|
|
Special Reports
Japan-Singapore: A marriage of convenience
By Tony Allison
1. Introduction
On the morning of October 22, 2000, Prime Minister Yoshiro Mori met with Singaporean Prime Minister Goh Chok Tong at the Kantei (official residence of the prime minister), where they agreed the two countries should enter into formal negotiations with a view to concluding a Japan-Singapore Economic Agreement for a New Age Partnership.
The decision was based on the advice of the Japan-Singapore Free Trade Agreement Joint Study Group feasibility report, following the successful conclusion of its fifth meeting in Singapore on September 28, 2000. The group consisted of government, industry and academia representatives.
The group "strongly recommended" the countries enter into formal negotiations with a view to concluding a New Age Free Trade Agreement (FTA).
Subsequently, following further informal meetings in Singapore last week, the Japanese foreign ministry said on Tuesday the two sides will hold their first official round of negotiations, starting in Singapore on January 31.
The countries have agreed to conclude the accord no later than December 31, 2001. Several rounds of negotiations will be held in both Singapore and Tokyo.
Lim Chin Beng, the chairman of Singapore Technologies Aerospace and former ambassador to Tokyo, will lead the city-state's delegation. The former director of trade at the Ministry of Trade and Industry and newly-appointed deputy secretary for projects, Pang Kin Keong, is the deputy chief negotiator. Kazuo Asakai, ambassador for international economic affairs, will head the Japanese side.
A FTA with Singapore will be the first of its kind for Japan, which is the only major industrialized nation that does not have such an arrangement with any of its economic partners. Japan's traditional external trade policy was to enhance a free and multilateral trade regime under the General Agreement on Tariffs and Trade and its successor, the World Trade Organization (WTO). But it shifted its policy last year on worries that the increasing number of FTAs worldwide are extending into areas beyond the scope of WTO-led trade liberalization and beginning to put Japanese industries at a disadvantage.
Viewing bilateral FTAs as complementary to the WTO framework, Japan now believes free trade accords will expedite domestic structural reform. Consequently. it is discussing their introduction with South Korea, Mexico and Chile, but little progress has been made to date, primarily because of the possible impact on Japan's agricultural sector.
Singapore is already negotiating FTAs with the US, Mexico, Canada and Australia. Its first bilateral FTA - with New Zealand - came into effect this year, although it has drawn some fierce criticism (See below). Singapore's first general FTA was the Asean Free Trade Agreement (AFTA).
The idea of a free trade pact arose when then Japanese prime minister Keizo Obuchi, who died last year, and Goh met in December 1999. Prior to that meeting, Goh planted the idea for an FTA with Keidanren - the influential organization whose members include Japan's largest corporations - and the Japan External Trade Organization (Jetro).
He argued that as Singapore is a small economy it could be used as a catalyst, as an experiment that would not overwhelm Japan. "'With Singapore, you can see the effect of the changes, and I further argued that this is not just only along the lines of traditional FTAs. We should do one which could be the model in the future for other FTAs. So I coined the term, New Age FTA," Goh was reported as saying at the time.
The feasibility report, which will be the basis of the formal free trade negotiations, recommends the FTA cover trade in goods and services, the pursuit of further liberalization, investment, competition policy, and mutual recognition agreements. These items are covered by the WTO, but have not yet attained either sufficient results or progress.
The area of agriculture will not be covered by the FTA as negotiations in this area are either ongoing or are expected to be ongoing within the WTO framework.
The FTA also takes up areas not covered by the WTO, such as expediting trade procedures, some cooperation in the financial sector, and a "new age" partnership for harmonizing the legal system for e-commerce, for example. The FTA agenda also includes proposed cross-trading of shares on both countries' bourses after a deal last April between the exchanges to share information and harmonize markets.
2. Why Singapore needs FTAs
Singapore is a highly trade-dependent economy, with the highest trade to GDP ratio in the world. Not only is it heavily reliant on imports as its only source of food, energy and industrial raw materials, the small domestic market also means that its industries rely on overseas export markets to absorb their outputs.
Singapore calls itself a nation of free traders and is a vocal champion of global free trade. The primary objective of its trade policy is to guard its trading interests by ensuring a free and open international trading environment. It places the highest priority on the multilateral trading system embodied by the WTO. The WTO provides the stable framework for developing sound multilateral rules that ensure that goods and services can flow freely with minimum impediment.
But while it is an unequivocal supporter of the WTO, it also strongly believes trade efforts undertaken in regional fora such as Apec, Asem and Asean, as well as under bilateral FTAs, can accelerate the momentum of trade liberalization and strengthen the multilateral trading system.
In the bigger picture, Singapore believes an East Asia Free Trade Area will play an important role in providing stability in the wider region. It believes that unless Asean and Singapore act, a wide income gap between Northeast Asia and Southeast Asia could develop.
Northeast Asia could see growth ranging from 6 to 8 percent on average for the next 20 years. If Asean grows by only 4 to 5 percent a year, the gap will be wider. Then, Singapore believes, Asean will become a marginal group within Asia, which would be unstable for the region.
The answer is for Asean to try and integrate all its member economies into an East Asia Community, working with Japan, China and Korea at a later stage. In the long term, some kind of East Asia Free Trade Area will emerge.
