The Singapore – Australia Free Trade Agreement

Introduction

The Singapore-Australia Free Trade Agreement (“SAFTA”) was signed in Singapore o­n 17 February 2003. It came into force on 28 July 2003 when the 2 countries have completed their respective commencement procedures. Although Singapore has been negotiating several FTAs in recent times, its is Australia’s first FTA since the Australia-New Zealand Closer Economic Relations Agreement of 20 years ago.

SAFTA is a comprehensive agreement In general, it covers:

  • tariff-free trade in goods;
  • greater trade liberation in services (specifically in the telecommunications, financial services and professional services sectors); and
  • cooperation and trade facilitation in key areas such as government procurement, e-commerce, education, intellectual property protection, competition policy and customs procedures.

The full text of the SAFTA can be found in the Ministry of Trade And Industry’s Website.

Tariff-Free Trade In Goods

The SAFTA provides for immediate elimination of tariff on all Singapore or Australia goods. Among the Australian goods that would most benefit are the Australian beer and wines.

Likewise, Singapore businesses that export to Australia will benefit because of the reduced costs, making Singapore goods more competitive in Australia.

To take advantage of this preferential tariff treatment, the Singapore exporter must make sure that:

     

  • the goods being exported originate from Singapore;
  • the consignment criteria is satisfied; and
  • the exporter has a valid Certificate of Origin and Declaration for the goods.

However both countries can impose certain measures that may have an effect of restricting bilateral trade. These measures include measures to protect public morals; protect human, animal or plant health; protect national treasures; conservation of exhaustible natural resources; and to secure compliance with certain domestic laws, like customs clearance or intellectual property protection. Transparency is important because these measures cannot be applied arbitrarily or discreminatorily or act as a disguised restriction on trade between the 2 countries.

Rules of Origin

Goods are deemed to have originated from Singapore if they are:

     

  • wholly obtained goods produced in Singapore;
  • wholly manufactured in Singapore;
  • partially manufactured in Singapore if:
    • the last process of manufacture was performed in Singapore; and
    • the manufacturing costs incurred in Singapore is not less than:
      • 30% of the total costs of manufacture for selected goods of importance to Singapore (as listed in Annex 2D of the SAFTA); or
      • 50% of the total costs of manufacture for all other goods.

The costs of any materials produced in Australia that are used in the manufacturing process are regarded as part of the manufacturing costs incurred in Singapore.

Certain goods (those not listed in Annex 2C of SAFTA) can be regarded as originating from Singapore even though the last process of manufacture is not in Singapore if:

  • one or more processes of manufacture were performed in Singapore
  • one or more processes of manufacture were performed in Singapore immediately prior to the export of the goods in Australia
  • the principal manufacturer incurred all costs associated with any processes performed in a third country; and
  • the manufacturing costs incurred in Singapore are not less than:
    • 30% of the total costs of manufacture for selected goods of importance to Singapore (as listed in Annex 2D of the SAFTA); or
    • 50% of the total costs of manufacture for all other goods.

These rules can be relaxed in exceptional circumstances.

Consignment Criteria

To meet the consignment criteria, goods to be exported to Australia must be:

     

  • transported directly from Singapore to Australia;
  • transported through one or more third countries provided that the goods:
    • did not undergo operations other than packing, loading or opertaions to preserve them in good condition; and
    • were not traded or used in any such third countries.
  • transported from Singapore (where the last process of manufacture was performed) through a third country (where minimal operations were performed)prior to export to Australia.

Documentary Evidence

The following documents are required for a Singapore exporter:-

  • The Certificate of Origin obtained from International Enterprise Singapore. This certificate can be for multiple shipments exported within 2 years provided the first shipment occurs within 1 year of issue.
  • A Declaration in writing by the exporter that the goods are originating goods and are identical to the goods described in the Certificate of Origin.
  • Where the exporter is not the manufacturer of the goods, the exporter must, prior to making the Declaration, obtain a Confirmation from the manufacturer that the goods are originating goods.

These documents must be provided by the Singapore exporter to the Australian importer for production at the Australian customs. All records (including electronic records) must be kept by the exporter and importer for 5 years.

Customs Procedure

The SAFTA requires both countries to improve and simplify customs procedures, including introducing paperless trading, developing risk management techniques for improved customs clearance and sharing best practices.

