles sword of the General Anti-Avoidance Rules (GAAR) now applicable as from 2016 which may review transactions in our offshore sector, suspected of tax evasion for sanction.

Were our efforts to resolve the deadlock fail, we will be in a stronger position to seek political arbitrage once the general elections in India scheduled in April-May 2014 are over. More importantly, we should in parallel mobilise the offshore sector to diversify their activities to take advantage of the market opportunities in some of the 39 countries with whom Mauritius has signed DTAAs, in particular those in Africa and Asia to facilitate investment flows from Asia and the Middle East into Africa as well as provide financial services.

* Published in print edition on 21 February 2014

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