Making an ASEAN-EU FTA Work for European Business: Prospects and Challenges 9789812307576

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MAKING AN ASEAN-EU FTA WORK FOR EUROPEAN BUSINESS

The Institute of Southeast Asian Studies (ISEAS) was established as an autonomous organization in 1968. It is a regional centre dedicated to the study of socio-political, security and economic trends and developments in Southeast Asia and its wider geostrategic and economic environment. The Institute’s research programmes are the Regional Economic Studies (RES, including ASEAN and APEC), Regional Strategic and Political Studies (RSPS), and Regional Social and Cultural Studies (RSCS). ISEAS Publishing, an established academic press, has issued almost 2,000 books and journals. It is the largest scholarly publisher of research about Southeast Asia from within the region. ISEAS Publishing works with many other academic and trade publishers and distributors to disseminate important research and analyses from and about Southeast Asia to the rest of the world.

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MAKING AN ASEAN-EU FTA WORK FOR EUROPEAN BUSINESS Prospects and Challenges

- •-

EMBASSY OF SWEDEN

I5EI5 Institute of Southeast Asian Studies

Edited by

Rahul Sen

First published in Singapore in 2008 by ISEAS Publishing Institute of Southeast Asian Studies 30 Heng Mui Keng Terrace Pasir Panjang Singapore 119614 E-mail: [email protected] Website: bookshop.iseas.edu.sg All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the Institute of Southeast Asian Studies. © 2008 Institute of Southeast Asian Studies, Singapore The responsibility for facts and opinions in this publication rests exclusively with the authors and their interpretations do not necessarily reflect the views or the policy of the publisher or its supporters. ISEAS Library Cataloguing-in-Publication Data Making an ASEAN-EU FTA work for European business : prospects and challenges / edited by Rahul Sen. Proceedings of a seminar on How to Make an ASEAN-EU FTA Work for European Businesses, May 30, 2007, Singapore, jointly organized by ISEAS with Embassy of Sweden, together with the School of Business, Economics, and Law at Göteborg University, Sweden, and Swedish Business Association of Singapore. 1. Free trade—Southeast Asia—Congresses. 2. Free trade—Europe—Congresses. 3. Business enterprises, Swedish—Singapore—Congresses. 4. Southeast Asia—Foreign economic relations—Europe—Congresses. 5. Europe—Foreign economic relations—Southeast Asia—Congresses. 6. Southeast Asia—Commerce—Europe—Congresses. 7. Europe—Commerce—Southeast Asia—Congresses. 8. Southeast Asia—Foreign economic relations—Sweden—Congresses. 9. Sweden—Foreign economic relations—Southeast Asia—Congresses. I. Sen, Rahul, 1965– II. Institute of Southeast Asian Studies. III. Sweden. Embassy (Singapore) IV. Göteborgs universitet. School of Business, Economics and Law. V. Swedish Business Association of Singapore. VI. Seminar on How to Make an ASEAN-EU FTA Work for European Businesses (2007 : Singapore) VII. Title: Making an ASEAN-European Union Free Trade Agreement work for European business HF1591 Z4E8M23 2008 ISBN 978-981-230-756-9 (soft cover) ISBN 978-981-230-757-6 (PDF) Typeset by Superskill Graphics Pte Ltd Printed in Singapore by Utopia Press Pte Ltd

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CONTENTS

Foreword Pär Ahlberger, Ambassador of Sweden to Singapore

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Foreword K. Kesavapany, Director, ISEAS

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Keynote Speech Sten Tolgfors, Minister for Foreign Trade, Sweden

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1.

The Swedish Business Association of Singapore Jan B. Djerf

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Revisiting the Building versus Stumbling Block Debate on Free Trade Agreements: The Context of an EU-ASEAN FTA Rahul Sen

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Swedish Business in Singapore: How Is It Really to Do Business in the Region? Lena Lindberg

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FOREWORD

Singapore is Sweden’s largest trading partner in Southeast Asia, and approximately 200 Swedish-related companies are present in Singapore. We also have one of the largest Swedish communities in Asia, some 1,500 people. Singapore is thereby a strategic commercial partner and a regional hub for Swedish business operations in Southeast Asia. Most larger Swedish-related companies have a presence in Singapore. I see an exciting new trend with Swedish entrepreneurs, not least in very creative professions within the lifestyle sector, establishing themselves in Singapore. I also see a trend with young creative Singaporeans becoming interested in Sweden. As a result, the student exchange programme is expanding markedly. One of the most important tasks for the Embassy of Sweden in Singapore is to promote the commercial relations between Sweden and Singapore, including trade and investments in both directions. I am personally very committed to these issues and consider the individual Swedish-related companies to be our close partners. Trade policy issues should be seen as an integrated part of the specific trade and investment activities that the Embassy is engaged in, together with the business community. Against this background, the Embassy and the School of Business, Economics and Law at Göteborg University have launched a long-term trade policy project. Our aim is to gain a better understanding of the business climate in Southeast Asia, as perceived by the Swedishrelated business community. This is of crucial importance in

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defining issues of priority in the upcoming FTA negotiations between EU and ASEAN. Secondly, our aim is to promote a stronger awareness within the business community of the business opportunities that FTAs offer to the companies. I am very proud that the project had a successful start by a trade policy discussion on 30 May 2007, opened by the Swedish Minister for Foreign Trade, Sten Tolgfors and organized jointly by the Institute of Southeast Asian Studies, the Swedish Business Association in Singapore, the School of Business, Economics and Law at Göteborg University, and the Embassy of Sweden in Singapore. Let me stress how much we have appreciated our cooperation with these partners. This book gives an overview of some of the input during the panel discussion and the present status of the commercial relations between Sweden and Singapore. It will hopefully inspire a continued dialogue on trade policy issues in general and on opportunities with FTAs in particular. Finally, let me congratulate the Swedish Business Association in Singapore on its Twenty-Fifth Anniversary. You are a very important and appreciated partner to the Embassy, and your financial support made it possible to publish this book. Pär Ahlberger Ambassador of Sweden to Singapore May 2007

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FOREWORD

Free trade agreements (FTAs) are viewed as superhighways that connect Singapore to major economies and new markets. It is in this context that Singapore has been engaged in negotiating bilateral FTAs with its major trading partners who are like-minded in terms of willingness to undertake comprehensive measures to liberalize trade and investment among themselves. At the APEC Leaders Meeting in New Zealand in 1999, APEC endorsed the legitimacy of using bilateral FTAs as a means to achieve multilateral trade liberalization. Following that historic decision, Singapore concluded its first FTA with New Zealand. Since then, Singapore has concluded FTAs with many of its major trading partners, including the United States, Japan, India, Australia, and Korea. On 4 May 2007, the European Union (EU) and the Association of Southeast Asian Nations (ASEAN) agreed to launch negotiations on an FTA, and talks are ongoing on the specific design and membership, with a joint working committee being established. The time is therefore ripe to identify the present barriers in the relations between the regions, and to make an ASEAN-EU FTA useful as well as understandable to the business sector. It is in the above context that ISEAS collaborated with the Embassy of Sweden in Singapore, together with the School of Business, Economics and Law at Göteborg University, Sweden, and the Swedish Business Association of Singapore (SBAS), to host a panel discussion on 30 May 2007 on how to make an ASEAN-EU FTA work for European business. The purpose of this

