HSBC Singapore welcomes the signing of the EU-Singapore Free Trade Agreement (EUSFTA); a significant moment for the two dynamic economies and for ASEAN.
Through eliminating virtually all tariffs and lowering non-tariff barriers, the agreement enables businesses to unlock new opportunities to further sell their goods and services. Furthermore, as the first of its kind signed between the EU and an ASEAN nation1, the agreement sets a precedent to extend open, fair and rules-based trade policies across the two economic regions.
Tariffs on qualifying Singapore goods exports into the EU will be steadily abolished over the course of five years, with electronics, pharmaceuticals, petrochemicals and processed food products (among the main beneficiaries) becoming more competitive in the EU as a result.2 These industries collectively make up around 10% of Singapore GDP.3
Non-tariff barriers will also be addressed to remove burdensome administrative and double-testing procedures. For example, ensuring there are common safety and quality standards across certain sectors which will, therefore, remove the need for testing at both sides of the trade corridor.4 This will benefit key sectors including electronics, motor vehicle and vehicle parts, pharmaceutical and medical devices.5
The EUSFTA’s services chapter also provides for transparency and non-discrimination in licensing and qualification procedures as well as for the future mutual recognition of professional qualifications. This will enable the smoother flow of professionals between each market.
Alan Turner, Managing Director and Head of Commercial Banking, HSBC Singapore, said: “ The signing of the EUSFTA is a panacea for the Singapore and European economic corridor. Its impact goes to the heart of sectors and issues that matter for Singapore including electronics, pharmaceuticals, and chemical manufacturing. While signing the trade agreement is an incredible first step and milestone, the key now is to convert trade policy into pragmatic commercial activity for Singapore corporates.”
Economic analysis prepared by the European Parliament finds that the trade pact could provide the following benefits:6
The EUSFTA will allow for some manufactured goods to have ASEAN cumulation. This means that inputs sourced by Singapore businesses from other ASEAN member states will be considered as domestic content for the determination of the origin of the final product made in Singapore.7 In other words, certain inputs will come under Singapore’s zero tariff regime with Europe.
Ajay Sharma, APAC Regional Head of Global Trade Receivables Finance, HSBC, commented on the wider opportunity for ASEAN: “ A high proportion of Singapore products have parts produced in other ASEAN countries. With the rule of ‘ASEAN cumulation’, more Singapore exports produced along intra-ASEAN value chains can benefit under the EUSFTA. This will have a significant impact for Singapore and for the ASEAN region - in areas like electronics and pharmaceuticals.”
ASEAN as an aggregate is the largest exporter to Singapore, with Singapore importing US$71.06bn of goods from ASEAN in 2017.8
Electronics is one of ASEAN’s most important sectors directly employing more than 2.5 million workers.9 According to the ASEAN Secretariat, the bulk of the world’s consumer electronics comes from the ASEAN region including 80% of the world’s hard drives which are produced in ASEAN countries. Singapore, Malaysia, Vietnam, Philippines, and Indonesia account for over 90% of ASEAN industry exports.10
The EUSFTA will be driving green activity within the corridor by removing trade and investment obstacles in green technology and removing duties on many environmental goods.
This is important in ensuring Singapore and ASEAN businesses progress further along the green agenda.
According to a HSBC commissioned report released earlier this year, 24% of Asian respondents have an ESG strategy compared to 48% of corporates globally and 87% of European and UK companies.11
Commenting on the need for ASEAN businesses to address ESG standards in light of the EUSFTA, Mr. Sharma said: “Europe is clearly leading the way in ESG adoption, and the bloc’s willingness to ensure its trading partners raise their own ESG standards is evident in the policies contained in the EUSFTA. This has a wider consequence for ASEAN. Large European corporations will want to see a similar shift in their suppliers ESG stance. With ASEAN increasingly becoming the supply chain ‘factory’ for several European countries, suppliers of European clients will be expected to transform, or risk being left behind when further FTAs come into force.”
|Goods (2017)||Annual average growth||Services (2016)||Annual average growth|
|EU exports to Singapore||33.2||3.3%||22.4||6.5%|
|EU imports from Singapore||20.1||3.4%||22||14.5%|
Source: Eurostat – all figures in € billion
|Population||GDP (current US$)19||GDP Growth (2017)20|
|EU||508 million||17 trillion||2.4%|
|Singapore||5.6 million||324 billion||3.6%|
2 Ministry of Trade and Industry Singapore: European Union-Singapore Free Trade Agreement Fact Sheet
3 Singapore Economic Development Board (EDB), HSBC
9 According to the International Labour Office (ILO)
12 Ministry of Trade and Industry Singapore: European Union-Singapore Free Trade Agreement Fact Sheet
13 ASEAN EU Business Council Trade and Investment Report, 2017
14 ASEAN Investment Report, ASEAN Secretariat, 2017
15 HSBC Global Research: ASEAN Perspectives, 28 August 2018
16 HSBC Global Research: ASEAN Perspectives, 28 August 2018
17 EU-ASEAN Business Sentiment Survey 2018
18 HSBC Global Research: ASEAN Perspectives, 28 August 2018