Current Commercial Relationship Between EU And Singapore: Benefits And Challenges (Essay).

EU and Singapore's Commercial Relationship

Discuss about the Bilateral Trade Agreements In The Asia-Pacific.

The global business environment has experienced considerable dynamics and development over the years, most of which can be attributed to the incidents of international significance like that of Globalization, trade liberalisations as well as industrial revolutions and technological progress, which in turn have collectively contributed in making the global economy more integrated, inclusive and inter-connected, in the social, political as well as commercial aspects (Constantinescu, Mattoo and Ruta 2015).

With the global economy becoming more integrated and inclusive and with more businesses going global, thereby accruing and portraying the multilateral benefits of trade and commerce, over the years, the government of different countries as well as different international organizations have implemented strategies and policies to facilitate trade between the countries (Aggarwal 2013). Various trade agreements can be seen to be in operation in the contemporary period, among most of the eminent economies across the globe, whose primary objectives include that of facilitation of free flow of goods and services, resources of production as well as technologies. These agreements in turn, can be frequently seen to have positive implications in terms of cost effectiveness, efficiencies and competitiveness for the businesses as well as increased consumption welfare of the population of the concerned countries (Low 2016).

Keeping this into consideration, the concerned report tries to discuss about the current commercial relationship between the European Union and one of the “Asian Tigers”, Singapore, taking into account the trade agreements between the same, thereby analysing the contributions of the EU to the growth of Singapore, the benefits and challenges Singapore faces in this context and the strategies for strengthening the concerned relationship and the benefit of Singapore from the same. The concerned report refers to the article, “EU-Singapore FTA on track to come into force by 2019: Iswaran”, published in May, 2018 (Channelnewsasia.com 2018).

As per the assertions of the concerned article, Singapore and the European Union, being already closely related commercially, are expected to bring in action a free trade agreement, known as the European Union-Singapore Free Trade Agreement (EUSFTA) from 2019. The article highlights that the EU being one of the biggest investors in Singapore and one of the primary trade partners of Singapore, this agreement is supposed to be of immense significance for the concerned country (Channelnewsasia.com 2018). The complex business environment which the country experiences and the exogenous as well as endogenous dynamics in the global commercial scenario, which the country is subjected to, are also highlighted by the concerned article, which in turn makes in immensely important for the country to increase their economic and productive efficiencies, growth and competitiveness, for which, as per the assertions of the article, the trade agreements and relations which Singapore enjoys with that of the EU are of immense significance.

Singapore's GDP and ASEAN membership

The European Union, being primarily a political and economic union of 28 countries in Europe, plays the role of a common monetary body and common trade region for the member countries, which ensure absence of trade barriers and free flow of commodities and services as well as resources between the member countries (Smith 2013). The primary purpose of the union is that of creation of a more competitive and pro-trade environment among the member countries, in order to increase their chance to exploit their competitive advantages, thereby facilitating the industries to experience economies of scale, which in turn helps in the growth of the economies of the countries.

Singapore, on the other hand, is one of the primary and most impressively developing Asian economies, with third rank in terms of purchasing power adjusted global GDP. Singapore is also one of the four “Asian Tigers”, showing immensely growing trends in the technological, business and economic aspects (Chakravorti, Tunnard and Chaturvedi 2015). Being one of the largest and most significant members of ASEAN (Association of Southeast Asian Nations), created for facilitating economic progress and commercial development of the member countries, Singapore enjoys long-term robust commercial relationship with that of the European Union, over the last few decades.

The European Union, since its beginning of operations, can be seen to be contributing positively to the overall growth of the economies of the member countries, by facilitating industrial and commercial development, free trade, flow of human as well as non-human resources and multi-lateral transfers of technological, social and political benefits among the member countries (Follesdal and Koslowski 2013). The result of the same can be seen from the increasing GDP of the Union, over the years, which is as follows:

Figure 1: GDP of the European Union (1980-2016)

(Source: Tradingeconomics.com 2018)

This economic growth of the EU, over the years, in its turn, indicates that the member countries have been, over the years, experiencing increasing commercial and industrial growth with increasing trade activities both among them as well as outside the union.

The effects of the same can be seen on the economic and commercial dynamics of Singapore, from the import and export statistics between the same and the European Union, as can be seen from the following table:

From the above figure, it is evident that among the different ASEAN countries, Singapore forms the largest trading partner with that of the European Union, as can be seen from the import and export figures of the country with the EU, both of which are highest among the other ASEAN countries.

European Union's Role in the Economic Growth of Member Countries

Figure 1: Dynamics of import and export between Singapore and the EU

(Source: Ec.europa.eu 2018)

The above figure shows that over the last few years, commodities of nearly 20 billion valuations have been exported by Singapore to the EU and has imported nearly 25 billion valuations of commodities from the same (Allison 2015). Also, in terms of services, the trade balance of Singapore can be seen to be positive with that of Singapore while the trade balance for goods is negative. However, as a whole the country can be seen to be benefited from its trade relation with that of the European Union, as can be seen from the increasing exports volume of the country over the years:

Figure 2: Export volumes of Singapore over the years

(Source: Tradingeconomics.com 2018)

Apart from the export and import dynamics, Singapore also enjoys robust relationship with that of the EU, in terms of the inflow as well as outflow of investments, which can be seen from the following table:

Table 2: FDI flows between Singapore and the EU

(Source: Ec.europa.eu 2018)

As is evident from the above figure, among the ASEAN countries, both the inflow and outflow of Foreign Direct Investments from and to the EU, has been highest for Singapore, in both stock as well as flow terms (Kutlina-Dimitrova and Lakatos 2014). The country experiences considerable inflow of investments from the member countries of the EU, which in turn plays considerable roles in stimulating the economic growth of the nation. The country also invests in the commercial domains of the member countries in the EU.

