It is hoped that the free trade agreement (FTA) signed by the European Union (EU) and the Republic of Singapore in mid-October will act as a prelude to reviving stalled FTA negotiations between the EU and Association of South East Asian Nations (ASEAN).
The suspended talks originally began in 2007 and ended in 2009 due to difficulties in setting standards across the different ASEAN countries. The EU has since tried to conclude individual FTAs at the national level as a starting point for recommencing negotiations at the ASEAN level. As a result, the deal with Singapore, when taken together with a recently finalised agreement with Vietnam, marks a major step towards developing a common EU-ASEAN FTA in future.
On top of the EU-Singapore FTA (EUSFTA), meanwhile, Singapore has also signed other agreements, with the aim of deepening economic relations between the two regions. These consist of the EU-Singapore Investment Protection Agreement (EUSIPA) and the EU-Singapore Partnership and Cooperation Agreement (ESPCA). The pacts jointly signal a strong commitment from both sides towards free trade at a time of increasing global protectionism.
Ratification and enforcement
The EUSFTA and EUSIPA must now be discussed and voted on by the European Parliament (EP), a move that is expected to take place in the first quarter of 2019. Once approved by the EP and ratified by the national parliaments of each individual EU member state, the EUSFTA and EUSIPA will then come into force. The process is expected to take two to three years to complete.
Value of trade links between the EU and Singapore
Singapore is the EU’s 14th largest trading partner for goods and its fourth largest for services. The EU, on the other hand, is Singapore’s second largest trading partner for goods and its largest for services.
More than 10,000 EU-based companies currently use Singapore as a hub for trading in Southeast Asia. Moreover, in 2017, the EU exported over E33 billion (US$38 billion) worth of goods to Singapore as well as importing around E20 billion (US$23 billion) worth, generating a positive trade balance for the EU of around E13 billion (US$15 billion). With regard to services, the EU exported as much as it imported at around E20 billion in 2016.
Foreign direct investment (FDI) also plays a major role in the economic relations of the two regions too. In 2016, EU organisations invested more than E167 billion (US$189 billion) into the Singaporean economy, while the EU economy benefited to the sum of more than E87 billion (US$98 billion).
The trade volume between the two regions and the amount of mutual FDI means that Singapore is a key player in terms of EU trade activity in Asia.
Opportunities offered by the EUSFTA
EUSFTA opens up both economies to more trade, but also contains some special provisions, which are discussed below:
Trade in goods
The EU has agreed to reduce its tariffs to zero within five years of the EUSFTA coming into force. Three quarters of the tariff lines will be cut to zero as soon as possible, while the rest will follow suit within three to five years. Some existing tariffs, especially on agricultural products, will remain.
On the Singaporean side, more than 99% of all EU goods are already granted duty-free access.
The FTA further aims to strengthen cooperation with regards to regulatory standards and reducing unnecessary technical barriers to trade. There are also specific rules relating to food safety.
EU standards for automobiles and automotive parts are already accepted by Singapore. The third party testing of electronics in Singapore will comply with EU rules over time, but it has been agreed that green technology will be subject to the same treatment in both regions. Finally, the EU is also keen to see greater transparency over how pharmaceuticals are priced.
Trade in services
In terms of trading in services, a list has been drawn up of sectors that will be opened up for competition by both sides. The list consists of 12 sectors, with more than 160 sub-sectors. They include financial, business and professional services, computing and related services, research and development, telecommunications and environmental services, plus tourism and travel-related services.
The postal services of both regions, which are in many instances state-owned, will also be opened up to competition. The two parties have also agreed to greater cooperation in e-commerce terms and to avoid imposing unnecessary restrictions and regulations in this area. The free flow of information will likewise be upheld based on international data protection standards.
Government procurement
As both parties are signatories to the World Trade Organization’s Agreement on Government Procurement (GPA), it means that competitive bidding will be possible in certain sectors for goods and services. Under the terms of the EUSFTA, the EU has extended the list to include procurement relating to EU central government entities, cities, municipalities, public works concessions such as railways, and some utilities. It has also dropped the bidding threshold for Singaporean companies.
Geographical indications
Geographical Indications (GIs), which are products that are only produced in specific regions of the world and so have protected status, were one of the main negotiating planks of the EUSFTA.
While the EU is the single largest provider of these kinds of offerings, Singapore was not initially very welcoming of the idea of supporting them. The EU list contains 196 GIs though, and Singapore ultimately agreed to grant them all GI status.
Investment protection agreement
The EUSIPA will replace 12 existing Bilateral Investment Agreements between Singapore and EU member states. It sets standards of fair and equitable treatment (FET) for investments among its signatories.
These standards include protection against unreasonable expropriation as well as the right for states to control their own regulations and not be subject to investment arbitration around decisions on sovereign debt restructuring.
If investment disputes arise, the concerned party is required to refer the case to a tribunal, which would be established under EUSFTA rules and deliver a decision under a pre-defined process. A major aim of the agreement is to ensure there is transparency during disputes between investors and individual states.
By Piet Flintrop, editor
This article was first published on ASEAN Briefing.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.
