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.

Key Features of the EUSFTA

  • Immediate elimination of tariffs on all EU products entering Singapore, including alcohol and tobacco products.
  • Immediate elimination of tariffs on qualifying Singapore products entering the EU, including beer and stout, and progressive elimination of tariffs on all Singapore products entering the EU for a period of five years. The electronics, pharmaceuticals, petrochemicals, and processed agricultural products sectors are expected to benefit from this removal of tariffs.
  • Flexible rules of origin for Singapore’s key exports to the EU, such as automobiles, electronics, and pharmaceuticals.
  • Introduction of the concept of “ASEAN cumulation” for Singapore’s key exports to the EU. Materials sourced from other ASEAN member countries will be treated as originating from Singapore for purposes of qualifying for tariff concessions.
  • Asian food products made in Singapore, up to a combined quota of 1,250 tonnes annually, can enter the EU without tariffs.
  • Technical or nontariff barriers of trade between the EU and Singapore, such as testing and certification procedures, will be reduced in key sectors.
  • Singapore companies will receive equal treatment to EU companies when bidding for government procurement contracts.

Benefits for Singapore and the EU

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 such as alcohol and tobacco, 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.

Benefits for ASEAN

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.