Located at the hub of Southeast Asia, Singapore has a trading system very much in line with international practices, and the nation has signed 20 free trade agreements (FTAs) with 31 of its trading partners. Its economic and trade networks are well developed, and many nations have chosen Singapore as the first country in Southeast Asia with which to sign an FTA.

Taiwan began negotiating the agreement with Singapore in May 2011, and has finally completed it after two and a half years. Former economic affairs minister Shih Yen-­shiang feels that ASTEP is aptly named, for it does indeed represent an important “step” forward for Taiwan.

Trade between South Korea and Singapore (2006–2012)/Note: Bilateral trade between Singapore and S. Korea has doubled in value since their FTA took effect in 2006; ASTEP is expected to bring a similar result./source: Ministry of Economic Affairs

Singapore is Taiwan’s fifth largest trading partner and fourth largest export market. Statistics from the Ministry of Economic Affairs indicate that two-way trade last year topped US$28.2 billion, with Taiwan enjoying a bilateral trade surplus of US$11.9 billion.

A study published by the Chung-Hua Institution for Economic Research predicts that over the first 15 years of its implementation, ASTEP will add an extra US$700 million (0.17%) to Taiwan’s gross domestic product, generate NT$42.1 billion growth in total output, and yield an additional 6,154 job opportunities.

Regional economic integration is proceeding apace in East Asia, where the two biggest regional blocs are the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP). The 12 members of the TPP have a combined GDP of US$27 trillion (38.5% of global GDP), while the 16 members of the RCEP have a combined GDP of US$20 trillion. Taiwan is urgently seeking membership in both of these bodies.

New Zealand and Singapore are both founding members of the TPP, so Taiwan’s success in signing FTAs this year with these important Asian neighbors will be very helpful in Taiwan’s quest to join the TPP.

According to Roy Chun Lee, vice president of the Taiwan WTO & RTA Center, the ANZTEC and ASTEP agreements will provide a model to inform future policy efforts. In the process of hammering out these agreements, he says, Taiwan has built up experience in international economic and trade negotiations, so we can expect to conclude FTAs with other ASEAN nations more quickly. Taiwan has finished feasibility studies on FTAs with Indonesia and India, and studies on the possibility of agreements with the Philippines and Malaysia are currently in progress.

The ASTEP agreement covers seven main topics, including trade in goods, trade in services, investments, e-commerce, and government procurement. It is a high-quality agreement that features strict standards and comprehensive coverage.

For example, Singapore will completely eliminate import tariffs on six alcoholic beverages, including beer and ­samsu (distilled from rice, similar to Taiwan’s millet wine). This is even more favorable than Singapore’s WTO commitment in this area. Sales of Taiwanese beers currently amount to more than NT$30 million per year in Singapore, and exports are now expected to grow.

Taiwan, in the meantime, has a five-tier schedule of tariff reduction commitments. It makes distinctions based on the sensitivity of particular products, and allows for a maximum transition period of 15 years to reduce the impact of increased imports on local producers.

Agriculture is the most highly protected sector of Taiwan’s economy, and has always presented the biggest headaches in economic and trade negotiations. Singapore is not a big agricultural producer, however, so the ASTEP agreement will not have a big impact on Taiwan’s agricultural sector.

Taiwan has obtained exemptions from tariff reductions on 40 products, including rice, garlic, shelled peanuts, adzuki beans, pineapples, and mangos. Because Singapore is a free port, Taiwan will have rigorous place-of-origin rules in place to prevent Singapore’s neighbors from exporting agricultural products to Taiwan via Singapore, and our customs service will be watching like a hawk to prevent infractions.

It is industry that will be the true beneficiary of the ASTEP agreement.

Exports of Taiwanese industrial goods to Singapore totaled US$19.9 billion in 2012. Most information technology products are already tariff-free, so the big beneficiaries of the ASTEP agreement are likely to be such industrial goods as bicycles, chemicals, and base metals, which should also be able to advance into Southeast Asian markets via Singapore.

Singapore does not have a manufacturing sector, but its petrochemicals industry is quite competitive. Out of consideration for the possible short-term impact of tariff reductions on some domestic producers in each country, the ASTEP agreement includes protective measures for both sides. If the importation of a particular product does serious harm to producers of that product, tariff reductions can be delayed by three years, with a possible further extension of two years if necessary.

Chiu Pi-ying, head of the Trade Development Section at the Chinese National Federation of Industries, notes that people in the industrial sector are very excited about ASTEP, but also want the government to pick up the pace of negotiations for similar agreements with Malaysia, Thailand, and Indonesia, all of which are important markets for Taiwan. Industrial firms, for their part, need to take full advantage of the transition period to upgrade their capabilities.

As for the financial services sector, Minister of Economic Affairs ­Chang Chia-juch points out that there is only so much development a financial institution can achieve relying solely on Taiwan’s domestic market. But Singapore is a major Asia–Pacific financial center, so that ASTEP, by facilitating expansion into Singapore, will provide a big boost to Taiwanese financial institutions seeking to establish a greater presence throughout the Asia–Pacific region.

Some observers worry whether mainland Chinese entities might not invest via Singapore in Taiwan’s service sector, but ­Chang Chia-juch notes that his ministry’s Investment Commission reviews foreign investment applications and would be in a position to turn down mainland investments made via Singapore.

Bert Lim, president of the World Economics Society, suggests that the government should break free of traditional thinking on trade in goods and tariff agreements, and instead use the free-trade port of Singapore as a fulcrum point to leverage its investments in trade in services, thereby maximizing returns.

Looking to the future, President Ma Ying-jeou has commented that Taiwan has now made a start in rolling out economic trading agreements with its major trading partners, although some will still take time to finalize. As long as ten years ago, Singapore had already signed six trade pacts, so Taiwan has a lot of catching up to do. Ma hoped that legislative scrutiny of the Cross-Strait Agreement on Trade in Services will soon be completed, to demonstrate the determination of both the executive and legislative branches to support the liberalization of national economic policy.