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event was to encourage an active and constructive exchange of views and ideas between representatives of the Swedish business community in Singapore, government officials, and academics. The central idea was to increase understanding of FTAs and to identify how the business sector can benefit from an ASEAN-EU FTA. The event was one of the numerous activities that the ISEAS Trade Policy Unit is currently engaged in to enhance understanding of FTAs in the region. Mr Sten Tolgfors, the Swedish Minister for Foreign Trade, kindly agreed to be the keynote speaker for this event in spite of his busy schedule. This book contains his keynote speech as well as the proceedings of this important event that included a panel discussion moderated by Mr Rodolfo Severino, former ASEAN Secretary General and Visiting Senior Research Fellow, ISEAS. ISEAS is glad to be publishing such books that increase awareness and outreach about FTAs and their implications for ASEAN, seeking to learn lessons from each negotiating experience. Two other books, on the Korea-Singapore FTA and the New Zealand-Singapore FTA, have been published as part of the above outreach effort. K. Kesavapany Director ISEAS May 2007

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KEYNOTE SPEECH Sten Tolgfors Minister for Foreign Trade, Sweden

It is with great pleasure I welcome you all today to this trade policy panel discussion. I have been looking forward to this dialogue on both the opportunities in global trade and the challenges involved in EU-ASEAN trade. With us today are representatives of the business sector, academics and government officials. This ambition is also reflected in the very constellation of the organizing parties. These are: • • • •

the Institute of Southeast Asian Studies, the Swedish Business Association of Singapore, the School of Business, Economics and Law at Göteborg University, and the Embassy of Sweden in Singapore.

Sweden is a small, modern, competitive, and open economy. We are open because we believe in a free economy, and also because we know that internationalization is good for our economy. Ninety per cent of our GDP is trade. Sweden is open to both exports of our own products as well as to imports from other countries, to the benefit of consumers and companies with global supply lines. So I usually label myself as a free-trader. An open trade policy strengthens the competitiveness of Swedish companies

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and creates jobs and growth, both in Sweden and in partner countries. Some examples of this: foreign-owned companies made a quarter of the private sector’s net investments in 2004 and accounted for 45 per cent of private sector research and development. Foreign-owned companies pay higher salaries and are more extensively export-oriented than domestically-owned companies. Swedish direct investment assets abroad are equivalent to some 60 per cent of our GDP. We need FDI in order to retain our critical mass in our world competitive clusters. Our multinational companies invest abroad, others invest here — it is to the benefit of all. We live in a time where the agenda for politicians often is set by a perception in the media of a ruthless process of globalization, of events linked to international terrorism or to take an example from this part of the world, natural disasters such as the tsunami. My response since I became minister last fall is to carefully look at what is actually taking place. In reality, in recent years we have seen a remarkable development. More and more people are being integrated into the world economy. Democracy is spreading. The economies of the ASEAN countries have rebounded with a vengeance, both from the Asian crisis of 1998 and the tsunami. While free business is best to produce wealth and opportunities, politicians have the great responsibility and privilege to try to make globalization beneficial for all. The first and most important task for me as a Trade Minister is therefore to work towards an ambitious result in the Doha Development Round. All countries of the world — rich and even more so the poor — need a framework that will provide stability and predictability in the world economy in order to meet the demands and reap the

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benefits of globalization. This would be accomplished in a new ambitious multilateral agreement. The Doha Round is now at a crucial stage and we should all do what we can to secure a successful outcome. I believe that there is a good possibility that we can get a breakthrough in the negotiations early this summer, and then hopefully conclude the Round by the end of this year. My assessment, however, is that there is a risk that too many actors are focussing on the difficulties, and this becomes a self-fulfilling prophecy. For example, even though agriculture is the hardest nut to crack and dominates the debate, it only represents 7 per cent of world trade. The negotiations on industrial goods and services are of far greater importance for many of our countries. To give just one example, recent studies show that 65 per cent of Swedish welfare gains from a successful Doha round — 65 per cent — will come from the liberalization of trade in industrial goods. For Singapore, the number will probably be higher. What is on the table right now is worth roughly US$117 billion per year in welfare gains globally. We are talking US$400 per Swedish household. And this is not taking into account dynamic effects. The biggest winners will be the developing nations. Few people are talking about this. In the area of industrial goods, a top Swedish priority is to get an ambitious coefficient. In our view, five for developed countries, or at least not above ten. And for developing countries, not above fifteen. Future export potential to the emerging markets requires a coefficient of fifteen. In addition to an ambitious formula, we see a need for sector agreements. For Sweden, sectors such as forestry, pharmaceuticals, chemicals, and electronics are of high importance.

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Finally, in the area of industrial goods, non-tariff barriers are of tremendous importance. Many Swedish companies name nontrade barriers (NTBs) as their main priority. The service sector corresponds to 70 per cent of the Swedish economy. There is a tremendous potential in the trade in services. Trade facilitation is of key importance to global trade. It is therefore important that it is part of the final package. I would also like to emphasize that further refinement of the anti-dumping instrument is an important issue for Sweden. A failed Doha Round would be a serious blow to the multilateral system. This is something that we cannot afford. This is particularly true since there is a tremendous shift taking place towards Asia in the economic balance. If Doha fails, it would mean that we lose the opportunity to better integrate the emerging economies like the ASEAN countries, China, India, and Brazil into the multilateral system. In the long run, it would also lower the attraction for new members to join the WTO. And above all, we must not allow the best to become the enemy of the good. This is why my role as a trade minister is to talk about the gains, to be optimistic and be a vocal spokesperson for getting an ambitious result. I have had meeting with Congress men, with USTR Schwab, Pascal Lamy, and India’s Kamal Nath. My sense is that there is a growing momentum to get a deal done. I hope that my visit here will also help the important players in ASEAN to contribute here! The Southeast Asian countries and the development of ASEAN is important to Sweden. ASEAN is the cornerstone of the European Union’s relationship with this dynamic part of the world. Relations between the EU and ASEAN were formalized thirty years ago, and this gives us an opportunity to celebrate this year. ASEAN

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itself will celebrate its fortieth anniversary later this year under the Singaporean chairmanship. This is why I think the topic of today’s discussion is so important and timely: the regional free trade agreement between ASEAN and the European Union. I am a strong advocate of FTAs — so long as they complement multilateral negotiations. They present opportunities for far-reaching liberalization and may also pave the way for more ambitious multilateral agreements. In early May, the ASEAN Economic Ministers and the Trade Commissioner of the EU met in Brunei, and formally agreed to launch free trade negotiations between the EU and ASEAN. The ministers agreed on a region-to-region approach and tasked a joint committee with working out the details concerning the actual negotiation process. An ASEAN-EU free trade area will cover nearly one billion people and is potentially one of the largest in the world. Two-way trade totalled about US$140 billion in 2005. The EU, on the one hand, is the world’s largest trade partner and represents nearly a fifth of the trade in goods, about a quarter of the trade in services, and a third of world FDI. Southeast Asia, on the other hand, shows great economic growth and potential for future strong development. East Asia’s share of total global trade is growing, and the region is also likely to become an increasingly important trading partner of the EU. The fact that the EU and ASEAN is negotiating a new agreement shows the EU is an economic power that has realized that the balance is shifting towards this part of the world. The economic development of Southeast Asia should be seen in the light of its proximity to its close neighbours China and India, whose economic growth is nothing short of impressive.

