S.P. MANDALI’S

R. A PODAR COLLEGE OF COMMERCE AND ECONOMICS

MATUNGA, MUMBAI-400 019.

A PROJECT REPORT ON

APEC

SUBMITTED BY

AMIT B. KHOMANE

M.COM (SEM. I): Name of the subject

ECONOMICS OF GLOBAL TRADE AND FINANCE

SUBMITTED TO

UNIVERSITY OF MUMBAI

2013-2014

PROJECT GUIDE

Prof. Ms. Sudarshana Saikia

S.P. MANDALI’S

R. A PODAR COLLEGE OF COMMERCE AND ECONOMICS

MATUNGA, MUMBAI-400 019.

CERTIFICATE

This is to certify that Mr/Ms. Name AMIT B. KHOMANE of M.Com (Accountancy)

Semester I (2013-2014) has successfully completed the project on APEC under the guidance of

Prof. Ms. Sudarshana Saikia

Project Guide/Internal Examiner External Examiner

Prof. Ms. Sudarshana Saikia Prof. ________________________

Ms. Sudarshana Saikia Dr.(Mrs) Shobana Vasudevan

Course Co-ordinator Principal

Date Seal of the College

ACKNOWLEDGEMENT

I acknowledge the valuable assistance provided by S. P Mandali’s R. A. Podar College of Commerce & Economics, for two year degree course in M.Com.

I specially thank the Principal Dr.(Mrs) Shobana Vasudevan for allowing us to use the facilities such as Library, Computer Laboratory, internet etc.

I sincerely thank the M.Com Co-ordinator for guiding us in the right direction to prepare the project.

I thank my guide Prof. Ms. Sudarshana Saikia who has given his/her valuable time, knowledge and guidance to complete the project successfully in time.

My family and peers were great source of inspiration throughout my project, their support is deeply acknowledged.

Signature of the Student

DECLARATION

I, AMIT B. KHOMANE of R. A. PODAR COLLEGE OF

COMMERCE & ECONOMICS of M.Com SEMESTER I, hereby

declare that I have completed the project on APEC in the academic year

2013-2013 for the subject of ECONOMICS OF GLOBAL TRADE

AND FINANCE

The information submitted is true and original to the best of my

knowledge.

Signature of the Student

INDEX

SR. No.

PARTICULARS PAGE NO.

1.1.11.21.31.41.5

IntroductionObjectiveTitle of the projectLayout of the projectLiteratureMethod of data collection

1-612255

2.

3.

APEC

WHAT IS APEC ?

APEC stands for the Asia-Pacific Economic Cooperation Forum. Today, APEC has 21 members,

including all the major economies of the region and some of the most dynamic, fastest growing

economies in the world. APEC members have a combined Gross Domestic Product of over $16

trillion and carry out 42% of world trade. Over the past decade, APEC has become the primary

vehicle in the region to promote open trade and economic cooperation. APEC's role has grown in

recent years in both depth and scope and now encompasses trade liberalization, business

facilitation, economic and technical cooperation, youth and women.

APEC (Asia Pacific Economic Cooperation) concept was initially

publicly mentioned by former Prime Minister of Australia, Robert Hawke, during a speech in

Seoul, Korea in January 1989. APEC was presented in response to the growing interdependence

among Asia-Pacific economics and the need to establish a stronger community. Later that year,

twelve Asia-Pacific economies met in Canberra, Australia, to establish APEC. The founding

members were: Australia, Brunei Darussalam, Canada, Indonesia, Japan, Korea, Malaysia, New

Zealand, the Philippines, Singapore, Thailand, and the United States. APEC is a forum for 21

Pacific Rim countries (formally Member Economies) that seeks to promote free trade and

economic cooperation throughout the Asia-Pacific region. It was established in response to the

growing interdependence of Asia-Pacific economics and the advent of regional trade blocs in

other parts of the world; to fears that highly industrialized Japan a member of G8 would come to

dominate economics activity in the Asia-Pacific region: and to establish new market for

agriculture products and raw materials beyond Europe where demand had been declining. APEC

works to raise living standards and education levels through sustainable economic growth and to

foster a sense of community and an application of shared interest among Asia-Pacific countries.

APEC include newly industrialized economics, although the agenda of free trade was a sensitive

issue for the developing NIEs at the time APEC founded, and aims to enable ASEAN economics

to explore new export market opportunities for natural resources such as natural gas as well as to

seek regional economic integration (industrial integration) by means of foreign direct investment

Members account for approximately 40% of the world’s population, approximately 54% of the

worlds gross domestic product and about 44% of the world trade for APEC Economic Trends

Analysis in 2012.

Between 1989 and 1992, APEC met as an informal senior

official and Ministerial level dialogue. In 1993, former United States President, William Clinton,

established the practice of an annual APEC Economics Leaders Meeting. The first Annual

Meeting Of the APEC leaders was held at Blake Island, Washington, United States, to give trade

liberalization and economic cooperation further impetus and high level commitment, to develop a

spirit of community, and promote sustainable growth.

Between its establishment in 1989 and the first annual meeting of

APEC leaders in 1993, APEC accepted six new members. In November 1991, three members

were welcomed: China, Hong Kong, and Taiwan. In November 1993, APEC accepted Mexico

and Papua New Guinea; they later accepted Chile as a member in November 1994. Finally, in

November 1998, Peru, Russia, and Vietnam were the latest economies to join the organization.

APEC set the Bogor Goals of, "free and open trade and investment

in the Asia-Pacific by 2010 for developed economies and 2020 for developing economies" in

Bogor, Indonesia in 1994. These Goals guided APEC’s vision over the next two decades. In

1995, APEC established a business advisory body, called the APEC Business Advisory Council

(ABAC), which consists of three business executives from each member country.

The Asia-Pacific region, defined for the purposes of this report as the

current members of the Asia Pacific Economic Cooperation (APEC) forum, has substantial

global economic significance. Among its 21 member economies, APEC includes all 12 of the

current TPP participants (Table 1). It is home to 40% of the world’s population and nearly 60%

of global GDP.5 Moreover, the region’s economies are growing quickly. In 2012, nine of these

21 economies had GDP growth above 5%, while GDP growth in the United States was 2.2%.

Along with increasing economic influence these economies account for a growing share of world

trade. For example, Asia’s share of world imports grew from 18.5% in 1983 to 30.9% in 2011.

The region is significant not just as a burgeoning market, but also as an integral part of global

value chains. The East Asian members, in particular, are highly connected through intermediate

goods trade and involve the United States in complex production networks spanning the Pacific.

In 2009, for example, 64% of Asian nonfuel imports were in intermediate goods and over $600

billion in intermediate goods moved between Asia and North America. The Asia-Pacific region

represents an important source and destination for U.S. trade and investment. Together, these

economies represent over 60% of overall U.S. trade and about one quarter of the stock of foreign

direct investment (FDI) into and out of the United States.Yet, there remains great potential for

further U.S. economic engagement with the region. Some U.S. policy observers argue that the

United States has fallen behind in its focus on market access abroad, particularly in emerging

Asia and Latin America. The proposed TPP, congressional approval of the U.S. FTAs with

Colombia, Panama, and South Korea, and the Administration’s National Export Initiative (NEI)

goal of doubling exports by 2015, suggest a continued U.S. interest in opening markets and

expanding U.S. economic engagement abroad.

In January 1989, Australian Prime Minister Bob Hawke called for more

effective economic cooperation across the Pacific Rim region. This led to the first meeting of

APEC capital of Canberra in November, Chaired by Australian Foreign Affairs ministers Gareth

Evans. Attended by political ministers from twelve countries, the meeting concluded with

commitments for future annual meeting in Singapore and Korea. Countries of the Association of

Southeast Asian Nations (ASEAN) opposed the initial proposal, instead proposing the East Asia

Economic which would exclude non-Asian countries such as the United States, Canada,

Australia, and New Zealand and. This plan was opposed and strongly criticized by Japan and the

United States.

