IV. TRADE POLICIES by SECTOR (1) 1. the Maldives Is a Small Economy
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Maldives WT/TPR/S/221 Page 33 IV. TRADE POLICIES BY SECTOR (1) INTRODUCTION 1. The Maldives is a small economy with limited natural resources and thus a narrow economic base; heavy dependence on tourism services and fisheries makes the economy and trade vulnerable to exogenous shocks. Although the economy is relatively open with trade in goods and services accounting for over 150% of GDP in 2009, tariffs remain relatively high and state involvement is prevalent in many sectors. High tariffs and state involvement tend to impede competition and thus result in an inefficient allocation of resources. To be more resilient, the economy would need to diversify, this could be achieved through greater private-sector involvement. At present, private-sector involvement remains weak (except tourism), presumably due to crowding out by the state-owned enterprises and the relatively high cost of doing business in the Maldives. 2. Fisheries account for almost all merchandise exports and the state-owned Maldives Industrial Fisheries Company (MIFCO) remains dominant in the sector. Fishing and fish processing is characterized by very little product diversification and low value-added products. Export receipts would be significantly greater if higher value-added processes, such as canning, were to become more prevalent. The agriculture sector is limited to 30 square miles of arable land, which is used to grow fruits and vegetables for personal consumption. The manufacturing sector remains weak; it is protected by high tariffs, but receives government support in the form of tariff concessions on imported inputs. 3. Tourism and related activities, such as transport and communications, dominate services, contributing to as much as 70% of GDP. There is very little direct state involvement in tourism, where it appears that productivity is much higher than in other sectors of the economy. By contrast, government involvement in telecommunications, financial services and transport is considerable. However, the Government continues to further liberalize these sectors in order to make them more efficient and thus competitive, thereby reducing the cost of doing business in the long-run (as these services are important business inputs). (2) FISHERIES AND AGRICULTURE (i) Fisheries 4. Despite its declining share of GDP (from over 7% in 2002 to 5% in 2009), the fisheries sector continues to be of major importance to the Maldives economy (Table IV.1); it accounted for nearly all (98.4%) merchandise exports and employed 11% of the total workforce in 2009. 5. Due to its geographical nature, the Maldives has considerable marine resources within its 200 mile exclusive economic zone (EEZ). Between 2002 and 2007, total fish catches were volatile, varying between 133,000 tonnes and 186,000 tonnes. Tuna (skipjack, yellow fin, and big eye) account for nearly 90% of the total catch, with snapper, grouper, and other varieties making up the rest. 6. The main export market for Maldivian fish is Thailand, which takes over 30% of exports for use in its canning industry. Almost all dried and salted fish is exported to Sri Lanka. Fish products canned in the Maldives are exported mainly to Europe, where they benefit from tariff and quota preferences under the EC's "everything but arms" initiative for LDCs. Since 2003, all export shipments require a health certificate for quality control purposes. Fish exporters have to pay a value-based export charge (tax) called a "royalty", which varies according to the species and totalled Rf 57.8 million in 2004. WT/TPR/S/221 Trade Policy Review Page 34 Table IV.1 Fishing indicators, 2002-09 a b 2002 2003 2004 2005 2006 2007 2008 2009 c Contribution to GDP (%) 7.1 6.6 6.1 7.5 6.3 4.6 4.2 5.0 c Growth of fishing GDP (%) 22.9 0.7 1.8 17.6 -1.0 -21.8 -2.6 15.4 Total fish catch ('000 tonnes) 163.4 155.4 158.6 185.9 184.2 144.1 133.1 .. - of which: skipjack tuna (%) 70.6 69.7 69.2 71.0 75.2 67.5 66.0 .. Total fish exports ('000 tonnes) 44.6 69.8 75.4 82.1 111.4 65.8 63.1 .. - value (US$ million) 49.2 69.1 84.4 96.6 128.8 102.5 120.7 .. Number of fishermen ('000) 14.4 14.9 14.8 13.8 14.2 .. .. .. Number of mechanized fishing vessels 1,161 1,150 1,159 1,058 967 936 907 .. .. Not available. a Estimates. b Projections. c Based on constant 1995 prices. Source: Maldives Monetary Authority (2009), Monthly Statistics, April, Vol.10 No. 4, and Annual Report (various years). (a) Structure 7. Commercial fishing in the Maldives is differentiated by distance. Near-coast fishing (0-75 nautical miles (NM)) is carried out using traditional wooden hulled masdhonis and is concentrated on skipjack tuna. Masdhoni owners are required to be Maldivian citizens; additionally, the vessels must be registered and the owners must have a licence to fish. The licence stipulates the permissible fishing methods, which include: pole and line, long line, trolling and hand line; gill netting is only allowed in areas designated for bait fishing. In order to maintain the registration, the vessel needs to make a minimum of 120 fishing trips a year. As of 2008, there were 979 fishing vessels registered in the Maldives, of which 867 were mechanized masdhonis and 40 mechanized vadhudhonis (trolling vessels). 