ANALYSIS OF THE IMPACT OF FTA ON SINGAPORE’S TRADE AND RELATIONSHIP WITH ITS ASIAN NEIGHBOURS
MIB39 GROUP A
INSTRUCTOR: Phil EYRE
Matilde GOMEZ GUZMAN
TABLE OF CONTENTS
Sr No | Title | Page Number |
1 | Introduction | 3 |
2 | Summary and Scope | 3 |
2.1 | Tariff Reduction | 3 |
2.2 | Outward Sourcing | 4 |
2.3 | Integrated Sourcing Initiative | 4 |
2.4 | Telecommunications and e-commerce | 4 |
2.5 | Investments | 4 |
2.6 | Services | 5 |
2.7 | Intellectual Property(IPP) | 5 |
3 | Aim, Benefits and Risks of Signatories and Stakeholders | 5 |
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SUMMARY AND SCOPE (Matilde)
The US-Singapore Free Trade Agreement (from now on, USSFTA) was signed by President George W. Washington and President Goh Chok Tong on the 6th of May 2003 in Washington DC. The USSFTA was approved by the House of Representatives on 25 July 2003 and by the Senate on 1 August 2003. It entered into force on 1 January 2004. As the first Trade Agreement ever established between the US and an Asian country, this agreement was of utmost importance for both countries as the aim was not only to strengthen their political and economic ties but also allow both economies to benefit from an increase in trade, investment and a greater influx of people and technology.
In this paper, we will assess the impact of the USSFTA on Singapore’s trade and how the relationship between Singapore and its Asian neighbours has changed through this agreement.
Before evaluating the impact of the USSFTA, a comprehensive look into the specific content of the agreement is needed. It is worth mentioning that the commitments established exceed the obligations imposed by the WTO and the North American Free Trade Agreement in several areas including intellectual property, customs, e-commerce and telecommunications. In the following paragraph, we will summarize the most important provisions of this agreement.
2.1 Tariff Reductions
Under the USSFTA, all products exported from Singapore to the US enjoy preferential duty free treatment, providing the goods comply with the rules of origin of the Agreement. This essentially means that all trade of goods have been liberalised, however, some tariffs were immediately eliminated while it was agreed that others would be reduced progressively over time until becoming 0. To illustrate this with an example, before the USSFTA, 44% of the exports of IT were subject to tariffs. Today 100% of these goods are duty-free. It is important to mention that only goods originating from the US or Singapore are able to perceive the tariff reductions.
2.2 Outward Sourcing
The aim of the USSFTA is to encourage trade by eliminating or reducing tariffs. The main areas in which Singapore can benefit from cost-savings are Electronics and Information Technology, Precision Instruments, Chemicals and Petrochemicals, Processed Food and Textiles. The concept of “outward sourcing” is a key element covered by the agreement. According to this, a product may accumulate the value add of all work done in Singapore making it “Singapore originating” as long as the final stage in the manufacturing process takes place in Singapore. This reflects the reality in the manufacturing pattern in most modern countries, where labour intensive components are outsourced to other locations to benefit from lower costs of production and the more sophisticated processes are carried out domestically. Thus, Singapore companies will be able to retain higher value activities whilst outsourcing low end ones to neighbouring countries.