Singapore's drive for FTAs has been criticized, notably by Malaysia and Indonesia. Goh has publicly responded: "Speaking for Singapore, we have bigger reasons than just thinking of ourselves. By entering into sub-regional pacts, the small but prosperous island-state was helping draw attention to the Asean region, which includes several members such as Cambodia, Myanmar, Laos and Vietnam who were unprepared to forge similar accords.
"Asean at the moment is not quite ready to do an FTA with other countries but Singapore is. So I told the leaders in other countries that Asean requires some attention. Very importantly, these countries are signalling their interest in Asean," Goh said.
Jesus Estanislao, the former dean of the Asian Development Bank's research arm, the ADB Institute, has commented, however: "Singapore is going to bed with almost every country but disregarding Asean. This is not a coalition of the willing in Asean, it is a coalition with one economy jumping over the regional fence and dealing with everybody else. That doesn't build a structured relationship, as a matter of fact that will marginalize Asean."
Goh says Singapore's FTAs do not contravene a multilateral global trading system under the WTO. "The FTA for Singapore will be WTO consistent. [It] will be open to anybody who wants to sign on the terms which we have negotiated with the others. It is not a closed FTA. Its is meant to be an arrangement which supports negotiations for freer trade in the fast track so that the others can just follow later on," he says.
3. Potential benefits
Excerpts from a parliamentary statement by Singapore's Minister for Trade and Industry George Yeo on the potential benefits of a FTA with Japan and how it complements trade liberalization efforts within Asean, Apec and the WTO, on January 7, 2000.
Deepening Singapore-Japan relationship
Japan and Singapore are close economic partners. Since 1970, Japan has consistently been among Singapore's top three trading partners. Japan is also currently the second largest investor in Singapore, with cumulative investments of over S$14 billion (US$8 billion). There are today about 1,700 Japanese companies in Singapore, accounting for about one third of the 5,000 multinational corporations operating here.
These strong bilateral economic ties are underpinned by a congruence of geopolitical interests. Both our countries support the United States' engagement in Asia, to maintain a balance of power and ensure peace and stability in the region. Both recognize the importance of trade and investment liberalization, and are active players in multilateral and regional fora, such as the WTO, Apec and Asem.
A Japan-Singapore FTA will build upon and strengthen these close ties. It is a natural development of our relationship.
Promoting the stability and prosperity of Southeast Asia
An FTA with Singapore will help to lock in Japan's engagement in Southeast Asia for the long term. The region will benefit from Japan's enhanced presence. Japan has been, and will continue to be, an important source of investments, capital and technology, and a major export market for Asean economies. Before the Asian crisis, Japanese investments contributed significantly to the regional boom. When the crisis struck, Japan offered much assistance to help the Southeast Asian economies recover.
Further trade liberalization in the Asia-Pacific
We also expect the proposed Japan-Singapore FTA to stimulate further trade liberation in the Asia-Pacific region. While Singapore's primary commitment remains with the multilateral trading system, we believe that bilateral and regional FTAs which are WTO-consistent and framed on the basis of open regionalism (as opposed to forging protectionist blocs) strengthen, rather than weaken, WTO and accelerate global trade liberalization through their ratcheting effect. It is on this basis that Singapore is pursuing FTAs with Japan, Mexico and New Zealand to help fast-track trade liberalization in the Asia-Pacific, and to build bridges across the different regions.
We have already seen some beneficiary effects. For example, at the recent Asean Informal Summit in Manila, the leaders agreed to advance the timetable for the complete elimination of tariffs within the Asean Free Trade Agreement from 2015 to 2010. Asean economies have also agreed to explore an FTA with New Zealand and Australia.
A "new-age" FTA
As Singapore and Japan are already relatively open economies with regards to trade in goods, the focus of the FTA will likely be on investments and further integration in the services sectors. That is why we hope to go beyond a traditional FTA to a "new-age" FTA focussing on liberalization and cooperation in the high-growth services sectors of the future, such as the transport, financial, and information and communication technology sectors. Such a forward-looking FTA will enhance and strengthen the competitiveness and capabilities of both our countries.
4. Framework for the FTA
The Japan Singapore Free Trade Agreement (JSFTA) joint study group examined many proposals on how Japan and Singapore could work together to address the challenges and exploit the opportunities of the knowledge-based economy. At the core were proposals for significant trade and investment liberalization and facilitation. These would be complemented and supplemented by initiatives for cooperation in the high-growth areas of the future, such as financial and telecommunication services, e-commerce, science and technology, human capital management and development of small and medium enterprises.
The group comprised government officials and prominent academics and business leaders from Japan and Singapore. The group proposed various initiatives for economic liberalization, facilitation and cooperation.
Liberalization and facilitation
The JSFTA should go beyond tariff liberalization for bilateral trade in goods to include the lowering of unnecessary non-tariff barriers, as well as other measures to promote the freer and more efficient movement of goods between both countries. The JSFTA should also focus on the liberalization of trade in services, investment and movement of people between both countries. It should put in place a predictable and business-friendly framework of rules in all these areas to enhance bilateral economic activity.
