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FTA gives Singapore trans-Pacific
benefits
Tony Sitathan
SINGAPORE - When US President George W Bush and
Singaporean Prime Minister Goh Chok Tong signed a
free-trade agreement (FTA) on May 6 that will come into
effect early next year, Ravi Menon, a textile trader
from Singapore, was ebullient. He called it a landmark
decision that would foster a better trade relationship
between the United States and Singapore and, more
important, assist him in pushing his textiles and
ready-made garments into the US market.
"Previously there were some restrictions on
foreign textiles and garments that were taxed heavily in
the United States. Now with the lifting of tariffs and
other trade barriers, I foresee greater opportunities
for small traders like us [who] previously had to face
some anti-dumping legislature from the US," Menon said.
It has been estimated that the elimination of
tariffs and other trade barriers would create the
potential to exceed US$33 billion in annual trade.
Singapore is the United States' 15th-largest trading
partner. Through the first-ever FTA signed by the US
with an Asian country, Singapore has carved itself an
important role as an advocate of free trade that could
be extended to other countries in the region. Singapore
is already actively seeking similar FTAs with Australia,
Japan and even countries in the European Union.
What does the FTA mean for Singapore? Singapore
intends to save more than $115 million annually in
tariff cuts since the United States is Singapore's
second-largest export market. It will also generate
thousands of jobs in the service, support and
manufacturing industries and induce more US companies
and their investments to come to Singapore. It will also
have an economic spinoff to the other region besides
Singapore as the US would be looking to ink similar
deals with the rest of the Association of Southeast
Asian Nations (ASEAN) countries, although the pace of
the rollout should differ from country to country.
Deepak Choudary, an investment analyst with
Axiom Consulting based in Hong Kong, said it is the
dream of President Bush to build an Enterprise for ASEAN
Initiative - a network of bilateral FTAs between US and
countries in the region. "It's seen as part of the US
president's pet project to extend the FTAs beyond
Singapore and into the rest of the Pan-Asian countries.
Perhaps it's also seen as a time to reassert American
influence among the Southeast Asian economies," he said.
When the FTA between the US and Singapore goes
into effect there will be several tangible benefits to
both the US and Singapore. For one, changes will appear
in the telecoms and e-commerce markets. According to the
FTA, service suppliers from both sides will have access
to respective telecommunications networks. That includes
the fact that telecoms from both sides will be prevented
from having preferential access to their local network
and will be treated equally by both countries.
There was some wrangling earlier on when several
telecoms complained to the Infocomm Development
Authority (IDA), Singapore's telecom regulating body,
that the price of locally leased circuits from
fixed-line provider Singapore Telecommunications
(SingTel) is way above international market rates - a
claim which SingTel denies. There were also charges of
predatory monopolistic behavior and price-fixing in
SingTel's marketing of its international services. It
would be interesting to see how the FTA would further
liberalize the telecommunications industry in Singapore
that was already considered an unregulated and open
market in 2000.
On the financial-services front,
US banks and financial institutions would have access to
Singapore's retail banking sector while US banks would
be eligible to set up more branches and automatic teller
machines (ATMs) once a date is specified as per the
agreement. There are several US banks in the past that
have applied to have a stronger retail presence in
Singapore and use it as a stepping-stone for the rest of
the Asian region. "Singapore is a prime financial
location and has been ranked as one the top 10 banking
and financial spots in the world. Also by having a
greater presence in Singapore these US banks would have
the ability to tap into the rich pool of Asian retail
investors and raise capital by offering attractive
banking instruments and bonds," Choudary said.
In the manufacturing arena, the US is committed
to remove 92 percent of current tariffs on exports upon
entry from Singapore almost immediately, with the rest
to be phased out over the next eight years. Singapore
has promised zero tariffs for all imports into the tiny
island republic. This in turn translates into a savings
of $115 million to US-exporting manufacturers. According
to a recent survey by the Singapore Confederation of
Industries (SCI) the signing of the FTA is seen as a
positive step forward for the Singapore manufacturing
sector. It revealed that the FTA will boost trade,
investment and employment, and help to build
manufacturing activities in Singapore.
The SCI
expects the local manufacturing sector will attract more
foreign direct investments (FDI) from the United States.
US investment commitments are expected to rise beyond
2002's level of $1.3 billion as more US multinationals
set up their Asian bases in Singapore. This in turn will
create more employment opportunities in the
manufacturing sector and further ease unemployment
levels.
Singapore would also be seen as a market
entry point for Asian exports finding their way into US
markets. "We expect to see a surge in manufacturing and
cross-manufacturing and assembly in nearby countries
next to Singapore. By acting as a gateway to the US
market, a great deal of value-added manufacturing would
be done in Singapore before it's re-exported to the US
market. The 'Made in Singapore' label would be a prized
possession for the time being," said Manish Sharma, the
strategic sales director of Opentech Consulting Pte Ltd,
a business service provider.
The SCI also
revealed that with the immediate elimination of tariffs
on textiles and garments, the price/costs advantage will
see Singapore garment exports compete more effectively
against those made in China or Indonesia. One clear
benefit arising from the restructuring of the local
textile/apparel industry would be the greater use of
synthetic fibers. This is expected to generate spinoffs
for the local chemical industry. which produces
synthetic fibers such as lycra and rayon. Foreign
multinationals manufacturing these chemical products
would have greater incentive to pump new investment into
Singapore.
With greater visibility in trade, the
SCI has adopted an active response to the inclusion of
intellectual property rights in the US-Singapore FTA. By
doing so, it assists manufacturers in building up strong
brand equity to augment marketing efforts in the US. The
FTA has sought to recognize degrees from four US law
schools for admission to the Singapore bar and ease
conditions for US firms creating joint law ventures to
practice Singapore law, hence creating more
opportunities in both countries.
(©2003 Asia
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