The EU-Singapore Free Trade Agreement (EUSFTA) Essay - Importance, Relationship, And Future.

Growing Trading Relationship between Singapore and EU

Discuss about the Political Economy Of International Relations.

During the recent years there has been plenty of change in the dynamics of the global business environment and most of them has been germinated through the growth in the globalization. It has allowed the international trade to become liberal in nature backed by the moderate growth of the technological progress during the 21^st century has turned the global business environment integrated by a large extent (Gilpin 2016). While during 90s international trade was mainly sourced from the developed nations and ends at developing nations, time has come to face a new trend the same. During present day not only the developed nations rather developing as well as the underdeveloped nations too are trying to catch up with the pace of the changing international trading environment. Motto of self-reliance and growth in the foreign direct investment in the developed nations is changing the decade old trade relationship among the nations. One of the biggest example of the same is the willingness of the European Union to deal with the sing pore in order to enhance the trade balance and the overall economic performance of both the trading partners (Hirst et al. 2016). Out of various trade agreement taking place during the present date, it is one of the most important one due to its magnitude, importance and future. Under this, scenario, this report is aimed to discuss how the European Union’s economic environment performs an important role in the case of the economic relationship between the Singapore and the EU. In order to perform the same, the report will consider few journals and articles published within the last twelve months and doing so it will portray the findings with economic laws in order to achieve the objectives of the same.

Since last one decade there has been growing trading relationship between the EU nations and Singapore that has provided both the trading partners to come closer over the years. Cooperation in terms of the technological advancement, supply chain creation, growth in the employment and protection from the fluctuations in the market has been constrained by a large extent for the Singapore (Pelkmans et al. 2016). On the other hand, growth in the bilateral trading between Singapore and EU has provided the European nations like France a scope to penetrate the Asian markets.

Figure 1: GDP of EU

EU's Economic Environment and its role

Source: (Tradingeconomics.com 2018)

From the above figure, it can be seen that the GDP of the European nation has been growing at substantial rate during the present date and as per Meissner (2016), one of the main reasons for the same lies within the growing trade between the ASEAN economies like Singapore. this rise in the GDP of the EU member countries highlights that, there has been rise in the individual income of the EU state that is allowing them to export more amount of goods and services and enhance their overall performance during the last three and half decades.

Figure 2: Trade position between EU and ASEAN economies

Source: (Hoang and Sicurelli 2017)

The above figure clearly shows the trade relation between the EU nations and the countries of ASEAN economies. As it can be seen that Singapore is the main destination of all the goods and services from EU region that highlights the importance of the same to the EU nations. Contrary to this, it can be seen that, if there is loss in the trade with Singapore, then it will lead to fall in the trade for the EU member countries as well (Hsu 2015).  Moving forward, it is also essential to highlights that, it has been found that over the years, if there is loss in the trade balance of the EU members, then it is germinated due to the fall in the business of the ASEAN economies who are arguably one of the largest trading partners of the EU nations (Eckhardt and Poletti 2016).

Figure 3: GDP of Singaporean manufacturing industry

Source: (Tradingeconomics.com 2018)

Contrary to this, GDP of the Singapore is largely dependable upon the manufacturing sector of the state and above figure showcase the upward trend of the industry. As it can be seen that, with change in the GDP of the EU, there has been change in the growth path of the GDP from the manufacturing sector of Singapore that highlights high level of association between these two trade participants (Trade.ec.europa.eu 2018). Thus, it can be argued that, Singapore and EU depends largely on each other for their trade growth. However, market size of the EU member countries and their superiority in case of production allows them to influence the trade pacts like FTA effectively. If there is rise in the growth of the GDP of the EU member nations, then they will ratify the FTA with Singapore and in other case FTA between them may get postponed as well (Hirst et al. 2016).

