EU-Singapore FTA Expected to Drop Testing Requirement for European Cars

BRUSSELS – The wealthy Southeast Asian market of Singapore is expected to welcome imports of European cars that offer European Union technical and safety standards as approvals under a new free-trade deal are finalized this week.

That is the claim of the European Commission, which says it has concluded FTA negotiations with the city-state. Singapore’s population is 5.1 million and its per-capita income is €34,980, based on World Bank figures.

The EC says the automotive trade agreement “will cut down on the red tape and double-testing that makes life difficult for business.”

But while the EU’s automobile manufacturers association, the ACEA says it approves of the agreement, it is not yet convinced Singapore will completely eliminate the requirement for testing of EU-produced cars to meet local technical and safety standards.

The ACEA’s concern is a result of the recent EU-South Korea FTA that has failed to completely eliminate the technical barriers European auto makers face exporting to that Asian country.

“ACEA will continue to push for United Nations Economic Commission for Europe recognition on the part of Singapore in order to ensure that there is full market access; in other words, that cars produced and tested in the EU can be sold without further testing in Singapore,” the auto makers’ group tells WardsAuto in a statement.

The EU follows UNECE international vehicle-regulation standards that generally are applied in Japan, for instance, but not entirely.

EU light-vehicle exports to Singapore are healthy, having grown over the past three years. In 2009, European auto makers exported 13,256 cars worth about €328 million ($434 million). That figure climbed to €500 million ($661 million) in 2010. The EU exported 26,460 cars to Singapore in 2011 worth €625.5 million ($826.8 million).

Different sets of international trade data paint a similarly rosy picture. They say the EU sold €379 million ($501 million) worth of passenger vehicles with 1.5L to 3.0L engines in 2011, up 24% from 2010’s €290 million ($383 million), itself up 19% from 2009’s exports valued at €234.5 million ($310 million).

The EU’s 2011 exports of vehicles to Singapore with engines more powerful than 3.0L were valued at €161 million ($217 million), down 7% from 2010's €175.5 million ($232 million), which was up from 2009’s €82.5 million ($109 million).

The ACEA’s doubts about the trade deal are further underlined by the bureaucracy that typically faces drivers wanting to buy a car in Singapore.

In order to register the new vehicle, they first must obtain a certificate of entitlement (COE) in an appropriate vehicle category, which grants the right to vehicle ownership and use of the city-state’s limited road space for 10 years.

"The free-trade agreement will not affect sales of cars in Singapore because the market size is controlled by the government through the COE system," a local dealer tells WardsAuto, characterizing this as a consumer-quota system.

Francis Tan, an economist at the United Overseas Bank in Singapore, warns about such local restrictions, noting car purchases still will attract the government’s mandatory goods and services tax, for example, regardless of the trade deal.

But local auto firms are enthused about the prospects of expanding their market presence and exports to Europe, according to an executive at Kheng Keng Auto, Singapore's leading automobile and auto-parts importer and exporter.

Sales have jumped 80% this year, says Sales Director Leo Tan, and the company wants to increase its shipments to Europe.

"Demand and interest in European cars has definitely spiked and become more intense in Singapore today as compared to a decade ago," he says.

Singapore has a significant car-parts industry, which he says has two drivers: First, vehicle components must be available for cars sold in the local market as part of the aftersales service. Proliferation of more complex vehicle systems raises demand for re-manufactured parts.

Secondly, re-manufactured parts require a significant amount of labor. "In key markets in Europe, labor can be much (more expensive) than in Singapore, so when the import duties are removed from the price of the parts, we believe that demand will pick up in those European markets," Tan says.

The EC says both the EU and Singapore are seeking seek ratification of the automotive trade deal from their respective legislative authorities and foresee initialling the draft agreement next spring.

– with Heather Tan in Singapore