A new Protocol on upgrading the China-Singapore Free Trade Agreement (CSFTA) came into force on 16 October. It covers co-operation in six sectors contained in the original CSFTA – rules of origin, customs procedures and trade facilitation, trade remedies, service trade, investment, and economic co-operation – and adds three new sectors of e-commerce, competition policies, and the environment.
The upgraded CSFTA provides Singapore businesses with improved Rules of Origin that allow more petrochemical products to qualify for preferential treatment. The upgraded agreement will also grant Singapore companies greater access into China’s legal, maritime and construction services sector.
The most significant changes made were in the ‘investment’ chapter, which accounts for almost a quarter of the protocol. The two sides have agreed to offer each other a high-level of investment protection – applying ‘national treatment’ and ‘most-favoured-nation treatment’ status to each other’s investors to ensure the most favourable treatment of investors with respect to the management, conduct, operation, and sale or other disposition of investments.
Further, under the protocol, China and Singapore signed a Financial Service Side Letter. Singapore will grant a Qualifying Full Bank (QFB) licence to one of the Chinese banks, such that China will hold the largest number of QFB licences in Singapore.
The original CSFTA entered into force on 1 January 2009 and was China’s first comprehensive bilateral FTA with an Asian country. Since its entry into force, bilateral merchandise trade between Singapore and China grew at 6.6% and investments grew at 11.9% per year on average.
China is Singapore’s largest trading partner while Singapore is China’s largest foreign investor since 2013. In 2018, total bilateral trade between Singapore and China reached S$135 billion. In 2017, Singapore’s cumulative investment in China amounted to S$140 billion, while China’s cumulative investment in Singapore amounted to S$36.3 billion.
Negotiations for the upgrade of the CSFTA were launched in November 2015 and the CSFTA Upgrade Protocol was signed on 12 November 2018 after eight rounds of negotiations over three years. The upgraded CSFTA will take effect from 16 October 2019 except for the articles relating to Rules of Origin, which will take effect on 1 January 2020.
Singapore Minister for Trade and Industry Chan Chun Sing said: “Singapore welcomes the ratification of the China-Singapore Free Trade Agreement Upgrade Protocol. The CSFTA Upgrade is a substantive, meaningful and mutually beneficial agreement. It will strengthen the foundation for Singapore and China to deepen our trade and investment linkages. The entry into force of the agreement is an important signal of both countries’ commitment to free and open trade.”
“The focus on investments is not surprising,” said Mark Ray, Managing Director of Sovereign (China) Ltd. “With its low corporate and individual income tax rates, Singapore has become a growing corporate regional hub for investments into China, as well as receiving increasing amounts of Chinese outbound investment going the opposite way – into Singapore and for reinvestment across Asia. Foreign investors setting up a subsidiary in Singapore, can also access Singapore’s own array of international tax treaties, which include numerous other FTAs, as well as over 80 double tax agreements.”