[asia-apec 1573] Fw: Singapore Seeks Pivotal Trade Role

[APEC Monitoring Group]

14 Sept 2000

Stratfor.com
Singapore Seeks Pivotal Trade Role

Summary

Singapore is redoubling its efforts to establish bilateral free trade
agreements, later blending its various agreements into larger regional trade
accords. In doing so, the country improves its export opportunities as well
as increases overall international trade traffic – a process from which it
stands to benefit. This allows Singapore to reap the economic and political
rewards by setting itself up as the fulcrum of Asian trade.

Analysis

The Asian financial crisis sapped the enthusiasm of most Asian states for
more liberalized trade. Not Singapore’s. Over the past two years Singapore
has begun to favor new bilateral free trade agreements over multilateral
accords. In doing so, the government is working to increase its own export
opportunities as well as increase overall international trade traffic, a
process from which it stands to benefit. And as Singapore blends its various
bilateral trade agreements into larger regional trade accords, the country
will reap economic and political rewards for being the initiator and
dealmaker. Singapore is setting itself up as the center of Asian trade.

In the past, Singapore has strongly supported a strong World Trade
Organization (WTO), Asia-Pacific Economic Cooperation (APEC) and Association
of Southeast Asian Nations (ASEAN), three organizations that seek to lower
trade barriers among their members. But simply getting the members of those
organizations to meet takes years. Last year’s disastrous WTO summit in
Seattle vividly demonstrated to Singapore how little hope new trade rounds
have when leading powers – such as the United States and the European
Union – cannot agree on basic issues.

So Singapore has struck out on its own. While the country continues its
longstanding efforts to deepen WTO, APEC and ASEAN, it now favors bilateral
free trade agreements. In the past two years Singapore has signed trade
deals with Australia, Canada, Chile, Japan, Mexico, New Zealand, South Korea
and the United States.

But why is Singapore so committed to free trade? Unlike most of its
neighbors, the 1998-1999 financial crisis did not derail Singapore’s
economic growth. Consequently, there is little sentiment in favor of
protectionism in the Singaporean government.

The underlying reality, however, is that trade is far more important to
Singapore than it is to even the export-oriented economies of Asia. All sea
trade between Europe and Asia passes through the Strait of Malacca, which is
on Singapore’s doorstep. This allows Singapore to profit – as a
transshipment point – from trade in which it is not directly involved. As a
result, Singapore is the world’s largest transshipment point, with an annual
throughput of 16 million containers in 1999. This makes Singapore an
attractive trading partner to any state.

Singapore accounts for approximately 1.5 percent of all global trade, about
the same amount as Mexico, a country with 30 times the population.

Singapore has other critical advantages in negotiating trade deals. It has
no agricultural sector. Consequently, it has no farm lobby to protect. One
of the thorniest free trade issues is how to incorporate heavily protected
agricultural sectors. This allows Singapore to breeze through bilateral
negotiations that have bogged down multilateral negotiations.

As well, other states view trade deals with tiny Singapore as safe bets. The
Asian crash was complicated by speculative attacks on the Asian currencies.
But speculators tend to avoid fiddling with the Singapore dollar partly due
to Singapore’s vast foreign currency reserves. In the crisis’ darkest days,
Singapore held $75 billion in currency reserves, the world’s largest on a
per capita basis. Furthermore, Singapore has no foreign debt, freeing up a
vast amount of capital for investment abroad.

Finally, despite Singapore’s per capita wealth – just shy of $30,000 in
1999 – it has only 3.2 million people. Few countries fear a flood of
Singaporean goods, much less Singaporean troops. This makes economic
relations with Singapore beneficial, safe and predictable.

Singapore’s next step will be to bind its various agreements together into
larger trade accords. The government’s most ambitious plan envisions a
Pacific-5 free trade deal incorporating Australia, Chile, New Zealand,
Singapore and the United States. Other programs seek to combine different
bilateral agreements into trilateral ones. And while Singapore has not yet
played the ASEAN card in trade negotiations, it certainly plans to use the
organization’s market of 500 million consumers to its advantage.

Singapore’s strategy is not purely economic, however. Diplomatically,
Singapore will get the credit for melding its various bilateral links into
larger trading structures, strengthening the country’s economic and
political profile. This is especially useful when one considers that
Singapore lives in an unstable neighborhood.

If major powers beyond Southeast Asia have an interest in Singapore’s
survival, its immediate neighbors will be a bit more willing to negotiate
rather than bully. But most importantly, by becoming the architect and
initiator of Asia’s evolving trade format, Singapore is positioning itself
as the logical centerpiece for economic, political and diplomatic traffic –
that’s a very powerful place to be.