ANNEX ONE – SINGAPORE

1. INTRODUCTION

As described in section 2 of the position paper, following the pause in negotiations of the regional
ASEAN-EU FTA in March 2009, the Council in December 2009 gave the green light to initiate
bilateral FTA negotiations with individual ASEAN countries beginning with Singapore. These
individual agreements should be seen as building blocks towards the ultimate objective of an
agreement with ASEAN countries in the regional framework. The first set of negotiations started with
Singapore in early 2010 with the first round being held from 8-15 March.

As set out in the position paper, when the SIA was commissioned, negotiations were in progress to
conclude an EU-ASEAN FTA. By the time the study was completed the negotiations had been paused.
While the SIA deals with the impacts of the EU-ASEAN FTA, these findings remain valid and
relevant in view of the EU's ultimate goal of an agreement in the regional framework with ASEAN,
despite the focus on bilateral agreements will during an intermediate phase.

This being said, the study does contain useful elements at country level which will be relevant for
bilateral negotiations. It provides country level details where relevant (specific issues and sectors) and
gives an overall picture of directions and magnitude of impacts, with a special focus on the impact of
concluding an FTA with the EU on individual ASEAN countries. And with long term objectives
unchanged, the longer term impacts should remain more or less the same.

However, there may be some effects that are not taken into account at this moment in the modelling
results, including for instance first mover advantages. In the case of Singapore in particular, gains may
be staggered over time, as the gains described in the study will partially depend on also other ASEAN
countries concluding a preferential agreement with the EU. Only such a more comprehensive trade
liberalisation between the EU and ASEAN countries will lead to substantially increased trade and
investment within ASEAN as a region, and a substantial part of Singapore's gains from an EU-
ASEAN FTA would derive from its position as a hub connecting other ASEAN countries with
external trade partners like the EU.

Singapore holds a unique status amongst ASEAN countries as a developed and industrial economy
with a highly educated population. Singapore is often rated as one of the easiest country in the world
with which to do business and in terms of transparency and corruption issues, Singapore is one of the
world’s leaders ranked 4th in the Global Enabling Trade Report 2008.

Singapore's developed open economy, its experience in FTA negotiations (both alone or as part of the
ASEAN group) and its record in concluding ambitious agreement with developed economies like the
US and Japan indicate that the EU could aspire to negotiate a comprehensive and ambitious FTA with
Singapore. It would not seem unreasonable to expect that overall, negotiations in the three main
negotiating areas – tariffs, services and the regulatory issues (such as intellectual property, government
procurement, regulatory transparency, sustainable development, competition and dispute settlement)
will lead to ambitious results. Such an outcome would provide a valuable point of reference also for
other FTA negotiations. In this sense, for the EU the merit of FTA negotiations with Singapore lies as
much in the intrinsic commercial benefit of such a deal, as in the systemic value of establishing a good
precedent of what a comprehensive 21st century FTA should look like.

In terms of its relationship with the EU, Singapore is the largest receiver of EU FDI in ASEAN. It has
zero tariffs on most goods coming into its territory. Under an FTA, the most important sector affected,
both in the EU and Singapore, will be the services sector and in particular financial and professional
services. In contrast, for example certain environmental issues are less relevant to Singapore in the
absence of large forests or substantial agricultural or fishing activities.

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This annex will highlight some of the economic, social and environmental impacts on Singapore of an
FTA as predicted by the study, looking at sectors which are likely to be most affected in Singapore.
Section 2 will examine the findings of the report and Section 3 will examine the policy
recommendations of the SIA in relation to Singapore. The impact on the EU of an FTA is discussed in
the position paper.

2. OVERVIEW OF FINDINGS

i. ECONOMIC

According to the study, the overall effects of an FTA are positive for Singapore. Under the most
ambitious scenario, national income could rise by €21.5 billion, GDP could increase by 12.89%,
skilled real wages could increase by 10.84%, unskilled real wages by 9.36% and the value of exports
could increase by 13.82%.

The authors of the study also argue that in percentage terms Singapore stands to gain most in the
electronics equipment, textiles and insurance sectors. However, textiles is small to negligible in
absolute terms in comparison to other ASEAN countries and overall Singapore stands to gain most in
the services sector. Manufacturing sectors such as machinery and equipment and transport equipment
see a declining trend. Singapore will also see an increasing demand for skilled labour, as its economy
shifts towards higher value added and skilled activities. The expansion of the insurance sector is also
expected to be a main contributor to real income growth. Investments and the reallocation of capital
are the main drivers behind the long run dynamic efficiency gains from an FTA, which have been
assessed as potentially substantial. Singapore, which already has high base of fixed capital formation,
will therefore see substantial dynamic effects in the longer run. In absolute terms and thus
substantially affecting expected GDP growth, Singapore stands to gain most substantially in terms of
increased trade flows, consolidating its position as a regional trading, sourcing and distribution hub
and financial centre.

