The signing of the EU-Singapore Free Trade Agreement (EUSFTA) marks a significant moment for the two dynamic economies and for Vietnam, which is currently in negotiations with Europe on a similar free trade agreement (FTA), HSBC Vietnam has said in a statement.
  EUSFTA opens ASEAN supply chain potential

The EUSFTA, which will eliminate virtually all tariffs and lowering non-tariff barriers between Singapore and Europe, will allow for some manufactured goods to have ASEAN cumulation.

This means that inputs sourced by Singapore businesses from other ASEAN member states – especially Vietnam - will be considered as domestic content for the determination of the origin of the final product made in Singapore.  In other words, certain inputs will come under Singapore’s zero tariff regime with Europe.

A high proportion of Singapore products have parts produced in other ASEAN countries. With the rule of ‘ASEAN cumulation’, more Singapore exports produced along intra-ASEAN value chains can benefit under the EUSFTA. This will have a significant impact for Singapore and for the ASEAN region including Vietnam - again in areas like electronics and pharmaceuticals, said Head of Wholesale Banking at HSBC Vietnam Winfield Wong.

ASEAN as an aggregate is the largest exporter to Singapore, with Singapore importing US$71.06 billion of goods from ASEAN in 2017.  At the moment, Singapore is the third biggest trade partner to Vietnam in ASEAN and the tenth biggest trade partner to Vietnam in the world.  The exports from Vietnam to Singapore includes majorly computers, electronic products and accessories, telephone sets and accessories, glass and glassware, machine, equipment and parts, textiles and garments etc.

Singapore is also Vietnam’s third-largest foreign investor and top ASEAN investor, with a cumulative investment of US$43 billion invested in more than 2,000 projects. Singapore’s investments in Vietnam cover many sectors including real estate, manufacturing, energy, logistics and services.

Following the construction of the first Vietnam-Singapore Industrial Park (VSIP) in 1994, now VSIP has operations across the southern, northern and central economic zones of Vietnam, attracting over US$10 billion in investments.

Electronics is one of ASEAN’s most important sectors directly employing more than 2.5 million workers.  According to the ASEAN Secretariat, the bulk of the world’s consumer electronics comes from the ASEAN region including 80% of the world’s hard drives which are produced in ASEAN countries. Singapore, Malaysia, Thailand, Vietnam, Philippines, and Indonesia account for over 90% of ASEAN industry exports. 
EUSFTA paves the way for Europe to establish FTAs with other ASEAN markets

The EUSFTA will be the first free trade agreement with a member of ASEAN and will act as a template for FTAs in other ASEAN markets.

Moreover, should the EU conclude additional FTAs with other ASEAN member states, regional cumulation will be further facilitated under specific conditions. The EU and Vietnam agreed on the final text for the EU-Vietnam Free Trade Agreement and the EU-Vietnam Investment Protection Agreement in July 2018. Vietnam has become the EU’s second biggest trading partner in the ASEAN after Singapore, with trade worth Euro 47.6 billion in 2017.

“Allowing other ASEAN countries to claim ASEAN cumulation will elevate the entire region’s trade competitiveness with Europe in effect delivering a super-regional supply chain,” Wong added.

The EU continues negotiations towards an FTA with Vietnam, Indonesia, Thailand and Malaysia, and has signed a trade deal with Japan which is now awaiting ratification.

In addition, HSBC Vietnam pointed out that the EUSFTA will be driving green activity within the corridor by removing trade and investment obstacles in green technology and removing duties on many environmental goods. This is important in ensuring Singapore and ASEAN businesses progress further along the green agenda.

Commenting on the need for ASEAN businesses to address Environmental, Social and Governance (ESG) standards in light of the EUSFTA, Wong noted Europe is leading the way in ESG adoption, and the bloc’s willingness to ensure its trading partners raise their own ESG standards is evident in the policies contained in the EUSFTA.

This has a wider consequence for ASEAN. Large European corporations will want to see a similar shift in their suppliers ESG stance. With ASEAN increasingly becoming the supply chain ‘factory’ for several European countries, suppliers in Vietnam of European clients will be expected to transform, or risk being left behind when further FTAs come into force, he added.