Maldives- China FTA: A Cause of Concern for India?

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On December 7th 2017, representatives from China and their counterparts from Maldives concluded a Free Trade Agreement (FTA) – China’s 16th FTA in all, second in South Asia after its agreement with Pakistan, and Maldives’ first ever FTA signed with any country. As the news broke, Indian officials were swiftly asked about New Delhi’s response. Those in the media called it a setback for India; some questioned India’s cautious silence and others suggested that India revisit its Indian Ocean Region neighborhood policy. In its response, India welcomed closer ties between China and Maldives, but with the expectation that  the latter remain sensitive to its concerns.

The negotiations that began in December 2015, culminated in September of this year. The agreement covers trade in goods, services, investment, and economic and technical cooperation. With respect to trade in goods, the two countries would reduce tariffs for about 96 percent of goods to zero. Most of the Chinese industrial and agricultural products (flowers, plants, vegetables) and Maldivian aquatic products will benefit from this. The FTA opens up the Chinese market to Maldivian fishery products, cotton, coconut seeds, eggs, soy bean, etc. at zero duty.

In terms of trade in services, Chinese entrepreneurs and businesses can offer services in Maldives belonging to 64 areas. Some of these services are financial, engineering & urban planning, educational, tourism, telecommunication, health, insurance etc. However, this raises concerns for local entrepreneurs and professionals in Maldives due to the benefits that may arise due to increased competition, with consumers having more options to choose from at lower prices.

Much has been said about the forced nature of the FTA on Maldives and the manner in which it was passed (without any debate) by the Maldivian Parliament (Majlis). The Members of Parliament were neither timely notified nor were they given access to the document, and it was approved with just thirty votes. Moreover, many in Maldives opine that the agreement is tilted largely in favor of China – exports from Maldives are less than 1 percent of those coming from China holding huge advantages for Beijing. Domestic critics have also argued that Maldives could be the latest victim of the Chinese debt trap after Sri Lanka, who leased Hambantota port to China earlier last month.

Many in India are concerned that that the strengthening of Chinese- Maldivian ties will lead a weakening of the traditionally robust Indo-Maldivian relationship.Maldives and India have shared close and friendly relations since India first recognized Maldives after its independence in 1965, and established its mission there in 1972. Time and again, the two have supported each other in multilateral fora such as the UN, the Commonwealth, the NAM and the SAARC. In 2015, on the occasion of Maldives’ 50th Independence Day, Prime Minister Narendra Modi referred to Maldives as “a valued partner in the Indian Ocean neighborhood” and also said that the ties between them are built on “strong foundation”. During his 2016 visit to India, Maldivian President Abdulla Yameen described India as Maldives’ most important friend and called its foreign policy an “India first” foreign policy.

In the wake of the 2014 water crisis in Maldives, it was the Indian Air Force (IAF) that came to the rescue and dispatched planeloads of water to Male. Maldives also supports India’s bid for a permanent membership of the UN Security Council. Last year, the two countries signed several agreements including the Double Taxation Avoidance Agreement (DTAA); Agreement for Exchange of Information on Taxes; MoUs for cooperation in areas of tourism; conservation and restoration of ancient mosques, and joint research and exploratory surveys in Maldives; and also signed an action plan for defense cooperation. Despite minor hiccups, the two nations have had mutually beneficial relations and share common interests; peace within Maldives remains a great concern for India.

 this backdrop, the Maldives-China FTA doesn’t augur well for Indian interests and its ‘Neighborhood First’ policy. Apart from China, Male doesn’t have an FTA with any other country, including India. In 2015, PM Modi cancelled his proposed trip to Maldives and has not visited the country since. China is making the most of India’s sluggish engagement with Male and has also received Maldives’s endorsement forthe Maritime Silk Road (MSR). In the past, Maldives terminated the agreement for modernization of its international airport entered into with an Indian infrastructural company GMR by the then Nasheed government, and later gave it to a Chinese company. Most ominously, in a press release from the Maldivian President’s Office regarding the invitations extended to establish FTAs with other countries, there was no mention of India. Throughout the process of its FTA negotiations with China, Male kept India out of the loop. This speaks volumes about where the bilateral relations are headed.

Looking at the recent developments, India will need to consider certain issues. In all, Maldives and China signed 12 agreements including the controversial FTA. Those of concern to India include a pact to jointly promote One Belt One Road (OBOR) Initiative, the agreement on “Airport Economic Zone Development in Hulhumale” and the “Protocol on Establishment of Joint Ocean Observation Station”. The lack of scrutiny and the speed with which the negotiations were completed are also a cause of worry for India. There were no public disclosures or prior consultations with the business community within Maldives. Considering that South Asia is an important part of China’s Belt and Road Initiative (BRI), this is just the beginning of Chinese FTAs in the Indian neighborhood. After Pakistan and Maldives, China is working on FTAs with Sri Lanka and Nepal.

In August 2017, three Chinese warships were permitted to dock in Male. Thus, Chinese presence in the Indian Ocean archipelago nation cannot be ruled out, especially so with the Gwadar and Hambantota port agreements in place. This can have significant politico-strategic ramifications for India and the region as a whole. Of late, Yameen government has also expressed its dissatisfaction over the working of FTA negotiations with India. In fact, the increased interaction of India with Maldivian opposition and former president Mohammed Nasheed has caused estrangement between the two governments. Recently, the government suspended three local opposition party councilors for meeting Indian Ambassador Akhilesh Mishra, after new rules on meetings between foreign envoys and local officials were introduced.

Conclusion

These issues will continue to cast a shadow on Indo-Maldivian bilateral relations for the foreseeable future. Despite assurances by Maldives that China’s policy does not interfere in its relations with India and its denial of Chinese plans to establish any bases in Maldives, Beijing’s strategic footprint continues to grow within New Delhi’s backyard. China continues to challenge India’s hegemony in the region by bringing India’s traditional partners under its influence. Time and again, India’s small neighbors have also hinted at its half-hearted attempts at forging bilateral trade & investment relations with them, giving China the requisite space to squeeze in and take advantage. It is becoming increasingly important for India to rethink its bilateral relations with its neighbors and make all possible re-adjustments.