The KSFTA, Korea's first comprehensive bilateral FTA, will not only provide significant economic benefits for Singapore, but also provide a framework for building a strong strategic and economic partnership between Korea and ASEAN countries. It is therefore designed to be a building block in the process of community-building efforts towards an East Asian Community in the long run. The efforts by IE Singapore to expand business linkages after the enforcement of the KSFTA offer valuable lessons in the implementation of FTAs.

However, it is important to note that the KSFTA, while being an important constituent of this process, will need to be supported by similar ongoing efforts by Korea and other ASEAN members. These countries would therefore need to strive towards negotiating comprehensive bilateral FTAs that generate substantial and concrete economic benefits in not just commodity trade and service transactions, but in reducing transaction costs and in bringing about greater transparency and private-sector participation in the business environment in Asia. Towards this end, FTAs do serve as an important regional community-building tool towards adjusting to the forces of globalization. However, while negotiating such agreements, important domestic reforms to boost competitiveness would need to be addressed simultaneously to generate a win-win situation for all parties involved in such negotiations. This would be particularly crucial for middle- and lower-income developing countries in Asia that do not possess enough bargaining power during negotiations to generate substantial economic benefits through an FTA.

INTRODUCTION

After seven rounds of negotiations beginning in 2003, the negotiations for the KSFTA were substantially concluded in November 2004 after trade ministers from both countries met on the fringe of the ASEAN Summit in Vientiane, Laos. The agreement is currently enforced since March 2006.

The KSFTA is a comprehensive and highly substantive agreement, which is WTO-consistent in principles and WTO-plus in commitments. It aims to further enhance trade and investment flows between the two countries, bringing about a broadening and deepening of bilateral economic ties. The agreement covers diverse areas ranging from trade in goods, services and investments to that of competition policy, intellectual property protection, government procurement and other broad areas of economic cooperation.

The remainder of this chapter examines the salient features of the KSFTA by examining its provisions in the above areas, and attempts to also analyse the possible benefits for Singapore businesses and consumers.

TRADE IN GOODS

Under the KSFTA, 100 per cent of the Republic of Korea's (ROK's) exports will be allowed tariff-free entry into Singapore. Thus, Singapore will remove the remaining tariffs on alcoholic products immediately once the KSFTA comes into force.

Concomitantly, in case of Singapore's exports destined for Korea, up to 75 per cent of domestic exports valued at S$3 billion will enjoy immediate tariff elimination with the coming into force of the KSFTA. A further 14 per cent of domestic exports will also enjoy tariff-free access to the ROK market over the next ten years.

Free Trade Agreements (FTAs) are viewed as superhighways that connect major economies and new markets. It is in the above context that Singapore has been engaged in negotiating bilateral Free Trade Agreements (FTAs) with its major trading partners who are “like minded” in terms of willingness to undertake comprehensive measures to liberalize trade and investment among themselves. Korea and Singapore, sharing the above vision on a variety of regional and international issues and having enjoyed strong political relations decided to embark on negotiations for a bilateral FTA in 2003. The conclusion of substantive negotiations of the Korea-Singapore Free Trade Agreement (KSFTA) was announced on 29 November 2004.

On 2 March 2006 Singapore's bilateral FTA with the Republic of Korea came into force. The Korea-Singapore FTA (KSFTA) is Korea's first comprehensive FTA involving any ASEAN member country and provides a framework for building a strong strategic and economic partnership between Korea and the ASEAN countries. It is therefore designed to be a building block in the process of community building efforts towards an East Asian Community in the long run.

The KSFTA is a comprehensive and highly substantive agreement, which is WTO-consistent in principles and WTO-plus in commitments. It aims to further enhance trade and investment flows between the two countries, bringing about a broadening and deepening of bilateral economic ties. The agreement covers diverse areas ranging from trade in goods, services and investments to that of competition policy, intellectual property protection, government procurement and other broad areas of economic cooperation. The book outlines the salient features of the agreement and the concrete benefits that would accrue to Singapore businesses and consumers from its use, in a range of areas beyond tariff reduction in trade in goods.

