First bilateral free trade agreement concluded by the EU with an Asean country
Singapore’s trade with the European Union (EU) received a boost yesterday as both sides successfully completed almost three years of negotiations for a free trade agreement, which will grant Singapore and EU companies greater access to each other’s markets.
The EU will be eliminating tariffs on all imports from Singapore over a period of five years, but 80 per cent of the tariff lines will already be covered once the EU-Singapore Free Trade Agreement (EUSFTA), concluded in Singapore yesterday, comes into force.
In particular, the removal of the EU’s tariffs under the EUSFTA will benefit Singapore exporters of electronics, pharmaceuticals, chemicals and processed food products while Singapore will grant immediate duty-free access for all imports from the EU.
Both Singapore and the EU have also committed to make extensive commitments guaranteeing access to each others’ services markets under the EUSFTA, which will be signed only after all domestic processes, including translations and verifications, are completed.
These commitments cover a wide range of sectors of interest to EU and Singapore companies, including environmental services, computer and related services, professional and business services, financial services and maritime transport services.
In addition, the EUSFTA will see the removal of a number of non-tariff measures between the EU and Singapore, improving access for exporters of pharmaceuticals and electronics. The agreement will also widen access to government procurement opportunities in the EU and Singapore.
It is believed that the final stages of the talks involved negotiations in financial services, legal services, intellectual property rights, rules of origin and the investment chapter.
Overall, the EUSFTA is a comprehensive and broad-based agreement covering tariff-free access for goods, improved market access for services (including specific commitments on sectoral markets for financial, professional, legal, telecommunications and postal services), intellectual property protection, competition policy, technical barriers to trade, government procurement and sustainable development.
“There are numerous opportunities and benefits that EU and Singaporean companies can look forward to, once the agreement enters into force,” said Singapore’s Minister for Trade and Industry Lim Hng Kiang.
“Singapore is confident that the EUSFTA will further enhance our bilateral economic relations, and pave the way for a region-to-region trade deal between the EU and Asean,” added Mr Lim.
Singapore also stands to benefit economically as the deal is likely to attract more EU companies to set up presence here as they look to use Singapore as a springboard into the region. At present, about 8,800 EU companies have operations in Singapore, reflecting the importance of Singapore as a strategic gateway to Asia and Asean for businesses from Europe.
“Singapore is a dynamic market for EU companies and is a vital hub for doing business across South-east Asia. This agreement is key to unlocking the gateway to the region, and can be a catalyst for growth for EU exporters,” said EU Trade Commissioner Karel De Gucht.
“After our agreement with South Korea, sealing this deal with Singapore clearly puts the EU on the map in Asia. But we do not intend to stop here – I hope it will open the doors for FTAs with other countries in the Asean region,” highlighted Mr De Gucht.
Last year, the EU was Singapore’s second largest trading partner with an 11 per cent share of Singapore’s total trade, while Singapore was the EU’s 13th largest trading partner as bilateral trade hit $106 billion in 2011, up 7 per cent from 2010 despite the slowdown in the eurozone economies. The EU was Singapore’s largest supplier of goods in 2011 with a share of 12.6 per cent of Singapore’s total imports while it was also the largest export market for Singapore, representing 15.2 per cent of Singapore’s non-oil domestic exports.
Besides the goods and services chapters, negotiations on a standalone investment chapter began in March 2012 as the EU had received authorisation from the European Council to negotiate investment agreements with Canada, India and Singapore only in September 2011. Once concluded, the investment chapter would serve as a catalyst for greater two-way investment flows between Singapore and the EU, a significant development considering the high levels of capital flows between both sides.
The EU ranks first as a source of foreign direct investment (FDI) into Singapore. The EU’s FDI stock rose to $169 billion in 2010, accounting for 27 per cent of all accumulated FDI, while Singapore was also the EU’s fourth-largest investment destination overall by FDI flows. The flow of capital in the reverse direction was also significant as the EU was Singapore’s second-largest investment destination by FDI stock and Singapore was the fifth-largest external investor into the EU by FDI flows.
The conclusion of the EUSFTA negotiations, which commenced in March 2010, marks a milestone in bilateral relations between the EU and Singapore as it is also the first bilateral free trade agreement concluded by the EU with an Asean country.
However, it may be a while yet before the agreement actually comes into effect as it will have to be approved by the European Council and ratified by the European Parliament before entering into force. For example, the EU-South Korea FTA was initialled on Oct 14, 2009 and was provisionally applied on July 1, 2011 after both parliaments approved it, a process which took about two years.