News analysis

Singapore should seize opportunities on free trade

Free trade made a strong comeback on the global scene this week.

The 11 countries that remain in the Trans-Pacific Partnership announced that a deal had been reached, one year after the United States unceremoniously pulled out.

On the same day - by coincidence, not design - Singapore signed a free trade agreement with Sri Lanka, witnessed by Prime Minister Lee Hsien Loong, who was in Colombo on an official visit, and his host President Maithripala Sirisena.

With these developments, some balance is being restored to the once-dominant narrative that with Brexit and the election of US President Donald Trump, the voices of anti-globalisation were in the ascendancy.

But also in the news yesterday were new, prohibitive tariffs unveiled by the US on solar panels and washing machines, which prompted official complaints from South Korea and China.

It was a sobering reminder that the Manichean struggle for a freer flow of goods and services is by no means over. If the far right and far left forces of Western democracies make further electoral progress, global divisions on the issue of trade may yet sharpen.

For Singapore, these developments throw up many imponderables, and a strategic rethink of the Republic's approach to trade deals may be on the minds of many in the Government.

 
 

As a small and open economy, heavily reliant on trade and investment flows across national borders, Singapore's national interests are clearly defined.

What is less clear is how Singapore should allocate time, energy and other resources to different aspects of the free trade game. Which countries should it sign bilateral deals with? How much attention should it pay to regional FTAs? And what about World Trade Organisation (WTO) deals, which cover all countries, but failed to make headway at the last round in Doha?

PM Lee shed some light on the thinking behind such questions this week. After the FTA signing with Sri Lanka, he said Singapore prefers WTO deals, but given that political winds do not favour them, bilateral and multilateral deals have to be done, even if they are messier.

That said, Singapore does not go out and do as many deals as possible. That would be like collecting lots of little stamps but having nothing to show for it at the end, he said. Each of these deals is assessed on a case-by-case basis.

Nothing unexpected so far - until he pointed out that one criterion in these assessments is whether the prospective deal will enhance Singapore's security and ensure there is "enough of a safety net" if the global free trade framework were to come apart entirely.

Apparently, such a doomsday scenario - which may have been harder to contemplate in another era when all the leading developed economies were pro-trade - is now an uncomfortably real possibility that needs to be planned for.

For a big country that could get by on self-sufficiency if trade wars break out and countries retreat into their own economies, the threat of the world trade order breaking down is, at worst, frightening.

But for Singapore, such an eventuality could trigger an existential crisis - and in extremis, lead to the end of independence and sovereignty as we know it.

There is hence a need to put one's eggs in as many different baskets as possible. A bilateral deal between Singapore and any other country, say Sri Lanka, could well survive a battering to global trade as long as the dominant view in both countries continues to sustain it.

Still, the current challenges may also belie a unique opportunity for Singapore.

If some developed countries - including the one with the biggest economy of all - no longer have an appetite for trade deals, then developing countries that need those deals to escape their low-income traps have fewer partners they can choose from to do deals with. This matters.

While in theory, a country can talk to as many countries as it wants to, in reality, they have limited resources. There are only so many trade officials through whom the talking can be done, and only so much mindshare that political leaders have to start exploring yet another prospective pact.

Hence, what appears to be a shrinking space for trade deals globally could in fact be the chance for Singapore to move up the priority lists of its trading partners and seal those deals while it can.

It seems a strange situation for Singapore to find itself in.

A global chill has come upon free trade, and it may even start to feel like the beginning of a winter. But Singapore must make the proverbial hay while the sun is still out, lest it is caught unawares by the onset of winter - or worse, an ice age.

A version of this article appeared in the print edition of The Straits Times on January 25, 2018, with the headline 'Singapore should seize opportunities on free trade'. Print Edition | Subscribe