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This affects us all and challenges us to seek new strategies in order to be competitive in a globalized world. An ASEAN-EU FTA could also potentially help ASEAN’s internal economic integration process forward, towards an ASEAN Economic Community to be realized by 2015. In Sweden we continuously monitor the interests of Swedish business. The Embassy of Sweden together with the School of Business, Economics and Law at Göteborg University conducted a study between January and April 2007 on the interests of Swedish companies located in Singapore. I would like to thank those of you here today who contributed to that study and the resulting report. Some parts of the report confirm the impressions that we already had, but we have also gained new insights. I draw some conclusions from the report: 1.

2.

3.

4.

We appreciate that Singapore was generally considered as highly liberal and business-friendly. However, the trade structure and business climate in some of the other countries in the region posed some challenges. While tariffs were sometimes mentioned as moderate barriers, tedious trade procedures and other non-tariff barriers (NTBs) were more often referred to as cumbersome, time-consuming, and costly. This confirms that we need to pay close attention to trade procedures and NTBs in trade negotiations. Most companies cannot make use of the ASEAN Free Trade Area, due to no or little local production in the ASEAN region. A few find it very useful as they save significant duties. Finally, the results of the study point to the need for raising the level of awareness among companies about the

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implications and potential usefulness of FTAs. Here, it is also my duty to contribute to this through dialogue with business leaders. For me it is obvious that Sweden has broad interests in the coming negotiations. The goal has to be an ambitious and comprehensive agreement that comprises far-reaching liberalization of trade in goods and services, and investments. Special attention should be given to non-tariff barriers. The different development levels of the ASEAN countries should be taken into consideration in the negotiations. The agreement should contribute to improving competitiveness and growth in Europe and Southeast Asia, and support further integration of partner countries into the international trading system. To conclude, the priority of the Swedish Government remains the multilateral trade negotiations, and we are hopeful for a successful outcome of the WTO Doha Development Round. Bilateral trade agreements can supplement multilateral agreements, they can be more detailed and more comprehensive, and include such things as investments and liberalize almost all trade. But they must not undermine multilateral efforts. An ASEAN-EU FTA is likely to present considerable gains in terms of increased trade flows between the regions. Again, I believe that while I have been talking a lot about the economic side of the FTA, perhaps its most important role is to state that EU and ASEAN share a common political vision. That trade and economic integration brings us closer and enhances the understanding between us. This is why it is so important for me to be here in Singapore — to have the opportunity to learn more about the experiences of

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business people here in the region, and how I, as Minister for Foreign Trade, can further contribute to creating opportunities for a competitive Swedish trade and industry and increased bilateral and multilateral trade flows. With these words, I now open up for a hopefully inspiring and creative panel discussion! Thank you.

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ABOUT THE CONTRIBUTORS

Jan B. Djerf is President of the Swedish Business Association of Singapore (SBAS). Rahul Sen is Lecturer at AUT Business School, Auckland, New Zealand and Associate Fellow, Institute of Southeast Asian Studies, Singapore. Lena Lindberg is with the School of Business, Economics and Law at Göteborg University, Sweden.

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The Swedish Business Association of Singapore

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1 THE SWEDISH BUSINESS ASSOCIATION OF SINGAPORE Jan B. Djerf President The Swedish Business Association of Singapore

Introduction On 27 September 1982, the Swedish Business Association of Singapore (SBAS) was inaugurated by Senior Parliamentary Secretary Chan Chee Seng, Ministry of Trade and Industry. The Swedish Minister for Commerce at that time, Mr Bjôrn Molin sent the following message: “The official inauguration of the Swedish Business Association of Singapore marks a new event in the dynamic development of trade and industrial cooperation between Sweden and Singapore. The Association will constitute an important forum for the furtherance of Swedish– Singaporean interests in these fields. On behalf of the Swedish Government, I would like to convey my compliments and best wishes for the success of the Association”. Twenty-five years later on 30 May 2007, SBAS was congratulated by Mr Sten Tolgfors, Swedish Minister for Foreign Trade, for its valuable contribution to the Swedish corporate community in Singapore.

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Objectives The main objectives of the association are: •

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To provide a forum on an organized continuing basis of Swedish organizations and their representatives and Singaporean and other nationals with an interest in the objectives of the Association, which can identify, examine and discuss matters of common interest affecting economic, industrial and commercial objectives of its members. To advise Swedish companies who are either already established and doing business in Singapore or intend to do business in Singapore. To advise in, promote and protect commercial and industrial relations, investments and trade between Sweden and Singapore and such other countries in the region where members have interest To facilitate by lawful means the exchange of views and information between Swedish companies and other companies or firms doing business in Singapore in which there is a direct or an indirect Swedish interest. To seek affiliation with other appropriate bodies in Singapore and in the region in order to further the above objectives.

Activities Since the foundation of SBAS, the association has had a productive and highly valued tradition of working in close cooperation with the Swedish Embassy in Singapore. SBAS has also a close cooperation with the other Nordic Business Associations in Singapore, the other Swedish Business Associations in the region, and the President of SBAS is a board member of the European Chamber of Commerce in Singapore.

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The Swedish Business Association of Singapore

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SBAS has continuously developed its operations in order to empower the growing Swedish business society in Singapore. Today, in order to achieve its objectives in an efficient way, SBAS has divided its activities into three main areas: The Professional Development Programme aims to give its members knowledge and information that support the development of their respective business. •

•

The programme consists mainly of market and business seminars where key speakers from the Singapore and Swedish business society as well as the government and administration are invited as guest speakers. The seminars are held either as breakfast or luncheon meetings. They offer a good opportunity to receive valuable information about the current situation and important trends in Singapore and Sweden and also regarding the development in the ASEAN region. The specific programme will vary from time to time but mainly involves subjects such as market and financial development, free trade development, other important rules and legislations, recruiting and employment situation, security and other current topics. In order to understand and further explore the development of Singapore, SBAS also perform visits to important companies and organizations. For example, Changi Airport and the Port of Singapore have been visited.

The Startup and Marketing Programme offers an easy and quick way for new members to introduce and market themselves to other members of the association. It is also targeted to support new members in their set up of a business in Singapore. •

Individual Startup Support from an administrative point of view is provided through the Swedish Embassy in Singapore.

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Information is available online as a number of links to important organizations that offers valuable facts regarding the setting up of a business in Singapore. The Embassy is also able to offer individual support as a consultancy service. Individual Startup Support from a business point of view is offered as mentorship programmes where a new member is given the support from a current SBAS member. New Member Introduction Presentation is an opportunity for new members to present and market their company to other members and non-members. The introduction is often held as an add-on to a Professional Development Programme.

The Networking Programme gives our members and their families an opportunity to develop both professional and social relationships. Sample activities throughout the year are: • •

One networking evening per month together with the other Scandinavian business associations in Singapore. A number of family-oriented events, such as the Midsummer Festival, the Family Rounder, the Christmas Dinner and the Midwinter Ball.

The Swedish Business Presence in Singapore During the twenty-five years since the inauguration of SBAS, Swedish business interests and establishments in Singapore have shown rapid growth. The number of Swedish companies established in Singapore is now close to 200 estimated to employ roughly 6,600 people. All industry segments are represented, the sectors with the largest number of Swedish companies being: Industrial and Machinery, Infocomm, Materials and Construction.