The first APEC Economic Leaders' Meeting occurred in 1993

when U.S.President Bill Clinton, after discussions with Australian Prime Minister Paul Keating,

invited the heads of government from member economies to a summit on Blake Island. He

believed it would help bring the stalled Uruguay Round of trade talks back on track. At the

meeting, some leaders called for continued reduction of barriers to trade and investment,

envisioning a community in the Asia-Pacific region that might promote prosperity through

cooperation. The APEC Secretariat, based in Singapore, was established to coordinate the

activities of the organization.

During the meeting in 1994 in  Bogor, Indonesia, APEC leaders

adopted the Bogor Goals that aim for free and open trade and investment in the Asia-Pacific by

2010 for industrialized economies and by 2020 for developing economies. In 1995, APEC

established a business advisory body named the APEC Business Advisory Council (ABAC),

composed of three business executives from each member economy.

APEC currently has 21 members, including most countries with a

coastline on the Pacific Ocean. However, the criterion for membership is that the member is a

separate economy, rather than a state. As a result, APEC uses the term member economies rather

than member countries to refer to its members. One result of this criterion is that membership of

the forum includes Taiwan (officially the Republic of China, participating under the name

"Chinese Taipei") alongside Peoples Republic of China as well as Hong Kong, which entered

APEC as a British colony but it is now a Special Administrative Region of the Peoples Republic

of China. APEC also includes three official observers: ASEAN, the Pacific Islands Forum and

the Pacific Economic Cooperation Council.

To meet the Bogor Goals, APEC carries out work in three main areas:

1. Trade and Investment Liberalization

2. Business Facilitation

3. Economic and Technical Cooperation

APEC and Trade Liberalizations

According to the organization itself, when APEC was established in

1989 average trade barriers in the region stood at 16.9 percent, but had been reduced to 5.5% in

2004.

APEC's Business Facilitation Efforts

APEC has long been at the forefront of reform efforts in the area of

business facilitation. Between 2002 and 2006 the costs of business transactions across the region

was reduced by 6%, thanks to the APEC Trade Facilitation Action Plan (TFAPI). Between 2007

and 2010, APEC hopes to achieve an additional 5% reduction in business transaction costs. To

this end, a new Trade Facilitation Action Plan has been endorsed. According to a 2008 research

brief published by the World Bank as part of its Trade Costs and Facilitation Project, increasing

transparency in the region's trading system is critical if APEC is to meet its Bogor Goal

targets. The APEC Business Travel Card, a travel document for visa-free business travel within

the region is one of the concrete measures to facilitate business. In May 2010 Russia joined the

scheme, thus completing the circle.

APEC has taken a number of steps to liberalize regional trade. For

example, in 1999 it launched the APEC Open Skies Agreement, the first multilateral air services

liberalization agreement in the world. In 2001, Leaders endorsed the U.S.-proposed "Shanghai

Accord" that emphasizes implementation of APEC's commitments to open markets, structural

reform, and capacity building. As part of the Accord, Leaders committed to develop and

implement APEC transparency standards, reduce trade transaction costs in the Asia-Pacific

region by 5 percent over 5 years, and pursue trade liberalization policies relating to information

technology goods and services.

Proposed Free Trade Area of the Asia-Pacific

APEC first formally started discussing the concept of a Free Trade Area of the

Asia-Pacific at its summit in 2006 in Hanoi. However, the proposal for such an area has been

around since at least 1966 and Japanese economist Kiyoshi Kojima's proposal for a Pacific Free

Trade agreement proposal. While it gained little traction, the idea led to the formation of Pacific

Trade and Development Conference and then the Pacific Economic Cooperation Council in 1980

and then APEC in 1989.

In more recent times, economist C. Fred Bergsten has been the foremost

advocate of a Free Trade Agreement of Asia-Pacific. His ideas convinced the APEC Business

Advisory Council to support this concept.

The proposal for a FTAAP arose due to the lack of progress in the  Doha

Round of World Trade Organization negotiations, and as a way to overcome the "spaghetti bowl"

effect created by overlapping and conflicting elements of the umpteen free trade agreements—

there are approximately 60 free trade agreements, with an additional 117 in the process of

negotiation in Southeast Asia and the Asia-Pacific region. The FTAAP is more ambitious in

scope than the Doha round, which limits itself to reducing trade restrictions. The FTAAP would

create a free trade zone that would considerably expand commerce and economic growth in the

region. The economic expansion and growth in trade could exceed the expectations of other

regional free trade areas such as the ASEAN plus Three (ASEAN + China, Japan, and South

Korea). Some criticisms include that the diversion of trade within APEC members would create

trade imbalances, market conflicts and complications with nations of other regions. The

development of the FTAAP is expected to take many years, involving essential studies,

evaluations and negotiations between member economies. It is also affected by the absence of

political will and popular agitations and lobbying against free trade in domestic politics.

APEC Business Advisory Council

The APEC Business Advisory Council (ABAC) was created by the APEC

Economic Leaders in November 1995 with the aim of providing advice to the APEC Economic

Leaders on ways to achieve the Bogor Goals and other specific business sector priorities, and to

provide the business perspective on specific areas of cooperation.

Each economy nominates up to three members from the private sector to

ABAC. These business leaders represent a wide range of industry sectors. ABAC provides an

annual report to APEC Economic Leaders containing recommendations to improve the business

and investment environment in the Asia-Pacific region, and outlining business views about

priority regional issues. ABAC is also the only non-governmental organization that is on the

official agenda of the APEC Economic Leader’s Meeting.

Annual APEC Economic Leaders' Meetings

Since its formation in 1989, APEC has held annual meetings with

representatives from all member economies. The first four annual meetings were attended by

ministerial-level officials. Beginning in 1993, the annual meetings are named APEC Economic

Leaders' Meetings and are attended by the heads of Government from all member economies

except Taiwan, which is represented by a ministerial-level official. The annual Leaders' Meetings

are not called summits.

Meeting developments

In 1997, the APEC meeting was held in Vancouver. Controversy arose after

officers of the Royal Canadian Mounted Police used pepper spray against protesters. The

protesters objected to the presence of autocratic leaders such as Indonesian president Suharto.

At the 2001 Leaders' Meeting in  Shanghai, APEC leaders pushed for a new

round of trade negotiations and support for a program of trade capacity-building assistance,

leading to the launch of the Doha Development Agenda a few weeks later. The meeting also

endorsed the Shanghai Accord proposed by the United States, emphasizing the implementation

of open markets, structural reform, and capacity building. As part of the accord, the meeting

committed to develop and implement APEC transparency standards, reduce trade transaction

cost in the Asia-Pacific region by 5 percent over 5 years, and pursue trade liberalization policies

relating to information technology goods and services.

In 2003, Jemaah Islamiah leader Riduan Isamuddian had planned to attack

the APEC Leaders Meeting to be held in Bangkok in October. He was captured in the city

of Ayutthaya, Thailand by Thai police on August 11, 2003, before he could finish planning the

attack. Chile became the first South American nation to host the Leaders' Meeting in 2004. The

agenda of that year was focused on terrorism and commerce, small and medium

enterprise development, and contemplation of free trade agreements and regional trade

agreements.

The 2005 Leaders' Meeting was held in  Busuan,South Korea. The meeting

focused on the Doha round of World Trade Organization (WTO) negotiations, leading up to

the WTO Ministerial Conference of 2005 held in Hong Kong in December. Weeks earlier, trade

negotiations in Paris were held between several WTO members, including the United States and

the European Union, centered on reducing agricultural Trade Barriers. APEC leaders at the

summit urged the European Union to agree to reduce farm subsidies. Peaceful protests against

APEC were staged in Busan, but the meeting schedule was not affected.

At the Leaders' Meeting held on November 19, 2006 in  Hanoi, APEC

leaders called for a new start to global free-trade negotiations while condemning terrorism and

other threats to security. APEC also criticised North Korea for conducting a Nuclear test and

a missile test launch that year, urging the country to take "concrete and effective" steps

toward nuclear disarmament. Concerns about nuclear proliferation in the region were discussed

in addition to economic topics. The United States and Russia signed an agreement as part of

Russia's bid to join the World Trade Organization.

