The U.S.-Singapore Free Trade Agreement
Released: 2004-06-15T00:00:00

Legislative Procedures

The act providing Trade Promotion Authority (TPA) to the President ( P.L.107-210 ) contained certain consultation and notification requirements in order forinternational trade agreements to be considered by Congress under expeditedprocedures. The requirements include the following: (11)

at least 90 calendar days before entering into a trade agreement,the President must notify Congress of the intent to enter into the agreement; (12)

at least 90 calendar days before entering into the tradeagreement, the President must notify the revenue committees of possible changes toU.S. trade remedy laws;

no later than 30 days after the President notifies Congress of theintention to enter into a trade agreement, private sector advisors must submit theirreports on the agreement;

within 60 days of entering into a trade agreement, the Presidentmust submit to Congress a description of changes to existing laws; and

not later than 90 days after the President enters into anagreement, the ITC must submit a report assessing the likely impact of theagreement. (13)

Since the implementing bill and FTA agreement cannot be amended, theHouse Ways and Means and Senate Finance Committees and House and SenateJudiciary committees held mock (non-markup) markups with Administrationrepresentatives as witnesses to make changes to the draft implementing legislation. Non-markup markups are essentially the same as usual markups except they focuson draft legislation rather than formally introduced bills.

Once the implementing bill met the requirements under TPA, it wasconsidered under the following expedited procedures:

the implementing bill is to be introduced in each house on thefirst day each house meets after the President submits his draft bill;

the bill is referred to the committees of jurisdiction, whichhave 45 days of session to report the bill; otherwise they are automaticallydischarged. However, since bills to implement trade agreements are usually revenuebills, the Senate committees must report the House bill and, for that reason, have anaddition 15 days of session to report the bill;

floor consideration is limited to 20 hours, equally divided andcontrolled, and each house must complete floor action within 15 days ofsession;

no amendments may be offered to the implementing bill incommittee or on the floor.

Background

Singapore is a city state located in Southeast Asia at the southern tip ofMalaysia and across the Strait of Malacca from Indonesia. It has a population of 4.4million, an area roughly 3.5 times the size of the District of Columbia, grossdomestic product (GDP) of about $88 billion, and per capita income of about$20,600. It is a major trading country whose imports and imports each generallyexceed its GDP. Singapore has been a major proponent of trade liberalization andsupports the U.S. security role in Asia.

Singapore is America's largest trading partner in Southeast Asia with two-waytrade of $31.7 billion and a U.S. bilateral merchandise trade surplus in 2003 of $1.4billion (same as the $1.4 billion in 2002), a reversal from the deficit of $1.4 billionin 2000. The United States generally runs a surplus in services trade with Singapore. Singapore is the 11th largest export market for the United States with $16.6 billionin merchandise exports in 2003. It is the 17th largest source for goods imported intothe United States with $15.1 billion in 2003. The United States is Singapore's secondlargest trading partner (after Malaysia -- Japan is third). As shown Table 1, inbilateral trade by sectors, the United States runs surpluses with Singapore in aircraft;electrical machinery; plastic; mineral fuel; optical instruments, miscellaneouschemical products; dyes, paints, and putty; articles of base metals, and iron and steelproducts. The U.S. incurs deficits with Singapore in machinery; organic chemicals;a special other category; knit apparel; special other import provisions; fish andseafood; woven apparel; and books and newspapers.

Table 1. U.S. Merchandise Trade Balances With Singapore, 1999-2002, by Major Commodity Category

(Million dollars)

Source: Data from U.S. Department of Commerce through World Trade Atlas. Categories are by two-digit Harmonized System Codes.

Some 1,600 U.S. companies and close to 20,000 American citizens are located in Singapore. (14) Many U.S. multinational corporations useSingapore as a regional headquarters and base to export around the world. TheUnited States is Singapore's largest foreign direct investor, while Singapore is thesecond largest Asian investor in the United States after Japan. As of the end of 2002,Singapore accounted for $61.4 billion in American direct investment (up from $26.7billion in 2001) or 4.0% of total U.S. direct investment abroad. For 2002, Americandirect investment outflows of capital into Singapore totaled $11.4 billion out of totalU.S. capital outflows of $119.7 billion. (15)

Even before the FTA, Singapore already had 99% free trade. Only beer andcertain alcoholic beverages were subject to import tariffs. Singapore, however, doesimpose high excise taxes on distilled spirits and wines, tobacco products, and motorvehicles (which are all imported). These are aimed at discouraging consumption forenvironmental and health purposes. The government also bans chewing gum (itcaused subway doors to jam). These practices are addressed in the FTA.

Singapore has implemented a free trade agreement with New Zealand(effective January 1, 2001) and with European Free Trade Area (effective January 1,2003 that includes Iceland, Norway, Switzerland, and Liechtenstein), and in January2002 concluded one with Japan that excludes agricultural products. The country alsohas completed FTA negotiations with Australia (signed on February 17, 2003) andis negotiating with Mexico (begun in July 2000) and Canada (begun October 2001)and on November 14, 2002, established a study group to explore a FTA with SouthKorea.

As a member of ASEAN, Singapore is a participant in The FrameworkAgreement on Comprehensive Economic Co-operation between ASEAN and thePeople's Republic of China (signed November 4, 2002). The Framework Agreementsets out how ASEAN and China are to cooperate in economic liberalization as wellas economic cooperation. It marks the first stage of tariff reductions under theASEAN-China FTA under which tariffs are to be reduced or eliminated by 2010 forASEAN-6 (Singapore, Indonesia, Malaysia, the Philippines, Thailand, and Brunei),and 2015 for the newer ASEAN countries of Cambodia, Laos, Burma (Myanmar) andVietnam. (16)

As for the United States, it also has low trade barriers except for certainprotected sectors, such as light trucks and textiles and apparel. As shown in Table2, in 2002, the United States collected an estimated $87.5 million in duties onimports from Singapore of $14,115.8 million for an average U.S. duty of 0.6%. Thislow average tariff comes from a combination of low duties on most products andrelatively high duties on a few protected products. On knit apparel, for example, theUnited States collected $43.4 million for an average duty of 18.6% and on wovenapparel collected $8.5 million for an average duty of $16.3%. Average duties onmiscellaneous food items at 7.3% and on plastics at 5.4% also were relatively high. On electrical machinery and equipment, duties averaged only 0.3% and on machinery0.1%. Other duties fell in the range of 0.4 to 2.4%. The elimination of U.S. importduties under the FTA, therefore, would primarily affect duties on imports of apparel,miscellaneous food items, and to a lesser extent plastics.

Table 2. U.S. Import Duties and Average TariffRates on Commodities Imported From Singapore, 2002

(Percent and Million Dollars)

Source: Data from U.S. International Trade Commission

The United States already has free trade agreements with Canada, Mexico,Israel, and Jordan and is negotiating FTAs with Central America, Australia,Morocco, the Southern Africa Customs Union, and Bahrain. The United States alsois a member of APEC, an organization that is pursuing free trade and investment inthe Pacific region, and has been in negotiations with 33 other Western Hemispherecountries to establish a Free Trade Area of the Americas. Given the trend towardnegotiating more FTAs, the agreement with Singapore would give that countryessentially the same status as the other nations who already benefit from (or maybenefit from) free trade with the United States.

As for investment, Singapore generally has an open investment regime. Atthe end of 2002, the stock of U.S. foreign direct investment (FDI) in Singaporetotaled $61.4 billion (on a historical-cost basis). U.S. FDI in Singapore isconcentrated largely in manufacturing (mostly in industrial machinery and equipmentand electronics), finance, and petroleum. (17) As of 2002, Singapore had a net directinvestment position in the United States of $2.9 billion -- down from $3.5 billion in2001. Most is in manufacturing, real estate, depository institutions, and wholesaletrade. (18)

Provisions of the Agreement

The following information on the specifics of the agreement are primarilyfrom its text and from news and other reports as well as information provided by theU.S. Trade Representative and Singapore Ministry of Trade and Industry. (19) Theagreement would establish a free trade area between the United States and Singaporeconsistent with the rules and obligations under the World Trade Organization.

