A difficulties encountered by Singapore companies if they were

A Free
Trade Agreement (FTA) between Australia and New Zealand would offer ASEAN
countries some practical trade and investment benefits, as well as some
significant strategic benefits.

 

Trade
between Australia and New Zealand is already substantially unencumbered
especially for most manufactured goods, but some restrictions constrain the
ability of Australian and New Zealand service exporters to take full advantage
of opportunities in the growing Singapore market. Based on the analysis of the
impact of AANZFTA on Singapore companies, it is apparent that the substantive
and comprehensive FTA was successful in abolishing the effect of these
restrictions that would over time offer Australia and New Zealand some rewarding
economic benefits.

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The target
of this report is to comprehend the foundation, effects and advantages of FTA
from Singapore’s point of view. The report will cover a concise background on
the subject: free trade agreement (FTA), a short review of the particular FTA
(AANZFTA), the analysis of how the specific FTA has helped to make Singapore organizations
more competitive and finally, the difficulties encountered by Singapore
companies if they were to use the AANZFTA.

 

The
AANZFTA is said to reduce tariff progressively and eventually reach a complete
elimination of taxes for import and export goods. The AANZFTA also allows for
back-to-back shipment of goods within member countries and third-party
invoicing of goods. This leads to the many benefits in which Singapore
companies can make use of, such as having cheaper exports, easier entry into
export markets and trade facilitation which helps Singapore companies remain
competitive.

 

However,
there are also challenges that come with the implementation of this FTA. Some
of which includes the overly complex rules and low standards of companies which
does not qualify them to use the specific FTA, or because companies are also
disorganized that they are not aware of the FTAs available.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Free
trade agreements (FTA) are trade agreements between two or more nations
agreeing on the terms of trade between them without government restrictions.

FTAs
are created to benefit consumers. It stimulates competition, which brings about
a wider product selection and thus, making it cheap for consumers which
increases their purchasing power. Along with lower prices, FTAs also bring
about lower production costs which increases the firms’ profitability. Both of
which can lead to an increase in domestic employment.

 

FTAs
are tailored to reduce the barriers to trade, which can come in the form of
tariffs and trade quotas. Tariffs constitutes the first layer of market access
obstacle that companies face when exporting from one country to another. As
duty levied on goods imported into a country, tariff increases the cost of
imported goods and decreases the attractiveness of these goods to buyers in
that country. In some countries, the duties imposed may be so high that the
buyers turn to cheaper domestic manufacturers. Trade quotas, also known as
non-tariff trade barriers are the less-obvious forms of trade barriers which
includes regulatory measures, licensing requirements and administrative
procedures. Trade quotas are imposed when a country imposes a limit on the amount
of goods being imported or exported.

 

Trade
agreements are one approach to decrease these hindrances, in this manner
opening all parties to the advantages of expanded trade. Hence, two or more
nations can come to an economic integration to partially or fully abolish these
barriers.

 

FTAs
are designed to foster strong trade and commercial ties and greater economic
integration among countries involved. This lowered trade barrier helps protect
local markets and helps industries to expand to new markets, boosting their
reach and the number of people they can sell their products to (Grimson, 2014).

 

Lastly,
the FTA initiatives are likely to be beneficial for economies around the world.

It brings about greater market access in goods and services due to reduction in
trade barriers, increased investment opportunities in overseas markets, and
reduction of business costs arising from the absence of tariffs and non-tariff
barriers. The freedom to trade will allow exports to grow, as well as create jobs
which will help the economy to grow as most jobs depend on exports. Foreign
investments will also create economic growth, and markets and investments
opportunities will open up for trade partners. As such, industry
competitiveness and expansion of exports will increase, which in turns forces
domestic producers to remain prices low.

 

The
ASEAN-Australia-New Zealand Free Trade Area (AANZFTA) entered into force in
January 2010. It is an exhaustive free trade agreement that provides chances for
about 663 million peoples of ASEAN, Australia and New Zealand. These are also regions
which account up to a total Gross Domestic Product (GDP) of approximately USD 4
trillion as of 2016 (ASEAN, 2017).

 

The
AANZFTA targets for sustainable financial development in the locale by administering
a more liberal, facilitative and transparent market and investment system among
the twelve signatories to the Agreement. The twelve AANZFTA Parties include:
Australia, Myanmar, Brunei Darussalam, New Zealand, Cambodia, Philippines,
Indonesia, Singapore, Lao PDR, Thailand, Malaysia and Viet Nam.

