NAFTA AND ITS IMPLICATIONS FOR SINGAPORE

Abstract

On 17 December 1992, the United States (US), Canada and Mexico signed a historic trade accord. The North American Free Trade Agreement (NAFTA) thus concluded is the most comprehensive free trade pact ever negotiated between regional trading partners. It is also extremely significant because it encompasses an unprecedented economic alliance between a developing country and two industrial countries. NAFTA is scheduled to be implemented on 1 January 1994, after ratification by the three legislatures. When in force, NAFTA will create a market of 360 million consumers with a combined economic output of US$6 trillion a year. As such, all three countries in the pact are expected to benefit from the agreement. However, the international importance of NAFTA extends well beyond North America. Of much concern is the impact of NAFTA on non-member countries. This academic exercise seeks to examine, in particular, the economic implications NAFTA will have for Singapore. The concept of trade diversion will be used for this discussion. More specifically, the implications of NAFTA on Singapore's trade, investment, banking and finance will be looked into. As an example, an attempt is made to illustrate the exact trade diversion in textiles/clothing. Various other points of views on NAFTA's impact will also be discussed. To consider NAFTA's implications for Singapore definitely encompasses an examination of impacts on the Association of South-east Asian Nations (ASEAN) as well. This is due to the intimate regional linkages, both economically and politically, Singapore has with its ASEAN neighbours. It must be noted that any impact on ASEAN will have indirect consequences on Singapore. Other indirect consequences include the hastening of the formation of the ASEAN Free Trade Area (AFTA) which has further implications for ASEAN and Singapore. In conclusion, the discussions brought forth by this academic exercise seek to show that any potential impact of NAFTA on Singapore is likely to be minimal. However, the actual implications will only be seen when and if NAFTA comes into force.