Re-visiting the China Maldives Free Trade Agreement

Initial thoughts about the about the China-Maldives Free Trade Agreement (CMFTA) (https://athifshakoor.com/the-china-maldives-free-trade-agreement/) was published in December 2017 after it was originally signed by both countries. At implementation of the CMFTA on 1st January 2025, 7 years later, it is timely to revisit the consequences flowing from the CMFTA.

This article therefore, revisits the CMFTA in terms of trade in goods, services, geopolitical context, and what this means for the for the realities of Maldives today, 2025.

1. A free trade agreement with polarized appeal.

The CMFTA was originally signed during the state visit of the Maldivian President to China from 6-9th December 2017. The Parliamentary sanction for the CMFTA was received only a week before, on the 29th of November 2017.

It is important to note that the CMFTA when submitted in 2017, was afforded short and abrupt passage in the Parliament, being sanctioned on the very day it was tabled. The incoming government of 2018, formed by the then opposition, parked the implementation to review the CMFTA and it remained thus until the end of their term in November 2023. The new government of November 2023, quickly announced its intention to implement the CMFTA and has come into effect on 1st January 2025. 

Considerable local concern about the CMFTA was raised by the opposition during its passage in the Parliament and the official signature in 2017. Additionally, and perhaps inevitably, anxieties of geo-political nature were attached to the CMFTA and was much stressed in Indian related news sites and think tanks.

The facts on the ground therefore are that the CMFTA was opposed by one side of the bi-polar nature of our local politics, and indeed in the geo-political context of the tension in the Indian Ocean.

The facts on the ground therefore are that the CMFTA was opposed by one side of the bi-polar nature of our local politics, and indeed in the geo-political context of the tension in the Indian Ocean.

It’s also important to note that even while most FTA’s initially are limited to certain areas of trade and then evolve to full blown FTAs with time, the CMFTA has been signed as a comprehensive FTA including trade in goods and services and extended to include investments too.

2. The impact on trade in goods

For convenience and ease of understanding the analysis is split between the impact on imports into the Maldives and exports to China.

Imports to Maldives

Custom statistics show that an average of 12.89% of the value of imported goods were sourced from China during the preceding 10-year period 2015-2024, with the highest % of imports amounting to 16.49% in 2018.

With the implementation of the CMFTA, other things remaining the same, it is logical to assume that more items will be imported from China in succeeding years, as businesses attempt to source more Chinese origin goods to benefit from the duty exemption status offered by the CMFTA.

Postponing the implications following from the Trump Tariffs of April 2025 for latter more detailed commentary below, it is important to note that China is the preferred source country for much of produced goods. All major brands, from capital machinery, mobile, computer and other IT equipment, and consumer goods including F&B items too are being produced in China with the pace and magnitude on the increase. Therefore, even outside the advantages offered by CMFTA, appetite to source from China has vastly increased and is more likely to increase in leaps and bounds.

Hitches in logistical challenges of the past 1.5 plus years arising out the of carnage visited by the IDF on the Palestinian homeland have assisted in trade moving eastward. And once goods are sourced from China, they are more likely to remain so.

It is also important to note that over the preceding period, the Maldivian state has moved to lessen the overall rate of import duty, preferring taxes like GST for generating revenue. Consequently, the import duty of a large spectrum of goods has been lowered to 5% during the recent past.

Hence the financial advantage to be gained in sourcing from China, or any other country, had lessened over time. The modest 5% advantage could lessen the impetus to replace traditional sellers in other countries, with whom local traders has built a history of trust and trading ties often going beyond strict commercial aspects.

… over the preceding period, the state has moved to lessen the overall rate of import duty… Consequently, the import duty of a large spectrum of goods has been lowered to 5% during the recent past. The modest 5% advantage could lessen the impetus to replace traditional sellers in other countries with whom local traders has built a history of trust and trading ties often going beyond strict commercial aspects.

Of special note, in this analysis is the fact that the county’s major and only value-added export, canned skipjack tuna, has not been assigned Staging Category A (protected status) in the CMFTA and therefore, canned skipjack from China is presently allowed duty free status. The CMFTA had instead offered protection to preserved Yellowfin Tuna.

However, it is believed that this an administrative oversight instead of a deliberate decision to open the Maldivian market for cheaper Chinese canned tuna imports and is very likely to be rectified in short order. 

Ceteris paribus, it is more likely that overtime, and without similar FTAs with other countries, that more goods will be sourced from China over time.

Exports to China

The geography of Maldives, a blessing in so many ways, has unfortunately offered us a very limited competitive edge vis-à-vis the world. China is the preferred production hub of the world, largely due to its lower costs of factors of production.

Our exports, traditionally and even today, are largely of marine origin. However, our seas do not offer the traditional range of seafood products like crabs, shrimp prawns or cuttlefish and are largely limited to varieties of tunas and some aquarium varieties.