INTRODUCTION

This chapter explores the implications of the Korea-Singapore Free Trade Agreement (KSFTA) for Korea-Singapore economic relations. It is organized as follows. Section 2 analyses Korea's Trade Policy Strategy and highlights the importance of FTAs. Section 3 analyses the current state of bilateral economic relations between the two countries. Section 4 analyses the implications of the KSFTA for bilateral relations, and concludes the chapter by providing strategies for win-win cooperation.

In 2005, Korea ranked 11th among the world's largest economies with a gross domestic product (GDP) of about US$790 billion. It was only the twelfth country to pass the US$500-billion mark in trade volume after countries such as the U.S., Germany, Japan and China. Between 1970–2004, Korea achieved 10.1 per cent average in annual GDP growth rate. In 2003–05, Korea exhibited moderate economic growth of 4–5 per cent due to stagnant domestic demand. In 2006, the real GDP growth rate was expected to be around 5 per cent, with private consumption growth around 3–5 per cent, equipment investment growth 5–9 per cent and exports another 8–12 per cent. The economy is expected to grow by 4.3 per cent per annum till 2020. Because of sluggish growth of inputs, the potential GDP growth rate is likely to decline for the next 15 years. Total factor productivity is expected to contribute more significantly.

The Korean Economy

The Korean economy currently ranks number one in the world's shipbuilding industry, accounting for 41.2 per cent of the global shipbuilding production. The Korean steel industry has also emerged as an influential producer worldwide and ranks fifth largest in the world, producing 46.3 million tons of steel per year. It is also the world's No. 6 manufacturer of automobiles and produced 3.7 million cars in 2005.

INTRODUCTION

Singapore has always been a leading advocate of global trade liberalization and is often placed in the league of “super-trading” nations. Its total trade volume is currently three times its GDP. Its growth strategy over the past decades has maintained a policy of outward orientation and reduced barriers to international trade and investment. Fully committed to the WTO, Singapore believes that it is the only mechanism that can ensure a fair, inclusive and predictable environment for all economies to engage in and benefit from trade. However, limited progress in the WTO on the multilateral trade and investment liberalization process in recent years has pursuaded it to simultaneously pursue the second and third tracks to trade liberalization through the regional and bilateral routes, in order to sustain its global competitiveness in the international market.

The move towards bilateral trade liberalization through the pursual of Free Trade Agreements (FTAs) was particularly evident in the aftermath of the East Asian crisis of 1997–98, and its resultant adverse impact on trade and liberalization efforts within ASEAN and the APEC. With the slowing down in the pace of and willingness of Singapore's ASEAN neighbours to undertake trade and investment liberalization, Singapore was persuaded to explore the third route of trade liberalization through bilateralism to advance freer trade in Southeast Asia. This strategy has been aimed at complementing its strong advocacy of multilateral liberalization. Singapore's policymakers are convinced that suitably designed regional and bilateral Free Trade Agreements can complement the WTO and help stimulate further global trade libralization and play a catalytic role in moving the WTO forward.

The Asian values debate, cut off abruptly by the Asian crisis, revealed the international limits of the discursive framework for the evolution of Sino-Singapore ties, but it did not have a bearing on those relations themselves. By contrast, the hobbled fortunes of the Suzhou International Park (SIP), an ambitious attempt to build a Chinese township with Singapore characteristics, tested the limits of Singapore's engagement of China. The SIP, which began as a 65–35 joint venture between Singapore and China, encountered problems that ceased only when the two stakes were reversed. The Asian crisis played a role in the park's problems by exacerbating its competition for investment with a neighbouring industrial park, but the causes of the conflict in Suzhou went deeper: to a seemingly intrinsic incompatibility between the Singapore and Chinese ways of doing business in spite of ethnic affinity and empathy with each other's political systems.

