Reflecting on 20 years of Singapore free trade agreements

In 1992, Singapore signed its first free trade agreement (FTA), the Common Effective Preferential Tariff scheme with its ASEAN neighbors. Twenty years and 18 FTAs later, it is an appropriate time to reflect on how these FTAs have affected Singapore’s economy.

Clearly, Singapore has benefited from its bilateral FTAs and regional FTAs. Export trade has increased significantly as a result of the reduced duties on Singaporean goods. Singaporean investors benefit from legal protection arising from the FTAs.

Intellectual property rights in Singapore improved to world-class levels because of the U.S.-Singapore FTA. As a result, the country has become the major regional business hub for foreign investors.

However, FTAs are not “free.” Rather, they are the result of hard bargaining between negotiators, with trade and investment concessions exchanged.

All FTAs thus have some political and economic costs. As the FTA partners become more intertwined, these costs become more noticeable to the general population.

In NAFTA, when Mexican freight trucks cross the Rio Grande, American truck drivers notice. In the EU, when Greek voters turn against austerity plans, the entire regional bloc shudders. Greater integration means more of these “FTA moments.”

During these twenty years, Singapore apparently never had an “FTA moment.” I remember a very senior Singapore government official who claimed to me, ten years ago, that Singapore had given up “zero” concessions to achieve its benefits from the US-Singapore FTA.

I responded that as a result of the US- Singapore FTA, there would be Citibank ATMs in every MRT stop, Starbucks on every corner and Border’s in every major shopping mall within 10 years (on hindsight, two out of three isn’t bad).

The Singaporean official replied that if that happened, such developments would benefit Singaporeans, meaning that there were no costs to the country.

Yet all FTA signatories eventually become subject to their “FTA moments.”
Singapore finally had one last year. In December 2011, the Singapore government imposed an additional stamp duty of 10% for residential property purchases by foreigners.

However, the European Free Trade Association (EFTA) members (Iceland, Lichtenstein, Norway and Switzerland) were exempted because their FTA with Singapore required that their nationals be given the same treatment as Singaporeans for tax purposes. Furthermore, U.S. nationals were exempted because of a similar “national treatment clause” in the U.S.-Singapore FTA, as well as a “most-favored-nation” clause that requires that

U.S. nationals also enjoy the benefits that Singapore provides to any other FTA party (e.g. the EFTA-Singapore FTA).

Thus in December 2011 it became very apparent to the general Singaporean population that there were indeed concessions made to achieve the benefits obtained through the various Singapore FTAs. These concessions had always been there in the FTA texts but did not become evident until property, one of the major priorities of the general Singaporean population, became affected.

To Singaporeans’ credit, this first major “FTA moment” was handled well. There was more grousing about the additional stamp duty in general rather than the exemptions given to the U.S. and EFTA nationals. Compare this with the daily complaints in the British press about EU measures coming from Brussels.

Nevertheless, as Singapore increases its economic integration with its FTA partners, we are bound to have more “FTA moments” as these agreements affect more parts of the Singaporean economy. The government and private sector thus need to continue educating and engaging all parts of Singaporean society so that it understands both the benefits arising from the FTAs and the commitments that Singapore has undertaken to achieve those benefits. 

Edmund Sim, Partner, Appleton Luff