SINGAPORE - A free trade agreement struck on Wednesday (Jan 26) between Singapore and a bloc of countries comprising Chile, Colombia, Mexico and Peru is set to give the Republic greater access to what is collectively the world's eighth largest economy, scrapping most tariffs on goods and allowing local companies to bid for government projects in the Americas.
The Pacific Alliance-Singapore Free Trade Agreement, or PASFTA, is Singapore's first direct FTA with the Pacific Alliance, a bloc with a combined gross domestic product of more than $2.6 trillion.
It caps off negotiations that lasted more than four years, and is the first to be completed while the Pacific Alliance continues similar discussions with Australia, Canada, Japan and New Zealand.
More than 100 Singapore companies operate in the four countries, including e-commerce platform Shopee and high-tech software company Taiger.
“This is a landmark moment in Singapore’s partnership with the Pacific Alliance. Our two regions are in fact more connected than people imagine,” Prime Minister Lee Hsien Loong said in pre-recorded remarks for the 16th Pacific Alliance Summit on Wednesday.
“We look forward to working with the Pacific Alliance to enhance our roles as nodes in our respective regions, to encourage greater interactions and collaborations,” he added.
In 2019, Singapore’s total trade in goods with the alliance was $6.1 billion, a minuscule amount compared with the Republic’s global trade of more than $1 trillion that year.
But imports from the bloc include much-loved fruits such as avocados from Mexico and blueberries from Peru, as well as coffee from Colombia.
In return, Singapore has exported machinery and minerals to Peru, turbo jets and gas turbines to Chile, and vehicle parts to Colombia.
The 25-chapter FTA seeks to create more opportunities for greater exchange, identifying agricultural trade, technology and infrastructure as possible areas of growth.
Under its current form, goods will be more smoothly processed at Customs and Singapore service providers and investors treated as favourably as those from the bloc in Pacific Alliance countries.
Both Singapore and Pacific Alliance member states will also have to publish their government projects in a timely and non-discriminatory way, so that suppliers can submit a bid with enough time for preparation.
Investors and business visitors can also enter countries in the Pacific Alliance for 30 days.
If ratified by all parties, the agreement is expected to have its most dramatic impact in exchanges between Singapore and Colombia, with which the Republic currently has no FTA.
Some 85.7 per cent of tariff lines the nation of 50.8 million people now has on Singapore goods will either be reduced or eliminated, the Ministry of Trade and Industry has estimated.
Colombia’s Commerce, Industry and Tourism Minister Maria Ximena Lombana said the FTA was a milestone for the Pacific Alliance “as the biggest step in our integration with the Asia-Pacific region”.
“We expect to attract Singaporean investors to the Pacific Alliance’s extended market as a productive and export platform to the region. Reaching Singapore’s market allows using regional inputs from different countries and enhancing productive regional chains,” she said.
Colombian petrol company Ecopetrol, Mexican building materials supplier Cemex and Chilean mining company Codelco are already in Singapore, and it is hoped that their presence will encourage more Pacific Alliance companies to follow.
CIMB private banking economist Song Seng Wun said Singaporeans cannot celebrate lower prices for imported food items such as avocados just yet, as freight costs – currently at an all time high – remain the largest contributor to their prices.
Continued supply disruptions, high demand and higher freight costs would have negated any cost savings from PASFTA, but the agreement’s significance should be seen in the context of other FTAs that Singapore has signed over the years.
“It is part of the expanding and enhancing of our growing list of FTAs by country, by region. We are a trading nation, so if we can make it as seamless as possible for trade and services to be channelled here through to the Asia-Pacific or Latin America, it’s a win-win,” Mr Song said.
“These four countries are still very small trading partners for us, but with more modern services like e-commerce, there are a lot of opportunities.”
The Pacific Alliance countries currently account for one-third of Singapore’s total trade and investment with Latin America and the Caribbean.
According to S&P Global Ratings, the average growth of the bloc is expected to be 3.3 per cent over the next five years, higher than the regional average of 2.5 per cent.
Details of the trade pact
Trade in goods
• Tariff elimination on the majority of tariff lines.
• Materials originating in another party can contribute towards the originating status of a good produced to qualify more easily for preferential tariffs.
• Improved transparency and smoother processing in Customs procedures.
• Transparent and non-discriminatory rules for developing technical regulations, and sufficient time given to businesses to meet any new technical regulations.
Trade in services and investment
• Singapore service providers and investors are to be treated as favourably as other service providers and investors present in the Pacific Alliance.
• Singapore service providers are not required to establish or maintain a local representative office in the Pacific Alliance for sectors which have been committed for liberalisation.
• Mutual recognition of qualifications or certifications, with a view to facilitating trade in professional services.
• Efficient transfers and payments for cross-border supply of services.
• Singapore companies operating in the Pacific Alliance are not required to appoint individuals of any particular nationality to senior management or their board of directors.
Government procurement opportunities
• Singapore companies can bid for the Pacific Alliance's government procurement projects.
E-commerce
• No Customs duties on electronic transmissions.
• Companies which sell products with embedded software are not obliged to release their source code.
International maritime transport services
• Cooperation on maritime activities with the removal of barriers to the supply of maritime transport services.
