INDIA BUSINESS WORLD - JULY 2006
THE MONTH THAT WAS...

HARDSHELL: MAURITIUS CECA MAY GET SECURITY CHECKED

CHINA and Pakistan may cast their shadow on the proposed Comprehensive Economic Cooperation Agreement (CECA) between Mauritius and India . Security agencies have expressed concerns that the agreement with Mauritius could provide an easy access to Pakistani and Chinese companies to route their investments into India .
   The government may, therefore, put a clause in the agreement that would allow only firms incorporated in Mauritius to invest in India . In other words, they should have significant business activities in Mauritius . The business activity clause has been proposed to avoid shell companies of third countries to route their investment in India through Mauritius and enjoy tax benefits, government sources said.

Sources said Mauritius has expressed its reservation against inclusion of any such clause as it would make the route unattractive for foreign investors. It is expected that the ongoing negotiations would find a middle path, sources added. While India has finalised a preferential trading arrangement (PTA) on goods, negotiations are underway for a free trade agreement (FTA) on services, as part of CECA.

Commerce ministry officials told ET that the services FTA would be based on the ‘positive list' approach, which means only select services that each partner wants to open after negotiations would be included under the agreement.

However, with the security agencies raising concerns, the negotiations would also centre around measures to plug the entry points. It may be noted that concerns have been raised in the past over certain telecom companies with operations in countries like China from gaining access to India.

The business activity clause would mean that a company must have at least 2-3 years of operational history besides being listed on a foreign bourse, before seeking entry into India.

Under PTA, India is offering duty-free quota to Mauritius for garments and sugar. The PTA has already been cleared by the prime minister's trade and economic relations committee.