The SIP's origins were economic. They lay in an attempt to supplement Singapore's economy with earnings made abroad. Singapore's regionalization strategy, which was formulated in the mid-1980s, encouraged overseas investment by Singapore companies and joint ventures to “combine the competitive strengths of Singapore and its partners to attract international investors”. The strategy led to official initiatives to establish growth triangles and overseas industrial parks. Thus, the SIJORI growth triangle became a partnership between Singapore, Johore in Malaysia, and Riau in Indonesia that “links the infrastructure, capital, and expertise of Singapore with the natural and labour resources of Johore and Riau”. Industrial parks in India and Vietnam, too, became a part of Singapore's efforts to develop an external wing for its economy to overcome the scarcity of its land and human resources, tiny domestic market, and its loss in comparative advantage as a result of rising costs. “Neighboring emerging economies serve as extensions or frontiers toward which Singapore transfers management know-how and administrative skills such as clean and efficient government (software).” Replicating its successful development experience served Singapore's aspirations to be a gateway for multinational corporations wishing to invest in the region.

An extraordinary display of discord erupted between China and Singapore in July 2004, when Lee Hsien Loong paid a private visit to Taiwan shortly before becoming the city-state's Prime Minister. Beijing responded with almost visceral asperity to the visit, saying that it had violated Singapore's commitment to the one-China policy and had hurt China's core interests. China followed up its words with punitive action, cancelling bilateral visits and exchanges and threatening to delay talks on a bilateral free trade agreement. Beijing was mollified only after Singapore emphasized its support for the one-China policy and its opposition to Taiwanese independence. What was astonishing about the dispute was China's vehement denunciation of a Taiwan visit by the leader-designate of a sovereign nation whose troops actually trained in Taiwan. The Chinese response prompted Eric Teo Chu Cheow to place the pique in historical perspective. According to him, Beijing's ire went beyond the Taiwan visit and expressed its frustration over what it saw as Singapore's increasing tilt towards the United States at a time when China was wary of America's intentions. Among the signs of the apparent tilt were Singapore's “eagerness” to sign a free trade agreement with Washington in the midst of the American invasion and occupation of Iraq, “for which Singapore pledged support for the US-led coalition in Iraq”; and Singapore's support for an American proposal to send its troops to help patrol the Malacca Straits, which “shocked” the Chinese. Certain quarters in Beijing saw Singapore as participating in a pro-US and anti-Chinese coalition of countries such as Japan, Taiwan, and South Korea that were forming a de facto arc of containment against China. The “mentality behind China's ancient tributary system seems to be bearing out on certain recent geo-political trends emanating from China”, Teo argues, mentioning Beijing's desire to reduce America's influence in the Asia-Pacific and advance its own vision of Asian regionalism by excluding the United States from the region, which “Beijing may once again consider its own ‘backyard’ ”. Teo views Beijing's “charm offensive” towards Singapore's neighbours as being among its moves to “pacify” China's immediate region, “as in the old days of China's imperial tributary system under the Ming and Qing Emperors”. Teo's use of an historical analogy suggests that China's imperial past remains a framework by which current events might be judged.

The rise of China and India has become an issue of global significance as we enter the 21st century. Concerns about Malthusian dilemmas, economic stagnation and weak governance of these countries clearly seem to have given way to debates on what the future holds for international politics involving China and India as responsible “stakeholders” of the international system. Singapore, with its pragmatic foreign policy driven by an unsentimental balance of power realism, is one of the most active players in the region trying to engage both powers. Singapore's important role in building stronger ties between the two countries and ASEAN has attracted considerable attention, especially as Singapore has played a major role in promoting preferential trading arrangements (free trade agreements) between ASEAN and both China and India. Singapore's vital role in ASEAN also means that both China and India are striving to have closer working relations with Singapore. This book is therefore an important and timely contribution to the debate on Singapore's emerging relationship with China and India.

