SINGAPORE - 2006 INVESTMENT CLIMATE STATEMENT

UNCLAS SECTION 01 OF 13 SINGAPORE 000197 SIPDIS STATE FOR EB/IFD/OIA (JNHATCHER/PABROWN) TREASURY FOR D/BRESNICK COMMERCE FOR ITA/SMATHEWS STATE PASS USTR FOR EBRYAN STATE PASS OPIC E.O. 12958: N/A TAGS: EINV EFIN ETRD ELAB KTDB PGOV SUBJECT: SINGAPORE - 2006 INVESTMENT CLIMATE STATEMENT REF: 2005 STATE 201904 ¶1. Post submits below the draft text of the 2006 Singapore Investment Climate Statement (ICS). As requested reftel, we have also forwarded the document via email to EB/IFD/OIA. ¶2. Begin text of 2006 Investment Climate Statement: Investment Policy Summary ¶3. Foreign investments, combined with investments through government-linked corporations (GLCs),underpin Singapore's open, heavily trade-dependent economy. With the exception of restrictions in the financial services, professional services, and media sectors, Singapore maintains a predominantly open investment regime. The World Bank's report, "Doing Business in 2005: Removing Obstacles to Growth," ranked Singapore as the third easiest economy in which to do business, after New Zealand and the United States. The U.S.- Singapore Free Trade Agreement (FTA),which came into force January 1, 2004, expanded U.S. market access in goods, services, investment, and government procurement, enhanced intellectual property protection, and provided for cooperation in promoting labor rights and the environment. ¶4. The Singapore government is strongly committed both to maintaining a free market and to taking a leadership role in planning Singapore's economic development. The government's active use of the public sector as both an investor and catalyst for development has given rise to the country's characterization as "Singapore Inc." As of November 2005, the top six Singapore-listed GLCs accounted for nearly 25 percent of total capitalization of the Singapore Exchange (SGX). Some observers have criticized the dominant role of GLCs in the domestic economy, arguing that it has displaced or suppressed private entrepreneurship. ¶5. Singapore aggressively pursues foreign investment as another pillar of its overall economic strategy; the country has evolved into a base for multinational corporations (MNCs). The Economic Development Board (EDB),Singapore's investment promotion agency, focuses on securing major investments in high value-added manufacturing and service activities as part of a strategy to replace labor-intensive, low value-added activities that have migrated offshore. Openness to Foreign Investment ¶6. Singapore's legal framework and public policies are generally favorable toward foreign investors; foreign investors are not required to enter into joint ventures or cede management control to local interests, and local and foreign investors are subject to the same basic laws. Apart from regulatory requirements in some sectors (see "Limits on National Treatment and Other Restrictions"),the government screens investment proposals only to determine eligibility for various incentive regimes (see Annex). Singapore places no restrictions on reinvestment or repatriation of earnings or capital. The judicial system upholds the sanctity of contracts, and decisions are effectively enforced. ¶7. Limits on National Treatment and Other Restrictions: Exceptions to Singapore's general openness to foreign investment exist in telecommunications, broadcasting, the domestic news media, financial services, legal and other professional services, and property ownership. Under Singapore law, Articles of Incorporation may include shareholding limits that restrict ownership in corporations by foreign persons. ¶8. Telecommunications: On April 1, 2000, Singapore began removing all barriers limiting foreign entry to the telecommunications sector. Under the Telecoms Competition Code 2000 (Competition Code),Singapore Telecommunications (SingTel),the former monopoly, that is currently 62-percent government-owned, faces competition in all telecom services, whether facilities- based (fixed line or mobile) or services-based (local, international and callback). Its main competitors, MobileOne and StarHub, are also GLCs. Following the government's 2005 review of the Competition Code aimed at enhancing market transparency, SingTel has made public its prices for interconnection services. ¶9. The FTA requires that Singapore take steps to ensure that U.S. telecom service providers obtain the right to interconnect with networks in Singapore on terms and conditions, and with cost-oriented rates, that are transparent and reasonable. Despite recent regulatory changes designed to moderate SingTel's market dominance, concerns remain that SingTel's interconnection requirements for "tail" local leased circuits are anti-competitive. ¶10. Under the FTA, Singapore has also agreed that dominant licensees (SingTel and Starhub) must offer cost-based access to submarine cable-landing stations and allow sharing of facilities. The interpretation of this commitment has, in some cases, differed from U.S. companies' understandings. ¶12. Media: The local free-to-air broadcasting, cable