The  APEC Australia 2007 Leaders' Meeting was held

in Sydney from 2–9 September 2007. The political leaders agreed to an "aspirational goal" of a

25% reduction of energy intensity correlative with economic development. Extreme security

measures including airborne sharpshooters and extensive steel-and-concrete barricades were

deployed against anticipated protesters and potential terrorists. However, protest activities were

peaceful and the security envelope was penetrated with ease by a spoof diplomatic

motorcade manned by members of the Australian television program The Chaser, one of whom

was dressed to resemble the Al-Qaeda leader Osama bin Laden.

The APEC USA 2011 Leaders' Meeting was held on Honolulu, Hawaii 8–

13 November 2011.

APEC Leaders' Family Photo

At the end of the APEC Economic Leaders' Meeting, the leaders in

attendance gather for what is officially known as the APEC Leaders' Family Photo. A long-

standing tradition for this photo involved the attending leaders dressing in a costume that reflects

the culture of the host member. The tradition dates back to the first such meeting in 1993 when

then-U.S. President Bill Clinton outfitted the leaders in leather Bombardier jackets. However, at

the 2010 meeting, Japan opted to have the leaders dress in smart casual rather than the

traditional kimono. Similarly, when Honolulu was selected in 2009 as the site for the 2011 APEC

meeting, U.S. President Barrack Obama joked that he looked forward to seeing the leaders

dressed in "flowered shirts and grass skirts". However, after viewing previous photos, and

concerned that having the leaders dress in aloha shirts might give the wrong impression during a

period of economic austerity, Obama decided that it might be time to end the tradition. Leaders

were given a specially designed aloha shirt as a gift but were not required to wear it for the photo.

Criticism

APEC has been criticized for promoting free trade agreements that would trammel national and

local laws, which regulate and ensure labor rights, environmental protection and safe and

affordable access to medicine. According to the organization, it is "the premier forum for

facilitating economic growth, cooperation, trade and investment in the Asia-Pacific region"

established to "further enhance economic growth and prosperity for the region and to strengthen

the Asia-Pacific community". However, whether it has accomplished anything constructive

remains debatable, especially from the viewpoints of European countries that cannot take part in

APEC and Pacific Island nations that cannot participate but will suffer its consequences.

APEC has taken a number of steps to liberalize regional trade. For example, in 1999 it launched

the APEC Open Skies Agreement, the first multilateral air services liberalization agreement in

the world. In 2001, Leaders endorsed the U.S.-proposed "Shanghai Accord" that emphasizes

implementation of APEC's commitments to open markets, structural reform, and capacity

building. As part of the Accord, Leaders committed to develop and implement APEC

transparency standards, reduce trade transaction costs in the Asia-Pacific region by 5 percent

over 5 years, and pursue trade liberalization policies relating to information technology goods

and services.

APEC senior officials oversee the ten following groups, covering areas of economic, educational,

and environmental cooperation. Additionally, APEC has a Committee on Trade and Investment

with customs, standards, and conformance subcommittees.

    • Trade and Investment Data – develops consistent and reliable data in merchandise trade,

trade in services, and investment.

    • Trade Promotion – develops proposals to exchange trade and industrial information.

    • Industrial Science and Technology – expands technology flows and networks potential

partners in the Asia-Pacific region.

    • Human Resource Development – seeks ways to exchange information among Asia-Pacific

countries in business administration, industrial training, and innovation, project management, and

planning.

    • Energy Cooperation – develops cooperative projects on coal utilization, technology

transfer, and resource exploration.

    • Marine Resource Conservation – exchanges information on policy and technical aspects of

marine pollution and coastal zone planning.

    • Telecommunications – compiles surveys on telecommunications environment.

    • Transportation – studies and recommends ways to improve infrastructure and enhance

transport security.

    • Tourism – studies regions’ important industries.

    • Fisheries – studies pattern of fisheries to develop resources and initiation coordination

between APEC members.

This conference provided a useful opportunity to reflect on the

present and possible future role of APEC. In Recent years veteran APEC watchers’ have rather

complacently dismissed the grouping as irrelevant. But we have under estimated its contribution

to the new matrix of economics alliances that are emerging within the region.

APEC is easy to dismiss. It has no institutional structure or

binding legal agreements and sets ambitions goals for free trade and investments that most of its

members appeared to have no intention of meeting. Yet its informally and flexibility may be its

major advantage, as its proponents have often claimed. The top down approach of negotiating

ever-expanding formal regional treaties in Europe and Americans is stalling in the face of

popular and political opposition to the neoliberal agenda the loss of sovereignty and the

dominance of superpowers.

When APEC tried to present itself as the regional equivalent of the EU and

NAFTA it faced similar opposition from member’s governments and popular movements.

The more recent strategy, led by evangelical neoliberal governments in the

region, has been to work less visibly from the 'bottom up'. That has helped create a new

momentum that is much more difficult to mobilize against. Yet focusing only on this momentum

disguises fundamental problems. These agreements reflect different models for regional

capitalism, and the competing power politics and hegemonic aspirations of larger powers in the

region. Their coverage and terms are uneven, making integration of the multiplicity of

agreements almost impossible. Moreover, if governments try to implement all the current and

proposed agreements they will create major social, economic and political conflict. These

contradictions echo and are likely to intensify the instability and vulnerability of the multilateral

'trade' agenda.

HISTORYOF APEC

APEC's history can be divided into four periods. The original proposals for

a regional economic grouping came from Australia, supported by Japan and New Zealand, in

1988. This was a response to the paralysis of the Uruguay round and predictions that the world

would split into three axes: Europe, the Americas and Asia (Africa was deemed irrelevant). At

that time the Asian tigers were predicted to be the powerhouse of the 21st century, but there was

no effective regional economic mechanism. ASEAN was seen as limited and ineffective,

especially by Australia, New Zealand, South Korea and Japan who were excluded. China was

barely on the radar screen. The US bullied its way in to this arrangement, despite opposition from

Australia, but with support from Japan who felt it would otherwise be targeted as the sole

superpower in the grouping. Unlike the EU and NAFTA, APEC's rhetoric of 'open regionalism'

was designed to act as a catalyst for the global agenda, rather than create a preferential regional

bloc. Interest in APEC was hard to sustain once the Uruguay round got moving after 1990 and

their next few annual meetings of trade ministers were non-events. President Clinton reluctantly

convened the first leaders' summit in 1993, so that the US had something to show for hosting the

meeting. There were limited protests in Seattle that mainly involving North American NGOs and

unions.

From 1994 to 1996 APEC became infamous for the extravagance of its

meetings and its rhetoric. The host 'economy' in 1994 was Soeharto's Indonesia. Under the strong

influence of the US, Indonesia got APEC members to adopt the voluntary and non-binding

'Bogor Goal' of achieving free and open trade and investment by 2010 for its 'developed' member

economies and 2020 for 'developing' economies. Mahathir immediately signaled Malaysia's

dissent. In Osaka in 1995 member governments produced their first Individual Action Plans

setting out the steps they would take to achieve the Bogor goal and a Collective Action Plan to

develop common policy positions on key issues. This was built on in Manila in 1996.

Over this time, a split became apparent between the aggressive free

trade and investment agenda of APEC's Anglo-American members and the economic integration

approach of the Asian governments, led by Japan. That internally paralysed APEC. Externally,

APEC faced mounting opposition at the annual ministers and leaders' summits. Building on a

small gathering of activists in Indonesia in 1994, regional NGOs met in Osaka in 1995 to analyse

and oppose these developments. Popular movements, as well as NGOs, held mass mobilizations

in the Philippines in 1996. Connections were made with structural adjustment at the national

level and the newly created WTO. Media scepticism helped foster a major credibility crisis for

APEC.