The JSFTA should endeavor to put in place a WTO-plus model, ahead of the current developments in the multilateral trading system, for harmonizing regulatory and procedural frameworks for the following areas:
e-commerce
To spur the use of e-commerce in and between both countries, Japan and Singapore agreed to cooperate on a number of areas. Both countries would endeavor to harmonize and cross-recognize their privacy and data protection models to enhance consumer trust.
They also agreed to explore issues of security and integrity of the electronic platform and the legal, regulatory and enforcement issues in cross-border e-commerce, especially important to prevent threats to critical communications infrastructures and services and to enhance trust for the user.
Japan and Singapore would also work to enhance the development of broadband multimedia content and to collaborate in the fast-developing area of competition management in a multi-operator telecommunications market.
Customs clearance
The introduction of an electronic system for customs procedures and for the transfer of trade documents between importers and exporters in Japan and Singapore would enable faster processing of import and export formalities, and lead to substantial reduction in business costs.
Product testing and certification
Establishing mutual recognition agreements would further facilitate bilateral trade between Japan and Singapore. First, it would remove duplicative testing and certification procedures and thus shorten the time needed for products to reach the markets. Secondly, it would lead to the harmonization of standards of products, thereby improving the efficiency of industrial production. This would translate into reduced business costs and increased consumer welfare for both countries.
Settlement of commercial disputes
The setting up of alternative dispute resolution mechanisms would aid businesses in both countries to settle their disputes in a more efficient and cost-effective manner.
Cooperation
Besides liberalization and facilitation measures, the group has also proposed cooperation initiatives in areas such as financial services, information and communications technology, science and technology, trade and investment promotion, developing small- and medium-sized industries, human capital management and development, media and broadcasting and tourism.
Financial services
The JSFTA should provide a useful framework to enhance regulatory cooperation. It should also help strengthen cooperation in the capital market development of both countries and in the area of market infrastructure.
Information and communication (infocomm) services
Collaboration under the JSFTA in this area could serve as a model to spur the growth of e-commerce and the Digital Economy in the region. Cooperation would cover areas such as providing legal and regulatory certainty for cross-border electronic transactions, enhancing the security of the communications infrastructure and the privacy of its users, effectively managing competition in the infocomms sector and promote the development of e-governments in Japan and Singapore.
Science and technology
The JSFTA should further promote the ongoing collaboration between Japan and Singapore in science and technology, and provide a robust framework to protect and promote the use of intellectual property. Through joint efforts to identify and invest in start-ups in the region, and to undertake research in the life sciences, the JSFTA would help Japan and Singapore develop new technological competencies.
Trade and investment promotion
The JSFTA could provide for a joint reinsurance scheme for the exports of goods and services, and for the sharing of databases between the trade promotion agencies of both countries.
SMEs
The business communities of Japan and Singapore have had a long history of successful economic cooperation. The JSFTA should further promote business partnerships, especially between Japan and Singapore SMEs and start-ups, which are keen to expand into each other's markets and region.
Human capital management and development
The JSFTA would promote more joint programs to provide technical assistance to third countries. There could also be a working holiday scheme to encourage visits and exchange by young people of both countries. Under the JSFTA, more people-to-people exchanges between educational institutes, professional bodies and government agencies are also expected.
Media and broadcasting
There is scope under the JSFTA for both countries to cooperate in the development of current affairs and news broadcasting services not just for the Japan and Singapore markets, but also for Asia and the rest of the world.
Tourism
Under the JSFTA, both countries could help promote new tourist destinations in the region and to facilitate international investments in tourism projects.
5. The nature of Free Trade Agreements (FTAs)
FTAs are legally binding agreements between two or more countries to bring about closer economic integration. Under a FTA, the member countries provide each other preferential market access for goods and services. Such favorable treatment could be achieved through the lowering or elimination of import tariffs, the relaxation or removal of quantitative import restrictions and/or the waiver of compliance with certain domestic regulations.
The exact nature and scope of the accorded preferential treatment is decided through a process of negotiations and might not be same for all the FTA members, given that they usually have different economic interests and sensitivities. Examples of FTAs are the Asean Free Trade Area (Afta) and the North America Free Trade Area (Nafta).
While trade within a FTA is made freer, each member continues to maintain its own higher duty rates on imports from non-members. A deeper level of economic integration is achieved in a Customs Union (CU). Here, members agree to go beyond reducing trade barriers among themselves and set a common level of trade barriers (trade regime) vis-a-vis non-members. The European Union is a CU.
Both FTAs and CUs are often collectively referred to as Regional Trading Arrangements (RTA). Worldwide, more than 200 RTAs have been formed and over 130 agreements are in actually in force.
Under a FTA, the import duties or tariffs levied on merchandise products are reduced. FTAs can vary quite widely in their coverage of products: only a small number of FTAs cover all products, many exclude a varying number of products, especially from the agriculture sector, while some even exclude the entire agriculture sector.
Rules of Origin (ROO) Since the preferential treatment provided for in a FTA is normally granted only to products originating from members to that FTA, rules of origin are therefore an important part of a FTA. As a general concept, the country of origin of a product is the one country where the last substantial transformation took place.