In 2024 only 4 export items worth FOB MVR 154,827.88 were exported to China and in the 1st 2 months of 2025, we had only exported ‘waste, parings and scraps, of other plastics to the value of MVR 76.433 to China. This export of just the first 2 months, is admittedly insufficient and inadequate to make any generalizations.

Some Maldivian exporters have already entered into MOUs with Chinese companies and others seeking additional trading avenues. Section 4 on ‘Geopolitics’ and offers some late developments which is essential to understanding how exports may likely develop.

China is not famous as a premium market, and the sea food products imported and consumed are mostly of varieties not available in our seas. Therefore, it is highly unlikely that Maldives, with its notoriously high costs of production, of labor, land and capital, can in any sustained shape or form, export to China in any substantial manner.

Much noise has also been made about the potential for re-exports facilitated through the CMFTA. Maldivian processors, it was stated could import items from other countries, and re-export to China and thereby establishing re-exports as a major component of our commerce.

Chapter 4 of CMFTA about rules of origin impose strict guidelines of the process through which a good can be declared as of Maldivian origin. This includes a 40% minimum ‘in country’ value addition if imported. Hence, given our high costs of production, re-exporting to China as goods of Maldivian origin may not be an easy, cheap or profitable.

Chapter 4 of CMFTA about rules of origin impose strict guidelines of the process through which a good can be declared as of Maldivian origin. This includes a 40% minimum ‘in country’ value addition if imported. Hence, given our high costs of production, re-exporting to China as goods of Maldivian origin may not be an easy, cheap or profitable.

However, it is important to note that China is a consumer market of a billion people and more. And even a 0.01% of that market could, import and consume the entire export production of Maldives.

The challenge is to target and market to the right market niche. And we do, without doubt, have the entrepreneurial savvy to do exactly that, in short order.

3. Trade in services

With the entry into force of the CMFTA, and as detailed in Annex 5 of the CMFTA, 64 areas of services are open for Chinese entrepreneurs and businesses to offer their services in the Maldives. These areas range from Financial Services including audit for tax purposes, Engineering and Urban planning services, Real Estate services involving owning and leasing, Educational services including higher education and adult education, Banking and other financial services, Health Services including hospital services, Travel agency and Tour operator services, Dive services, Maritime transport services and Air Transport services.

Some of the above areas, like Urban Planning, Architectural services, Management, Marketing HR and PR consultancy services are specific areas, where Maldivian professionals are plying their trade and earning considerable income in the local economy. Other areas like Real Estate Investments and Construction are areas where local firms have operated, invested and matured with GDP contributions that underlie their status in the economy. In Health and Hospital services, 2 local private companies have presently invested considerably into the sector and their investments are rapidly being expanded and upgraded.

Of greater concern to local entrepreneurs and a whole segment of the larger tourism industry is the opening of the safari boat and transfer vessels segment through the FTA. These segments previously held limitations restricting foreign direct investments that kept the segment local and injected energy into the segment as well as the larger industry. 

Chinese firms, investing within the safeguards and assurances offered through the FTA, would because of the other conditions stipulated in the FTA, receive treatment as stated in the FTA and these include services like special considerations in expatriate employment, one of the most difficult areas for local as well as foreign companies.

While such considerations as stated above are real, it also needs to be forcibly stated that the entry of additional competition into all these areas, ceteris paribus, should make the market more competitive and consumers of such services should enjoy better quality at less expensive prices. Therefore, while the opening of these areas does translate into real concerns, the inclusion of added competition would, in the general will be a boon for the consumers of such services.

Therefore, while the opening of these areas does translate into real concerns, the inclusion of added competition would, in the general will be a boon for the consumers of such services.

It is also important to note the CMFTA does indeed open the above areas for Maldivians to investments and seek joint venture operations in China. Yet, with the level of technical and entrepreneurial activity of the Chinese, it is highly unlikely that unless selected as a strategic partner by a Chinese firm, and with investment finance received from their banks, that our entrepreneurs can find much headway in the highly dynamic economy of China.

4. Geopolitical Context

The thinking that had hitherto shaped this section has now been revised with the realities of the Trump Reciprocal Tariffs announced on April 2nd.  On ‘Liberty Day’ Trump had announced individual country tariffs ranging from 10-49% with a floor of a minimum of 10% to all countries. However, the announced tariff rates seemed to have been calculated from trade deficits rather than tariff rates that were effective then.

Because of turmoil in the stock market and especially in the bond market, Trump had, 3 days later, on the 5th of April announced a 90 day delay for global tariffs but had maintained a 10% floor to all countries, except China.

US national decisions, today, are prompted by the local context of which inflation plays a major factor. However, Chinese economy and the state are more tightly controlled by the Government, and the many arms of the state are repeatedly stating that the Chinese state will not back down.

The 9th April exemption of ‘smartphones, computers and some other electronic devices’, and latter statements by the Commerce Secretary and even the President stating that extra tariffs will be imposed on electronics and pharmaceutical, had made the waters even murkier.

