*Produced by SilverKris for Mishcon de Reya*
The past year has hardly been smooth sailing for champions of free trade. Global currents have moved in the opposite direction, whether by political choice or Covid-19 necessity. But the recent clinching of the world’s biggest trade deal, covering nearly 30% of global GDP and 15 Asia-Pacific nations, brings hope for 2021 and beyond. Singapore’s role as a “free port” since 1819 – and one of the most advanced economies in the Southeast Asian bloc that brokered the agreement – will be key to returning fair winds to global commerce.
Signed in November, the Regional Comprehensive Economic Partnership (RCEP) comprises ASEAN, China, Japan, South Korea, Australia and New Zealand, embracing nearly a third of the world population. It eliminates tariffs for 92% of goods, and fully opens more than 65% of service sectors, including financial services, telecoms, logistics and shipping – all drivers of Singapore’s economy. The Brookings Institution calls RCEP “a triumph of ASEAN’s middle-power diplomacy”.
Some have questioned the agreement’s depth and reach, noting overlap with existing access deals and India’s decision to drop out. Neither its economic nor strategic impact should be underestimated, however. According to Brookings computer simulations, RCEP could add US$500 billion to global trade and more than US$200 billion to world incomes by 2030, and offset global losses from the US–China trade conflict.
And it brings some security and cooperation to the region. This is the first trade pact that brings together China, South Korea and Japan – regional heavyweights with a fraught history. RCEP, says Singapore Prime Minister Lee Hsien Loong, is a victory for “freer trade and closer interdependence, especially in the face of Covid-19 when countries are turning inwards and are under protectionist pressures”.
World’s premier free port meets its biggest FTA
For Singapore, RCEP promises to give a big boost to sectors where the city-state is already a global leader, including logistics, financial services and semiconductors. Singapore is also home to the world’s number one port. The deal will enhance this status by boosting trade that passes through its state-of-the-art facilities.
RCEP also gives momentum to strategic initiatives, such as turning Singapore into a global legal hub
“Singapore’s situation is unique because of its free port status,” says Tony Cripps, CEO of HSBC Singapore. “Hence, every trade agreement that the city-state signs means more market access for local firms and more commercial activity for Singapore’s ports.”
By liberalising professional services, RCEP also gives momentum to strategic Singapore initiatives, such as turning the city-state into a global legal hub. The regulatory implications of a trade deal eight years in the making should give rise to a surge of interest in premium legal expertise.
Unleashing Singapore’s exports
Singapore’s fame as a centre of finance often overshadows its manufacturing prowess. Yet manufacturing is by far the city-state’s largest contributor to GDP, accounting for up to a quarter of the economy. High-end electronics for export are the star, contributing US$90 billion per annum to Singapore’s economy, with strengths including semiconductors, encryption systems, IoT devices and integrated circuit design.
For Singapore’s value-added components, RCEP throws open the gateway to Chinese, South Korean and Japanese markets. Equally important, the deal’s robust intellectual property protections shield Singapore’s status as a high-end manufacturer – and this will further boost the role of legal services on the island.
Meanwhile, RCEP promises to energise Southeast Asia’s already hot e-commerce and internet sectors, where Singapore is the undisputed digital innovation hub. According to a study by Google, Bain & Co and Singapore’s Temasek, Southeast Asia’s internet economy passed the US$100 billion mark this year, and is expected to surpass US$300 billion by 2025.
As the anchor of a bullish digital market, Singapore tech industry will gather strong momentum within the regional free-trade framework that liberalises both goods and services.
Rulebook for a new chapter in Asian growth
The RCEP deal has generated global interest for being the biggest of its kind. While size matters, it’s the content that counts most. Digging into the rulebook, two features underwrite streamlined trade and lift Singapore’s trading and export capabilities.
The first is adoption of a single set of standards for each product traded within the RCEP zone, replacing separately negotiated rules between trading partners. Related to this is an overhaul of rules of origin, which have caused havoc for goods containing components built in different countries.
Until now, for example, an Australian dishwasher made from parts sourced in Malaysia and Vietnam would face different tariffs in Japan and South Korea. Now any product made from materials originating in the free trade zone will follow one rule – which nine times out of 10 means zero tariffs. These rules make a fundamental difference in the products people can expect soon to see on store shelves.
For Singapore, that means more convenience, more prosperity and more opportunity to champion a dream hatched two centuries ago of free trade for “every nation, equally and alike to all”.
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