Saturday, September 21, 2013

The EU and Singapore Initial Their Bilateral FTA

On Friday the EU and Singapore initialed the legal text of their bilateral FTA.  This represents the EU’s first FTA with an ASEAN member.  The EU had shifted to a bilateral FTA approach after bloc-to-bloc FTA negotiations failed with ASEAN.

The full text is available here, but I summarize the major points below:
  • Investment chapter – this is not in the FTA text.  This is perhaps the most important development, because the EU was very concerned about national treatment, e.g., the right for its investors to be treated the same as Singaporeans.  For example, the US and the EFTA countries are exempted from much higher stamp duties on property purchases because of their own FTAs with Singapore.  By not including investment, the EU and Singapore will have to tackle these and other issues in future negotiations.
  • Import duty reductions – the EU agreed to eliminate import duties on almost all goods, with the exceptions being certain fruits and vegetables, most of which are not grown in Singapore anyway.  Import duties will be eliminated over 4 to 6 years. Singapore of course has no import duties, but imposes excise taxes on automobiles, liquor, tobacco and petroleum, which are not affected by the FTA.
  • Trade remedies – the FTA provides for special provisions for trade remedy investigations, such as the lesser duty rule and consideration of the public interest. Most notably, trade remedies are excluded from the scope of the FTA’s dispute settlement mechanism, meaning that parties must use domestic judicial means to appeal such cases.
  • Technical barriers to trade (TBT) and sanitary and phytosanitary (SPS) measures – the FTA has special provisions to deal with these matters, particularly with geographic designations, a major EU concern.   There are special provisions on standards for automobiles, pharmaceuticals and electronics, and parties have the right to conduct on-site verification of SPS measures.
  • Services– the FTA covers trade in services except for audio-visual services, maritime, air transport and military.  Companies which have at least 50% ownership by Singaporean or EU natural persons can qualify for the protections of the services chapter, which include national treatment, market access and right of establishment.   The agreement also allows for the temporary movement of natural persons, e.g., management executives and professionals. There are also special provisions for computer services, financial services, telecoms and postal services. There is a special exemption from the national treatment obligation for direct taxes (reflecting the EU’s concern that Singapore may serve as a tax haven for its nationals; such concerns had contributed to the delay in the FTA talks). Singapore did not commit to further liberalization of the legal sector due to its ongoing liberalization of that sector.
  • Other – the FTA includes chapters on government procurement, intellectual property (including geographic designations), renewable energy generation, customs cooperation and trade facilitation, competition (which is also excluded from the FTA’s dispute resolution provisions), trade and sustainable development, mediation and dispute resolution (which allows the parties to use WTO dispute resolution but requires that only one settlement procedure can be applied at a time to a dispute).  Also of note is that Singapore agreed to negotiate with countries which have a customs union with the EU, the most important of which is Turkey.

Overall, this is a positive development for both Singapore and the EU. However, with the investment chapter still to be concluded, the definitive impact of the FTA remains to be seen.  The FTA’s initialing will also increase pressure on other ASEAN members to conclude their FTA negotiations with the EU, particularly for members such as Malaysia which face the impending expiration of the EU’s Generalised System of Preference duty exemptions on January 1.