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Why has the EU negotiated a trade agreement with Singapore?
During the past decade the world economy’s centre of gravity has shifted to the Asia Pacific region. The Association of South East Asian Nations (ASEAN) – of which Singapore is a member – has emerged as one of the most dynamic growth engines of the world economy.
ASEAN is a €2.2 trillion economy with growth rates above 5.5% for the past 15 years. It represents a market of over 650 million consumers with a growing taste for western products and rising purchasing power.
Southeast Asian countries have moved towards closer economic integration within ASEAN and have further developed a dense network of trade agreements with third countries. ASEAN is the EU’s third largest trading partner outside Europe, after the US and China.
In 2006 the European Commission identified ASEAN as a priority region with which to forge stronger economic ties. Negotiations for a region-to-region trade agreement with ASEAN began in 2007. In 2009, the EU and ASEAN agreed to pause the talks and instead negotiate bilateral trade agreements as building blocks towards a future region-to-region agreement.
In 2010, the EU launched negotiations for the first such agreement, with Singapore.
How big is the Singaporean market? How much trade does the EU do with Singapore?
While a population of 5.6 million people, Singapore is the EU's 14th largest trading partner. EU-Singapore trade is worth more than €50 billion a year, comparable to the EU’s trade with Mexico, South Africa or Australia.
Singapore is the EU's largest trade partner in Southeast Asia, accounting for one-third of EU trade with the region and over two-thirds of EU foreign direct investment stock in there.
Singapore is a key trade and transport hub in Asia. It has an extensive network of trade agreements with over 30 trading partners and trades more than €550 billion with the rest of the world every year.
Over 10,000 European companies have set up their offices/regional hubs in Singapore.
With a very service-oriented economy, Singapore is also the EU's 5th largest trade in services partner worldwide and the EU's 6th destination for foreign direct investment measured in stock.
What are the main things the agreements will do, in a nutshell?
- Eliminate nearly all import duties on EU-Singapore trade, at the latest five years after the agreement enters into force
- Tackle non-tariff barriers:
- on marking, labelling, etc.
- Singapore will recognise current EU standards and testing on cars and car parts
- avoid duplicative safety and electromagnetic compatibility testing for certain electronic products
- facilitate trade and investment in renewable energy equipment
- facilitate exports of EU products of animal origin by evaluating inspection and certification systems rather than individual establishments
- More efficient customs procedures to facilitate trade, while bolstering supply chain security through strengthened cooperation
- Modern rules to protect and enforce intellectual property rights
- Preferential market access opportunities for respective service providers, such as:
- telecommunications services
- financial services
- computer services
- transport services
- environmental services
- certain business services and postal services
- plus a commitment to equal treatment of EU and Singapore service providers in certain sectors.
- More opportunities for EU firms to compete for public procurement contracts in Singapore.
- Binding commitments on environmental protection and workers’ rights in line with international standards and agreements.
- Provisions to enhance trade and investment’s contribution to sustainable development:
- corporate social responsibility
- sustainability assurance schemes
- conservation and sustainable management of natural resources.
- A high level of investment protection, while safeguarding the EU and Singapore’s right to regulate and pursue legitimate public policy objectives.
- Modern and reformed investment dispute resolution mechanisms.
How will the agreements help small businesses and not just big ones?
Negotiations between the EU and Singapore were concluded before the European Commission’s ’Trade for All’ Communication developed the idea of negotiating chapters in EU trade agreements specially focussed on small and medium-sized firms.
Despite the trade and investment agreements with Singapore not having a chapter dedicated to smaller businesses, they do contain provisions to simplify trade and investment procedures and reduce export and investment related costs. This will help more small firms to do business in both markets.
Among the expected benefits for smaller firms are:
- less burdensome technical rules
- avoidance of duplicative testing for certain products
- customs procedures and rules of origin that facilitate trade
- protection of intellectual property rights, including better protection of Geographical Indications (special regional food and drink products, such as Parma Ham and Irish Whiskey)
- lower litigation costs for smaller firms under the Investment Court System.
How will European consumers benefit?
The trade agreement offers consumers a wider range of products at potentially lower prices.
Any Singaporean product sold in the EU will still need to satisfy all EU product rules and regulations without exception, including EU standards to protect:
- health and safety
- social rights
- consumer rights
- the environment.
How will the trade agreement benefit the EU's farming communities?
Singapore has very little agricultural land. Its agricultural production is small-scale and limited to:
- certain fruit (mainly durians and rambutans)
Singapore meets food needs with imports.