8. High-seas fishing takes place between 75NM and 200NM (the EEZ limit); the main species caught is yellow fin tuna. Licences for high-seas fishing are granted by the MED to Maldivian-registered companies operating foreign vessels. At present, 43 licensed companies are operating in the 75NM-200NM EEZ. High-seas fishing is regulated through quotas; only long line and pole and line methods are permitted. Additionally, trading in yellow fin tuna is restricted by a quota of 1,000 tonnes; however, it would appear that the quotas are not enforced. 9. Applied MFN tariffs on fish imports averaged 16%, which is low compared with the overall average applied MFN tariff (21.4%). However, most tariff lines relating to fish and fish products are not bound, which gives the Government considerable leeway to raise tariffs on these products if the need arises. (b) Regulation 10. The Maldives has no comprehensive fisheries management policy. The Ministry of Fisheries, Agriculture and Marine Resources (MFAMR) is responsible for regulating the sector as well as formulating policy. Fisheries is regulated under Law 5/87 and the Regulation for Issuing the License to Fish in the Exclusive Economic Zone of the Republic of the Maldives, which differentiate between near-coast and high-seas fisheries and the permissible methods of fishing. The regulatory instruments are applied through licensing systems. Maldives WT/TPR/S/221 Page 35 11. A fairly comprehensive draft Fisheries Bill was circulated in 2004, but has been withdrawn; a revised Fisheries Bill is to be presented to Parliament and is expected to enter into force in 2010. The bill covers recent international agreements and practices as well as standards for monitoring and enforcing fisheries laws. The bill also addresses aquaculture. If implemented, the bill will enable a modern and market-oriented system of fisheries management, with the Government as the regulator rather than being involved in business of fisheries. The objective of the new bill is to maximize the resource rent and sustainability from the sector. As the tuna stock in the Indian Ocean is highly migratory, any statistical data, such as stock levels and catches (which is essential for policy formulation and the associated regulatory framework), will need international cooperation from all concerned countries in the region. In this regard, the Maldives has become an observer to the Indian Ocean Tuna Commission. In addition, the Maldives is a member of the Marine Stewardship Council, which provides for eco-labeling of fish and other marine products. This could enable the Maldives to receive a premium for its marine products. (c) MIFCO and fish processing 12. Purchase and processing of skipjack tuna is divided into four zones. Under the existing rules private enterprises apply for licences to process and export tuna. The application is evaluated on the basis of procurer capacity needs in the designated zone. Currently MIFCO, a state-owned company, holds exclusive rights to buy and process tuna in two (zones two and four) of the four zones and as such has monopsony power; furthermore, MIFCO is permitted to procure fish in the other two zones, but it does not have the exclusive right to do so. In each of the other two zones, two private companies have also been given licences. 13. MIFCO procures the tuna through a quota-like system. MIFCO operates collector ships, which buy the tuna catch from the participating fisherman. If a quota held by a fishing vessel has been exhausted, the remaining catch belongs to the vessel owner to sell if possible; the fishermen can sell their catch in any of the zones. However, this practice leads to wastage, estimated at between 25-40% of the catch.1 MIFCO pays a fixed, but high, price for the catch, thereby ensuring that the fisherman get a fair price. 14. There are 72 tuna-processing facilities, of which 68 produce traditional products (salted, smoked and dried fish). These are destined mainly for Sri Lanka. There is also one cannery and three loining/filleting plants, all of these have EC export authorization numbers. The cannery is situated in the north and owned by MIFCO; its location leads to inefficiency as most of the fish is caught in the south and has to be transported north for canning.