Tariff elimination, dispute resolution mechanism are EUSFTA highlights for Patec

WITH more than a decade of experience in Hungary under its belt, Singapore-based engineering solutions provider Patec certainly knows something about the pros and cons of operating in the vast European market.

The company started out building and designing mechanical stamping machines in Singapore, and later diversified into metal forming components for the hard disk drive and automotive industries. Recently, it has ventured into medical equipment trading and robotics products and services.

It established a components manufacturing facility in Hungary in 2008 at the request of its European clients, who wanted to reduce the timeline and inventory risks associated with the five-week process of shipping goods from Asia to Europe. Patec also has presence in Malaysia, Taiwan, Indonesia and China.

Deputy CEO Kelvin Wee, who was tasked with picking the country for Patec's European operations, says the region is a "wonderfully attractive" market for Singaporeans looking to invest in businesses there, companies seeking to expand and firms keen to bring European products or services to Singapore or Asia.

Largest single market

The European Union boasts strong engineering and design capabilities, as well as more than 500 million consumers, making it the world's largest single market. The number of countries packed into the relatively dense region also means one can reach multiple countries with just a few hours of driving.

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Another bonus is the strength of the Singapore brand in overseas markets, which paves the way for local companies venturing abroad.

"The government has done a wonderful job of promoting the strength of the Singapore brand, its efficiency, performance and reliability," said Mr Wee. "Europeans in general welcome Singaporeans and Singapore companies."

With the European Union-Singapore Free Trade Agreement (EUSFTA) that has been in force since November 2019, Singapore firms have even more reason to seek out business opportunities there.

The EUSFTA's key benefits include the immediate elimination of tariffs for more than 80 per cent of Singapore's exports to the EU, more opportunities for Singapore companies to bid for government procurement projects in the region and an investment dispute resolution mechanism.

Mr Wee noted that the EU has already reduced its import tariffs over the years, so Patec has been paying just 1.7 per cent tariffs on its products before the FTA. It is now able to lower its prices further to make its offerings more attractive.

The EUSFTA will reduce the need to take the legal route in pursuing claims or resolving disputes, which can be complicated and costly. In the past, companies would have to engage local lawyers for such cases and might choose to drop some disputes if the amount at stake is small in comparison to annual revenue.

Said Mr Wee: "Having a dispute resolution channel is definitely something that makes us feel a lot more comfortable. We hope we will not have to use it, but it's good to know that the option is there."

Although the tangible benefits of the EUSFTA may be limited for now, given how new the agreement is, Mr Wee feels that the psychological boost it provides to local firms should not be overlooked.

"Our company's point of view is always that we don't go somewhere because there's a grant or support; we go there because we believe that there's a market," he said.

"But it's very reassuring to see our government, the Ministry of Trade and Industry and the Ministry of Foreign Affairs support Singaporean companies being more competitive and involved in the European market. This support intrinsically boosts the confidence of Singaporean companies seeking partners or opportunities in Europe, knowing that our government is also focused on this."

Having a European manufacturing setup has boosted Patec's reputation and made it possible to respond more quickly to clients' needs, whether the products were manufactured in Europe or Asia, Mr Wee said.

"For manufacturing or industrial companies in general, one of the first questions that usually pop up is, 'Do you have service support locally?' Considering the time difference and distance, the time that it takes to send a technician or engineer over is sometimes not available to our industry."If we are supplying to automotive carmakers, operating with a just-in-time lean inventory system, nobody can afford to have a line down," he explained.

It will be easier for Singapore firms to venture to the EU now, but Mr Wee flags one challenge that the FTA won't be able to solve - the cultural differences between Europe and Singapore.

Singapore firms will need to adapt to local customs, and adjust their expectations for performance and how the business world there works.

They also should not assume that they can understand Europe as a whole from their experience in one or two European countries, given how diverse the region is.

"We spent a lot of time asking questions and listening to our local contacts, local government officials, friends, business associates there," Mr Wee said.

"One of the biggest lessons was to not bring comparisons of Singapore or Asia over. That really helps a lot, to not have an expectation that this is done this way at home, therefore it should be this way there."