The long view on Ceca and other free trade agreements

The fear of losing jobs to foreigners is valid, but it needs to be addressed with facts, balanced reasoning and empathy

Leading up to this month's general election, one issue that won traction was that of the large presence here of foreign workers, particularly the PMETs (professionals, managers, executives and technicians) - who are thought to compete with locals for jobs.

Last week's retrenchments at Resorts World Sentosa - and reports that Marina Bay Sands will likely follow suit - have added grist to that mill. An easy target of suspicion are the two dozen or so free trade agreements (FTAs) that Singapore has signed, particularly ones where services trade have been explicitly written into the deals, such as with India and Australia.

As with millions around the world caught in this pandemic-accentuated economic crunch, Singaporeans are asking: What will become of me? Are the deals we agreed on to widen market access hurting my job prospects?

It is a valid fear and one that needs to be addressed with facts, balanced reasoning and, above all, empathy. But to get there, you need to know why Singapore pursued FTAs in the first place and why they remain perhaps even more relevant today, when the multilateral trading system supported by the World Trade Organisation (WTO) is semi-paralysed and stressed by the insurgent behaviour of the United States.

In December 1996, when Singapore hosted the inaugural Ministerial Conference of the WTO, the air was one of optimism about the future of free trade and globalisation. World merchandise trade had grown 10 per cent per annum from a mere US$50 billion in 1947 to US$5.6 trillion in 1995.

As barriers to the free flow of trade and investments continued to fall, the expectation was that countries could capitalise more fully on their comparative strengths and look beyond national and regional frontiers.

Opening the trade summit, then Prime Minister Goh Chok Tong spoke of standing at the threshold of a golden age of global economic growth.

Three years later, when trade ministers convened in Seattle for their third summit, the mood had darkened. Indeed, the Seattle conference failed to make progress on the next round of trade negotiations.

It was against this background of stalling trade liberalisation and a shift from goods towards services trade that Singapore and like-minded nations thought of FTAs as a useful way to keep trade expanding, while they waited for the rest of the world to catch up.

That led to the Agreement between New Zealand and Singapore on a Closer Economic Partnership (ANZSCEP), Singapore's first bilateral FTA.

Its merits came into view instantly; after the FTA was implemented on Jan 1, 2001, Singapore's exports to New Zealand rose 54 per cent on-year in January and February. Today, there are 25 bilateral and plurilateral FTAs involving Singapore and more are under negotiation.

Last week's retrenchments at Resorts World Sentosa - and reports that Marina Bay Sands will likely follow suit - have added grist to the mill, that of the large presence here of foreign workers, particularly the PMETs (professionals, managers, executives and technicians) who are thought to compete with locals for jobs. ST PHOTO: GAVIN FOO

The Ministry Of Trade and Industry estimates that in 2018, FTAs helped Singapore companies benefit from about $1.2 billion in tariff concessions when selling to overseas markets and widened its services sector's market access opportunities in a range of sectors including financial services, education services, health, logistics and transport services, in the process creating good jobs for Singaporeans. They also provide a cushion against the vagaries of geopolitics that increasingly impact trade, including Singapore's food security.

For all its reliance on FTAs as a strategy, each of them, including the Comprehensive Economic Cooperation Agreement (Ceca) with India that has drawn the most noise lately, has to be a careful judgment call.

PM Lee Hsien Loong and then Indian PM Manmohan Singh signed Ceca in 2005. Senior Singapore officials consistently made clear that whether it was access to Singapore's financial services market or in professional services, anything agreed would be "subject to local Singaporean regulations". LIANHE ZAOBAO FILE PHOTO

When Singapore went for Ceca, it was because it could not wait for WTO to finish its work to gain entry into the promising Indian market. Tortuously negotiated over two years, the nearly 740-page document was agreed on after vexed negotiations over the finer details of a financial services and double taxation avoidance agreement by which Singapore-registered companies enjoyed zero capital gains in India. To the last, sections of Indian industry and some political parties were sceptical of its benefits.

Today, there is no denying that both sides gained. If you look past visuals of the large number of Indian faces at lunchtime in areas like Marina Bay Financial Centre and the IT-concentrated Changi Business Park, Ceca has delivered for Singapore. Official data on Statlink shows bilateral trade rose from $16.6 billion in 2005 to $24.3 billion last year. Singapore companies' investments in India, a mere $1.3 billion in 2005, rose to $60.9 billion by the end of 2018.

The figure expands if you include global companies routing their foreign direct investments through Singapore. Confederation of Indian Industry - India Business Federation, a grouping of big Indian companies here, says cumulative FDI routed from Singapore into India from April 2000 to September 2019 amounts to US$91.02 billion, or a fifth of total inflows into India. What's more, it notes, more than 80 per cent of listed offshore bonds by Indian issuers are listed on the Singapore Exchange and Singapore-based investors have assets under management in India valued in excess of $100 billion.