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The Swedish Business Association of Singapore

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There are numerous reasons for establishing a company in Singapore. Let me highlight some of them. At the heart of Asia, Singapore is ideal for close monitoring of regional businesses. A large number of Swedish companies have therefore set up their regional headquarters in Singapore. Singapore has regained top spot as the most globally connected country in the world. It tops the charts in trade, technology, and links to the rest of the world. Another decisive factor for Swedish establishment in Singapore is that it takes only six working days to get a new business going with low start-up costs. Overall, taking into account the other factors including business licensing, taxes, credit legal rights and investor protection, Singapore has the most businessfriendly regulation in the world. These factors have been particularly important for new Swedish SMEs when deciding location for their operations.

Trade between Sweden and the ASEAN Countries Trade between Sweden and the ASEAN countries has grown rapidly and amounts to approximately 30 BNSEK per year, although there are still a number of significant trade barriers for Swedish companies doing business in this region. SBAS has taken an active role in the planned free trade agreement (FTA) negotiations between ASEAN and the EU. In order to increase the awareness among its members, SBAS has arranged/participated in the following activities, which took place during the first half of 2007: •

Arranging together with the Swedish Embassy a trade policy discussion, opened by the Swedish Minister for Foreign Trade, Mr Sten Tolgfors.

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Assisting and contributing in the interviews of Swedish companies regarding trade-related issues within ASEAN. Assisting and contributing in the interviews of European companies performed by the European Chamber of Commerce.

•

For further information regarding the above please do not hesitate to contact The Swedish Business Association of Singapore or visit our homepage or contact us at .

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Revisiting the Building versus Stumbling Block Debate on FTAs

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2 REVISITING THE BUILDING VERSUS STUMBLING BLOCK DEBATE ON FREE TRADE AGREEMENTS: The Context of an EU-ASEAN FTA Rahul Sen1 Lecturer, AUT Business School, Auckland and Associate Fellow, Institute of Southeast Asian Studies, Singapore

Introduction Free trade agreements (FTAs) are typically considered as first building blocks for regional economic integration. They specify a set of rules or standards that govern trade among the members that are signatory to the agreement. A vast majority of WTO members, who hitherto strictly adhered to a multilateral system of world trade, are now parties to one or more FTAs. However, the coverage and depth of preferential treatment varies across each agreement. Present-day FTAs are no longer confined to the developed countries and have been tending to go far beyond tariff reductions. The “new-age” FTAs thus include negotiations on regulations governing trade facilitation and customs cooperation as well as those on labour standards and safeguards provisions, besides negotiating on market access for trade in services. However, it is important to understand that it is not required to have all or most of these elements in order to qualify for an FTA that would be considered as “WTO-consistent”. This is per GATT Article XXIV, where any form of FTA is agreeable provided that

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trade barriers are reduced and/or removed on substantially all sectors of trade among the members, and that non-members do not face discrimination while trading with the member countries. This has widened the scope and diversity of FTAs being concluded or currently being negotiated throughout the world. The debate continues on whether this proliferation of FTAs, which is by definition discriminatory in nature, is indeed beneficial for advancing the goal of free trade in the global economy. It is often argued that FTAs allow member countries to pursue discriminatory policies vis-à-vis non-members, and have often been viewed as being a stumbling block for multilateral liberalization that involves many countries that are not a signatory to an FTA. It is further argued that FTAs could enhance the scarcity of negotiating resources for multilateral negotiations and may thus undermine the efforts undertaken by the WTO for global free trade. Further, certain FTAs exclude some sectors from negotiations, which can set a bad precedent for others since this is inconsistent with the WTO rules. In spite of these arguments against FTAs, they have been viewed as a building block for multilateral trade and investment liberalization. This is especially if FTAs could be used as an instrument to provide a positive momentum towards trade and investment liberalization, failing which there might be a lapse into protectionism. Those FTAs, wherein members agree to move beyond their WTO commitments, could provide a demonstration effect that motivates future rounds of broader multilateral negotiations under the auspices of the WTO. Such FTAs could act as a “testing ground or pilot project for exploring complex trade issues” and establish some sort of precedent or benchmark for trade negotiations involving a larger number of countries, including one at the multilateral level. Singapore’s FTAs, being

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comprehensive and covering a wide range of issues, have been thus designed to be “WTO-plus”, and aims to be a building block in the above manner. It is generally agreed that although empirical evaluations of a positive impact on FTAs are subject to certain assumptions, an FTA may be more of a building block to freer trade than a stumbling block provided that it has the following characteristics: 1. 2. 3.

It undertakes complete liberalization in almost all goods and services that could be traded. Rules of origin are homogeneous and proper dispute settlement procedures are in place. Such FTAs are open for membership to new members on similar terms and conditions.

Thus, whether an FTA could be a building or a stumbling block to free trade is very much open to debate and depends very much on the way a particular FTA is negotiated, since there are no fixed guidelines as to what constitutes a WTO-consistent, welfareenhancing FTA. This article examines the pros and cons of FTAs, especially from a business perspective, and then analyses the current situation in ASEAN. Finally, the article raises some questions in the context of these arguments in the EU-ASEAN context, regarding the prospects for its success.

Merits of FTAs From a business perspective, the merits of an FTA mainly rest in its ability to provide preferential market access for goods exporters as well as for service providers among FTA partners, thus reducing transaction costs of trade through tariff reduction. However, a

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comprehensive FTA has the potential to benefit businesses far beyond tariff reduction, although such benefits would be difficult to quantify concretely. These include providing new investment opportunities in a more predictable business environment for businesses from member countries, as well as reducing business costs through agreed mutual recognition, conformity assessment and other trade facilitation measures. In cases of FTAs that have negotiated temporary movement of professional flows, FTAs also have a potential to provide greater opportunity for business interactions and increases skills availability. Last, but certainly not the least, is the strategic importance of an FTA to member countries that enhances bilateral economic cooperation.

Challenges for Businesses in Utilizing FTAs In spite of the above benefits, the fact remains that each FTA is different, and requires different conditions for compliance by businesses to qualify for preferential treatment. This poses several challenges for businesses with respect to utilizing FTAs, depending on whether they are in the trading business, service sector, or are professionals. At the outset,’businesses need to devise new strategies to utilize FTAs. This involves understanding the Rules of Origin (ROO) and matching its requirement for each FTA partner, if exporting goods to multiple countries, which could prove costly especially if ROO conditions are not consistent across FTAs for a particular industry. If the concerned business is a service provider, there is a need to understand the entry requirements as a service provider in a foreign country, and conditions under which it may be granted national treatment. As an investor, businesses will have to enhance their awareness regarding investment environment in FTA partner countries, and prepare for possibility of any disputes that may arise in investing in the member country.

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If manpower flows are involved and negotiated in the FTA, businesses and professionals also need to be aware of the conditions that need to be fulfilled for granting temporary entry, and in some cases check whether their qualifications are recognized in the FTA member country. These do involve legal costs at times, and could prove cumbersome enough for businesses not to be inclined to utilize FTAs. If businesses are not consulted during negotiations, they are likely to be even more unenthusiastic about utilizing these agreements as they would be unaware of the precise gains from the FTA, compared to the costs of adjustment and compliance of utilizing the same. In such cases an FTA outreach programme by government organizations such as those by the Singapore Ministry of Trade and Industry (MTI) and International Enterprise (IE) Singapore plays an important role in motivating and educating the business world about utilizing FTAs to their advantage.