Quantitative Restrictions (QR) refers to trade barriers other than duties, taxes or other charges, which are made effective through quotas, import or export licenses, voluntary export restraints and other measures. FTAs can provide for the progressive abolition over time of QR imposed on all or a subset of import products. Some FTAs do, however, allow for some form of QRs to be applied for a few selected products.
Standards FTAs can include provisions on technical regulations and standards and to sanitary and phytosanitary measures. These stipulate that member states exchange information, accept their partner's conformity assessment and/or mutually recognize each others' standards and mandatory requirements as equivalent. Some FTAs even provide for the harmonization of member states' technical standards.
Institutional/procedural provisions, including dispute settlement For coordination in issues such as customs administration, FTAs usually establish some institutional arrangement to implement procedural functions (as in facilitating regular high-level meetings), to review trade liberalization commitments, to initiate trade remedy actions and/or to resolve disputes over the implementation of the FTA.
Services Over the past two decades, international trade in services has grown faster than trade in merchandise goods. More recent FTAs have tended to include the liberalization of specific services sectors in their coverage. Better market access for service providers can also be achieved by requiring FTA members to, for example, improve transparency on domestic regulations and waive certain licensing or qualifications requirements, etc.
Investment A FTA can also include an investment rules framework that ensure, inter alia, that all foreign investors are given equal treatment as locals, are not subject to arbitrary rules and regulations, and are able to freely repatriate and transfer funds related to foreign investments.
Government procurement Procurement by governments forms a large part of the economies of many countries. Many FTAs provide preferential access to their procurement markets by including rules that treat foreign tenders in the same manner as a local tender, and ensure that tender procedures are transparent and not unduly burdensome.
Trade remedies Trade between FTA partners can be impaired by the imposition of unfair trade measures such as anti-dumping duties, or through safeguard measures which allow countries to "pull back" on their FTA commitments under certain circumstances. Many FTAs provide disciplines to make it more difficult for FTA partners to indiscriminately impose trade remedies against each other.
The major RTAs in the world include:
The North American FTA (Nafta) comprising the US, Canada and Mexico;
The European Union (EU), comprising Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and United Kingdom;
The European Free Trade Association (EFTA) comprising Iceland, Liechtenstein, Norway and Switzerland;
The Asean FTA (Afta) comprising Brunei, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, and;
The Southern Common Market (Mercosur) comprising Argentina, Brazil, Paraguay and Uruguay.
Recent initiatives suggest that the number of FTAs will continue to increase. Major efforts include:
- The EU's initiatives. The EU is one of the most active participants in RTAs. Having concluded FTAs with Egypt, South Africa and Mexico in 1999, it is currently seeking closer economic association through FTAs with Chile and the Mercosur.
- The Free Trade Area of the Americas (FTAA). The most extensive and ambitious FTA currently under negotiation is the FTAA. Launched in 1994, the leaders of 34 Western Hemisphere countries have agreed to work towards establishing the FTAA no later than 2005. The 34 countries are Nafta members; Mercosur members, the Central American Common Market members (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua); Andean Pact members (Bolivia, Colombia, Ecuador, Peru, Venezuela); Antigua and Barbuda, Bahamas, Barbados, Belize, Chile, Dominica, Dominican Republic, Grenada, Guyana, Haiti, Jamaica, Panama, Paraguay, St Vincent and the Grenadines, St Lucia, St Kitts and Nevis, Suriname, and Trinidad and Tobago.
6. Singapore's development
Over a 30-year period, Singapore has transformed itself from a small trading center to an advanced business hub. The island nation's development can be summarized as follows:
1960 - 1964 (Import substitution)
In the late 1950s, Singapore's business community consisted largely of small merchants and financiers. Manufacturing was just beginning and fragmented, comprising only 12 percent of GDP in 1960. Most of the local industry consisted of small family-based workshops, connected to retail trade.
As Singapore was merged with Malaya, Sabah and Sarawak in 1960, it expected its much larger neighbors to provide a large enough domestic market. It had therefore embarked on an industrialization policy based on an import substitution strategy.
1965-1979 (Export-led industrialization)
When Singapore gained independence in 1965 and separated from Malaysia, it faced daunting challenges of weak economic fundamentals, low labor participation rates, high unemployment and a poorly educated labor force. Singapore abandoned the import substitution strategy for export-led industrialization. Going
against conventional wisdom, it opened up its economy to foreign investments and leveraged on multinationals to gain access to technologies, markets and market experience that it lacked. It established a pro-business environment.
Singapore introduced a host of investment measures to attract multinationals to the country, and its efforts were helped by a supportive international environment. Until the oil crisis in 1973, the US and Europe were in a period of sustained growth. Singapore's accession to the General Agreement on Trade and Tariffs (Gatt) in 1973 also presented market access opportunities for its exports. GDP averaged 10 percent growth per annum from 1965-1980.
1979-1980 (Industrial restructuring)
By the late 1970s, industrial restructuring had become necessary. Rapid economic growth had created a labor shortage, leading to increasing labor cost. There was increased competition as lower-cost countries in Asean reviewed their policies to emulate Singapore's success. To respond to these challenges, Singapore pursued a strategy of shifting its economy from labor-intensive, low value-added activities to more capital driven and higher value-added ones.