Figure 3: FDI balance of EU with that of Singapore

(Source: Ec.europa.eu 2018)

The inward flow of FDI in Singapore from the EU can be seen to be much higher than the outward flow, which in turn helps the country to maintain a visibly positive investment balance with respect to the European Union. This can be attributed to the trade openness of the country as well as the EU, which in turn has led to nearly 10,000 companies of the European member countries to being their operations in Singapore, making the country an eminent trade hub for the region as a whole (Kutlina-Dimitrova and Lakatos 2014).

The country can be seen to be considerably benefited from these trade and investment relationship with that of the EU, as can be seen from the development of the industrial sector of the country, over the years, as can be seen from the following figure:

Import and Export Dynamics between Singapore and EU

Figure 4: GDP from manufacturing sector of Singapore (1980-2016)

(Source: Tradingeconomics.com 2018)

Although the economic and commercial relationship between the European Union and Singapore, over the last few decades, has contributed significantly in the economic development and industrial prosperity of the country, however, the relationship of the country with that of the European Union, can also be seen to be leading to several challenges faced by Singapore over the years (Alfaro and Johnson 2012). Some of these challenges can be discussed as follows:

One of the major challenges, which the concerned country has been facing in the contemporary period, in the aspects of its economic and commercial environment, is the increase in competition with other countries, especially in terms of exports and imports. This is also one of the major challenges which the country face in its relationship with that of the European Union (Ariff and Hill 2012). After the beginning of the operations of the ASEAN, although Singapore remained as one of the most significant members of the same, however, the other member countries can be seen to be taking over the country, especially in terms of export competitiveness, which can be seen from the following figure:

The countries like Malaysia, China and India can be seen to be gaining export competitiveness abruptly (in some cases surpassing that of Singapore itself). These countries can also be seen to be building up strong trade relationship with the member countries of the Union. This can be seen from the following figure, which shows the significant trading partners of the EU, in the contemporary period:

As is evident from the above figure, the most significant trading partners of the European Union includes China, the USA, Japan, India, Russia and others (some of which are part of the ASEAN and some from other parts of the world), both in terms of exports and imports. This in turn makes it more competitive for the businesses in Singapore to make their markets in the economies of the member countries of the European Union.

On one hand the primary challenge faced by the economy of Singapore is that of the increasing competitions, especially in terms of exports, which the country has been facing over the years, in its relationship with that of the EU. On the other hand, due to the presence of multilateral trade relation of Singapore with that of the member nations of the EU, nearly 10,000 businesses from these countries have been operating in the domestic boundaries of Singapore over the last few years and this number has been increasing with time (Siles-Brügge 2014). This, one hand, has although helped the economy by creating employment prospects and increased economic welfare of a section of the working class of the country, however, the same also has negative implications. The increased intrusion of the foreign (and generally highly efficient) companies, the indigenous and domestic industries of Singapore can be seen to suffer considerably, in terms of achieving growth and long-term efficiency.

FDI Flows between EU and Singapore

The regulations of EU in general favour the trade between member countries more than those with the non-member countries. This also makes the position of Singapore less advantageous as the businesses of the country need to compete with the other European member countries before making places in the markets of any member country of the EU.

Keeping into account the present trade scenarios of Singapore with the EU, it is of immense importance for the country to have free trade agreement with the same, in order to address the issues of high competitions and export disadvantages. In this context, the EUSFTA is expected to be implemented in 2019, with the main aims being as follows:

• Emphasizing on electronics, pharmaceutical and food trades
• Removing most of the customer duties for easier transactions
• Removal of trade barriers, especially for stimulating green growth
• Demolition of trade barriers to facilitate more transactions (Devuyst 2013)
• Encouraging bilateral investments

Apart from the trade agreement, the government of the country also needs to emphasize on the provision of financial as well as non-financial aids and protection, especially to the Small and Medium Enterprises, in order to ensure they reach standard competitive and efficiency levels (DEROUS).

Conclusion

From the above discussion, it is evident that over the years, the commercial and economic relationship between the European Union and the progressive economy of Singapore has developed significantly, with both the entities benefiting from the growing relationship in terms of easy businesses, export and import as well as bilateral flow of resources and investments. However, apart from the benefits, the economy of Singapore is also negatively affected to some extent, by the economic growth of the EU, in terms of higher competition, biasness over trade between the members and the lack of proper regulation and facilities, on part of the Eu, for inhibition free commerce. However, with the EUSFTA soon to be in operations and with the potential strategy of supporting the SMEs on part of the Singapore government, the country can be expected to develop the ability to maintain its competitiveness and productive efficiency as well as to ensure its economic growth in the coming years.

References

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Alfaro, L. and Johnson, M.S., 2012. Foreign direct investment and growth. In The evidence and impact of financial globalization (pp. 299-309).

Allison, L., 2015. The EU, ASEAN and Interregionalism: Regionalism Support and Norm Diffusion Between the EU and ASEAN. Springer.

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