Yesterday, when I heard that the EU and
Singapore announced that they had concluded the investment chapter of their
bilateral free trade agreement (FTA), the first thing that came to my mind
was “how will this impact the Singapore property market?”
Confused? Let me explain.
In Singapore most foreign
nationals are required to pay an additional 10 percent stamp duty (called
Additional Buyers’ Stamp Duty or ABSD) on their real estate purchases. Singaporeans
do not pay ABSD. However, nationals
of the United States and members of the European Free Trade Association (EFTA,
made up of Switzerland, Norway, Liechtenstein
and Iceland) are exempt from paying the ABSD because of the specific terms of
their FTAs with Singapore that require Singapore to treat them the same as
Singaporeans. This is known as
“national treatment” in FTA terminology, e.g., the right for foreigners to be
treated the same as the locals.
Would the EU be able to
achieve similar treatment for its nationals?
The answer is no, according to
the final text (subject to “legal scrubbing”) available here.
In an “understanding” making
up part of the agreement, the EU and Singapore agreed as follows:
1. Article 9.3 [National Treatment] shall not apply to any measure
relating to:
(a) the supply of potable water in Singapore;
(b) the ownership, purchase, development, management, maintenance, use,
enjoyment, sale or other disposal of residential property or to any public
housing scheme in Singapore.
Hence this means that national
treatment for EU nationals will not include equal treatment regarding the ABSD
or other laws regarding residential property in Singapore. The EU didn’t get
what the US and EFTA achieved in their FTAs. This is because the EU was relatively late in seeking an FTA with Singapore (the EFTA-Singapore FTA was among the first FTAs of Singapore) and not as powerful as the United States (whose preferential treatment is also rooted in the most-favored-nation clause of its FTA, which grants it the same treatment as the EFTA members under their Singapore FTA).
However, the EU did obtain some hope in the form of a future review of the ABSD:
However, the EU did obtain some hope in the form of a future review of the ABSD:
2. Three years after the entry into force of this
agreement and every two years thereafter, should ABSD still be in force, the
Trade Committee will review to see if the maintenance of the ABSD is necessary
for addressing the stability of the residential property market. In these
consultations, Singapore will provide statistics and information relevant to
the state of the residential property market.
Thus Singapore has committed
itself to scrutiny by the Trade Committee of Singaporean and EU government
representatives to confirm whether the ABSD is still necessary to control
Singapore property prices. This is not
the same as the US and EFTA FTAs, but it does mark a commitment by the
Singaporean government to joint review of its property policies, a very rare
occurrence. Perhaps the ABSD will be
terminated three years from now and this will become a moot point, perhaps
not. Either way, it is another example
of how FTAs can set policy – or restrain policy options – for a government.
The EU-Singapore FTA
investment chapter also contains an investor-state dispute resolution chapter
that allows for international arbitration.
This has become controversial in other FTA negotiations such as the
Trans Pacific Partnership talks, but evidently not so for the EU-Singapore
FTA. But its
inclusion will only embolden ASEAN members such as Indonesia who believe that
terminating their bilateral investment treaties with the EU (and their
associated arbitration clauses) will encourage the EU to conclude their own
bilateral FTAs with them.
Other items of note are
exemptions for government policies necessary to protect general welfare, as
follows:
(a)
necessary to protect public security, public morals or to maintain public order;
(b) necessary to protect human, animal
or plant life or health;
(c) relating to the conservation of
exhaustible natural resources if such measures are applied in conjunction with
restrictions on domestic investors or investments;
(d) necessary for the protection of
national treasures of artistic, historic or archaeological value;
(e) necessary to secure compliance with
laws or regulations which are not inconsistent with the provisions of this
Chapter including those relating to:
(i) the prevention of deceptive or
fraudulent practices or to deal with the effects of a default on a contract;
(ii) the protection of the privacy of
individuals in relation to the processing and dissemination of personal data
and the protection of confidential of individual records and accounts;
(iii) safety.
(f) aimed at ensuring the effective or equitable imposition
or collection of direct taxes in respect of investors or investments of the
other Party.
In any event, the impact (or
lack thereof) on the Singaporean property market is the immediate news from
this development. Given that this is a
major concern of many Singaporeans, that is not surprising, as reflected by
this issue being the most popular topic on this blog. Again, however, the ABSD issue shows how FTAs
can affect areas of governance far beyond trade in goods.