Importance of EUSFTA

in order to perform how much EU’s economic environment performs as a key tool for the economic relationship with Singapore, this report will focus on the newspaper article published on 20^th April of 2018 with headline “Singapore welcomes 'important step' in ratification of FTA with EU” (Kit 2018). in addition to this, the report will consider additional three supportive articles those were published with the headline “EU-Singapore FTA on track to come into force by 2019: Iswaran”, “Singapore, European Union move forward towards ratification of bilateral trade deal” and “Why Asean and S’pore still matter to Europe” on 26^th may 2018, 02^nd march 2018 and 19^th august 2017 respectively. The articles were chosen in such a way that it can provide in depth details regarding the recent development of the pact between the EU and Singapore and addition lay these articles are beneficial in order to analyse the present scenario of the trade agreement with the economic concepts. As per the main article it can be seen that the Free Trade Agreement between EU and Singapore known as EUSFTA is gaining pace in recent years under the influence of the various external factors (Hong 2018). Being the first of its kind EUSFTA is a single trade pact between Singapore and the EU, which will perform as the stepping stone towards the larger engagement between these trading partners. As per the supportive articles it can be seen that there were no such trade agreement between the ASEAN region and the EU, thus it will allow both the trading partners to indulge in higher cooperation in all the fields ranging from supports in terrorism to technology. One article has showcased that during 2017, bilateral trade between EU and the Singapore was almost as high as 98.4 billion USD making Singapore one of the most reliable and trusted trading partner for the EU regions (Pulch 2017). As per the commissioner of EU, there are more than 10,000 firms from EU who are operating in Singapore as of now and it has helped both the partners to face economic benefit (World maritime news 2018). Through the rise in the bilateral trade between the EU nations and the Singapore, it can be seen that there was growth in production, efficiency has been enhanced the performance of the overall economic parameters has been enhanced leading to rise in the economic performance of both the trading partners. If the new trade agreement takes place, then it will be first of its kind between ASEAN economies and EU states that will open door for both the states to enjoy unlimited trading possibilities (Kit 2018). Introduced back in 2007, implementation of the FTA will allow both the trading partners to showcase new statement in the region that both of the trading partners are not dependable upon their respective regions for the international trade rather, they have breached their barriers to expand their respective trade balance and better off the economic condition in domestic scenario (Ying 2018). In order to understand the views of the newspaper, next section of the report will portray the same with the economic theories.

Future of EUSFTA

Introduced by the Adam smith during 17^th century, international trading theories are one of the key economic tools that aids to determine the various aspects of the same (Suzuki and Nijkamp 2016). as it can be seen from the theory of the Adam Smith, if there is absolute advantage in production of goods and services with one nation in one good and the other nation in another good, then trading will take place and thus it will better off both the economies. Moving forward, Ricardian model argued, trade will take place if there is comparative advantage in production of goods or services in one nation and the other one lacks in the same (Cohn 2016). Since then, international trading has been rising around the world and during 21^st century it is one of the main source of the national income for the economies as well. Considering the case of the EU and Singapore, it can be seen that both the partners have well established trade relationship in different front. As per the history, Singapore is highly indulged with the France in the field of R&D, aerospace, biomedical science, consumer care business and others. On the other hand, EU nations purchase labour intensive goods from Singapore, for instance, rice, banana, handicrafts and others which allows both the economies to enhance the employment, production while reducing the inflations through reducing the price (Mckenzie and Meissner 2017).

Figure 4: Implication of tariff on trade

Source: (Mohan 2017)

As per the selected articles, FTA between EU and Singapore is going to take place and it will allow both the nations to enhance their national income as well. Considering the above figure, it can be seen that, if there is tariff on import or export of goods and service, then it can enhance the domestic price of the product causing loss of the consumer surplus and deadweight loss as well (Petersmann 2015). From the above figure, it can be seen that, if there is tariff, then, import or export of goods and services will be Q3Q4 amount and the price will be P+tarff. On the other hand, if there is free trade, then it will enhance the import or export to Q1Q2 amount and the price will be lower as well leading to higher consumer surplus and reduced price. Thus, as per the economic concepts, if the articles are analysed, then it can be seen that there will rise in the overall economic benefit for both the nations (Bahmani and Saha 2015).

Economic Theories Related to International Trade

Conclusion:

From the above discussion it has been seen that the EU and Singapore are enjoying good trade relationship between the two nations and when it comes to the performance of the economies, then they were moderate over the years. EU economic being superior to the sing pore possess much amount of importance in case of the new Free Trade Agreement because it can actually help them to enhance their presence in the Asian market. Apart from Singapore and japan, none of the ASEAN economies has shown interest in the new FTA regime which is all set to take place by the next year. this highlights that, if the new rule become active, then both of the nation will have to allow free trade to the EU nations, which will lead the already debt ridden Singaporean economy a slight hope to enhance their economic performance. On the other hand, if EU can successfully implement the new law with Singapore, then it will allow all the EU nations to unlimited access to the Asian economy in future through the Singapore. thus, to conclude, it can be said that, success of the new trade will largely be dependable upon the economy performance of the EU nations because in case post FTA rule, if the EU nations faces loss or less amount of growth in their business in the Asian economy, then they will prefer to opt out from the same. On the other hand, under the FTA regime, consumer surplus and the standard of living in Singapore will be enhanced by a large extent allowing them to enhance their overall economic performance in the coming years.

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