Ceca also helped pave the way for Singapore to prise open a sector that governments tend to obsessively protect: banking.

DBS Bank, whose attempt to expand in some big Asean markets has been thwarted, operates 34 branches across 24 Indian cities, a footprint among foreign banks that ranks only behind Standard Chartered and Citi, which have operated there from 1858 and 1902, respectively. In the Indian financial year that ended in March, DBS' net India revenue rose 24 per cent to 14.44 billion rupees ($272.3 million) while net profit rose more than sixfold.

Much of the Singaporean misgivings about Ceca stem from its listing of 127 professions under the Temporary Movement of Natural Persons chapter. Two other FTAs - with Japan and the US - also include commitments on professionals. While Ceca has the longest list, it has the shortest duration - just a year - committed.

Nevertheless, this has raised fears of a flood of Indian professionals arriving to steal well-paying jobs at a time when PMETs, at 58 per cent, decisively dominate the local job market.

However, temporary movement of natural persons is not unusual in trade agreements and also figure in the other FTAs Singapore signed, for instance, with Australia and New Zealand. None of them confer unfettered right of entry for foreign professionals.

I was in the room in June 2005 when Prime Minister Lee Hsien Loong and his then counterpart, Dr Manmohan Singh, signed Ceca and at the press interactions that followed, senior Singapore officials consistently made clear that whether it was access to Singapore's financial services market or in professional services, anything agreed would be "subject to local Singaporean regulations".

In fact, this was indeed the first line of a multi-layered range of safeguards built to prevent an influx, as I realised subsequently. For instance, there are more than 540 medical colleges recognised by the Indian Medical Council. Yet, as of Jan 1, Singapore recognises degrees from a mere two of these institutions, and that's down from seven earlier. Besides, the Indian doctors who find jobs here have to get local certification as well.

Similarly, where intra-company transfers are involved - a foreign line manager who might seek to pull in a loyal underling, for instance - the scrutiny levels have tightened before an Employment Pass (EP) is granted.

Another threshold, and one which draws a lot of complaints, is a minimum salary requirement for foreigners in various categories, usually set above the median to prevent undercutting of local salaries.

One route available for Singaporeans to address specific grievances is the Fair Consideration Framework (FCF), which is meant to protect against discriminatory hiring practices.

FCF requires companies to advertise professional, managerial and executive posts for at least 14 days before the firms can apply to the Ministry of Manpower for an EP for a foreigner. As of March, there were some 1,000 companies that had been placed on the FCF watch list, including those with an exceptionally high share of PMETs compared with their industry peers, or high concentration of single nationalities.

The threshold for monthly salaries exempted from FCF advertising requirements has also steadily increased over the years and now stands at $20,000. In January, Manpower Minister Josephine Teo announced several updates to give more teeth to the FCF.

The better companies, whether they are the global banks or Indian conglomerates, realise they need to do their part and indeed have moved to do so.

India's US$113 billion Tata group, for instance, has 20 operating companies and 28 entities in Singapore, employing a total of 3,300 staff. At its flagship Tata Consultancy Services, its software services arm, the percentage of local residents employed has doubled to nearly 40 per cent over the past five years, says Mr K.V. Rao, resident director of Tata Sons, the holding company.

Of the 1,500 TCS employees on the island, many serve regional functions. They include head of telecoms for Asia-Pacific Jimmy Tan, human resources head for Singapore and South Korea Seow Li Dwen Hwee and the marketing head for Singapore, South Korea and Taiwan Lee Shu Shan.

TCS Asia-Pacific president Girish Ramachandran says he would hire more Singaporeans except that many locals seek to be project managers and analysts "from Day 2" rather than work their way up. Besides, he says, many of TCS' big clients on the island are still on mainframes whereas the young do not like to work on old technologies.

For sure, all FTAs, Ceca included, are always a balance of interests and subject to periodic review. But renegotiation cannot be without costs and who knows the reciprocal action may even adversely impact the 40 per cent of the job market that do not come into the PMET pool but do benefit from the good that FTAs bring. Over the two decades past, the FTAs we have signed cover economies that represent more than 85 per cent of global GDP and account for more than 90 per cent of its trade.

There is also the question of whether Singapore produces enough of its own to serve the economy's expanding needs; last year alone, the Economic Development Board attracted investment commitments of $15.2 billion in fixed asset investments and a projected $9 billion in total business expenditure per annum as companies spend on banking, travel and legal issues. When the projects are fully implemented, they will create nearly 33,000 jobs.

This issue of foreigners competing for PMET jobs will not go away. Indeed, the next periodic jobs report will surely bring it into focus again as retrenchments proceed. But if ever there was a time for cool minds and a long view, it is now.

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A version of this article appeared in the print edition of The Sunday Times on July 19, 2020, with the headline The long view on Ceca and other free trade agreements. Subscribe