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Last updated October 2004

Singapore Summary

Introduction

One of the infamous East Asian Tigers, Singapore’s average 8% growth rate since independence in 1965 has propelled the small, densely-populated island city-state into the group of global high-income countries, with a GNI per capita of $21,230 in 2003. [1] Singaporean economic policy is grounded in promoting foreign direct investment and export sectors. Manufacturing and services respectively account for 24% and 64% of the economy, and 42% of manufacturing is in electronics, with a more recent emphasis on biotechnology.

Economic hurdles in the last decade included the 1997 regional financial crisis, the slump in the world market for electronics in the late 1990s, and the 2003 SARS epidemic, which slowed growth to slightly more than 1% in 2003. Current predictions for growth are based on the increasing world demand for electronics and the positive economic indicators of Singapore’s major trading partners: the US, EU, China and Japan. [2]

Since international trade is so fundamental to its economic health, Singapore’s support for trade liberalization is strong. In addition to its membership in the WTO, Singapore helped create the Association of South East Asian Nations (ASEAN) and is a member of the Asia Pacific Economic Cooperation (APEC).  Its bilateral free trade agreement (FTA) with the US, signed in May 2003, was one of the first signed as part of the US’s new bilaterally-focused trade policy, and emphasized the importance of this geographically tiny country in the world economy as the US’s 14th largest trading partner.

Changing Regionalism

The Asian Pacific region’s position towards regional integration is undergoing significant changes. The "open regionalism" typically associated with APEC appears to be counteracted by a drive toward preferential trade initiatives.  Until recently, most East Asian countries pursued nondiscriminatory trade policies through unilateral liberalization, APEC and the World Trade Organization (WTO).   Now, even Malaysia, which has traditionally opposed FTAs as part of its advocacy for a united developing country front at the WTO, appears to be opening to the idea of bilateral trade deals. 

ASEAN agreed to start talks for a regional trade agreement (RTA) with Australia and New Zealand in January 2005, with plans to complete talks within two years and accomplish a complete free trading zone by 2017.  Plans to sign an already-negotiated deal with China at the ASEAN summit in November 2004 are set.  ASEAN is also set to begin talks with Japan and Korea in 2005 for deals involving the six most developed ASEAN countries (Brunei, Malaysia, Indonesia, the Philippines, Singapore and Thailand), with intentions to bring the four remaining members (Cambodia, Myanmar, Laos and Vietnam) into the fold several years later. [3]

Bilateral deals

In line with the global shift towards bilateral trade deals, a consequence of the difficulties encountered during the Doha Round of WTO negotiations, Singapore has signed many new bilateral trade agreements within the past two years.  The 2003 US-Singapore FTA, which addressed a wide range of trade issues, marked a new period of extensive bilateral US FTAs which the US has used as a model for its subsequent FTAs with countries including Chile, Morocco, and Australia.

Singapore reached similar FTAs with neighbors Australia and New Zealand in 2003, and its FTA with Japan took effect in November 2002.  In September 2004, the EU’s newly designated trade minister announced that the EU would reconsider its policy against bilateral trade deals, a potential coup for Singapore, which has been seeking an EU FTA as a way to both increase trade with the EU and pave the way for a more expansive Euro-Asean FTA. [4]

Singapore is also in the midst of negotiating the Comprehensive Economic Cooperation Agreement with India to explore new areas of economic cooperation in tourism, bio-technology and joint development of their special economic zones.  The countries are also discussing the need strengthen cooperation in counter-terrorism, an important new issue for the South Asian region that affects its attractiveness for foreign investment.  

Textile Export Assistance

As the January 1, 2005 deadline for lifting global quotas on textile trade approaches, many small developing countries have heightened their concerns that their export markets will be eliminated by a flood of cheaper Chinese exports.  Singapore has offered assistance to Malaysia, specifically the use of Singapore’s port as an export location, and is looking to do the same with Vietnam and Cambodia to ease the transition for its neighbors and increase textile trade through the port itself. [5]

Biotechnology

Biotechnology has been identified as a fast growth industry for the Asia-Pacific Region.  With an estimated growth rate of 55%, it is expected to reach over $3 billion by 2006.  With the competition mounting between the Asian countries to establish their position as good environments for this type of industry, Singapore is marketing itself to foreign scientists and entrepreneurs in an ambitious bid to build up its biotech sector. Major focus is being centered on gene therapy, agri-sciences, bioinformatics, genomics and proteomics. 