In 1997 most commentators were writing APEC's obituary. The Vancouver

leaders' summit came shortly after the collapse of Indonesian and Thai economies and Malaysia's

intervention in currency markets. During the meeting itself the South Korean economy also

collapsed. Proposals led by the Anglo-Americans to boost the WTO through Early Voluntary

Sector Liberalization failed to gain support (although some of that groundwork has resurfaced in

the sectoral negotiations on non-agricultural products (NAMA) in the Doha round). Bitter

divisions continued through 1998 when Malaysia was the APEC chair and the US boycotted the

annual meeting. Vancouver saw the last of the major regional protests against APEC: the British

Columbia provincial government hosted a mass-scale, politically moderate 'NGO Olympics' in

Vancouver that provided little momentum for ongoing regional activism. The small-scale protests

in Kuala Lumpur in 1998 blended with the local politics of the reform asim movement.

Since 1999 APEC has slowly emerged from this near death experience in a

different, but temporarily more effective, form. This was not immediately apparent. The 1999

meeting was only saved from being a disaster for the New Zealand host by the brokering of a

political deal with Indonesia on East Timor. This set a precedent for political, rather than

economic, issues to dominate the leaders' meetings. That political element intensified after

September 2001 as the US insisted that security and terrorism took centre stage.

APEC was portrayed by its defenders as a low-key regional version of the G-8. At the same time,

governments still insisted that they were meeting as 'economies', screening out broader

considerations of social justice and human rights, and produced market-driven strategies such as

the STAR initiative (Secure Trade in the APEC Region).

The role of APEC in promoting neoliberal globalization refocused on what

New Zealand officials dubbed the 'Trojan Horse' strategy. The idea was to achieve the Bogor

goals and revitalize the WTO from below by negotiating WTO-plus agreements among APEC's

neoliberal evangelists. This was part of an international response to the crisis in the WTO and a

desire for 'insurance' if multilateralism broke down (1988 revisited). Current research on this

trend by Chris Dent from Leeds University reports 16 FTAs operating internationally in 1990; 72

by 1997; and some 178 in 2004, with many more being negotiated or proposed. By the end of

2004, 72 FTA projects were underway that involved APEC members.

The ambitious proposal for a Pacific 5 (Singapore, New Zealand, Australia,

Chile and the US) was promoted by New Zealand soon after the Vancouver APEC meeting in

1997 had failed to agree on voluntary sectoral liberalisation and the East Asian crisis altered

perceptions of the regional and global economy. The US and Australia were unenthusiastic. So

New Zealand and Singapore as small country evangelists began negotiations for a bilateral

agreement. Singapore was especially keen to distance itself from the 'failed' East Asian

economies. Australia, Chile, Thailand, Mexico and Hong Kong China subsequently embraced the

bilateral strategy. Meanwhile, the US was pursuing FTAs with many of the same countries,

outside APEC, as part of its own geo-political strategy.

A number of ASEAN governments (notably Indonesia, Philippines and

Malaysia) did not support the 'Trojan Horse' strategy, seeing FTAs as breaking down ASEAN's

solidarity and the prospects for an East Asia Economic Caucus - an idea actively promoted by

Malaysian' Prime Minister Mahathir since the mid-1990s with implicit support from other

ASEAN countries. This has been slowly moving forward. The ASEAN-plus-3 dialogue was

institutionalised in 1999.

Thailand, under WTO Director-General-elect Supachai Panitchpakdi, was more

favorably disposed to FTAs in general, including within ASEAN. The region's new economic

powerhouse, the People's Republic of China, was also warming to the idea. Promoted by

Supachai and Chinese Premier Zhu Rongji a China-ASEAN Framework Agreement on

Comprehensive Economic Co-operation was signed in 2002. This agreed to an 'early harvest' of

tariff cuts by China in favour of ASEAN, ahead of those for other WTO members, and a China-

ASEAN FTA (CAFTA) to be implemented in 2010. This would potentially create the third

largest free trade area in the world.

The Anglo-American lobby was once again worried about being left out. In

2004 at the annual trade ministers meeting in Chile, the US, Australia, New Zealand, Chile,

Singapore, Taipei and Canada pushed to blend these initiatives into an Asia Pacific FTA -

something the APEC business lobby (APEC Business Advisory Group or ABAC) had argued for

as a way to overcome the 'spaghetti bowl' effect of the FTAs. China, Japan, Malaysia and

Indonesia sunk the idea. However, Australia and New Zealand did secure agreement from

ASEAN in November 2004 to launch negotiations for a combined FTA in 2005.

As of 2005 almost all APEC members are involved in some kind of FTA

negotiations. Governments still routinely commission crude econometric studies that produce

fanciful predictions of the gains; but they commonly downplay claims that tangible economic

gains will be made. The motives are more strategic than economic. Negotiations between the US

and Chile, Singapore, Thailand and South Korea have been largely influenced by geo-political

relationships. China and Japan have competing hegemonic aspirations that are apparent in their

approach to regional deals, with China in the lead. Countries that agree to negotiate with China,

especially ASEAN, seem more concerned about the process of developing their relationship than

they are about the economic (and social) outcome. Singapore and Chile justify the agreements as

a way to sell themselves as platforms into their regions by providing to foreign investors with

guaranteed 'high quality' neoliberal regimes. There is also an ideological 'demonstration effect'.

The neoliberal evangelists believe that creating a critical mass will help them pressure other

countries to join for fear of being left out, and reduce the influence of domestic opposition.

The result is a competitive form of liberalisation. As occurred within

APEC itself, there are competing models of FTAs that cannot be integrated. The US demands

agreements that reflect its political, economic and strategic interests. Japan and South Korea are

more selective, seeking external opportunities while responding to domestic interests. China is

primarily concerned to establish precedents, learn from negotiations that are relatively

insignificant or secure their energy supplies. The neoliberal evangelists promote pure WTO-plus

bilateral agreements, which they hope can be expanded to cover more parties; they cite the

extension of the Singapore/New Zealand agreement, which became the Pacific Three with Chile

and ultimately the Trans-Pacific Closer Economic Partnership in 2005 after Brunei joined. Sub-

regional initiatives are also underway. Increasingly, these involve governments in a mix of

models: notably ASEAN/CER (Australia and New Zealand), ASEAN/China, and the less

developed ASEAN-plus-three.

The resulting web of agreements and negotiations is fragmented,

uncoordinated and uneven in content and coverage. It remains unclear whether governments

actually intend to implement all these agreements, especially when rich country models are being

pushed on poorer Asian countries where the economic, social and political consequences will be

severe.

Regular meetings of regional trade and finance ministers and political leaders

provide triggers to advance the process at the multilateral and bilateral levels. APEC's 'open

regionalism' is premised on the primacy of multilateral negotiations. Since the first WTO

ministerial meeting in Singapore in 1996, APEC meetings have acted as rolling WTO mini-

ministerials where key WTO players can broker deals and pressure reluctant governments behind

closed doors. However, APEC meetings are just one of many opportunities for mini-ministerials

and the deep ongoing divisions among APEC members and difficulty of gaining consensus on

the Doha round programme means they have had limited impact.

APEC meetings have been much more important as catalysts for the FTAs and RTAs.

Evangelical governments use APEC to ratchet up the process. The desire of Trade Ministers and

Leaders for headlines that can show some outcome from these meetings has produced

opportunistic deadlines for negotiations that require officials and ministers to overcome the

obstacles. Sometimes, one government will finesse the process: New Zealand announced

conclusion of the FTA with Thailand during APEC in Chile in 2004, even though negotiations

were yet concluded, because it feared the Thai government's commitment was weakening in

response to domestic pressure. 

The 'Bogor Goal' of free and open trade and investment by 2010/2020 is used as

justification for neoliberal policies and FTAs. Neoliberal evangelists in Chile, New Zealand,

Singapore, Australia and Hong Kong cite the Bogor Goal as justification for unilateral, bilateral

and regional liberalisation. It is referred to in the preamble and/or text of most agreements

involving APEC members, so as to legitimize the agreement and justify built in reviews that will

extend the original level of liberalisation. It is also used to justify peer pressure within APEC to

ensure that bilaterals comply with WTO requirements for FTAs and the WTO-plus APEC

objectives and various non-binding principles and guidelines. As part of the 'mid-term stock take'

(half way to 2010) it has been agreed that each APEC government's Individual Action Plan is to

include a chapter on FTAs, with a template for reporting on existing and proposed agreements

that cover APEC's wide-ranging neoliberal agenda. The Trade Ministers meeting in 2005 also

called for an active information exchange and forwarding of the APEC best practice guidelines to

the WTO.

