- The Washington Times - Thursday, January 16, 2003

SINGAPORE, Jan. 16 (UPI) — The United States and Singapore have substantially concluded negotiations for a Free Trade Agreement, after the two countries reached an agreement on a final difficult issue: free transfer of capital during economic crises.

The breakthrough clears the way for the U.S. administration to give Congress 90 days notice this month of its intention to sign the FTA with Singapore. The actual signing should occur in the second quarter of this year, with implementation in 2004.

"This was the only issue outstanding since the last round of negotiations held from Nov. 11-19 in Singapore. The U.S. and Singapore negotiating teams are now doing the legal scrubbing of the agreement," Singapore's Ministry of Trade and Industry said Thursday in a press statement.

"The agreement provides for the free transfer of capital in both countries and enhances the protection and rights of U.S. investors, while maintaining Singapore's freedom of action to take appropriate measures in the event of an economic crisis," the Monetary Authority of Singapore said separately.

Both countries have a strong commitment to the free flow of capital, but while Singapore wanted to stick with its current commitments under the International Monetary Fund and the World Trade Organization on capital flows during financial crises, the United States wanted no restrictions.

In the end, a compromise seems to have been reached. While the protection and rights afforded to investors under the FTA will be "substantially higher" than under the WTO, Singapore is retaining the flexibility to take "all appropriate measures" in "an extreme balance of payments crisis that threatens to severely destabilize the economy."

"Singapore needs the flexibility to take all appropriate measures, including, where absolutely unavoidable, restrictions on capital flows," the MAS said.

The agreement therefore contains special provisions under which Singapore wouldn't be liable for claims for damages by investors if it restricted capital account transactions, provided the restrictions last "for less than one year and do not substantially impede transfers."

The agreement clarifies that a restriction is presumed not to substantially impede transfers if it meets certain conditions such as being non-confiscatory, non-discriminatory, price-based (for example, in the form of a tax or levy), and not interfering with the investor's ability to earn a market rate of return in Singapore.

The agreement also clarifies the scope of compensation that investors affected by measures that are deemed to substantially impede transfers are able to seek.

These special provisions apply only to short-term capital account transactions, such as portfolio investments and inter-bank loans and placements, and do not apply to current payments and transfers such as debt servicing, profit repatriation, and dividend payments as well as proceeds from the sale of foreign direct investments.

Thus even in a crisis, while Singapore retains the flexibility to place temporary restrictions on potential short-term flows, current payments and direct investments will be fully protected by the free transfers provision, the MAS noted.

Singapore is the 11th-largest U.S. export market and the largest in Southeast Asia, with two-way U.S.-Singapore trade last year totaling $33 billion. It hosts $27 billion in U.S. direct investment, and more than 1,300 U.S. companies have a presence in Singapore.

The FTA, the first between the United States and an Asian country, will virtually eliminate tariffs on Singapore's exports to the United States, which largely comprise electronics and chemicals. Negotiations on the FTA began about two years ago.

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