 The government has set aside $2 billion for research in biotech, health care and medical technology until 2005. [6]  In addition, the country will open a 500-acre science park in 2004 in hopes of convincing biomedical institutes and companies to make Singapore their research and development hubs in Asia, not just a manufacturing base. To Singapore’s advantage, the country allows scientists to clone human embryos and keep them alive for up to 14 days in order to extract stem cells.  A drawback, however, is the lack of trained scientists, a legacy of Singapore's bias for business degrees over science degrees. 

In October 2004, Singapore hosted the BioMedical Asia conference, gathering industry leaders to discuss the latest trends in the biomedical sciences industry. [7]

Dispute settlement

Singapore is also acting to strengthen its position as a regional arbitration hub. The Singapore International Arbitration Centre (Siac) has announced many reforms in this regard, including reducing fees by 40% for arbitration services. [8]  Siac will now be four times cheaper than the Kuala Lumpur Regional Centre for Arbitration and five times cheaper than the Paris-based International Chamber of Commerce.  Besides the fee reduction, Siac will also expand its pool of arbitrators to handle disputes in growth areas like intellectual property and biotechnology.  The scope of arbitration will also be broadened to include areas such as aviation cargo claims and joint-venture disputes.

In September 2004, Siac agreed with the Indian Construction Industry Development Council (CIDC) to establish a Siac-CIDC dispute resolution centre in New Delhi to help India's construction industry resolve disputes worth nearly 12 billion US dollars. [9]

The Challenges of Terrorism and Investment

Suspected terrorist presence in countries near Singapore, particularly Bangladesh, have caused some worry about the reputation of the regional investment environment.  However, in the absence of any significant or suspected attack attempts, this concern seems to have receded during 2004.  It could easily become a big concern if there were to be any bombing or similar incident at any point in the future.

For Singapore, the massive new markets of China and India also represent a challenge.  These regional neighbors can either be either a goldmine or landmine. Just how profitable things turn out depends on how Singapore prepares. A more prosperous China and India will mean bigger markets, more investment opportunities and bigger trading partners for Singapore and the region.  But the negative aspect of tapping the growth of these giants is that Singapore may lose business, jobs and investments to them. China is already making its rapid growth felt, and it poses formidable competition.  To keep its economy competitive, Singapore must maintain its reputation as the most convenient regional business hub and continue to maintain the highest-level investment environment.

Conclusion

Considering the current economic dynamism of South Asia, Singapore must remain proactive in order to maintain its dominant position within the region.  Just as the country is creating incentives to develop new industries such as biotechnology, Singapore must also respond to challenges in sectors where it has traditionally led.  For example, although Singapore is currently considered the service hub in the South Asian region, Malaysia is becoming more competitive.  The country's recent focus on FTAs does show that the leadership is attempting to establish trade and investment links bilaterally, and that Singapore is prepared to take full advantage of the immense market potential of their close neighbors, India and China.  If the past is any indication, Singapore will be ready for its future challenges.


[1] World Bank Singapore Data Profile. http://devdata.worldbank.org/external/CPProfile.asp?SelectedCountry=SGP&CCODE=SGP&CNAME=Singapore&PTYPE=CP.

[2] US Dept. of State Background Note on Singapore, http://www.state.gov/r/pa/ei/bgn/2798.htm.

[3] “Australia, NZealand, ASEAN agree to free trade talks next year.” AFX – Asia, September 6, 2004.

[4] Menon, Suresh. “Road to S'pore-EU FTA opens as Europe changes mindset;
EU may open bilateral trade talks once the new trade commissioner takes over.” The Business Times
Singapore, September 25, 2004.

[5] “Singapore to help Myanmar export textile products.” Xinhua General News Service August 24, 2004.

[6] Montlake, Simon. “Singapore’s Biotech Bid,” International Herald Tribune, Aug 19, 2002.

[7] Ai-Lien, Chang. “Biomedical experts gathering in SingaporeThe Straits Times (Singapore), October 11, 2004.

[8] Vijaynan, K.C. “Arbitration costs cut to attract cases,” The Straits Times (Singapore) Sept 24, 2002.

[9] “Singapore to help India's construction industry resolve disputes”, Deutsche Presse-Agentur September 27, 2004.


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