APEC's internal work programme is increasingly focused on promoting and shaping FTAs

& RTAs to achieve 'high quality' liberalisation and consistency. Best Practice guidelines for

FTAs were developed in 2004 and endorsed by the Ministers and Leaders meetings. The

Australian government also produced a handbook on FTAs for a workshop on FTA negotiations

in December 2004, which includes a section on how to sell the agreements at home. This is part

of the Australian government's 'capacity-building' activities in APEC that are funded by

AUSAID. Australia's Department of Foreign Affairs and Trade also published a negotiating

guide to FTAs in 2005, which includes the best practice principles and a stylized FTA.

In 2003, 2004 and 2005 APEC has held policy dialogues on FTAs at Senior Official level. More

are planned, specifically to share the experience of the Trans-Pacific CEP (Chile, New Zealand,

Singapore, Brunei) as a model for integrating bilateral FTAs. Training programmes have been

organised to build micro-networks of officials, with several of the APEC Study Centres playing a

key ideological role. 

APEC's ever broadening programme is used to justify WTO-plus FTAs and coherence with

the neoliberal agenda of the international and regional financial institutions. Coverage of

FTAs and Closer Economic Partnerships routinely reaches much further than current WTO

agreements. This creates precedents that become new base lines that can be used to ratchet up the

coverage and the rules in the next phase of FTAs and flow on to the WTO negotiations.

Liberalisation of services has overtaken goods as the primary element of FTAs, with increasingly

use of a negative list approach, which some governments now claim, has become the norm. Other

chapters cover the 'new issues' that were explicitly rejected in Cancun.

This is often justified by reference to 'voluntary and non-binding', 'best practice' principles,

guidelines and policies that have been produced by secretive and undemocratic APEC

committees for many years. They cover investment, competition, government procurement,

structural adjustment, privatization, fiscal austerity, monetary regimes, and more. Most of these

have been produced through a combination of trade officials from evangelic governments, plus

the Pacific Economic Cooperation Council (combining private sector, academics and officials

'acting in their personal capacity') and consultants from the APEC Study Centres. They also often

involve collaboration with the Asian Development Bank. World Bank, IMF and OECD. These

examples of 'best practice' are increasingly referred to in agreements to justify texts or as the

basis for future negotiations.

1989:- APEC begins as an informal Ministerial-level dialogue group with 12 members.

1991:-Chinese Taipei(Taiwan), Hong Kong, and the People’s Republic of China join APEC.

1993:-APEC Economic Leaders meet for the first time and outline APEC’s vision, “stability,

security and prosperity for our peoples.” Mexico and Papua New Guinea join APEC.

1994:-APEC sets the Bogar Goals of “free and open trade and investments in the Asia-Pacific by

2010 for developed Countries and 2020 for developing countries.” Chile joins APEC.

1995:-APEC adopts the Osaka Action Agenda (OAA) which provides a frameworks for meeting

the Bogor Goals through trade and investments liberalization, business facilitation and sectoral

activities

1996:-The Manila Action Plan for APEC(MAPA) is adopted, outlining the trade and investment

liberalization and facilitation measures to reach the Bogor Goals.

1998:- Peru, Russia, and Vietnam join APEC.

1999:- APEC commits to paperless trading by 2005 in developing countries and 2010 in

developing countries.

2000:-APEC establishes an electronic Action Plan and aims to triple Internet access throughout

APEC region by 2005.

2003:-APEC agrees to re-energize the WTO Doha Development Agenda negotiations and stress

the complementary aims of bilateral and regional trade agreements, the Bogor Goals and the

multilateral trading system under the WTO.

For the first time, APEC Members Economies issue a Declaration on Climate change, Energy

Security, and Clean Development outlining future action in support of new international climate

change arrangement and announcing a forward program of practical, cooperative actions and

initiatives.

2008:-APEC leaders addressed the global financial crises, committing to take all necessary

economic and financial measures to restore stability.

2009:-The first-ever joint meetings of APEC senior trade and finance officials are held to address

the economic crisis. APEC launches the Supply- Chain Connectivity Framework and the Ease of

Doing Business Action Plan to make doing business In the region 25 percent cheaper, faster and

easier by 2015.

Strategic Responses

So-called 'free trade' agreements are really strategic initiatives that are driven by a combination

of political allegiances, ideology, hegemonic objectives and fear of marginalization. APEC's

claim to be a body of member economies, and its myopic objective of 'open regionalism' to

achieve free trade and investment by 2010/2020, excludes any critique of neoliberal globalization

and hides the critical contradictions that are intrinsic to 

- competing models of capitalist expansion;

- competing strategies for regional economic integration; and

- competing power politics and hegemonic goals.

If APEC is basically a pimp for the WTO and FTAs, is it worth the ongoing attention of activists

in the region? In the past there have been gains from targeting APEC meetings: local awareness

raising, challenges to an agenda that would otherwise have gone unchallenged, and providing

leverage to debate the broader agenda that APEC represents locally, regionally and in the media.

What form these challenges took was largely a reflection of local priorities and capacity. By the

late 1990s they had been superseded by a new focus on the WTO. Successive meetings in Brunei

and China also made mobilization impossible. Since then, activities around the annual meetings

have been muted, except for anti-FTAA activities in Chile in 2004 and potentially South Korea

this year.

The effectiveness of anti-APEC activities can also be seen as a product of the 1990s. Since the

crisis in the WTO, and the current blind panic to sign up bilateral agreements, it has become

much more difficult to derail the APEC agenda and hence those bilateral deals. This new role for

APEC may be short lived. It is likely to become less significant again in the future, once the deals

have been done or negotiations have collapsed - especially if ASEAN/China unleashes a new

dynamic. New divisions are likely to emerge between Asia/Latin America/ the US and

Australia/New Zealand and between the neoliberal evangelists, Chinese and Japanese hegemonic

interests, economic nationalists, and US imperialists.

The economies of the world are becoming more closely integrated. As a result, international

institutions and organizations that foster economic cooperation are becoming increasingly

important. One of the most important of these organizations is APEC, the organization for Asia-

Pacific Economic Cooperation. Over two billion people live in APEC member economies. In

1992, the combined GDP of the seventeen APEC countries exceeded US$ 12 trillion. Together,

APEC economies account for about 5 percent of the world population, output, trade and direct

investment stock, and that proportion is increasing. The Asia-Pacific region is expected to play a

pivotal role in Canada’s future economic growth. It is the most populous and dynamic region in

the world today, with huge growth potential. For the past three decades, it has achieved a faster

rate of economic growth than any other. Exploiting markets in this region is becoming

increasingly important to the achievement of Canada's economic goals in terms of trade, tourism

and investment opportunities; in technology acquisition; in job creation; in sustaining a sound

macroeconomic environment; in managing the demographics of immigration; and in responding

to regional shifts in Canada's domestic economy and employment patterns.

