Fri, 09 May 2003

U.S.-Singapore Free Trade Agreement is golden

The Straits Times, Asia News Network, Singapore

Finally, a spot of good news: A free trade agreement between Singapore and the United States was signed yesterday in the White House by Prime Minister Goh Chok Tong and U.S. President George W. Bush. It will have to be ratified by the U.S. Senate before coming into force, but that is expected to go smoothly. For one thing, Singapore's stock is high in Washington now, the result of its reputation as a sure and steady friend.

For another, the FTA is a model of its kind -- the "gold standard" among FTAs, it has been said -- with provisions on intellectual property, workers' rights and the environment. All U.S. exports to Singapore will enjoy zero tariffs immediately -- this is no sweat off Singapore's back, for its tariffs are already close to zero -- and tariffs on Singapore's exports to the U.S. will largely disappear, with the last phased out within eight years. What is there not to like about it?

There are, of course, two aspects to the agreement: One, the obvious -- economic. And two, the not-so-obvious -- geo- political. Economically, there is no doubting the benefits of free trade, the sine qua non of Singapore's existence for almost 200 years now, since 1819. The U.S.-Singapore FTA, the first between the U.S. and an Asian country, will save exporters millions every year, helping to make Singapore a more attractive location for investors, and re-focus attention on the region.

The main benefit the U.S. will gain from the agreement is access to Singapore's financial and service sectors. Competition in these sectors in Singapore will become tougher as a result, but that would have happened regardless of the FTA. In financial services, for instance, the agreement will merely set a seal on a process that would have taken place in any case, for Singapore cannot remain a financial center without liberalization. The harmonization of customs procedures will also be beneficial, for businesses like predictability and uniformity.

What are the political benefits? It has been said the FTA is Singapore's reward for being a loyal friend of the U.S. This is an exaggeration. The FTA was mooted long before Sept. 11, years before Bush came into office. The speed with which the agreement has been signed may indeed be related to Singapore's support of Washington on Iraq -- the Chile-U.S.

FTA, by contrast, though completed before the Singapore-U.S. FTA, has still not been signed, the victim of Chile's failure to support the U.S. -- but this was not the political benefit Goh had in mind when he first proposed the FTA to former President Bill Clinton at their now famous golf game. What he was looking for was to keep the U.S. engaged in Southeast Asia. With China and India looming on the horizon as great powers, Southeast Asia risked being ignored economically by investors, and squeezed politically by North and South Asia. Keeping the U.S. engaged, economically and politically in the region, will provide breathing space.

Some in Southeast Asia had initially disagreed with this approach, arguing bilateral FTAs detract from multilateral trade liberalization regimes, but they have since come round to Singapore's position. Malaysia, for instance, now says it too wants to have bilateral FTAs with Japan and the U.S.

Ultimately, multilateral trade regimes are indeed best. Like a rising tide, they lift all boats. Bilateral FTAs are second-best, as both Goh and Bush acknowledge. But with the multilateral Doha round stuck in a rut, second best is not only a good substitute, it may kick-start first best.