World Trade
Organization / RESTRICTED
WT/TPR/S/130
17 May 2004
(04-2082)
Trade Policy Review Body
TRADE POLICY REVIEW
SINGAPORE
Report by the Secretariat
This report, prepared for the fourth Trade Policy Review of Singapore, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from the Government of Singapore on its trade policies and practices.
Any technical questions arising from this report may be addressed to Mrs.RohiniAcharya (tel: 022 739 5874) and Mr. Michael Daly (tel:0227395077).
Document WT/TPR/G/130 contains the policy statement submitted by the Government of Singapore.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting of the Trade Policy Review Body on Singapore.
Singapore WT/TPR/S/130 Page vCONTENTS
Page
SUMMARY OBSERVATIONS vii
(1) Economic Environment vii
(2) Trade and Investment Policy Framework vii
(3) Trade and Trade-Related Measures viii
(4) Other Measures Affecting Trade ix
(5) Sectoral Policies x
(6) Prospects xi
I. Economic environment 1
(1) Introduction 1
(2) Recent Economic Performance 1
(3) Macroeconomic Policies 7
(i) Monetary and exchange rate policy 7
(ii) Fiscal policy 8
(iii) National wage policy 9
(4) Structural Measures 9
(5) Developments in Trade 11
(i) Composition of merchandise trade 11
(ii) Direction of merchandise trade 11
(iii) Composition of trade in services 14
(iv) Direction of trade in services 14
(6) Developments in Foreign Direct Investment (FDI) 15
(7) Prospects 15
II. trade policy regime: framework and objectives 16
(1) Overview 16
(2) General Constitutional and Legal Framework 16
(3) Development and Administration of Trade Policy 17
(i) Agencies involved in trade policy implementation 17
(ii) Main trade laws 19
(4) Trade Agreements and Arrangements 19
(i) World Trade Organization 19
(ii) Regional agreements 20
(iii) Bilateral agreements 22
(iv) Other preferences 25
(5) Foreign Investment Regime 26
(i) Overview 26
(ii) Legislation and incentives 26
(iii) International agreements 27
Page
III. trade policies and practices by measure 28
(1) Introduction 28
(2) Measures Directly Affecting Imports 29
(i) Customs procedures 29
(ii) Tariffs 30
(iii) Other charges affecting imports 34
(iv) Customs valuation and rules of origin 35
(v) Import prohibitions, restrictions, and licensing 36
(vi) Contingency measures 37
(vii) Standards and sanitary and phytosanitary requirements 38
(viii) Government procurement 43
(ix) State trading 45
(x) Other measures 45
(3) Measures Directly Affecting Exports 45
(i) Procedures 45
(ii) Export taxes and other charges 46
(iii) Export prohibitions, restrictions, and licensing 46
(iv) Export assistance 47
(v) Free-trade zones 48
(4) Measures Affecting Production and Trade 49
(i) Industrial policy 49
(ii) Incentives 55
(iii) Legal framework for businesses 60
(iv) Competition policy and corporate governance 60
(v) Intellectual property rights 63
IV. trade policies by sector 68
(1) Introduction 68
(2) Agriculture 68
(3) Manufacturing 69
(i) Overview 69
(ii) Policy responses 71
(4) Power and Water 72
(i) Electricity 72
(ii) Gas 75
(iii) Water 76
(5) Services 77
(i) Overview 77
(ii) Commitments under the General Agreement on Trade in Services 77
(iii) Banking and insurance 78
(iv) Telecommunications 85
(v) Transport 88
(vi) Air transport 91
(vii) Maritime transport 93
(viii) Professional services 96
(ix) Tourism services 100
REFERENCES 103
APPENDIX TABLES 107
Page
CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Total factor productivity growth, 1983-03 5
I.2 Product composition of merchandise trade, 1999 and 2003 12
I.3 Direction of merchandise trade, 1999 and 2003 13
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Share of bound tariff lines, by HS section, 2003 31
III.2 Average bound tariff rates, by HS section, 2003 32
IV. TRADE POLICIES BY SECTOR
IV.1 Value added in manufacturing, 1999 and 2002 70
IV.2 Interest rates of commercial banks, 1996-2003 81
IV.3 Maximum IDD rate between Singapore and selected countries 86
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Selected macroeconomic indicators, 1999-03 1
I.2 Basic economic and social indicators, 1999-03 3
I.3 Sources of productivity growth, 1981-03 5
I.4 Trade in services, 1999-03 14
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
II.1 Ministerial responsibility for trade-related issues 18
II.2 Elements of Singapore's bilateral free-trade agreements 23
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Bound tariff rates, selected years 31
III.2 Applied MFN tariffs, 2003 33
