Singapore-EU FTA will boost electronics, tech sectors

Summary:Landmark deal will offer companies from European Union and Singapore better market access, but immediate impact for Singapore's electronics exporters is likely to be limited.

Singapore has successfully concluded talks on a landmark free trade agreement (FTA) with the European Union (EU), a deal which will offer companies from both sides better access to each other's markets and potentially boost the technology and electronics sectors.

Negotiations were completed on Sunday, according to a statement Sunday by Singapore's Ministry of Trade and Industry. The EU-Singapore Free Trade Agreement (EUSFTA) will be signed after all domestic processes, including translations and verifications, are done.

Under the agreement, the EU will eliminate tariffs on all imports from Singapore over a period of five years, with 80 percent of the tariff lines covered once the deal comes into force.

"Singapore exporters of electronics, pharmaceuticals, chemicals and processed food products, in particular, will benefit from the removal of the EU's tariffs. Singapore will grant immediate duty-free access for all imports from the EU," the statement noted.

Wider market opportunities
The FTA will also result in the removal of a number of non-tariff measures between both sides, particularly boosting access for exporters of electronics and pharmaceuticals, such as wider access to government procurement opportunities.

"Singapore is a dynamic market for EU companies and is a vital hub for doing business across Southeast Asia. This agreement is key to unlocking the gateway to the region and can be a catalyst for growth for EU exporters", said EU Trade Commissioner Karel De Gucht.

Singapore's Minister for Trade and Industry Lim Hng Kiang said: "Singapore is confident that the EUSFTA will further enhance our bilateral economic relations, and pave the way for improved trading links between the EU and the Association of Southeast Asian Nations (Asean)."

The city-state is the first country in Southeast Asia to clinch an FTA with the EU, following negotiations that started in March 2010.

EU-SG trade
Annual trade statistics between Singapore and European Union (source: ec.europa.eu)

Last year, the EU was Singapore's second-largest trading partner, while Singapore was its 13th-largest trading partner. 

Support for electronics sector
The news comes at a time of lingering economic uncertainty over Europe and a slump in electronic exports by Singapore. Electronic exports fell for the third time in four months in November, according to a statement Monday from trade promotion agency IE Singapore.

"However, with the diversification of production plants away from China due to rising costs of production in China, multinational companies may increase investments and building of more plants in Europe and Singapore-based exporters can certainly find it a great incentive to establish new markets,"
-Francis Tan 
economist, UOB. 

In November, Singapore's electronic shipments declined 16.5 percent from a year earlier after a 0.8 percent dip in the previous month. This dragged down wider non-oil domestic export numbers for the month, which fell 2.5 percent.

The FTA, in the initial phase, may not have much impact for Singapore companies yet though, noted Francis Tan, economist at UOB. 

He explained the country's exports were primarily intermediate goods for final assembly in China currently, and may not serve European manufacturers in a big way.


"However, with the diversification of production plants away from China due to rising costs of production in China, multinational companies may increase investments and building of more plants in Europe and Singapore-based exporters can certainly find it a great incentive to establish new markets," Tan pointed out.

He added the FTA would "without doubt" open new doors for companies looking to trade with European countries under the FTA, and attract them to set up shop in Singapore to leverage the more favorable terms through the agreement.

Agreeing, Leong Wai Ho, senior regional economist at Barclays Capital, pointed out the FTA would improve Singapore's ability to capture new higher value added investments from electronics manufacturers wanting to relocate from Europe.

"Singapore is attractive, given it has secured FTAs with China, India, Australia and New Zealand and of course Asean. So this helps the cluster to grow in the medium term, helping to keep electronics related activity anchored here," Leong said.

Topics: Tech Industry, EU, Government, Singapore

About

Loves caption contests, leisurely strolls along supermarket aisles and watching How It's Made. Ryan has covered finance, politics, tech and sports for TV, radio and print. He is also co-author of best seller "Profit from the Panic". Ryan is an editor at ZDNet's Asia/Singapore office.

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