and newspaper sectors are effectively closed to foreign firms. Section 44 of the Broadcasting Act restricts foreign equity ownership of companies broadcasting to the Singapore domestic market to 49 percent or less, although the Act does allow for exceptions. Part X of the Broadcasting Act states that no person shall, without prior approval, hold more than 5 percent of the shares issued by a broadcasting company. ¶13. The Newspaper and Printing Presses Act restricts equity ownership (local or foreign) to 5 percent per shareholder. The Act also requires that all the directors of a newspaper company be Singapore citizens. Newspaper companies must issue two classes of shares, ordinary and management, with the latter available only to citizens of Singapore or corporations approved by the government. Holders of management shares have an effective veto over selected board decisions. ¶14. MediaCorp TV is the only free-to-air TV broadcaster; the government owns 80 percent and SGX- listed Singapore Press Holdings (SPH) owns 20 percent. The sole subscription TV provider, StarHub Cable Vision (SCV),is a 100-percent owned subsidiary of a majority government-owned publicly-listed company. Free-to-air radio broadcasters are mainly government-owned, with MediaCorp Radio Singapore being the largest operator. BBC World Services is the only foreign free-to-air broadcaster in Singapore. The Media Development Authority (MDA) recently imposed more restrictive regulations governing the relationships between content/channel providers and pay TV operators in Singapore, i.e., SCV. ¶15. Banking: The Monetary Authority of Singapore (MAS),under the Banking Act, regulates all banking activities. Singapore maintains legal distinctions between offshore and domestic banking units, and the type of license held -- full service, wholesale, and offshore. As of December 2005, 24 foreign full service licensees, 35 wholesale licensees, and 46 offshore licensees operated in Singapore. Of the 24 foreign full service licensees, the government has granted "qualifying full bank" (QFB) licenses to six foreign banks, including two U.S. banks, which allow them to operate off-premise ATMs and, subject to government approval, access to local ATM networks. Eventually, all offshore banks will be upgraded to wholesale bank status to enable them to conduct a wider range of activities. Except for retail banking, Singapore laws do not distinguish operationally between foreign and domestic banks. ¶16. In 1999, the government embarked on a five-year banking liberalization program to ease restrictions on foreign banks. The government has removed a 40 percent ceiling on foreign ownership of local banks and a 20 percent aggregate foreign shareholding limit on finance companies. It has stated publicly, however, that it will not approve any foreign acquisition of a local bank. Acquisitions exceeding prescribed thresholds of 5 percent, 12 percent or 20 percent of the shares or voting power of a local bank require the approval of the Finance Minister. ¶17. U.S. financial institutions enjoy phased-in benefits under the FTA. U.S. licensed full-service banks have been able to operate at up to 30 customer service locations (branches or off-premise ATMs) since January 2004, and at an unlimited number of locations since January 2006; non-U.S. foreign full-service banks have been allowed to operate at up to 25 locations since 2005. U.S. and foreign full-service banks can relocate freely existing branches, and share ATMs among themselves. They can also provide electronic funds transfer and point-of-sale debit services, and accept services related to Singapore's compulsory pension fund. ¶18. Locally incorporated subsidiaries of U.S. full- service banks can apply for access to local ATM networks beginning June 30, 2006; non-locally incorporated subsidiaries of U.S. full-service banks can begin doing so January 1, 2008. Singapore will lift its quota on new licenses for U.S. wholesale banks January 1, 2007. ¶19. Despite liberalization, foreign banks, including U.S. banks, in the domestic retail banking sector still face barriers. Local retail banks do not face similar constraints on customer service locations or access to the local ATM network. Foreign charge card issuers are prohibited from allowing their local card holders to access their accounts through the local ATM networks. Customers of foreign banks are also unable to access their accounts for cash withdrawals, transfers, or bill payments at ATMs operated by banks other than their own. Nevertheless, foreign full-service banks have made significant inroads in other retail banking areas, with substantial market share in products like credit cards and personal and housing loans. ¶20. Securities and Asset Management: Singapore removed all trading restrictions on foreign-owned stockbrokers in January 2002. Aggregate investment by foreigners may not exceed 70 percent of the paid-up capital of dealers that are members of the SGX. Direct registration of foreign mutual funds is allowed, provided MAS approves the prospectus and