Abstract
Negotiations for the EU-Singapore FTA were concluded on December 6, 2012. Given that this is the EU’s first FTA with an ASEAN member country and the second one with a major Asian trading partner after the conclusion of the EU-Korea FTA, this agreement paves the way for future FTAs with countries in the region. The goal of this paper is to quantify the economic impacts of the EU-Singapore FTA using a dynamic computable general equilibrium model. The resutls estimated in this paper suggest that the bilateral reduction of tariff and non-tariff barriers brings benefits for both sides: Singapore GDP is expected to increase by € 2.7 billion whereas the EU gains are assessed at € 550 million. In addition, EU exports to Singapore would rise by some € 1.4 billion and Singapore’s exports to the EU by some € 3.5 billion. In a complementary scenario, the current paper also assesses the value of this FTA as an insurance policy against any hypothetical tariffs hikes in Singapore to WTO bound levels. In such a “worst case” scenario, the EU-Singapore FTA will protect EU GDP from a decrease of € 350 million and prevents a loss of € 3.7 billion EU exports to Singapore.
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Notes
WTO defines a regional trade agreement as a reciprocal trade agreement between two or more trading partners.
On the economic reasoning of the Doha round failure, see Mattoo and Subramanian (2009).
Decreux and Fontagné (2011) estimate the economic impact of potential outcome of the Doha development agenda (DDA). The authors estimate total economic gains of $167 billion using dynamic computable general equilibrium model of the world economy (MIRAGE). Note however that these gains do not include any cuts in NTBs in goods and merely a 3 % cut in services barriers is applied in the model. The study takes account of the level of commitments in liberalising good and services trade submitted in the Doha round.
The entry into force is expected by the fall 2014 after the completion of regulatory procedures.
Eurostat, latest figures available 2011.
A comparison between the two modelling assessments will be made further on in the current paper.
The baseline contains projections of different macroeconomic variables such as GDP, population, skilled and unskilled labour. In addition, the EU-Korea FTA has been included in the baseline.
Singapore eliminates all tariffs at entry into force. EU eliminates 75 % of tariffs at entry into force, 85 % after 3 years and 99.99 % after 5 years.
The figure of 3 % as an estimation of trade cost reduction in services trade was applied in the same context in Decreux and Fontagné (2011).
For more information on the agreement modalities see, Chief Economist Note (2013).
Note that the second scenario considers tariff increases only as opposed to additional increase in services NTBs.
Note that the GTAP database is denominated in US dollars. For the purpose of this paper, results are converted in euros at an exchange rate of 1.3 EUR/Dollar.
Ecorys (2009) estimates higher real economic gains than the current paper. There are several reasons for that. In the first place the scenarios developed for the modelling simulations rely on very ambitious assumptions in respect to the NTBs reduction in services trade. The most modest scenario assumes 25 % reduction of services barriers whereas the current paper assumes only 3 %. In addition, the same scenario includes 1 % cut in trade facilitation cost which is not included in the scenarios simulated in the current paper. Another feature of the modelling assumptions in the study is the inclusion of the completion of the Doha round in the baseline. Finally, Ecorys (2009) estimates higher economic gains also because it considers an FTA between the EU and ASEAN i.e. tariffs and services NTBs cuts have been applied to all ASEAN countries and the EU and not only to the bilateral EU-Singapore trade as in the current paper.
The exception is constituted by a few tariff lines corresponding to raw and processed tobacco products and alcoholic beverages.
Singapore’s Department of Statistics 2011 data.
Note that these are back of the envelope calculations assuming pro rata profits. The dynamic CGE model used here does not explicitly consider FDI and the activities of multinational companies.
References
Chief Economist Note - Special Report (2013) The economic impact of the EU-Singapore free trade agreement
Decreux Y, Fontagné L (2011) Economic impact of potential outcome of the DDA, CEPII Working Paper No. 23
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Singapore’s Department of Statistics (2011) http://www.singstat.gov.sg/, Accessed 4 11 2013
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The opinions expressed in this paper are the authors’ own and do not necessarily reflect any views of the European Commission.
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Kutlina-Dimitrova, Z., Lakatos, C. Assessing the economic impacts of the EU-Singapore FTA with a dynamic general equilibrium model. Int Econ Econ Policy 11, 277–291 (2014). https://doi.org/10.1007/s10368-013-0262-7
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DOI: https://doi.org/10.1007/s10368-013-0262-7