[Viewpoint]Free trade has benefited Singapore

The Singapore-United States free trade agreement went into effect on Jan. 1, 2004. The USSFTA was Singapore’s fifth FTA, after those with New Zealand, Japan, Australia and the European Free Trade Association. It was the United States’ first FTA with an Asian country. Apart from strengthening Singapore’s strategic relationship with the United States, the FTA has benefited Singapore in the following areas.
The bilateral FTA has increased two-way trade. Last year, bilateral trade between the two countries grew 19 percent, the second highest rate of growth among U.S. major trading partners. Singapore’s manufacturers and exporters have gained a competitive edge through tariff savings and from a harmonization of customs rules and procedures. Singapore’s exports to the United States have grown by 28 percent over the last three years.
A number of small- and medium- enterprises have benefited from the USSFTA. One example is Dou Yee Enterprises, which manufactures electronic packaging. As a result of the USSFTA, U.S. importers saved 3 percent on import duties previously imposed on such electronic packaging. Another example is Rayco Technologies, which manufactures customized precision elastomer (a material with the elastic properties of natural rubber), which is used in the automotive, aerospace, data and mobile storage, medical and electronics industries.
Importers in the U.S. were spared the 0.21 percent merchandise processing fee as a result of the USSFTA.
By creating greater predictability and more opportunities, the USSFTA has led to an increase in foreign direct investment from the United States, especially in knowledge-intensive and creative industries such as pharmaceuticals, software, film and gaming.
American foreign direct investment in Singapore grew by 10.5 percent, from $24.77 billion (S$37.59 billion) at the end of 2003 to $27.4 billion at the end of 2005. Singapore was the second biggest recipient of U.S. foreign direct investment in Asia in 2005. A major investment was Motorola’s third-generation research and development center established in 2004. Motorola’s Singapore facility is its first worldwide to have a full value chain of activities in a single location on the third generation (3G) front. Motorola currently manufactures 60 percent of the company’s global 3G phones for markets in Southeast Asia, Australia, New Zealand, Taiwan, Europe and the United States. Another example is Reed HyCalog’s (a division of Grant Prideco, a leading oilfield equipment manufacturer) $14.5 million investment in its manufacturing operations of the next-generation Roller Cone Drill bits in Singapore, such that Singapore now accounts for 80 percent of Reed Hycalog’s global drill bit manufacturing capacity.
This move was encouraged by the tariff savings from the immediate elimination of a 5 percent duty for drill bits under the USSFTA (coupled with lower production costs in Singapore).
While some of these investments were motivated by the U.S. market, others came to take advantage of our FTA access to other countries. A U.S. company based in Utah, Huntsman, has invested $34.9 million in Singapore on its first manufacturing facility to produce polyetheramine (used in fuel and lubricant additives, herbicides and pesticides) aimed at the Asia-Pacific, including Australia.
In the financial services area, the USSFTA has helped improve Singapore’s banking system and brought direct benefits to consumers and the economy. Under the USSFTA, U.S. banks with subsidiaries in Singapore were given full access to Singapore’s domestic banking market. Since then, one U.S. bank has made use of this and introduced into the Singapore market a broader suite of products for customers, raised service standards and provided more choice and convenience to banking customers, including small- and medium-sized enterprises. The U.S. bank has also increased the scope of financial activities it conducts in Singapore and created more jobs.
The increased competition has spurred the three Singapore banks to improve their capabilities and service standards and expand into new activities and new international markets. The Singapore banks have maintained their strong presence in the Singapore domestic market, but are now more competitive and internationally diversified.
The result of competition arising from the USSFTA has been positive for the banking sector, consumers and the economy.
In legal services, law degrees from Harvard, Columbia, the University of Michigan and the New York University are now recognized for admission to the Singapore bar. This has given Singaporean students a wider choice of universities where they can study law, as well as allowed Singapore-based firms to recruit talent from a broader catchment.
At the same time, Singapore companies enjoy guaranteed access to the U.S. market in several service sectors, such as telecommunications. The USSFTA has also eased travel by Singapore’s investors and employees of Singapore’s companies to the United States and to stay in the United States for extended periods.
The USSFTA has sped up policy reforms in Singapore, in areas such as competition policy and intellectual property rights.
Singapore’s intellectual property rights regime was strengthened considerably with legislative changes to enhance copyright protection for new technologies and enforcement obligations. As a result, a number of U.S. companies have relocated to Singapore. They include the Microsoft Innovation Center in Singapore, Lucasfilm Animation’s studio and production house (the first outside the United States) and Pfizer’s $348 million multi-purpose active pharmaceutical ingredient manufacturing facility.
The USSFTA has increased business confidence in Singapore and contributed to its growth as a regional economic hub.

*The writer is Singapore’s ambassador to the Republic of Korea

by Chua Thai Keong