Explain the economic justification for Singapore in the signing of Free Trade Agreement with other countries. [12 marks]

Free trade agreements are binding agreements between 2 or more countries to remove trade barriers and business restrictions. They typically include reducing tariffs on imports and relaxing restrictions on the level of participation in sectors like business and finance. FTA results in a free trade area.

Singapore has signed FTA with several countries like Japan,Australia,Jordan and US.


Improve price competitiveness

The Trade in Goods Chapter will provide for comprehensive tariff elimination and reduction on products traded between member countries in an FTA. Tariff elimination, when measured in terms of tariff savings and concessions, will have the effect of reducing the cost burdens of businesses that are exporting to member countries. Savings from these preferential tariff concessions will make exports from Singapore more competitive vis-à-vis exports from non-member countries.

Intellectual Property Rights (IPR) Protection

• Stronger IPR protection set ground for knowledge-based industries

Singapore has small domestic market,FTAs open up markets and enable local firms to sell to larger market.

Cost savings derived from large scale production

FTAs increases volume of free trade,enabling trading countries to enjoy benefits according to comparative advantage.
FTAs lead to Trade creation,where consumption shifts from a high cost producer to a low cost producer within the Free Trade area

Attract investments from abroad

removal of barriers to capital flows make it easier in Singapore, MNCs with ready funds and advanced technology are encouraged to invest in Singapore.

Increased FDI leads to transfer of technology. Foreign firms provide greater competition and force local firms to be efficient.

Another benefit of FTA is the advantage of ready export markets.

conclusion:
FTAs are superhighways that connect Singapore to major economies and new markets. With FTAs, Singapore-based exporters and investors stand to enjoy a myriad of benefits like tariff concessions, preferential access to certain sectors, faster entry into markets and Intellectual Property (IP) protection.

As an integral part of Singapore’s trade architecture, Singapore's network of 13 FTAs is designed to position Singapore as an integrated manufacturing center in this region; promote research & development in our knowledge-based economy and drive the services hub.