Issues & Insights Vol. 21 SR4, pp. 30 – 35

About this Volume

Authors of this volume participated in the inaugural U.S.- Singapore Next-Generation Leaders Initiative, sponsored by the U.S. Department of State, through the U.S. Embassy Singapore. With backgrounds from academia, public policy, civil society and industry, the cohort brings rich insights on the past, present, and future of the U.S.-Singapore relationship. Between September 2020 and August 2021, cohort members engaged with senior experts and practitioners as they developed research papers addressing various aspects of the bilateral relationship.

The statements made and views expressed are solely the responsibility of the authors and do not necessarily reflect the views of their respective organizations and affiliations. Pacific Forum’s publications do not necessarily reflect the opinions of its staff, donors and sponsors.

Abstract

Since the U.S.-Singapore Free Trade Agreement went into effect in 2004, Singapore has grown as a key bilateral trading partner of the United States. The United States runs a trade surplus with Singapore, led by high value-added service exports such as R&D. The FTA has made an even more significant impact in accelerating cross-border capital flows. This level of exchange is possible because the FTA guarantees reciprocal market access governed by a set of consistent, mutually agreed upon rules. The most obvious benefit to U.S. investors and companies is that the FTA has expanded their options for engaging the Singaporean market and the ASEAN region. They can take direct equity stakes in Singaporean companies, set up enterprises to compete in Singapore, or domicile a subsidiary or holding company in Singapore in order to invest in other parts of ASEAN. Investors feel safe using Singapore to engage the region because of the country’s sound regulatory architecture, favorable tax laws and credible commitments to abide by the pro-market terms of the US-SG FTA. In turn, the FTA has helped transform Singapore into a major financial hub in one of the fastest growing regions in the world. A key component of this success is how Singapore’s government-linked companies (GLCs) and its sovereign wealth fund, Temasek Holdings, have adapted to the demands of market liberalization without completely ceding control of strategic sectors. In other sectors, such as manufacturing, which was once the cornerstone of industrialization, Temasek has largely divested its holdings and cleared the way for U.S. companies to expand aggressively in the local market. Understanding Temasek’s holding strategy and the state’s obligations under the FTA is important because it shapes the opportunity structure for U.S. investment in Singapore. It can also provide a useful roadmap for informing the U.S. Trade Representative’s strategy in negotiating FTAs with other countries in the region with large state-owned sectors.

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Dr. James Guild is an Adjunct Fellow at the S. Rajaratnam School of International Studies in Singapore, where he was awarded a PhD in International Political Economy in 2020. His work covers trade, finance and economic growth in Southeast Asia with a focus on Indonesia and has appeared in New Mandala, East Asia Forum, the Jakarta Post and Inside Indonesia. He currently writes a weekly column for The Diplomat’s Pacific Money blog, and is based out of Indonesia.

Photo: The Merlion, in front of Singapore’s financial district. Source: Bernardo Benzecry / Flickr