Minister of Trade and Industry, George Yeo

Photo Paul Douglass

Companies on both sides of the Pacific eagerly await the conclusion of nearly two years of negotiations working toward a U.S.-Singapore Free Trade Agreement (FTA). With the ninth round of trade talks set to occur in early October, the signing of the agreement is widely expected by the end of the year. Officials are seeking to conclude an agreement that promises to increase the flow of goods and investment capital between these significant trading partners.

Despite its small size, Singapore is the United States’ tenth largest trading partner, says Singaporean Minister of Trade and Industry George Yeo. Key U.S. imports from Singapore include electronic chips, computer components, and chemical compounds.

Reciprocally, the United States is Singapore’s second largest partner, surpassed only by Malaysia. Some of the United States’ main exports to Singapore include telecommunications equipment, information technology hardware, and chemical products.

Singapore’s importance to the U.S. has been growing steadily. In 1997, total U.S. investments in Singapore topped $17.5 billion, just under 50 percent of total U.S. foreign direct investment (FDI) in the entire Southeast Asian region. That same year, the U.S., Singapore’s third largest recipient of FDI, following Malaysia and Hong Kong, received $2.8 billion. Between 1999 and 2000, trade between the two countries grew by 9.6 percent, with total figures topping $48.4 billion in 2000.

Singapore already leads Southeast Asia in providing the U.S. access to open markets and in offering U.S. investors a business-friendly environment. More than 1,300 American companies have established operations in Singapore to date. Approximately one third of these have chosen Singapore as their regional headquarters.

Although the U.S. and Singapore are already comfortable trading partners, this agreement will serve to cement the relationship and expedite the flow of goods and foreign investment capital between the two nations. The FTA will “formalize what we have always wanted,” says Singapore’s Economic Development Board Chairman, Teo Ming Kian.

According to Deputy Prime Minister, Lee Hsien Loong, “A large point of the FTA from the Singaporean side will be the opening up of the services sector, especially in telecommunications, banking, finance. These are areas which have been of considerable interest to the U.S. for some time.”

Although he was unable to disclose the details of the most recent “substantial” package offered to the United States, Singaporean chief negotiator Professor Tommy Koh (also the former Ambassador to the U.S.) emphasizes that the further liberalization of financial services will be a key element. Through liberalization of telecommunications and electronic commerce, says Koh, the U.S. and Singapore will “ensure commitments go beyond those made by both parties in the WTO.”

A further expected benefit is the easing of temporary entry for business personnel between the two countries. Although the events of September 11, 2001 may complicate the issue of enhanced customs cooperation, “We are also working very hard to ease travel for business people and backup personnel to create easy access between our two countries,” says Koh.

Professor Koh also emphasizes Singapore’s willingness to help specific U.S. industries that have expressed concern, such as the pharmaceutical sector. By incorporating talks with the U.S. private sector, negotiators from both sides are doing their best to accommodate specific requests.

Strengthening intellectual property (IP) protection is one such issue. Protection of IP rights is critical for American companies investing in IP-intensive industries such as biotechnology, software development, and media. These sectors are critical to the future growth of Singapore’s economy.

American companies in Singapore, says Deputy Prime Minister Lee, will have “better access back to the home market and better protection from the investment guarantee point of view.”According to U.S. Ambassador Frank Lavin, “With the completion of a successful FTA, any U.S. business should be able to undertake business [in Singapore] almost seamlessly.”

The Free Trade Agreement has not only immediate economic implications, but also broader, long-range strategic significance. Post 9-11, Southeast Asia has become strategically more important in the campaign against terror. Many believe that it is vitally important to strengthen the region’s economic and political stability because Southeast Asia is home to a greater share of the world’s Muslim population than exists in the Middle East or South Asia.

Indonesia, the largest Muslim nation in the world, is a major focal point. According to Deputy Prime Minister Lee, the U.S. and Singapore should work together “to ensure that mainstream Muslims who believe in a secular state continue to succeed. Therefore, there is a union of political will on the part of the U.S. and Singapore to help the government of President Megawati.”

Because Singapore is a small city-state, it operates a strong manufacturing base in Indonesia from which it imports many components of the goods it later exports globally.

Thus, the FTA has included provisions that will ensure that targeted, “non-sensitive” industries, like information technology, in certain parts of Indonesia will benefit. As a result of creative brainstorming on the part of U.S. Trade Representative Bob Zoelick and Singaporean Minister of Trade and Industry, George Yeo, the Integrated Sourcing Initiative (ISI) was developed to help Indonesia’s economy.

Under the ISI, lower-end information and communications technology components manufactured in one of two Indonesian islands, Bintan and Batam, both within 45 minutes from Singapore’s shores, will be treated preferentially, as though they had originated in Singapore. According to Koh, this initiative “has a clear political and strategic initiative to help Indonesia and President Megawati succeed.”

Many feel this strategic element outweighs the immediate economic benefits of the agreement. Deputy Prime Minister Lee, for example, believes that this move is a “clear signal to the whole of the region that the U.S. is committed to this region, is putting a stake here, and would like to expand its trade ties not just with Singapore but with other countries in the region.”

Nicholas de Boursac, Executive Director, American Chamber of Commerce in Singapore (www.amcham.org.sg) concurs. "This agreement is not only commercially significant; it is an important means of strengthening the partnership across the Pacific - and it creates a model for future bilateral and multilateral liberalization efforts in the region. U.S. companies can only benefit from a more open and stable Asia-Pacific." The agreement is expected to open the door to future negotiations with countries in the Association of South East Asian Nations (ASEAN), including Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Thailand, and Vietnam. As de Boursac adds, the agreement is “an important first step to the eventual realization of a U.S.-ASEAN Free trade Area and a broader APEC (Asia Pacific Economic Cooperation) free trade zone by the year 2010/2020.” Moving forward on the agreement is expected to build momentum for additional items on the U.S. trade policy agenda, such as finishing worldwide market-opening talks with the World Trade Organization by 2005. It also sends a signal to other trading partners that in order to stimulate increasing trade volume, they will also need to liberalize their markets competitively. “U.S. leadership is indispensable in pushing forward global trade liberalization,” says Trade Minister Yeo.

The Trade Promotion Authority (TPA), granting the Bush administration “fast track” authority to conclude trade agreements that cannot be amended by Congress, passed into law in early August, added considerable momentum to the negotiation process. Singapore is now a for-runner, along side Chile, among those countries seeking FTA status.

Singapore has also recently concluded agreements with ASEAN, Japan, New Zealand, and the European Free Trade Area (Switzerland, Norway, Iceland, and Liechtenstein). Additional bilateral agreements with Mexico, China, Australia and Canada are under negotiation. FTAs between the U.S. and Morocco, and five Central American countries, Nicaragua, Costa Rica, Honduras, El Salvador, and Guatemala are also in talks.