Almost all of Canada's trade (over 86 percent) is done with APEC member countries. During the

1980s, Canada sent a rising proportion of its exports to APEC countries (primarily the US). It

also imported more from APEC countries during that period. In particular, the share of our

imports coming from Asia APEC countries doubled from 7 percent to 13 percent between 1980

and 1992. In terms of investment linkages, APEC member economies (again, primarily the US)

remain the most important to Canada. While the 1980s have seen the share of Asia APEC double,

as both a home country for FDI in Canada and as host for Canadian direct investment abroad, the

region still only accounted for 6 percent of foreign direct investment in Canada and received only

7 percent of Canadian direct investment abroad in 1992. Canada's trade and investment linkages

with Asia APEC economies are growing very fast, but from a small base. Hence, there is

considerable scope for Canada to strengthen its commercial ties with these economies. At present

there are no reliable and consistent time series data available on inward and outward direct

investment stocks and flows in APEC countries, and we do not know much about the relationship

between direct investment flows and trade. This places serious constraints on our understanding

of the dynamics of economic integration in the APEC region and what it means for Canada. A

previous APEC study of foreign direct investment by Dobson, Safari an and China (1993)

suggested that FDI is playing a dominant role in furthering economic integration among APEC

countries, especially between Asia and non-Asia APEC countries and within the Asian group of

countries. Therefore, the main focus of this study, an earlier version of which has been published

by the APEC Secretariat, is to build on the work of Dobson, Safarian and Chia (1993), and to

develop a reasonably consistent direct investment database for APEC, and to examine in some

detail the trends in investment linkages among APEC countries in the 1980s and their relations

APEC Economic Integration: Trade Linkages

Between 1980 and 1992, trade linkages between the Asia APEC and the non-Asia APEC

member economies strengthened considerably. Similarly, the importance of intra-Asia APEC and

intra-non-Asia APEC trade in the total trade of these two sub-groups increased substantially. As

a result, the share of intra-APEC trade in total APEC trade climbed from about 58 percent in

1980 to about 70 percent in 1992.

Trade linkages between APEC and the rest of the world (ROW) declined dramatically in the

1980s while trade linkages with the European Union (EU) remained virtually unchanged.

APEC Economic Integration: Investment Linkages

In 1992, intra-APEC inward FDI stock accounted for about 50 percent of the total APEC FDI

stock, with roughly equal shares coming from Asia APEC and non-Asia APEC.

In both the ASEAN and the newly industrializing economies (NIEs), the single most important

source of FDI was Asia APEC, with Japan and the NIEs being the main source countries. Non-

Asia APEC member economies are more important investors in the NIEs than in the ASEAN

countries.

The shares of Japan and the EU in the total inward FDI stock of the non-Asia APEC region

increased considerably during the 1980s. On the other hand, the importance of the US as a source

country declined markedly.

In 1992, almost half of the APEC outward direct investment stock went to other APEC member

economies, 30 percent went to the EU and 20 percent to other countries around the globe. During

the 1980s, the shares of APEC and EU increased significantly at the expense of a decline in the

ROW share

While APEC as a source of FDI in other APEC member economies is declining, overall

investment linkages between the region’s countries are strengthening.

Within APEC, non-Asia APEC countries are linked more closely through direct investment ties

with other member economies than are Asia APEC countries.

In terms of overall investment linkages, Asia APEC is predominantly linked to non-Asia APEC

member economies. In terms of inward flows alone, however, intra-Asia APEC linkages

dominate.

Interrelationship between Trade and Investment Linkages

The following factors seem to have played a major role in shaping the trade and investment

patterns of APEC member economies in the 1980s: faster rates of economic growth in APEC

member economies, especially in the Asia APEC region; the complementary nature of trade

among APEC member economies; very low labour costs in the Asian countries (except Japan);

geographic proximity and rapid changes in the comparative advantage position of APEC member

economies; cultural affinity of economies in the three APEC sub-groups: Asia APEC, North

America, and Australia- New Zealand (ANZ); regional free trade agreements (FTA, NAFTA,

ASEAN and ANZ); the opportunities and fears associated with the advent of the EU; slower

economic growth in the ROW countries; declining real commodity prices; and, more importantly,

the stronger investment linkages between APEC member economies.

The trade and investment patterns of all APEC member economies showed a strong and positive

correlation in both 1980 and 1992, suggesting trade and FDI are complements rather than

substitutes. The trends in trade flows and the two direct investment stocks in APEC member

economies in the 1980s also imply complementarity between trade and investment linkages.

The total elasticity of trade flows to inward and outward FDI stocks for the APEC region

averages around 0.6. Nevertheless, it varies significantly across APEC member economies

(between 0.3 and 0.8), with a lower elasticity in Asia APEC countries. Investment is leading the

integration of APEC economies and trade linkages are developing in response to investment

patterns. In policy terms, the analysis suggests that efforts to facilitate investment and trade

should continue; this will inevitably bring pressures to harmonize policies among APEC

countries in areas such as corporate law, intellectual property, and competition.

Possible Explanations of Economic Convergence

As mentioned above, recent research by the World Bank and others shows that

the postwar growth performance of industrialized countries and the Asia APEC member

economies is consistent with the economic convergence thesis. This theory postulates that if the

"follower" countries pursue appropriate micro and macro-economic policies, they should be able

to improve their real incomes faster than the "leader" country (the technology and productivity

leader). This is because they enjoy the "opportunities of backwardness". The follower countries

can emulate the leader's production technologies and management practices and achieve very

high rates of output and real income by increasing investments in infrastructure, physical capital

and R&D, without running into diminishing returns. Similarly, the scope for rapid structural

change and improvement in competitiveness and comparative advantage positions are much

larger in follower countries than in the "leader" country. In short, the convergence thesis asserts

that having relatively low levels of productivity and per-capita income carries the potential for

rapid advancement. There is some evidence that the rapid diffusion of "frontier" technologies in

Asia APEC member economies over the last thirty years or so, particularly in Japan and the

NIEs, has contributed in a significant way to the process of economic convergence. A 1988 study

showed that in many production processes, the technology used in the ROK and Chinese Taipei

was either equivalent to that used in Japan, or would be equivalent in the next five years. In

contrast, the technology gap between the PRC on one hand, and the NIEs and ASEAN countries

on the other, is substantial. However, technology gap could plausibly narrow significantly over

the next two decades or so as the PRC strengthens its trade and investment linkages with other

APEC member economies, especially Japan, the US and the NIEs. A number of studies have

attempted to explain the phenomenal growth of Asia APEC member economies and the resulting

convergence of their real incomes toward those of the developed market economies. These

studies show that the convergence process is not automatic. Instead, both the level and speed of

economic convergence depend on a number of key economic factors. The marked expansion of

exports, high savings and investment rates, low-external debt servicing payments, a well-

educated, well motivated, and skilled work force, flexible and dynamic factor and product

markets, outward-looking and market-oriented economic development policies, well developed

infrastructure and economic institutions, and a stable political climate, seem to have contributed

to the Asian growth miracle. This research attributes the large cross-country differences in real

income growth rates among developing countries (including Asia APEC member economies)

over the past 30 years to differences in three major factors: savings and investment rates, growth

of exports, and levels of human capital (peroxide by secondary school enrolment rates). It seems

that economic integration and outward orientation — in particular increased importance of FDI

and trade flows in the APEC economies — played a significant role in the convergence process.

1. INTRODUCTION

As described in section 2 of the position paper, following the pause in negotiations of the

regional ASEAN-EU FTA in March 2009, the Council in December 2009 gave the green light to

initiate bilateral FTA negotiations with individual ASEAN countries beginning with Singapore.

These individual agreements should be seen as building blocks towards the ultimate objective of

an agreement with ASEAN countries in the regional framework. The first set of negotiations

started with Singapore in early 2010 with the first round being held from 8-15 March.

As set out in the position paper, when the SIA was commissioned, negotiations were in progress

to conclude an EU-ASEAN FTA. By the time the study was completed the negotiations had been

paused.

While the SIA deals with the impacts of the EU-ASEAN FTA, these findings remain valid and

relevant in view of the EU's ultimate goal of an agreement in the regional framework with

ASEAN, despite the focus on bilateral agreements will during an intermediate phase.

This being said, the study does contain useful elements at country level which will be relevant for

bilateral negotiations. It provides country level details where relevant (specific issues and

sectors) and gives an overall picture of directions and magnitude of impacts, with a special focus

on the impact of concluding an FTA with the EU on individual ASEAN countries. And with long

term objectives unchanged, the longer term impacts should remain more or less the same.

However, there may be some effects that are not taken into account at this moment in the

modeling results, including for instance first mover advantages. In the case of Singapore in

particular, gains may be staggered over time, as the gains described in the study will partially

depend on also other ASEAN countries concluding a preferential agreement with the EU. Only

such a more comprehensive trade Liberalization between the EU and ASEAN countries will lead

to substantially increased trade and investment within ASEAN as a region, and a substantial part

of Singapore's gains from an EUASEAN FTA would derive from its position as a hub connecting

other ASEAN countries with external trade partners like the EU.