As a result, fiscal incentives were introduced to encourage automation and mechanization, productivity was encouraged and new technology intensive industries such as the manufacture of computer peripherals and machinery were identified and aggressively promoted.
1980-1986 (Coping with recession)
Amid a growing economy and tight labor market, Singapore kept up its industrial restructuring efforts. It embarked on a three-year wage correction policy aimed at upgrading industrial structure. However, wages were raised too rapidly. This coincided with an external environment that was weakening sharply. The US
economy also slowed down considerably following the second oil crisis in the early 1980s. As a result, Singapore experienced its first post-independence recession in 1985 and its economy contracted by 1.6 percent.
Several major cost-cutting measures were implemented, such as the reduction of corporate tax and adoption of a national wage restraint policy. These measures, together with a recovery in external demand, helped the Singapore
economy recover. It grew by 2.3 percent in 1986 and 9.7 percent in 1987.
1986-1998 (Developing world-class manufacturing and regionalization.
The economic crisis had exposed structural strains in the economy which had been masked by strong economic growth. The strategic focus during this phase of economic development was therefore to bring Singapore's capabilities to world-class levels. The first step was to enhance its technological capabilities. Singapore's industrial strategy also took on a cluster development dimension. It identified and entrenched mutually supporting industries in both manufacturing and services. For manufacturing, this included electronics, petrochemicals and precision engineering. Services included financial services, international trading and information technology.
Taking advantage of the regional boom, Singapore also moved to develop an external wing for its economy. Regionalization allowed it to tap into the markets and resources of regional economies and to diversify its dependence on developed nations. It also helped it strengthen its multinational linkages through co-investment in the region.
1998 and beyond - towards a New Economy and globalization
The regional economic crisis that broke in mid-1997 was a watershed event for Asia. Although Singapore emerged from the crisis in relatively good shape, the economic challenges it faces remain enormous. Singapore aims to become an advanced and globally competitive knowledge economy within the
next decade. To this end, eight strategies have identified. These are:
- Develop manufacturing and services as our twin engines of growth;
- Strengthen its external wing and move from regionalization to globalization;
- Build world-class companies. While MNCs will continue to be an integral part of the economy, it also wants to build up local companies as a complementary source of growth;
- Strengthen its SMEs as relevant partners of MNCs, so as to help them raise their technological capability, efficiency and service quality;
- Build human capital and promote life-long learning for life-long employability. It also aims to attract foreign talent to augment its workforce;
- Foster an environment that encourages risk-taking, innovation and creativity. The Singapore government has set up a multimillion dollar technopreneurship fund for this purpose;
- Given scarce resources, Singapore encourage the efficient supply and usage of land and utilities;
- The Singapore government will also position itself as a business facilitator. It aims to adopt a pro-enterprise and pro-business environment. It hopes to keep manufacturing at 25 percent of GDP. Therefore, for manufacturing, the following plans have been drawn up:
- Besides attracting investments in the high growth and high value-added areas, it will also help industries to upgrade and develop capabilities in the entire manufacturing value chain, such as research and development, design and logistics;
- In addition, it will develop life sciences as the fourth pillar of Singapore's manufacturing base, besides electronics, chemicals and engineering;
- To build up its competitiveness of its services sectors, it has also been opening them up to external competition. The deregulation of financial services led the way. This was followed by the telecommunications industry, two years ahead of schedule. Most recently it announced the opening up of the contestable parts of its electricity and gas industries to full competition.
7. Japan and Asean
In 1977, then prime minister Takeo Fukuda made a famous policy speech in Manila, setting out the vision of a basic philosophical framework for the Japan's relationship with Asean. This is what has come to be known as "the Fukuda doctrine".
Prime minister Fukuda recognized that the creation of a regional identity and solidarity of Asean, which were being buttressed by cooperative undertaking of Japan, would open up new opportunities for useful collaboration, thus further strengthening solidarity. On the basis of this recognition, he declared as follows:
"Let me here offer a pledge to the leaders and peoples of Asean. My pledge is that the government and people of Japan will never be skeptical bystanders in regard to Asean's efforts to achieve increased resilience and greater regional solidarity: But will always be with you as good partners, walking hand in hand with Asean."
Fukuda outlined three basic principles that would constitute the guiding framework for the new relationship between Japan and Asean.
First, Japan resolved to contribute to the peace and prosperity of Southeast Asia and would not take the path to become a great military power despite its economic and technological capabilities.
Second, Japan would do its best for consolidating the relationship of mutual confidence and trust based on "heart-to-heart" understanding with these countries and become an equal partner of Asean and its member countries.
Third, together with other nations of the like mind outside the region, Japan would aim at fostering a relationship based on mutual understanding with the nations of Indochina, and thus intend to contribute to the building of peace and prosperity throughout Southeast Asia.
8. Singapore's FTA with New Zealand
The agreement between New Zealand and Singapore on a Closer Economic Partnership (ANZSCEP) was concluded in August 2000 and New Zealand Prime Minister Helen Clark and Prime Minister Goh Chok Tong signed the agreement on November 14, 2000 in Singapore, to take effect on January 1, 2001.
The ANZSCEP negotiations were launched at the fringe of the Apec Leaders' Summit in Auckland on September 11, 1999. There were six rounds of negotiations.