Trade in Goods

Singapore is to apply zero tariffs immediately upon entry into force of theAgreement on all U.S. products, including beer and stout -- the only items that hadbeen subject to tariff protection (Article 2.2, Annex 2C). U.S. tariffs on 92% ofSingaporean goods are also to be eliminated immediately with remaining tariffsphased out over eight years (Annex 2B). The sectors with the most benefit toSingapore include electronics, chemicals and petrochemicals, instrumentationequipment, processed foods, and mineral products.

Singapore agreed to allow the importation of chewing gum from the UnitedStates with therapeutic value for sale and supply subject to laws and regulationsrelating to health products (Article 2.11). This opens the way for imports oftherapeutic types of American gum, possibly such as teeth whitening and nicotinegum designed to aid in smoking cessation, to be sold there -- probably throughpharmacies. Some news reports had indicated that prescriptions would be requiredto buy the gum, but that provision does not appear in the text of the agreement, andthe Singapore government reportedly agreed that it would not require prescriptions. Gum has been banned in Singapore since 1992 as a measure to keep the city cleanand subways safe. (20) U.S. interests have argued for liberalized salesof sugarless gum also.

Under the FTA, Singapore also is to harmonize its excise taxes on importedand domestic distilled spirits (Article 2.9) (to be carried out in stages and completedby 2005). High excise taxes on imported alcoholic beverages was considered by theUnited States to be the equivalent of an import duty.

For textiles and apparel (Chapter 5, Article 3.17), under the FTA, there isan immediate elimination of tariffs for products that meet the yarn forward rule oforigin. This requires the products to be made from U.S. and/or Singaporeanoriginating yarn, with limited exceptions. For imports into the United States, allother assembly processes must be carried out in Singapore. (See "Rules of Origin"below.) The Singaporean industry is to work with U.S. yarn suppliers and is torestructure their manufacturing operations in order to benefit from the FTA. A"Tariff Preference Level" mechanism allows some amount of apparel exports fromSingapore to be exempted from the yarn forward rule for eight years. For suchexports, tariffs are to be phased out over five years. The United States also commitsto introduce more liberal rules of origin for textiles in the FTA assuming furtherliberalization on rules of origin is achieved in the World Trade Organization. Theagreement provides for extensive monitoring and anti-circumvention commitmentsby Singapore. The country is to establish a system to monitor the import, production,and export of textiles and apparel goods to include reporting, licensing, andunannounced factory checks so that only Singaporean textiles and apparel receivetariff preferences from the United States.

The Advisory Committee on Textiles and Apparel did not formally object tothe prospect of eliminating duties and quotas on imports in this sector fromSingapore. The committee pointed out that U.S. import quotas in textiles and apparelare due to be eliminated anyway on January 1, 2005 under the World TradeOrganization (WTO) Agreement on Textiles and Clothing. The committee also didnot anticipate that Singapore would become a major trading partner in the textile andapparel sector. (21)

Antidumping or countervailing duties that have been imposed throughunfair trade (such as unfair foreign pricing and government subsidies) or otherdomestic laws would not be covered by the FTA (Footnote 7-1). As of March 2003,the only antidumping duty order in place by the United States vis-a-vis products fromSingapore was for ball bearings. (22)

Rules of Origin

As indicated in the provisions for textiles and apparel above, the agreementcontains rules of origin designed to ensure that only U.S. and Singaporean goodsbenefit from the agreement (Chapter 3). These rules are considered to be vital sinceSingapore is a major transshipment port and also imports large quantities of primaryand intermediate products that subsequently become part of exported items. Onlyexports with substantial transformation and value added done in Singapore can beconferred "Singapore origin" and qualify for the FTA tariff rates.

In the industry review of the FTA, the Industry Sector Advisor Committee onTextiles and apparel reported that the most significant interest and sharp divisionamong Committee members revolved around the rules of origin and the issue ofwhether they might become a precedent for other trade agreements. The fiber, yarnand textile members largely supported the requirements of a yarn forward rule thatgrants benefits only to the signatories of the agreement, and not to third parties. Theybelieve this condition is an appropriate precedent for future trade agreements, andsince they felt it largely paralleled the North America Free Trade Agreement, it couldcreate parity among U.S. trading partners. The industry did, however, expressconcerns over what they considered to be high tariffs levels in the stages of theagreement that could undermine the origin rules in the early years of theagreement. (23)

In contrast, apparel members largely expressed disappointment with theFTA, because they considered the NAFTA rule of origin as restrictive and that itwould be made worse by additional complications and burdens. They argued that therule of origin discourages apparel trade among the beneficiary countries, which willin turn diminish sales opportunities for fabric and trim suppliers. They urged that therule of origin in this FTA not be seen as a precedent for other FTAs.

The FTA provides for imported inputs used in the manufacture of the finalproduct within Singapore to be classified under a different tariff classification fromthe final product. For some electronic products, the origin is Singapore if a certainpercentage of the value added (typically 35-60%) is done in Singapore. Overheadactivities performed in Singapore, such as R&D, design, engineering, purchasing, cancount toward the value added. Chemicals and petrochemicals are to be consideredof Singapore origin if a specified process occurs in Singapore -- such as a specificchemical reaction. In order to claim tariff preferences under the FTA, the U.S.importer must declare that the good is of Singapore origin. Customs authorities onboth sides are to provide advance rulings on the origin of goods.

The FTA contains an Integrated Sourcing Initiative (ISI) [Article 3.2(1-2)],a provision that applies to items that already trade duty free for the two countriesunder the World Trade Organization's Information Technology Agreement (signedby 29 nations). The integrated sourcing initiative also includes certain medicaldevices. The FTA list of products under the initiative comprise 155 line items fromthe tariff code and include products, such as automatic data processing machines,magnetic discs, integrated circuits, video cameras, optical fibers, semiconductormanufacturing machinery, network equipment, and instruments and appliances usedin medical sciences. Such products are to be treated as being of Singapore originwhen they are shipped from Singapore. Qualifying information technology andmedical components manufactured on the Indonesian islands of Batam or Bintan, inparticular, and exported to the United States either in products assembled inSingapore or through that country would be considered to be of Singapore origin ifthey met the rules of origin requirement in the FTA. This initiative was included atthe request of the U.S. side and is designed to help American companies capture thecomplementarities between Singapore and its suppliers and to eliminate extrapaperwork, fees, and red tape. (24) It would have no effect on duties paid, but itwould allow the articles to escape the U.S. customs user fees of about 0.23% of thevalue of the import.

Critics of the ISI as originally drafted pointed out, however, that since theFTA text did not restrict the application of the provision to the two Indonesianislands of Batam and Bintan, it potentially could be open to any nation, includingChina. In response to this concern, some language dealing with the ISI was deletedbefore the final agreement was signed. The draft language was in Article 3.2 of theagreement and referred to Annex II that in the final text is referred to as Annex 3B. It said, "A good listed in Annex II shall be considered an originating material forpurposes of satisfying the requirements specified in Annex I" [rules of origin]. Thatsentence is absent in the final text. The final text states only that "Each Party shallprovide that a good listed in Annex 3B is an originating good when imported into itsterritory from the territory of another Party. [Article 3.2 (1)]. This is interpreted bythe U.S. Trade Representative to mean that in order for a third Party to takeadvantage of the ISI, it would have to ship a qualifying product from the UnitedStates to Singapore to be incorporated into a product subject to the regional contentrequirement and then shipped back to the United States.

Labor interests have also objected to this integrated sourcing initiativebecause the labor, environmental, or other provisions in the FTA would not apply tofactories located outside of Singapore. Indonesia also would not be required toprovide any reciprocal access to U.S. companies. There additionally is concern thatthe sourcing initiative may attract more U.S. investment to Indonesia to takeadvantage of the low labor and other costs there. The FTA also states that within sixmonths after entry into force of the agreement, the Parties are to meet to explore theexpansion of the product coverage covered by the sourcing initiative [Article3.2(2)]. (25) The implementing legislation establishes theneed for congressional approval for the expansion of the list of products coveredunder the Initiative.

Under the FTA, the United States is to immediately waive its MerchandiseProcessing Fee for all Singaporean exports (currently worth $30 million) and alsoits Vessel Repair Duty for Singapore (currently worth $4 million).

