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UK exporters’ use of Singapore as ASEAN’s supply chain gateway boosted by new bilateral trade agreement

Singapore’s role as a hub for UK companies, whether as exporters or investors accessing Southeast Asia’s and broader Asian dynamic economies, was elevated by the new UK-Singapore trade agreement (UKSTA) which came into effect on 1st January 2021.

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UK exporters’ use of Singapore as ASEAN’s supply chain gateway boosted by new bilateral trade agreement

There was much controversy, before and after the United Kingdom’s (UK) Brexit from the European Union (EU), in talk of it adopting a free trade and manufacturing model similar to Singapore’s.

The idea was dubbed as “Singapore-on-Thames” by the British media. Since the UK and EU trade and economic agreement (TEA) in December 2020, speculation over the UK becoming a supposedly regulation-light jurisdiction accessing the EU’s Single Market, was effectively quashed by the TEA’s restrictive conditions on aligning competition policy, commonly referred to as the “level-playing field”.

In contrast to Britain’s increasingly complex trading relations with the rest of Europe, Singapore’s role as a hub for UK companies, whether as exporters or investors accessing Southeast Asia’s and broader Asian dynamic economies, was elevated by the new UK-Singapore trade agreement (UKSTA) which came into effect on 1st January 2021. It is anticipated the UKSTA should provide more certainty and clarity in supporting the longstanding positive long-term growth trend in UK goods and services exports to Singapore.

These have steadily risen from £7.2 billion (US$10 billion) in 2010 to £10.3 billion (US$14.3 billion) in 2019, only interrupted by a sharp fall of -14.5 percent in 2020, due to the Covid-19 pandemic. The number of UK VAT-registered businesses exporting to Singapore also continues to grow; reaching 10,300 in 2019. The UK regions with the highest concentrations of goods exports, to Singapore, were the East Midlands accounting for £1.5 billion (US$2 billion) or 29 percent of the total, Scotland with £0.6 billion (US$835 million) or 11.5 percent, and the Southwest with £0.6 billion (US$835 million) making up 11.1 percent. London came in fifth place having exported £0.5 billion or 10.4 percent of the total. Given the large number of UK companies exporting to Singapore across a diverse range of British regions, the UKSTA should become an additional platform by which to enhance the UK’s exports into Singapore.

The new bilateral trade agreement covers trade in goods and services, including provisions on rules of origin, quotas, and preferential tariffs. For UK exporters this will mean 99 percent of tariffs being removed by Singapore. According to a joint statement between two governments, the UKSTA will also provide lower non-tariff barriers in four key sectors: electronics, motor vehicles and parts, pharmaceuticals and medical devices, and renewable energy generation.

While the UKSTA is based on the 2019 EU-Singapore Free Trade Agreement thereby preserving pre-Brexit trading arrangements, various bespoke solutions have been added to ensure continuity in a UK context. This includes supporting UK companies’ regional operations and supply chains, in Singapore, by allowing for EU-27 cumulation – meaning the continued use of materials and parts sourced from the trade bloc in order to qualify for preferential tariff treatment.

Following on from the conclusion of the UKSTA, both countries have committed to concluding a Digital Economy Agreement in 2021. It will be the first such agreement Singapore will negotiate with a European country setting modern rules on facilitating seamless digital trade and financial services between the UK and Singapore, by promoting cross-border digital connectivity and interoperability of digital standards and systems. The respective governments have also agreed to conclude a high-standard bilateral investment protection treatment, for businesses and investors, within two and a half years from 1st January 2021.

Moreover, the UKSTA should serve as a platform towards the UK joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as a gateway into the broader Asia-Pacific, where 95% of goods traded between members are tariff-free.

In recent years, UK companies have been expanding their presence in Singapore to support their burgeoning trade with the city-state and the surrounding region. In 2019, the total amount of UK foreign direct investment (FDI) in Singapore was £13.7 billion, up by 21.7 percent in 2018 and representing about one percent of UK global outbound FDI stock in that year. Some of the higher-profile British businesses which operate in Singapore include Dyson, GSK, Rolls Royce, Pearson, Standard Chartered, Unilever, Shell, BP, Aggreko, Arup, Barclays, Aberdeen Standard, BAE, Aggreko, BUPA, BT, Diageo, Rio Tinto, BPP, ACCA, Coventry University, Newcastle University, Aon, Smith & Nephew.

By Bob Savic, Advisor to Dezan Shira & Associates

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This article was first published by AseanBriefing which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write to [email protected]

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