Sept. 23 – Singapore and the European Union (EU) have finalized the draft for their free trade agreement this week, the first such agreement between the EU and any Southeast Asian nation.
“We are pleased to present today one of the most comprehensive free trade agreements ever negotiated,” said Rupert Schlegelmilch of the EU’s negotiating committee. “This is also the first step towards closer economic ties between the two major integrated regions in the world, the Association of Southeast Asian Nations and the EU, and their 1.1 billion citizens.”
The EU-Singapore Free Trade Agreement (EUSFTA) seeks to increase market access between the two nations by liberalizing trade through the removal of tariff and technical barriers.
The agreement covers three main market sectors:
- Services
- Investments
- Procurement
Services
Under the EUSFTA, both Singapore and the EU will increase market access for service providers in several sectors, including telecommunications, financial services, transportation services, computer services, engineering services and environmental services. Several of the service commitments will be “unqualified” with no sectoral caps on cross-border transactions.
In order to avoid anti-competitive practices, World Trade Organization-approved competitive safeguards will govern service transactions under the EUSFTA.
Trade in Goods
The EUSFTA, in line with WTO benchmarks, will remove 80 percent of all tariff barriers between the two regions. Upon enforcement of the FTA, the EU and Singapore will have five years to phase out these barriers, with some being eliminated immediately or within three years.
The agreement also addresses non-tariff barriers to trade. For example, motor vehicles with approval for operation within the EU will automatically be approved for operation within Singapore without further regulatory considerations. In many cases, the need for this “double testing” will be replaced by conformity assessments conducted by the exporting country.
According to the European Commission, the EUSFTA will facilitate trade through the “simplification, harmonization, standardization and modernization” of customs procedures between the EU and Singapore in an effort to reduce the costs associated with trade transactions.
Benefits of the EUSFTA
As the European Union’s largest ASEAN trade partner, Singapore has become the major center for trade relations between the EU and Southeast Asia. Bilateral trade in goods between Singapore and the EU reached €51.8 billion (US$70.1 billion) in 2012, a ten percent increase over the previous year. Singapore is also the EU’s largest ASEAN services trade partner, with a total bilateral trade in services of €27.7 billion (US$37.5 billion).
The EUSFTA will further enhance trade relations between the EU and Singapore and is expected to increase Singapore’s gross domestic product by €2.7 billion (US$3.65 billion), according to the Chief Economist Unit of the European Commission’s Directorate General for Trade. These economic benefits will also spread through the region, providing a boost to other ASEAN nations.
“If a company manufactures products in Singapore, but it imports its inputs and raw materials from ASEAN, it can count those ASEAN materials and inputs as if they were Singapore-originating and therefore this means that a larger number of Singapore products will be able to qualify for the concessions of the FTA,” said Keith Tan, chief representative and negotiator for Singapore.
The EU’s analysis also expects exports from European countries to increase by €1.4 billion (US$1.9 billion) over the next ten years, providing much-needed support to struggling European economies.
“If you look at some of our hard-hit economies in Europe, like Spain, one thing which is going well is exports. So trade is part of the recovery program, and whatever we can do in the trade area – by opening up further, by making it easier to have access to other markets, and also to be open to competition from third countries like Singapore, to have our economies made more competitive – all of that helps. So it’s a clear part of our strategy to revitalize and bring Europe back on the growth trajectory,” commented Mr. Schlegelmilch.
As the first FTA between the EU and a Southeast Asian nation, the EUSFTA lays the foundation for further cooperation with nations in the region. As EU is currently in negotiations with Malaysia, Thailand and Vietnam, the EUSFTA is expected to provide a blueprint for negotiations with these countries.
The draft document must receive final approval from the European Commission and Singaporean regulators before the agreement can be set into force, which is expected to happen by 2015.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
For further details or to contact the firm, please email asia@dezshira.com, visit www.dezshira.com, or download the company brochure.
You can stay up to date with the latest business and investment trends across Asia by subscribing to Asia Briefing’s complimentary update service featuring news, commentary, guides, and multimedia resources.
Related Reading