 

The
AANZFTA is first in many regards, for example: It is the first plurilateral
agreement for both ASEAN and Australia, first comprehensive free trade
agreement negotiated and signed by ASEAN with a Dialogue Partner, first
region-to-region engagement for ASEAN, and the first Agreement that Australia
and New Zealand mutually consulted for (ASEAN, 2017).

 

The
Agreement has eighteen sections and four addendums, covering diverse parts of
trade in goods and services and investments. It also covers
goods, services, investment, intellectual property, e-commerce, temporary
movement of business people as well as economic integration (Australian
Business, 2014).

 

The
AANZFTA has brought about many benefits and some of which will be listed in the
following. Firstly, tariffs will be increasingly decreased from when it first
entered into force of the Agreement, and eliminated for at least 90% of all
tariff lines within specified timelines. (ASEAN, 2017) Secondly, the movement
of goods will also be carried out through a more flexible rule of origin (ROO),
easier customs procedures and more transparent mechanisms. By the same token,
the movement of individuals who are involved in trade and investment activities
will be facilitated. In addition, covered investments are protected which
includes the likelihood of dealing with conflicts through an investor-state
dispute settlement mechanism. On a final note, barriers to trade in services
will successively be liberalized, which allows for superior market access to
service vendors in the locale.

 

Competition between
Singapore companies exists to encourage firms to produce more efficiently as
the pressure of keeping customers satisfied and loyal is so apparent. When
firms produce goods and services at the lowest cost possible, they are said to
be productively efficient. Thus, firms are
resolute in reducing their costs to the minimum.

 

Since the implementation of the ASEAN Australia New Zealand Free Trade
Agreement (AANZFTA), it has given a dynamic reduction and eventually, abolition
of taxes on ASEAN exports to Australia and New Zealand by
2020, if the goods were to meet the rules of origin (ROO) benchmark established
in the FTA. Over
96% of Australia’s taxes were rid of when the FTA commenced in January 2010,
and almost over 90% of New Zealand’s duty levy will be abolished by 2013 (Singapore
Customs, 2010). These figures can also be seen in figure 1 attached in the
appendix.

 

New
Zealand has a total of 85% exports to Singapore and imports a total of 94%
goods based on the figures in 2005 alone. These figures are reflected in figures
2 and 3 respectively. Additionally, Australian imports to Singapore amounted up
to US$5,606 and a total of US$4,036 imports. This means that Singapore holds a
significant amount of trade between these 2 economies. Therefore, with the
reduction in costs, it has helped Singapore-based companies who require imports
from Australia or New Zealand tremendously as goods and services will now be
significantly cheaper.

 

The
agreement has brought about improvement in trade terms between all 11 countries
involved in the treaty, and promoted efficient and transparent operations. This
leads to an increase in savings for the exporting company, as well as decreased
storage costs. Therefore, tariff reductions
not only diminish production costs but bring down the costs of technology upgrades
and improve productivity. For instance, Singapore companies that manufactures a
particular item could import raw materials at a lower cost or upgrade its
manufacturing technology, which results in lower production costs, lower prices
and more competitiveness.

 

Since the execution of the AANZFTA,
Singapore’s exports of items, for example, paper materials, paints, plastic pitches,
consumable oil and sauces have enjoyed competitive advantage upon importation
into Australia and New Zealand with the instantaneous omission of import taxes
on these items, which extended from 5% to 7% (Singapore Customs, 2010). This improves competition in the supply of goods and
services offered by exporting companies. This would imply an increase in
international sales, which generates more profit and stability for Singapore
based companies. By comparing it with companies which do not make use of the
FTAs, companies who capitalize on the AANZFTA has made them more competitive.

 

One of the goals in Singapore’s FTA
strategy is to enhance its market access in new, emerging market economies that
have been equally committed to trade and investment liberalization across both
goods and service sectors. Overall, Singapore’s moves towards bilateral FTAs that
are aimed at helping the Singapore economy to reduce its former dependence on
other regional ASEAN economies for its growth in trade, as were the case prior
to the crisis. The slow pace of economic recovery of some of the major
economies and increasing competition faced by the region from rapidly growing
large emerging markets like China, have further prompted Singapore to look for
market access opportunities beyond the region in order to remain globally
competitive.

 

With the lower cost of exporting to the
Australian market, the AANZFTA provides a chance for Singapore companies which
are searching to expand production for export purposes in Australia. The
agreement is dynamic and provides a platform for Singapore based companies to
enter into new export markets. This increases the company’s customer reach and
thus increase sales which in turn makes companies competitive. The AANZFTA
yields financial engagement with ASEAN through a scope of implicit plans,
economic collaboration jobs and business outreach exercises.

