Free Trade Agreements and Subregional Economic Zone

ASEAN was set up in 1967 to address the region’s political and security challenges, and provide regional stability. Today, the region has a market of 620 million people, an estimated GDP of USD $2.5 trillion (2014) and a projected annual growth of over 5 per cent till 2018 (OECD 2014).²⁴ By 2030, ASEAN will be the fourth largest single economy, behind the European Union, USA, and China, with a GDP of USD $10 trillion (US-ASEAN Business Council 2014). Over the past decades, the regional tariff structure disparities have been reduced, resulting in greater complementary trade amongst ASEAN members. However, there remain economic and social domains requiring added attention prior to further integration.²⁵ Historically, the pace of regional integration has been below Singapore’s expectations in terms of ASEAN’s overall standing, where the struggle to reduce tariffs is attributed to loose and narrow institutional frameworks with decisions and policy formulation left to respective Foreign Ministers (Daquila and Le 2003). Such institutional frameworks suggest that approaches within ASEAN were cautious with slow progress. This

Table 10.1 Evolving trends in Singapore’s human capital since independence

prompted Singapore to seek more international Free Trade Agreements (FTAs) with other global partners, and undermined the ASEAN spirit by allowing a “back door” entry for her global partners to the ASEAN markets (Daquila and Le 2003).²⁶

Singapore ensured that ASEAN members and ties would not be undermined by a “back door” entry by fostering closer economic ties with Malaysia and Indonesia. The SIJORI Growth Triangle formed by Indonesia-Malaysia-Singapore is known as the Subregional Economic Zone (SREZ). Singapore addressed the “back door” perception by including the Riau Islands in her FTA negotiation with the USA (Daquila and Le 2003). This enabled Indonesian goods access into USA, and in return the USA gained entry to Indonesia’s Information Technology sector (Daquila and Le 2003). This growth triangle was first proposed in December 1989 (Ahmad 1992) and signed in December 1994 (Sparke et al. 2004); it was viewed as an avatar of the “borderless” city-region development (Parsonage 1992). Singapore was to lead and provide financial developments in Johor and Riau Islands (Batam and Bintan) (Guinness 1992); while Indonesia’s Batam built eight industrial estates at the Batamindo Industrial Park to house AT&T, CIBA Vision, Epson, Philips, Seagate, Sanyo, Siemens, and Thomson. Bintan island benefited from the capital overflow from industrial parks and high-end tourist facilities (Chang 2001; Grundy-Warr et al. 1999); and Malaysia’s Johor benefited from cross-border industrial re-location and tourism development projects (Guinness 1992; Parsonage 1992).

Although the growth triangle delivered impressive results, the sustainability of the effort to “fast track” development has yet to be demonstrated for cross-border cooperation (Grundy-Warr et al. 1999). A possible explanation for a less than ideal pace of development was that Johor and the Riau Islands are not representatives of their respective countries where issues (such as taxes and duties) at the local level can only be addressed at federal level; this resulted in different levels of autonomy and delays in decision-making (Grundy-Warr et al. 1999). Comparing the FTA and SREZ, the SREZ offers a better structure for advancing deeper economic integration; it is more open than FTAs and not restricted to SREZ markets (Peng 2002). In addition, the flexibility to withdraw and nil participation are also allowed in SREZ. From the discussion on FTA and SREZ, it is evident that Singapore strives to be a valuable partner as her partners develop and grow, and remains useful when they have attained a certain level of development. Further cross-border developments would require an uninhibited flow ranging from capital, goods, services, labour, investment, and ideas. As ASEAN is made up of nations with different customs, laws, operations, and regulations, a move to a common market where development gaps will be bridged within the nations seeks to address and resolve these differences.

In late 2015, the ASEAN Economic Community (AEC), founded on a regional common market, came into effect; where goods, services, capital, and labour, particularly professionals, enjoy free mobility within ASEAN in trade and services. Nevertheless, existing FTAs between ASEAN members may dwarf the trade initiative towards a common market, as new benefits may not be as attractive as existing bilateral agreements. Political barriers and strategic risks can also potentially diminish the expected benefits for tourism and services. Directions and applicable policies on how AEC can integrate existing bilateral agreements must be made clear so that all members will benefit from existing and future polices. To date, there has been significant progress towards closer co-operation within ASEAN for Singapore, centred on people. Selected initiatives include: (1) Exports to ASEAN out of Singapore are not subjected to any tariffs, leading to lower production costs that offer a competitive edge; (2) Standards and regulations for the ASEAN region will be benchmarked against international guidelines, which help to eradicate potential barriers and risks; (3) Formerly restricted industries such as engineering and healthcare will open up to foreign interests, providing access for greater investment opportunities from Singapore; (4) The ASEAN Comprehensive Investment Agreement protects investors by providing a conducive environment that is pro-business, and will significantly reduce risks for Singaporean investors; and lastly (5) Labour mobility will be greatly enhanced in the ASEAN region for eight professions, allowing for ideas exchange and capital flows across borders.²⁷ (Ministry of Foreign Affairs, Singapore (2015).

From the brief history and development path of Singapore, the evolution of economic drivers with initial assistance from international agencies has been dynamic through adaptation to both exogenous and endogenous factors. Even though natural resources are rare, Singapore remains agile through its greatest endowment—human capital, which underwent significant transformations locally as well as reconfiguring to meet regional needs (via FTAs and SREZ). These would not have been made possible without strong governance and a stable political setting. As Singapore strives to be relevant to the region, it is recommended that labour mobility and trade-enabling initiatives such as the AEC continue to be utilised, which will enable further proficiency development and capacity-building for sustainable development and handling future challenges.

The next section reviews selected projects for the free port ofVladivostok and relates them to the experience of Singapore, paying particular attention to human capital and development policies.