IMPACT OF EC 1993 ON SINGAPORE-EU ECONOMIC RELATIONS

Abstract

The recent completion of the Single European Market and the concurrent reunification of Germany are important events that allowed the European Integration process to make dramatic advances, especially when coupled with the formal widening of the Union to 15 members in 1995. Controversial issues surrounding economic and trade policies have always been present eversince the very existence of the EC because of its tendency to become inward looking. At present, there are many expectations that the Single Market would encourage more intra-EU trade and investments as well as sharpen the focus of European businesses on the European continent. More importantly, the deeper and wider integration of the Union is expected to enhance its self-sufficiency which might reduce its need to remain outward looking. Thus, if not by conscious design, the Union may by default become more inward looking and protective. This is a major concern among many non-EU countries-including Singapore. Hence, it is in our interests to analyze in this academic exercise the possible impact of EC93 on our trading and investment activities-especially since we are so dependent on such activities for our economic growth. The aim of this exercise is mainly to evaluate whether EC93 has resulted in any adverse effect on our trade and investment relations with the EU. If the predictions about more intra-EU trade and investment hold true, the situation would be to our disadvantage. This is particularly so since the EU is both a major trade and investment partner to us. The analysis that follows in this exercise shows that the Single European Market has not yet led to any significant trade or investment diversion effect on our economy. Although the share of our exports in the Union's market is still very small, it has not been declining since the implementation of the Single Market program. Moreover, the exercise also discovers that our foreign investment inflows are still exhibiting very healthy trends despite the growing attractiveness of the Union as an investment location. Nevertheless, these findings do not suggest, in any way, that we will never fall victim to the possible adverse effects that might arise from the Union's more intensified integration. The reason to justify our cautious stand is that the European Integration is still in process. Nothing has come to an end yet, especially with the introduction of the European Monetary Union on 1 January 1999 that marked the Union's formal entry into the third stage of the integration process. Furthermore, there also exist desires within the Union to go for wider integration through expanding its membership to include countries from Central and Eastern Europe. Given our physical constraints, there is nothing we can do to influence the events in the Union to work towards our favour. Therefore, in order to minimize any possible diversion effect that may arise later, we need to undertake greater efforts to build a more conducive environment to attract both trade and investment. At the same time, we should also work on improving our economic ties with the Union, and the most effective way to do so is through regional cooperation.