The EU Commission and proponents of the agreement say it is win-win scenario and historic moment.

GD – 03/2019

The Free Trade Agreement (FTA) between the EU and Singapore has been given the green light by the European Parliament. The agreement has received some criticism, in particular from the European Greens, due to its lack of social standards which were drafted in a rather conspicuously ‘soft’ manner and because of certain fiscal backdoors.

Proponents have constantly referred to the enormous economic power of the Asian trading metropolis, which is home to more than 10,000 companies, and to the signal it sends as a way of opening up to pro-competition in times when other countries, such as the USA in its relations with Asia, are closing their doors. As reported in the Handelsblatt newspaper, the Dutch Analyst Centre for Research on Multinational Corporations (SOMO) has identified that some interesting loopholes for major investors can be found in the extensive small print of the agreement.

Specifically, this is about Article 1 of the EU-Singapore Investment Protection Agreement. In addition to trade in goods and services, the agreement also liberalises reciprocal capital flows. This applies to all types of bonds, debentures and loans, including trading in government bonds.

According to observers, should a Member State in the euro area get into serious refinancing problems and require dramatic debt relief, as was the case in spring 2012 when Greece needed around €100 billion and Greek bonds were cut by more than a half, investors from Singapore would be far better off than other investors.

In principle, according to the agreement, government debt restructuring must be accepted by investors, but in the case of Singapore at least 75 percent of the creditors resident there must agree to debt relief. In the standard regulations for the euro area, only a 66.6 percent majority of creditors is required to approve a restructuring of debt.

As a result, investors from Singapore would not have to accept this debt relief. In case of a dispute, they could even sue for damages before an international court of arbitration. Large investors in particular are likely to take advantage of this, especially as the problems of the past have not completely disappeared in many countries given the continuing increase in euro area liabilities. On the contrary, despite economic growth, there has been no substantial improvement in over-indebtedness in many countries.

The FTA must still be ratified by the parliaments of each Member State.