Distinct Features of ASEAN FTAs Five very distinct characteristics are observed with respect to FTA trends in ASEAN. First, while Singapore’s bilateral FTAs are undoubtedly more comprehensive than any other FTA in Asia, the rest of ASEAN has to date negotiated FTAs that are very diverse in scope and coverage. In most cases, such FTAs focus largely on trade in goods, with very shallow sector-specific liberalization commitments. Second, except Singapore’s bilateral FTAs, majority of the other ASEAN agreements have not yet been completely implemented, with many of them under the process of negotiation. Thus, the final shape of these agreements and their likely attractiveness for businesses are yet unknown. Third, as in the case of the multilateral trading system, agricultural liberalization is a sensitive issue in many middle- and low-income members of

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ASEAN, and as such many FTAs are witnessing too much emphasis on tariff reduction on agricultural products, which are also often becoming a stumbling block to further negotiations on important areas, viz. trade facilitation and investment liberalization. Fourth, there is a distinct lack of enthusiasm in ASEAN businesses about FTAs that are being negotiated and scepticism runs abound with respect to the utility of such FTAs. A recent study that has demonstrated that ASEAN’s oldest FTA, viz. ASEAN Free Trade Area (AFTA) is utilized only minimally, has further confirmed this tendency. Fifth, ASEAN is witnessing a number of overlapping agreements with same members, both bilaterally and regionally. This complicates the situation since businesses remain confused as to the applicability of a particular FTA for trading with a member country. The above implies that the FTA situation in ASEAN is still very much evolving, with member countries taking different positions on issues of negotiations. Singapore is clearly much ahead of other ASEAN countries in the FTA game and lessons have been drawn by other ASEAN countries from its experience. However, significant difference in levels of development between Singapore and other ASEAN countries could make it difficult for others to bridge this gap.

Prospects of a Successful EU-ASEAN FTA In the context of the above trends in ASEAN and arguments concerning the merits and challenges in utilizing FTAs, a crucial question needs to be asked: can the proposed EU-ASEAN FTA be modelled to be a building block for global trade? As argued earlier, this would largely depend on the design of the FTA, and whether all parties mutually agree to incorporate some of the features that would render the agreement to be more of a building block. This

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also includes the willingness of middle- and low-income members in ASEAN to agree to an agreement that is as comprehensive as Singapore and EU might like it to be. Concomitantly, the EU would also have to be prepared to accommodate the interests of these countries based on their current national priorities and levels of development. Second, the success of the proposed EU-ASEAN FTA would depend to a large extent not only on tariff reduction and cost savings for businesses therein, but on the extent to which the FTA would be able to effectively tackle behind the border issues related to cross-border trade and investment flows between ASEAN and the EU. Trade facilitation and harmonization of standards and regulations would therefore have to be an important part of any FTA involving the EU and ASEAN. Finally, the business community from ASEAN and EU would need to be proactive in the negotiations. This would be critical for the success of the FTA since timely inputs from businesses during negotiations would ensure that their interests and concerns are taken care of and they feel more inclined to utilize the FTAs, being better informed about the opportunities and adjustment costs involved in doing the same. This of course does not just apply to the ASEAN-EU FTA, but to ASEAN’s negotiations with all current and future FTA partners. Note This is an excerpt from a presentation by the author at the Panel Discussion organized by ISEAS and Swedish Embassy on “How to Make an EU-ASEAN FTA Work for European Business”, Raffles Hotel, 30 May 2007 in Singapore.

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3 SWEDISH BUSINESS IN SINGAPORE How Is It Really to Do Business in the Region? Lena Lindberg School of Business, Economics and Law at Göteborg University, Sweden

Introduction In view of the planned free trade negotiations between ASEAN and the EU, the Embassy of Sweden in Singapore and the School of Business, Economics and Law at Göteborg University, Sweden, conducted a trade policy project between January and April 2007 as a first step of joint activities for the years to come. This project involved a survey of the development and status of ASEAN’s internal process towards trade liberalization, as well as ASEAN’s external affairs with the main focus on the development of the ASEAN-EU economic relations. A key component of this study was some fifteen interviews made with representatives of Swedish companies present in Singapore and with a regional outlook, with the main aim to identify obstacles to trade within the ASEAN region as well as between the EU and ASEAN. Interviews were also conducted with officials representing the EU (the Delegation of the European Commission in Singapore) and ASEAN (the ASEAN Secretariat in Jakarta). The report was followed up by a trade policy panel discussion jointly organized by the Embassy of

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Sweden, the School of Business, Economics and Law at Göteborg University, the Institute of Southeast Asian Studies (ISEAS), and the Swedish Business Association of Singapore (SBAS) on 30 May 2007, in Singapore, which was attended by officials and representatives of the business community in Singapore. Below is a brief review of the relations between ASEAN and the EU, followed by some comments on the current free trade talks. Thereafter, the results of the study on the interests of the Swedish business sector in Singapore are presented.

Background: ASEAN and the EU 1977–2007 — 30 years of Partnership The European Economic Community (EEC) was the first dialogue partner to establish informal relations with ASEAN in 1972. These were formalized in 1977, paving the way for the first ASEAN-EEC Ministerial Meeting a year later.1 In 1980, the EU and certain ASEAN countries also signed a Cooperation Agreement.2 Since then, cooperation between the two regions has widened, i.e. come to stretch over a large range of areas, as well as deepened, i.e. intensified.3 This year marks the thirtieth anniversary of the relationship, and in March 2007 the 16th ASEAN-EU Ministerial Meeting was held in Germany, during which the Ministers endorsed the Nuremberg Declaration on an ASEAN-EU Enhanced Partnership, which maps out the future direction for cooperation. In the economic field, ASEAN and the EU took a significant step in 2004 when the Trans-Regional EU-ASEAN Trade Initiative (TREATI) was launched, with the aim to expand trade and investment flows between the two regions through focus on trade facilitation, market access and investment. Subsequently, a group of senior officials known as the EU-ASEAN Vision Group was assigned in 2005 to assess the possibilities for an FTA.

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A year later the group reached the conclusion that both regions would benefit from not only deeper collaboration but also from an ASEAN-EU FTA, and the discussions then continued within each regional forum.