The ANZSCEP is a comprehensive agreement covering trade in goods and services, investment and government procurement, among others. When implemented, it will lower barriers to trade and investment and open up business opportunities.
New Zealand and Singapore have fairly open trade and investment regimes. Nonetheless, both economies have pushed ahead with negotiations in the hope that the ANZSCEP will help accelerate free trade liberalization within Apec and push the WTO forward in global free trade.
Key elements of the ANZSCEPM
Tariffs: All tariffs will be eliminated. Companies which will benefit from the tariff elimination include those involved in electric machinery, non-electric machinery and manufactured articles sectors. Both parties will also eliminate all non-tariff measures that are inconsistent with WTO obligations.
Rules of Origin: (ROO) The Rules of Origin (ROO) determine the type of products eligible for preferential tariff treatment. Many progressive elements have been included into the ROO provisions. Under the ANZSCEP, most of Singapore's top exports to New Zealand will be able to qualify for preferential market access treatment. The salient features of the agreement are:
A. A product will qualify for preferential treatment if at least 40 percent of the cost is of New Zealand or Singapore origin, and if the last place of manufacture is in New Zealand or Singapore. Manufacturers that source inputs from overseas can include the New Zealand or Singapore component of these inputs towards the 40 percent.
B. Both New Zealand and Singapore will recognize quality control (QC) as an integral part of the manufacturing process. A manufacturer doing only QC in New Zealand or Singapore will benefit where the cost of QC is at least 8 percent of the total cost of the qualifying product. In the case of QC for a product that does not have any other local content, the cost of QC must exceed 50 percent of the total cost of the product.
C. Exporters are permitted to transit, unload and reload their goods in Australia and still qualify for preferential treatment.
Competition: These provisions facilitate the maintenance of an environment supportive of competition. They encourage both parties to implement the ANZSCEP in a pro-competitive manner. Both parties are also encouraged to consult one another when developing new competition measures.
Trade remedies: (Anti-dumping, agricultural subsidies, safeguards). New Zealand and Singapore have agreed to abolish the use of emergency safeguard measures and export subsidies on goods, including export subsidies on agricultural products. Emergency safeguard measures are temporary measures, in the form of tariff increases or quotas, designed to slow imports in order to enable a particular industry to adjust to heightened competition from foreign suppliers. Both countries have also agreed to bring greater discipline to anti-dumping investigations and to minimize the opportunities to use anti-dumping in an arbitrary or protectionist manner.
Customs procedures: The agreement seeks to institutionalize a platform to facilitate bilateral trade. The three main initiatives are:
A. Paperless trading. Both customs administrations will put in place an electronic environment that supports electronic business applications. This facility will remove the need for paper documents, reduce business costs and expedite the permit approval process.
B. Risk management. Both customs administrations have agreed that customs compliance activities will focus on high-risk goods and travellers. This will allow legitimate low-risk goods and travellers to be cleared expeditiously at the customs checkpoints.
C. Certification for Rules of Origin (ROO). New Zealand and Singapore will mutually assist in the verification of claims for tariff preferences made by importers.
Services: Both New Zealand and Singapore have built extensively on their WTO commitments for services. Robust rules have been incorporated to ensure that the services sectors are liberalized in a predictable and fair manner. New Zealand has committed to liberalize in a wide variety of services. These include engineering services, dental services, computer services, equipment repair services, info-communication technology (ICT) services, market research services, management consulting services, financial services, manufacturing services, land surveying services, printing services, courier services, environmental services and maritime, air and auxiliary transport services.
Other key commitments from New Zealand include the further liberalization of its regime for intra-corporate transferees, doing away with the residency requirement for some professions and occupations, and binding the threshold for investments subject to the New Zealand Overseas Investment Commission (OIC). For investments above the threshold, New Zealand has assured that the approval by the OIC will be conducted in an open, transparent and predictable manner. Singapore has in turn committed to liberalize our architecture, financial and engineering services, and will continue to maintain our open regime in sectors such as nursing services, research and development services, rental services, management consulting services, courier services, telecommunications services, certain health services, distribution services and university and technical education services.
Both New Zealand and Singapore have also agreed to regularly review their commitments and to progressively expand them. If trade in some services sectors and measures are not fully liberalized by 2010, the parties will meet by January 1, 2008 to identify a list of such services sectors and measures and to consult on a mutually acceptable solution. The solution may include longer timeframes for liberalization. Both countries will also work on the mutual recognition of professional qualifications and registration, including the recognition of degrees from each other's universities.
Investment: New Zealand and Singapore, with their already very open investment regimes, have committed to a framework of investment rules to promote and protect bilateral investment. Examples of benefits for Singapore investors under the investment provisions are:
A. Under almost all circumstances, New Zealand will guarantee that Singapore investors are allowed to transfer and repatriate funds freely in any usable currency at the prevailing market exchange rates.
B. In the event of a dispute between a Singapore investor and the New Zealand government, the Singapore investor can raise the issue at the International Center for Settlement of Investment Dispute, with New Zealand's consent.
