SINGAPORE: 'The FTA is our oil well'
Karin Palmquist

After 14 years in office, Goh Chok Tong stepped down as prime minister of Singapore on August 12 and Lee Hsien Loong, son of founding Prime Minister Lee Kuan Yew, was sworn in as prime minister.

Goh Chok Tong left behind him a strong economy expected to grow by another 8-9 percent this year, in part due to a six-month old free trade agreement with the United States. But he also left a country recovering from SARS, where jobs are vanishing to locations which are less expensive. sat down with Chan Heng Chee, Singapore's ambassador to Washington, to hear about the challenges facing the new prime minister.
"Prime Minister Lee will take over a Singapore that is facing enormous economic challenges," Ambassador Chan told "We are a small country of four million people; there are 3.2 million Singaporeans, and 800,000 non-Singaporeans living and working in Singapore. We are a small country in a region that is fast developing in a globalized world. Like the United States, we are loosing jobs to locations which are less expensive, China, India, Malaysia, Thailand and Vietnam, you name it. This is one of our biggest challenges. We have been dealing with this for the last five or more years. Singapore is a city-state, an island state, and our economy is always renewing itself. We have always been riding ahead on the cusp of change. Every few years we review our situation and we ask ourselves: 'What is the best economic direction for Singapore to keep us ahead of the competition in the region?' That way we can always be relevant and have a role to play.

"We've had three not so good years, last year because of SARS, terrorism and the Iraq war. Our growth rate was 1.1 percent in 2003, very low by Singapore standards. Over the 25 years that Singapore has existed as a country we've had an average annual growth rate of 8-9 percent. Some years we had double-digit growth. Then came the Asian financial crisis in 1997. After the crisis, that kind of growth could not be taken for granted. This year we will again have GDP growth of 8-9 percent. A growth rate of 4-5 percent would have been acceptable, because the economy is maturing. The challenge is how to maintain this rate.

"Another challenge is the growing expectations of the population. Young people have got used to a certain degree of affluence. They expect more. What do you do to deliver? They are well-educated, well-traveled and they are looking to relate to the government in a different way. This is something the prime minister and the ministers will have to deal with. Goh Chok Tong, when he took over 14 years ago, spoke of wanting to create a kinder and gentler nation. It will be interesting to see the style Lee Hsien Loong evolves."

Singapore's political system is based on the Westminster model. The prime minister can be changed without an election, by the parliamentary caucus of the governing party. Lee Hsien Loong was elected to parliament and became prime minister when Goh Chok Tong stepped down. The parliamentary caucus of the People's Action Party voted him in as the next prime minister. Prime Minister Lee will probably go for his own mandate next year, the ambassador predicted.

In 1983, manufacturing accounted for 23 percent of gross domestic product in both Hong Kong and Singapore. Today it accounts for more than 26 percent in Singapore and less than five percent in Hong Kong, which has moved most of its factories to China. Will Singapore follow the path of Hong Kong and locate its industries in markets where the labor is cheaper?

"Hong Kong has the advantage of China as its hinterland. We have tried to have the world as our hinterland. We invest overseas. We trade. The Free Trade Agreement extended our economic space. We have retained our manufacturing sector, but because of the global trend, we have had to move up the production ladder to higher value-added products. The Singapore biotech sector is doing well. The IT industry felt the bubble burst like in the rest of the world, but is recovering. We're strong in electronics. Singapore manufactures one-third of the world's hard disk drives," the ambassador said.

The US-Singapore FTA came into effect on January 1, 2004. The first six months have seen an increase in trade between the two countries by 9.4 percent. The agreement with the United States is not Singapore's first free trade agreement. The country has agreements with, among others, Japan, New Zealand, Australia, Canada, EFTA and it is working on an agreement with India and perhaps one with China as well. The FTA with New Zealand, signed in 2000, was Singapore's first. The first year's increase in trade with New Zealand of 8 percent proved not to be a coincidence and the increase in trade between the countries has remained steady. What does the ambassador expect will be the long-term effect of the FTA with the United States?

"We expect the same kind of growth to come out of our FTA with the United States [as with New Zealand]," Ambassador Chan said. "In Singapore we have really pushed the limits for our survival. We have worked around territorial limitations by building high-rises, through land reclamation as far into the sea as international law will let us. We're the original global city. We took to globalization like a fish to water, because on its own Singapore could not survive. We trade with everyone - our trade is three times our GDP. We were the 16th largest trading nation in the world in 2003. We have no natural resources. All we have is our people and our location. The FTA is our oil well."

The FTA between the United States and Singapore has been used by the United States as a template for other FTAs in areas such as capital controls, intellectual property, customs and rules of origin. 

"I think the United States chose Singapore as a template because of our transparency, our good governance, and the fact that we are not protectionist. We are a free and fair trader," the ambassador said.

