Saturday, October 18, 2014

EU Fails to Get Same Treatment as US and EFTA on Singaporean Stamp Duty

Yesterday, when I heard that the EU and Singapore announced that they had concluded the investment chapter of their bilateral free trade agreement (FTA), the first thing that came to my mind was “how will this impact the Singapore property market?” 

Confused?  Let me explain.

In Singapore most foreign nationals are required to pay an additional 10 percent stamp duty (called Additional Buyers’ Stamp Duty or ABSD) on their real estate purchases. Singaporeans do not pay ABSD.  However, nationals of the United States and members of the European Free Trade Association (EFTA, made up of Switzerland, Norway, Liechtenstein and Iceland) are exempt from paying the ABSD because of the specific terms of their FTAs with Singapore that require Singapore to treat them the same as Singaporeans.  This is known as “national treatment” in FTA terminology, e.g., the right for foreigners to be treated the same as the locals. 

Would the EU be able to achieve similar treatment for its nationals? 

The answer is no, according to the final text (subject to “legal scrubbing”) available here. 

In an “understanding” making up part of the agreement, the EU and Singapore agreed as follows:

1. Article 9.3 [National Treatment] shall not apply to any measure relating to:

(a) the supply of potable water in Singapore;

(b) the ownership, purchase, development, management, maintenance, use, enjoyment, sale or other disposal of residential property or to any public housing scheme in Singapore.

Hence this means that national treatment for EU nationals will not include equal treatment regarding the ABSD or other laws regarding residential property in Singapore. The EU didn’t get what the US and EFTA achieved in their FTAs.  This is because the EU was relatively late in seeking an FTA with Singapore (the EFTA-Singapore FTA was among the first FTAs of Singapore) and not as powerful as the United States (whose preferential treatment is also rooted in the most-favored-nation clause of its FTA, which grants it the same treatment as the EFTA members under their Singapore FTA).

However, the EU did obtain some hope in the form of a future review of the ABSD:

2. Three years after the entry into force of this agreement and every two years thereafter, should ABSD still be in force, the Trade Committee will review to see if the maintenance of the ABSD is necessary for addressing the stability of the residential property market. In these consultations, Singapore will provide statistics and information relevant to the state of the residential property market.

Thus Singapore has committed itself to scrutiny by the Trade Committee of Singaporean and EU government representatives to confirm whether the ABSD is still necessary to control Singapore property prices.  This is not the same as the US and EFTA FTAs, but it does mark a commitment by the Singaporean government to joint review of its property policies, a very rare occurrence.  Perhaps the ABSD will be terminated three years from now and this will become a moot point, perhaps not.  Either way, it is another example of how FTAs can set policy – or restrain policy options – for a government.

The EU-Singapore FTA investment chapter also contains an investor-state dispute resolution chapter that allows for international arbitration.  This has become controversial in other FTA negotiations such as the Trans Pacific Partnership talks, but evidently not so for the EU-Singapore FTA.  But its inclusion will only embolden ASEAN members such as Indonesia who believe that terminating their bilateral investment treaties with the EU (and their associated arbitration clauses) will encourage the EU to conclude their own bilateral FTAs with them.

Other items of note are exemptions for government policies necessary to protect general welfare, as follows:

 (a) necessary to protect public security, public morals or to maintain public order;

(b) necessary to protect human, animal or plant life or health;

(c) relating to the conservation of exhaustible natural resources if such measures are applied in conjunction with restrictions on domestic investors or investments;

(d) necessary for the protection of national treasures of artistic, historic or archaeological value;

(e) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Chapter including those relating to:

(i) the prevention of deceptive or fraudulent practices or to deal with the effects of a default on a contract;

(ii) the protection of the privacy of individuals in relation to the processing and dissemination of personal data and the protection of confidential of individual records and accounts;

(iii) safety.

(f) aimed at ensuring the effective or equitable imposition or collection of direct taxes in respect of investors or investments of the other Party.

In any event, the impact (or lack thereof) on the Singaporean property market is the immediate news from this development.  Given that this is a major concern of many Singaporeans, that is not surprising, as reflected by this issue being the most popular topic on this blog.  Again, however, the ABSD issue shows how FTAs can affect areas of governance far beyond trade in goods.