the fund. The FTA has relaxed conditions that foreign asset managers must meet in order to offer products under the government-managed compulsory pension fund (Central Provident Fund (CPF) Investment Scheme). ¶21. Legal Services: As of December 1, 2005, 63 foreign law firms operated in Singapore, among them 16 U.S. firms. Foreign law firms face significant restrictions. They cannot practice Singapore law, employ Singapore lawyers to practice Singapore law or litigate in local courts. Since June 2004, U.S. and foreign attorneys have been allowed to represent parties in arbitration without the need for a Singapore attorney to be present. U.S. law firms can provide legal services in relation to Singapore law only through a Joint Law Venture or Formal Law Alliance with a Singapore law firm, subject to the Guidelines for Registration of Foreign Lawyers in Joint Law Ventures to Practice Singapore Law. The FTA has relaxed some of these guidelines for U.S. law firms. Currently, there is only one U.S. Joint Law Venture. ¶22. With the exception of law degrees from certain British, Australian, and New Zealand universities, no foreign university law degrees are recognized for purposes of admission to practice law in Singapore. Under the FTA, Singapore committed to recognizing law degrees from four U.S. law schools. The list of schools has not been agreed. ¶23. Engineering and Architectural Services: Engineering and architectural firms can be 100 percent foreign-owned. In line with FTA provisions, and also applicable to all foreign firms, Singapore has removed the requirement that the chairman and two-thirds of a firm's board of directors must be engineers, architects or land surveyors registered with local professional bodies. Only engineers and architects registered with the Professional Engineers Board and the Architects Board, respectively, can practice in Singapore. All applicants (both local and foreign) must have at least four years of practical experience in engineering or architectural works, and pass an examination set by the respective Boards. ¶24. Accounting and Tax Services: The major international accounting firms operate in Singapore. Public accountants and at least one partner of a public accounting firm must reside in Singapore. Only public accountants who are members of the Institute of Certified Public Accountants of Singapore and registered with the Public Accountants Board may practice in Singapore. The Board recognizes U.S. accountants registered with the American Institute of Certified Public Accountants. ¶25. Real Estate: In July 2005, the government relaxed certain restrictions on foreign ownership of real estate. Under the Residential Property Act, foreigners are now allowed to purchase condominiums or any unit within a building of six or more levels without the need to obtain prior approval from the Singapore Land Authority. For landed homes (houses) and apartments in buildings of fewer than six stories, prior approval is required. Under a new option to the EDB's Global Investor Program, up to 50 percent of the S$2 million (US$1.2 million) investment required by a foreigner to qualify for Permanent Resident status can be in private residential properties. There are no restrictions on foreign ownership of industrial and commercial real estate. Conversion and Transfer Policies ¶26. The FTA commits Singapore to the free transfer of capital, unimpeded by regulatory restrictions. Singapore places no restrictions on reinvestment or repatriation of earnings and capital, and maintains no significant restrictions on remittances, foreign exchange transactions and capital movements. (See "Efficient Capital Markets" for a discussion of certain restrictions on the borrowing of Singapore Dollars (SGD) for use offshore.) Expropriation and Compensation ¶27. The FTA contains strong investor protection provisions relating to expropriation and due process; provisions are in place for fair market value compensation for any expropriated investment. ¶28. Singapore has not expropriated property owned by foreign investors and has no laws that force foreign investors to transfer ownership to local interests; no significant disputes are pending. ¶29. Singapore has signed investment promotion and protection agreements with a wide range of countries (see "Bilateral Investment Agreements" below). These agreements mutually protect nationals or companies of either country against war and non-commercial risks of expropriation and nationalization for an initial period of 15 years and continue thereafter unless otherwise terminated. Dispute Settlement ¶30. All core obligations of the FTA are subject to the dispute settlement provisions of the Agreement. The dispute settlement procedures promote compliance through consultation and trade-enhancing remedies, rather than rely solely on trade sanctions. The procedures also set higher standards of openness and transparency. ¶31. Singapore enacted and subsequently amended the Arbitration Act 2001 for domestic arbitration based on the United Nations Commission on International Trade Law (UNCITRAL) Model Law. Singapore ratified the recognition and enforcement of Foreign Arbitration Awards (New York, 1958) on August 21, 1986, and the International Convention on the Settlement of Investment Disputes on November 13, 1968. The Singapore International Arbitration Center (SIAC) and the Singapore Mediation Center (SMC) actively promote mediation and reconciliation for settling commercial disputes. Performance Requirements/Incentives ¶32. In general, Singapore complies with WTO Trade- Related Investment Measures (TRIMS) obligations. The FTA prohibits and removes certain performance-related restrictions on U.S. investors such as limitations on the number of customer service locations for the retail banking sector. ¶33. There are no discriminatory or preferential export or import policies affecting foreign investors. The government does not require investors to purchase from local sources or specify a percentage of output for export. The government also does not require local equity ownership in the investment. There are no rules forcing the transfer of technology. Foreign investors face no requirement to reduce equity over time and are free to obtain their necessary financing from any source. Employment of host country nationals is not required. ¶34. Singapore offers numerous incentives (see Annex) to encourage foreign investors to start up businesses, particularly in targeted growth sectors. Right to Private Ownership and Establishment ¶35. Foreign and local entities may readily establish, operate, and dispose of their own enterprises in Singapore. Except for representative offices (where foreign firms maintain a local representative but do not conduct commercial transactions in Singapore), there are no restrictions on carrying out remunerative activities. ¶36. All businesses in Singapore must be registered with the Accounting and Corporate Regulatory Authority. Foreign investors can operate their businesses in one of the following forms: sole proprietorship, limited liability partnership, incorporated company, foreign company branch or representative office. ¶37. Private businesses, both local and foreign, compete on a generally equal basis with GLCs, although some observers have complained that GLCs benefit from cheaper financing due to an implicit government guarantee. Singapore officials reject such assertions, arguing that the government does not interfere with the operations of GLCs or grant them special privileges, preferential treatment or hidden subsidies; they claim that GLCs are subject to the same regulatory regime and discipline of the market as private sector companies. Many observers, however, have been critical of cases where GLCs had entered into new lines of business or where government agencies have "corporatized" certain government functions, in both circumstances entering into competition with already existing private businesses. Protection of Property Rights ¶38. In line with its FTA commitments, Singapore has developed one of the strongest intellectual property (IP) regimes in Asia. Amendments to the Trademarks Act and the Patents Act, a new Plant Varieties Protection Act, and a new Manufacture of Optical Discs Act came into effect in July 2004. Amended Copyright and Broadcasting Acts came into effect in January 2005; further amendments to the Copyright Act came into effect in August 2005. When fully implemented and enforced, Singapore's new and amended IP laws should help alleviate problems related to the availability of pirated optical discs, use of unlicensed software by businesses, the transshipment of pirated material through Singapore, and removal of infringing material from Internet sites. In accordance with its FTA obligations, Singapore has implemented Article 1 to Article 6 of the Joint Recommendation concerning Provisions on the Protection of Well-Known Marks of 1999, and has signed and ratified the International Convention for the Protection of New Varieties of Plants (1991),and the Convention Relating to the Distribution of Program-Carrying Signals Transmitted by Satellite (1974). ¶39. Singapore is a member of the WTO and a party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). It is a signatory to three other international copyright agreements: the Paris Convention, the Patent Cooperation Treaty and the Budapest Treaty. In September 2002, Singapore set up a specialized court (IP Court) under the Singapore Supreme Court to handle IP disputes. The WIPO Secretariat opened offices in Singapore in June 2005. SIPDIS ¶40. Law enforcement efforts have contributed to a sharp reduction in the production of pirated material and blatant storefront piracy and counterfeiting. According to the Singapore Police, the value of counterfeit and pirated goods seized in 2005 was nearly $12 million, compared to $8 million in 2004. In September 2005, the Singapore Police initiated its first corporate end-user enforcement action under the amended Copyright Act, raiding a private company suspected of using approximately $30,000 in illegal software. ¶41. According to industry