 

Overall, being the first plurilateral
agreement for both ASEAN and Australia, AANZFTA has been a comprehensive
agreement and is largely WTO-Plus in nature. With the AANZFTA bringing trade
hindrances down, it fosters trade and investment which has produced favorable
circumstances for the business community.

 

With AANZFTA, paperless trading is
introduced. Second, risk management has been limited on high-hazard merchandise
and visitors, and low-hazard merchandise and visitors can be cleared at the
customs checkpoints rapidly at present.

 

Both Australia and New Zealand has likewise
concluded a Mutual Recognition Agreement (MRA) with Singapore on electrical and
electronic goods inside the AANZFTA. Under this arrangement, electrical and
electronic goods tested in Australia, New Zealand or Singapore will never need
to undergo rounds of testing when exported to the countries within the
arrangement, including ASEAN. They have likewise consented to follow through on
a working scheme on common or stand-alone acknowledgement of standards, directives
and results, and the compatibility of standards. Sen, R. (2004) Free Trade Agreements in Southeast Asia.

 

The AANZFTA provides a close economically
integrated platform for Singapore businesses to facilitate trade within
economies and allow Singapore companies to remain competitive by trading easily
and at a cheaper cost.

One of the challenges faces by Singapore
companies is the complex rules of the AANZFTA. Most small medium enterprises (SMEs)
are not even aware of the FTAs and how it benefits them. Not to mention the
difficult rules that come along with the agreements, it can confuse businesses
on how it really works. For companies to enjoy the myriad benefits of the
trade, there are many documents to be produced such as certificate of origin
and exporter declaration forms, just to list a few. Thus, the overly complex rules of origin for their exporters is
one of the biggest challenges when it comes to businesses adopting the AANZFTA.

These figures are reflected in figure 4, where Singapore achieved a total of 17.3%
utilization of FTAs. It has the lowest percentage use of the AANZFTA, which
brings attention to it. Some of the other miscellaneous problems that come with
the agreement includes problems exporting goods to all, some, or specific
AANZFTA countries including: continuance of high tariffs for particular
products, import licensing or other requirements, customs-related problems,
standards or technical Regulations and Conformity Assessment Procedures-related
issues, just to list a few. All of which contributed to the complicated
procedures and rules which led to a challenge that Singapore companies face and
in turn, low utilization of the FTA.

 

 

One of the potential
problems Singapore companies may face implementing the AANZFTA is the level of
standards. One of the requirements of AANZFTA is the standardising body in its
territory to co-operate with the standardising body of other Parties. Such
co-operation should also include: exchange of information on standards, exchange
of information relating to standard setting procedures, and co-operation in the
work of international standardising bodies in areas of mutual interest (ASEAN,
2017) Singapore-based companies may be particularly affected by these
requirements, as they are less likely to have dedicated staff with expertise in
international trade and therefore find it more challenging to ensure that they
meet these additional regulatory requirements currently imposed by AANZFTA. In
addition, the professional qualifications of the staff/workers may also not be
recognised by local authorities which brings about difficulties or regulatory
restrictions when delivering an e-service/product in AANZFTA countries.

 

Standards require a lot
of preparation work. If a company is not ready, there will be a great deal of
work to do. For example, if a company’s operations are messy to begin with, it
has to work through the chaos and set up all the aspects that the standard requires.

Sometimes a company must invest in research and development or product
development in order to meet the standards. Such things can be expensive and
time-consuming, but they will be worth it because once the standard is
achieved, it opens up the company’s market access. Essentially, all it takes is
the commitment and dedication along with efficient allocation of resources to
achieve the goal.

 

In
conclusion, the AANZFTA has provided a substantial amount of benefit to
Singapore businesses. First, with both counties eliminating all tariffs, most
of Singapore’s top exports to Australia and New Zealand will be duty-free and
would benefit Singapore businesses whose products are exported to both New
Zealand or Australia, especially in the manufacturing industries within the
electric machinery, non-electric machinery, and manufactured article sectors.

Second,
the dedicated commitments to liberalize a range of services trade, including
professional services, financial services and environmental services from the
AANZFTA opens up significant opportunities for Singapore service providers who
wish to export these services to either Australia or New Zealand.

Third,
under AANZFTA, both countries have concluded easier trade procedures because of
the platform that the AANZFTA provides.

Lastly,
the challenges that Singapore companies face which includes overly complex
rules and standards that are not met, has caused businesses to reduce in
utilization of FTAs in general and can cause a huge loss to the trading
industry in terms of cost and amount of export and import goods and services.