BILATERAL FREE TRADE AGREEMENT WITH JAPAN

Mr S. Iswaran asked the Minister for Trade and Industry what are the potential benefits of the proposed bilateral free trade agreement with Japan and how it will complement trade liberalisation efforts within the Association of South East Asian Nations, the Asia-Pacific Economic Cooperation and the World Trade Organisation.

The Minister for Trade and Industry (BG George Yong-Boon Yeo): Mr Speaker, Sir, Japan and Singapore are close economic partners. Since 1970, Japan has consistently been among Singapore's top three trading partners. Japan is also currently the second largest investor in Singapore, with cumulative investments of over S$14 billion. There are today about 1,700 Japanese companies in Singapore, accounting for about one-third of the 5,000 multinational corporations (MNCs) operating here.

These strong bilateral economic ties are underpinned by a congruence of geopolitical interests. Both our countries support the US' engagement in Asia, to maintain a balance of power and ensure peace and stability in the region. Both recognise the importance of trade and investment liberalisation, and are active players in multilateral and regional fora such as the WTO, APEC and ASEM.

A Japan-Singapore Free Trade Agreement will build upon and strengthen these close ties. It is a natural development of our relationship.

An FTA with Singapore will help to lock in Japan's engagement in Southeast Asia for the long term. The region will benefit from Japan's enhanced presence. Japan has been, and will continue to be, an important source of investments, capital and technology, and a major export market for ASEAN economies. Before the Asian crisis, Japanese investments contributed significantly to the regional boom. When the crisis struck, Japan offered much assistance to help the Southeast Asian economies recover.

We also expect the proposed Japan-Singapore FTA to stimulate further trade liberalisation in the Asia-Pacific region. While Singapore's primary commitment remains with the multilateral trading system, we believe that bilateral and regional FTAs which are WTO-consistent and framed on the basis of open regionalism (as opposed to forging protectionist blocs) strengthen, rather than weaken, WTO and accelerate global trade liberalisation through their ratcheting effect. It is on this basis that Singapore is pursuing FTAs with Japan, Mexico and New Zealand to help fast-track trade liberalisation in the Asia-Pacific, and to build bridges across the different regions.

We see already some positive effects. For example, at the recent ASEAN Informal Summit in Manila, the Leaders agreed to advance the timetable for the complete elimination of tariffs within the ASEAN Free Trade Agreement from 2015 to 2010. ASEAN economies have also agreed to explore an FTA with New Zealand and Australia.

The idea for an FTA between Japan and Singapore was conceived with these strategic considerations in mind. Following the decision by Prime Minister Obuchi and Prime Minister Goh to convene a joint feasibility study in December 1999, officials from both countries will meet in the first quarter of this year to discuss the possible nature and scope of an FTA.

As Singapore and Japan are already relatively open economies with regard to trade in goods, the focus of the FTA would likely be on investments and further integration in the services sectors. This is why we hope to go beyond the traditional FTA to a "new-age" FTA focusing on liberalisation and cooperation in the high growth services sectors of the future, such as the transport, financial and information and communication technology sectors. Such a forward-looking FTA will enhance and strengthen the competitiveness and capabilities of both our countries.

Mr S. Iswaran (West Coast): Would the Minister comment if such bilateral FTAs initiated by Singapore would increase the probability that other countries within ASEAN and APEC would also embark on similar bilateral FTA efforts if they are major traders? If that is the case, then would that in fact be detrimental to the regional and multilateral trade liberalisation talks that are taking place?

BG George Yong-Boon Yeo: The FTAs, Sir, would have to be WTO-consistent and within what is allowed by WTO, and this has always been our pledge. We are working towards the APEC Bogor goals of open trade and investment regime in the Asia-Pacific by 2010 for developed economies, and by 2020 for all economies. So what we are doing is entirely consistent and beneficial to the cause of free trade in the world.

Mr Iswaran: Would the Minister say that our efforts on these bilateral fronts are actually a reflection of our dissatisfaction with the rate at which trade liberalisation and facilitation has taken place at the ASEAN, APEC or WTO levels?

BG George Yong-Boon Yeo: To some extent, yes. We see ourselves as a catalyst spurring on others towards liberalising their economic framework. When we embark on an FTA discussion with New Zealand, neither side would benefit greatly from such an FTA, but we thought that someone should initiate the process and encourage others to go along. After that, we were able to get ASEAN and the CER countries, Australia and New Zealand, to convene a high level task force to look into establishing an FTA between ASEAN and CER economies by 2010. So there is a catalytic effect which such FTAs can help bring about.