Singapore-Australia Free Trade Agreement — the Australian Perspective

This article gives an overview of the Singapore-Australia FTA and its impact on business and investment in Australia.

Introduction

Before the SARS epidemic began threatening the Asian region, a ground breaking Free Trade Agreement (‘FTA’) was entered into between Singapore and Australia.

The Singapore-Australia Free Trade Agreement (‘SAFTA’) was signed on 17 February 2003. It is Australia’s first FTA since the Australia-New Zealand Closer Economic Relations Agreement 20 years ago.

SAFTA is expected to come into force in mid-2003, after the governments of Singapore and Australia have completed commencement procedures.

This overview of SAFTA’s key terms from the perspective of Australian companies discusses the likely impact of SAFTA on Australian businesses seeking trade and investment opportunities in Singapore.

Some conclusions:

• SAFTA is a comprehensive document with good outcomes for trade liberalisation;
• the immediate benefits of SAFTA for Australian companies lie in the finance, business services and education sectors;
• SAFTA should be viewed in the overall context of the Australian government’s decision to pursue other bilateral FTAs, in particular with the United States; and
• differences with respect to trade law issues between the United States and Australia, and the framework of the key free trade agreement to which the United States is a party — the North American Free Trade Agreement (‘NAFTA’) with Canada and Mexico — may suggest significant variations from SAFTA in any negotiated FTA with the United States.
  

Overview

SAFTA is a comprehensive agreement, reached after two years of negotiations, between Singapore and Australia. Generally, it covers:

• tariff-free access for goods;
• improved market access for services (including specific commitments in the telecommunications, financial services and professional services sectors); and
• co-operation and trade facilitation in key areas such as e-commerce, standards, education, intellectual property protection, competition policy and customs procedures.
  

The Australian government claims that SAFTA will assist Australian exporters through enhanced market opportunities, and provide investors with greater certainty through provisions dealing with the protection and promotion of investment.

Key Areas

Elimination of tariffs on trade in goods

Singapore will abolish tariffs which currently exist on goods imported from Australia from the date SAFTA comes into effect. Australian beverage producers stand to gain the most from this reduction in costs, as Australian beer and stout will now be able to enter Singapore duty free.

Rules of origin

To qualify for preferential tariff treatment, an Australian exporter must ensure that:

• the goods being exported originated in Australia;
• the exporter satisfies the consignment criteria; and
• the exporter has a valid certificate of origin, and a declaration of origin for each shipment.
  

The rules of origin regime under SAFTA is quite flexible allowing for the use of costs incurred in other countries in making up the required SAFTA content (which can be as low as 30%). This can be contrasted with the generally more restrictive and more technical ‘tariff shift’ rules which occur under NAFTA.

Standards-related issues

Australia and Singapore have agreed to develop arrangements for the acceptance of the equivalence of mandatory requirements for specified industry sectors. It is understood that negotiations have been proceeding in relation to food standards and horticultural products.

Government procurement

Australian suppliers of goods and services are guaranteed non-discriminatory national treatment in tendering for procurement business with 47 Singapore ministries, agencies and statutory authorities.

This means that Singapore government bodies procuring services cannot discriminate against Australian suppliers. This provides a ‘level playing field’ for Australian suppliers wishing to pursue government procurement opportunities in Singapore.

It is noted that on government procurement, Australia and Singapore have made promises to each other that only Singapore has been prepared to make to the rest of the world.

Trade in services

SAFTA’s services framework requires Singapore to:

• treat Australian service suppliers on the same terms as Singapore businesses; and
• remove market access restrictions.
  

Apart from certain exceptions, this should result in Australian service providers having greater access to the Singapore market in various service sectors. The more important sectors are discussed below.

SAFTA has adopted a ‘negative list’ approach to services, specifically excluding certain sectors from SAFTA. This would appear to be a positive development, as a specific exclusions approach is easier to follow than the specific inclusions approach adopted in the WTO GATS. To the extent that SAFTA allows new exclusions as long as a concession is offered to ‘maintain the overall balance’, service concessions may, in the long run, appear less secure as certain sectors lobby for exclusion to the potential detriment of other industries.

Financial services

Singapore’s recent liberalisation initiatives relating to banking licences, and the insurance and securities markets, should assist in giving Australian financial services providers and investors a more certain business environment. Restrictions on the number of wholesale banking licences available to Australian banks are expected to be eased over time.

Singapore has made several reservations in this sector, including in relation to:

• foreign banks and merchant banks establishing operations in Singapore;
• the use of ATMs and EFTPOS by finance companies;
• foreign shareholdings in a Singapore-incorporated bank;
• the provision of Singapore Dollar credit facilities exceeding $5m per entity to non-resident financial entities;
• arranging Singapore Dollar equity or bond issues for non-residents; and
• the admission criteria for insurers.

The effect of this is that Australian financial services providers will not be afforded the right to be treated the same as their Singaporean counterparts in the areas which are the subject of these reservations.

Professional services

Residency requirements for Australian professionals such as architects, engineers, accountants and auditors, have been abolished or eased by Singapore. SAFTA promotes Australian professional bodies to negotiate mutual recognition agreements with their counterpart bodies in Singapore.

It is understood that Australian architects and engineers are currently seeking to conclude covering registration of professionals and recognition of their qualifications.

Education

Australian education providers now face more liberal conditions in offering education services to Singaporean students. For example, Singapore has made a commitment to permit its government scholarships for overseas use to be tenable at Australian universities. Further, there has been an increase in the number of Australian universities whose Law and Medicine degrees are recognised in Singapore.

