Singapore blazes trail with US trade pact
By Tony Sitathan

SINGAPORE - Azlan Shah is an electronics trader based in High Street, well known as the electronics wholesale belt of Singapore. He sells cordless phones, video compact disc (VCD) players and digital cameras. He also does some trading in electronic components such as DRAMs (dynamic random access memory chips). With the current slowdown in the electronics trade worldwide, Azlan, like many other businessmen, is looking for new export markets besides the traditional ones in Africa, Russia and India.

He is planning to look more closely at the United States. A free-trade agreement (FTA) about to be signed between Singapore and the US after almost two years of intense negotiations intends to remove tariffs worth more than US$33 billion of annual two-way trade. "The United States is a very likely market for us to penetrate in the future since the elimination of certain heavy import duties on electronic components has suddenly made the US an attractive market for us," he said.

The FTA, once it has been signed in 2003 and comes into full effect in 2004, will mean that certain goods and services can be mutually exchanged and gain entry to the respective countries without heavy imposition of taxes and import duties. The easing of customs rules is seen as a boon to traders like Azlan.

For the United States, the FTA was seen as a vehicle to expand the US service sector, including its offshore financial services, into Singapore. Robert Zoellick, the US Trade Representative, called it a comprehensive agreement since both sides have significant service economies to support in order to post greater growth in their respective economies.

According to a report by the Institute for International Economics, the FTA could lift Singapore's economic growth by 0.7 of a percentage point. Since it was announced just a week ago that Singapore could experience a double-dip recession, the government has been working extra hard to prevent this from becoming reality. According to a statement from the Ministry of Trade and Industry, exporters in the electronics, chemical and pharmaceutical sectors could save almost US$300 million per annum in potential tariffs. This is no small change.

Jimmy Soh, an investment analyst from Wilcox Private Fund Management based in Hong Kong, pointed out that Singapore will gain especially in the FTA with the United States since many goods currently traded in the US would gain preferential treatment as compared with goods from Hong Kong or mainland China, hence providing a lower base of entry for goods manufactured from Singapore. "It's an added benefit for Singapore. And if you look closely at the articles of association in the FTA, Singapore would save much more than US$600 million in excess duties and tariffs in certain segments of their export economy," he said. This in turn would help Singapore create more jobs in certain end industries while attracting much-needed foreign investment.

Sebastian Nathan, a seafood exporter based in Singapore, said that lengthy US customs procedures currently make it nearly impossible for live seafood produce to enter the US market. Although the FTA would address this issue, he feels that more needs to be done for businessmen like him who are dependent on overseas exports for their continued survival in Singapore.

The United States also stands to gain from the FTA with Singapore. It promises to liberalize Singapore's legal and financial services further, boost its intellectual property protection measures, impose US-approved standards on environmental issues and introduce freer labor rights. The myth that Singapore is a highly regulated economy will be tested during this FTA exercise.

Also significant, said Ajay Gupta, a senior strategist with an economic think-tank based in London, is the fact that there will be greater liberalization in Singapore's financial road map. "We see greater US participation from US banks, securities houses, asset and insurance including reinsurance firms in Singapore that will be more consumer orientated rather than for purely large-scale commercial reasons," he said. However, the current restrictions on foreign ownership of local banks will remain. Under the existing banking laws, approvals are required from the Monetary Authority of Singapore at various thresholds of shareholdings.

Under the FTA terms, US-based banks will be allowed to set up more branches and automated teller machines (ATMs) in Singapore. In an open statement, the local banks have said that they welcome the move to liberalize the financial markets. They maintained that they are open to exploring possible business ventures that are mutually beneficial and concentrating on the personal factor of building up relationships and services. Ultimately it's what customers want that matters and they want banks that can improve their overall services.

More important, US law degrees will be recognized and US law firms will find it easier to operate joint ventures with Singapore firms. Right now there are just a handful of joint ventures approved by the Ministry of Law in Singapore. "This gives a greater balance and also widens the level playing field between the locally entrenched law firms and those from overseas. The ultimate winner would be a greater level of service, increased participation from global players as well as improving the overall service level of the law profession," maintained a lawyer with a leading law firm in Singapore.

One matter still needs some ironing out. That is the contention that Singapore under World Trade Organization rules has the right to impose capital controls similar to what Malaysia did after the economic crisis of 1997-98. This is as much a legal issue as a financial one, if Singapore decides to give up this right, but many in Asia are also watching to see if Singapore will put this on the bargaining table, since it might jeopardize its close financial ties with the rest of Asia.

Steven Lee, an economist with AsiaVenture Watch Investments based in Kuala Lumpur, feels that Malaysia would be concerned if Singapore were to dissolve this right. "It would put things in perspective also for Malaysia and its immediate neighbors, since what Singapore chooses to do would have a direct impact on its neighbors," he said.

From the viewpoint of Singapore's neighbors, many other special provisions dealing with electronic commerce, competition policy, government procurement and an integrated sourcing initiative are also on the table and would most likely assist Indonesia in the long term once a consensus has been reached. Whether Singapore would like to fill in these blanks with the ready assistance of its neighbors remains to be seen since Singapore is one of the first Asian countries to ratify an FTA with the United States, hoping to achieve its objectives before the end of 2003 - unless the US Congress thinks differently.

(©2002 Asia Times Online Co, Ltd. All rights reserved. Please contact content@atimes.com for information on our sales and syndication policies.)