ASEAN-EU FTA Negotiations in the Pipeline Being a strong advocate of multilateral trade liberalization, the WTO, and the DDA, the EU has in recent years refrained from engaging in new bilateral and regional FTAs. This position has recently changed as the outlook for the DDA has deteriorated at the same time as other countries have increasingly signed FTAs with important trading partners of the EU. Hence, the EU has reappraised its standpoint, and recognized that it has to integrate its trade policy with its wider approach to competitiveness in a globalized world in order for European companies not to risk losing competitiveness. This point is highlighted within the “Global Europe” strategy, under which the EU currently sets its agenda for its trade policy. Broad FTAs are seen as essential complements to the WTO negotiations, as the EU has realized that it needs to look after its interests by means of stronger presence in certain important markets. This has also been requested by the European industry, as preferential market access has been granted to its competitors in Southeast Asia, for example. Not only is ASEAN a rapidly expanding and developing region, it may also potentially work as a gateway to other East Asian markets. In November 2006, the Council of the European Union thus approved the proposal made by the European Commission to start free trade negotiations with ASEAN, and the Commission presented a proposal for a negotiation mandate in December. The proposal comprises a broad agreement, which includes both liberalization of trade in goods, for example, reducing import

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tariffs, and liberalization of services, investment liberalization, simplification of rules and regulations (such as rules regarding public procurement, competition policy, technical standards, sanitary and phytosanitary standards), protection of intellectual property rights (IPR), as well as transparency in legislation procedures. Generally, non-tariff barriers are a priority. Consequently, the EU would like the agreement to be very broad, and awaits the highest possible level of liberalization. The agreement should also incorporate environmental and social dimensions. Therefore, in parallel with the negotiations, sustainability impact assessments will be conducted, examining the agreement’s potential economic, social and environmental effects. In early May, the ASEAN Economic Ministers and the Trade Commissioner of the EU met in Brunei, and formally agreed to launch free trade negotiations between the EU and ASEAN. The ministers agreed on a region-to-region approach and tasked a joint committee with working out the details concerning the actual negotiation process. The idea is to launch the negotiations as soon as possible and to conclude them within two years. However, by late 2007, they have not yet been launched. The process is not an easy one, considering the varying degrees of openness between the EU and the ASEAN countries, where the latter will be required to do more adjustments. In addition, the ASEAN countries comprise the extremely liberal Singapore on the one hand, and several countries that have a considerable way to go in terms of liberalization on the other hand.4 A broad negotiation mandate renders the risk of overstrain, since some countries may be overwhelmed by the weight. Hence, the parties need to find the appropriate level of ambition, or to allow for some flexibility with regard to the speed of implementation. Moreover, ASEAN consists

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of a highly disparate grouping, ranging from highly developed and industrialized Singapore to less developed and rural Cambodia, Laos, and Burma/Myanmar. Differences are considerable, in terms of economic development, political systems, and judicial systems. These differences render it difficult for some countries to adjust and to take further steps towards deeper economic integration. A major issue regards the specific design of the FTA, and to what extent consideration should be taken to the different development levels among ASEAN countries. The EU has previously declared itself not to be ready to negotiate with all ten ASEAN members, particularly referring to the politically controversial Burma/Myanmar, whereas Cambodia and Laos have found themselves in a very special situation since their current status as least developed countries entitles them tariff-free access to the EU for “everything but arms” (EBA). Hence, one could argue that there is little incentive to join the FTA, as that requires them to lower their tariff rates for European goods — unless for reasons of showing solidarity to ASEAN. Here, Cambodia, as the acting ASEAN coordinator for ASEAN-EU relations, and Vietnam, as the counterpart within trade issues, may play important roles as facilitators of the process and mediators on the ASEAN side. An interregional FTA may contribute to strengthening ASEAN as an institution as it compels the member countries to cooperate, and strengthens trade between the countries. An integrated ASEAN market can better cope with the competition from Europe, that is, there is also a development perspective of this agreement, as pointed out by an EU official. Indeed, one argument in favour of an interregional solution is the political aspect of making a deal with ASEAN as a unit. Its role as a stabilizing factor in the region is by now well known and valued. An interregional deal could contribute to further strengthening ASEAN politically.

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The planned FTA is also linked to a so-called Partnership and Cooperation Agreement (PCA) between the EU and ASEAN, which contains a comprehensive strategy for cooperation in human rights; democracy; the non-proliferation of weapons of mass destruction, the battle against terrorism; issues related to justice, such as migration, trafficking, and money laundering; trade and investments; and development issues. In addition, there are bilateral PCAs between the EU and individual ASEAN countries currently in the making. While the precise implications of an ASEAN-EU FTA are not yet known, independent studies have shown that both ASEAN and the EU are likely to benefit significantly from this FTA through increased trade and reduced costs of doing trade. According to research done by the French research institute CEPII together with Copenhagen Economics, released by the European Commission, the gains from an FTA appear to be substantial for most ASEAN countries, about 2 per cent of GDP by 2020. The corresponding predicted gain for the EU is more modest in relative terms, 0.1 per cent, but is significant in absolute terms. The agreement is expected to boost EU exports to ASEAN by about a fourth, and ASEAN exports to the EU by about a fifth. The largest potential gains for the EU and ASEAN would include business services, in both directions.5 The FTA could potentially contribute to reducing the present EU trade deficit with ASEAN. In order to maximize the benefits from the FTA, it is crucial to identify which areas should be prioritized in the negotiations. It is thus essential to engage the business sector to a large extent, and to learn about their perceptions of opportunities and difficulties when doing trade. This was the rationale behind the interview study previously mentioned, presented below.

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The Swedish Business Community in Singapore Approximately two hundred Swedish-related companies, ranging from one-man firms to those having a workforce of nearly 500 employees, are established in Singapore today. This is a 200 per cent increase since the mid-1980s. Typically, an enterprise would start up as a representative office acting as a promotional base, and once more settled, it would upgrade that office to a “Private Limited” Singapore company, usually acting as a subsidiary of the parent company in Sweden. Firms also establish directly as private companies limited by shares in order to get their business going. Very few Swedish companies cover the Singaporean market only — the majority cover the Southeast Asian and even the AsiaPacific markets. Some larger companies use Singapore as their regional headquarters or for coordinating technical support to the local markets. It is not a coincidence that the companies that were interviewed for this study have chosen Singapore as their base in Southeast Asia. Their representatives all stressed the extremely liberal business climate, the favourable geographical location, and the excellent infrastructure. The judicial system and the fact that it is exceptionally easy to set up a business were also frequently mentioned as factors making Singapore the natural choice. On the adverse side are high costs involved in running a business, and the “unregulated” market for residential property, as noted by one observer. While neighbouring countries would like to achieve a similar status to that of Singapore as a regional hub, they have not yet attained the same business-friendly climate, but, as noted by another observer, as other ASEAN countries gradually remove their barriers to trade, Singapore could lose out.

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The Business Study: Background and Method The objective behind decisions to liberalize trade, be it on a bilateral, regional or multilateral level, is to facilitate and encourage trade between countries, and to reduce unnecessary costs and waste of resources. Sometimes, however, it seems that the linkages between the policy level (governments) and the business level (companies) are not very clear or strong, and that the business sector finds it difficult to see the implications of trade agreements. In a sense, that means that the policy level has failed, not having been able to bring about an understanding among business people, or, it could also be that business people have not taken such an active interest in these matters. In order to identify the Swedish business interests in trade policy issues in relation to the planned ASEAN-EU FTA negotiations, some fifteen interviews were conducted with representatives of Swedish companies located in Singapore between January and April, 2007.6 This round of interviews could also be seen as a complement to a questionnaire made by the (Swedish) National Board of Trade earlier this year on the same topic, where business representatives were invited to present their views on this FTA. The interviews covered certain common themes and questions, and these were adjusted to each interview depending on the type of business and the character of the office in Singapore (for example, a regional sales office or a production plant), and the most significant trade flows (for example, within Southeast Asia, or between Europe and Southeast Asia). The main purpose was to identify interests and problems when trading in goods and services, and making investments. A broad approach was chosen, including a large number of barriers to trade and investments: tariffs and non-tariff barriers, issues related to trade procedures,

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customs routines, rules of origin, technical rules, standards, rules of market access, discriminatory rules, competition policies, intellectual property rights, public procurement, transparency, and corruption. Hence, both traditional trade liberalization, i.e. tariff reductions, and the broader area of trade facilitation were discussed. The study has been deliberately confined to a limited number of companies due to the relatively short time-span of the project. Most of them are relatively large and are established in Singapore/ the region since a long time, which is likely to influence their perspectives in that they have had a certain length of time to adjust to local rules and conditions. The results may vary if small and medium-sized companies seeking to start operations in the region would be interviewed, as they might come across barriers that the more established companies have learnt how to deal with. The choice to do interviews with mainly large companies for this study should be seen as a way to increase an understanding of companies’ opportunities to do business. Behind this decision was also a desire to increase awareness within the business community of opportunities related to an ASEAN-EU FTA as well as FTAs in general.