As neighboring countries are working out their own free trade agreements with the United States, does Singapore fear loosing its special status with America?

"That is always so, but that does not stop us. Singapore's philosophy is one must always accept change. Change is a way of life. You need to review and reposition yourself constantly. If other countries open up and liberalize their trade, Singapore will benefit," the ambassador said.

China is emerging as an enormous economic power in Asia. How is the rise of China's economy affecting Singapore?

"In the beginning the region saw China as a challenge," the ambassador said. "Now it sees it as an opportunity. Some countries in the region see it as competition for foreign direct investment. In recent years, the countries in Southeast Asia, Singapore included, have become aware that China is a good opportunity. Trade between China and other Asian countries increased by 20 percent yearly during the nineties. In 2002 the trade increased by 30 percent, in 2003 by 45 percent. Trade is increasing, but China has also invested in Southeast Asia, in resource-based industries and in agribusiness.

"Singapore's trade with China is healthy. Our trade with China amounted to $21 billion in 2003, less than our trade with the United States, but it's catching up. Our second largest source of tourists is China. They come for medical services, for education."

One of Singapore's main assets is its geostrategic location. How can the country maintain its viability and attractiveness as a regional center?

"We have FTAs. We have extended our economic space by investing overseas. For 2003, we were the largest foreign investor in Vietnam and Malaysia, the sixth largest in India and the seventh for China," the ambassador said.

The country known for its strict rules and harsh punishments has eased up in recent years.

"Censorship has relaxed tremendously in the last 10-15 years. Last year the government announced that it would employ gays in the civil service. There have always been gays in the civil service, but now it is a pronounced policy. There recently was a gay parade in Singapore. We are liberalizing in some ways," the ambassador said. 

Even the country's notorious chewing gum ban is easing up.

"You cannot sell gum, but you can bring in some from abroad for personal use. Because of the FTA with the US, gum with therapeutic value, like medicinal gum and oral dental gum, can be sold in Singapore," the ambassador explained.

One area where the country has not eased up is its stand on terrorism.

"We are a staunch partner of the United States in the War on Terrorism," the ambassador said.

Singapore is a member of the coalition for Iraq. The country sent no troops to Iraq, but it provided logistical support.

"We see terrorism as the major security concern in our region," the ambassador said. "In December of 2001 we discovered an Al Qaeda-supported network in our midst."

A cell of Jemiah Islamiah, the Al Qaeda-affiliated terrorism organization based in Indonesia and responsible for the 2002 Bali bombings, was discovered in Singapore. The cell was destroyed, the people apprehended.

"The cell was destroyed, but it can pop up again," the ambassador said. "We're now in the second generation of terrorist leadership. The port is a concern for us. It's the second largest container port in the world. It could be a target. We have signed on for the CSI (Container Security Initiative) and PSI (Proliferation Security Initiative). We have implemented the ISPS (International Ship and Port Security) code and we are tagging every ship. In fact, we have gone beyond IMO requirements. Many ships, including American ships, pass through our port."

"We are a small country. We don't have complete control of our security. This is true of many countries, but it is particularly true for a small country, which is why Singapore is so externally oriented and tries to keep abreast of all international and regional developments," the ambassador concludes.

Rising above limitations posed by its size by building international relations, both political and economic, Singapore sets an example for an increasingly interdependent world.


Biography of Ambassador Chan Heng Chee

Chan Heng Chee took up her appointment as Singapore's Ambassador to the United States in July 1996. Prior to her appointment, she was the Executive Director of the Singapore International Foundation (which creates a Singapore version of the Peace Corps) and Director of the Institute of Southeast Asian Studies. She was the founder Director of the Institute of Policy Studies. She served as Singapore's Permanent Representative to the United Nations from 1989 to 1991 and was concurrently High Commissioner to Canada, and Ambassador to Mexico.

She has received a number of awards including Honorary Degrees of Doctor of Letters in 1994 from the University of Newcastle, Australia; and the University of Buckingham (United Kingdom) in 1998; Inaugural International Woman of the Year Award 1998 from the Organisation of Chinese American Women (OCAW); Singapore's first "Woman of the Year, 1991" Award; the National Book Award, Non-Fiction Section, 1986 for A Sensation of Independence: A Political Biography of David Marshall; the National Book Award, Non-Fiction Section, 1978 for The Dynamics of One Party Dominance: The PAP at the Grassroots.

She has served as a member on the International Advisory Board of the Council on Foreign Relations, New York, the Council of the International Institute for Strategic Studies (IISS), London and the International Council of the Asia Society, New York.

Ambassador Chan has served on several academic review panels and has published numerous articles and books on politics in Singapore, Southeast Asia and international security.

She was educated at the University of Singapore and Cornell University.