US TRADE IMBALANCE

Mr Goh Chee Wee asked the Minister for Trade and Industry (a) what is the Government's response to the recent statement by the Assistant Secretary of the United States Department of Treasury, blaming Singapore and the other Asian NICs for the US trade imbalance, and accusing Singapore of manipulating the exchange rate of the Singapore dollar to gain an unfair trading advantage; and (b) whether this move by the US government is related to its attempts to graduate Singapore prematurely out of the GSP scheme.

The Minister for Trade and Industry (BG Lee Hsien Loong): Mr Deputy Speaker, Sir, Singapore has always followed a policy of free and fair trade. We have acted responsibly in our economic and trade relations with other countries, including the United States. Our trading partners have seldom complained about our trading practices. Indeed, the US has frequently cited Singapore as an example of a model free trading nation.

Singapore is a free trader not out of altruism but out of necessity. We do not have a significant domestic market to protect. We have refrained from imposing restrictive and devious barriers to trade in pursuit of unfair unilateral advantage. Nor have we artificially depressed the value of the Singapore dollar to build up a trade surplus, as was recently alleged.

Over the last decade, the Singapore dollar has appreciated against the US dollar, whereas the currencies of some of the other NICs are worth less in US dollar terms today than they were a decade ago, despite their recent appreciation. I have distributed some tables (Cols. 141 - 146) which establish this point. If you will refer to Annex A and look at how bilateral exchange rates have moved over the last 10 years since 1978. In Taiwan's case, it has gone up by 21%, taking the startingpoint as 100. In Hong Kong's case, it has gone down by 40% from 100 to 60. In South Korea's case, it has also gone down from 100 to 59.9 despite recent appreciation. But in Singapore's case, it has gone up from 100 to 108. tables - BILATERAL EXCHANGE RATES OF NICS AGAINST US$, SINGAPORE TRADE AND CURRENT ACCOUNT BALANCE, US BALANCE OF TRADE (Cols. 141 - 146)

During the 1985 recession, many businessmen complained that the high value of the Singapore dollar was eroding their competitive position. They called on the Government to depreciate or even to devalue the Singapore dollar in order to remedy this. The Government, despite much pressure, rejected this option in favour of direct cost cutting measures, including the CPF cut and the wage restraint policy. It is ironical that having done this, we should now be reproached for having done the opposite.

In fact, unlike the other NICs, Singapore does not even have a trade balance surplus on a global basis. We have always run a substantial trade deficit. For the last 20 years, our trade balance has been in deficit every year. It is therefore absurd to claim that the Singapore dollar is overvalued. I refer to Annex B where you can see that the trade balance, which is the third row, has been in substantial deficit every year: 1980, $9 billion; 1981, $13 billion, and so on. Last year, $5 billion. This year, $6 billion.

Our bilateral trade balance with the US has also been in deficit for many years. In fact, for 12 years until 1983. You can see that in the bottom rows of the table. We accepted this as the natural outcome of free trade. Only since 1984 has Singapore had a small trade surplus vis-a-vis the US. Singapore's trade surplus with the US last year amounted to less than 1% of the US global trade deficit. You can see that in Annex C. Total trade deficit of the United States last year was $144 billion. South Korea accounted for 5%, Taiwan 10%, Hong Kong 4% and Singapore 1%. For the OECD countries, West Germany accounted for 10%, the United Kingdom 3% and Japan 38%.

The Singapore Government has carefully explained these points to US Administration officials. The US officials have expressed their understanding of the differences between Singapore and the other NICs in this respect. They have not refuted our arguments on economic grounds, nor have they raised any substantive objection to our exchange rate policies.

It has been the Government's policy to continually improve Singapore's competitiveness in world markets. We do not apologize for being more competitive than some of our trading partners and competitors. If we were not, we would not survive. But it is strange to be accused of being too competitive. As our exports have increased, so have our imports. Our earnings have grown, and our standard of living has gone up.

It is possible that the present charge by the US is related to reported moves to graduate Singapore prematurely out of the GSP scheme. 1988 is Election Year in the United States. Political pressures are mounting in the US to reduce their trade deficit. In such an environment, the debate on trade is likely to be influenced by considerations other than purely economic ones.