U.S.-S'pore FTA sets the new trend in ASEAN

By Tommy Koh

SINGAPORE: Let me attempt to answer a number of questions which have been raised since President Bill Clinton and Prime Minister Goh Chok Tong issued their joint statement (on a free trade agreement between the United States and Singapore) on Nov. 16 in Brunei.

First, why U.S.-Singapore? The choice of the United States by Singapore is based upon economic as well as strategic reasons. The United States is Singapore's largest trading partner. Two-way trade last year was US$41 billion (S$69 billion).

The United States is also our largest foreign direct investor. The cumulative stock of U.S. direct investments in 1997 stood at US$12 billion. U.S. companies account for more than half of Singapore's exports to the United States.

Singapore views the United States presence as vital to the security and stability of the region. This remains relevant in spite of the end of the Cold War because relations among the major countries of the Asia-Pacific are dynamic.

We want the United States to continue to stay engaged and to play the role of balancer.

What is the importance of Singapore to the United States? Singapore's population of about four million is larger than that of Jordan but smaller than that of Israel, two countries with which the United States has concluded FTAs.

Singapore's economic importance to the United States, however, exceeds its physical size. We are the 10th largest trading partner of the United States in the world and the largest in Southeast Asia. We play host to 1,300 U.S. companies and 15,000 U.S. citizens.

Singapore is an exemplar for the rest of East Asia. Singapore has a vibrant market economy and practices free trade.

The Heritage Foundation's Index of Economic Freedom has consistently ranked Singapore as the second freest economy in the world. The United States and Singapore, therefore, share certain fundamental economic values.

Singapore has been helpful to the United States in defense and security. Following the withdrawal of U.S. forces from the Clark Air Base and the Subic Naval Base in the Philippines, Singapore offered U.S. forces access to military facilities in Singapore.

The United States is the largest source of Singapore's military procurements. The Singapore Air Force has stationed detachments of men and aircraft for training at bases in Arizona, New Mexico, Texas and Kansas.

Relations between our two defense establishments are, therefore, excellent. We have cooperated to promote regional peace and security in many multilateral forums.

Second, how will the USSFTA (United States-Singapore Free Trade Agreement) affect U.S.-ASEAN relations? Several of the ASEAN economies were badly dented by the 1997-1998 East Asian monetary and economic crisis.

Some have rebounded from the crisis, leaner and more competitive than before the crisis. For example, Singapore responded to the crisis by accelerating its reform, restructuring and liberalization. As a result, the Singapore economy grew by 5.4 percent last year and is projected to grow by 9.5 percent this year.

Some ASEAN economies have not done as well. Some ASEAN countries are still experiencing political instability. As a result, investor confidence in ASEAN, as a region, has not recovered to the pre-crisis level.

Most of the FDI (foreign direct investment) coming to East Asia are going to Northeast Asia and only a smaller stream is coming down to Southeast Asia.

The United States can help to restore confidence in ASEAN. We think that the USSFTA will have a positive effect because it involves an ASEAN country, because it could lead to other FTAs between the United States and other ASEAN countries and because it could lead eventually to former U.S. Trade Representative Bill Brock's dream of a U.S.-ASEAN FTA.

Third, how will the USSFTA affect APEC (Asia Pacific Economic Cooperation)? The United States and Singapore are fully committed to APEC and its Bogor vision of free trade and open investment by 2010 for developed economies and 2020 for developing economies.

We should remember that it was President Clinton who took the initiative to convene the first APEC Leaders' Meeting in Seattle. Since Seattle, APEC has adopted three approaches to secure its vision.

The first approach was individual unilateral liberalisation combined with concerted collective liberalisation. The second approach was sectoral liberalization. The third approach was to use the World Trade Organization (WTO) to launch a new round of trade negotiations. There was a general consensus at the recent APEC meeting in Brunei, to adopt a fourth approach, FTAs.

What is the rationale? The rationale is that so long as they are consistent with the WTO, FTAs should be welcomed because they contribute towards global trade liberalisation.

The many FTAs being negotiated between APEC's economies will reinforce one another. The net effect is the lowering of barriers to trade and investment. This will bring us closer to the APEC vision of free trade and open investment in the Pacific.

Fourth, how will the USSFTA affect P5? The acronym, 'P5', stands for Pacific 5, consisting of the United States, Chile, Australia, New Zealand and Singapore. The grouping was created in November 1998 as a core group within APEC.

The idea was that an FTA among them could provide a substantial boost to APEC's momentum. The USSFTA is not inconsistent with the P5. Indeed, the announcement by the United States and Chile on Nov. 29 to begin negotiations for an FTA vindicates our view that the USSFTA could be a stepping stone to larger prizes.

Fifth, how will the USSFTA affect the WTO? Singapore and the United States are firmly committed to global trade liberation, under the aegis of the WTO.

In the case of Singapore, this commitment is essential for our economic survival. External trade is three times larger than Singapore's gross domestic product, the highest for any country. Singapore will never do anything, pursue any policy which would jeopardize the efficacy of the WTO and the world trading system.

We do not, however, believe that the WTO has been undermined by the EU (European Union), NAFTA (North American Free Trade Agreement), AFTA (ASEAN Free Trade Area), APEC or will be undermined by the USSFTA.

According to the WTO's year-end review of global trade statistics, the volume of international trade in goods is expected to grow by 10 percent this year. This is the second- highest growth rate in world trade in the past decade, and double that of last year.

This is clear evidence that the various bilateral and regional trading arrangements have in no way undermined the WTO. In fact, the record shows APEC exerted a positive influence on the Uruguay Round.

The record also shows that agreements for sectoral liberalization, first arrived at in APEC, were later adopted by the WTO. The record shows that a higher benchmark adopted in a bilateral FTA could later become a global standard.

In other words, regional trading arrangements and bilateral free-trade agreements could play a complementary and catalytic role to the WTO. If this were not so, Singapore would never have entered into such agreements, for our commitment to the WTO is fundamental.

There is another important point. Cross-regional FTAs will not lead to regional trading blocs.

The USSFTA will be the first FTA between the United States and an Asian country. Singapore has already concluded an FTA with New Zealand and is currently negotiating with Mexico, Japan, Canada and Australia.

I hope I have convinced all of you that the USSFTA is good for our two countries, good for U.S. relations with ASEAN and East Asia, good for APEC and P5, and good for the WTO.

This article is adapted from ambassador-at-large Professor Tommy Koh's speech at the initial plenary meeting for the U.S.- Singapore Free Trade Agreement negotiations in Washington on Monday.

-- The Straits Times/Asia News Network