Results from the Interviews The different companies and banks interviewed display a rather disparate pattern in terms of goods/services provided, main trade flows, and the locations of production plants. Hence, the obstacles they encounter differ widely, and, consequently, their priorities, too. They include companies with no production in Southeast Asia, as well as those with significant presence in the region. They range from companies facing zero tariffs, due to the lack of national competition in end-markets, to global

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corporations, whose different segments face significant trade barriers in some countries.

Tariffs (Goods) In spite of tariffs being reduced on the regional level in Southeast Asia, they are still used to a considerable extent towards external parties in order to protect the domestic industries. Several interviewees confirmed that tariffs are applied on their goods either being traded between Europe and Southeast Asia, or within the ASEAN region. These are in most cases not very significant in the opinion of the interviewees, for example, 5 or 10 per cent, and are not regarded as major barriers to trade. A few companies even declared that their products face zero tariffs, due to the absence of national competitors in their markets. Some respondents stressed that tariffs were rather a problem between ASEAN and China/India, or Europe and China/India. For some companies, however, tariffs are a significant obstacle to their business between Europe and Southeast Asia as well as within Southeast Asia. The construction equipment sector, for example, faces a 40 per cent tariff rate for a certain category of vehicle in Malaysia, where the government wants to protect its domestic industry. Although Malaysia has agreed to eliminate these tariffs, the deadlines for implementation have repeatedly been postponed. Several interviewees also emphasized the high tariffs in Indonesia. One company even stated that had it not been for very high import tariffs in Indonesia, they would set up a business in that market. Another company noted that tariffs for their products even vary between different parts of the country; those applied in Jakarta are not the same as those in Kalimantan (Borneo).

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Those companies that have production plants in Southeast Asia can benefit from privileged tariff rates under AFTA, as long as local (=ASEAN) content is at least 40 per cent. While that level may not be easy to achieve, as noted by some interviewees, two companies confirmed that they make use of this scheme through the so-called “form D”, which contains a certificate of origin and needs to be filled out in order for the company to benefit from these lower tariff rates. This is a highly useful tool for some companies; one of the firms has taken advantage of the AFTA rates for more than five years and today uses it for the Vietnamese, Indonesian, and Philippine markets. It finds the scheme very valuable as the tariff rates are reduced by half, from 10 to 5 per cent. Another scheme within the ASEAN framework that is potentially useful to the business sector is the ASEAN Industrial Cooperation Scheme (AICO), which has been established in order to promote joint manufacturing activities between ASEAN-based companies. It allows for agreements involving a minimum of two companies from two different ASEAN countries, through which the participating companies can enjoy a preferential tariff rate in the range of 0–5 per cent. This scheme is used today in Malaysia and Thailand by one of the interviewed companies. However, its representative points out that a drawback of the scheme is the requirement that the two reciprocal trade flows must add up to the same amount.

Non-tariff Barriers Whereas tariffs are highly discernible barriers to trade, non-tariff barriers (NTBs), such as regulations of different kinds, licences, trade procedures, and other technical barriers to trade, are not

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always easy to define or estimate. These are a major annoyance to the business sector in some countries, and may prove to be a greater hindrance to trade than tariffs — little does it help if tariffs are eliminated if other restrictions, such as demanding standards or time-consuming procedures, are applied. Indeed, the importance of NTBs may even be growing, as it may be tempting for some countries to make use of these when tariffs are reduced, in order to protect domestic production. The overall impression from the interviews is that the presence of NTBs is significant in the region, in some countries more than others. These create a significant amount of extra paperwork, and are sometimes confusing and often timeconsuming and costly. While companies already established in the region generally seem to have learnt how to deal with them, these factors may present major impediments to newcomers.

Technical Rules and Regulations As argued by a representative of the automotive industry, the number one priority for the company would not be tariffs, although that is priority number two, but a common set of rules within ASEAN for imports into one ASEAN country from outside the region and for continued free transhipment for the final product in the rest of the region — with no exception for the automotive industry. Today, regulations in Thailand, for example, make it very difficult to achieve market access, and tariff rates are very high for the final product, although somewhat lower for assembly kits. Still, the company expects regulations to be harmonized and conditions to improve within ASEAN, and therefore makes preparations today for that day by building a system that would make full use of those advantages.

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Representatives of other sectors similarly argued that they would like to see a harmonization of rules and standards for their products in the entire region, as these are often based on national rules and therefore may vary considerably in the region. Furthermore, an example of differences in classification was provided by one interviewee, who explained that one of their products that are exported from Sweden to Thailand is categorized in one way in Sweden, according to the EU TARIC system, and in another way in Thailand, where the latter’s definition results in a higher tariff rate being applied. These differences in the classification of products create problems, and take place both in trade between Europe and Southeast Asia, and within Southeast Asia (in spite of ASEAN’s move towards an ASEAN Harmonized Tariff Nomenclature (AHTN)). For some companies, complying with rules and standards and being subjects to inspections are normal features of their daily business operations. These inspections may be significant and time-consuming, but nonetheless necessary. As for technical rules, no company found this problematic to comply with. In fact, a couple of them even argued that they are rather pushing for stricter rules, being market leaders in their specific sectors.

Trade Procedures Many of the interviewees commented on tedious bureaucracy in the region and the fact that there is often a lot of paperwork involved in doing trade. There is sometimes also a severe lack of transparency. Several companies asserted that in spite of the presence of complicated administrative and legislative requirements, these are no longer very problematic as the companies have learnt how to deal with them. As regards customs

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declarations, for example, these may be difficult to fill out the first time, but once the company has learnt the procedures, they are not a problem. This is not to say that customs procedures are not an obstacle, however. The process of filling out the documents and have them approved is often slow and time-consuming.

Services Services are generally facing more regulations and technical barriers to trade than goods. Among the interviewees were representatives of three banks. The main reason why the banks are in Singapore is that their clients are located there. There are restrictions as to which companies an offshore bank is allowed to do business with; therefore, it cannot compete on equal terms with Singaporean banks. An exception is American banks, which enjoy similar privileges as local banks under the U.S.-Singapore FTA. Moreover, there are restrictions on customer service locations; a bank may only be represented by one office at one location. In addition, it is not possible for offshore banks to offer time deposits or interest rates, and although an offshore bank can issue credit cards, these do not have access to ATM machines.