Trade in Services

Since Singapore already is basically a free-trade state, much of thenegotiations over the FTA dealt with access to its services markets. The FTAaccords substantial market access across each other's entire services sector, subjectto few exceptions that must be in writing -- the so-called negative list approach(Chapter 8). The exceptions deal with sectors that usually require governmentcertification or licenses (lawyers, accountants), involve governmental institutions(airports, provision of social security, public hospitals, government corporations), orinvolve national policy (atomic energy). Appendix C lists the sectors reserved byeach country.

Each country is to give treatment to the other country's services suppliers ona par with its own suppliers or other foreign suppliers. This equal andnon-discriminatory treatment is to apply to both cross-border transactions (such asthose delivered electronically or through the travel of services professionals) and todirect investments and foreign operations. The FTA also includes a mechanism tolock in future liberalization of exempted measures, including exempted measures ofindividual U.S. states.

In the FTA, traditional market access to services is supplemented by strongand detailed disciplines on regulatory transparency. Regulatory authorities are to bebound to high standards of openness and transparency, including consultations withinterested parties before issuing regulations, providing advance notice and reasonablecomment periods for proposed rules, and the publication of all regulations.

Market access commitments apply across a range of service sectors, includingbut not limited to:

Financial services including banking, insurance, securities andrelated services

Computer and related services

Direct selling

Telecommunications services

Audiovisual services

Construction and engineering

Tourism

Advertising

Express delivery

Professional services (architects, engineers, accountants, etc.)

Distribution services, such as wholesaling, retailing andfranchising

Adult education and training services

Environmental services

Energy services

U.S. firms have the right to own equity stakes in entities that may be createdif Singapore chooses to privatize certain government-owned services. The benefitsof the FTA are to be extended to all U.S. and Singaporean companies that are notshell companies, regardless of ownership.

U.S. Banks. The financialservices chapter includes core obligations of non-discrimination, most-favored nationtreatment, and additional market access obligations (Chapter 10). In Singapore, thecurrent ban on new licenses for full-service banks (qualifying full banks) is to belifted within 18 months, and within three years for "wholesale" banks that serve onlylarge transactions. Licensed full-service banks are to be able to offer all theirservices at up to 30 locations in the first year and at an unlimited number of locationswithin two years. Locally incorporated subsidiaries of U.S. banks are to be able toapply for access to the local automated teller machine (ATM) network on commercialterms within 2.5 years. Branches of U.S. banks are to obtain access to the ATMnetwork in four years.

U.S. Insurance Companies. U.S.insurance firms are to have full rights to establish subsidiaries, branches or jointventures. Singapore is to end its prohibition on foreign firms supplying insurancefrom outside of Singapore. U.S. firms are to be able to sell marine, aviation andtransport (MAT) insurance, reinsurance, insurance brokerage of reinsurance andMAT insurance, and insurance auxiliary services. A new principle of expeditedavailability of insurance services will mean that prior regulatory product approvalwill not be required for insurance sold to the business community. Expeditedprocedures are available in other cases when prior product approval is necessary. Branches of Singapore's insurance companies, however, will still not be permittedto provide surety bonds for U.S. Government contracts.

Securities and Related FinancialServices. U.S. financial institutions are to be able to offer financialservices to citizens participating in Singapore's privatized social security systemunder more liberal requirements. U.S. firms are to be able to provide asset andportfolio management and securities services in Singapore through the establishmentof a local office or by the acquisition of local firms. U.S. firms are to be able tosupply pension services under Singapore's privatized social security system withliberalized requirements regarding the number of portfolio managers that must belocated in Singapore. U.S.-based firms are to be able to sell portfolio managementservices through a related institution in Singapore. Singapore is to treat U.S. firmsthe same as local firms for the cross-border supply of financial information, advisoryand data processing services.

Express Delivery Services. TheFTA provides for liberalization of express delivery services and other related services(that are part of an integrated express delivery system) (Article 4.10). This isintended to allow a more efficient and expedited express delivery business inSingapore. Singapore commits that it will not allow its postal service tocross-subsidize express letters with revenues from its monopoly services.

U.S. Professionals. Singapore isto ease restrictions on U.S. firms creating joint law ventures to practice in Singaporeand is to recognize degrees earned from four U.S. law schools for admission to theSingapore bar (Side letter on Legal Services). Singapore is to reduce its board ofdirector requirements (on the make-up of boards of directors) for architectural andengineering firms and phase out capital ownership requirements for land surveyingservices. The requirements for registration and certification of patent agents inSingapore are to be liberalized. Both sides are to engage in consultations to developmutually acceptable standards and criteria for licensing and certification ofprofessional service providers, especially with regard to architects and engineers(Article 15.9).

Telecommunications Market. TheFTA includes a full range of commitments on telecommunications services andprovides for open markets consistent with the regulatory regimes of the two nations(Chapter 9). (26) Users of each telecom network are guaranteedreasonable and non-discriminatory access including submarine cable landing stations,with transparent and effective enforcement by the telecommunications regulators. This is to prevent local firms from having preferential or "first right" of access totelecom networks. U.S. phone companies are to obtain the right to interconnect withnetworks in Singapore in a timely fashion and on terms, conditions, and cost-orientedrates that are transparent and reasonable. U.S. firms seeking to build a physicalnetwork in Singapore are to be granted non-discriminatory access to buildings thatcontain telephone switches and submarine cable heads. U.S. firms are to be able tolease elements of Singaporean telecom networks on non-discriminatory terms and tore-sell telecom services of Singaporean suppliers to build a customer base.

The FTA also opens rule-making procedures of Singapore's telecomregulatory authority and requires publication of inter-connection agreements andservice rates. Singapore is to make a commitment that when competition emergesin a telecom services area, that area is to be deregulated. The agreement specifiesthat companies, not governments, make technology choices, particularly for mobilewireless services, thus allowing firms to compete on the basis of technology andinnovation, not on government-mandated standards. Both sides are to work towardimplementing a comprehensive arrangement for the mutual recognition of conformityassessment for telecommunications equipment.

E-Commerce and DigitalProducts. (Chapter 14) Singapore and the U.S. agreed to provisionson e-commerce (electronic, Internet-based commerce) that reflect the issue'simportance in global trade and the principle of avoiding barriers that impede the useof e-commerce. The agreement establishes explicit guarantees that the principle ofnon-discrimination applies to products delivered electronically (software, music,video, or text), there by providing equal treatment to U.S. firms delivering digitalproducts via the Internet. It also establishes a binding prohibition on customs dutiescharged on digital products delivered electronically, such as legitimate downloads ofmusic, videos, software or text. For digital products delivered on hard media (suchas a DVD or CD), customs duties are to be based on the value of the media (e.g., thedisc), not on the value of the movie, music or software contained on the disc or othercarrier medium.

The e-commerce text in the FTA makes binding a number of commitmentsthat are now only voluntary or temporary in the World Trade Organization. Itaffirms that any commitments made related to services in the agreement also extendto the electronic delivery of such services, such as financial services delivered overthe Internet. In essence, both sides agreed to the non-discriminatory treatment ofdigital products and the permanent duty-free status of products deliveredelectronically. This was the first time such commitments were included in aninternational trade agreement and may set a precedent for services liberalizationefforts in the WTO and in other FTAs.

Investment. (Chapter 15) Theagreement is to provide a secure, predictable legal framework for investors operatingin each other's economy. All forms of investment are protected under the agreementunless specifically exempted. U.S. investors are provided treatment as favorable aslocal Singaporean investors or any other foreign investor. Pursuant to U.S. TradePromotion Authority, the agreement draws from U.S. legal principles and practicesto provide U.S. investors a basic set of substantive protections that Singaporeaninvestors currently enjoy under the U.S. legal system.

Among the rights afforded to investors (consistent with those found in U.S.law) are due process protections and the right to receive a fair market value forproperty in the event of an expropriation, whether direct or indirect. The agreementprohibits and removes certain performance-related requirements or restrictions oninvestors, such as limitations on the number of locations or requiring an investor toexport a given level of goods and services as a condition for the investment.