In 2017, the EU exported €2.2 billion of agri-food products to Singapore, more than double 10 years earlier. Today, Singapore is the EU's 5th largest agri-food export market in Asia and its 15th worldwide.
Singapore has zero duties on imports of agri-food products (except for beer, which the trade agreement will remove). In the agreement, Singapore has committed itself to keep zero duties on EU exports.
The trade agreement also tackles non-tariff measures and simplifies procedures that can make it hard for EU agri-food exporters to sell their products in Singapore. For example, the agreement will put in place a system for certifying EU meat-producing establishments wanting to export to Singapore.
Singapore has agreed to strengthen its existing geographical indications (GI) regime by setting up a system to register GIs in Singapore. Once registered in Singapore, around 190 GIs for wines, spirits and certain agricultural products will enjoy levels of protection equal to those in the EU thanks to this agreement. This includes Bordeaux wines, Parma ham, Champagne and Bayerisches Bier. Better protection for such products will also improve Singapore consumers' awareness of authentic top-quality EU GI products.
How will the trade agreement open up Singapore's public procurement market?
Singapore and the EU are members of the World Trade Organization’s Government Procurement Agreement.
So they already have open and modern systems of public procurement and apply high standards of transparency and procedural fairness to their public tendering.
In many cases EU firms are already able to compete for public contracts in Singapore when these are above a certain value threshold.
In the trade agreement Singapore has:
- agreed to additional disciplines on tendering
- agreed to lower value thresholds for open tendering procedures for bodies such as the Public Utilities Board and the Energy Market Authority
- expanded the types of public service contracts covered by commitments on transparency and non-discrimination. This is important because access to information is one of the biggest obstacles EU smaller companies encounter in accessing overseas markets.
How will the agreements help Europe's creative industries, innovators and artists?
Both the EU and Singapore rely on innovation as a driving force to support their economies and social systems. Both have already established modern systems for protecting and enforcing intellectual property rights.
To foster innovation and creativity, the trade agreement consolidates this high level of protection and sets out basic rules on enforcement, including at the border.
How will the agreements encourage more investment between the EU and Singapore?
The trade and investment agreements will bring new opportunities for EU companies that want to establish themselves in Singapore, most notably by improving market access in many non-services sectors such as manufacturing.
Singapore is the third largest Asian and seventh largest worldwide investor in the EU. The agreements will enable EU regions to attract investment from Singapore to develop business opportunities in the EU.
The investment protection agreement between the EU and Singapore will further improve the investment climate and offer more certainty to investors.
It will ensure that European and Singaporean investors are treated equally and fairly and are not subject to any discriminatory treatment.
The agreement will replace the 12 existing bilateral investment treaties between Singapore and 13 EU Member States (Belgium and Luxembourg have a joint agreement) and offer investors the option of a modern and reformed investment dispute resolution mechanism –the Investment Court System- in line with the EU’s new approach.
The agreement will safeguard the EU's and Singapore's rights to regulate and pursue legitimate public policy objectives such as the protection of public health, safety and the environment.
How will the agreements protect European standards, including food safety standards?
The EU-Singapore agreements will in no way affect, amend, lower or eliminate EU standards in any area.
EU trade and investment agreements seek to facilitate trade and investment between the EU and its partner country. They do not allow EU laws and regulations to be disregarded.
Trade and investment agreements are about offering foreign businesses non-discriminatory or, at best, equal treatment to that granted to domestic businesses; they are not about waving businesses’ obligations to comply with standards.
This means that Singaporean products and services can only be sold in the EU on the same conditions as EU products and services. They must satisfy all EU rules and regulations, such as:
- technical rules and standards
- consumer safety requirements
- environmental requirements
- rules on animal and plant health and hygiene
- food safety regulations.
The agreements will not affect:
- social standards
- health standards
- labour standards
- environmental standards
- EU Member States’ ability to pursue legitimate policy objectives, such as:
- public health
- public morals
- promoting and protecting cultural diversity.
How will the agreements uphold workers' rights in both the EU and Singapore and protect the environment?
In the trade agreement the EU and Singapore reaffirm:
- their commitment to sustainable development
- the understanding that trade and investment should strengthen, not weaken, environmental protection and workers’ rights
- their obligations under international agreements on workers' rights and environmental and climate protection.
The agreement gives European and Singaporean civil society a strong oversight role on these commitments.
It also foresees a dispute settlement mechanism in the area of trade and sustainable development. It will include government consultations and setting up a panel of experts.
