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European Union Singapore Free Trade Agreement – The Tale of an Island City-State and the World’s Largest Trade Bloc

Blog, Global Trade, ONESOURCE May 4, 2016

Negotiations for the EUSFTA were launched between Singapore and the EU in 2009. The Goods and Services Agreement was concluded in 2012 and the Investment Protection Chapter in 2014, paving the way for the conclusion of the EUSFTA.

The agreement will come into force after it is signed and ratified by both parties. The ratification of the EUSFTA has been delayed due to the European Commission’s decision to request for a European Court of Justice’s opinion on its competence with regard to the EUSFTA[1].  The EUSFTA is of significant importance for both Singapore and the ASEAN[2] region, and so they wait on the review and look to the benefits proposed.

 The EUSFTA covers the following key areas[3]:

  • Elimination of import duties and taxes
  • Improved market access for trade in services
  • More government procurement opportunities
  • Strengthened cooperation in customs and trade facilitation matters
  • Removal of technical and non-tariff barriers to trade
  • Cooperation in the implementation of sanitary and phytosanitary measures
  • Enhanced protection of intellectual property rights
  • Robust disciplines on competition policy
  • Renewed commitment to sustainable development

 

How Singapore would benefit from the EUSFTA

According to data released by the Ministry of Trade and Industry Singapore (MTI)[4], Singapore’s bilateral trade in goods with the EU in 2014 stood at close to S$96 billion with the EU as Singapore’s 3rd largest global trading partner. In fact, the EU is the most significant source of Foreign Direct Investment (FDI) in Singapore, representing over 25% of total FDI stock in Singapore. In fact in 2013, FDI stocks held by the EU in Singapore totaled €93.2 billion, or 2% of total EU FDI held abroad, making Singapore the 9th most important destination for EU investments globally[5]. Singapore on the other hand is the EU’s 15th largest global trading partner and largest trading partner in ASEAN.

In terms of estimated economic effects of the FTA[6], it is estimated that over a 10-year period, EU exports to Singapore would rise by €1.4 billion while Singapore’s exports to the EU would increase by €3.5 billion in the same period of time[7].

Citing a comment by Mr. Lim Hng Kiang, Minister for Trade and Industry (Trade) Singapore, “There are numerous opportunities and benefits that EU and Singaporean companies can look forward to, once the Agreement enters into force. 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.[8]

Significance of the EUSFTA for the ASEAN Region

The main significance of the EUSFTA in the ASEAN region is that it is the first FTA concluded between the EU and a participating country of ASEAN, and is the second agreement between the EU and an Asian country (after South Korea).

The EUSFTA, expected to boost bilateral trade and investment relations between Singapore and the EU, is important to the region and signals the EU’s inclination to scale up engagement with Southeast Asia. It is also a step towards concluding the EU ASEAN FTA, a large scale FTA in negotiations since 2007, with a two-year hiatus halting discussions related to Myanmar.

To summarize, the biggest roadblock encountered in the negotiations for a full ASEAN EU FTA was related to concerns over the human rights record of Myanmar[9]. The EU is under legal obligation of the Lisbon Treaty to incorporate human rights issues into any external trade and investment framework ensuring that the economic benefits do not come at the expense of human rights abroad. Because of the tumultuous history of Myanmar in this area, the EU baulked at including this country in the talks.  Once Myanmar improved its human rights scorecard, and the EU lifted economic sanctions in 2013, Myanmar was no longer considered a hindrance in moving toward concluding the ASEAN EU FTA.

The removal of these concerns and the agreement progress between the EU and Singapore signals a good outcome for the EU ASEAN FTA.

 What’s next for the EUSFTA?

Fortunately, the EUSFTA negotiations between Singapore and the EU – the world’s largest trading bloc – did not turn into a David vs. Goliath tussle. The agreement now awaits an opinion of the European Court of Justice (ECJ) to clarify on the EU competence to sign and ratify the Free Trade agreement. The commission is seeking to clarify which of the agreement’s provision are within the EU’s exclusive competence and which must be approved by member states. The decision to await an ECJ opinion may delay the entry into force of the EUSFTA.[10]

However the MTI has published a projected timeline of activities for the EUSFTA[11]:

  • 2017 – FTA will be initialed and signed by both Singapore and the EU
  • 2017/2018 – FTA will be presented to the European Parliament for ratification
  • 2018/2019* – EUSFTA enters into force

*subjected to the domestic administrative procedure on both sides

Aside from the benefits already outlined between the two countries, the signing of the EUSFTA would benefit European companies that currently have presence in Singapore. It is expected this agreement would also note a large increase of the current trend of European companies already setting up operations in the island city-state of Singapore.[12]

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Sources

[1] European Union-Singapore Free Trade Agreement (EUSFTA) – https://www.mti.gov.sg/MTIInsights/Pages/EUSFTA.aspx

[2] Association of Southeast Asian Nations (ASEAN) Membership: 10 States — Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. 1 Observer — Papua New Guinea

[3] 5 Things you should know about the EUSFTA – MTI.gov.sg – https://www.mti.gov.sg/MTIInsights/SiteAssets/Pages/EUSFTA/5%20things%20you%20should%20know%20about%20the%20EUSFTA.pdf

[4] Dated 22 May 2015

[5] EU-Singapore Trade & Investment 2015 edition – http://eeas.europa.eu/delegations/singapore/documents/eu_singapore/eu_singapore_trade_investment_2015_en.pdf

[6] A study by DG Trade’s chief economist – Lucian Cernat

[7] Study on estimated benefits of the EU-Singapore FTA – http://trade.ec.europa.eu/doclib/docs/2013/september/tradoc_151724.pdf

[8] The European Union-Singapore Free Trade Agreement (EUSFTA) – MTI – https://www.mti.gov.sg/MTIInsights/Pages/EUSFTA.aspx

[9] Time to revisit an ASEAN – EU FTA? – The Diplomat – http://thediplomat.com/2015/06/time-to-revisit-an-asean-eu-fta/

[10] EU-Singapore FTA concluded, but EU ratification may be delayed – http://www.lexology.com/library/detail.aspx?g=4e5fc749-bbb0-4bb1-9ee2-473a302877e1

[11] 5 things you should know about the EUSFTA – https://www.mti.gov.sg/MTIInsights/SiteAssets/Pages/EUSFTA/5%20things%20you%20should%20know%20about%20the%20EUSFTA.pdf

[12] Airbus, SIA opens new US$100m facility – http://www.straitstimes.com/singapore/airbus-sia-open-new-us100m-facility-at-seletar-aerospace-park