With the European Union-Singapore Free Trade Agreement (EUSFTA) entering into force on 21 November, the race is on for Singapore businesses to convert this trade pact into commercial advantage.
And it couldn’t come at a better time given the extent that Singapore’s open and trade-focused economy has been feeling the effects of global uncertainty in 2019.
We’re seeing the subdued conditions in the trade and economic data over the past few quarters and we’re also seeing it anecdotally. Indeed, HSBC’s annual Navigator trade confidence survey (launched in November) revealed only 65% of Singapore businesses expect sales to grow in the next 12 months - considerably lower than counterparts globally.1
Not only is the EUSFTA coming at the right time, it’s with one of Singapore’s most important economic partners.
The EU is Singapore's 2nd biggest trading partner in goods and biggest trade partner in services according to the European Commission. Moreover, 10,000 European companies operate in Singapore often as logistics and distribution centres for the region and multinational regional headquarters. 2
Beyond the headline figures, the details of the FTA are very compelling. There are three areas, specifically:
This is a key element of the FTA given a significant amount of Singapore products, particularly in areas like electronics, precision manufacturing and pharmaceuticals, have parts produced in other Southeast Asian countries.
Electronics, in particular, is one of Southeast Asia’s most important sectors directly employing more than 2.5 million workers.6 According to the ASEAN Secretariat, the bulk of the world’s consumer electronics comes from the region, with 80% of the world’s hard drives being produced in ASEAN countries.7
This is all very good news but will the FTA actually be used?
The EUSFTA may be 16 chapters long, but there are plenty of publicly available resources that can help businesses understand the gist of the deal – from which (and when) customs duties will be eliminated to how to qualify for rules-of-origin preferential treatment.
There are practical steps that business can take to begin better optimising the deal. Here are some suggestions we have for Singapore-based companies.
The EUSFTA is a panacea for the Singapore and European economic corridor and its impact goes to the heart of sectors and issues that matter for Singapore, including electronics, pharmaceutical and chemicals, at a time when an economic shot to the arm is most needed. The unique concept of ASEAN cumulation will also further knit Southeast Asia together as a manufacturing hub and, thereby, enhance its overall competitiveness.
Whilst this a very positive development, the FTA is merely a sheet of paper at this stage. Extracting its value requires Singapore companies to take the initiative by using the tools and support available to understand its relevance to their businesses, and the steps needed to apply.
A contribution piece by Tony Cripps, HSBC Singapore CEO. A version of this piece was first published in The Business Times on 19th November 2019.
3 Singapore Economic Development Board (EDB), HSBC
4 European Commission: The EU-Singapore agreements explained
6 According to the International Labour Office (ILO)
7 ASEAN in Transformation. Electrical and Electronics: On and Off the Grid, International Labour Organisation, 2016