Technical Standards And Regulations

This concerns standards and testing requirements of both countries. The SAFTA provides that standards and testing requirements have to be harmonised. In effect, goods tested and certified in one country may not need to be re-tested in the other. This can result in cost savings.

Each country must also notify the other promptly of any proposed changes to give exporters more time to comply with those requirements before they take effect.

Government Procurement

The SAFTA has provisions aimed at equal treatment for Singapore and Australia companies when dealing with government procurement. Government bodies when procuring supplies or services must not discriminate between a domestic supplier and a supplier from the other country. There are also provisions to promote e-procurement.

Thus Singapore suppliers, when trying to supply to the Australia government:-

  • will have to treated the same as Australia suppliers;
  • need not worry about preferential treatment being given to companies where the Australia government is a shareholder;
  • can be confident that any tendering procedure is fair and contain mechanisms to ensure transparency.

However what this also mean is that Australia companies can tender for Singapore government projects on an equal basis with Singapore companies.

Trade In Services

Under the SAFTA, each country agreed to offer greater access to its domestic market for service providers. Subject to certain agreed reservations, neither country can restrict access to its market quantitatively (by limiting number of providers or limiting value of services) nor qualitatively (by requirements of joint ventures with local partners). Only those sectors in the ‘negative list’ may be the subject of restricted access.

The SAFTA also provide for equal treatment of service providers from the respective countries except where express reservation has been made.

Sectors in the Australia ‘negative list’ include: gambling, education, insurance, banking & other financial services, migration services, postal & telecommunications services and air transport.

Sectors in the Singapore ‘negative list’ include: certain professional services, banking & other financial services, education, insurance, health related services, postal & telecommunication services, tourism related services, food & beverage industries and air transport.

Each country must ensure that:-

  • domestic regulations are applied in a fair and non-discriminatory manner to service providers from the other country
  • licensing requirements or technical standards that a service provider from the other country must meet are reasonable.

Also in determining whether a service provider meets the required technical standards or qualifiction for a licence, one country must recognise the education or experience obtained, requirements met or licences granted in the other country.

Investment

The SAFTA requires each country to treat investors from the other country no less favourably than its own domestic investors. It also requires each country to make public its laws regulating investments to investors of the other country. Investors who are Singapore nationals and permanent residents or companies controlled by them can benefit from the SAFTA.

However Australian foreign investment rules (ie the Foreign Acquisitions And Takeover Act, its regulations and related Ministrial statements) are still applicable. Thus the following investments still require prior government approval:

  • acquisition of ‘substantial interest’ in an existing Australia business with total assets of A$50 million or more;
  • establishment of new business in Australia involving a total investment of A$10 million or more;
  • direct investment by a government or their agencies irrespective of size;
  • acquisition of developed non-residential commercial property subject to a heritage listing valued at A$5 million or more;
  • acquisition of developed non-residential commercial property not subject to a heritage listing valued at A$50 million or more;
  • acquisition of accomodation facilities, vacant urban real estate or residential real estate, irrespective of value.

‘Substantial interest’ means an interest of 15% or more for an individual or 40% or more in aggregate for several individuals.

Note: Further information on Australia investment rules can be found at the country’s Foreign Investment Review Board website.

Each country has certain reservations for certain industries, ie a ‘negative list’. For these industries, a country need not afford investors from the other country equal treatment as its domestic investors.

Investor Dispute Resolution mechanism

SAFTA, grants private investors of one country the right to protect their investments against government measures taken by the other country. A government ‘measure’ includes ‘a law, regulation, rule, procedure, decision, or administrative action.’

An investor from one conutry can commence dispute settlement proceedings against the other country for an alleged breach of one or more of its obligations in Chapter 8 of the SAFTA, if the breach causes loss or damage to the investor or its investment. Initially, these proceedings take the form of consultations and negotiations between the investor and that country.

If consultations and negotiations fail, either the investor or that country can submit the dispute to:

  • the courts or administrative tribunals of that country
  • the International Centre for Settlement of Investment Disputes (ICSID), or
  • arbitration under the rules of the United Nations Commission on International Trade Law (UNCITRAL).

However, the dispute cannot be submitted in this way if either the investor or that country has agreed otherwise, or has already submitted the dispute to the courts or administrative tribunals of that country, with the exception of domestic proceedings for interim protection. In addition, there is a time limit on submission to within 3 years from the time the investor knew about the alleged breach.

Financial And Telecommunications Services

Two sectors received special mention in the SAFTA, the financial services and the telecommunication services.