III.3 Singapore's preferential rules of origin, 2003 35
III.4 Standards in Singapore, 2000-03 39
III.5 Percentage of alignable Singapore standards aligned to international standards, 2000-03 40
III.6 Incentives offered by IE Singapore 47
III.7 Tax incentives offered by the Economic Development Board 57
IV. TRADE POLICIES BY SECTOR
IV.1 The electronics and chemical industries, 1999-02 71
IV.2 Structure and performance ratios of the banking sector, 1999-03 80
Page
APPENDIX TABLES
I. ECONOMIC ENVIRONMENT
AI.1 Outward foreign direct investment, by industry, 1999-02 109
AI.2 Outward foreign direct investment, by country, 1999-02 110
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
AII.1 Main trade-related laws in Singapore 111
AII.2 Status of selected notifications to the WTO, January 2000 to January 2004 112
III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Import prohibitions, 1999 and January 2004 114
AIII.2 Products covered by automatic and non-automatic import licensing 115
AIII.3 Exports subject to controls, February 2004 118
AIII.4 Non-tax assistance for industrial development (administered by EDB and SPRING) 119
IV. TRADE POLICIES BY SECTOR
AIV.1 Electricity licence holders, 1 January 2004 123
AIV.2 Incentives offered by the Monetary Authority of Singapore 124
AIV.3 Singapore's tourism industry, 1998-03 126
Singapore WT/TPR/S/130Page xi
SUMMARY OBSERVATIONS
(1) Economic Environment
1. Singapore weathered the Asian financial crisis well, with GDP rebounding by almost 7% and 10% in 1999 and 2000. The strong economic recovery was in great part due to Singapore's sound macroeconomic policies and its openness to international trade and foreign investment. Since then, however, the global economic slowdown has severely affected Singapore's exports and GDP fell by almost 2% in 2001. The effects of the international economic slowdown were further compounded by the emergence of severe acute respiratory syndrome (SARS) and events in the Middle-East in 2003. As a result, growth remained sluggish but is expected to pick up to around 3.5%-5.5% in 2004. With national saving continuing to exceed domestic investment by an average of 20% of GDP (in 1999-03), Singapore's external indicators remain strong. In particular, the counterpart of the excess saving, which has been invested abroad, are persistently large current account surpluses, averaging 20% of GDP (during the same period).
2. While a decline in external demand was the main reason for sluggish recent growth, Singapore faces several longer-run challenges, including a lack of growth in total factor productivity (TFP), a key indicator of an economy's efficiency since the mid-1990s. This has meant that while Singapore's high rates of national savings and domestic investment have continued to raise labour productivity, capital productivity appears to have declined. At the same time, Singapore is facing the challenge of more intense competition from low-cost regional producers, resulting in structural changes and declining employment, especially in manufacturing.
3. In response to these challenges, Singapore established the Economic Review Committee (ERC), which reported in 2003. The Government has already implemented several ERC recommendations aimed at reducing overall costs of production. These include: a lowering of the corporate tax rate from 26% in 2000 to 22% in 2003 (accompanied by an increase in the goods and services tax (GST) rate from 3% to 5%); and a lowering of mandatory contribution rates to the retirement fund, the Central Provident Fund (CPF), from 40% to 33% (20% for employees and 13% for employers).
4. The longer run challenge of reversing the recent decline in TFP and moving into higher-value-added activities is being addressed mainly through investment in infrastructure for certain industries, and incentives to attract private investment to these activities. The TFP developments are linked to the importance of external demand to Singapore; but this and the associated decline in capital productivity does raise certain concerns, including Singapore's active industrial policy, particularly the channelling of its very high savings into investments in certain activities and sectors, through government linked companies (GLCs) and incentives. However, Singapore is redefining the role of its industrial policy and is gradually divesting non-strategic GLCs and has introduced competition in some services. Furthermore, it is committed to introducing an economy-wide competition law by 2005.
