Making trade facilitation pacts easy to use is vital for companies

SINGAPORE deserves much credit for having invested heavily in facilitating trade in the last half century. This includes negotiating, implementing and promoting the use of free trade agreements (FTAs), resulting in an impressive network of FTAs, arguably second to none.

Singapore has also been very strategic and forward-looking in implementing other trade facilitation measures. Think of mutual recognition agreements and single-window connectivity with its key trading partners. Both tackle non-tariff barriers to standardise and simplify international trade, which are fast becoming more impactful to the cost of international trade than traditional import taxes.

These are all excellent initiatives that have helped, and will continue to help, reduce supply chain costs and uncertainty. They continue to make Singapore an attractive trading hub, and offer Singapore-based companies excellent access for their products and services in overseas markets.

Looking ahead, in light of increased pressure on cost and the economic and health challenges posed by Covid-19, can and should Singapore apply the same blueprint when adapting and preparing for the future?

The short answer is probably yes, but with some tweaks. The reality is that many companies, big and small, continue to struggle to make adequate use of these valuable trade facilitating measures that Singapore already has in place. That is not anyone's specific fault. The world of international trade is too complex to be easily captured and simplified by a few, or even many, trade agreements. Combined with the fact that Singapore is but a small cog in the massive wheel of the global economy, translating macro-economic measures into micro-economic benefits is always going to be challenging.

Yet that translation from theory to practice is exactly what the Singapore government needs to focus on. What can be done to mitigate the operational challenges businesses are facing on the ground which are reducing the impact of trade facilitation initiatives? Lower corporate tax rate incentives? Nice, but increasingly under OECD scrutiny, and less and less of a differentiator. Subsidies or grants to SMEs to encourage them to "do the right thing"? Also nice, but empirical evidence suggests that often either the conditions are too hard to meet, or grants do not facilitate the recipients to "do the right thing", at least not sustainably. More FTAs? Geopolitically nice, yet every new FTA adds a little less to the existing mix, especially if that mix is already under-utilised.

The signing of the Regional Comprehensive Economic Partnership (RCEP) and the Singapore-UK FTA are some good and very recent examples. Our initial analysis and work suggest that many companies are struggling to identify, quantify and materialise any new benefits they bring.

The Market Readiness Assistance (MRA) scheme, which aims to help companies set up shop overseas, was enhanced from last year's budget to co-fund a large part of the cost of expert advice on utilising Singapore's FTAs. Yet its uptake appears to remain meagre.

As we have learned all too well in the past year, understanding an illness is a necessary first step to creating a cure. Using FTAs and other trade facilitation measures is complex, unpredictable, and fraught with dangers of penalties if done incorrectly. Reducing that complexity, unpredictability and risk should be the focus for Singapore's regulators.

For example, determining whether a product processed in Singapore meets the criteria to benefit from an FTA can be a very complex exercise. Making it easier for companies, in particular SMEs, to meet these requirements could be a game changer. This could be achieved through industry-wide FTA technology tools.

RELIABLE TECHNOLOGY TOOL

While there are many technology solutions available, they are often narrow, expensive and do not come with the necessary assurance. A government-backed and reliable technology tool that can enable, document and certify FTA compliance would solve this problem. It would also address one of the biggest worries that companies have - mitigating the risk of inadvertent non-compliance.

Grants for internationalisation are another good example. Rethinking why the uptake of for example the MRA grant is so low and how it can be made to better help Singapore SMEs solve operational challenges can go a long way. For example, offering more flexibility to allow companies to use the grant where it actually matters to solve their specific, often operational problems rather than being available for predefined activities only.

Better use of single windows for reporting and compliance with import and export-related regulatory requirements will also enhance Singapore's attractiveness as an international trading hub. Again, focus should be on enabling the easy use of these initiatives, so that companies know what practical benefits they are actually getting.

All in all, the level of continued success of trade promotion will, to a large extent, be determined by two key factors. First, how the Singapore government can get Singapore SMEs to internationalise.

Second, how the Singapore government can continue to attract multinationals to move or expand here when planning for their long term future in Asia, be that for processing, regional distribution, or head office type functions. Neither will be a given in a world that is increasingly competitive, inward-looking, and sceptical about trade liberalisation.

It is true that you can lead a horse to the water but not make it drink. But let's at least make sure that we indeed do lead the horse to the water, rather than just telling it roughly where the water may be.

• The writers are from PwC Worldtrade Management Services in Singapore. Frank Debets is managing partner and Robert Schulte is a director.