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Interview: EU and Singapore need to upgrade their trade agreement

The European Services Forum’s managing director Pascal Kerneis discussed EU-Singapore trade relations with Iana Dreyer’s Borderlex. So what is at stake with the coming revision of their 2019 free trade agreement and with the planned Digital Partnership Agreement?

Is the EU Singapore FTA working as it should and is it delivering for the European services sector?

Pascal Kerneis is Managing Director of the European Services Forum. He currently chairs the EU Domestic Advisory Group of the EU-Singapore FTA.

This FTA is working well. Singapore has an open and liberal economy that defends the rule of law for businesses. The FTA provides further legal certainty by locking commitments into an international treaty.

Singapore is a services economy. Singapore is the sixth largest global trader in services and the EU’s fifth largest services trading partner.

In terms of trade in services, it is more difficult to see the results of a trade agreement from the first day of its implementation compared to goods. But the FTA’s effects must be seen in the long run – they also start operating as soon as negotiations start.

The negotiations of the FTA started in 2010 and were concluded in principle in 2013. It then took a long time for the EU to settle its internal competence conflict, which involved waiting for an Opinion of the European Court of Justice. The agreement only came into force in November 2019.

If you look at the trend since the beginning of the talks, we can see a 209% increase of EU exports of services to Singapore from 2011 to 2019. Singapore is the 5th trading partner of the EU in trade in services, with an increase of €55 billion (£48 bn, US$ 53 bn) in 2019 alone.

So, yes, definitely, the FTA is delivering for services sectors.  It is more difficult to assess the immediate effect of the FTA that entered into force in November 2019, only a few months before the Covid-19 pandemic, which has strongly hit services sectors such as tourism and transport.

The FTA has further reassured European services companies that Singapore is the right place to be, not only in terms of access to the Singapore market itself, but also to serve as a base and hub for the booming regional ASEAN market.  This is why so many European companies have their regional headquarters in Singapore.

We see massive flows of European foreign direct investment into Singapore. These reached a record with an impressive €255 bn (£222 bn, US$250) of European Union outward FDI stocks in 2020, more than 65% coming from the services sectors.

Does the agreement make the Singaporean counterparts happy?

The best would be to ask them directly.  But my assessment is positive. Singapore’s exports of services to the EU for the period 2011 to 2019 have increased by 177%. Singapore now has a surplus of trade in services with the EU worth €7 bn euros in 2020. Singapore is a significant investor in the EU, with more than €150 bn (€147 bn; £131 bn) invested.

Does the FTA need an update?

All agreements at some point get updated. The negotiations for this FTA, even if it seems new, were in fact finished in 2013: this is nearly 10 years ago. So, yes, the agreement needs to be updated and brought up to date to fit more modern FTA standards.

There is a three-year review clause to update the ‘services and investment’ chapter and schedule of commitments.

The ESF is interested in seeing whether it will be possible to improve some market access in sectors such as financial services, maritime transport services, and some professional services. We also want to ease the movement of persons for the families of intra-corporate transferees.

How about the agreement’s sustainability provisions: labour, climate, environment? Are stakeholders happy with it? What needs to be done?

The ‘trade and sustainable development’ chapter of the FTA includes the EU’s traditional provisions* in this area.

Singapore is a champion in the fight against climate change and is very active domestically in promoting biodiversity and improving the environment. The EU might in many instances learn from Singapore in this field.

Singapore has not yet ratified some core ILO conventions, as it requires some national legislation changes, notably for the ratification of ILO convention 105 on the abolition of forced labour. But we understand that the government is working actively on those aspects and the stakeholders are closely monitoring this matter.

I am currently the chair of the EU Domestic Advisory Group of the EU-Singapore FTA, and this issue is high on our agenda.

We understand that the reviewed trade and sustainable development FTA chapter policy that was adopted by the European Commission last July will progressively be rolled out to all EU trade accords, including with Singapore**.

The ESF would however call for a smooth diplomatic discussion with the relevant Singapore authorities – and for not reopening the FTA. The formally agreed revision of the services and investment chapter should not be hampered by a possible revision of the TSD chapter.

Should the digital provisions of the agreement be updated? What are your expectations for the planned EU Singapore Digital Partnership Agreement?

The FTA’s section on electronic commerce is now outdated. It needs to be revised and brought up to date with new norms. That is possible in the framework of the ongoing review of the services and investment chapter.

It will be important to include a proper ‘digital trade’ section in the agreement, with updated provisions on cross-border data flows, protection of source codes, etc. It should be possible to do so with Singapore, which is a leading country in digital trade and one of the co-convenors of the negotiations of the Joint Statement Initiative on E-Commerce at the World Trade Organization.

We believe that the proposed EU Digital Partnership Agreement with Singapore is an important initiative that we fully support. But we understand that the discussions at this stage don’t envisage legally binding commitments.

Since we have the legal instrument to work on legally binding language on digital trade through the ongoing revision, we call for negotiations of new digital trade provisions in the FTA, to be held separately from the DPA.

Singapore is the champion of digital partnership agreements. Singapore has initiated a Digital Economic Partnership Agreement with New Zealand and Chile.  It has similar agreements with Australia, South Korea, and the United Kingdom.

Singapore defines its Digital Economy Agreements as treaties that establish digital trade rules and digital economy collaborations between two or more economies.

On the EU side, at this stage there is no willingness to envisage new rules, but only cooperation on standards and regulation. These issues are important, but the business community is wondering what the concrete deliverables will be.

How does Singapore fit in the EU’s Indo-Pacific strategy and wider ASEAN-related ambitions? 

There is frustration in the business community with the EU’s Indo-Pacific strategy. They fail to see the coherence in holding discussions on a digital partnership agreement separately instead of jointly with all interested partners, so as to create synergies in terms of regulation and standardisation of the digitalisation of the economy.

The EU-Singapore DPA must indeed be seen in a broader context.

The United States is pursuing comparable DPAs with Japan, South Korea, and Singapore as part of its Indo Pacific Economic Framework, as well as with the UK.  The US, like the EU, has made it clear that this is not about trade, and that this is not about taking binding commitments.

These discussions around digital trade are also taking place in the framework of the CPTPP agreement, which gathers the same countries.

The EU is putting in place similar agreements with Japan and South Korea. The EU has negotiated or is negotiating FTAs with nearly all countries that are members of the CPTPP. It is also holding discussions with the US on those matters through the Trade and Technology Council.

The business community is wondering why there is no general cooperation with all these countries in one single group.

Singapore has always been the spearhead of EU ambitions in the ASEAN region. The EU-Singapore FTA has been a model for the EU-Vietnam FTA. But to serve as an attractive model for other ASEAN countries, the level of ambition has been lowered. This is regrettable.

Brussels has launched a range of FTAs with other ASEAN countries, but for many different reasons only the talks with Indonesia are still going on. We fully support these talks and hope that others will resume soon, such as those with Thailand, Malaysia, and the Philippines.

The European Services Forum of course supports negotiations towards a region-to-region EU-ASEAN FTA, but we know this will take time.


*Editor’s note: The FTA enjoins parties to abide by core International Labour Organisation conventions and a range of international environmental conventions and establishes civil society cooperation. It foresees no sanctions for breaches of this chapter.

**This includes compliance with the Paris Agreement on climate and making compliance with environmental and core ILO conventions sanctionable.

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