Singapore holds a unique status amongst ASEAN countries as a developed and industrial

economy with a highly educated population. Singapore is often rated as one of the easiest country

in the world with which to do business and in terms of transparency and corruption issues,

Singapore is one of the world’s leaders ranked 4th in the Global Enabling Trade Report 2008.

Singapore's developed open economy, its experience in FTA negotiations (both alone or as part

of the ASEAN group) and its record in concluding ambitious agreement with developed

economies like the US and Japan indicate that the EU could aspire to negotiate a comprehensive

and ambitious FTA with Singapore. It would not seem unreasonable to expect that overall,

negotiations in the three main negotiating areas – tariffs, services and the regulatory issues (such

as intellectual property, government procurement, regulatory transparency, sustainable

development, competition and dispute settlement) will lead to ambitious results. Such an

outcome would provide a valuable point of reference also for other FTA negotiations. In this

sense, for the EU the merit of FTA negotiations with Singapore lies as much in the intrinsic

commercial benefit of such a deal, as in the systemic value of establishing a good precedent of

what a comprehensive 21st century FTA should look like. In terms of its relationship with the

EU, Singapore is the largest receiver of EU FDI in ASEAN. It has zero tariffs on most goods

coming into its territory. Under an FTA, the most important sector affected, both in the EU and

Singapore will be the services sector and in particular financial and professional services. In

contrast, for example certain environmental issues are less relevant to Singapore in the absence

of large forests or substantial agricultural or fishing activities.

This annex will highlight some of the economic, social and environmental impacts on Singapore

of an FTA as predicted by the study, looking at sectors which are likely to be most affected in

Singapore.

Section 2 will examine the findings of the report and Section 3 will examine the policy

recommendations of the SIA in relation to Singapore. The impact on the EU of an FTA is

discussed in the position paper.

2. OVERVIEW OF FINDINGS

i. ECONOMIC

According to the study, the overall effects of an FTA are positive for Singapore. Under the most

ambitious scenario, national income could rise by €21.5 billion, GDP could increase by 12.89%

skilled real wages could increase by 10.84%, unskilled real wages by 9.36% and the value of

exports could increase by 13.82%.

The authors of the study also argue that in percentage terms Singapore stands to gain most in the

electronics equipment, textiles and insurance sectors. However, textiles is small to negligible in

absolute terms in comparison to other ASEAN countries and overall Singapore stands to gain

most in the services sector. Manufacturing sectors such as machinery and equipment and

transport equipment see a declining trend. Singapore will also see an increasing demand for

skilled labour, as its economy shifts towards higher value added and skilled activities. The

expansion of the insurance sector is also expected to be a main contributor to real income growth.

Investments and the reallocation of capital are the main drivers behind the long run dynamic

efficiency gains from an FTA, which have been assessed as potentially substantial. Singapore,

which already has high base of fixed capital formation, will therefore see substantial dynamic

effects in the longer run. In absolute terms and thus substantially affecting expected GDP growth,

Singapore stands to gain most substantially in terms of increased trade flows, consolidating its

position as a regional trading, sourcing and distribution hub and financial centre.

In specific sectors, Singapore sees small shifts as many of its industries are small scale. For

example agriculture shows some very low percentage shifts but with agriculture only

representing 0.1% of Singapore’s economy the effects are negligible. Although small, the textile

industry in Singapore could see an increase in output of up to 17.56% under the most ambitious

long term scenario. The wearing apparel industry is expected to decline in Singapore and the

leather industry may see a decline in terms of output and employment. It is possible that textile

producers will set up a main production/distribution centre for specific high-end products, which

can then be used by regional apparel producers, especially in a scenario of the EU concluding

FTAs with many ASEAN countries. This example already illustrates the strong inter-linkages

between the textiles and apparel sectors, which are often reflected in trade. There is also a strong

predicted export performance of textile exports for Singapore which may be explained by its role

as a regional node for distribution of specialised textiles from foreign investors.

Singapore is already an important global player in financial services (and to a lesser extent in

insurance services) with financial services and insurance accounting for more than 10% of GDP.

Singapore has a competitive advantage in the financial services sector in ASEAN and will benefit

most significantly in this sector from an FTA with a large increase expected in its exports of both

financial services (almost 18 percent under scenario 2 and 3) and insurance (around 28 percent

under the same scenarios).

Increases in output (e.g. increases in bank services provided, asset management services

provided, etc.) are expected to be most substantial with a gain of almost 6.7 percent in the long

run most ambitious scenario. For insurance, output is expected to increase by 16 percent in the

long run. This is likely to translate into a substantial impact on the economy as a whole as the

financial services sector, including insurance, constituted 12.4 percent of total value added in

2007. Employment of both skilled and unskilled workers in the financial services and insurance

sectors will see a clear increase.

In terms of the opening up of the EU’s market in financial services, from Singapore’s perspective

although the EU has opened its markets significantly, the study argues that a major non-tariff

barrier is constituted by the absence of convergence in regulation among member states,

including accounting standards and differences in the implementation of the Basle-II framework

for banks, as well as different regulatory requirements for banking and other financial services.

These relate to reciprocal national treatment clauses, local licensing requirements, regulatory

approval for setting up operations, and the absence of national treatment in some cases.

The SIA study also highlights the current situation in the financial services sector and points out

factors of interest to EU negotiators, for example:

• Though foreign equity limits have been removed the government has indicated that it will not

allow foreign ownership of some main banks;

• Bound WTO commitments still set a 49 percent limit on foreign ownership for insurance;

• Entry for reinsurance broking and MAT insurance is only open to US companies (approved by

Monetary Authority of Singapore);

• Foreign “full banks”, except for US banks, may not increase their number of places of business

without approval of the Singapore Monetary Authority; they are limited to up to 25 branches and

offsite ATMs. (Under the US-Singapore FTA, US banks can establish as many branches as a

local Singaporean bank). Restrictions on new establishments of insurance companies and

representative offices, branching permitted only when engaged in external business only;

Singapore also would stand to gain from improvement in IPR protection levels as a better

operating environment for IP-centric firms and sectors would in turn induce knowledge and

technology transfers. The CGE model results in the SIA estimate that the income gains

attributable to NTB reduction in EUASEAN FTA for ASEAN as a whole lies between € 6,7

billion (scenario 1) and € 20 billion (scenario 3). The deeper the FTA scenario, the larger the

gains for ASEAN as a whole are expected to be. In scenario 3, Singapore would gain

significantly. Given the large estimated effect of IP infringements on investment in the ASEAN

region, the results from the CGE model are expected to underestimate the positive impacts on the

economy induced by FDI (which is not completely incorporated into the model). This implies

that additional FDI attraction effects, induced by improved IPR climates, might bring significant

additional benefits to the ASEAN regions, especially for Thailand and Singapore and in

knowledge-intense or copyright-sensitive sectors

ii. SOCIAL

In the small textile and garments sector, working conditions in Singapore are generally found by

the study to be good with comparatively clean and safe working conditions in factories. Migrant

workers make up a significant share of the total workforce in the textiles and particularly clothing

factories.

Many are legal migrants from e.g. Indonesia and Bangladesh. Singapore has signed a number of

agreements with labour ‘exporting’ countries on temporary labour. Laws on trade unions do

exist, but the role assumed by trade unions is sometimes questioned.

Under an FTA some employment increases are to be expected in the textiles sector in Singapore.

However it should be borne in mind that this is a small sector compared to Singapore's overall

economy. Any increase will in any case exert a pull on workers from other Asian countries, given

the dependence of the TCF sectors on foreign workers in Singapore. The biggest expected

decrease in employment from an FTA (percentage change in unskilled labour in the long range

scenario would be 14.5% for clothing and 14.9% for footwear which represent a very small

percentage of the workforce In the financial services sector, as opposed to most other ASEAN

countries, employment is expected to increase together with the insurance sector. The SIA model

expects an increase of 4.42% in skilled labour and 5.93% in unskilled labour.

