logo-primary.svg
ClickClickShip.png
Countries, international trade, TPP, Trans-Pacific Partnership Agreement

TPP101 Country profile: Singapore and Japan

Singapore: An Ongoing Partner

The Republic of Singapore is a financial hub of the world, and has been called the “easiest place to do business” by the World Bank Group for ten years in a row. Foreign businesses thrive in the city-state. Why is Singapore such a destination for business?

singapore

The list is long, but here are some of the standouts: effective legal system, intolerance of corruption, a AAA credit rating, no bureaucracy, and 21 free trade agreements. Singapore has been a strong trading partner with the United States for some time, and in 2013 the country was the US’ 13th largest export market. Currently, Singapore is the US’ 17th largest trading partner. The US and Singapore traded $49 billion worth of goods in 2013, with the US supplying items like machinery, oil, aircraft, and medical equipment and Singapore providing goods such as organic chemicals and electrical machinery. Singapore and the US already have a trade agreement, and in the ten years that the US-Singapore Free Trade Agreement has existed, the number American goods exported to Singapore has doubled. The US is also the primary foreign investor in Singapore – with more than 2000 American business headquarters pumping $144 billion worth of investments into the global city.

Singapore already has strong economic ties with many TPP countries, not only the US (remember, this is the republic that already has 21 free trade agreements). The TPP’s “rule of origin” will count parts and ingredients from other TPP countries in order for the final product to qualify for a lower tariff. For example, a Singaporean ice cream could qualify for a preferential tariff by using milk from Australia and cocoa from Mexico. This rule will have businesses from all the TPP countries examining how they choose their suppliers, and hopefully encourage even more trade between partners.

TPP countries represent 30% of Singapore’s foreign direct investment, as well as 30% - or $300 billion - of the country’s trade in goods. Singapore also has invested $110 billion with fellow TPP countries. With restrictions and tariffs relaxed due to the TPP, and an all-around better climate for business because of this large trade agreement, one can only imagine the benefit to be reaped by both Singapore and partner countries. Canada and Mexico alone are eliminating more than 95% of the tariffs Singapore’s exports once suffered thanks to the TPP. These two countries never authored a free trade agreement with Singapore, and are new markets for the city-state. The tariff on Singapore’s pharmaceuticals entering Mexico was very high (10-15%) – and now will be eliminated. And Singaporean companies that help facilitate trade between other countries will notice an uptick in business due to the overall increase of trade within TPP countries.

For Singapore, increased access to the US and Japan will be vital. The US’ small and medium sized enterprises will also benefit from the TPP in regards to Singapore. Since the city-state is already a premier destination to conduct business, and a gateway to Asian markets, the TPP will encourage these smaller American players to take advantage of the benefits that operating in Singapore has to offer. Likewise, Singapore’s small and medium sized businesses will also benefit from increased ease of trade with TPP countries – and all TPP countries have agreed to create measures that will help their small businesses with trade transparency and reduced corruption. Small and medium sized enterprises make up 99% of Singaporean businesses, and employ 70% of the people in Singapore. The TPP will directly benefit those businesses and workers, which is another reason this partnership is great for Singapore.

Japan: US's TPP jump-start partner

When it comes to Trans-Pacific Partnership countries, the US has just about the strongest ties with Japan. In fact, Japan along with the United States noticed unnerving trends in China that could have set the tone for all of Asia.

japan_small

The Chinese-founded Asia Infrastructure Investment Bank is a display of Chinese financial power, but practices in China remain detrimental to laborers, the environment, and open, honest trade. Instead of letting China set the standard for world trade, the two countries helped jumpstart the Trans-Pacific Partnership in the hopes of making trade in this highly dynamic area transparent and free of corruption and to bring more US influence to the region. The TPP took years to construct and ratify, and Japan did a fair share of the work.

Japan was the 4th largest exporter of American goods in 2013, to the tune of $65 billion. The US supplies Japan with many different goods, but the main categories are heavy machinery and medical equipment, and a whole lot of meat (about $3.3 billion worth). As with any good partnership, the US also benefits greatly from Japan’s products. The States’ imported $138.5 billion worth of goods from Japan in 2013, with cars topping the list at nearly $50 billion worth of Japanese cars entering the US. With the new rules of the TPP, Japanese automakers can now buy cheaper parts from non-TPP countries and sell the finished product with reduced tariffs to high-paying markets. The “rule of origin” is that only 45% of the vehicle has to be made within the TPP countries – so those cheaper car parts can come from China or other parts of Asia that aren’t in the TPP. Japan can then sell the entire car to TPP markets such as the US.

The TPP will help all Japanese businesses export and import goods and services more easily with their Pacific neighbors, but one group that will benefit greatly from the TPP is Japanese small businesses. New knowledge and techniques that naturally come with expanded trade will also benefit these small businesses by encouraging innovation and foreign direct investment.

FDI inflows to Japan were equivalent to a mere 0.1% of GDP in 2010-2013 on average, significantly lower than the OECD average of 1.9%. If FDI increases in Japan due to the TPP, Japan will see even more innovation and fresh business ideas, along with increased employment. Regulations on trade will relax with the TPP, so Japanese businesses can and will spread overseas to take advantage of new opportunities. The TPP is basically a shot in the arm for the Japanese economy.

Some, like political scientist Yasuyuki Todo, suggest that many small and medium sized enterprises in Japan are too timid to compete with international businesses, and that the Japanese government must do more to help these businesses harness the power of the TPP. The government can maximize the effectiveness of the TPP by promoting partnerships between businesses and universities, as well as concentrating on revitalizing Japan for foreign investment. For example, adding English to street signs in regional areas. He believes that focusing on other areas besides Tokyo will be helpful in growing all businesses and attracting more foreign investment – if a foreigner can live more easily in a region outside the main center of the country, they’ll be more likely to move their entire companies to that region. Japan has some of the most stringent food safety laws in the world – which have often been accused of being protectionism in disguise.  Therefore, even the average Japanese citizen should benefit from the TPP – lower tariffs on dairy and food will reach the consumer in the form of savings on the product. Japanese farmers, who may not be that enthusiastic about the TPP, will become more efficient in order to compete with foreign products and their now-lower tariffs.

Once the TPP is in full effect, we’ll see just how much the partnership benefits all of Japan

Subscribe to our blog