Benefits of free trade agreements for local businesses
Singapore is working on more FTAs as global protectionism grows
Against a backdrop of rising protectionism worldwide, the benefits and importance of free trade agreements (FTAs) for trade-dependent countries such as Singapore cannot be overstated. To manage global uncertainties, businesses should venture overseas and diversify their markets, supply chains and product mix. While doing so, businesses can tap Singapore’s diversified portfolio of FTAs, which will continue to grow in number and scope.
“With trade issues increasingly conflated with political matters and tariffs being used as a lever, FTAs grow in importance as a form of commitment between like-minded trading partners to keep their markets open,” says Mr Toh Boon Ho, Deputy Director, Trade, Enterprise Singapore.
In a report released in late June, the World Trade Organisation (WTO) highlighted that the stable trend towards free trade seen for almost a decade since the 2008 financial crisis, has been replaced with a steep increase in the size and scale of trade-restrictive measures over the last year. This will result in increased uncertainty, lower investment and weaker trade growth, it warned.
The effects are already felt in a number of countries, including Singapore. In August, Singapore cut its full-year growth forecast to 0-1% from its earlier projection of 1.5-2.5% as slower global trade and weak data raised fears of a recession. Its annual GDP expanded 0.1% in the second quarter from a year earlier — its slowest rate in a decade.
“It is precisely in such times of geo-political uncertainty that an FTA is intended to function as the legally binding document to provide that added layer of economic certainty for governments and the business community,” Mr Toh explains.
New issues, new regions for more FTAs
Keeping the needs of local businesses in mind, Singapore is keen for new relevant issues to be covered in FTAs.
Recent agreements reflect this thinking, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), whereby rules on “21st century issues” such as e-commerce, intellectual property and environmental matters were developed.
The hope is for the multilateral trading system to be able to address such issues too. On the sidelines of the World Economic Forum annual meeting in Davos in January this year, Singapore, along with Australia and Japan, rallied 74 other countries to kick-start negotiations for rules governing e-commerce. Negotiations are ongoing and Singapore remains open to exploring partnerships with emerging markets, Mr Toh said. When concluded, they will add to the FTAs already in place.
The ASEAN and ASEAN-plus FTAs are the most used by local firms, as the region is Singapore’s largest trading partner. The associated FTAs include the ASEAN Trade in Goods Agreement (ATIGA) and the ASEAN-China Free Trade Area (ACFTA). Singapore exporters can export to ASEAN and ASEAN dialogue partner countries under respective FTAs without having to pay tariffs for most products.
As goods flow more freely within ASEAN, cheaper, regionally-sourced raw materials should lead to lower manufacturing costs, thereby increasing the competitiveness of Singapore’s products. The increased access to ASEAN markets also allows Singapore manufacturers to tap regional demand.
Local firms benefitting from FTAs
Already, companies like Singa Plastics have taken advantage of respective FTAs such as ATIGA, ASEAN-Korea FTA and the Singapore-Australia FTA. The plastics products maker has maintained competitive pricing for these markets and exports have grown close to 30%.
Another local firm that has benefitted is air conditioner maker Trends Homes Electrical, which exports finished goods to Malaysia. The company has been able to enjoy up to 30% tariff savings for their products in Malaysia since 2015.
Despite the benefits, Mr Toh admits that it isn’t always easy for local businesses to leverage these trade pacts. “Trying to understand a convoluted set of rules and procedures from the FTA legal text, in order to qualify for preferential tariff treatment, has been one of the greatest challenges faced by manufacturers and exporters”.
To help companies in this area, Enterprise Singapore as well as the Singapore Business Federation has rolled out several outreach efforts, tools and relevant materials for companies to tap on. These include regular FTA seminars, building FTA capabilities in trade associations, an FTA e-course, and a tariff finder tool which provides updated information and import formalities in more than 120 countries.
FTA Education and Outreach Activities by SBF
To help companies familiarise themselves with Singapore’s Free Trade Agreements (FTAs) and their benefits, SBF undertakes outreach and training efforts throughout the year. SBF also provides advisory services on FTA-related enquiries to assist Singapore companies to internationalise. We aim to be the central point of reference for businesses on FTA matters, including gathering feedback for our Government’s negotiations of new FTAs and review of existing FTAs.
Our efforts this year include a seminar on the European Union-Singapore FTA in January, where representatives from 17 European embassies were on hand to provide practical insights on trade and investment opportunities in their countries. In February, we conducted an introductory seminar on the Comprehensive & Progressive Agreement for the Trans-Pacific Partnership (CPTPP) to give an overview of the agreement’s key benefits. The CPTPP is a modern and high-standard FTA that also provides new market access opportunities into Canada and Mexico, which are new FTA partners for Singapore. SBF also conducted training courses on understanding the benefits of FTAs in April and August, with another scheduled for September.