In the Singapore Property Market, Not All FTAs Are Equal

This week the Singapore government implemented immediate measures affecting its property market.  In an effort to prevent further appreciation in property (and thereby avoid a “bubble” and its consequent “bursting”), Singapore announced that it would increase the 3% stamp duty (tax) charged on purchases of real property, but only for purchases by foreigners (now subject to 10%) and permanent residents (now subject to 6%).  The 3% rate would continue to apply to Singaporeans.   

All foreigners are subjected to the 10% stamp duty except for nationals of the United States, Switzerland, Lichtenstein, Norway and Iceland.  These nationals continue to be subject to the 3% rate imposed on Singaporeans.  The special treatment accorded these countries, and not others, is a direct result of the interaction of the various free trade agreements (FTAs) signed by Singapore.

First, Switzerland, Lichtenstein, Norway and Iceland are members of the European Free Trade Association (EFTA).  Under Article 40.1 of the EFTA-Singapore FTA (ESFTA),  Singapore must treat EFTA nationals as if they were Singaporeans for purposes of investment, including investments in property.   This obligation is known as “national treatment.”   Article 41.2 explicitly applies this obligation to taxation. Hence the ESFTA mandates that EFTA nationals be subject to the 3% rate for Singaporeans.

Second,  Article 15.1 of the U.S.-Singapore FTA (USSFTA) provides that Singapore must treat Americans as if they were Singaporeans for investment purposes through the national treatment obligation.  Furthermore, Article 15.3 provides that any privileges provided to other countries must be extended to Americans.  This obligation is known as “most-favored nation” treatment, and it allows Americans to claim the benefits accorded EFTA nationals under the EFTA-Singapore FTA.  Finally, Article 15.4 provides that Americans must be accorded the better of national treatment or most favored nation treatment.  Thus, through both the USSFTA itself and through the interaction with the ESFTA, Americans are subject to the 3% rate for Singaporeans.

Third,  although Singapore has signed many FTAs with other countries, these FTAs do not provide for the same investor treatment that the USSFTA and ESFTA provide.  Most FTAs do not have the most-favored nation clause that would allow the trading partners access to the ESFTA (see the Korea-Singapore FTA).  Furthermore, under most FTAs, Singapore expressly reserved the right to deviate from national treatment for purposes of administering its real property laws (see Annex 3.2 of the New Zealand-Singapore CEPA).  Other FTAs, such as the Peru-Singapore FTA, expressly exclude taxation from their coverage.  Finally, some FTAs do not even cover investment at all.

The new property stamp duties thus demonstrate that FTAs have a far reaching effect beyond trade in goods and services.  They have direct and continuing effects on the application of domestic law.  

This particular episode also illustrates why countries would want to negotiate an FTA with a country which has 0% import duties and is quite open to foreign investment.  The EU, which has seen its FTA talks with Singapore continue on from an expected October 2011 completion to a first-half 2012 completion, now has another negotiation goal.  Other FTA partners of Singapore must wish that they could revisit the exclusions. 

In any event, if you’re in the property market, it’s good to be an American, Swiss, Lichtensteiner, Norwegian or Icelander in Singapore now.

Summarizing US Burma Sanctions

During US Secretary of State Hillary Clinton ‘s visit to Myanmar, a limited number of Burma sanctions were lifted by the US government, namely allowing IMF and World Bank assessment programs, and some UN development aid.  This falls short of allowing aid for ASEAN-related  regional integration projects, as I have urged, but it’s a start.