Technical, sanitary, phytosanitary regulations and standards: New Zealand and Singapore have concluded a Mutual Recognition Agreement (MRA) on electrical and electronic equipment. Under the MRA, electrical and electronic equipment tested in New Zealand or Singapore will no longer require a second round of testing when exported to the other party. This will reduce compliance and time-to-market costs. In addition, New Zealand and Singapore have agreed on a work program on the mutual or unilateral recognition of standards, regulations and test results, and the harmonization of standards. The program covers six sectors, including telecommunications equipment, pharmaceuticals and chemicals.
Government procurement: Both New Zealand and Singapore have committed to establish a single government procurement market to maximize competitive opportunities and to reduce costs of doing business for both government and industry. Suppliers from New Zealand and Singapore will be given equal and non-discriminatory access to government tenders valued at above Special Drawing Rights S$50,000 (US$28,700). Procurement will be conducted based on the principles of transparency, value for money, fair dealing, accountability, due process, non-discrimination and open and effective competition.
Intellectual property: Both New Zealand and Singapore have agreed that the WTO Agreement on Trade-Related Aspects of Intellectual Property (Trips) will govern all intellectual property issues arising under the ANZSCEP.
Dispute Settlement: The ANZSCEP sets out a robust process for consultation or settlement of disputes between the two countries.
General provisions: The New Zealand government is responsible for ensuring that its regional and local governments and authorities observe all ANZSCEP obligations. To promote transparency, New Zealand and Singapore have agreed to make public all laws, rules and regulations that affect trade in goods, services, and investment between the two countries. Both countries shall also endeavor to give one another the opportunity to comment on these laws, rules and regulations. A standard exemption has been included to allow either party to adopt measures to protect public order or morality or to support creative arts of national value, among others, provided such measures are not used arbitrarily or discriminatorily or as a disguised restriction on trade.
New Zealand will also be able to take measures it deems necessary to accord more favorable treatment to Maori including its fulfillment of its obligations under the Treaty of Waitangi. Likewise, Singapore will be able to undertake measures it deems necessary to prevent or relieve a critical shortage of any imports deemed essential. The provisions of the ANZSCEP do not apply to any taxation measure.
Accession by other economies: This agreement is open to accession or association by any member of the WTO, or by any other country, provided both New Zealand and Singapore agree.
Ministerial meetings: Both trade ministers will meet every two years to review and expand on the commitments under the ANZSCEP. A general review of the agreement shall be conducted in 2005.
Dissenting voice
The following is a media release from GATT Watchdog, dated November 7, 2000 and entitled Government gambling with people's lives: parliamentary debate and vote on Singapore free trade deal a charade
Today parliament will debate and vote to ratify the Closer Economic Partnership free trade and investment agreement with Singapore.
"In rushing through this agreement and stifling any genuine debate, Labor is exhibiting the same callous disregard for New Zealand workers, and communities' rights to determine their own path of development which it accused National of doing while in opposition. Now both parties are joining hands to ram the deal through before Apec," says GATT Watchdog spokesman Aziz Choudry.
"Today's debate and vote is being heralded by some as a great leap forward in the way New Zealand deals with international trade agreements. In reality it is a charade. The outcome of this afternoon's vote has been predetermined. Officials signed off on the text of the agreement in August after it had been negotiated in secret. The much-vaunted Ministry of Foreign Affairs and Trade 'consultations' about the agreement were a carefully-managed, cynical propaganda exercise. The select committee hearing into the agreement was a total farce, allowing around a week for people to obtain and read the 190-page text, analyze and write submissions.
"If this is 'progress', it just shows how far New Zealand is behind comparable jurisdictions in terms of the democratic scrutiny given to international treaty negotiations. Both Australia and the USA are way ahead of us in this respect.
"Few would begrudge Helen Clark and Jim Sutton having a flutter on the horses against the odds today in their private capacity, using their own money. But instead of joining the punters at the Melbourne Cup they are irresponsibly gambling with other people's lives. They are gambling with the livelihoods of local textile clothing and footwear workers and the well-being of their communities as they agree to remove all remaining tariffs on Singaporean imports, although 60 percent of the product's value could potentially be created by low-wage workers in an Indonesian free trade zone.
"They are locking in New Zealand's open investment regime which has contributed to massive job losses, asset-stripping and overseas ownership of most of New Zealand's communications, financial and physical infrastructure. With this agreement, and the anti-democratic way in which they have pushed it through, they set a dangerous precedent for other trade and investment deals with other countries. They are gambling with our future.
"The Singapore agreement is not due to come into effect till January 1 2001. But Helen Clark wants this deal stitched up now so she can sign it with great fanfare en route to the Apec Summit in Brunei next week. With Apec in virtual paralysis and the WTO reeling from [its] failure to launch a new round of global trade talks in Seattle last year, both governments hope this agreement will be a way to symbolically put some momentum back into international trade and investment liberalization which has been faltering for some time.
"Like its predecessors, this government is petrified of any genuine contest of ideas about free trade. A decade and a half of free trade and investment policies have failed to deliver the promised benefits to the majority of New Zealanders. Gambling only pays when you are winning. For all of its rhetoric about social and economic justice and regional development, Labor is backing a free trade dogma which has lost all credibility in a race to the bottom."
9. Singapore's progress with other FTAs
United States
Singapore and the US have made substantial progress after wrapping up a second round of talks on a free trade deal, but much work remains, said a joint statement released on January 18.
