SINGAPORE AND INDIA SIGN COMPREHENSIVE ECONOMIC

UNCLAS SECTION 01 OF 02 SINGAPORE 002077

SIPDIS

STATE PASS USTR FOR AUSTR BWEISEL AND EBRYAN
DOC FOR CPETERS

E.O. 12356: N/A
TAGS: ECON ETRD EINV EFIN KTDB EAIR SN IN
SUBJECT: SINGAPORE AND INDIA SIGN COMPREHENSIVE ECONOMIC
COOPERATION AGREEMENT (CECA)

REF: 04 SINGAPORE 3294


1. Summary. The Comprehensive Economic Cooperation
Agreement (CECA) signed June 29 in New Delhi by Indian Prime
Minister Manmohan Singh and Singapore Prime Minister Lee
Hsien Loong solidifies a growing trade relationship between
India and Singapore. This is India's first free trade
agreement that goes beyond trade in goods, and one that
fosters Singapore's ambition to serve as India's gateway to
the region's economies, especially ASEAN. The CECA
addresses trade in goods and services, investment, mutual
recognition of professions as well as enhancements to the
bilateral double taxation avoidance agreement and the air
services agreement. U.S. companies stand to gain in sectors
such as electronics and pharmaceuticals. The full text of
the agreement, which comes into effect August 1, 2005, can
be viewed at:

. End Summary

CECA - Key features
--------------


2. Trade in goods:

-- Effective August 1, Singapore will eliminate all duties
on goods (40% local content) made in India, except for
tobacco and cars.

-- India will reduce or eliminate tariffs on approximately
75% of Singapore's exports (40% local content) within five
years. Singapore industries that benefit include
electronics, instrumentation, pharmaceuticals and plastics.


3. Trade in services:

-- Singapore's three largest banks -- DBS Group Holdings,
United Overseas Bank (UOB) and Oversea-Chinese Banking Corp.
(OCBC) -- will be allowed to operate branches in India as
wholly owned subsidiaries, on par with Indian banks.
Alternatively, as foreign banks, they can open a combined
total of 15 branches over four years. Indian banks may
apply for wholesale bank licenses in Singapore and up to
three qualifying full bank licenses.

-- Indian-owned or controlled funds can invest an additional
US$250 million in equities and instruments listed on the
Singapore Exchange, in addition to the Indian government's
US$1 billion cap that they can already invest abroad.

-- Professional bodies in both countries -- accounting and
auditing, architecture, medical doctors, dental and nursing
services -- will conclude agreements within a year
recognizing their members' respective educational and
professional qualifications.


4. Investments:

-- The Singapore government's two investment arms, Temasek
Holdings and Government of Singapore Investment Corporation
(GIC),can each acquire up to 10% of an Indian listed
company. Previously, India did not recognize Temasek and
GIC as distinct entities, and restricted them to a combined
cap of 10% on investment in individual Indian companies.


5. Enhanced Double Taxation Agreement (DTA):

-- Singapore and India have agreed to revise their existing
DTA, signed in 1994, to effectively grant Singapore similar
status to Mauritius, whose companies can invest in India
without paying capital gains tax (Singapore has no capital
gains tax). Note: Despite changes in the DTA to facilitate
information-sharing in the hope of reducing tax fraud,
restrictions like those in Singapore's other DTAs limit the
information-sharing's contribution to effective law
enforcement. End note.


6. Air Services:

-- Both Singapore and India have committed to explore
further aviation-related liberalization through their
bilateral Air Services Agreement, and to an open skies
agreement for charter flights.

Growing Trade and Investment Ties Underpin the CECA
-------------- --------------


7. According to Singapore government statistics, two-way
trade between Singapore and India rose nearly 50% in 2004 to
US$7.2 billion or roughly half of total India-ASEAN trade.
Singapore runs consistent trade surpluses with India (US$1.4
billion in 2004); its top export items are overwhelmingly
high-tech related. Cumulative two-way trade for the first
five months of 2005 increased 45% over the same period in
2004 to US$4.0 billion, the fastest rate among Singapore's
top trading partners, including China. India is Singapore's
14th largest trading partner, and is expected to be among
its ten largest trading partners by 2006. According to
OECD, India received US$5.3 billion in FDI in 2004;
Singapore has become one of its significant foreign
investors, with Temasek Holdings alone estimated to account
for nearly US$1.5 billion. Temasek has invested in banks,
pharmaceutical manufacturers, a hospital chain, and a major
rice exporter. Government-linked SingTel has also made
large investments in the telecom sector. PSA and SembCorp,
among others, have concentrated on key infrastructure
projects at airports and ports.

Opportunities for U.S. Companies
--------------


8. U.S. companies that are locally incorporated
subsidiaries should be accorded the same treatment under the
CECA as Singapore companies. U.S. companies in general
stand to gain from tariff reductions in sectors such as
consumer electronics and pharmaceuticals. This is not the
case for the petrochemicals sector, however, which India
managed to keep outside the scope of tariff concessions,
citing competitive concerns for what it considers to be one
of its key industries. Other products not covered by the
CECA include steel, satellite receivers, motor vehicle
engines, cosmetics, and tobacco and cigarettes.

FERGIN