China-Singapore FTA: Upgrade Deal Reached

Posted by Written by Alexander Chipman Koty Reading Time: 3 minutes

China and Singapore have reached a deal to upgrade their bilateral free trade agreement (FTA), bringing an end to three years of back-and-forth negotiations.

The development, announced in statements by China’s Ministry of Commerce and Singapore’s Ministry of Trade and Industry on November 5, will expand the scope of the China-Singapore Free Trade Agreement (CSFTA).

The deal was concluded in a meeting between China’s Vice Commerce Minister, Fu Ziying, and Singapore’s Minister for Trade and Industry, Chan Chun Sing, on the sidelines of the China International Import Expo (CIIE), which is currently being held in Shanghai.

The expanded CSFTA is poised to deepen trade and investment between the two countries, while affording Singaporean firms expanded market access in China.

What’s in the upgraded deal?

The details of the upgraded CSFTA deal are yet to be announced. However, it is expected to grant Singapore greater access for foreign investment into China.

The upgraded CSFTA will cover cooperation in sectors not included in the original FTA, such as in legal and financial services, e-commerce, and the environment.

Legal and financial services are pillar industries for Singapore – also known as Southeast Asia’s financial hub – but foreign investment in those areas remain highly restricted in China.

In addition, Singaporean investors will gain greater investment protection in China and benefit from improved trade facilitation.

The upgraded CSFTA is expected to be signed later this year and will come into force once relevant domestic procedures are completed in both countries.

China-Singapore FTA at a glance

The CSFTA was initially agreed to in 2008 and came into effect the following year, on January 1, 2009, after years of studies and negotiations. The CSFTA was China’s first free trade agreement with another Asian country.

The first review of the CFSTA was completed in 2011, and subsequent discussions on upgrading the CSFTA have been ongoing since Chinese President Xi Jinping visited Singapore in 2015.

China also has a free trade agreement with ASEAN, known as the ASEAN-China Free Trade Area (ACFTA), of which Singapore is a member. However, the CSFTA is a bilateral agreement between China and Singapore that carries a broader scope than the ACFTA.

Under the CSFTA, China has eliminated tariffs on 95 percent of Singaporean exports, including on electronics, petrochemicals, and processed foods, among many other products. Singapore was also granted preferential market access for foreign investment, such as being allowed 70 percent ownership of China-based hospitals.

Going the other way, the CSFTA eliminated tariffs on all Chinese exports. While most sectors were already tariff-free for China, certain industries, like beer producers, gained much from the deal. China was also afforded greater access to investment in Singapore’s education services industry.

Symbolic importance for China

The upgraded CSFTA carries symbolic importance for China, as it hosts the inaugural CIIE fair and seeks to portray itself as a defender of free trade and globalization amid the trade war with the US.

That the deal was agreed to is not a surprise. Last week, Chan, Singapore’s Trade and Industry Minister, said that the upgraded agreement would likely be signed at the ASEAN summit to be held in mid-November.

Beyond symbolism, the deal is another case of China diversifying its economic partners away from the US. Since the trade war with the US broke out, China has cut tariffs for five Asian countries, sought a rapprochement with Japan, and made efforts finalize the RCEP trade deal.

China is Singapore’s largest trade partner, with bilateral trade totaling to US$137.1 billion in 2017. China is also the top destination for foreign investment originating from Singapore, while China has stepped up investments in Singapore as part of its Belt and Road Initiative.

Altogether, China has 17 free trade agreements in effect with 25 economies around the world. It is currently in negotiations to sign or upgrade 12 free trade agreements with various countries.

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