I’ve been asked a lot of questions about what US sanctions apply to Myanmar, and to what extent the Obama administration can withdraw the sanctions partially or wholly without Congressional approval.  There is a myriad of legislation and executive orders, which are explained in detail here.  Besides the now lifted ban on multilateral assistance to Myanmar, the United States imposes the following measures:

• a ban on new investment in Myanmar by U.S. persons and companies;
• a ban on the importation of goods from Myanmar;
• a freeze on U.S. assets of any designated Myanmar nationals connected with the Myanmar stat
• a ban on property investment by certain Myanmar nationals connected with the Myanmar state
• a prohibition on the provision of U.S. financial services to and from Myanmar;
• a ban on assisting investment by third country entities in Myanmar;
• a ban on purchasing shares in third country entities involved in resource extraction activities in Myanmar; and
• a ban on visas for certain Myanmar nationals connected with the Myanmar state

Most of these measures were applied via a Presidential Executive Order which was extended in 2009.   The President can waive the sanctions upon notification of Congress.   The President can also terminate sanctions “permanently.”  Most notably, the import ban and asset freeze can be terminated “upon request of a democratically elected government in Burma” and when conditions in the 2003 Burma Freedom and Democracy Act regarding progress on human rights, release of all political prisoners, freedom of speech and the press, freedom of association, peaceful exercise of religion, democratic governance, country not designated as “a country of interest” for narcotics trafficking—have been met.  The import ban would expire one year from the date of enactment unless Congress passes a resolution renewing the ban for a one-year period before the expiration of the ban; length of renewal is limited to three years.  The investment ban can be terminated by the President if sanctions are “contrary to the national security interests of the United States.”

Thus, the Obama Administration has relatively wide discretion in applying the Burma sanctions, but the need to consult with Congress to waive or terminate them is a major limitation.  The ability of Congress to extend the import ban allows Congress to override the President as well.

I note that Secretary Clinton did not address the issue of Myanmar’s name during her visit, which remains a sensitive issue.  She skirted the issue, apparently, referring to “this country”, a tactic reminiscent of a Seinfeld episode.  Hopefully, we can get the name game issue resolved soon, along with the naming of a resident U.S. ambassador (retiring Senator Jim Webb would be an excellent choice). 

NB: Based on further requests, I provide a summary of EU, Canadian and Australian sanctions below:

The EU imposes several measures including the following:

• a ban on the sale or transfer of arms and weapons expertise to Myanmar;
• visa restrictions on members of the Myanmar regime;
• a ban on visas for certain Myanmar nationals connected with the Myanmar regime; and
• a freeze on officials’ overseas assets.

These are subject to annual review, with the next review due in April 2012. However, the EU reserves the right to review and modify the sanctions at any time.

Canada imposes several measures:

• a ban on all goods exported from Canada to Myanmar, excepting only the export of humanitarian goods;
• a ban on all goods imported from Myanmar into Canada;
• a freeze on assets in Canada of any designated Myanmar nationals connected with the Myanmar State;
• a ban on new investment in Myanmar by Canadian persons and companies;
• a prohibition on the provision of Canadian financial services to and from Myanmar;
• a prohibition on the export of any technical data to Myanmar;
• a prohibition on Canadian-registered ships or aircraft from docking or landing in Myanmar; and
• a prohibition on Myanmar-registered ships or aircraft from docking or landing in Canada and passing through Canada.

Australia imposes measures more specifically against members of the Myanmar regime:

• transactions involving the transfer of funds or payments to, by the order of, or on behalf of specified Myanmar regime figures and supporters are prohibited without the specific approval of the Reserve Bank of Australia;
• restrictions on visas to travel to Australia by members of the Myanmar regime and their associates and supporters; and
• an arms embargo against the Myanmar government. 

Beyond the Bali Headlines

The major headlines of the Bali summits were of course the decision to allow Myanmar  to serve as the 2014 ASEAN chair, the announcement of US Secretary of State Hillary Clinton’s visit to Myanmar and various other items related to the U.S. “pivot” towards Asia.  From the ASEAN Economic Community viewpoint, the major announcement was the issuance of ASEAN’s framework for closer economic relations with its trading partners, an economic Treaty of Amity and Cooperation, as one observer put it. 