The effects on other sectors in Singapore are likely to be negligible. For example in the small

fisheries sector, employment could decrease by between 0.3 and 3% in the long run. The effect of

increased FDI in ASEAN is not included in the modelling results. This is likely to affect

employment positively and particularly in Singapore as - at least so far - the main recipient of

FDI in ASEAN. To the extent that this investment concerns outsourcing of activities, it is likely

to benefit unskilled workers most, as they have traditionally been the main focus of outsourcing

of back office services in the financial sector. In the longer-run, outsourcing may concern

medium skilled and higher skilled labour as well.

iii. ENVIRONMENTAL

Given the scope of business activities pursued in Singapore, on its own the environmental impact

of an FTA will be negligible. However, in its role as a major trading hub, Singapore cannot turn a

blind eye to environmental issues, for instance in relation to illegal trade in environmentally

sensitive goods (e.g. timber, wildlife, waste and chemicals)

The effects of increased ASEAN-EU trade are difficult to quantify and the SIA does not attempt

to break down the effects per country. The general effects as detailed in the main position paper

under section 3 can be equally applied to Singapore.

3. RECOMMENDATIONS MADE BY THE CONSULTANT AND THE COMMISSION

SERVICES' VIEWS ON THEM

The recommendations of the SIA apply to all the ASEAN countries and as such, most of the

conclusions in the chapter on recommendations (section 4) can be applied to Singapore, albeit to

varying degrees on account of Singapore's peculiar economic structure vis-à-vis other ASEAN

countries. This section highlights recommendations of particular relevance to Singapore.

i) FTA Measures

Inclusion of a sustainable development chapter

As stated in the section 4.1, inclusion of a trade & sustainable development chapter is an essential

feature in a modern EU FTA. While Singapore can be expected to abide by high labour standards

and has signed up the core ILO conventions and similarly in the area of environment to have

ratified the major conventions, measures to promote high levels of labour and environmental

standards, including fisheries governance, are important. This is important for Singapore itself

but will also be an important example for future bilateral FTAs. More discussions will be

necessary on civil society dialogue including with trade unions. Such dialogues would enable

civil society to take a strong role in monitoring and evaluation of the FTA as recommended by

the consultants.

As already mentioned, Singapore’s economy is already rather open so some of the

recommendations such as improvement of the business and investment climate are much less

relevant in this specific context.

Singapore as a highly developed country receives no development assistance from the EU.

Therefore, the EU will be ready to provide assistance in the form of dialogue and policy advice to

address the issues arising from adjustment costs brought about by the FTA (recommendation 11)

As far as specific economic issues are concerned dialogue and cooperation could be enhanced on

competition policy issues. Although Singapore has liberalised and deregulated her economy well

ahead of her ASEAN neighbours, it has only recently developed a Competition Law. Singapore

has long argued that an open trade and investment regime will transmit competitive forces

throughout the domestic economy. However, the experience of other countries shows that local

firms and even government monopolies may collude to restrict entry. In 2004, the Competition

Act was passed and Competition Authority established.

ii) SOCIAL

Most of the recommendations of the SIA are not under the remit of the EU as Singapore is not a

recipient of EU assistance. Singapore's commitment to labour standards can be demonstrated by

the fact that it has ratified twenty ILO Conventions covering a wide range of topics, among them

forced labour, the worst forms of child labour, the right to organize and collective bargaining.

More than 70 other instruments are under consideration with a view to ratification. In 2005

Singapore became the first deputy member of the ILO’s Governing Body from the ASEAN

grouping. The country has been elected as a titular member of the Governing Body for the

ASEAN region for the term 2008-2011.

iii) ENVIRONMENTAL

While the environment is not expected to be significantly affected by additional commercial

activity within Singapore, Singapore is still involved in these issues by virtue of its status as

trading hub with ASEAN, and as member of the ASEAN group. For example, the issue of timber

products harvested illegally and exported via Singapore merits attention, as does any illegal trade

in environmentally sensitive goods. How this and other environmental issues (NTBs facing

environmental goods and services, the scope for greener public procurement and investment

patterns etc.) can best be addressed requires further reflection and dialogue with Singapore.

Singapore’s economic freedom score is 88, making its economy the 2nd freest in the 2013 Index.

Its score is 0.5 point higher than last year, with advancement in financial freedom outweighing

small deteriorations in five other economic freedoms. Singapore is ranked 2nd out of 41

countries in the Asia–Pacific region. Prudent macroeconomic policy within a stable political and

legal environment has been the key to Singapore’s continuing success in maintaining one of the

world’s highest levels of economic freedom. Well-secured property rights promote

entrepreneurship and productivity growth. A strong tradition of minimum tolerance for

corruption is institutionalized in an efficient judicial framework, strongly sustaining the rule of

law.

Singapore’s openness to global trade and investment has facilitated the emergence of a more

competitive financial sector and continues to provide real stimulus and ensure economic

dynamism. Competitive tax rates and a transparent regulatory environment encourage vibrant

commercial activity, and the private sector is a continuing source of economic resilience and

competitiveness. However, state ownership and involvement in key sectors remain substantial. A

government statutory entity, the Central Provident Fund, administers public housing, health care,

and various other programs, and public debt is equal to a year’s production for the entire

economy.

Background: Singapore is a nominally democratic state that has been ruled by the People’s

Action Party (PAP) since independence in 1965. The PAP won the May 2010 elections with the

lowest percentage of the popular vote in its history. Six opposition members also won seats.

Certain civil liberties, such as freedom of assembly and freedom of speech, remain restricted, but

the PAP has embraced economic liberalization and international trade. Singapore is one of the

world’s most prosperous nations. Its economy is dominated by services, but the country is also a

major manufacturer of electronics and chemicals.

RULE OF LAW

Contracts are secure, there is no expropriation, and the commercial court functions efficiently.

Singapore has one of Asia’s strongest intellectual property rights regimes, although enforcement

could be improved. The government enforces strong anti-corruption measures, and acts of

bribery, whether committed inside Singapore’s territory or overseas, are prosecuted by the

government.

LIMITED GOVERNMENT

The top income tax rate is 20 percent, and the top corporate tax rate is 17 percent. Other taxes

include a value-added tax (VAT) and a property tax. The overall tax burden equals about 14.1

percent of total domestic income. Government spending is equivalent to 17 percent of GDP.

Structural budget surpluses have sustained high debt levels near 100 percent of GDP. The state

remains heavily involved in the economy through government-linked companies.

REGULATORY EFFICIENCY

The overall regulatory environment remains one of the world’s most transparent and efficient.

With no minimum capital required, launching a business takes only three days. There is no

statutory minimum wage, but wage adjustments are guided by the National Wage Council.

Inflation is under control despite the challenging external environment. The state influences

prices through state-linked enterprises and can impose controls as it deems necessary.

OPEN MARKETS

The trade regime is very open and competitive, and no tariffs are imposed on imports. Foreign

and domestic businesses are treated equally under the law, but foreign investment in some

service industries remains limited. As a leading global financial hub, the efficient financial sector

is highly competitive. The government has been opening the domestic market to foreign banks.

Over 100 of 120 commercial banks are now foreign.

CONCLUSION

The present study provides an analysis of, and insight into the impact of the Singapore FTA on

the macroeconomic variables, trade variables and welfare position of and Singapore the countries

of the ASEAN region. The trade consequences of this FTA for the important trading partners of

India, i.e., the United States, European Union, China, the rest of West Asia and the other

developing countries of South Asia are also examined. Three simulations of different scenarios

were made, involving different stages of the FTA (current for implementation of the FTA

between India, Malaysia, Singapore and Thailand; 41 ultimate as of December 2019 when all

countries of the region will have implemented the FTA; and a hypothetical scenario of full

liberalization). In addition, a simulation of the ultimate scenario with IRS assumption for some of

the manufacturing sectors in India was made, and the impact on the economy noted and

compared with the results obtained under the simulations with the assumption of CRS. The

impact of the FTA according to the simulation results is summarized

BIBLIOGRAPHY

www.apec.co.in

www.singapore.in

Journals & other websites