The FTA ties investor protections to standards developed under customaryinternational law, but environmentalists and business representatives reportedly differon what this standard means and on whether it sets parameters that exceed or fallshort of the standard in U.S. law (which TPA or fast-track legislation boundnegotiators not to exceed). As for indirect expropriation, the FTA incorporates thetest used by the U.S. Supreme Court for regulatory taking. The Singapore FTAdiffers from the various clarifications to the North America Free Trade Agreement(NAFTA) in that it obligates Singapore and the United States to give investorstreatment in accordance with "customary international law" rather than in accordancewith "international law." The latter was the formulation included in NAFTA whichhas been read by NAFTA panelists to include obligations under other internationalagreements such as the World Trade Organization. Such interpretations are explicitlyrejected in the Singapore FTA by inclusion of text which holds that a breach of otherprovisions of the FTA or of other international accords does not constitute a violationof the minimum standard of treatment. The FTA also incorporates language from theclarification of NAFTA that says the customary international law minimum standardof treatment of aliens is the standard that investors must be accorded and thatobligations in the agreement to provide "fair and equitable" treatment and "fullprotection and security" do not create substantive obligations over and above thatstandard. (27)

Another matter of considerable dispute during the negotiations was investorrights. The issue concerned the recourse for investors should the government taketheir property or affect their operations in a way that violates the agreement. TheFTA includes an investor-to-state mechanism under which investors aggrieved bygovernment actions that are in breach of obligations under the FTA have the right totake the dispute directly to an international arbitration tribunal for resolution. Thisis to provide an impartial and transparent procedure for dispute settlement. Submissions to dispute panels and panel hearings are to be open to the public, andinterested parties are to have the opportunity to submit their views. Singaporeaninvestors who enter into investment agreements with the federal government, afterthe entry into force of the FTA, are to be able to take applicable disputes directly tointernational arbitration for resolution.

Intellectual Property Rights (IPR). (Chapter 16) According to the U.S. Trade Representative, the protection ofcopyrights, patents, trademarks and trade secrets under the FTA goes farther thanprevious free-trade agreements. The FTA also enhances enforcement of intellectualproperty rights. Non-discrimination obligations apply to all types of intellectualproperty. The FTA ensures government involvement in resolving disputes betweentrademarks and Internet domain names (important to prevent "cyber-squatting" oftrademarked domain names). It also applies the principle of "first-in-time,first-in-right" to trademarks and geographical indicators (place-names) applied toproducts. This means that the first to file for a trademark is granted the first right touse that name, phrase or geographical place-name. It also streamlines the trademarkfiling process by allowing applicants to use their own national patent/trademarkoffices for filing trademark applications.

The FTA ensures that only authors, composers and other copyright ownershave the right the make their works available online. Copyright owners maintainrights to temporary copies of their works on computers. (This was aimed atprotecting music, videos, software, or text from widespread unauthorized sharing viathe Internet). Copyrighted works and phonograms are protected for extended terms,consistent with U.S. standards and international trends. The FTA also containsanti-circumvention provisions aimed at preventing the tampering with technologies(such as embedded codes on discs) that are designed to prevent piracy andunauthorized distribution over the Internet. It also ensures that governments use onlylegitimate computer software (in order to set a positive example for private users). Singapore is to prohibit the production of optical discs (CDs, DVDs or software)without a source identification code unless authorized by the copyright holder inwriting.

Under the FTA, protection for encrypted program-carrying satellite signalsextends to the signals themselves as well as the programming. This is designed toprevent piracy of satellite television programming. Both sides agreed to criminalizeunauthorized reception and re-distribution of satellite signals. The FTA also containslimited liability for Internet Service Providers (ISPs) -- reflecting the balance struckin the U.S. Digital Millennium Copyright Act (28) betweenlegitimate ISP activity and the infringement of copyrights. In essence, both sides areto provide immunity to Internet service providers for complying with notification andtake-down procedures when material suspected to be infringing on copyright ishosted on their servers.

The FTA provides for a patent term to be extended to compensate for up-frontadministrative or regulatory delays in granting the original patent, consistent withU.S. practice. The grounds for revoking a patent are limited to the same groundsrequired to originally refuse a patent. This is to protect against arbitrary revocation. It also provides protection for patents covering biotech plants and animals. Singapore is to accede to the International Convention for the Protection of NewVarieties of Plants. The FTA also provides for protection against imports ofpharmaceutical products without a patent-holder's consent by allowing lawsuits whencontracts are breached.

Under the FTA, test data and trade secrets submitted to a government for thepurpose of product approval are to be protected against disclosure for a period of fiveyears for pharmaceuticals and 10 years for agricultural chemicals. The FTA alsocloses potential loopholes to these provisions and is designed to ensure thatgovernment marketing-approval agencies will not grant approval to patent-violatingproducts.

Under the FTA, there are criminal penalties for companies that make piratedcopies from legitimate products. The Singaporean government guarantees that it hasauthority to seize, forfeit and destroy counterfeit and pirated goods and the equipmentused to produce them. IPR laws are to be enforced against traded goods, includingtrans-shipments, to deter violators from using U.S. or Singaporean ports or free-tradezones to traffic in pirated products. The FTA mandates both statutory and actualdamages under Singaporean law for IPR violations (as a deterrent against piracy) andprovides that monetary damages be awarded even if actual economic harm (retailvalue, profits made by violators) cannot be determined. Singapore is to cooperate inpreventing pirated and counterfeit goods from being imported into the United States.

Another IPR related issue deals with licenses to copy patented drugs. TheFTA sharply restricts Singapore from using compulsory licenses to copy patenteddrugs and sets up new barriers to the import of patented drugs sold at lower prices inthird countries. These provisions may strengthen protections for U.S. drugcompanies in ways that were explicitly disallowed in the World Trade Organizationby the Doha declaration on intellectual property rights and public health. (29) Some alsoclaim that new limits on compulsory licensing of patented drugs could impedeSingapore's ability to use cheaper generic alternatives. However, pharmaceuticalindustry representatives reportedly have welcomed the agreement's patentprovisions. (30)

Competition Policy. (Chapter 12) The FTA commits Singapore to enact a law regulating anti-competitive businessconduct and to create a competition commission by January 2005. Specific conductguarantees are imposed to ensure that commercial enterprises in which the Singaporegovernment has effective influence will operate on the basis of commercialconsiderations and that such enterprises will not discriminate in their treatment ofU.S. firms. That is, Singapore commits to maintain its existing policy of notinterfering with the commercial decisions of Government Linked Companies andalso to provide annual information on those with substantial revenues or assets.

Government Procurement. (Chapter 13) Under the FTA, both sides are committed to allowing market accessby service suppliers of the other country unless specifically reserved (a "negative list"approach in which U.S. and Singaporean firms are to gain nondiscriminatory accessunless specifically excluded). The monetary thresholds for when governmentprocurement disciplines apply are lowered for all procurement contracts for goodsand non-construction services to $56,190 (102,710 Singapore dollars) and forconstruction procurement contracts to $6,481,000 (S$11,376,000). These amountsare adjusted biennially for inflation. Under the 1997 Government ProcurementAgreement in the World Trade Organization, both Singapore and the United Stateshad already lowered their thresholds to $178,000 for goods and non-constructionservices and to $6,850,000 for construction services. Additional commitments bySingapore include strong and transparent disciplines on procurement procedures(such as requiring advance public notice of purchases) as well as timely and effectivebid review procedures.

Customs Procedures. (Chapter4) The U.S.-Singapore FTA is among the first U.S. trade agreements with specific,concrete obligations on how customs procedures are to be conducted. The agreementrequires transparency and efficiency in customs administration with commitments topublish customs laws and regulations on the Internet and to ensure proceduralcertainty and fairness. Both parties agreed to share information to combat illegaltrans-shipment of goods. In addition, the agreement contains specific languagedesigned to facilitate clearance through customs of express delivery shipments.