Tommy Koh, Singapore's chief negotiator for the talks, added in a separate statement: "We have succeeded in removing a number of brackets around disputed language. We have increased the level of convergence of our draft negotiating texts."
The second round of US-Singapore trade talks on a FTA, which started on January 10 in Washington, ended on January 17.
The US-Singapore statement, signed by Trade and Industry Minister George Yeo and outgoing US Trade Representative Charlene Barshefsky, noted that the latest progress came after a first round of talks from December 4-21 in Washington, and the visit of a US fact-finding team to Singapore early this month.
"(But) much work remains to be done to result in a final agreement," the statement said. It added: "We agreed to hold a new round of negotiations in Singapore as soon as possible and, in the meantime, that our experts should continue discussions of technical issues."
Both Singapore and the US in their statement reaffirmed their commitment to cutting a "comprehensive" free trade deal that will "increase the flow of trade and investment".
Barshefsky had previously said that both sides wanted to reach an accord before the transition of power, but would not agree to an unsatisfactory agreement simply to meet the deadline.
How soon the new round of talks will begin depends on the incoming Administration. President George W Bush has named a new US trade representative in Robert Zoellick, a free trader and a veteran of two administrations. The nomination is seen as good news for free trade, for it underlines the next president's strong commitment to future trade talks - a recurrent theme of his presidential campaigns.
But in Tokyo this week, a US expert on trade relations warned that the prospect of a US-Singaporepore FTA may "wither and die" under the new administration. Speaking at a seminar on Japan-US ties, Bruce Stokes, a senior fellow on the US Council on Foreign Relations, said the Bush administration will place a high priority on free trade with the Americas, because this accords with incoming President Bush's own priorities and will involve "no fights with Congress".
The new administration's other regional agenda items, including proposed free trade agreements with Jordan, Singapore and Chile, "face an uncertain future", he said.
Stokes, who is also a member of the US presidential commission on US-Pacific trade and investment, forecast that economic and trade policy would become subservient to foreign policy under the new administration. Trade issues "will not get the ear" of the president. This could prove "deadly" because it could result in "ill-informed" decisions being taken on trade and economic issues, he suggested.
Mexico
In September 1999, President Ernesto Zedillo of Mexico and Prime Minister Goh Chok Tong of Singapore agreed to negotiate a FTA. Negotiations began in July 2000, with four rounds concluded.
The agreement will cover trade in goods, trade in services, investment, government procurement, intellectual property, a dispute settlement mechanism and any other topic that Mexico and Singapore may wish to include in future.
The negotiations have resulted in provisionally agreed texts for the following topics:
(A) Subsidies and countervailing measures;
(B) Technical barriers to trade;
(C) Sanitary and phytosanitary measures, and;
(C) Dispute settlement mechanism
The following progress has been made:
Trade in goods: Mexico and Singapore engaged productively on the various issues relating to trade in goods. There was an understanding of the sensitivity of this topic. Mexico and Singapore recognize the importance of assuring sufficient consensus from the Mexican and the Singapore business communities in working towards the elimination of substantially all tariffs and non-tariff barriers in the goods sector.
Trade in services: Extensive discussions have been held on whether the North American Free Trade Agreement (Nafta) or the General Agreement on Trade in Services (Gatts) approach should be used as the framework. Mexico and Singapore are exploring a compromise, which would consist of a Gatts framework incorporating a suitably modified standstill provision that would be consistent with the need for substantial sectoral coverage.
Investment: Progress has been made towards a working text relating to a possible investor to state dispute settlement mechanism. Good progress has also been made on the substantive provisions relating to the promotion and protection of investments.
Government procurement: Apart from differences relating to the coverage of this topic, substantial progress has been made on the general disciplines.
Australia
In November 2000, Prime Minister Goh and Prime Minister John Howard of Australia announced the countries had agreed to start negotiations on a bilateral free trade agreement.
Singapore is Australia's seventh largest trade partner and Australia's largest trade and investment partner in Southeast Asia. Australia is Singapore's 14th largest trading partner and ninth largest foreign investor. Trade in services between the two economies is substantial and growing.
The agreement will be comprehensive in scope and coverage. It will remove barriers to trade in goods and services and provide a stronger and more secure framework for doing business, including through e-commerce. The agreement will build on other joint work to remove trade impediments, such as bilateral mutual recognition agreements that provide for reciprocal recognition of standards and conformance tests.
The negotiations will be conducted and concluded as quickly as possible. The views of business communities in Singapore and Australia will help guide and speed the process
Canada
In June 2000, Canadian International Trade Minister Pierre Pettigrew and Singapore Minister for Trade and Industry George Yeo announced the two countries would begin exploring the possibility of negotiating a bilateral free trade agreement.
Singapore said an FTA would send a strong signal to Singaporeans on the future prospects of further developing links between the two countries, in trade, investments, science and technology, culture, education and people-to-people contact.
In response to a question on the relationship between Apec and FTAs, Minister Yeo said the proposed Canada-Singapore FTA will help bring both sides of the Pacific closer together to achieve Apec's Bogor vision of free trade and investments by 2010 for developed economies and 2020 for all economies.
(Special to Asia Times Online)
|
