Maintaining Open Trade Amidst the Pandemic
Now, more than ever, it is important for Singapore businesses to remain outward looking.
The international trade environment is becoming increasingly uncertain and challenging with economic nationalism on the rise. This started before the onset of the COVID-19 pandemic but was exacerbated in recent months as countries instituted trade restrictions, such as export bans on medical products, in response to the pandemic. While some of these measures have eased, many remain. According to a June 2020 World Trade Organisation (WTO) Report, G20 economies have only repealed 36% of these restrictions.
Impact of Trade Developments on Singapore
As a small and open economy without natural resources, Singapore is highly dependent on international trade and highly integrated, well-functioning global value chains. International trade not only provides us with the products that we import and consume, but also connects us to the global market that supports our businesses and sustains our economy, creating the good jobs that Singaporeans aspire to. With Singapore’s international trade more than three times its gross domestic product, our livelihoods and prosperity depend heavily on international trade, leaving us exposed to a much more dynamic global geopolitical and economic environment.
Singapore’s economy contracted 6.7 per cent in the first half of this year and is expected to shrink by between 5 and 7 per cent for the full year as a result of border and export restrictions due to the pandemic. But even prior to the pandemic, Singapore experienced the slowest full-year growth in the decade in 2019, growing by only 0.7 per cent, down from 3.1 per cent in 2018.
International trade and investment will generate demand that drives economic recovery and the resumption of business activities post COVID-19. For Singapore businesses, free and open trade premised on the foundation of a rules-based multilateral trading system is crucial to ensuring a conducive, stable and predictable environment. This is particularly important for smaller economies and businesses, both of which would suffer in a world where “might is right”, with big countries wielding undue influence over small ones and large corporations riding roughshod over small businesses.
Continued Relevance of Free Trade Agreements (FTAs)
Through this crisis, businesses have realised the urgent need to build resilience in their business models and supply chains, partly by exploring new markets and supply sources. Many have shifted away from lean supply chain models to adopt agile supply chain strategies.
Even as businesses shelve expansion plans to address the immediate need of survival, it is important to consider the benefits of diversifying into new markets. Diversification reduces country-specific risks, including unexpected drops in demand or trade restrictions in a volatile geopolitical environment, and benefits businesses with a larger pool of potential customers and more competitive supply sources. Research has also shown that businesses in multiple markets are not only more resilient, but also tend to be more innovative due to their exposure to different ideas and processes.
Singapore has over 25 FTAs with more than 30 trading partners. These FTAs accord our businesses preferential market access into the markets of our major trading partners, lowering entry barriers for the export of goods and services, as well as protecting their investments in other countries. This strong FTA network can be a tool for businesses, not only in reducing their costs and time-to-market, but also in ensuring a predictable trading environment.
Leveraging Digital Economy Agreements (DEAs)
The COVID-19 pandemic has dramatically changed the way many businesses operate globally. Traditional businesses that used to operate physically have been forced to digitalise and move online when countries enforced strict lockdown measures to limit movement and prevent further transmission of the virus. This rapid digital transformation presents an opportunity for small and medium-sized enterprises to participate in the digital economy and engage in cross-border trade.
Singapore has recently signed two Digital Economy Agreements (DEAs), one with Chile and New Zealand and another with Australia. The DEAs provide frameworks for regulatory cooperation in support of trade and business in the digital economy and address issues arising from emerging technologies. They can be pushed forward regionally or globally as new standards on cross-border economic activity in the digital space.
Singapore businesses can take advantage of these DEAs and seize new opportunities in the digital space. For example, the Singapore-Australia Digital Economy Agreement includes seven memoranda of understanding to kickstart pilot projects that Singapore businesses can participate. These include areas such as open government data, digital identities, and e-certification on agricultural commodities.
SBF’s FTA Education and Outreach Initiatives
In order to help companies familiarise themselves with Singapore’s FTAs and improve their global competitiveness, the Singapore Business Federation (SBF) holds regular workshops as well as seminars on various FTAs. SBF also provides complimentary advisory services to assist Singapore companies on FTA-related enquiries. Businesses can utilise the available resources and leverage SBF to provide feedback on how existing and future FTAs can better serve their needs.
While countries re-evaluate their economic policies as they seek to bounce back from the economic fallout exacerbated by COVID-19, Singapore businesses cannot afford to take a wait-and-see approach. They will need to navigate pressing issues that adversely impact supply chains and business processes. FTA Day 2020, our annual flagship FTA event, which will take place on 22 October 2020, will provide further insights into supply chain resilience and strengthening of trade connectivity. Themed “Building Resilience and Advancing with the Digital Economy”, FTA Day 2020 will bring together senior leaders from the public and private sectors to share their in-depth views on how Singapore and businesses can respond to the current crisis.
By Jason Lee, Acting Director for FTA Education & Outreach, Global Business Division, Singapore Business Federation (SBF)