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Dr Tim Huxley, Executive Director of the International Institute for Strategic Studies Asia, distinguished guests, ladies and gentlemen, good evening. Thank you for taking time off from your busy schedules.
Since its founding in 1958, the International Institute for Strategic Studies (IISS) has been known for its immense influence in shaping the intellectual discourse on global political and strategic affairs. The annual Shangri-La Dialogue, which Singapore is proud to host, is a testament to the enduring influence of the IISS in charting and shaping meaningful security dialogues in the region. It is thus my pleasure to be able to participate in the Fullerton Lecture series this evening.
Much has been said about the successes of trade liberalisation and its positive impact on economic growth. Today, I would like to share Singapore’s experience and how, as a small state, we have benefitted from our staunch belief in free and open trade. I will also elaborate on how Asia is pushing ahead with its integration and the need for economies to engage with the world to remain competitive.
Global economic outlook remains modest
Let me begin with an overview of the prospects of the global economy. The overall global economic outlook is expected to remain modest in 2013.
In the US, the economy is likely to grow moderately. The onset of fiscal cutbacks would dampen consumer spending, though improvements in the labour and housing markets would provide some growth support.
The Eurozone is expected to remain in recession. Ongoing fiscal tightening, private sector deleveraging, as well as high unemployment rates, would continue to weigh on growth.
Asian economies are likely to remain relatively resilient, supported by healthy domestic demand. However, the growth in Asia cannot completely offset the weaknesses in advanced economies.
Some risks to the global growth outlook remain. There are uncertainties over whether the global financial market will adjust to the eventual tapering in the US quantitative easing in an orderly manner. In the EU, the economic situation remains fragile and prone to potential flare-up of the debt crisis. Other uncertainties include the credit situation in China and a possible global outbreak of respiratory viruses.
According to a recent WTO report, G20 economies are putting in place more trade restrictive measures than trade facilitating ones, while the removal of previous trade restrictions has remained slow. The threat of “currency wars” and competitive devaluations thus continue to cast a pall on the prospects of global economic recovery.
In these conditions of persistent slow growth, countries need to keep their markets open to ensure that the engines of global growth continue turning. Earlier this year, the G20 has urged countries to refrain from using exchange rates for competitive purposes, resist all forms of protectionism and keep markets open. This is an important message. All countries have a part to play in setting the world economy on a path of sustainable growth, and maintaining open markets is a central component.
Singapore Remains Committed to a Free and Open Multilateral Trading System
As a small and trade-dependent economy, Singapore has every interest in keeping our markets open for trade and deepening our integration into the global economy, while ensuring that other countries play by the rules and remain open.
With neither natural resources nor a sizeable domestic market to speak of, Singapore needs to be plugged into the global market place in order to attract businesses here. In the nearly 50 years since our independence in 1965, we have learned that economic openness is crucial in attracting foreign investments, which in turn generates growth and creates good jobs.
That is why Singapore remains committed to economic openness and well-integrated global markets. Our fundamental economic policy of welcoming global talent and investment has ensured that we continue to play a prominent role in the development of this region’s narrative. This policy will not change even as societal norms evolve. We also know that businesses need predictability, simplicity and stability in order to plan ahead. We will continue to create a business-friendly environment that helps companies succeed.
Even as we encourage efforts by companies that are already based here to deepen their presence and anchor themselves in Singapore, we are also grooming a pool of local companies that are well-placed to seize new opportunities that emerge. We recognise that for our companies to grow and become globally competitive, they need to continually engage the world, be willing to innovate and improve productivity, and venture into new growth opportunities wherever they may arise.
However, in urging our companies to venture abroad, we need to ensure that they are welcomed into conducive external environments where they can flourish in a level-playing field. We therefore need our partners to keep their borders open to trade and play by global trade rules to provide a sound business-enabling environment.
Importance of the WTO and the Multilateral Trading System
Hence, the primacy of the WTO and the role that it plays remains crucial. The WTO commits member governments around the world to keep their borders open and oblige them to follow through on their commitments through robust monitoring mechanisms. WTO rules embody the spirit of the multilateral trading system, and are geared towards enhancing international trade. These rules also provide transparency and predictability to businesses from all countries.
It is important that Singapore and all Members play our part to support the WTO’s work to ensure that trade flows as freely as possible among countries. With challenges from the Doha Development Agenda, the 9th Ministerial Conference in Bali this December will give economic ministers a chance to address critical issues and for the WTO to continue to reinforce its central role in fostering trade and economic growth.