Will the chapter on sustainable development be enforceable?
Effectively implementing and enforcing labour and environmental provisions in the EU-Singapore agreement is a key priority for the EU.
The EU-Singapore trade agreement contains an ambitious and comprehensive set of binding provisions on trade and sustainable development that make it a truly modern and progressive agreement.
Its provisions on trade and sustainable development create enforceable obligations that have the same legal value as any other obligation in the agreement.
The agreement’s provisions on trade and sustainable development are subject to a dedicated dispute settlement mechanism. The mechanism has a clear, mandatory and time-bound procedure for resolving trade-related sustainable development issues.
It brings together:
- government representatives
- an independent panel of experts
- civil society
- expertise from international bodies, such as the International Labour Organization.
How will the agreements affect public services in Europe?
In the EU-Singapore trade agreement, like in all its trade agreements, the EU does not take any commitments regarding public services.
- will not affect EU Member States' ability to run public monopolies for a particular service
- will not force or incite governments to privatise or deregulate public services, such as water supply, health or education
- will not affect EU Member States' ability to decide which services they want to keep universal and public and/or to subsidise them.
Why does the EU need an investment protection agreement with Singapore when Singapore has a solid legal system and an independent an impartial judiciary?
Investment is critical for growth and jobs, particularly in the EU, where the economy is based on international trade and investment.
Investment enables companies to build the global value chains that play an increasing role in the modern international economy and create new opportunities for trade but also add value to the economy, jobs and income.
For this reason, trade and investment agreements aim to promote investment and create new opportunities for companies to invest around the world.
Companies investing abroad can encounter problems. It is not always possible to solve these through the domestic legal system.
The problems include things like:
- forced expropriations by the host country
- expropriation without proper compensation
- revocation of business licences
- abuses by the host state, such as lack of due process or not being able to make international transfers of capital
Because of these risks, provisions to protect investments have been part and parcel of all the 1400 bilateral investment treaties EU Member States have signed since the late 1960s.
These agreements provide guarantees to companies that their investments will be treated fairly and on an equal footing with national companies. In the last few years, these existing bilateral investment treaties have been under the spotlight. People have been concerned that they may not balance protecting investors and the right of states to regulate in the public interest. It has also been argued that the fear of being sued could hinder governments' willingness to introduce legitimate laws.
The Lisbon Treaty made the EU rather than the individual Member States responsible for negotiating investment agreements. This provided the opportunity for the EU to develop a new model for investment protection and investor-to-state dispute settlement that would rebalance the system.
13 EU Member States have bilateral investment treaties with Singapore. Most of these are old-style agreements that do not incorporate the EU’s reformed approach to investment protection and dispute resolution.
To replace these agreements, the EU and Singapore have agreed an investment protection agreement between them that provides for a single set of modern investment protection rules for all 28 EU Member States.
Who decided to launch negotiations for a trade and investment agreement with Singapore?
In 2006 the European Commission identified the Association of Southeast Asian Nations (ASEAN) as a priority region with which to forge stronger economic ties.
In April 2007 the Council – where representatives of EU Member State governments sit – authorised the Commission to negotiate a trade agreement with ASEAN and issued negotiating directives (‘mandates’) for the future negotiations.
Negotiations for a region-to-region trade agreement with ASEAN were launched in 2007. In 2009, the EU and ASEAN agreed to pause the talks because they had reached a stalemate.
In December 2009, the Council authorised the Commission to pursue talks for bilateral trade agreements negotiations with individual ASEAN countries, starting with Singapore. Negotiations with Singapore were launched in March 2010.
In 2011, after the Lisbon Treaty had made the EU responsible for negotiating investment agreements, the Council instructed the Commission to include investment protection in the agreement with Singapore. The negotiations on the investment protection agreement were concluded in December 2017.
Was the impact of a possible future agreement assessed before negotiations?
Before starting trade talks with Singapore, the European Commission engaged an external contractor to carry out a Trade Sustainability Impact Assessment (TSIA) of the planned trade agreement between the EU and ASEAN. The TSIA looked at the potential economic, social and environmental impact of a closer economic partnership between both regions.
The TSIA included a detailed analysis by economic sector. It examined possible effects on:
- real income
- fixed capital formation
- trade patterns
- poverty alleviation
- health and education
- employment and decent work
- environmental quality
The TSIA concluded that an ambitious EU-ASEAN agreement would be beneficial for growth, income, trade and employment for both the EU and Singapore.
