Staying Ahead in International Trade

When Finance Minister Tharman Shanmugaratnam delivered his Budget speech recently, he made sure there was something for almost everyone. Tax initiatives were dished out to spur budding entrepreneurs and SMEs. Lower income groups welcomed the growth dividends, as did the middle income group with the personal tax rebate. Even those with high net worth had something to celebrate – the abolition of estate duties.

However, if you work in the field of customs and international trade, this year’s budget offerings may not necessarily have been be the highlight of your year. As it is, the latest Doing Business 2008 report, published under the auspices of the World Bank, puts Singapore at the top of the list for ease of trading across borders. This report scores countries based on a combination of import and export requirements, including documents required, time needed and cost involved. Singapore scores better than anywhere else in the world. (See Table 1 for a comparison across key ASEAN and Asia-Pacific economies). Within ASEAN, Singapore ranks well ahead of its neighbours.

Table 1: Ease of trading across borders in selected countries



What’s more, from a practical perspective, most multinational companies, large or small, may not be too concerned about whether it is possible to shave another 30 minutes off the time required to clear an import shipment into Singapore, or to reduce the maintenance downtime of TradeNet by a few more minutes. Already GST is low by international standards, and very few products attract import duties, be they true import duties or excise duties with equivalent effect because of a lack of domestic manufacture. Most of the so-called “sin taxes” are at a level where they can no longer be used to further reduce consumption, encouraging grey or black market trade instead. Singapore is one of the most prolific Free Trade Agreement (FTA) signatories in the world, having completed FTAs with over 10 partners and a similar number of FTAs in the pipeline.

So you may conclude from the lack of specific trade related content of the recent budget that the Singapore government might have taken a backseat and has stopped worrying about international trade issues.

That, however, would be missing the point entirely. The world is moving along at an incredible pace, and the international trade environment is at the forefront of many changes. Gradually, trade facilitation and consumer protection are taking over from the traditional revenue generation paradigm as the predominant factors underlying trade policy. Hence, the interest of international players is shifting to those jurisdictions that offer the best opportunities in terms of facilitating their trading operations whilst protecting their goods and ultimately, their customers from unwanted interference by rogue players. It is crucial, therefore, that Singapore maintains or builds its advantages in these two areas.

Trade facilitation

From a trade facilitation perspective, as evidenced by the World Bank report, Singapore continues to rank highly. Nevertheless, other countries are catching up fast. Where some five or 10 years ago, the only reason not to choose Singapore as a regional trading hub in South East Asia was most likely cost, these days neighbouring trading hubs, such as Port Klang, Laem Chabang and Subic are competing on facilities and infrastructure as well. Procedural requirements in such places are also becoming less burdensome, and corruption concerns are easing by the day.

Consequently, Singapore may need to shore up its act to maintain its edge. Last year’s Budget referred to some tax and trade authorisation incentives. More of these will be required in future to continue to draw players in the international trade arena to Singapore, be they shippers, logistics providers, financiers, or traders themselves. Enhancements to warehousing and distribution facilities for international traders, such as virtual warehousing or advanced tax suspension regimes, are still possible. The proposed amendments to the Customs Act introduce the concept of binding customs rulings for classification and valuation of goods. Given the importance of certainty and predictability to the international trading community, such development will further enhance Singapore’s position as a preferred place to trade with or from.

The variety in rules of origin between various FTA’s discourage manufacturers from setting up shop, or at least utilising FTAs in Singapore. All efforts should be made to develop consistent rules of origin between the various FTAs. Also, inclusion of outward processing and triangular trading rules, to name but two, is fast becoming a necessity for any FTA to be attractive.

Singapore may also be well placed to benefit from the introduction of an ASEAN single window, ultimately a mechanism of declaring imports and exports into or from anywhere in ASEAN in one location. Already many multinationals have shared service centers in Singapore, and therefore the basic infrastructure to deal with another regional functionality.

Supply chain protection

The second area that is turning into a battlefield for international trade is that of supply chain security and export controls. The 9/11 terrorist attacks on the United States saw a knee-jerk response to controlling international trade, and although some of the initial measures have been somewhat relaxed, many are here to stay. Singapore was one of the first ports, and the first in Asia, to sign up to the Container Security Initiative, allowing cargo packed in and shipped from Singapore to the US easier import clearance. Many other ports have since followed suit, and are allowing US officers to inspect shipments on foreign soil so as to facilitate access to the US market, for example under the C-TPAT scheme. Other jurisdictions have been slower to develop similar schemes, but the Authorised Economic Operator (AEO) scheme in the European Union is another link in a chain of developments requiring exporters in all parts of the world to comply with stricter shipping conditions.

It is in Singapore’s interest to ensure that its exporters will not be disadvantaged by deficiencies in required controls such that access to important overseas markets is hampered. Geographically, for once, Singapore’s location is not an advantage in this respect and measures to safeguard its exports may need further expansion. Balancing such controls with the aforementioned trade facilitation requirements will not merely be a circus act.

It is not just the supply chain that needs protecting, but also the goods being traded. The list of controlled dual use products and technology is fast expanding. Singapore Customs introduced its own expanded list on 1 January 2008. The licensing schemes for trade in such goods are constantly fine-tuned to keep pace with the constantly changing commercial environment. Current measures and provisions in Singapore appear adequate to minimise the risk of legitimate traders inadvertently breaking the rules, while maximising the chances of catching rogue traders. However, there is no time for legislators or traders to sit back and relax. New risks and threats appear with alarming regularity and the speed of business development makes it easy to overlook areas of compliance.

The real battle for international trade preeminence is waged not in a Budget but throughout the year, authorising traders, negotiating FTAs, implementing trade security measures, combating illegal trade and so on. If legislators and traders continue this proactive approach, we are likely to see Singapore top the World Bank tables for a while to come.

This article was first published in The Business Times on 6 March 2008.