The recently signed free trade agreement between the European Union and Singapore will eliminate tariffs on all EU products entering Singapore and on qualifying Singapore products entering the EU, among other provisions expected to benefit companies in Singapore, the EU, and the Association of Southeast Asian Nations.
Singapore and the European Union (EU) signed the landmark European Union-Singapore Free Trade Agreement (EUSFTA) on 19 October 2018 during the 12th Asia-Europe Meeting Summit in Brussels. This is the first free trade agreement between the EU and an Association of Southeast Asian Nations (ASEAN) country and it is expected to benefit companies in multiple sectors in Singapore, the EU, and the ASEAN. The EUSFTA will come into force after it is ratified by both parties, which is expected to take place in the first quarter of 2019.
The EUSFTA is expected to significantly increase trade for both sides. Companies, especially small to medium enterprises exporting goods from Singapore to the EU, can afford to be more price competitive due to the removal of export tariffs. Conversely, Singapore retailers who import EU products will similarly benefit from the lower cost of bringing in goods given the immediate duty-free access for all imports from the EU. With the removal of trade barriers, Singapore exporters will also gain easier access to the EU market and enjoy more efficient export to the EU. Furthermore, nondiscriminatory treatment for Singapore companies will give them an edge over other non-EU competitors when they bid for tender contracts in the EU.
The concept of ASEAN cumulation is likely to encourage the assembly of component parts in Singapore and establish Singapore as an export hub for ASEAN products. In light of the flexible rules of origin, companies may wish to consider how they can restructure their operations and adapt their supply chain patterns to utilize raw materials and parts from the ASEAN region, in order to benefit from the preferential treatment afforded to Singapore exports under the EUSFTA.
Similar benefits will apply to EU companies. Singapore is currently the EU’s largest trading partner in the ASEAN and the EUSFTA will further improve European companies’ access to Singapore’s markets. Using Singapore as a launchpad, EU businesses will also be able to tap into opportunities in the wider Asian region, which is likely to boost economic growth, investment, and job creation in the EU.
A significant number of Singapore products comprise parts that are produced in other ASEAN countries. With ASEAN cumulation, ASEAN supply chains will flourish as ASEAN companies can gain access to the wider EU market through Singapore. The EUSFTA could, perhaps, serve as a catalyst toward an EU-ASEAN free trade agreement and more region-to-region cooperation.
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Izzet M. Sinan
*A solicitor of Morgan Lewis Stamford LLC, a Singapore law corporation affiliated with Morgan, Lewis & Bockius LLP