How Singapore exporters could benefit from recent economic deal with Taiwan

Tariff barriers to be phased out.

According to DBS, Taiwan signed an economic cooperation agreement (ASTEP) with Singapore yesterday, making a further step towards economic and trade liberalization.

Under the ASTEP, all the tariff barriers between the two economies will be phased out over the next 15 years. Given Singapore’s status as a free trade port, about 90% of Taiwan’s exports to Singapore are already enjoying tariff-free treatment.

As such, the benefits of tariff liberalization under the ASTEP should be mainly felt by Singaporean exporters, especially in the petrochemicals and machinery sectors where the existing tariff rates imposed by Taiwan remain relatively high.

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The economic ties between Taiwan and Singapore have strengthened in recent years after the 2008 global financial crisis, an reflective of the expansion in intraregional trade amid lackluster demand from the West.

Taiwan’s bilateral trade with Singapore has ballooned to USD 28.2bn in 2012 from USD 16.5bn in 2008. As a percentage of Taiwan’s total trade, Singapore’s share has risen to 4.9% in 2012 from 3.3% in 2008.

The ASTEP will also reduce investment restrictions in the services sectors (R&D services, engineering services,
telecom, shipping and etc.).

This is expected to provide more incentives for Singaporean firms to invest in Taiwan, benefiting Taiwan in terms of job creations and transfer of technology and management knowhow.

Meanwhile,more Taiwanese firms should also be encouraged to invest in Singapore, using it as a gateway to the ASEAN market. This will help them improve earnings and diversify the geographic exposure.

The ASTEP is Taiwan’s second free trade deal signed with a country that it doesn’t have diplomatic relations. The improvement in cross-strait relations in the past several years has offered Taiwan greater international space.

The signing of the ASTEP increases the feasibility for Taiwan to achieve free trade deals with other regions and countries, especially those have established FTAs with China (e.g., ASEAN, Chile and Switzerland).