However, there were other significant developments during the summit season which also affect the AEC:

ASEAN Secretariat – ASEAN Secretary General Surin Pitsuwan announced that the Indonesian government had donated land with two existing buildings to the ASEAN Secretariat.  The additional space will be welcome by the ASEAN Secretariat, whose current physical plant has become very cramped and dated.  Of course, without additional funds this additional space will not be functional, with regard to personnel or resources.  This needs to be remedied by additional budget contributions from ASEAN members, including a rethink of the principle of equal contributions that limits the total amount to what the poorest member can pay.   Dr. Surin has also stressed that much of the Secretariat’s functions are supported by development aid missions from the EU, US, Australia and others. With Myanmar taking over as ASEAN chair in 2014, these donors need to relax the Burma sanctions so that funding of AEC-related activities are not hampered.  However, it looks like that may happen soon.

Timor Leste – ASEAN announced that it has formed a working group to review Timor Leste’s application to join the regional bloc. The Jakarta Post reported that Singapore opposed Timor Leste’s application as it would complicate the formation of the AEC by 2015.  Singapore later denied this report as “inaccurate and misinformed,”  stating that it welcomed the application of countries such as Timor Leste, Fiji and Papua New Guinea to join ASEAN.  Of course, the latter two countries arguably are not part of southeast Asia (whereas Timor Leste was part of Indonesia), so collapsing the three countries together does Timor Leste no favors in its application, despite the denial by Singapore.  Admitting Timor Leste before the AEC formation in 2015 would tax ASEAN’s institutions, this blog argues, particularly at a time when the smaller (but capable in economic policy) countries of Cambodia and Brunei become ASEAN chair in 2012 and 2013, and the completely inexperienced Myanmar becomes ASEAN chair in 2014 (along with all of the attendant potential for distraction over its domestic political situation).  In any event, the working group’s investigation and analysis will likely require considerable time, preventing East Timor from joining before 2015.

ASEAN FTAs – There were many technical developments in ASEAN’s bilateral FTAs.

•  ASEAN and China announced a second protocol to implement the services aspect of the ASEAN-China FTA.  The revised protocol expands the scope and depth of coverage beyond the initial 10 sectors covered by the first protocol, including commercial services, telecommunication, construction, distribution, finance, tourism and transportation, and takes effect on January 1, 2012.   

• Hong Kong (which is a separate customs territory under the WTO) applied to join the ASEAN-China FTA.  

• India set a deadline of March 2012 to conclude the services negotiations under the ASEAN-India FTA.  Talks have stalled for several months.  

•  ASEAN and Korea agreed to amend the ASEAN-Korea FTA to “clearer provisions for tariff reduction or elimination, and incorporates provisions to prevent any potential back-tracking of unilateral tariff commitments,” according to the Singapore government.   The amendment will take effect 90 days after Korea and one other member have started implementation. 

•  Indonesia announced that it had completed domestic procedures to implement the ASEAN-Australia-New Zealand FTA fully by January 10, 2012.

ASEAN Trade in Goods Agreement – Seven ASEAN members (Indonesia, Singapore, Malaysia, Thailand, the Philippines, Vietnam and Brunei) announced they would participate in a pilot program to implement the ASEAN Single Window.  This represents a major and necessary development in AEC formation, as the complexity involved in dealing with various national agencies hinders trade in goods.   Meanwhile, the Philippines tabled a proposal to implement self-certification of goods (although it is not clear how the Philippine proposal will mesh with the existing pilot program administered by Singapore, Malaysia and Brunei).  Finally, ASEAN announced that the ASEAN harmonized tariff schedule would be revised effective January 1, 2012.  There are additional tariff lines for fishery, machinery and vehicle products.

Private Sector Integration – the Philippine Stock Exchange announced it was delaying its participation in the ASEAN Trading Link (which will see Indonesia, Malaysia, Singapore, Thailand and Vietnam cooperating to allow cross-trading in their stock exchanges by mid-2012).  Meanwhile, ASEAN telecommunications ministers announced that they had reached an agreement in principle to eliminate cellphone roaming charges within ASEAN.

Whew! That was a lot.  Perhaps the most immediate impact will come from the elimination of cellphone roaming charges.  Hopefully this will apply not just to voice services, but to data roaming as well (a smartphone becomes a handheld bundle of unlimited liability when one crosses a border!).