On the 10th December 2020, UK Trade Secretary Liz Truss signed a Free Trade Agreement (FTA) with Singapore Industry Minster Cho Chung Sing, in preparation for the UK’s new life outside of the European Union.
What is the new trade deal between the UK and Singapore?
The new deal “secures certainty” on £17.6bn of annual bilateral trade between the two nations. £6.1bn of goods and £4.5bn in services were exported by the UK in 2019, with £2.9bn and £4bn going the other way respectively. The UK is Singapore’s top investments destination in Europe, and Singapore is the UK’s biggest trade and investment partner in the whole of South East Asia.
On the deal itself, it is largely a replica of the EU-Singapore FTA signed last year and ensures long standing ties are maintained between the two nations. Minister Chan said this UK-Singapore FTA offers evidence of the UK’s “commitment to deepen its engagement of the region”.
More than 99% of goods entering Singapore from the UK will remain exempt from duty. 84% will be likewise exempt coming the other way, with the remaining tariffs on Singapore goods completely removed by 2024; the same timeframe as the EU deal.
Representative of only 1.2% of overall UK trade, the overall economic benefit will be relatively small. However, it is what the deal symbolises and pre-empts that may matter more.
What the deal could mean for the CPTPP
It is the UK’s first deal with a member of the Association of Southeast Asian Nations, and means another step closer to its ambition of joining the CPTPP. The CPTPP is the third biggest Free Trade Agreement in the world (after the EU Single Market and US-Mexico-Canada Agreement) and represents economies worth $13.5trn annually. Singapore “supports and welcomes” the UK’s desire for participation.
Should the UK achieve membership to the 10-strong club, it would represent a symbolic success for the UK Government. This would be an illustration that they are able to get far-afield trading alliances done where the EU currently has none.
Which industries could benefit?
Machinery and electronics
Machinery, appliances and equipment make up the vast majority of UK exports, with nearly half of all trade categorised in the sector. Hence the continuation of tariff-free trade is a relief to UK manufacturers active in the region.
As well as opportunities for exporters of appliances and electronics, international suppliers also benefit from Singapore’s state infrastructure being under constant and well-funded development. Now with closer UK-Singapore relations, UK firms will hope for increased opportunities at winning contracts to work on infrastructure projects.
Financial and Business Sectors
There are over 1000 financial institutions based in Singapore, with banks making up the top 3 listed companies there. Insurance, Foreign Exchange and Wealth Management made up over £2Bn of exported services from the UK in 2019, with £2.6bn the other way. UK Qualifying Full Banks (QFBs) will have the opportunity to expand operations, and Customer Services currently in the EU may be moved to the city-state. The FTA also states a commitment to deliver enhanced investment protections within 2-4 years. With financial services not part of Brexit negotiations, a commitment from both sides to grow what is already a very strong UK presence in the Singapore financial services industry makes sense.
Food and Drink
Although making up a relatively small part of trade, there is a strong demand for UK wine and spirits. Whisky in particular has become extremely popular in Singapore, with 44 million bottles of Scotch Whisky alone purchased there in 2018; making it the 8th biggest consumer on earth.
The FTA makes a point of protecting the UK food and drinks industry and there are clear opportunities for UK producers to greatly increase exports, or create a presence onshore.
Going the other way, the deal will allow Singapore producers to increase the number of regional specialities they export to the UK. Prawn dumplings and anchovies will escape tariffs up to a combined 350m tonnes a year.
What the agreement means for digital
One definite sign of closer ties post-Brexit has been the joint commitment to start negotiating for a digital economy agreement (DEA) in 2021, with an aim to set "modern rules on digital trade and financial services between Europe and Southeast Asia". The agreement would enable more data to flow between the two nations, increase protections and making it easier for the financial and digital economies of each territory to interact. The aim is to produce a world class safe environment for consumers and businesses to engage digitally.
As well as the more traditional financial services, the DEA would offer client-base growth opportunities for UK Fintech firms. Increasing the limits held in e-wallets and the chance to have Digital Wholesale Bank licenses granted, would offer big opportunities to grow client base in the region. A signed DEA would be Singapore's first agreement of this kind with a European country, having already partnered with Chile, New Zealand and Australia earlier in 2020.
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