The EU-Singapore Free Trade Agreement

24/09/2013    51

Negotiations between the EU and Singapore on a free trade agreement kicked off in March 2010 and were concluded in December 2012. It is the first of a number of agreements the EU is currently negotiating with countries in Southeast Asia and as such has wider implications than simply improving EU-Singapore trade relations: it has the potential to lay the ground for the EU to engage with the region as a whole.

Highlights of the agreement

As a matter of principle, the EU and Singapore have offered each other the best treatment made available to other comparable trading partners, and have gone beyond that in a number of areas of specific interest.

The EU and Singapore:

  • offered each other much better commitments on services and government procurement than under respective World Trade Organisation (WTO) commitments. Singapore has also offered EU service suppliers better treatment than that offered to other countries bilaterally in many sectors. Likewise, commitments on public tendering cover, for example, many of the utilities which typically account for valuable public contracts. These are sectors in which the EU has many leading suppliers. 
  • agreed on an advanced regulatory framework for many services sectors such as telecommunications, courier and postal services, financial services, and international maritime transport. The result will ensure a level playing field for businesses when active in each other's market. The services chapter also provides for transparency and non-discrimination in licensing and qualification procedures as well as for the future mutual recognition of professional qualifications. 
  • will open up new opportunities for foreign direct investment and offer a high level of protection once on-going talks in that area are completed.
  • will remove or prevent many technical barriers to trade, such as duplicative testing requirements for motor vehicles and parts, electronics or certain green technologies.
  • will eliminate virtually all tariffs, in the EU's case over a five-year transition period. Singapore has bound its zero tariffs already applied on EU imports. As a result, tariffs cannot be unilaterally raised again.
  • will facilitate meat exports based on modern audits of national systems, rather than expensive audits of individual establishments.
  • agreed on a high level of protection and enforcement of intellectual property rights. Singapore, for instance, will introduce a new register of geographical indications (GI) and protect European GI in Singapore to a higher level of GI protection than provided under the WTO Trade-related aspects of Intellectual Property (TRIPs) Agreement.
  • will establish a modern regulatory framework for exporters with rules on enhanced transparency and competition. The agreement also foresees the efficient resolution of disputes via an arbitration panel or the intervention of a mediator.

Both sides have also made a special effort to use the agreement as a means to stimulate green growth. In addition to removing obstacles to trade and investment in certain green technologies, they have focussed on green public tendering and on creating new opportunities in environmental services. Duties on many environmental goods will be eliminated immediately.

The EU-Singapore FTA also contains a comprehensive chapter on trade and sustainable development. This chapter aims at ensuring that trade supports environmental protection and social development and promotes the sustainable management of forests and fisheries. The chapter also sets out how civil society will be involved in its implementation and monitoring.

The main economic benefits of the agreement

Singapore is already by far the EU's largest trade and investment partner in the region. Trade in goods between the EU and Singapore topped €52 billion in 2012 and trade in services €28 billion in 2011. The stock of mutual investment has now reached €190 billion. Singapore thus accounts for about a third of all EU-ASEAN trade, and more than three fifths of all investments between the two regions. The EU has a positive trade balance with Singapore.

More than 9300 EU companies, active in a range of industrial and services sectors, have established themselves in Singapore and use it as a hub to serve the region.

An economic analysis prepared by the Chief Economist Unit of DG Trade predicts that EU exports to Singapore could rise by some €1.4 billion over a 10-year period. Singapore's exports to the EU could rise by some €3.5 billion, including exports from the many European companies established in Singapore. It should be noted that these figures only provide a conservative estimate of the possible economic gains since it was not possible to precisely quantify the effects of removing non-tariff barriers.

Given the large difference in size of the two economies, the benefits of the agreement for the partners differ considerably: The analysis estimates that EU real GDP will grow by around €550 million over a 10-year period. The Singaporean economy on the other hand is expected to benefit from a growth of €2.7 billion over that period.

Regional importance

An ambitious FTA with Singapore has the potential to open the door to other FTA partners in Southeast Asia, and ultimately an agreement in the regional framework with the ASEAN group. Concluding the FTA also strengthens the credibility of the EU's trade agenda in Asia by building on the positive momentum created by the EU-Korea FTA.

The EU is currently pursuing negotiations on free trade agreements with the ASEAN-member states Malaysia, Vietnam and Thailand. The high-quality FTA with Singapore is a valuable point of reference in this respect.

With their expanding middle class, the dynamically growing ASEAN economies are key markets for Europe's exporters. With the comprehensive free trade agreements the EU is negotiating, it taps into the region's growth potential. By securing the best possible conditions for EU exporters, the European Commission is supporting growth and jobs in Europe, in line with the EU's 2020 strategy.

It should also be borne in mind that the EU's global competitors are currently negotiating preferences for their own companies, in the contexts of the Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership. The EU, by negotiating preferential market access of its own, can protect EU exporters against a loss of competitiveness in many Asian markets resulting from the FTAs concluded by others. The EU also seeks additional commitments from its FTA partners, reflecting specific EU interests, e.g. the coverage of additional procurement entities, the liberalisation of services sectors where European firms have competitive advantages, the protection of European GI, or alignment with technical standards (e.g. for motor vehicles) familiar in Europe.