Singapore also welcomes the WTO’s efforts to push for new ground in areas beyond tariff elimination, as exemplified by the Members’ work on a Trade Facilitation Agreement. We hope to secure a meaningful outcome for this Agreement at the Bali Ministerial Meeting.
New Patterns of Trade: Asia and Beyond
Closer to home, Asia is undergoing a dramatic economic transformation. Buoyed by favourable demographics, and propelled by rising political influence as well as economic affluence, it is increasingly seen as the region that will contribute significantly to world trade in the coming decades.
A recent Asian Development Bank study suggests that by 2050, Asia could account for half of global GDP, trade and investment. According to Ernst and Young, Asia will become the world’s fastest-growing consumer market over the next 10 years. Forecasts indicate that 61 million homes in Asia will have annual incomes above US$30,000 in 2020, compared with only 15 million in 2010. Over 85 per cent of the population will earn more than US$5,000 a year, up from the present 58 per cent. This will not only change the landscape of intra-regional trade but also be a key driver for global trade.
Meanwhile, the nature of world trade has also seen fundamental paradigm shifts. The era when most consumer products were manufactured in a single country by a single company, and then shipped by a single agent to its destination, is over. The fragmentation of modern day production networks across geographical boundaries has given rise to new patterns of trade and global supply chains.
The trend of globalisation, coupled with the growing Asian market, has resulted in economic rebalancing and trade shifting towards Asia. Trade flows in the Asia-Pacific have already increased significantly. According to the United Nations Conference on Trade and Development (UNCTAD), intra-Asian trade has grown in terms of its share of global trade – from 42 per cent in 1990 to 53 per cent in 2011. The volume of intra-Asian trade has also more than quadrupled from US$0.8 trillion in 1990 to US$3.4 trillion in 2012. This speaks of the potential of trading with Asia. Countries must therefore remain open to ensure that they are well-poised to seize new opportunities when they arise.
Singapore is fortunate to be in a very strategic location in Asia. We have been a beneficiary of this deepening of world trade and economic integration between the East and West. Our experience has shown that having an open economy can allow us to tap on new trade patterns as a growth engine.
This Global-Asia story is central to Singapore’s trade and economic policies and we want to continue to connect Asia to the world while being a base for the rest of the world to expand into Asia. At the same time, Asia is also moving towards greater integration so as to be able to fully take advantage of these new opportunities.
ASEAN Economic Community (AEC) 2015
For example, ASEAN is making good progress towards achieving the targets of the ASEAN Economic Community (AEC) 2015 as set out in the AEC strategic Blueprint. Our vision is to transform the region into a single market with a population of over 600 million people. The region will also be an integrated production base where goods will flow freely and seamlessly. With the deeper integration of the region through the ASEAN Free Trade Area (AFTA), we believe that the AEC 2015 will make ASEAN more competitive as a region and lead to a more conducive environment for businesses to operate and flourish in.
Regional Comprehensive Economic Partnership
Beyond AEC 2015, ASEAN and our six FTA Partners, namely Australia, China, India, Japan, Korea and New Zealand, have also undertaken the bold step to launch the Regional Comprehensive Economic Partnership (RCEP). The RCEP seeks to link and consolidate all the FTAs that ASEAN has with our FTA Partners under a single umbrella. The conclusion of the RCEP will hence broaden and deepen the current linkages and engagement amongst ASEAN and our FTA Partners.
Aside from its reach and impact, the RCEP will also be a game-changer in terms of the region’s effort to deepen regional economic integration. Upon its completion, the RCEP would represent one of the world’s largest free trade area, with a market comprising of more than 3 billion people with a combined GDP of more than US$17 trillion. It is undoubtedly an ambitious and complex undertaking that will provide a further boost to the liberalisation and facilitation of trade within the region. The RCEP will also further reinforce ASEAN Centrality and will be one of the mantelpieces of our vision of the AEC 2015.
ASEAN-Hong Kong FTA
Furthermore, ASEAN will be engaging with Hong Kong on an ASEAN-Hong Kong FTA (A-HKFTA). As one of Singapore’s most important trading partners, we look forward to the deeper ties and boost to trade and investment that this FTA will bring to the region.
Both the economies of Singapore and Hong Kong have a lot in common and we have always been unequivocal advocates for trade liberalisation and deeper regional integration. We believe that the ASEAN-HKFTA will further expand and enhance the trade networks in the region. At the same time, Singapore looks forward to working with Hong Kong to explore the many areas in which we both can achieve complementary synergies to propel both our economies forward.