estimates, Singapore's music (optical disc media) piracy rate averages about 9 percent; the rate for movies is about 12 percent. Software piracy in Singapore, while among the lowest in Asia, is almost double the estimated level in the United States; business software losses were estimated at nearly $96 million in 2004. ¶42. Over the past few years, a number of local educational institutions (the majority government- operated) have signed agreements to comply with legal obligations to pay royalty fees to publishers in exchange for the right to duplicate copyrighted printed works for use in course materials. Some commercial copy centers, however, continue to routinely take orders to copy entire textbooks. Periodic police raids against these copy centers have yielded limited results. ¶43. Although it is a major global transshipment and transit point for sea and air cargo, Singapore does not collect information on the contents and destinations of most transshipment and transit trade, which accounts for 80 percent of cargo passing through the port. This lack of information makes enforcement against transshipment or transit trade in infringing goods virtually impossible. Under its FTA commitments, Singapore passed legislation in November 2003 to provide for information sharing with the U.S. customs authority and also with those of its other FTA partners. ¶44. The FTA also ensures that government agencies will not grant approval to patent-violating products. It also protects against imports of pharmaceutical products without the patent-holder's consent by allowing lawsuits when contracts are breached, if these products have previously not been sold or distributed in Singapore. ¶45. Singapore has no specific legislation concerning trade secrets, but rather protects investors' commercially valuable proprietary information under common law by the Law of Confidence. The FTA ensures protection of test data and trade secrets submitted to the government for product approval purposes. Disclosure of such information is prohibited for a period of five years for pharmaceuticals and ten years for agricultural chemicals. Transparency of the Regulatory System ¶46. The FTA enhances transparency by requiring regulatory authorities, to the extent possible, to consult with interested parties before issuing regulations, to provide advance notice and comment periods for proposed rules, and to publish all regulations. ¶47. Singapore in the past lacked a formalized system whereby it published proposed regulations for public comment. Beginning in April 2003, however, the government established a new centralized Internet portal (http://app.feedback.gov.sg/asp/ocp/ocp01a.as p) to solicit feedback on selected draft legislation and regulations, a process that is being used with increasing frequency. ¶48. Singapore strives to promote an efficient, business-friendly regulatory environment. Tax, labor, banking and finance, industrial health and safety, arbitration, wage and training rules and regulations are formulated and reviewed with the interests of both foreign investors and local enterprises in mind. Starting in 2005, a Rules Review Panel, comprised of senior civil servants, began overseeing a review of all rules and regulations; this process will be repeated every five years. A Pro-Enterprise Panel of high level public sector and private sector representatives examines feedback from businesses on regulatory issues and provides recommendations to the government. ¶49. Local laws give regulatory bodies wide discretion to modify regulations and impose new conditions, but in practice agencies use this positively to adapt incentives or other services on a case-by-case basis to meet the needs of foreign as well as domestic companies. ¶50. Procedures for obtaining licenses and permits are generally transparent and not burdensome, but some exceptions apply. Procedures can be faster for investors in areas considered national priorities. Singapore has established an online licensing portal to provide a one-stop application point for multiple licenses: http://licences.business.gov.sg/. ¶51. Corporate Governance: In December 1999, Singapore established the Corporate Governance Committee, the Disclosure and Accounting Standards Committee, and the Company Legislation and Regulatory Framework Committee (CLRFC) to review and enhance the existing framework for corporate law and governance. The government has implemented all of the Committees' recommendations except for those put forth by the CLRFC, which are still under review. In January 2003, Singapore established a private sector-led Council on Corporate Disclosure and Governance to implement the country's Code of Corporate Governance. ¶52. Accounting Standards: Singapore's prescribed accounting standards ("Financial Reporting Standards" of FRS) are aligned with those issued by the International Accounting Standards Board. Companies can deviate from these standards where required to present a "true and fair" set of financial statements. Singapore-incorporated, publicly-listed companies can use certain alternative