SINGAPORE CONCLUDES COMPREHENSIVE FTA WITH CHINA

UNCLAS SINGAPORE 001036 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ETRD ECON ASEAN SN SUBJECT: SINGAPORE CONCLUDES COMPREHENSIVE FTA WITH CHINA ¶1. (SBU) Summary: On September 4, China and Singapore announced they had concluded a bilateral Free Trade Agreement (FTA),billed as China's first comprehensive bilateral FTA with another Asian country. Although the text of the agreement has not yet been released pending a planned signing in late October, the agreement reportedly goes beyond trade in goods and includes commitments in services and investment, among other areas. The political symbolism of the agreement is at least as important for the two sides as the increased flows of trade and investment that may result. Both sides are keen to demonstrate their mutual friendship and commitment to economic links. The FTA may also give a spur to the rest of ASEAN to move ahead with economic commitments. End Summary. ¶2. (SBU) On September 4, Singapore and China completed the eighth and final round of FTA negotiations on the margins of a meeting of the Joint Council for Bilateral Cooperation. In contrast to several other FTAs that China has pursued in the region and with ASEAN that cover only trade in goods, the Singapore FTA is comprehensive, covering goods, services, investment, movement of persons, technical barriers to trade, sanitary/phytosanitary measures, trade remedies and economic cooperation, according to press reports. The two sides plan to sign the agreement in Beijing when Singapore PM Lee visits for a scheduled Asia-Europe Summit meeting on October 24-25. ¶3. (SBU) The Singapore-China FTA is seen as another symbol of improved ties between the two trading partners. Relations hit a rocky patch in 2004 when then-Deputy Prime Minister Lee Hsien Loong paid a private visit to Taiwan just before assuming his role as Prime Minister. Gradually warming ties allowed the talks to launch in August 2006, but negotiations were not expected to finish until after fuller implementation of previous agreements with ASEAN on trade in goods and services and completion of an investment agreement. Dr. Chen Gang, a Chinese research fellow at the East Asian Institute (EAI),told us China may have moved faster than expected to complete the FTA as a "reward" for Singapore's capacity building efforts with China, including on environmental issues in the run-up to the Beijing Olympics. Mr. Teng Siow Song, another EAI researcher, credited the afterglow of the successful Beijing Olympics as a factor in concluding the negotiations. China is increasingly more optimistic about its relationships in the region, Teng said, and Singapore took advantage of the timing to conclude the agreement. What's in it for China and Singapore? -------------- ¶4. (SBU) Given Singapore's already wide open markets for trade in goods and services, analysts say China's interest in pursuing an FTA with Singapore has obvious political and strategic implications on top of any economic interest. Mr. Minn Naing Oo, Director of the Ministry of Trade and Industry's (MTI) office for FTA Negotiations, was unable to discuss the still unsigned FTA in detail but told Econoff that China was able to obtain certain economic benefits from the agreement. However, in addition to trade gains, Minn said that China was eager to demonstrate to the region its openness to trade liberalization by negotiating trade agreements and that, as a top regional trading partner, Singapore was a natural choice for a bilateral FTA. Singapore's absence of an agricultural sector made the negotiations that much less complicated. ¶5. (SBU) For its part, Singapore is continuing its policy of pursuing FTAs with all of its major trading partners. As MTI's Alpana Roy told us September 16, Singapore pursues FTAs as much for political and strategic reasons as for their trade benefits. In 2007 China was Singapore's third largest trading partner, taking in over USD 11 billion in non-oil exports from Singapore. Singaporean direct investment in 2006 surpassed USD 20 billion. MTI's Minn said the Ministry had not made any predictions on increases in flows in trade and investment resulting from the agreement. ¶6. (SBU) The Singapore-China FTA builds on previously signed ASEAN-wide agreements with China on trade in goods and services and another on investment expected to be completed by December. MTI's Minn said that Singapore had insisted that the bilateral FTA go significantly beyond the ASEAN FTA and was able to obtain further commitments from the Chinese. EAI's Teng speculated that the bilateral FTA may spark a nervous reaction from other ASEAN economies and encourage them to step up domestic reforms and move more quickly to the ASEAN target of integrating their economies by ¶2015. HERBOLD