Managing graduation from the LDC category: The case of the Maldives’ fish exports

by Matthias Bruckner*

When the Maldives approached graduation from the least developed country (LDC) category in the 2000s, the impact of graduation on market access for fish products moved to the forefront of the debate. The Maldives’s experience holds lessons for other fisheries-dependent LDCs approaching graduation.

The CDP recommended the Maldives for graduation from the LDC category in 2003[1], and United Nations Member States endorsed the recommendation in 2004[2]. After being granted an additional transition period due to the devastating impacts of the 2004 Tsunami, the country graduated on 1 January 2011.

The potential impact of graduation on the fishing industry (mainly tuna) has been a major concern for the Maldives. Whereas the share of fisheries in total value added has been shrinking, the sector remains important in terms of jobs, accounting for 11 per cent of total employment in 2009[3]. Fisheries are particularly important in outer atoll regions, where an estimated 65 per cent of the population depends on the industry.

As the margin of tariff preference for fisheries in the key market of the European Union is high and Maldives is not a beneficiary of other trading arrangements in major markets (with the exception of the South Asia Free Trade Agreement), the government and industry worried that graduation would have a negative effect on fish production and processing[4]. After a three-year transition period, the country lost duty-free quota-free access to the European Union on 1 January 2014, after having already lost preferences in Japan in 2011. Moreover, in 2015 the Maldives lost access to the Generalised System of Preferences (GSP)[5] in the EU due to its achieving upper middle-income status, further increasing tariffs[6].

Figure 1 shows the evolution of fish exports by the Maldives in various sectors of the market over the past 10 years. It shows a significant drop in exports of unprocessed fish before graduation in 2011, but a rapid recovery afterwards. Processed fish (in particular fish fillets) and prepared fish (mainly canned tuna) dipped less before graduation than frozen fish.

Source: UN Comtrade, downloaded 24 November 2017. Data excludes re-exports.

Figure 2 shows exports by market, indicating that the pre-graduation drop and subsequent recovery was to a large extent caused by an increase in exports to Thailand, the world’s largest tuna-processing country. Exports to the European Union declined slightly since the phasing out of preferences in 2014, but are still significantly higher than before graduation in 2011. Moreover, the Maldives achieved some success in diversifying destinations, with the United States emerging as a significant market for fresh fish and, to a smaller extent, fish fillets. Fish products from all countries enter the United States mostly duty-free, so the issue of preferences is not relevant in that market.

Source: UN Comtrade, downloaded 24 November 2017. Data excludes re-exports.

Figures 3 takes a closer look at the European Union using the EU’s import data since 2000, with the aim of gaining further insights into the impact of changes to preferential market access. The figure shows that processed fish (mainly tuna fillets) has become the main import from the Maldives over time, whereas prepared fish (mainly canned tuna) remains rather constant. The data contains information on whether imports actually utilized preferential tariffs or not, revealing that utilization for fish products under the duty-free quota-free scheme (the Everything but Arms Initiative) was very high; with a utilization rate above 99 per cent between 2005 to 2013. However, in 2014, when the Maldives only had access to ordinary GSP rates, the utilization rate dropped to 84 per cent.

This may indicate that the margin of preference of the ordinary GSP scheme was too low for importers to bother with, a fact which could also anticipate the termination of any preferences for the Maldives in accessing the EU market from 2015 onwards. The figure also shows that product diversification beyond fish has not succeeded. The temporary rise in EU imports in 2015 is due to the import of aircraft products, and hence constitutes a re-import rather than a result of productive activity in the Maldives. The significant other exports in the early 2000s are predominantly garment products exported under the quota-based multifibre arrangement (MFA). After the MFA was dismantled in 2004, the Maldives was no longer cost competitive in the garment sector despite having duty-free quota-free access to the EU. This serves as a reminder that in economic diversification, productive capacity is often more important than preferential market access.

Source: EU Comext database, downloaded 18 December 2017

Overall, this analysis shows that despite the initial fears, production and exports of fish products have been relatively stable, indicating that negative impacts have been limited. This finding confirms earlier assessments by the CDP in its monitoring report of graduated countries in 2015 that the tariff increase in the EU market did not have a major impact on the Maldives’ tuna industry[7]. In its report within its 2016 WTO Trade Policy Review[8], the Government of the Maldives also highlighted that the while the withdrawal of preferential market access created challenges, the country managed to maintain export volumes after graduation. This indicates that the loss of tariff preferences in a sector like fish products can indeed be mitigated and managed.

The Government attributes the relative stability of exports after graduation to promotion activities by the Government and the private sector that enabled the country to enter new markets and to position Maldives fish as a niche premium product (for example through Marine Stewardship Council certification). The loss of preferences might even have a positive effect on product innovation and moving towards higher value-added activities. However, successfully managing the loss of preferences requires that a country graduating from the LDC category has already developed a reasonable level of productive capacity.

 

*The content, findings, interpretations, and conclusions as expressed in this article reflect the views of its author and do not necessarily represent the views of the United Nations.

 

[1] Report of the Committee for Development Policy on the fifth session, Official Records of the Economic and Social Council, 2003, Supplement No. 33 (E/2013/33)

[2] United Nations General Assembly Resolution A/59/210

[3] FAO (2009), “The Republic of Maldives”, Fishery and Aquaculture Country Profiles.

[4] See, e.g., UNCTAD (2003), “Vulnerability profile of Vanuatu” Note by UNCTAD, and Liam Campling (2015), “Tariff Escalation and Preferences in International Fish Production and Trade”, E15 Expert Group on Oceans, Fisheries and the Trade System, Think Piece, Geneva: International Centre for Trade and Development and World Economic Forum.

[5] The GSP denotes programmes under which developed countries grant preferential market access to developing countries. The EU and most other developed countries have sub-programmes under which LDCs have access to more preferential terms than ordinary developing countries, including duty-free and quota-free access and preferential rules of origin.

[6] Tariffs for fresh-chilled fish fillets increased further from 14.5 to 15 per cent, for frozen fillets from 14.5 to 18 per cent, and for prepared (loined or canned) from 20.5 to 24 per cent (Campling, 2015, op.cit.).

[7] Secretariat of the Committee for Development Policy (2015), Monitoring of Graduated Countries from the Category of Least Developed Countries: Maldives and Samoa, CDP2015/PLEN/8.

[8] Government of the Maldives (2016), Trade Policy Review. Report by Maldives. World Trade Organization WT/TPR/G/332