Investments Singapore is well known for having a liberal investment climate and the relatively simple and quick procedures involved in setting up a business. This contrasts heavily with some of the other ASEAN countries, where there may be major restraints of new business and also tedious administrative procedures, as stated during several interviews. Indonesia was highlighted as a particularly difficult country to invest in considering the paperwork involved.

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When establishing a company in the ASEAN region, national regulations apply. The fact that these vary significantly poses challenges for a foreign company that seeks to invest in the region. Several interviewees pointed to the necessity of an intermediary. In Vietnam, for example, it is required to have a local trading company, which creates an additional cost, and in Malaysia, there are the so-called bumiputra laws that require that a company is owned by a bumiputra (Malay), which in turn, allegedly, breed nepotism, cronyism and corruption. In Thailand, it is necessary to show that there is a knowledge transfer to local staff. Several interviewees also expressed a concern about recent developments in Thailand and changed trade and investment rules, restricting foreign ownership. In Malaysia, it is difficult to recruit foreigners to work in sales offices. In some countries, there are also restrictions regarding invoicing. All these regulations were mentioned as examples of current barriers to investments.

Public Procurement The issue of public procurement is particularly relevant in those sectors that are characterized by large contracts where the state is one of the contracting parties. While public procurement is not very relevant to most of the companies that were interviewed, it is nonetheless an important area where there is a troublesome lack of transparency and considerable corruption in some parts of the region. Foreign companies do not have the same possibility to participate in tenders as national ones, and the latter, including government-linked ones, are often shown favour to, as stated by some interviewees. This issue seems to be more of a problem in some countries than in others. “Hidden relations” play an important role in deciding the outcomes, as argued by one interviewee, who

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would like to see clear competition rules where all companies compete on equal terms. He also stressed the related and problematic issue of counter trade, which largely affects trade.

Intellectual Property Rights Intellectual property rights do not seem to be a major problem for most of the companies that were interviewed. Rather, they argued, this is an issue in China and India. As explained by one interviewee, this has to do with the fact that the markets in ASEAN are comparatively small. For a couple of companies, this is a problem, most likely originated in China and then spread throughout the region. Products are presumably produced in China and then packaged and branded in Indonesia, Malaysia, and Thailand.

Other Barriers to Trade and Investment Apart from traditional trade barriers, there are other barriers that affect business. During a few interviews, issues related to the movement of labour and the need for visas were mentioned. The extensive travelling required by some representatives makes applications for visas (and the consequent frequent issuing of new passports!) a hassle. One company particularly stressed the nuisance caused by the lack of work permits for staff from Malaysia when there is need for engineers in Singapore. This company cannot make use of a mobile labour force, and must therefore have local expertise everywhere, thus creating unnecessary costs. The existence of different currencies also renders trade more complicated than had all countries used the same. Value-added tax (VAT) was also mentioned as a prioritized issue by a few companies. The perhaps most frequently mentioned non-trade barrier was corruption. In this context, especially Indonesia, and to some extent Thailand and Malaysia, were often referred to.

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This corresponds well with a survey conducted by the Political and Economic Risk Consultancy (PERC) on the business climates in Asia, where some 1,500 businessmen ranked corruption in the region. Among those countries that were surveyed, the Philippines, Thailand, Indonesia and Vietnam were considered the worst cases, in that order.7 Finally, mental barriers to trade, where national products may be preferred to foreign ones, may be a kind of structural impediments.

Conclusions This chapter has sought to give an insight into the perceptions of the Swedish business sector in Singapore in relation to the planned deepening of the economic integration between ASEAN and the EU through FTA negotiations. It is imperative to listen to the views of representatives of the business community in order to learn how the formal trade liberalization within ASEAN really works. A central component of this pilot study has therefore been interviews made with some fifteen representatives of Swedish companies in Singapore. These resulted in a number of observations: •

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Singapore has become an even more important regional actor in ASEAN-EU trade in recent years. Whereas Singapore was generally considered as highly liberal and business-friendly, and therefore regarded as a model to the rest of the region, the business climate in some of the other countries in the region was considered as problematic. The majority of the interviewed companies face at least some barrier to trade in the region. While tariffs were occasionally mentioned as moderate impediments, and in a couple of cases regarded as severe

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obstacles, tedious trade procedures and other non-tariff barriers were more often referred to as cumbersome, timeconsuming and therefore costly. It seems, however, that companies in most cases have learnt how to deal with them. For newcomers and small companies with limited resources, these barriers may pose greater challenges. Most companies cannot make use of AFTA due to no or little local production in the ASEAN region. Still, a few find it very useful as they save significant duties. One company also makes use of AICO and therefore enjoys additional savings. Most notably, several companies argued that they could not really see how they would benefit from an ASEAN-EU FTA to a significant extent, except for those today facing high tariffs in specific sectors. This statement may have been coloured by their location in the extremely liberal Singapore. The level of awareness among companies about the implications of FTAs and how these can be utilized varies significantly and demonstrates the need for a greater exchange between the policy level and the business level.

These observations can be taken as indications of the state of the business climate in the region, but should not be over-interpreted, considering the limited number of interviews. In order to be able to draw some major conclusions representative of the entire Swedish business community in Singapore, one would have to conduct a much larger number of interviews. Having said that, this study is a first compilation of the perceptions of the business sector in Singapore, and reveals certain perspectives and ideas as to what areas could be focused on in the negotiations for an ASEAN-EU FTA. A major rationale behind this trade policy project

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is the desire to increase awareness among companies about business opportunities of a future ASEAN-EU FTA. It is hoped that this will contribute to increasing utilization. Notes 1. ASEAN Secretariat: . 2. Available at ASEAN Secretariat: . 3. For an insightful account of the development of ASEAN-EU relations over this period, see Severino (2006). Furthermore, for an extensive description of the regionalization process in general in Southeast Asia, see, for example, Lindberg (2007). 4. For a further description of the balance and country composition in the EU-ASEAN trade relations, see Lindberg and Alvstam (2007). 5. . 6. Interviews were made with the following companies: Atlas Copco, Getinge, IKEA, Nordea, Seco Tools, Singapore Pulp, Skandinaviska Enskilda Banken (SEB), SKF, Svenska Handelsbanken, Telelogic, Tetra Pak, and Volvo AB. In some cases, several representatives from the same company were interviewed. 7. Dagens Industri, 14 March 2007. References “ASEAN-European Union Dialogue”. . Accessed on 22 March 2007. “Cooperation Agreement Between Member Countries of ASEAN and European Community”. Kuala Lumpur, 7 March 1980. . Accessed on 2 April 2007. Dagens Industri. “Filippinerna mest korrumperat i Asien”. 14 March 2007. “European Commission welcomes adoption of negotiating mandates for new Free Trade Agreements with India, Korea and ASEAN”. . Accessed on 6 July 2007.

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Lena Lindberg

Lindberg, L. “The Regionalisation Process in Southeast Asia and the Economic Integration of Cambodia and Laos into ASEAN”. Göteborg University, 2007. Lindberg, L. and C. G. Alvstam. “The National Element in Regional Trade Agreements: The Role of Southeast Asian Countries in ASEAN-EU Trade”. ASEAN Economic Bulletin 24, no. 2 (August 2007): 267–75. Severino, R. C. Southeast Asia in Search of an ASEAN Community. Insights from the former ASEAN Secretary-General. Singapore: Institute of Southeast Asian Studies, 2006.

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