Financial Services

Under the SAFTA, Australia and Singapore must ensure that market access to financial services is based on transparent principles that are applied in a non-discriminatory manner. They:

  • must allow financial service providers from the other country to provide any new financial services of a type similar to those services that a domestic party is allowed to provide under domestic laws;
  • cannot impede transfers of information and processing of financial information, including trasnfer of data by electronic means, where they are necessary for the conduct of ordinary business, except when consistent with the rules of international agreements.

However both Parties have made certain reservations in this sector. The reservations are found in Annexure 4 of the SAFTA.

Telecommunication Services

Under the SAFTA, Australia and Singapore are committed to:-

  • ensuring that service providers from the othercountry have access to and use of any public telecommunication networks or services in a timely fashion, on reasonable, transparent and non-discriminatory terms and conditions;
  • ensuring that service providers from the other country can use public telecommunications networks or services to move or access information within its territory;
  • having independent regulators for the industry where decisions and procedures are fair, impartial and made and implemented without undue delay; and
  • having measures to prevent anti-competitive safeguards.

Movement of Business Persons

To encourage cross-border business between Singapore and Australia, cross-border movement of people is essential. Under the SAFTA, each country agreed to facilitate temporary business entry and establish streamlined, transparent immigration clearance procedures for business persons.

The benefits are:

  • Business visitors from one country can enter the other for a period of 3 months.
  • Intra-company transferees (ie managers, executives and specialists) will be permitted to stay and work for a period of up to 14 years.
  • No labour market testing, labour certification tests or other procedures of similar effect as a condition for temporary entry.
  • Spouses of business persons can work as managers, executives or specialists.
  • Singapore has agreed to waive visa requirements for nationals of Australia.
  • Australia has agreed to accord to Singapore citizens conditions of entry and processing requirements for its Electronic Travel Authority (“ETA”) equal to those accorded to persons of other countries.

Most of these benefits also apply to permanent residents of the respective countries, although the ETA benefit is only applicable to Singapore citizens.

However the SAFTA clearly excludes these measures to citizenship, residence or employment on a permanent basis.

Competition Policy

Australia and Singapore have agreed to promote competition by addressing anti-competition practices in their respective territory.

Singapore has no comprehensive anti-competition law but has begun a consultation process regarding competition legislation. It is intended that the competition policy provisions of SAFTA will be reviewed, after Singapore enacts competition laws.

Australia has already the Trade Practices Act which addresses anti-competition practices.

Intellectual Property

Under SAFTA, both Parties have:

  • reaffirmed their commitment to the provisions of the World Trade Organisation (WTO) TRIPS Agreement on intellectual property protection
  • agreed to accede or ratify the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty
  • agreed to comply with the Hague Agreement Concerning the International Registration of Industrial Designs
  • agreed to take measures to prevent export of goods that infringe copyright or trademarks
  • agreed to cooperate on eliminating trade in goods infringing intellectual property rights, and
  • agreed to develop international policies or guidelines governing the resolution of disputes involving domain names and trademarks.

The objective of these commitments is to increase trade and investment between the two countries.

Electronic Commerce

Singapore and Australia are committed to promoting electronic commerce (“e-commerce”) bilaterally and globally, by:

  • maintaining the existing practice of not imposing customs duties on electronic transmissions between the countries;
  • maintaining existing e-commerce legislation based on UNCITRAL Model Law on Electronic Commerce;
  • minimising regulatory burden on e-commerce and ensure that regulatory frameworks support industry-led development n e-commerce;
  • maintaining e-commerce consumer protection and electronic authentication legislation;
  • working towards the mutual recognition of electronic signatures and interoperability of digital certificates;
  • taking measures to protect online personal data and developing data protection standards;
  • making available to the public electronic versions of all existing publicly available trade administration documents by 2005; and
  • cooperating to enhance the acceptance of paperless trading.

Conclusion

The overall benefits of SAFTA to Singapore companies would probably lie in the abolition of trade tariffs. Singapore importers will be able to import and market Australia goods more competitively. Singapore exporters to Australia will also be able to do so more competitively, givng them a better chance to penetrate new markets or expand existing ones.

As investments by Singapore investors into Australia will still be subject to Australia’s foreign investment rules, its impact is expected to be minimal. It is hoped that with time, the Australia government will look more favourably towards Singapore investors. A step in this direction is the setting up of a Singapore helpdesk specifically for Singapore investors under the SAFTA.