Environmental and other services

Except for some reservations in the areas of wastewater and hazardous waste, the Singapore environmental services sector will be open to Australian companies.

Australian exporters will also have access to construction, computer, sporting, and related services, and auxiliary transport services.

Investment and settlement of disputes

An objective of SAFTA is to improve the environment for Australian investors in Singapore, by placing them on a ‘level playing field’ with local competitors, except in certain specified areas.

For example, Australian companies stand to benefit from:

• greater transparency in relation to investment restrictions in Singapore’s government-linked companies (see below); and
• protection against expropriation, and an entitlement to compensation should expropriation or other loss occur.
  

SAFTA leaves open for interpretation the precise definition of what is an expropriation, while notably avoiding use of the phrase ‘tantamount to an expropriation’ as under NAFTA. The effect of such a distinction remains to be seen.

In giving Australian investors the right to challenge any measures by Singapore which violate SAFTA’s investment rules, SAFTA resembles NAFTA. Where:

• an Australian investor alleges that the Singapore Government has breached an obligation under SAFTA’s investment provisions which causes loss or damage to the investor or its investment; and
• the investor cannot resolve its dispute through consultation and negotiation,

then the Australian investor may submit the dispute to:

• the courts or administrative tribunals of Singapore, for determination;
• the International Centre for Settlement of Investment Disputes, for conciliation or arbitration; or
• arbitration under the rules of the United Nations Commission on International Trade Law.
  

The submission of the dispute to such conciliation or arbitration must be made within three years of the investor becoming aware of the breach of the SAFTA investment provisions. The investor must also give prior written notice to the Singapore Government of the investor’s intention to submit the dispute to such conciliation or arbitration.

Telecommunications

Australian companies stand to benefit from SAFTA measures which apply to the Singapore telecommunications sector, including:

• access to and use of any Singapore public telecommunications network or service in a timely fashion, and on reasonable, transparent, and non-discriminatory terms and conditions;
• greater transparency by Singapore regulators, who will be obliged to properly explain decisions relating to matters such as the approval of commercial terms and standards, and the adjudication and resolution of disputes;
• an independent authority to hear appeals from parties aggrieved by regulatory decisions;
• enforcement of competitive safeguards and regulatory decisions; and
• facilitation of consultation with industry participants in the development of industry standards.
  

Movement of business people

Australians will now be granted longer periods of stay in Singapore, to facilitate business transactions.

Australian business people and professionals visiting Singapore for the purpose of:

• selling goods or services;
• establishing an investment; or
• fulfilling a short-term contract for their company,
  

will now be granted an initial period of stay of three months. Previously, this period was only one month.

Long-term business residents working for Australian companies in Singapore will be granted an initial period of two years. This can be extended on application for periods of up to three years at a time, for a total term not exceeding 14 years.

Spouses of long-term business residents in Singapore will now have the right to work in managerial, specialist and professional occupations, and in office administration.

Competition policy

Singapore has committed itself to promoting fair competition by addressing anti-competitive business practices. Importantly, Singapore will take reasonable measures to ensure that it does not provide any competitive advantage to any government-owned businesses simply because they are government owned.

However, Singapore has no comprehensive law equivalent to Australia’s Trade Practices Act, and has only recently commenced a process of developing a national competition system.

It is intended that the competition policy provisions of SAFTA will be reviewed, with a view to extending them, after Singapore has enacted a generic competition law.

Intellectual property

Under SAFTA, Australia and Singapore have:

• reaffirmed their World Trade Organisation (‘WTO’) commitments on intellectual property protection;
• agreed to co-operate on eliminating trade in goods infringing intellectual property rights, including by exchanging information; and
• agreed to take measures to prevent the export of goods that infringe copyright or trade marks.
  

The objective of these commitments is to increase the benefits of trade and investment between the two countries through the protection and enforcement of intellectual property rights.

Electronic commerce

Singapore and Australia are committed to promoting confidence and trust in bilateral e-commerce, through:

• continuing the existing practice of not levying customs duties on electronic transmissions between the countries;
• making available to the public electronic versions of all existing publicly available trade administration documents by 2005;
• co-operating to enhance the acceptance of paperless trading;
• each government maintaining e-commerce consumer protection and electronic authentication legislation;
• working towards the mutual recognition of electronic signatures;
• encouraging the interoperability of digital certificates by businesses; and
• taking measures to protect online personal data.
  

Conclusion

In assessing the overall benefits that SAFTA will provide for Australian business, it is important to recognise that Singapore is an island nation of only

650 sq km and four million people. While having no significant agricultural or resources base, Singapore has spent much of its 37 years since independence promoting itself as a financial, service and knowledge hub of South-East Asia.

In view of this, and in the absence of a protracted health epidemic in Singapore associated with the recent SARS outbreak, it is considered that the more immediate benefits to arise from SAFTA for Australian companies will relate to greater access to the finance, business and education services sectors in Singapore.

SAFTA provides Australia with a measure of increased market opportunities in Singapore, and at a wider level it represents part of the Australian government’s strategy to pursue bilateral FTAs, as well as multi-lateral trade deals through the WTO.

As a model for the FTA to be negotiated with the United States, the role of SAFTA is less certain, given:

• differences in the relevant trade law issues between Signapore and Australia, as compared to those between the United States and Australia. For example, agricultural matters (particularly with respect to subsidies) did not loom large in negotiations between Singapore and Australia; and
• some key differences with NAFTA, which the United States may view as its model agreement.
  

Simon Taskunas
Freehills Perth
E-mail: [email protected]