In specific sectors, Singapore sees small shifts as many of its industries are small scale. For example
agriculture shows some very low percentage shifts but with agriculture only representing 0.1% of
Singapore’s economy the effects are negligible.

Although small, the textile industry in Singapore could see an increase in output of up to 17.56%
under the most ambitious long term scenario. The wearing apparel industry is expected to decline in
Singapore and the leather industry may see a decline in terms of output and employment. It is possible
that textile producers will set up a main production/distribution centre for specific high-end products,
which can then be used by regional apparel producers, especially in a scenario of the EU concluding
FTAs with many ASEAN countries. This example already illustrates the strong inter-linkages between
the textiles and apparel sectors, which are often reflected in trade. There is also a strong predicted
export performance of textile exports for Singapore which may be explained by its role as a regional
node for distribution of specialised textiles from foreign investors.

Singapore is already an important global player in financial services (and to a lesser extent in
insurance services) with financial services and insurance accounting for more than 10% of GDP.
Singapore has a competitive advantage in the financial services sector in ASEAN and will benefit
most significantly in this sector from an FTA with a large increase expected in its exports of both
financial services (almost 18 percent under scenario 2 and 3) and insurance (around 28 percent
under the same scenarios).

Increases in output (e.g. increases in bank services provided, asset management services provided,
etc.) are expected to be most substantial with a gain of almost 6.7 percent in the long run most
ambitious scenario. For insurance, output is expected to increase by 16 percent in the long run. This is
likely to translate into a substantial impact on the economy as a whole as the financial services sector,

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including insurance, constituted 12.4 percent of total value added in 2007. Employment of both skilled
and unskilled workers in the financial services and insurance sectors will see a clear increase.

In terms of the opening up of the EU’s market in financial services, from Singapore’s perspective
although the EU has opened its markets significantly, the study argues that a major non-tariff barrier is
constituted by the absence of convergence in regulation among member states, including accounting
standards and differences in the implementation of the Basle-II framework for banks, as well as
different regulatory requirements for banking and other financial services. These relate to reciprocal
national treatment clauses, local licensing requirements, regulatory approval for setting up operations,
and the absence of national treatment in some cases.

The SIA study also highlights the current situation in the financial services sector and points out
factors of interest to EU negotiators, for example:

• though foreign equity limits have been removed the government has indicated that it will not
allow foreign ownership of some main banks;
• Bound WTO commitments still set a 49 percent limit on foreign ownership for insurance;
• entry for reinsurance broking and MAT insurance is only open to US companies (approved by
Monetary Authority of Singapore);
• Foreign “full banks”, except for US banks, may not increase their number of places of
business without approval of the Singapore Monetary Authority; they are limited to up to 25
branches and offsite ATMs. (Under the US-Singapore FTA, US banks can establish as many
branches as a local Singaporean bank). Restrictions on new establishments of insurance
companies and representative offices, branching permitted only when engaged in external
business only;

Singapore also would stand to gain from improvement in IPR protection levels as a better operating
environment for IP-centric firms and sectors would in turn induce knowledge and technology
transfers.
The CGE model results in the SIA estimate that the income gains attributable to NTB reduction in EU-
ASEAN FTA for ASEAN as a whole lies between € 6,7 billion (scenario 1) and € 20 billion (scenario
3). The deeper the FTA scenario, the larger the gains for ASEAN as a whole are expected to be. In
scenario 3, Singapore would gain significantly.

Given the large estimated effect of IP infringements on investment in the ASEAN region, the results
from the CGE model are expected to underestimate the positive impacts on the economy induced by
FDI (which is not completely incorporated into the model). This implies that additional FDI attraction
effects, induced by improved IPR climates, might bring significant additional benefits to the ASEAN
regions, especially for Thailand and Singapore and in knowledge-intense or copyright-sensitive sectors

ii. SOCIAL

In the small textile and garments sector, working conditions in Singapore are generally found by the
study to be good with comparatively clean and safe working conditions in factories. Migrant workers
make up a significant share of the total workforce in the textiles and particularly clothing factories.
Many are legal migrants from e.g. Indonesia and Bangladesh. Singapore has signed a number of
agreements with labour ‘exporting’ countries on temporary labour. Laws on trade unions do exist, but
the role assumed by trade unions is sometimes questioned.

Under an FTA some employment increases are to be expected in the textiles sector in Singapore.
However it should be borne in mind that this is a small sector compared to Singapore's overall
economy. Any increase will in any case exert a pull on workers from other Asian countries, given the
dependence of the TCF sectors on foreign workers in Singapore. The biggest expected decrease in

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employment from an FTA (percentage change in unskilled labour in the long range scenario would be
14.5% for clothing and 14.9% for footwear which represent a very small percentage of the workforce

In the financial services sector, as opposed to most other ASEAN countries, employment is expected
to increase together with the insurance sector. The SIA model expects an increase of 4.42% in skilled
labour and 5.93% in unskilled labour.

