True nature of Free Trade Agreements

by Foong Swee Fong

Contrary to its name, Free Trade Agreements (FTAs) are not about freeing up trade.

Prior to the signing of the United States – Singapore Free Trade Agreement (USSFTA) in 2003, Singapore imposed tariffs on only three products – beer, stout and samsoo.
Trade was already free.

Why then would the Americans want to sign a Free Trade Agreement with us?

Free Trade Agreements are actually Investor Rights Agreements, if we want to be precise. Their main purpose is to protect the profits of foreign investors.

The game is to open the country up for mutual investment. In this case, US companies will invest in Singapore and Singapore companies will invest in the US.

Naturally, each country will try to protect its politically and economically sensitive entities before opening itself for competition. Nonetheless, some segments of society will win, and some will lose. (Usually, the rich will win and the poor will lose).

Nonetheless, both the Singapore and US governments were very pleased when the USSFTA was signed.

For Singapore, it gained enhanced access to a huge market. In addition, a very high ranking member of the Singapore negotiating team emphasized that the USSFTA “enhanced the prospects of peace and stability in the region because the US underpins security for the whole of Asia-Pacific”. (Is not the US currently forming alliances to encircle China, provoking a major war in our backyard?)

For the US, it was its first FTA with an Asian country and was a “high quality” treaty in terms of protection for investors. It hoped that other countries would follow suit using the USSFTA as a template.

But twenty years on, only its staunch allies in the region have signed an FTA with them – Australia, S. Korea and Japan.

The negotiations with Malaysia and Thailand did not succeed because large sections of poor people would be adversely affected and the governments could not force the deals over their heads when the people got wind of them.

The other countries noted that the US is a far bigger political and economic power, and any bilateral trade negotiation would be unequal. Instead, they have opted for multilateral negotiations via the World Trade Organization (WTO).

The USSFTA protects, even enhances, the profits of American companies by various ways:

• having the government enforce extended patents, copyrights and prohibit parallel imports, thus pushing prices up.
• allows an unlimited number of American professionals to work here so long as they meet customs and employment criteria (But only 5400 Singapore professionals can enter the US market per year via this route).
• claims to uphold high labour standards but implicitly encourages otherwise.
• grants American companies the power to sue the government if they deem their profits compromised by domestic policies.
• restricts the government’s control of speculative capital seeking arbitrage gains, wrecking havoc on asset prices.

Of course, Singapore companies, including Temasek and GIC linked companies, enjoy reciprocal benefits in America.

The USSFTA set the benchmark for protection of investors in Singapore. Since then, more than 20 FTAs have been signed with many other countries, including Australia, Japan, Korea, India, the EU, UK, China. Our laws have been amended to enforce protection for foreign MNCs, affecting the lives of all Singaporeans.

FTAs have their advantages and disadvantages. We cannot say that they are good for us just because they attract investors and thus bring jobs to Singaporeans and that they help companies based here to trade and invest freely with other countries.

Their effects on the country have to be viewed holistically.

After more than 20 years since the first FTA was signed and with 27 FTAs currently in force,

• Are the good jobs created justifiable, given the displacement of Singaporeans in many other jobs?
• Has real wages of lower to middle-income Singaporeans increased, stagnated or decreased?
• Has working conditions improved?
• Is the demise of many local companies in the face of foreign competition justifiable?
• Is the high cost of branded medicine making healthcare increasingly unaffordable justifiable?
• Has inequality improved or gotten worse?
• Has life become better or more difficult for the majority?

Trade agreements are good if they are used to improve the lives of the majority of people and not just the rich. They should not take away our right to decide what is good for ourselves and our children.

Importantly, the people and the labour unions should have a voice equal to that of business lobbies when negotiating trade agreements as these treaties affect our livelihoods fundamentally, although they operate silently in the background.