Reflecting the title of the book, this work captures the essence of how Singapore is positioning itself between China and India. While Asad notes that Singapore's engagement of China is deeper, longer and more substantial, both New Delhi and Singapore are trying to enhance their relations with each other. The book provides a penetrating analysis of India's attempt to be a major player in the Southeast Asian region. While most academic writings on Singapore's relations with India and China tend to focus on the economic rationale of these relations, this book is one of the first attempts to outline both the political and military/ defence aspects of their relations. Asad argues convincingly that these aspects are equally significant, if not more important than the economic relationship as Southeast Asia could be a theatre of competition between China and India as these two emerging powers expand their spheres of influence. He also predicts that the region could be a theatre for India to evolve new partnerships with China, thereby moving from the post-1962 policy of containment to co-engagement with China. Asad predicts that Singapore's relations with these two emerging powers will have important implications not only for the country but also for the larger ASEAN region.

Singapore's attempt to engage India predates its engagement of China, but the divergence between the positions of Singapore and New Delhi on Cold War-generated issues, primarily the Vietnamese invasion of Cambodia, were accompanied by the city-state's growing closeness to Beijing. The end of the Cold War saw Sino-Singaporean relations continue to gain in depth, but it heralded a quieter and less-noticed change in the Republic's relations with India. “The end of bipolarity meant that these two states did not have to view mutual relations through the prism of their superpower preferences,” Kripa Sridharan notes. Hence, Singapore invested much energy in encouraging India's domestic economic reforms and inviting it to move beyond its central role in South Asia. This expansion of Indian influence began to take shape when, between 1992 and 1996, India first became a sectoral dialogue partner and then a full dialogue partner of ASEAN. India joined the ASEAN Regional Forum in 1996 after Singapore lobbied hard to overcome ASEAN's reluctance to include New Delhi because of fears that its entry would import the subcontinent's political and military tensions into the ARF. It took nearly a decade, from 1987 to 1996, for India to become a stable participant in the ASEAN process, this effort culminating in the first India-ASEAN summit held in Phnom Penh in 2002. “Singapore has accepted the role of India's ‘sponsor’ in Southeast Asia,” Satu P. Limaye avers, in words reminiscent of the city-state's attempts to bring China into the economic and political orbit of Southeast Asian relationships. Sridharan, too, believes that Singapore in particular among the ASEAN states has been “most alive and sensitive” to the changes underway in India. Although India is not, unlike China, Japan and South Korea, a part of the ASEAN+3 process, its status as an ASEAN dialogue partner and its expanding economic, political and security engagement with Southeast Asia have broken the impasse once created by New Delhi's dismissive attitude towards the region's pro-capital, pro-America, “Coca Cola governments”.

Hedley Bull's The Anarchical Society: A Study of Order in World Politics is premised on the idea that states form a society without government. In citing that apparent paradox, Bull upholds the position of Hugo Grotius on international reality against the traditions of both Thomas Hobbes and Immanuel Kant. In the Hobbesian or realist tradition, international relations are defined by conflict between states, peace being but “a period of recuperation from the last war and preparation for the next”. In the Kantian or universalist tradition, by contrast, humans seek companionship in transnational relationships, with the horizontal conflict of ideology between liberators and oppressed cutting across the boundaries of states and possessing the potential to sweep the system of states away.

In between these two grand extremes stands the Groatian or internationalist tradition, which argues that sovereigns or states are limited in their conflicts by common rules and institutions, but that they do not thereby lose their character as the principal players in international politics. Between the nightmare of perpetual war in the making, and the dream of perpetual peace, intervenes the imperative of commerce. “The particular international activity which, on the Groatian view, best typifies international activity as a whole is neither war between states, nor horizontal conflict cutting across the boundaries of states, but trade — or, more generally, economic and social intercourse between one country and another.” Grotius' emphasis on the freedom of the seas is an early indication of the importance of trade in the proper functioning of the international system, a leitmotif of Singapore's worldview as well.

Indisputably, Singapore's foreign policy does not correspond to every element of the Groatian tradition that other authors have identified. Martin Wight, for example, emphasizes the primacy of domestic policy in the Groatian paradigm, contrasting it with both the realist approach — which declares the primacy of foreign policy — and the revolutionist promotion of international ideological bonds in Kantianism. Clearly, the primacy of domestic policy over foreign imperatives does not apply to a trade-dependent city-state.