(2) Trade and investment policy framework
5. Singapore's merchandise trade is three times its GDP, thus it is highly dependent on external markets for economic growth. It has traditionally been a strong supporter of the multilateral trading system and provides most-favoured-nation (MFN) treatment to all Members of the WTO. It is also a member of the Association of Southeast Asian Nations (ASEAN), the Asia-Pacific Economic Cooporation (APEC) forum, and the Asia Europe Meetings (ASEM). The major change since the previous Review has been a decision to pursue bilateral free-trade agreements. In sharp contrast to the previous review period, when Singapore had no bilateral free trade agreements, as at March 2004, it had signed FTAs with New Zealand, Japan, the EFTA States, Australia, and the United States, and was in negotiations with Canada, Chile (Pacific Three along with New Zealand), India, Jordan, Mexico, and Korea. Under the ASEAN umbrella, negotiations are under way with China, India, and Japan. Furthermore, negotiations with Sri Lanka may be launched soon.
6. Under its bilateral FTAs, Singapore has made commitments in addition to those undertaken in the WTO (including the GATS and TRIPS), underscoring its view that FTAs can be used as building blocks for a stronger multilateral trade liberalization framework.
7. Overall responsibility for trade policy remains with the Ministry of Trade and Industry. The main change to the trade policy framework since the previous Review was the transformation of the Singapore Trade Development Board (TDB) into International Enterprise (IE) Singapore. IE Singapore, a statutory board in the Ministry of Trade and Industry, will focus on helping Singapore-based companies to grow and internationalize. In addition to regular consultations with key players, such as industry groups and labour unions, transparency has been enhanced by issuing new draft legislation for public consultation, usually through government websites, where appropriate.
8. Foreign investment in the manufacturing sector remains unrestricted. The main changes to FDI policy have been with regard to services. In 1999, a 40% foreign shareholding restriction on local banks was lifted. A 70% limit on foreign ownership of Stock Exchange of Singapore (SES) members was also removed. In the telecommunications sector, all FDI restrictions (previously 49% direct and 24.99% indirect) were lifted in 2000. Foreign investment limits continue to be maintained in: broadcasting (up to 49%, unless waived) and newspaper services (raised from 3% to 5% in 2002 and possibly higher if permission is given); foreign law firms and foreign lawyers practicing in Singapore (although liberalized somewhat in 2000); and in some sectors in which government linked companies are dominant (for example, foreign equity in the PSA Corporation, one of two main managers of Singapore's ports, is restricted to 49%). Restrictions are also maintained on foreign ownership of certain landed properties unless permitted by the relevant authority.
(3) Trade and trade-related measures
9. Singapore uses very few border measures, and most of these are maintained for health, security, and environmental reasons. Only six tariff lines (on alcohol products) are subject to specific rates of duty, while the rest of the applied tariff is zero. Under its regional and bilateral free-trade agreements, Singapore provides duty-free access for products subject to MFN tariffs.
10. Singapore has bound 69% of its tariffs. The overall simple average bound rate is currently 7.5%. The gap between the average applied MFN and bound rates may create uncertainty as it provides scope for governments to raise tariffs up to their bound levels; this has not occurred in Singapore during the period under review. The bound tariff rates are especially higher in fats and oils, vegetable products, prepared foods, hides and skins, textiles, livestock, and mineral products. Singapore also levies a goods and services tax (GST), currently 5%, on most goods, as well as excise taxes on alcohol, petroleum, and tobacco products, and motor vehicles.
11. Other border measures include import and export restrictions, which, with the exception of rice and rubber (the latter for exports only), are maintained mainly for environmental, security and health reasons. Rice imports and exports are restricted on grounds of food security and price stability and are subject to stockpile and non-stockpile licences; importers are required to stock a minimum quantity of stockpile varieties of rice, which are released into the market when there are shortages. Rubber exports are licensed in order to maintain international standards. In addition, Singapore maintains a ban on imports of cars that are three-years old and over for environmental and road safety reasons. Although three-year old cars operating in Singapore are required to undergo mandatory testing, the authorities state that the same cannot be applied to imports of three-year-old cars because the tests are not foolproof and it is better to solve the problem by banning the import of such cars. Car usage is also restricted through high taxes on the purchase of cars and fuel and a requirement that the fuel tanks of all cars travelling to Malaysia are at least three-quarters full before crossing.
12. Singapore makes very little use of contingency measures. During the period under review it removed its remaining anti-dumping measures against imports of steel reinforcement bars from Malaysia and Turkey. No countervailing measures were imposed. Singapore has no legislation on safeguards and although such measures can be taken under some of its bilateral and regional trade agreements, it has not done so. Sanitary and phytosanitary restrictions are strict, with each imported consignment of food products undergoing checks by Singapore Customs. Imports of some products (mainly meat and poultry) are permitted only from specific countries and, in some cases, only from accredited establishments in those countries. Singapore bases its standards on international norms with around 75% of alignable standards aligned with international standards.