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1996 Country Reports On Economic Policy and Trade Practices

Department of State report submitted to the Senate Committees on Foreign Relations and on Finance and to the House Committees on Foreign Affairs and on Ways and Means, January 1997.

1/ 1996 figures are projected estimates based on part year data.
2/ Commencing 1996, the computation of real GDP by the GOS is based on 1990 as the base year instead of 1985.
3/ Percentage changes calculated in local currency
4/ Merchandise trade
5/ Source: U.S. Department of Commerce and U.S. Census Bureau; exports FAS, imports customs basis; 1996 figures are estimates based on data available through November 1996.

1. General Policy Framework

Sitting astride one of the major shipping lanes of the world, Singapore has long adopted export­oriented free­market economic policies that encourage two­way flows of trade and investment. These policies have allowed this small country to develop one of the world's most successful open trading and investment regimes. Over the past decade real GDP grew at an average annual rate of 8.5 percent; 1995's economic growth rate was 8.8 percent; the preliminary estimate for 1996 is 6 percent.

Taking into account a lack of natural resources and a small (3.3 million population) domestic market, Singapore's policies have created a climate encouraging economic growth, a corruption­free pro­business regulatory framework, political stability, public investment in infrastructure, high savings and prudent fiscal management, a trained labor force, and tax policies that have enhanced export and investment growth. Singapore actively promotes trade liberalization in the region through its activities in APEC and ASEAN. It ratified the Uruguay Round agreement in October 1994 to become one of the founding members of the World Trade Organization.

Over the past decade, real GDP grew at an average annual rate of 8.5 percent; 1995's economic growth rate was 8.8 percent. For 1996 GDP growth is projected to dip to 6 percent, due in large part to lower global demand for electronics. The government believes this decrease in export demand is a cyclical phenomenon and does not plan any dramatic policy adjustments to deal with it. The government has had a budget surplus for most years since the 1970's. The country's reserves ($74.0 billion as of August 1996) are conservatively invested by the Singapore Government Investment Corporation. The Central Provident Fund (CPF) compulsory savings program is the basis for the national savings rate of 50 percent of GDP.

The Monetary Authority of Singapore (MAS), the country's central bank, engages in limited money­market operations to influence interest rates and ensure adequate liquidity in the banking system. There are no controls on capital movements, limiting the scope for an independent monetary policy. The exchange rate is the MAS's most important tool for controlling inflation. Although inflation is moderate by international standards (1.7 percent based on c.p.i. numbers in 1995 and 1.3 percent so far this year), an acute labor shortage and rising property values have intensified inflationary pressures. The MAS maintains a strong currency to check inflation, particularly imported inflation, given Singapore's extreme exposure to international trade.

Singapore has become a major center for electronics manufacturing, oil refining and financial services, acting as a hub for the growing Southeast Asian market. Singapore's sound economic policies which promote private investment have attracted about 1200 U.S. companies to Singapore, with cumulative investments of $13.5 billion in 1995. The U.S. is Singapore's second largest trading partner, accounting for 17 percent of total trade in 1995. U.S.exports to Singapore in 1995 were $15.3 billion and Singapore's exports to the US were $18.6 billion.

2. Exchange Rate Policy

Singapore has no exchange rate controls. Exchange rates are determined freely by daily cross rates in the international foreign exchange markets. The MAS uses currency swaps and direct open market operations to keep the Singapore dollar within a desired trading range, guarding against the internationalization of the Singapore dollar so as not to lose control over its monetary and economic policies.

The Singapore dollar appreciated 22.9 percent against the U.S. dollar from 1989 to 1994. In 1994, the Singapore dollar strengthened 6 percent against the U.S. dollar and, in 1995, 8 percent. This has not seriously affected Singapore's economy as nearly all of its production inputs are imported.

3. Structural Policies

Singapore's prudent economic policies have allowed for steady economic growth and the development of a reliable market, to the benefit of U.S. exporters. Singapore was the ninth largest customer for U.S. products in 1995. Prices for virtually all products are determined by the market. The Government lets bids by open tender and encourages price competition throughout the economy.

Singapore's tax policy is designed to maintain its international competitive position. Foreign firms are taxed on the same basis as local firms. The corporate tax is currently at 26 percent. The Government aims to bring the corporate tax down to 25 percent in the next few years. There are no taxes on capital gains, turnover, or development. The Government implemented a 3 percent value­added Goods and Services Tax (GST) in 1994 but reduced corporate and personal taxes. Tariffs exist for only a few products. Excise duties are levied on cigarettes, alcohol, petroleum products and motor vehicles primarily to control social behavior and restrict motor vehicle use. There are no non­tariff barriers to foreign goods.

Many of Singapore's public policy measures are tailored to attract foreign investments and ensure an environment conducive enough for their efficient business operations and profitability. Investment policies are direct and designed to benefit both parties. Although the Government seeks to develop more high­tech industries, it does not impose production standards, require purchases from local sources, or specify a percentage of output for export.

4. Debt Management Policies

Singapore's external public debt was a negligible $3.1 million at the end of 1994 and was retired completely in 1995. Singapore's budget surpluses and mandatory savings have allowed the government wide latitude in supporting infrastructure, education, and other programs contributing significantly to national development.

5. Barriers to U.S. Exports

Singapore has one of the world's most liberal and open trade regimes. Approximately 96 percent of imports enter duty­free. Import licenses are not required, customs procedures are minimal and highly efficient, the standards code is reasonable and the government actively encourages foreign investment. All major government procurements are by international tender. The Government became a member of the Uruguay Round Government Procurement Agreement in 1996.