standards such as International Accounting Standards (IAS) or the U.S. Generally Accepted Accounting Principles (US GAAP) if they are listed on foreign stock exchanges that require these standards; they do not need to reconcile their accounts with FRS. All other Singapore-incorporated companies must use FRS unless the Accounting and Corporate Regulatory Authority exempts them. Efficient Capital Markets and Portfolio Investment ¶53. Singapore actively facilitates the free flow of financial resources. Credit is allocated on market terms and foreign investors can access credit, U.S. dollars, Singapore dollars (SGD),and other foreign currencies on the local market. MAS formulates and implements the country's monetary and exchange rate policy, and supervises and regulates the country's sophisticated financial and capital markets. ¶54. Singapore-based asset management firms managed $572.6 billion in 2004. The government has sought to boost the country's asset management sector by placing with foreign-owned firms a significant portion of government reserves managed by MAS and the Government of Singapore Investment Corporation (GIC). Approximately US$12.8 billion in SGD-denominated corporate debt was issued in 2004. ¶55. Singapore's banking system is sound and well regulated. Total domestic banking assets were US$243 billion as of March 2005. Local Singapore banks are relatively small by regional standards, but are more profitable and have stronger credit ratings than many of their peers. As at June 2005, non-performing loans (NPLs, net of bank-to-bank loans) as a percentage of total loans were 4.2 percent (compared to 5.5 percent in June 2004). ¶56. A statutory requirement prohibiting banks from engaging in non-financial business took effect in July ¶2001. Beginning January 1, 2006, banks are able to hold only 10 percent or less in non-financial companies as an "equity portfolio investment." ¶57. The Securities and Futures Act (SFA),implemented in 2002, introduced a host of policy reforms in Singapore's capital markets, moving them to a disclosure-based regime. The SFA may impose civil or criminal penalties against corporations listed on the Singapore Exchange (SGX) that fail to disclose material information on a continuous basis. Since January 2003, listed companies with more than US$44 million market capitalization have been required to prepare quarterly financial reporting. The SFA requires persons acquiring shareholdings of 5 percent or more of the voting shares of a listed company to disclose such acquisitions as well as any subsequent changes in their holdings directly to the SGX within two business days. The SFA also contains enhanced market misconduct provisions. Political Violence ¶58. Singapore's political environment is stable and there is no history of incidents involving politically motivated damage to foreign investments in Singapore. The ruling People's Action Party (PAP) has dominated Singapore's parliamentary government since 1959, and currently controls 82 of the 84 regularly contested parliamentary seats. Singapore opposition parties, which currently hold two regularly contested parliamentary seats and one additional seat reserved to the opposition by the constitution, do not usually espouse views that are radically different from the mainstream of Singapore political opinion. Corruption ¶59. Singapore typically ranks as the least corrupt country in Asia and one of the least corrupt in the world. Singapore has, and actively enforces, strong anti-corruption laws. The Prevention of Corruption Act, and the Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act provide the legal basis for government action by the Corrupt Practices Investigation Bureau, an independent anti-corruption agency that reports to the Prime Minister. These laws cover acts of corruption both within Singapore as well as those committed by Singaporeans abroad. When cases of corruption are uncovered, whether in the public or private sector, the government deals with them firmly, swiftly and publicly, as they do in cases where public officials are involved in dishonest and illegal behavior. ¶60. Singapore is not a party to the OECD Convention on Combating Bribery, but the Prevention of Corruption Act makes it a crime for a Singapore citizen to bribe a foreign official or any other person, whether within or outside Singapore. Bilateral Investment Agreements ¶61. Singapore has signed Investment Guarantee Agreements (IGA's) with ASEAN member nations, the Belgium-Luxembourg Economic Union and the following 31 economic partners: Bahrain, Belarus, Bulgaria, Cambodia, Canada, China, the Czech Republic, Egypt, France, Germany, Hungary, Indonesia (Riau Province only),Laos, Latvia, Mauritius, Mongolia, The Netherlands, Pakistan, Peru, Poland, Slovenia, Sri Lanka, Switzerland, Taiwan, Thailand, the United Kingdom, the United States, Uzbekistan, Vietnam, and Zimbabwe. These agreements mutually protect nationals or companies of either country against war and non- commercial risks of expropriation and nationalization. ¶62. Singapore has signed