TEN PER CENT IMPORT SURCHARGE BY U.S. GOVERNMENT (Effect on Singapore's industries)

Mr Ng Kah Ting asked the Minister for Finance what significant impact has been caused to Singapore's industries by the imposition of the 10 per cent import surcharge by the United States Government.

Mr Tang See Chim (for the Minister for Finance): Mr Speaker, Sir, first I should perhaps explain briefly the nature of the 10 per cent import surcharge and the pattern of our trade with the United States.

The 10 per cent import surcharge' was imposed by the American Government on 16th August, 1971, as a temporary supplemental duty and as one of the measures to cope with their balance of payment difficulties. It is applicable to goods entering the United States which are already subject to import duty. Raw materials and primary produce which were not then dutiable' and products which were subject to import quotas, such as petroleum and cotton textile goods, are exempt from the surcharge. In addition, for certain products assembled from American parts and components, both import duty and the surcharge are levied only on the value added, i.e., the difference' between the f.o.b price (Singapore) of the product and the cost of the American parts and components.

The domestic exports of Singapore to' the U.S.A. were $246 million in 1970 and about $148 million in the first half of 1971. Of these, the most important items are electronic and electrical products which account for nearly 50 per cent; textile and garments, 20 per cent;, processed rubber, 20 per cent in 1970, 12 per cent in 1971; timber products, including plywood and veneer, 6 per cent; petroleum products, 1.5 per cent in 1970, 7 per cent in 1971; pleasure craft, 2 per cent.

These are the main Singapore-made exports. As far as the electronic and electrical products are concerned, the surcharge falls on the value added. As much of it is assembled from U.S, parts and components, the effective rate of the surcharge is probably less than 5 per cent. Furthermore, most of these' companies are selling to their parent companies in the United States and there has been no drop in demand. With regard to textiles and garments, those from cotton are subject to quota and therefore exempt from the surcharge. Our export of synthetic textile products. to the United States is quite small and, from recent press reports, would also, be exempt. Petroleum products and crumb rubber are not dutiable and so not subject to the surcharge. Plywood and veneer do have to pay duty, but the demand depends on construction activity in the U.S. If the United States economic measures result in stimulating construction activity, they will be importing more plywood and veneer and their importers may have to absorb part of the surcharge.

On the whole, therefore, the surcharge has not affected us very much. In some instances, we may have a temporary advantage. Certain equipment manufacturers such as household appliances in the United States have been facing severe competition from other industrialised countries. To improve the competitive position of their products made in the United States, they have to import certain parts and components from us. With the surcharge, they may increase sales which would thus lead to greater demand for our parts and components. On the other hand, a few specific companies here making finished products such as pleasure craft which are dutiable may have to face some temporary difficu1tes. They should, however, be able to make the necessary adjustments with a little bit of belt-tightening.

While, in the short term, we are not seriously affected, we nevertheless hope that the problem will be settled quickly. If it is prolonged, the surcharge would distort international trade since the more important question of international currency adjustments is linked to the import surcharge. A shrinkage of overall world trade would have adverse repercussions for us. This would also affect new investment necessary to sustain growth and modernisation in our economic structure.

Mr Ng Kah Ting (Punggol): Mr Speaker, Sir, the Minister of State for Finance mentioned domestic exports to the United States. I would like to know what is the position of our re-exports to the United States.

Mr Tang See Chim: Sir, most of our re-exports are in the form of primary produce from the surrounding countries and, as I pointed out in my main answer, primary produce which is not dutiable is not subject to the 10 per cent surcharge.