Temporary Business Personnel andWorkers. (31) (Chapter 11) The U.S.-Singapore FTA createsseparate categories of entry for citizens of each country to engage in a wide range ofbusiness and investment activities on a temporary basis, i.e., nonimmigrants. TheFTA addresses four specific categories of temporary nonimmigrant admissionscurrently governed by U.S. immigration law: business visitors; treaty traders;intracompany transfers; and professional workers. These categories parallel the visacategories commonly referred to by the letter and numeral that denotes theirsubsection in Â§101(a)(15) of the Immigration and Nationality Act: B-2 visitors, E-1treaty traders, L-1 intracompany transfers, and H-1B professional workers. (32) NeitherParty is to require labor certification or other similar procedures as a condition ofentry and is not able to impose any numerical limits on these categories, with someexceptions noted for the professional workers (including a cap of 5,400 per fiscalyear). (33)

The FTA states the desire to facilitate the temporary entry of persons fittingthese categories, provided the person complies with applicable immigration measuresfor temporary entry (e.g., public health and safety as well as national security).Singaporean citizens who are business visitors, for example, would be able to enterthe United States for business purposes on the basis of an oral declaration or letterfrom the employer specifying the principal place of business -- detailing in the FTAan admissions policy not currently specified in statute.

Title IV of S. 1417 / H.R. 2739 amended severalsections of the Immigration and Nationality Act (INA, 8 U.S.C.). Foremost, the billsamended Â§101(a)(15)(H) of INA to carve out a portion of the H-1B visas -- to bedesignated the H-1B-1 visa -- for professional workers entering through the FTA. Inmany ways the FTA professional worker visa requirements parallel the H-1B visarequirements, notably having similar educational requirements. The H-1B visa,however, specifies that the occupation require highly specialized knowledge, whilethe FTA professional worker visa specifies that the occupation require onlyspecialized knowledge.

The bills also amend Â§212 of INA to add a labor attestation requirement foremployers bringing in potential FTA professional worker nonimmigrants that issimilar to the H-1B labor attestation statutory requirements. The additionalattestation requirements for "H-1B dependent employers" currently specified in Â§212are not included in the labor attestation requirements for employers of the FTAprofessional worker nonimmigrants.

S. 1417 / H.R. 2739 contains numerical limits of5,400 new entries per fiscal year under the FTA professional worker visa fromSingapore. The bills do not limit the number of times that an alien may renew theFTA professional worker visa on an annual basis, unlike H-1B workers who arelimited to a total of six years. The bills would count a FTA professional workeragainst the H-1B cap the first year he/she enters and again after the fifth year he/sheseeks renewal. Although the foreign national holding the FTA professional workervisa would remain a temporary resident who would only be permitted to work for anyemployer who had met the labor attestation requirements, the foreign national witha FTA professional worker visa could legally remain in the United States indefinitely.

On July 10, 2003, the House Judiciary Committee held a "mock" mark-up ofthe USTR's draft language. Chairman Sensenbrenner took the lead in stating that"immigration policy does not belong in free trade agreements," citing Congress'splenary authority over immigration policy in Article 1, Â§8 of the U.S. Constitution. Members on both sides of the aisle expressed agreement with ChairmanSensenbrenner's position, with several Members going further to state that the draftlanguage was an "insult to Congress." The House Judiciary Committeerecommended including the FTA professional workers in the H-1B nonimmigrantvisa and counting an FTA professional worker against the H-1B cap the first yearhe/she enters and again after the fifth year he/she seeks renewal. Theserecommendations are reflected in the legislation as introduced.

Title IV of S. 1417 / H.R. 2739 also amended theINA to include citizens of Singapore as E-1 treaty traders and E-2 treaty investors.

The USTR maintains that ensuring cross-border mobility of professionals andother business persons is critical for U.S. companies in developing new markets andbusiness opportunities abroad. The USTR further argues that the temporary businesspersonnel provisions in the FTAs are not immigration policy because they only affecttemporary entry. The USTR points out that it issued a notice of intent to negotiateprovisions to facilitate the temporary entry of business persons in October 2001 andthat it briefed congressional staff on the FTA provisions on numerous occasions.

Others express concern that the USTR has overreached its negotiatingauthority by including immigration provisions in the FTAs. Critics maintain that theUSTR's assertion that temporary entry of foreign business personnel and professionalworkers is not immigration policy is disingenuous. More generally, some point outthat these provisions could constrain current and future Congresses when theyconsider revising immigration law on business personnel, treaty investors and traders,intracompany transfers, and professional workers because the United States wouldrun the risk of violating the FTA.

The specific issue of FTA professional workers has sparked the most debate.The Labor Advisory Committee, one of six private sector advisory committees forthe USTR, is critical of the provisions on the temporary entry of business personneland professional workers because it appears to enable workers from Singapore whohave no direct employment except a service contract to enter the United States. (34) Other haveexpressed concern that professional workers from Singapore would be held to a lessstringent standard than existing H-1B law ( specialized knowledge versus highly specialized knowledge ) and that the stricter attestation requirements for H-1Bdependent employers would also be omitted.

The USTR argues that it is incorrect to assert that the labor attestationsrequired under the FTA would be less rigorous than the LCA called for under currentU.S. law. According to the USTR, the labor attestation required under the FTA alsois to be modeled after the LCA that the Department of Labor requires under theexisting H-1B visa program, and (as is the case under the H-1B program) fees maybe collected along with the labor attestations. (35) The USTRstates that the labor attestations, education and training fees, and numerical limitsprovisions have been added to the FTAs in response to congressional concerns.

Issues surrounding legal authority to enforce immigration law also arose. Some questioned whether Â§106 and Â§107 of the legislation would enable aninternational panel to overrule decisions by officials in the Department of HomelandSecurity or by the Attorney General to reject visa applicants from Singapore. USTRresponds that the panel that would be established by the FTA would be bi-nationaland would only deal with cases brought by a Party to the agreement in which thereis alleged to be a pattern of violations.

Labor and Environmental Provisions

Environment. (Chapter 18) TheU.S. Trade Representative states that the agreement fully meets the environmentalobjectives set out by Congress in granting the President Trade Promotion Authority(TPA). (36) Environmental obligations are part of the coretext of the trade agreement. Both parties are to ensure that their domesticenvironmental laws provide for high levels of environmental protection and that theyare to strive to continue to improve such laws. The agreement makes clear that it isinappropriate to weaken or reduce domestic environmental protections to encouragetrade or investment. The agreement also requires that parties effectively enforce theirown domestic environmental laws. This obligation is to be enforceable through theagreement's dispute settlement procedures (see section on Dispute Settlement).

Worker Rights. (Chapter 17) Inthe FTA, labor obligations are part of the core text of the trade agreement. Bothparties are to reaffirm their obligations as members of the International LaborOrganization, and they are to strive to ensure that their domestic laws provide forlabor standards consistent with internationally recognized labor principles. Theagreement also contains language that it is inappropriate to weaken or reducedomestic labor protections to encourage trade or investment. The agreement furtherrequires parties to effectively enforce their own domestic labor laws. This obligationis to be enforceable through the agreement's dispute settlement procedures (seesection on Dispute Settlement).

The USTR claims that the FTA meets the labor and environmental objectivesset out by Congress in TPA legislation. The TPA ( P.L. 107-210 ) lays out labor andenvironmental objectives for trade negotiations [Section 2102(b)(11)]. Among themare to ensure that a party to a trade agreement with the United States does not fail toeffectively enforce its environmental or labor laws, through a sustained or recurringcourse of action or inaction, in a manner affecting trade between the United States;to strengthen the capacity of U.S. trading partners to promote respect for core laborstandards; and to strengthen the capacity of U.S. trading partners to protect theenvironment through the promotion of sustainable development. Some claim that theFTA does not achieve these objectives.

The labor and other provisions in the FTA have been criticized by theAFL-CIO. It claims that the agreement would likely lead to a deteriorating tradebalance, lost jobs, trampled rights and inadequate economic development. (37)

Joint Committee

The Agreement establishes a joint committee to supervise theimplementation of the Agreement and to review the trade relationship between theParties. The Committee consists of the U.S. Trade Representative and Singapore'sMinister for Trade and Industry or their designees. The Joint Committee is to meetonce a year in regular session and in special sessions within 30 days of a request byeither country. The Committee's responsibilities include (among other tasks)reviewing the functioning, operation, and implementation of the Agreement in thelight of its objectives; facilitating the avoidance and settlement of disputes arisingunder the Agreement; considering and adopting any amendment to the Agreement,subject to completion of necessary domestic legal procedures by each Party; issuinginterpretations of the Agreement; and considering ways to further enhance traderelations between the Parties.

