Singapore concluded negotiations on a free-trade agreement with the European Union, boosting efforts to deepen access to overseas markets as a global economic slowdown hurts exports from the island nation.
The government said yesterday that talks on the EU trade accord had concluded after almost three years, with the European bloc agreeing to eliminate tariffs on all imports from Singapore over five years. The island will allow duty-free access for all incoming shipments from the region immediately, the city’s Ministry of Trade and Industry said in a statement.
European and Asian leaders last month called for unfettered commerce and warned against protectionism as the sovereign-debt crisis threatens to undermine trade ties. Singapore’s exports unexpectedly fell for the third time in four months in November as electronics shipments slumped and sales to the U.S. and Europe faltered.
“We shouldn’t underestimate the importance of Europe, even though we’re saying they’re going to have a low-growth environment,” said Timothy Riddell, the Singapore-based head of global markets research at Australia & New Zealand Banking Group Ltd. “If Singapore can operate on the back of that large demand for Asian products, then it’s going to be a positive for Singapore.”
Trade in goods between the EU and Singapore was valued at S$106 billion ($87 billion) in 2011, the Singapore Trade Ministry said. The European Commission, the 27-nation EU’s executive arm in Brussels, puts that figure at 46 billion euros ($61 billion) last year.
“We can be very satisfied about the outcome of the negotiations,” EU Trade Commissioner Karel De Gucht told reporters today in Brussels. “It’s good news for businesses in both locations.”
De Gucht said that because Singapore has relatively few import duties, one of the EU’s prime goals was to remove non-tariff barriers in the country.
“There we really have made a breakthrough,” he said. “We went much further than anybody else before in trade relations with Singapore.”
The commission also highlighted the planned opening of services markets, saying in a statement that both sides will undertake “far-reaching liberalization” in this area. The commission said the EU obtained “valuable new commitments” from Singapore in the telecommunications, environmental-services, engineering, postal, maritime-transport and computer-services industries.
In financial services, the commission said the EU received commitments that are “at least on a par” with what the U.S. obtained in its free-trade agreement with Singapore.
In Europe, the EU-Singapore accord still needs the approval of the bloc’s national governments and the European Parliament.
Foreign direct investment by the EU into Southeast Asia was 192 billion euros in 2011, according to the European Chamber of Commerce in the city state. Trade between the two regions has increased 27 percent since 2006 to 161.6 billion euros in 2011, according to the group.
Singapore’s non-oil domestic exports fell 2.5 percent from a year earlier in November, the trade promotion agency said in a statement today. The median of 11 estimates in a Bloomberg News survey was for a 1.7 percent increase. Sales to the U.S. fell and shipments to Europe grew 0.5 percent from a year earlier, slowing from an 8.9 percent pace in October.
The Southeast Asian nation lowered its 2012 forecasts for export growth and economic expansion last month, as the global slowdown weighs on demand for its goods and services. A report last week showed U.S. companies are keeping inventories lean amid concern a recovery could stall if the country fails to avert a package of government spending cuts and tax increases set to take effect next year.
“They’re disappointing,” Riddell said in an interview on Bloomberg Television, referring to the export numbers. “The demand for electronic goods for the Christmas season and especially in the U.S. has been dropping away a little bit faster than we’ve been looking for,” he said, adding that the strong Singapore dollar “may be impeding the export profile for the country.”
Electronics shipments by companies such as Venture Corp. fell 16.5 percent in November from a year earlier, after slipping 0.8 percent the previous month, according to the report. The Singapore dollar has risen 7 percent against the U.S. dollar in the past 12 months, the second-best performance among 11 Asian currencies tracked by Bloomberg.
“We expect electronics exports to underperform in 2013,” Chester Liaw, a Singapore-based economist at Forecast Pte, said before the report. “We only expect a 2 percent rise in non-oil domestic exports over 2013, and that’s coming on the back of a series of low base effects in electronics.”
The conclusion of a trade deal with Europe may help Singapore as it puts the island ahead of some counterparts in Asia. The EU has seen talks lag with India and Southeast Asian countries since 2007. Negotiations with Singapore began in March 2010.
Singapore’s Trade Ministry forecasts exports will rise 2 percent to 3 percent in 2012 and as much as 4 percent next year.
“Singapore exporters of electronics, pharmaceuticals, chemicals and processed food products in particular will benefit from the removal of the EU’s tariffs,” the ministry said yesterday.