In October 2019, a free trade agreement between the Eurasian Economic Union (EAEU) and Singapore was signed. For EAEU nations the pact offers vast opportunities for cooperation in trade and investment with a country with one of the most developed economies, not only among ASEAN member states but in Asia, as a whole. In turn, Singapore is keen on accessing the markets of five EAEU countries (Russia, Belarus, Armenia, Kyrgyzstan and Kazakhstan) and in fostering economic collaboration with all of them, especially with the Russian Federation (the leader of the Union based on the size of its economy).
Negotiations on the creation of the free-trade zone (FTZ) between the EAEU and Singapore started in August 2017. Since then, high-level meetings have been staged on a regular basis where leaders of nations engaged in the talks play key roles.
In November 2018, President of the Russian Federation Vladimir Putin paid an official visit to Singapore. His trip coincided with the 33rd ASEAN Summit. It is worth reminding our readers that year 2018 marked the 50-year anniversary of the establishment of diplomatic ties between Singapore and the Soviet Union. Hence, the visit of the Russian President was especially significant. Vladimir Putin held negotiations with President of Singapore Halimah Yacob and Prime Minister Lee Hsien Loong. And the FTZ was among the topics discussed during the talks.
Finally, at the meeting of the Supreme Eurasian Economic Council on October 1, 2019, the EAEU and Singapore signed the first of many documents, as part of the all-encompassing trade deal. The agreement allows all goods from the EAEU nations customs-free access to Singapore’s market. In turn, 87% of products from Singapore will be exempt from duties in the EAEU for a period of 10 years. The deal focuses, in large part, on cooperation in the investment sphere.
The FTZ can bring substantial benefits to both sides. For several years now, trade between Singapore and Russia has been growing gradually, increasing from $2 billion worth of goods and services in 2012 to $3.6 billion in 2018 (statistics for 2019 have not been compiled as yet). After the creation of the FTZ, these figures could go up in leaps and bounds.
Singapore has always been open to trade with any potential foreign partners. The city-state is situated on the fairly small island of Pulau Ujong as well as several tiny islands. It does not have any mineral reserves, sufficient amounts of fertile soil or even fresh water. The country imports everything it needs, and it has prospered thanks to its trade and economic cooperation with other nations. Singapore has the highest trade-to-GDP ratio in the world ($711.8 billion to $364.1 billion in 2018).
The Russian Federation is in 24th place among Singapore’s partners, and if we are to take into account the total amount of bilateral trade, the outcome is not too shabby. In recent years, hundreds of Russian companies have been operating in Singapore and a substantial number of Singaporean firms have a presence in the Russian Federation.
The main goods that Russia supplies to Singapore are oil and petroleum products. They account for 90 % of Russian exports to the Asian nation. Since the island nation does not have its own fossil fuel deposits, it has to import a vast quantity of energy resources in order to support its well-developed industrial sector and its residents’ high standard of living. Singapore processes a substantial portion of the crude oil it imports and re-sells the end products. Such activities make a very important contribution to its income.
At present, Russia is actively engaging with the oil and gas market in Asia-Pacific. This region is one of the most promising in the world for Russia’s fossil fuel exports. The need for energy resources in East and Southeast Asian nations, such as China, Japan, South Korea and Singapore keeps growing. In addition, these countries are physically near regions where these fossil fuels are sourced, i.e. Russia’s Far East, first and foremost, the island of Sakhalin. Exploration of oil and gas fields on the Sakhalin Island shelf started many years ago, and Russia’s fossil fuel producers still continue to find new deposits there, which they plan on exploiting in the nearest future. In addition, the Russian Federation is preparing for the launch of the Vostok Oil project at present, which is aimed at full-scale exploration of existing and still new fields in Russia’s Arctic region and at subsequent transportation of the goods produced via the Northern Sea Route. One of the main destinations of oil tankers from these facilities will be the Asia-Pacific region. It is possible that by seeking to establish the FTZ between the EAEU and Singapore, Russia’s leadership took this anticipated growth in fossil fuel deliveries into consideration.
Aside from energy resources, Singapore, which does not have its own agricultural sector, is also keen on importing food. The nation has made substantial investments in Russia’s agricultural sphere. Several years ago, the Russian Federation once again became one of the global leaders in production and export of high-quality grain. Consequently, importing Russian grain and investing in its manufacture are becoming an increasingly attractive proposition for other countries, including Singapore. And the free-trade zone with the EAEU will enable the island nation to do so under particularly attractive conditions.
While trade between Singapore and the Russian Federation is growing steadily, it is not yet very substantial between the island nation and other EAEU member states (in 2018, it was worth approximately $0.6 billion). It is, therefore, reasonable to conclude that cooperation between Singapore and the EAEU countries is still at the initial stage. Both sides are aware of the potential benefits their collaboration could bring, and intend to promote it. Singapore is an industrial giant that manufactures high-quality consumer electronics, ships, cars, medicines and other goods, which are in high demand among customers. The EAEU has a population of over 184 million. And providing Singaporean products access on beneficial terms to such a large market may be beneficial for both sides.
Singapore became the second ASEAN nation to sign a free trade agreement with the EAEU. The first country to do so was Vietnam in 2015. Both of these nations have influence within the Association and can promote EAEU’s interests within ASEAN by, for instance, encouraging its other member states to establish FTZs with the Union. With time, the leadership of the EAEU hopes to sign a free trade agreement on a regional level, i.e. between the Union and ASEAN.
On their own even the most developed countries in Southeast Asia are not as economically powerful as Asia’s leaders, such as China, India and Japan. However, ASEAN, as an association of 10 Southeast Asian nations, wields substantial economic and political clout. And by combining their efforts, the EAEU and ASEAN could achieve significant outcomes together.
Dmitry Bokarev, political observer, exclusively for the online magazine “New Eastern Outlook“.