free trade agreements, including investment chapters, with Australia (February 2003),New Zealand (August 2000),the European Free Trade Area (Switzerland, Norway, Lichtenstein, and Iceland in June 2002),the United States (May 2003), Jordan (May 2004),India (June 2005),and South Korea (August 2005). Singapore has signed tax treaties with a number of countries, but not with the United States. OPIC and Other Investment Insurance Programs ¶63. Under a 1966 investment guarantee agreement with Singapore, the U.S. Overseas Private Investment Corporation (OPIC) offers insurance to U.S. investors in Singapore against currency inconvertibility, expropriation and losses arising from war. Singapore became a member of the Multilateral Investment Guarantee Agency (MIGA) in 1998. Labor ¶64. As of September 2005, Singapore's labor market totaled 2.28 million workers; this total includes nearly 645,000 foreigners, of which about 80 percent are unskilled or semi-skilled workers. Local labor laws are flexible, and allow for relatively free hiring and firing practices. Either party can terminate employment by giving the other party the required notice. The Ministry of Manpower must approve employment of foreigners. ¶65. Singapore imposes a ceiling on the ratio of unskilled/semi-skilled foreign workers to local workers that a company can employ, and charges a monthly levy for each unskilled or semi-skilled foreign worker. The government also provides incentives and assistance to firms to automate and invest in labor-saving technology. ¶66. Labor-management relations in Singapore are generally amicable. About 22 percent of the workforce is unionized. The majority of unions are affiliated with the National Trades Union Congress (NTUC),which maintains a symbiotic relationship with the PAP ruling party. Although workers, other than those employed in the three essential services of water, gas and electricity, have the legal right to strike, none have done so since 1986. ¶67. Singapore has no minimum wage law; the government follows a policy of allowing free market forces to determine wage levels. Singapore has a flexible wage system in which the National Wage Council (NWC) recommends non-binding wage adjustments on an annual basis. The NWC is a tripartite body comprising a Chairman and representatives from the Government, employers and unions. The NWC recommendations apply to all employees in both domestic and foreign firms, and across the private and public sectors. While the NWC wage guidelines are not mandatory, they are widely implemented. The level of implementation is generally higher among unionized companies compared to non- unionized companies. Foreign Trade Zones/Free Trade Zones ¶68. Singapore has eight free-trade zones (FTZs) for seaborne cargo and two for airfreight. The FTZs may be used for storage and repackaging of import and export cargo and goods transiting Singapore for subsequent re- export. Manufacturing is not carried out within the zones. Foreign and local firms have equal access to the FTZ facilities. Foreign Direct Investment Statistics ¶69. The United States is one of Singapore's largest foreign investors, with over 1,500 U.S. firms in operation. According to the Singapore Department of Statistics (Singapore DOS) U.S. cumulative foreign direct investments in Singapore totaled US$22 billion in 2003 (latest available data). According to U.S. Department of Commerce statistics (USDOC),U.S. firms (manufacturing and services) in 2004 had cumulative total investments in Singapore of $56.9 billion; discrepancies in FDI numbers are attributable to differences in accounting methodologies. ¶70. Investment Statistics TABLE A -------------- STOCK OF FOREIGN DIRECT INVESTMENT (FDI) IN SINGAPORE BY COUNTRY (As at Year-end, Historical Cost) (US$ million) 2000 2001 2002 2003 Total FDI 112,571 122,473 135,517 143,692 United States 18,373 20,084 20,173 22,099 Europe 42,011 47,222 54,525 61,223 European Union 30,440 36,205 43,919 49,561 France 2,841 2,550 2,872 3,106 Germany 2,443 3,438 4,253 3,743 Netherlands 16,838 19,395 14,544 16,091 United Kingdom 5,163 7,987 18,908 23,239 Other EU 3,155 2,835 3,342 3,382 Switzerland 9,307 8,465 8,756 9,136 Asian Countries 28,910 28,091 32,171 32,534 China 538 481 554 495 Hong Kong 3,569 3,179 2,834 2,367 Japan 16,865 16,183 19,074 19,387 Asean 5,365 5,211 5,555 5,310 Malaysia 3,216 3,243 3,333 3,038 Australia 1,880 1,442 1,450 1,229 Caribbean/Latin America 18,088 22,037 23,269 22,514 Other Countries 3,309 3,597 3,929 4,093 Source: Department of Statistics, "Foreign Equity Investment in Singapore, 2003" TABLE B -------------- STOCK OF FOREIGN DIRECT INVESTMENT (FDI) IN SINGAPORE BY INDUSTRY (As at Year-end, Historical Cost) (US$ million) 2000 2001 2002 2003 Total FDI 112,571 122,473 135,517 143,692 Manufacturing 40,840 45,011 49,799 53,654 Chemicals & Chemical Products 9,963 11,970 15,340 20,001 Petroleum & Petroleum Products 3,991 6,226 7,270 8,523 Electronic Products & Components 20,145 19,380 18,218 16,662 Construction 1,219 940 1,140 854 Commerce 17,071 17,798 21,717 22,528 Transport, Storage & Coms 4,973 5,341 5,927 6,645 Financial & Insurance Services 40,427 44,835 46,137 49,223 Financial 39,149 43,355 44,415 47,146 Real Estate 3,704 3,323 3,869 3,652 Business Svs 4,399 4,856 6,549 6,848 Source: Department of Statistics, "Foreign Equity Investment in Singapore, 2003" TABLE C -------------- GDP AND FDI FIGURES, 2000-2003 (US$ Million) Year GDP* FDI FDI as % of GDP -------------- -------------- --- -------------- 2000 92,210 112,571 1.22 2001 83,240 121,228 1.46 2002 91,025 135,890 1.49 2003 94,617 143,691 1.52 Footnote: GDP at Current Market Price Source: Department of Statistics Table D -------------- TOP 20 MAJOR FOREIGN INVESTORS BY TOTAL ASSETS (US$ Billion) Country Total Business Company of Origin Assets Activities -------------- -------------- -------------- -------------- J.P. Morgan Securities Asia U.S. 14.51 Finance Glaxo Wellcome Mfg. U.K. 13.29 Chemicals Exxonmobil Asia Pacific U.S. 6.65 Fuels Shell Eastern Petroleum Nether- 6.22 Chemicals lands Hewlett-Packard Singapore U.S. 5.55 Electronics Prudential Assurance Co. U.K. 5.50 Insurance Credit Suisse First Boston Singapore Switzer 4.87 Banking -land Deutsche Asia Germany 3.79 Finance Asia Food & Properties British 3.53 Multi-industry Virgin Is. Shell Treasury Centre East Nether- 3.10 Finance lands Shell Eastern Trading Nether- 2.71 Fuels lands National Australia Merchant Bank Austra- 2.41 Banking lia Texas Instruments Singapore U.S. 2.30 Electronics IBM Singapore U.S. 2.23 Electronics ING Asia Nether- 2.23 Banking lands Citicorp Invest Bank U.S. 2.14 Banking Nova Scotia Bank Asia U.S. 2.05 Banking Danone Asia France 2.11 Food/Beverages BP Singapore U.K. 2.05 Fuels Bank Sarasin-Rabo Asia Switzer- 1.75 Banking land Source: Singapore Economic Development Board DP Information Group, "Singapore 1000, 2005" ANNEX: INCENTIVES -------------- INCENTIVES ADMINISTERED BY THE MONETARY AUTHORITY OF SINGAPORE (MAS) As part of the government's strategy to develop Singapore into a premier financial center, MAS offers tax incentives for financial institutions looking to set up operations here. A) Financial Sector Incentive ("FSI") Scheme B) Tax Incentive Scheme for Qualifying Processing Services Company C) Tax Incentive Scheme for Offshore Insurance Business D) Tax Exemption Scheme for Marine Hull & Liability Insurance Business E) Abolition of Withholding Taxes on Financial Guaranty Insurance Contracts F) Tax Incentive Scheme for Commodity Derivatives Trading G) Tax Incentive Scheme for Approved New Derivative Products traded on the Singapore Exchange H) Tax Incentive Scheme for Finance and Treasury Centers I) Tax Incentive Scheme for Approved Trustee Companies J) Tax Incentive Scheme for Syndicated Facilities K) Innovation in Financial Technology & Infrastructure Grant Scheme L) Tax Incentive for Trading Debt Securities M) Financial Sector Development Fund N) Financial Investor Scheme for Singapore Permanent Residence Further guidelines and application information are available at http://www.mas.gov.sg INCENTIVES ADMINISTERED BY THE ECONOMIC DEVELOPMENT BOARD (EDB) A) Pioneer Status B) Development & Expansion Incentive C) Investment Allowance Incentive D) Approved Foreign Loan Scheme E) Approved Royalties Incentive F) Entrepreneurship Investment Incentive G) HQ Program H) Double Deduction for Research and Development (R&D) Expenses I) Research Incentive Scheme for Companies J) Exemption of foreign sourced interest and royalty income for R&D purposes K) Innovation Development Scheme L) Initiatives in New Technology M) Integrated Industrial Capital Allowance N) Special Goods & Services Tax scheme for 3rd Party Logistics Service Providers O) The Enterprise Challenge (TEC) Scheme Further guidelines and application information are available at http://www.sedb.com. INCENTIVES ADMINISTERED BY INTERNATIONAL ENTERPRISE SINGAPORE (IESingapore) A) Double Tax Deduction (DTD) Scheme B) Global Trader Program (GTP) C) International Marketing Activities Program (IMAP) D) International Partners Program E) Manpower for Internationalization Program F) Regionalization Finance Scheme G) iFinance Consulting Program H) Design for Internationalization Program I) Branding for Internationalization Program Further guidelines and application information are available at http://www.iesingapore.gov.sg INCENTIVES ADMINISTERED BY THE MEDIA DEVELOPMENT AUTHORITY (MDA) A) Market Development Scheme (MDS) B) TV Content Industry Development Scheme C) Digital Content Development Scheme D) Digital Technology Development Scheme Further guidelines and application information are available at http://www.mda.gov.sg INCENTIVES MANAGED BY INFOCOMM DEVELOPMENT AUTHORITY OF SINGAPORE (IDA) A) Connected Homes B) iLIUP (infocomm Local Industry Upgrading Program) C) Overseas Development Program D) SAFE (Securing Assets for End-Users) Program E) WEAVE (Web Services) F) Wired With Wireless Program G) Digital Exchange H) RFID Development Plan I) Pilot and Trial Hotspots (PATH) J) The Competency Centre Program (CCP) Further information, details, and guidelines are available at www.ida.gov.sg. HERBOLD