Singapore maintains some market access restrictions in the services sector. No new banking licenses for local retail banking have been issued for more than two decades (although Singapore encourages the establishment of offshore banking and does not limit new entries) because the Monetary Authority considers Singapore over­banked. Foreign banks hold 22 of the 35 full (local retail) banking licenses. Full licensed foreign banks are not allowed additional branches or ATM machines although local banks are allowed to expand. No new licenses for direct (general) insurers are being issued, although reinsurance and captive insurance licenses are freely available. Foreign companies hold about three­quarters of the 59 direct insurance licenses.

The telecommunications sector has been steadily liberalized since 1989. There are no restrictions on the sale of telecommunication consumer goods except that they must meet the technical standards set by the Telecommunications Authority of Singapore (TAS). Provision of value­added network services (VANS) have also been liberalized. Recently privatized, Singapore Telecom's monopoly to provide basic telecommunication services will end in 2000.

6. Export Subsidies Policies

Singapore does not subsidize exports although it does actively promote them. The Government offers significant incentives to attract foreign investment, almost all of which is in export­oriented industries. It also offers tax incentives to exporters and reimburses firms for certain costs incurred in trade promotion, but it does not employ multiple exchange rates, preferential financing schemes, import­cost­reduction measures or other trade­distorting policy tools.

7. Protection of U.S. Intellectual Property

Singapore continues to take concrete measures to improve its level of intellectual property protection and has recently strengthened its enforcement efforts. Singapore is a member of the World Intellectual Property Organization (WIPO), and has ratified the Uruguay Round Accord including the TRIPS provisions. Singapore is not a party to the Berne Convention or the Universal Copyright Convention.

In 1987, following close consultation with the U.S. Government, Singapore enacted strict, comprehensive copyright legislation which relaxed the burden of proof for copyright owners pressing charges, strengthened civil and criminal penalties and made unauthorized possession of copyrighted material an offense in certain cases. In January 1991 Singapore similarly strengthened its Trademark Law. In 1994 Singapore enacted a new Patents Act. Amendments making the patent law fully TRIPS consistent came into effect in January 1996.

Copyrights: Singapore's copyright law does not contain provisions for rental rights which are needed to make it fully TRIPS consistent. An interagency team is working to draft the necessary changes, but Singapore has not announced a target for implementation. Computer software piracy remains a problem, but the government markedly stepped up enforcement in 1996 and the courts have handed down record fines and jail terms for offenders. In July two counterfeit software resellers were sentenced to jail terms of 18 and 30 months respectively in a case resulting from a raid conducted jointly by Alliance Against CD ROM Theft (AACT), the Software Publishers Association (SPA) and the IPR warrant unit of the Singapore Police. Fines in several recent cases of infringement have ranged from 10,000 to over 51,000 US dollars. While commending stepped­up enforcement and deterrent penalties, the software associations say more effort is needed to publicize these actions and that more still can be done on enforcement by the GOS.

Recent estimates by Business Software Alliance (BSA) and SPA show software piracy losses falling to 34.7 million dollars in 1995 from 44.8 million in 1994. Singapore's piracy rate fell from 58 percent in 1994 to 50 percent in 1995 and is the lowest in Asia, according to association estimates.

8. Worker Rights

a. The Right of Association: Article 14 of the Singapore's constitution gives all citizens the right to form associations, including trade unions. Parliament may, however, based on security, public order, or morality grounds impose restrictions. The right of association is delimited by the Societies Act and labor and education laws and regulations. In practice, communist labor unions are not permitted. Singapore's labor force numbers 1.75 million, with some 237,000 workers organized into 84 trade unions.

Seventy­three percent of these workers in unions are affiliated with an umbrella organization, the National Trades Union Congress (NTUC), which has a symbiotic relationship with the Government. The NTUC's leadership is made up mainly of Members of Parliament belonging to the ruling People's Action Party (PAP). The Secretary­General of the NTUC is also an elected Minister without portfolio in the Prime Minister's office.

b. The Right to Organize and Bargain Collectively: The Trades Union Act authorizes the formation of unions with broad rights. Collective bargaining is a normal part of labor­ management relations in Singapore, particularly in the manufacturing sector. Collective bargaining agreements are renewed every two to three years, although wage increases are negotiated annually.

c. Prohibition of Forced or Compulsory Labor: Under sections of Singapore's Destitute Persons Act, any indigent person may be required to reside in a welfare home and engage in suitable work.

d. Minimum Age for Employment of Children: The government enforces the Employment Act, which prohibits the employment of children under 12 years and restricts children under 16 from certain categories of work.

e. Acceptable Conditions of Work: The Singapore labor market offers relatively high wage rates and working conditions consistent with international standards. However, Singapore has no minimum wage or unemployment compensation. Because of labor shortages, wages have generally stayed high. The government enforces comprehensive occupational safety and health laws. Enforcement procedures, coupled with the promotion of educational and training programs, reduced the frequency of job­related accidents by one­third over the past decade. The average severity of occupational accidents has also been reduced.

f. Rights in Sectors with U.S. Investment: U.S. firms have substantial investments in several sectors of the economy, including petroleum, chemicals and related products, electric and electronic equipment, transportation equipment, and other manufacturing areas. Labor conditions in these sectors are the same as in other sectors. The growing labor shortage has forced employers, especially in the construction and electronics industries, to hire many unskilled foreign workers. Over 350,000 foreign workers are employed legally in Singapore, comprising 20 percent of the total work force. The government controls the number of foreign workers through immigration regulation and through levies on firms hiring them. Foreign workers face no legal discrimination, but, because they are mostly unskilled workers, they are generally paid less than Singaporeans.

(1) Suppressed to avoid disclosing data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis

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