While the world economic order of the last 80 plus years will, if it survives, be battered and bruised, it is believed that other countries will look to decrease their dependency on the US economy, and attempt to spread their trade and commerce to a wider circle.

While the world economic order of the last 80 plus years will, if it survives, be battered and bruised, it is believed that other countries will look to decrease their dependency on the US economy, and attempt to spread their trade and commerce to a wider circle.

In this context, what behooves the CMFTA that was effectively negotiated in the context in 2016 and 17?

Exports to China

Maldivian Exporters are indeed effectively probing the export potential into the Chinese economy and one of our biggest exporters have signed an MOU with a Chinese firm to explore the potential. Other traders, beyond the exporters, too, are probing the opportunities.

While our export products of tuna varieties are not on the regular menu of Chinese households and restaurants and our input costs effectively place us outside the reach of the average Chinese consumer, China is a 1.4 billion consumer space. And the ultra-rich of countries do not necessarily limit themselves to the regular fare and search for and spend on high end niche tastes. With a total population of 1.4 billion, acquired taste and demand from even 0.1% of the Chinese population results in 1,400,000 people, which market size is definitely of interest to our exporters.

With a total population of 1.4 billion, acquired taste and demand from even 0.1% of the Chinese population results in 1,400,000 people, which market size is definitely of interest to our exporters.

Re-exports

Like many other small geographically separate islands, Maldives has a highly inflated cost structure for all manners of products and services. Land is scarce, Labour is imported and financing is extremely limited and expensive.

The CMFTA specifies very specific value addition aspects, for Maldives to be eligible for duty free status into China. Chapter 4 of the CMFTA, ‘RULES OF ORIGIN AND ORIGIN IMPLEMENTATION PROCEDURES’ details specific conditions for eligibility to receive duty free status including Article 17 detailing how a good can be determined to be originating from the country.

Therefore, while theoretically possible, it is entirely possible that re-exports to China, using the mechanisms and avenues opened through the CMFTA, can be very limited in practice.

Therefore, while theoretically possible, it is entirely possible that re-exports to China, using the mechanisms and avenues opened through the CMFTA, can be very limited in practice.

However, in the context of the Chinese economy seeking to expand their partnerships in trading and commerce, it is entirely likely that export venues will be further facilitated, and re-exports scrutinized in a more benign manner. 

5. In the balance

Submissions of the government in 2017, reveal that studies then, forecasted a total loss of US $ 8m in import duty revenue over a space of 5 years as imports slowly shift towards Chinese origin. The state also expects this loss would in the short term be recovered from GST revenue as gross volume of commerce expand in the country.

While the re-casting of import duty percentages of late, could negatively impact those forecasts, it is generally believed that general expansion of commerce would in-fact offset the loss of revenue in import duty, but only in the medium term.

In the geo-political context, it is inevitable that India, with its extra ‘special links’ will look to ensure that trade does not divert too much, and that India will remain the most important trading partner.

It is thought that our exporters will indeed locate specific niche markets that can absorb our costs and that exports will increase in volume and depth. However, it is highly unlikely, that re-exports will become an important facet of bi-lateral trade.

In the geo-political context, it is inevitable that India, with its extra ‘special links’ will look to ensure that trade does not divert too much, and that India will remain the most important trading partner.

In conclusion it is entirely probable that CMFTA will allow for more Chinese imports to the Maldives. Our exports too, with effort and entrepreneurship, will find niche markets in 1.2billion 2nd largest economy of the world. Re-exports, with stringent ‘rules of origin’ requirements and our high-cost structure are more unlikely. In the services and investment sector, in the event that Chinese Entrepreneurs decide to invest in a relatively small economy like the Maldives, they will find the path easier and will have the means to overcome local investors with relative ease. Our local investors, will on the other hand, find have an uphill battle to invest and gain market share in the Chinese economy.

The effects of the Trump Tariff War, and the attempt to remake the World Trading regime of the past 60 plus years, shaped mainly by the US, are more difficult to determine. In this context bilateral and regional trading agreements would be the main focus of global producers and large consumer markets. Those seeking to repel the hegemony of any one superpower would it is believed, find shelter within the context of such bilateral FTAs.

Therefore, even though wholly unintended and unforeseen at the outset, perhaps the CMFTA and similar agreements would be the nexus through which much of global trade would be channeled and we be at the vanguard of such a momentum.

In conclusion it is entirely probable that CMFTA will allow for more Chinese imports to the Maldives. Our exports too, with effort and entrepreneurship, will find niche markets in 1.2billion 2nd largest economy of the world. Re-exports, with stringent ‘rules of origin’ requirements and our high-cost structure are more unlikely. In the services and investment sector, in the event that Chinese Entrepreneurs decide to invest in a relatively small economy like the Maldives, they will find the path easier and will have the means to overcome local investors with relative ease. Our local investors, will on the other hand, find have an uphill battle to invest and gain market share in the Chinese economy.