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It is hoped that the free trade agreement (FTA) signed by the European Union (EU) and the Republic of Singapore in mid-October will act as a prelude to reviving stalled FTA negotiations between the EU and Association of South East Asian Nations (ASEAN).
The suspended talks originally began in 2007 and ended in 2009 due to difficulties in setting standards across the different ASEAN countries. The EU has since tried to conclude individual FTAs at the national level as a starting point for recommencing negotiations at the ASEAN level. As a result, the deal with Singapore, when taken together with a recently finalised agreement with Vietnam, marks a major step towards developing a common EU-ASEAN FTA in future.
On top of the EU-Singapore FTA (EUSFTA), meanwhile, Singapore has also signed other agreements, with the aim of deepening economic relations between the two regions. These consist of the EU-Singapore Investment Protection Agreement (EUSIPA) and the EU-Singapore Partnership and Cooperation Agreement (ESPCA). The pacts jointly signal a strong commitment from both sides towards free trade at a time of increasing global protectionism.
Ratification and enforcement
The EUSFTA and EUSIPA must now be discussed and voted on by the European Parliament (EP), a move that is expected to take place in the first quarter of 2019. Once approved by the EP and ratified by the national parliaments of each individual EU member state, the EUSFTA and EUSIPA will then come into force. The process is expected to take two to three years to complete.
Value of trade links between the EU and Singapore
Singapore is the EU’s 14th largest trading partner for goods and its fourth largest for services. The EU, on the other hand, is Singapore’s second largest trading partner for goods and its largest for services.
More than 10,000 EU-based companies currently use Singapore as a hub for trading in Southeast Asia. Moreover, in 2017, the EU exported over E33 billion (US$38 billion) worth of goods to Singapore as well as importing around E20 billion (US$23 billion) worth, generating a positive trade balance for the EU of around E13 billion (US$15 billion). With regard to services, the EU exported as much as it imported at around E20 billion in 2016.
Foreign direct investment (FDI) also plays a major role in the economic relations of the two regions too. In 2016, EU organisations invested more than E167 billion (US$189 billion) into the Singaporean economy, while the EU economy benefited to the sum of more than E87 billion (US$98 billion).
The trade volume between the two regions and the amount of mutual FDI means that Singapore is a key player in terms of EU trade activity in Asia.
Opportunities offered by the EUSFTA
EUSFTA opens up both economies to more trade, but also contains some special provisions, which are discussed below:
Trade in goods
The EU has agreed to reduce its tariffs to zero within five years of the EUSFTA coming into force. Three quarters of the tariff lines will be cut to zero as soon as possible, while the rest will follow suit within three to five years. Some existing tariffs, especially on agricultural products, will remain.
On the Singaporean side, more than 99% of all EU goods are already granted duty-free access.
The FTA further aims to strengthen cooperation with regards to regulatory standards and reducing unnecessary technical barriers to trade. There are also specific rules relating to food safety.
EU standards for automobiles and automotive parts are already accepted by Singapore. The third party testing of electronics in Singapore will comply with EU rules over time, but it has been agreed that green technology will be subject to the same treatment in both regions. Finally, the EU is also keen to see greater transparency over how pharmaceuticals are priced.
Trade in services
In terms of trading in services, a list has been drawn up of sectors that will be opened up for competition by both sides. The list consists of 12 sectors, with more than 160 sub-sectors. They include financial, business and professional services, computing and related services, research and development, telecommunications and environmental services, plus tourism and travel-related services.
The postal services of both regions, which are in many instances state-owned, will also be opened up to competition. The two parties have also agreed to greater cooperation in e-commerce terms and to avoid imposing unnecessary restrictions and regulations in this area. The free flow of information will likewise be upheld based on international data protection standards.
Government procurement
As both parties are signatories to the World Trade Organization’s Agreement on Government Procurement (GPA), it means that competitive bidding will be possible in certain sectors for goods and services. Under the terms of the EUSFTA, the EU has extended the list to include procurement relating to EU central government entities, cities, municipalities, public works concessions such as railways, and some utilities. It has also dropped the bidding threshold for Singaporean companies.
Geographical indications
Geographical Indications (GIs), which are products that are only produced in specific regions of the world and so have protected status, were one of the main negotiating planks of the EUSFTA.
While the EU is the single largest provider of these kinds of offerings, Singapore was not initially very welcoming of the idea of supporting them. The EU list contains 196 GIs though, and Singapore ultimately agreed to grant them all GI status.
Investment protection agreement
The EUSIPA will replace 12 existing Bilateral Investment Agreements between Singapore and EU member states. It sets standards of fair and equitable treatment (FET) for investments among its signatories.
These standards include protection against unreasonable expropriation as well as the right for states to control their own regulations and not be subject to investment arbitration around decisions on sovereign debt restructuring.
If investment disputes arise, the concerned party is required to refer the case to a tribunal, which would be established under EUSFTA rules and deliver a decision under a pre-defined process. A major aim of the agreement is to ensure there is transparency during disputes between investors and individual states.
By Piet Flintrop, editor
This article was first published on ASEAN Briefing.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.
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Exploring the implications of the USMCA trade deal
A guide to setting up business in Singapore
A compliance guide to EU payroll
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