Consultations

The United States or Singapore may request consultations with the other Partywith respect to any matter that it considers might affect the operation of theAgreement, and each commits to reply promptly to the request for consultations andenter into consultations in good faith.

Dispute Settlement

All core obligations of the agreement, including labor and environmentalprovisions, are to be subject to the dispute settlement provisions of the Agreement(Chapter 20). The dispute panel procedures are considered by the negotiators tocontain high standards of openness and transparency and include:

Public hearings;

Public release of legal submissions by parties;and

Rights for interested third parties to submitviews.

The emphasis in the agreement is on promoting compliance throughconsultation and trade-enhancing remedies rather than on trade sanctions or otherpenalties for non-compliance. The agreement contains an enforcement mechanismthat includes monetary penalties to enforce commercial, labor, and environmentalobligations of the trade agreement.

The non-implementation phase [Article 20:7] of the dispute settlementprocedure is somewhat different for cases dealing with labor and the environment . Up to the point where a dispute panel issues its report but the Party in violation doesnot implement it, the procedures are the same regardless of the nature of thecomplaint. In a case where a dispute panel finds that a Party has not conformed withits obligations with respect to labor [Article 17:2.1(a)] or the environment [Article18.2.1(a)], and the Parties are (a) unable to reach agreement on a resolution or (b)have agreed on a resolution but the complaining Party considers that the other Partyhas failed to observe the terms of the agreement, the complaining party may requestthat the dispute panel be reconvened to impose an annual monetary assessment on theother Party. The panel is to determine the amount of the monetary assessment within90 days after it reconvenes not to exceed $15 million dollars annually (adjusted forinflation after 2004 by the U.S. Producer Price Index). Some have argued that $15million is too small an amount. Note that for other types of disputes, the monetaryassessments are to be set at a level equal to 50% of the level of the benefits thedispute panel has determined to be of equivalent effect, or, if there is no suchdetermination, 50% of the level the complaining Party has proposed to suspend. Ifthe monetary assessment is not paid, the complaining party may suspend tariffbenefits under the Agreement up to the level the panel has determined. In 2002, theUnited States collected $87.5 million in duties on imports from Singapore. Some ofthese duties could be reimposed in order to collect an unpaid monetary assessment.

Capital Controls

The final issue that was negotiated in the FTA dealt with controls on capitaloutflows and their relationship to the dispute settlement mechanism. In the 1997-99Asian financial crisis, short-term capital fled countries, such as Thailand and SouthKorea, and their governments could not defend their exchange rates. Portfolioinvestors, not only lost asset value as stock markets declined in these countries, butunless they could convert their local-currency investments into dollars, they also lostwhen the currency depreciated. In addition to foreign investors, local wealth holdersalso rushed to convert their liquid capital into foreign currencies. As a result, overa short period of time the Thai baht and South Korean won lost 40% of their value,while the Indonesian rupiah dropped nearly 70%. In the FTA negotiations overcapital controls, the Singaporean government reportedly wanted to retain the latitudein policy to intervene to stem such catastrophic losses should a future crisis occur.

The language in the U.S.-Singapore FTA reportedly was patterned after thatcontained in the sister U.S.-Chile FTA. The FTA breaks capital outflows into twocategories -- outflows related to foreign direct investment (such as the repatriationof profits, dividends, proceeds from the sale of an asset, and loan or bond payments)and other capital outflows. If Singapore were to impose a restriction on outflows ofFDI-related capital, the FTA provides for a six-month "cooling off period" beginningwhen the capital restriction was applied before an investor could challenge thatrestriction and submit a claim for arbitration. Investors, however, could sue for fulldamages. (38)

For restrictions on other capital outflows (including short-term portfolioinvestments and other liquid assets), the "cooling off period" would be one year. Ifthe restriction imposed did not "substantially impede" capital flows, then Singaporewould not be liable for any damages for 364 days after the measure was imposed. Ifan investor won a dispute settlement case, any damages would be calculatedbeginning the 365th day. If the restriction did "substantially impede" capital flows,then Singapore would be held liable from the date the measure was imposed.

In a side letter (dated March 7, 2003), U.S. Under Secretary of Treasury forInternational Affairs John B. Taylor wrote to the Singapore Monetary Authorityproviding more detail on the term "substantially impede transfers." (39) He statedthat

without attempting to exhaustivelydefine the term, we agree, as a rebuttable presumption, that restrictive measures onoutward payments and transfers will be deemed not to substantially impede transfers,if they are applied on a national treatment and most-favored-nation basis, areprice-based, are not confiscatory, do not effectively prohibit or ban transfers over anyperiod of time, do not constitute a dual or multiple exchange rate practice, do notrestrict the sale or conversion of the assets to any other asset denominated inSingapore dollars, and do not otherwise interfere with the investor's ability to earna market rate of return in Singapore on the restricted assets. A measure will not bedeemed to substantially impede transfers by virtue of the fact that it relies onapproval procedures for outward payments and transfers, provided the approvalprocedures are based on objective and transparent rules, and investors have analternative means of making payments and transfers through a price-basedmechanism.

The letter further states that

if a measure is found to "substantiallyimpede transfers," the investor will have the burden of proving the existence andextent of diminution in its asset value as a consequence of the measure. If aninvestor can only speculate that the exchange rate would have been more favorableon the date when it was prepared to transfer its funds than when the funds weretransferred, and Singapore presents evidence that the exchange rate could have beeneven less favorable at that time had the measure not been imposed, the investor hasnot met its burden of proof.

The letter further states that "if a measure substantially impedes transfers, it shall notprevent investors from earning a market rate of return in Singapore on any restrictedassets."

Following approval of the FTA, the legal definition of "substantially impede"is likely to be determined in actual dispute settlement cases. It could be expected,however, that a directive, such as that by Malaysia in 1998, that prohibited investorsfrom accessing their funds would be considered a substantial impediment. (40)

Budgetary Impact

Since the FTA eliminates import tariffs on products from Singapore, it resultsin reduced collections of import duties which become revenues for the federalgovernment. In the Bush Administration's FY2004 budget, the estimated revenuelosses are as indicated in Table 3. The loss is estimated to be $20 million in FY2004,and it would rise to $79 million in FY2008 for a total loss over the FY2004-2008period of $268 million. The total duties collected on imports from Singaporeamounted to an estimated $110.2 million in 2000, $96.5 million in 2001, and $87.5million in 2002. (41)

Table 3. Estimated Revenue Losses to the FederalGovernment from Implementing the U.S.-Singapore Free TradeAgreement

(Million Dollars)

Source: U.S. Office of Management and Budget

Entry into Force

The Agreement came into force on January 1, 2004.

Termination

Either Party may terminate the Agreement by written notification to the otherParty, and such termination shall take effect six months after the date of thenotification.

Issues

A fundamental issue with respect to the U.S.-Singapore FTA was whether theUnited States should pursue free trade and investment relations on a bilateral basiswith the island nation of Singapore rather than maintaining existing trade practiceson both sides or pursuing more liberalized trade relations through other means. Alsoat issue has been the effects of these liberalized trade and investment flows on U.S.employment, imports and exports as well as access by U.S. businesses to Singapore'smarkets in services.

The underlying issue of whether the United States should pursue moreliberalized trade and investment relations with Singapore dovetails into the largerissue of globalization and its effects on the United States, particularly on labor andwages. Those opposed to greater interaction with the global economy, perhaps toinclude Singapore, generally point to increasing competition from imports, theaccompanying threat to economic security in certain industries, particularlylabor-intensive industries with significant U.S. production, the rising U.S. tradedeficit, and claimed negative effects of globalization (such as income maldistributionand increased pollution from industrialization).

Among the 31 Administration trade advisory committees , only the LaborAdvisory Committee did not endorse the U.S.-Singapore FTA. The labor committee rejected the proposed FTA (along with the U.S.-Chile FTA) stating that it repeated"the same mistakes of the North American Free Trade Agreement" and would likely"lead to the same deteriorating trade balances, lost jobs, trampled rights andinadequate economic development that NAFTA created."