Beyond the immediate region, another important initiative that Singapore is actively involved in is the multilateral Trans-Pacific Partnership (TPP). With a forward looking and open regional architecture, the TPP is envisioned to be a living agreement that will allow new members to sign on. Negotiations started in March 2010, with eight members namely Australia, Brunei, Chile, New Zealand, Peru, Singapore, the United States and Vietnam. TPP membership has now reached eleven, with the inclusion of Malaysia, Mexico and Canada. When Japan joins as the twelfth member next month, the TPP will represent a free trade area of close to 800 million people and a combined GDP of about US$27 trillion. This is about 40 per cent of global GDP and one-third of world trade.
A successful conclusion of the TPP will liberalise the flow of trade across the Asia-Pacific, as well as ensure that the Asia-Pacific region remains open and business friendly.
FTA of the Asia Pacific
Singapore sees both the TPP and the RCEP as complementary and contributory vehicles towards an FTA of the Asia-Pacific (FTAAP), which will be another game changer for economic integration.
Each pathway carries its own strategic importance in advancing regional economic integration. The RCEP strengthens the strategic imperative for continued engagement of ASEAN, particularly in stitching together a contiguous FTA of East Asia. At the same time, the TPP involves countries from both sides of the Pacific.
There is significant overlap in terms of membership between the two pathways. ASEAN Member States such as Singapore, Brunei, Malaysia and Vietnam, and FTA partners including Australia, New Zealand and Japan will act as a core and serve as a constructive bridge that will bring convergence between the TPP and RCEP.
The creation of the FTAAP will be a monumental step for the region and a leap for global trade reform, in reaffirmation of the multilateral trading system. Both architectures are open and inclusive to whichever economic partners ready to meet the individual benchmarks as set by its parties.
These negotiations are very important for Singapore and we will work hard with all our partners to push for a smooth and successful conclusion to our negotiations.
EU-Singapore FTA (EUSFTA)
Despite our size, our partners continue to see value in working with Singapore as they understand that we have been a consistent beacon for global free and open trade. Over the years, Singapore has made important strides in growing our network of FTAs with all our major trading partners, such as China, Japan, the US, ASEAN, Australia and India.
To complement our 18 FTAs with our 24 economic partners, Singapore concluded an FTA with the European Union (EU) in December 2012. The EU is our second largest trading partner and largest foreign investor. With the EUSFTA, Singapore would have FTAs with economic partners who account for almost 80 per cent of our total trade.
As the first FTA that the EU concluded with an ASEAN member, we believe that the EUSFTA will have a positive knock-on effect for the other bilateral FTAs that the EU is currently negotiating with our ASEAN partners.
The EUSFTA will act as the catalyst that will provide the impetus for other ASEAN countries and the EU to move towards a broader region-to-region agreement in the near future. Once the EUSFTA enters into force, it will deliver new market access for companies from both sides and create common regulatory rules.
Like the RCEP, TPP and other initiatives that Singapore participates in, we hope that these will translate into significant growth opportunities for Singapore and our partners. In the course of these negotiations, it is important to keep in mind that ultimately, it is the benefits to businesses that really matter as they are the eventual end-users of these agreements. Businesses based in these countries will be able to take advantage of the new frontiers that these agreements forge.
More significantly, such initiatives will also provide a boost to the multilateral trading system. We see these faster-moving bilateral and regional FTAs acting as valuable pathfinders and building blocks for new ideas to be implemented in the larger multilateral platforms.
The evolving demographics and economic agenda of the Asia-Pacific countries will give this region continuing momentum in its growth prospects in the coming decades. Given the growing importance of trade within the Asia-Pacific, it is important to maintain an open economy and for FTA networks to be developed and nurtured. With time, we hope that our efforts on trade liberalisation will bear fruit and enrich the lives of the people in this region.
As one of the many small states today, policy options remain limited to us, and Singapore will continue to be a staunch advocate of free trade and appropriate vehicles that further this agenda. Singapore is a natural catalyst for greater region-to-region integration and we are committed to remain open in the world economy.
A free and open global economy is an important part of the Singapore growth story, and we will strive to ensure that the trading environment remains conducive for our businesses to grow and expand both regionally and internationally.
You are all opinion multipliers. I hope you can also help spread this message widely. Thank you.
Mr Lim Hng Kiang has been the Minister of Trade and Industry since 2004. He has held portfolios as Minister of State for National Development, Senior Minister of State for Foreign Affairs, Second Minister (Foreign Affairs), Second Minister (Finance), as well as being appointed the Minister of Health in 1995. He is a deputy chairman of the Monetary Authority of Singapore (MAS) and a board Director of the Government of Singapore Investment Corporation (GIC).
The lecture was followed by a 30 minute Q&A session. Dr Tim Huxley, Executive Director of IISS-Asia, chaired the Lecture.