Singapore's intensely political engagement of China, apparent in the previous chapters, went into higher gear during the Asian values debate of the late 1980s and the 1990s. Singapore's international advocacy of Asian cultural exceptionalism, reflecting a conservative approach to democracy and human rights deemed to be beneficial to economic growth, paralleled its defence of Chinese political exceptionalism. Combined with an emphasis that emerged earlier on Confucian values, transmitted through Mandarin, as constituting a cultural ballast for Singapore's Chinese majority, the Asian values initiative provided an expansive ideological framework for Singapore's evolving relations with China. There, Confucianism had emerged as one of the strands of the new nationalism, which itself had arisen as a response to the Chinese Communist Party's experience of crises of faith in Marxism and Maoism since the 1980s; the need to protect China from disintegration brought on by economic decentralization; the need to reverse the worship of Western culture; and a sense of pride in a great tradition that had allowed the country to reform itself without breaking up, unlike the Soviet Union. At the national level, Confucianism could be a panacea for the familiar anomie of individuals in the industrialized West that now was seeping into post-communist China. At the international level, a pragmatic or mainstream Confuciannationalism, contrasted with the conservative and irrational strains of Confucian fundamentalism that once had made the Chinese backward-looking, would help China to find its place in the world. The nonantagonistic premises of Confucianism were preferable to the social Darwinism on which Western civilization rested; moreover, the fact that Confucianism did not possess a strong sense of salvation gave the civilization an advantage in a world where “relations between different religions are competitive because there is only one God”.

It is possible to detect in the Confucian revival in China a change in philosophical direction among members of the intelligentsia even as the state sought a new source of legitimacy in the rediscovery of a national past relevant to a post-communist future driven by the market. It would be questionable to claim that Singapore espoused Confucian or Asian values to advance its relations with rising China.

Lee Kuan Yew's choice of democratic India over communist China in the 1950s underscored the political logic of Singapore's relations with Beijing, which were far less warm than its ties with New Delhi on Singapore's independence in 1965. Other factors supporting the Singapore view were that communist China was helping insurgencies in Southeast Asia, and that Beijing was an ethnic source of attraction to Chinese in the region. Lee's People's Action Party (PAP), democratic socialist and anti-communist in orientation, had to contend with the dual pulls of ideology and ethnicity that China exercised on the Chinese majority in Singapore, where the PAP was pledged to the principle of multiracialism and not nationalism predicated on Chinese supremacy. India, by contrast with China, identified itself with the ideals of democracy, socialism and non-alignment, these values being consonant with the PAP's self-definition and worldview as well.

Yet, in the decade and a half after Singapore's independence, several trends redrew the Asian security landscape that Singapore inhabited. The Sino-Indian War of 1962 rebuffed hopes of Third World internationalism inaugurated by the Bandung Conference of 1955, in whose spirit of Afro-Asian solidarity had originated the Non-Aligned Movement that was established in 1961. Dawn in Bandung was overtaken by the high noon of colonial retrenchments, superpower initiatives, and consequent alignments that marked Asia's trajectory from the mid-1960s onwards. Britain announced in 1967 that it would withdraw its forces in Malaysia and Singapore by the mid-1970s, a date that was subsequently brought forward to 1971. The Sino-Soviet split, which had begun in the late 1950s, peaked in 1969. The Soviet Union's Asian collective security proposal, first advanced by Nikita Khruschev in 1956, was taken up by Leonid Brezhnev in 1969 as a means of containing China, whose domestic and foreign policies by then were convulsed by a Cultural Revolution that revived fears of Beijing as an unpredictable and destabilizing force in Asian politics. The Soviet security proposal came on the heels of the Brezhnev Doctrine of 1968, which asserted Moscow's control over Warsaw Pact countries and its right to define “socialism” and “capitalism” in its relations with socialist countries, which would not be allowed to deviate from Soviet leadership in their conduct of domestic politics and international relations.