The other 30 advisory committees, including the trade and environmentpolicy advisory committee, generally endorsed (or were neutral) on the agreement -- although there were dissenting opinions and reservations about particularprovisions. (42) The key Advisory Committee on Trade Policyand Negotiations strongly endorsed the agreement, stating that it believed the FTAstrongly promotes the economic interests of the United States and substantiallyachieves the overall and principal negotiating objectives set forth in the Trade Act of2002. The labor representative on that committee, however, dissented, saying thatit failed to meet the objectives in a number of areas, including labor and environment.

As for the benefits of FTAs, those in favor of trade and investmentliberalization, including FTAs, generally claim that it brings increased exportopportunities, greater business flexibility, and a more efficient economy. They alsopoint out that foreign countries usually have higher trade and investment barriers thanthose in the United States. Trade agreements, therefore, usually require greaterlowering of barriers by the foreign country than by the United States. They alsoargue that the United States may be in danger of being left behind as other nationsconclude FTAs that do not include the United States.

Several large corporations and business organizations have provided supportfor FTAs. The U.S. Chamber of Commerce provided input to the USTR on theissues that it thought should be covered in a final agreement. The US-Singapore FTABusiness Coalition, which includes membership by the Chamber of Commerce, theBusiness Roundtable, the National Association of Manufacturers, the Coalition ofService Industries, and about 100 U.S. companies and other organizations signaledtheir strong support for the FTA. (43)

The National Conference of State Legislatures representing U.S. state andlocal governments indicated its support for the U.S.-Singapore FTA provided that theFTA not infringe upon the U.S. federal system nor afford foreign investors greaterrights than those afforded U.S. investors and property owners as pertains to statelaws, local ordinances, and regulations. (44) This issue relates to the "no greater rights"language incorporated into the act providing Trade Promotion Authority to thePresident. (45)

As for the effect of trade with Singapore on the U.S. economy, a group of analysts have quantified the welfare impact of the FTA on the United States as apositive 0.19% of GNP, or about $18 billion. (46) For thepast three years, the United States has run trade surpluses with Singapore. The netmacroeconomic effect on U.S. employment of this trade, therefore, is generallypositive, although bilateral trade balances have little effect on overall U.S.employment levels. On a microeconomic level, however, the electronic equipmentand other machinery and equipment industries could experience greater importcompetition under the FTA.

The domestic apparel industry would appear to lose the most tariff andquota protection from imports under the FTA, but U.S. import quotas on textiles andapparel are already scheduled to be eliminated on January 1, 2005 under the WTOAgreement on Textiles and Clothing. The FTA agreement also contains strict rulesof origin that tend to neutralize effect on imports of the tariff reductions. In 2002, theUnited States imported from Singapore $233.79 million in knitted or crochetedarticles of apparel and clothing (HS 61) on which the duties totaled $43.4 million oran average duty rate of 18.6%. The United States also imported $42.3 million fromSingapore in other articles of apparel and clothing (not knitted or crocheted, HS 62)on which duties totaled $8.5 million for an average of duty rate 16.3%. (47) These ratesare relatively high.

Other significant terms of the agreement appear to be in greater access toSingapore's services market by U.S. companies. The agreement not only includesa lowering of regulatory barriers for U.S. subsidiaries operating in Singapore andlegal protections comparable to those in the United States, but it ensures thatU.S.-based companies will be able to sell their services (such as portfoliomanagement, consulting services, video, music, and software deliveredelectronically) without border barriers or customs fees. The Singaporean market,however, is relatively small and highly competitive.

Some have criticized bilateral FTAs because they can introduce economicinefficiencies by distorting trade flows . They tend to divert export and import tradetoward the countries involved. (48) For example, under the North American FreeTrade Agreement, some U.S. importers have turned to suppliers in Mexico ratherthan buying from Asia, and some manufacturers from Asia have relocated to Mexicoto take advantage of the tariff-free access to the North American market. Inefficiencies caused by such trade diversion, however, may be offset by gains inefficiency through trade creation -- additional trade generated by the existence of thelarger, unified market.

Several factors mitigate against significant trade creation or trade diversionbeing caused by the U.S.-Singapore FTA. Both Singapore and the United Statesalready have low trade barriers; the two markets are separated by long distances; andthe Singaporean economy is relatively small (population of 4.4 million in an arearoughly 3.5 times the size of the District of Columbia). Still the country boasts asubstantial economy with a GDP of about $88 billion or about the same size as thatof Oregon or South Carolina and two-way trade with the United States of roughly$30 billion. This trade, however, amounts to only 1.6% of total U.S. trade of $1,982billion. The US-Singapore FTA, therefore, does not seem likely to create asignificant amount of new U.S. exports or imports of goods.

Some trade diversion is possible under the FTA. Manufacturers currentlyproducing elsewhere in Asia could relocate to Singapore. However, with Singapore'sper capita income at $20,600, average hourly labor cost of $7.73 (compared with$5.55 in Taipei, Taiwan, $1.12 in Bangkok, Thailand, and $0.64 in Guangzhou,China), and office occupancy costs 67% higher than those in Guangzhou and 330%higher than those in Bangkok, (49) it seems unlikely that a great number of factorieswould move to Singapore to take advantage of the FTA. Attempted illegaltrans-shipments from regional producers, however, could increase. The FTAaddresses this potential problem with strengthened customs procedures.

Bilateral FTAs, moreover, also play a role in the trade liberalizing process . Currently, markets are opened primarily through multilateral negotiations under theWorld Trade Organization, through organizations such as APEC, or by sectoralinitiatives. Given the slowness of the WTO multilateral negotiating process and thelack of further progress on sectoral trade liberalization following the InformationTechnology Agreement (50) in 1996, countries can do an "end run" around theWTO and liberalize trade with other like-minded countries. The trade diversioncreated by such FTAs, however, unleashes pressures for governments to either createFTAs of their own or join into existing FTA arrangements. Traditionallyprotectionist countries, such as China or Japan, now are actively seeking FTA-typearrangements with other nations. Bilateral FTAs, therefore, can become buildingblocks, rather than stumbling blocks, to global trade liberalization.

FTA provisions on the temporary entry of business personnel andprofessional workers are raising concerns among many in the field of immigrationbecause immigration law traditionally is spelled out by Congress, not the executivebranch. Some maintain that the USTR has negotiated these immigration provisionswithout any authority or direction to do so from Congress. The Labor AdvisoryCommittee, in particular, was critical of the provisions on the temporary entry ofbusiness personnel and professional workers because it appears to enable workersfrom Singapore who have no direct employment except a service contract to enter theUnited States, and such visa programs, they argue, would be in addition to theexisting H-1B system without the existing Labor Condition Application (LCA)protections for domestic workers. (51) The mock markup sessions in the House andSenate Judiciary committees addressed this issue. (See discussion in the abovesection of this report on Temporary Business Personnel and Workers for details.)

More generally, some point out that these provisions bound by the FTA mayconstrain current and future Congresses when they consider revising immigration lawon business personnel, treaty traders, intra-company transfers, and professionalworkers because the United States would run the risk of violating the FTA.

In responding to the Labor Advisory Committee report, the USTR maintainedthat the temporary entry of professionals falls within Trade Promotion Authority Actobjectives regarding the opening of foreign country markets for U.S. services andinvestment, in particular to reduce or eliminate barriers that restrict the operations ofservice suppliers or the establishment or operations of investments. The USTRclaimed that ensuring cross-border mobility of professionals and other businesspersons is critical for U.S. companies in developing new markets and businessopportunities abroad. The USTR also argued that it is incorrect to assert that thelabor attestations required under the FTA would be less rigorous than the LCA calledfor under current U.S. law. According to the USTR, the labor attestation requiredunder the FTA also is to be modeled after the LCA that the Department of Laborrequires under the existing H-1B visa program, and (as is the case under the H-1Bprogram) fees may be collected along with the labor attestations. (52)

As discussed earlier in this report, the Integrated Sourcing Initiative alsohas generated some debate. At issue is the extent to which certain informationtechnology goods and medical equipment that trade duty free can be counted asSingaporean. Since the items already trade duty free, the ISI would allow them toavoid U.S. customs user fees of about 0.23% of the value of the import. Theinitiative was aimed at two Indonesian islands where many producers located inSingapore procure components. Indonesian manufacturers would not be covered bythe labor, environmental, and other provisions of the FTA. Indonesia also would notbe required to provide any reciprocal access to its markets. A concern was that othercountries, such as China, might also be able to use the provision to ship productthrough Singapore to the United States in order to avoid U.S. Customs Users fees. Some language dropped from the final text of the FTA appears to resolve this issue. In order for a third country to take advantage of the ISI, it would have to ship aqualifying product from the United States to Singapore to be incorporated into aproduct subject to the regional content requirement and then shipped back to theUnited States.

