Guide To Understanding Free Trade Agreements (FTAs) – And How It Helps Companies And Businesses

This article was first published on 22 July 2020 and has been updated with additional reporting.

The world’s largest Free Trade Agreement, the Regional Comprehensive Economic Partnership (RCEP), was signed on Sunday after 8 years of negotiations.

Comprising 30% of the world’s economy and a  population of 2.2 billion, Singapore and 14 other countries, including all members of  ASEAN, Australia, China, Japan, New Zealand and South Korea are part of the RCEP. This is not only a major win for Singapore, but also for multilateralism and open trade during a difficult economic period where economies are increasingly de-globalising.

Here’s an introduction to FTAs, how they can benefit your business, and how to find out if you can be a beneficiary of an FTA.

Read Also: Guide To Government Grants And Resources For Singapore Companies To Expand Their Business To Overseas Markets

What Do Free Trade Agreements Cover?

In essence, Free Trade Agreements (FTAs) help grow businesses by reducing barriers for companies in signatory countries to do business with one another. Common barriers to international trade include regulatory hurdles, tariffs, and permits for workers.

In general FTAs cover 3 main areas: Trade in GoodsTrade in Services and Investment.

Trade in Goods: FTAs might provide preferential tariffs (customs duties) for imported finished products or raw materials. This means that tariffs could be at reduced rates or completely eliminated. Note that this only covers import duties, and other taxes could still apply, such as Sales Tax/Value-Added Tax and Excise Tax.

Trade in Services: FTAs help maintain a favourable trading environment for companies by locking in certain levels of market access for companies providing services, as well as setting out avenues for recourse for breaching FTA commitments. This provides certainty for companies to commit resources and staff towards an overseas venture.

Investment: FTAs encourage and incentivise investments in signatory countries by providing a more stable operating environment, removing nationality requirements for senior positions in invested firms, as well as establishing protections and avenues of recourse for investors.

Read Also: What Are Virtual Trade Fairs And Conventions – And What Are The Benefits Of Attending One?

Bilateral And Regional Free Trade Agreements Signed By Singapore

There are two main kinds of FTAs: bilateral (signed between Singapore and a single trading partner) and regional (signed between Singapore and a group of trading partners). As of time of writing, Singapore has established 14 bilateral FTAs and 11 regional FTAs.

The Regional Comprehensive Economic Partnership (RCEP) will come into effect once it has been ratified by constituent countries.

Singapore’s Bilateral FTAs:

Singapore’s Regional FTAs:

Finding Out Which FTA Applies To Your Company

FTAs are long, comprehensive legal documents that might not be so easy to understand. Furthermore, a certain country could be a signatory of multiple FTAs with Singapore.

For example, New Zealand has a bilateral FTA with Singapore (Agreement Between New Zealand And Singapore On A Closer Economic Partnership) but is also a signatory of the ASEAN – Australia – New Zealand Free Trade Area and Trans – Pacific Strategic Economic Partnership.

Which concessionary tariff applies then? Is there be a FTA that takes precedence? These issues are critical when planning your business expansion.

To help companies navigate the world of FTAs and tariff rules, Enterprise Singapore has created a Tariff Finder that incorporates these rules, and provides you with basic duties and preferential tariffs for importing into more than 150 destinations, as well as non-tariff trade measures.

If you require more assistance to expand overseas, you could look at tapping on the Market Readiness Assistance Grant, which provides subsidies for hiring third-party consultants to advise you on incorporation, finance and marketing matters.

Read Also: What Is The Market Readiness Assistance (MRA) Grant And How To Apply For It?

Managing Your International Trade Finance 

When working with partners, suppliers and customers, especially from overseas, we can use international trade financing tools to facilitate our transactions. This is mainly to avoid locking up funds and reducing risks for such transactions.

There are trade financing options to 1) manage your purchases with Import Letter of Credit, Trust Receipt or Invoice Financing (Purchase); 2) grow your sales with Export Letter of Credit, Packing Loan or Invoice Financing (Sales); and 3) securing your obligations with a Banker’s Guarantee or Standy Letter of Credit.

(Additional reporting by Dinesh Dayani)

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