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India and Singapore finalise major trade treaty

Published by The Straits Times, Singapore on 2004-11-12

TWO years after Singapore and India initiated the idea of a Comprehensive Economic Cooperation Agreement, their top officials yesterday applied the finishing touches to a historic pact under which Singapore will invest billions of dollars in India's infrastructure, and the latter will obtain greater access for its professionals in Singapore's burgeoning services industries.

"We see this as a very important pillar in the creation of a new integrated economic zone in South-east Asia," Mr Lim Hng Kiang, Singapore's Minister of Trade and Industry, told The Straits Times, after meeting with his Indian counterpart, Mr Kamal Nath, over luncheon negotiations at the Raffles Hotel. He praised Mr Nath for his persistence in pushing the agreement, echoing a perception in India where the 52-year-old Mr Nath is viewed as a member of a new generation of politician-technocrats more focused on promoting economic development and attracting foreign investment through regional alliances.

"This agreement is going to be a pathfinder for Asean. I see it as drawing on the strengths of both countries," Mr Lim said.

Those strengths include the ability - and desire - of Singaporean investors to enter the Indian market more vigorously; with its current investment of US$1.5 billion in Indian industries, Singapore is India's biggest Asian investor, and the third largest after the United States and Mauritius. Mr Nath said that he expects Singaporeans to pour an additional US$2 billion into Indian technology and manufacturing enterprises in 2005. Such financial participation is particularly welcomed by India because its foreign direct investment from Western sources has been steadily declining to the point where it's now a paltry US$3 billion annually, compared to US$53 billion that neighbouring China receives each year.

Mr Nath said that the new agreement, known by its acronym Ceca, will be signed by Prime Ministers Lee Hsien Loong of Singapore and Manmohan Singh of India in about two weeks, most likely after this month's Asean summit in Laos. The minister - who was nattily attired in a khaki safari suit that contrasted pleasantly with Mr Lim's open-necked blue shirt and beige trousers - flew to Singapore from The Hague, where he attended a Indo-European Union Summit. It was his second meeting with Mr Lim in three weeks, the last being when the Singaporean visited the Indian capital of New Delhi.

Even though yesterday was Deepawali, the Hindu New Year that's a national holiday in both India and Singapore, Mr Nath said he wanted to meet Mr Lim in order to expedite Ceca's remaining details. These included the question of protection of foreign investment in India, and the strengthening of the regulatory framework. Both ministers told The Straits Times that they were satisfied with the manner in which these questions were resolved.

Mr Heng Swee Keat, Permanent Secretary in Singapore's Ministry of Trade and Industry (MITI) pointed out that the question of protecting foreign investment in India was being codified for the first time through Ceca.

"Our own aim is to deepen economic ties significantly with India," Mr Heng said last night, adding that Singaporean organisations such as IESingapore (International Enterprise Singapore) are now likely to accelerate investment missions to India.

Mr Anthony de Sa, a Joint Secretary in the Indian Ministry of Commerce and Industry - who was part of Minister Nath's delegation - said that what set Ceca apart from the dozens of foreign trade agreements (FTAs) that both Singapore and India have with other countries is that it covers not only trade but encompasses investment and services. The current bilateral trade between India and Singapore is around US$5 billion each year, with Singapore enjoying a trading edge of about US$2 billion. It imports electrical components, chemicals and manufactured goods from India, for the most part, while India obtains finished electronics and pharmaceuticals.

One issue that had seemed what Mr de Sa characterised as a "road block" was also resolved satisfactorily during yesterday's negotiations. It concerned the so-called rules of origins under which goods from third countries are sent through transit centres such as Singapore without much alteration.

Under Ceca, Singapore will be required to provide 40 percent value-added properties to the goods it ships to India, and also substantial transformation in things like packaging, according to Minister Nath. Because Singapore has the highest trade to GDP ratio in the world, it particularly emphasises liberal trading regimes. The deal that Mr Lim and Mr Nath signed off on yesterday almost immediately will open up new possibilities for greater bilateral cooperation in areas such as financial services, telecommunications and air transportation.

Mr Heng, the MITI Permanent Secretary, perhaps summed Ceca up best when he said, "What we're establishing here is a better broadband connectivity between two growing economies - connectivity that gives investors on both sides greater comfort about their investments, and much more reassurance about economic progress."

Pranay Gupte,
Senior Writer and Global-Affairs Columnist

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