Also at issue is the extent to which particular provisions of theU.S.-Singapore FTA would be used as a template for FTA negotiations with othernations . Of particular concern are current negotiations with five countries of CentralAmerica, the Southern African Customs Union, Morocco, and with Australia, as wellas the proposed Free Trade Area of the Americas that would cover the Westernhemisphere. In many of these countries, labor and environmental standards areconsidered to be lower than those in Singapore.

The U.S.-Singapore FTA states that both parties are to ensure that theirdomestic environmental laws provide for high levels of environmental protectionand are to strive to continue to improve such laws. The agreement also requires thatthe parties effectively enforce their own domestic environmental laws. With respectto labor standards , both parties also are to reaffirm their obligations as members ofthe International Labor Organization. They are to strive to ensure that their domesticlaws provide for labor standards consistent with internationally recognized laborprinciples. The agreement further requires the parties to effectively enforce their owndomestic labor and environmental laws. These obligations are to be enforceablethrough the agreement's dispute settlement procedures but with financial penalties(capped in amount) for non-compliance. Labor interests point out that while theSingapore agreement commits the signatories to enforce their domestic labor laws,it does not actually commit the signatories to have labor laws in place, or to ensurethat their labor laws meet any international standard or floor. (53)

In terms of U.S. security interests , the FTA would add a formal economiclink to the security relationship with Singapore. In 1990 and 1992, Singapore signedaccess agreements that provide for limited U.S. use of air and naval facilities inSingapore. This was partly a result of the U.S. withdrawal of forces from thePhilippines. The 1990 Access Memorandum of Understanding (MOU) with theUnited States allows U.S. forces to operate resupply vessels from Singapore and touse the naval base and ship repair facilities at Sembawang port and the Paya Lebarmilitary airfield. A 1998 amendment to the MOU allows U.S. access to Singapore'snew deep-draft pier at Changi Naval Base. In 2001, the USS Kitty Hawk became thefirst foreign vessel to dock there. (54) While the FTA would not materially affect suchdefense cooperation, it could provide an economic rationale to maintain closerelations with Singapore on all fronts.

As for the anti-terror campaign, as Al Qaeda has been driven fromAfghanistan, some radical Islamist activity has shifted to Southeast Asia. This wasmanifest in the October 12, 2002, bombings in a nightclub district in Bali frequentedby western tourists as well as other attacks on civilian and military targets inIndonesia and the Philippines. Some analysts fear that Southeast Asia with itswidespread Muslim populations could become a haven for terrorists, a hotbed fortraining radical Islamists, a source of finance for terror operations, and a primelocation for so-called "soft terrorist targets," such as hotels, businesses, andtransportation facilities. In December 2001, the media reported that the Singaporeangovernment arrested members of a terrorist Jemaah Islamiah cell with extensive linksto Al Qaeda that allegedly was planning to blow up Western embassies, U.S. navalvessels, and a bus that transports American military service members. (55) Althoughthe FTA would not materially affect the anti-terror campaign, it would add a linkbetween Singapore and the United States that could enhance cooperation on certainissues (such as terrorist financing and customs inspections) and in determiningcourses of action on issues of interest to the United States in fora such as ASEAN,the ASEAN Regional Forum, and the Non-Aligned Movement. (56)

As a major shipping hub, Singapore also has taken measures to curb itspotential for becoming a transshipment point for illegal cargo bound for terroristbuyers, a loading point for hidden bombs in cargo containers, or a target point fordirect attacks on ships. As a member of the International Maritime Organization,Singapore already is implementing some of the anti-terrorism provisions of theInternational Ship and Port Facility Security Code (ISPS) and the Amendments to theInternational Convention for the Safety of Life at Sea (SOLAS), (57) both dueto come into effect in July 2004. For example, gamma-ray scanners reportedly aresoon to be used to screen containers passing through Singapore ports. (58)

In summary, since Singapore is a relatively small economy, the overalleconomic effects of the U.S.-Singapore Free Trade Agreement are not expected tobe great. The U.S. electronics equipment and other machinery and equipment sectorspotentially may face increased imports from Singapore, although U.S. agriculturalexporters may gain from more exports. The agreement would allow greater accessto Singapore's service sector, and some see it as a standard for additional FTAs withother nations. The debate over implementation of the FTA fell between business andfree-trade interests who favor more liberalized trade, particularly in services, andlabor or anti-globalization interests who oppose more FTAs because of the overallimpact of imports on jobs and the general effects of globalization on incomedistribution, certain jobs, and the environment.

Legislative Activity

House Committee on Financial Services, Subcommittee on Domestic andInternational Trade Policy, Trade, and Technology held a hearing entitled"Opening Trade in Financial Services -- The Chile and Singapore Examples." April 1, 2003.

House Committee on Energy and Commerce, Subcommittee on Commerce, Trade,and Consumer Protection held a hearing entitled "Trade in Services andE-Commerce: The Significance of the Singapore and Chile Free TradeAgreements." May 8, 2003.

House Committee on Ways and Means, Subcommittee on Trade held a hearingentitled "Hearing on Implementation of U.S. Bilateral Free Trade Agreementswith Chile and Singapore," June 10, 2003.

House Committee on International Relations, Subcommittee on Asia and The Pacificheld a hearing entitled "U.S. Trade and Commercial Policy in Southeast Asiaand Oceania," June 25, 2003.

S.Con.Res. 42 (Bond)/ H.Con.Res. 167 (Weldon). Aconcurrent resolution welcoming the Prime Minister of Singapore, expressinggratitude to Singapore for its strong cooperation with the United States in thecampaign against terrorism, and reaffirming the commitment of Congress tothe continued expansion of friendship and cooperation between the UnitedStates and Singapore. S.Con.Res. 42 passed the Senate on May6, 2003. Referred to the House.

H.R. 2739 , the United States-Singapore Free Trade AgreementImplementation Act, was introduced July 15, 2003, by Representative DeLay.

S. 1417 , the United States-Singapore Free Trade AgreementImplementation Act, was introduced July 15, 2003, by Senator Grassley.

House Ways and Means and Senate Finance Committees and House JudiciaryCommittee held mock markups of the draft implementing legislation for theU.S.-Singapore FTA. July 10, 2003. The Senate Judiciary Committee helda mock markup of the legislation. July 14, 2003.

House Judiciary Committee reported out H.R. 2739 by voice vote. July15, 2003.

House Ways and Means Committee and Senate Finance Committee approved H.R. 2739 , U.S.-Singapore Free Trade AgreementImplementation Act by a vote of 32-5. July 17, 2003.

Senate Finance Committee unanimously approved and ordered reported S. 1417 , the U.S.-Singapore Free Trade AgreementImplementation Act. Senate Judiciary Committee also approved the act. July17, 2003.

The House passed H.R. 2739 (United States-Singapore Free TradeAgreement Implementation Act) by a vote of 272-155 (Roll No. 432). Received in the Senate. Read twice. Placed on Senate Legislative Calendarunder General Orders. Calendar No. 226. July 24, 2003.

The Senate approved H.R. 2739 (United States-Singapore Free TradeAgreement Implementation Act) by a vote of 66 to 32 (Record Vote Number:318).

Appendix A. U.S. Imports from Singapore,Customs Value by Two-digit Harmonized System Commodity Codes2000-2002

(Million U.S. Dollars)

Source: U.S. Dept. of Commerce, Bureau of Census

Appendix B. U.S. Exports to Singapore byTwo-digit Harmonized System Commodity Codes, 2000-2002

(Million U.S. Dollars)

Source: U.S. Dept. of Commerce, Bureau of Census

Appendix C. Reserved Service Sectors/Activities(Subject to Restrictions, Licensing, Local Presence Requirements, etc.) for the UnitedStates and Singapore Under the U.S.-Singapore Free TradeAgreement

Source: Text of the U.S.-Singapore Free Trade Agreement.

Note: For details see text of the Agreement.