The effects on other sectors in Singapore are likely to be negligible. For example in the small fisheries
sector, employment could decrease by between 0.3 and 3% in the long run.

The effect of increased FDI in ASEAN is not included in the modelling results. This is likely to affect
employment positively and particularly in Singapore as - at least so far - the main recipient of FDI in
ASEAN. To the extent that this investment concerns outsourcing of activities, it is likely to benefit
unskilled workers most, as they have traditionally been the main focus of outsourcing of back office
services in the financial sector. In the longer-run, outsourcing may concern medium skilled and higher
skilled labour as well.

ii. ENVIRONMENTAL

Given the scope of business activities pursued in Singapore, on its own the environmental impact of an
FTA will be negligible. However, in its role as a major trading hub, Singapore cannot turn a blind eye
to environmental issues, for instance in relation to illegal trade in environmentally sensitive goods
(e.g. timber, wildlife, waste and chemicals)

The effects of increased ASEAN-EU trade are difficult to quantify and the SIA does not attempt to
break down the effects per country. The general effects as detailed in the main position paper under
section 3 can be equally applied to Singapore.

3. RECOMMENDATIONS MADE BY THE CONSULTANT AND THE COMMISSION

SERVICES' VIEWS ON THEM

The recommendations of the SIA apply to all the ASEAN countries and as such, most of the
conclusions in the chapter on recommendations (section 4) can be applied to Singapore, albeit to
varying degrees on account of Singapore's peculiar economic structure vis-à-vis other ASEAN
countries. This section highlights recommendations of particular relevance to Singapore.

i) FTA Measures

Inclusion of a sustainable development chapter

As stated in the section 4.1, inclusion of a trade & sustainable development chapter is an essential
feature in a modern EU FTA. While Singapore can be expected to abide by high labour standards and
has signed up the core ILO conventions and similarly in the area of environment to have ratified the
major conventions, measures to promote high levels of labour and environmental standards, including
fisheries governance, are important. This is important for Singapore itself but will also be an important
example for future bilateral FTAs. More discussions will be necessary on civil society dialogue
including with trade unions. Such dialogues would enable civil society to take a strong role in
monitoring and evaluation of the FTA as recommended by the consultants.

As already mentioned, Singapore’s economy is already rather open so some of the recommendations
such as improvement of the business and investment climate are much less relevant in this specific
context.

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Singapore as a highly developed country receives no development assistance from the EU. Therefore,
the EU will be ready to provide assistance in the form of dialogue and policy advice to address the
issues arising from adjustment costs brought about by the FTA (recommendation 11)

As far as specific economic issues are concerned dialogue and cooperation could be enhanced on
competition policy issues. Although Singapore has liberalised and deregulated her economy well
ahead of her ASEAN neighbours, it has only recently developed a Competition Law. Singapore has
long argued that an open trade and investment regime will transmit competitive forces throughout the
domestic economy. However, the experience of other countries shows that local firms and even
government monopolies may collude to restrict entry. In 2004, the Competition Act was passed and
Competition Authority established.

ii) SOCIAL
Most of the recommendations of the SIA are not under the remit of the EU as Singapore is not a
recipient of EU assistance.

Singapore's commitment to labour standards can be demonstrated by the fact that it has ratified twenty
ILO Conventions covering a wide range of topics, among them forced labour, the worst forms of child
labour, the right to organize and collective bargaining. More than 70 other instruments are under
consideration with a view to ratification. In 2005 Singapore became the first deputy member of the
ILO’s Governing Body from the ASEAN grouping. The country has been elected as a titular member
of the Governing Body for the ASEAN region for the term 2008-2011.

iii) ENVIRONMENTAL
While the environment is not expected to be significantly affected by additional commercial activity
within Singapore, Singapore is still involved in these issues by virtue of its status as trading hub with
ASEAN, and as member of the ASEAN group. For example, the issue of timber products harvested
illegally and exported via Singapore merits attention, as does any illegal trade in environmentally
sensitive goods. How this and other environmental issues (NTBs facing environmental goods and
services, the scope for greener public procurement and investment patterns etc.) can best be addressed
requires further reflection and dialogue with Singapore.

4. CONCLUSION

Singapore holds a unique position in ASEAN as an economy that is, in terms of GDP per capita, on
equal terms with the EU. Singapore can expect to gain most from the opening up of the financial
services sector and the EU’s services industry in general will benefit. The FTA can also provide the
EU and Singapore an opportunity to declare their mutual interest and commitment to multilateral
initiatives on a range of issues from human rights to climate change.