2 factors that can boost Singapore-Malaysia partnership

The bilateral Free Trade Agreements must be tweaked, says analyst.

According to DBS, it’s been six years since the Iskandar Malaysia (IM) project was first announced on 4 Nov06. Previously known as the Iskandar Development Region (IDR), the development has evolved and taken on a new dynamism with involvement from Singapore.

DBS also noted that apart from more private sector-driven projects and closer collaboration across more sectors/industries, the partnership seems ready to ratchet up a notch. It requires creating synergies and there are at least 2 ways to bring that about.

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Firstly, Singapore has a very comprehensive network of bilateral Free Trade Agreements (FTAs). Products produced in the IM region can benefit from Singapore’s FTAs though some tweakings in the Rules of Origins section within all the existing agreements.

This involves the inclusion of the Outward Processing Concept. In doing so, a product can be deemed as “Singapore originating” as long as the final or a particular critical stage of the production is done within Singapore. This is despite the fact that the bulk of the valueadd is done in IM.

Such concept is already in existence within the US-Singapore FTA and the Panama-Singapore FTA. Amendment to the agreements can be easily done during the regular revision of the existing FTAs. Separately, though Malaysia is part of several ASEAN-centric FTAs, the level of commitments in such multilateral setting is always less deep compared to that of a bilateral arrangement.

By leveraging on Singapore’s bilateral FTA network, MNCs can now locate their low-end production in IM and have their critical processes or headquarter functions based in Singapore in order to benefit from the FTAs.

Singapore companies will also be able to continue to enjoy the benefits of the country’s FTAs even if they have relocated to the IM. From a macro-perspective, Malaysia will gain in terms of foreign direct investment while Singapore will benefit from higher export value. This will be a win-win arrangement.

To solidify the synergies created, connectivity must be enhanced. Most of the enhancements made on connectivity between the two states thus far have focused on the “hardware elements”.

For example, Singapore will be extending its Mass Rapid Transit (MRT) system into Tanjung Puteri in Johor Bahru by 2018 while cross border taxi and bus services have also been enhanced. Connectivity will be further improved by the high speed rail linking IM and Kuala Lumpur. 

What can be expected in the years ahead is the strengthening of the “software” aspects of connectivity. This include the harmonization of custom clearance procedures to speed up transfers of human, goods and services between the two states.

A mutual recognition of standards (e.g., product standards, education degrees, medical and legal practices) will also help smoothen this bilateral flows of good and services.

Finally, with increased investment flows, there is a need for comprehensive and in-depth investment and intellectual property protection agreements to safeguard the business interests from both ends. 

The success of the IM project is important to both countries. To multiply the economic benefits, much will depend on how to create and harness the synergies generated from this strategic partnership going forward.