The TSIA also provided valuable input to the negotiators in terms of specific policy measures and concrete recommendations how to:
- enhance the positive effects and prevent
- mitigate the possible negative effects of a future agreement.
How did the Commission ensure that everyone could follow what was happening in the talks and elected governments and MEPs had adequate oversight of the negotiation process?
At all stages of the negotiations – and even before they began – the Commission took an inclusive and transparent approach to consultations. It wanted to ensure that views from all sections of society were heard and taken into account in the negotiated outcome.
Before launching talks with Singapore, the Commission had already engaged an external contractor to carry out a Trade Sustainability Impact Assessment of a trade agreement between the EU and the Association of South East Asian Nations (ASEAN). The contractor:
- consulted experts in the Commission and in other institutions and organisations
- organised public consultations in Brussels and Bangkok
- held bilateral meetings and interviews with civil society in the EU and in ASEAN.
These consultations provided a platform involving key stakeholders and civil society in a dialogue on EU trade policy in Southeast Asia.
Before starting talks with Singapore, the Commission held a public consultation on the future agreement. The consultation included a questionnaire for stakeholders. The results helped the Commission establish priorities and take decisions throughout the negotiating process. The Commission published a summary of the results of the consultation.
The EU’s negotiations with Singapore were fully transparent, even before European Commission President Jean-Claude Juncker introduced a policy of enhanced transparency:
- in Council’s Trade Policy Committee the EU’s Member States were regularly informed and consulted orally and in writing on the different aspects of the negotiations
- the European Parliament's Committee on International Trade and its EU-Singapore Free Trade Agreement Monitoring Group were regularly kept informed of the negotiations
- civil society was involved – for example in DG Trade's quarterly civil society dialogues.
As soon as the legally reviewed texts became available, they were published on DG TRADE's website. All negotiated texts were made public in September 2013. The only exception was the investment protection texts. These were published in October 2014 when the EU and Singapore finalised agreed texts and re-published in April 2018 when the texts were amended to include the EU's new approach to investment protection and dispute resolution.
Why in 2015 did the Commission request the Opinion of the European Court of Justice on competences in trade policy?
The EU institutions – the European Commission, the European Parliament and the Council – and the EU’s Member States have for many years regarded most issues in EU trade agreements as coming under ‘exclusive EU competence’. In other words, to be negotiated, agreed and ratified at EU level.
However, the European Commission and the EU’s Member States have had different opinions regarding who was responsible for transport services, sustainable development and investment when these were included in trade and investment agreements.
The difference of opinion became more apparent when the Treaty of Lisbon came into force and extended the EU's competence in the area of trade and investment.
The Commission believed it was in everyone’s interest to get legal clarity. So on 10 July 2015 it asked the European Court of Justice to clarify:
- the division of responsibility between the European Union and the Member States
- the legal basis for concluding the EU-Singapore trade and investment agreement.
Why did the Commission choose the agreement with Singapore for a Court Opinion?
The European Union and Singapore concluded their talks on investment protection in October 2014. This completed the negotiations for the EU-Singapore agreement.
It also made it the first comprehensive EU trade and investment agreement to include:
- the policy areas on which the Commission and the Member States had differences of opinion about division of responsibilities
- for which a complete draft text was available after the entry into force of the Lisbon Treaty.
What's the Commission's view of the Opinion adopted by the Court in May 2017?
The Commission welcomed the Court’s Opinion because it provided the clarity the Commission was seeking.
The Commission asked the Court to issue an Opinion because of the real and urgent need for legal clarity, stability and predictability regarding competences and responsibilities in the EU's trade and investment policy.
Such legal clarity, stability and predictability are essential for trade and investment policy to be effective.
How will EU-Singapore trade and investment agreements be adopted?
On 18 April 2018, the Commission presented the two draft agreements to the Council together with recommendations for Council decisions for their adoption. On 15 October 2018, the Council adopted the decisions on the signature of both agreements, which were then signed on 19 October 2018 in the margins of the ASEM Summit in Brussels.
Following the European Parliament's consent to the agreements on 13 February 2019, each agreement will now follow its own adoption process. These will be slightly different, taking into account the European Court of Justice’s Opinion 2/15.
The EU-Singapore Free Trade Agreement, which covers only matters that fall under EU exclusive competence, will require the approval of the Council before it can enter into force.
The EU-Singapore Investment Protection Agreement, which includes some matters of shared competence between the EU and the Member States, will require ratification by the Member States according to their respective internal procedures before it can receive the approval of the Council for its entry into force.