Ironically for the two sides of the Taiwan Strait that have one of the most hostile relations in the world, Singapore's ties with China were foreshadowed by its relations with Taiwan soon after the city-state became independent. Three sets of factors underscored the similarity: economics, politics and culture. Taiwan and Singapore were two Newly-Industrializing Economies that had taken off as part of the Japan-led Flying Geese formation. Politically, Taiwan and Singapore were authoritarian, although the Republic of China began life as a military dictatorship imposed on the island by a party that, having lost the civil war, was determined to recapture the mainland; and Singapore was an authoritarian democracy led by civilians determined not to return humbled to a Malaysia from which the island had been ejected. Taiwan and Singapore were united in their hostility towards communism.

“Apart from my good personal chemistry with (Generalissimo Chiang Kai-shek's son and Taiwanese leader) Chiang Ching-kuo, the foundation of our relationship was that we were both against communism. The Chinese Communist Party was his mortal enemy and the Malayan Communist Party, which was linked to the Chinese Communist Party, was mine. We had a common cause,” Lee Kuan Yew writes in his memoirs. Culturally, Taiwan and Singapore (like Hong Kong) were inhabited by maritime Chinese communities. Referring to Taiwan and Hong Kong, Lee writes: “The rapid progress of these two maritime Chinese communities gave me great encouragement. I picked up useful pointers. If they could make it, so could Singapore.” These aspects of Singapore's relations with Taiwan presaged its engagement of China as Beijing moved away from communism in its economic planning, settled for hard authoritarian politics, and unearthed a Chinese cultural self that had been subsumed by the demands of proletarian internationalism. Singapore's relations with Taiwan bore an uncanny resemblance to its relations with post-communist China.

This is true but for a crucial proviso: Singapore's ties with Taiwan are strategic, and its ties with China are not. Just two years into independence, land-scarce Singapore began discussions with Taipei on building up its military forces. The Israelis could not offer the facilities that the Taiwanese could to train pilots and naval officers.

Tiananmen Square is named ground. The Square is the figurative centre of China's literal centre; it is what a journalist calls “China's state cathedral”. Tiananmen, the Gate of Heavenly Peace — the main gate leading from the centre of power to the rest of China and thence the world — is the symbolic space where the emperor could make spiritual contact with his subjects. The spiritualism emanated by power transcended the rise and fall of not just dynasties but ideologies. Tainanmen, which had been a site of the May Fourth Movement of 1919, was the arena where Mao Zedong proclaimed the birth of a new China in 1949. He had the area outside Tiananmen levelled, rebuilding the square into a grander version of Moscow's Red Square, which he might have had in mind. Tiananmen was where Mao met Red Guards during the Cultural Revolution. But if the Square was where the ruler met the masses, it was also where the masses met their ruler. In the post-Mao China of 1978–79, thousands recorded their protests on a stretch of blank wall called “Democracy Wall” to the west of Tiananmen Square. Deng put a stop to this expression of discontent when people began to attack the Communist Party and system. Wei Jinsheng, a dissident who had demanded democracy as the “fifth modernization” to complete Deng's Four Modernizations, was punished severely. Initially, Deng had appeared to believe that economic reforms could not survive without a free discussion of problems and solutions. This idea, which had blossomed during the Prague Spring of 1968, had been adopted by Chinese Communist Party Chairman Hu Yaobang and had been advanced by Soviet leader Mikhail Gorbachev. However, as inflation, corruption and nepotism accompanied China's reforms, the anger of workers, students and intellectuals was sidelined in Beijing's quest to preserve political stability at all costs. When Chinese television announced Hu's death on 15 April 1989, popular mourning over his demise became a channel for the expression of repressed demands for political change, in a replay of the demonstrations at the funeral of Zhou Enlai in 1976. China was in ferment.

On the international front, although the Berlin Wall had several months left to fall, the winds of glasnost (openness) released by Gorbachev in 1985 were travelling well.