US embassy cable - 05SINGAPORE2077

UNCLAS SECTION 01 OF 02 SINGAPORE 002077 
 
SIPDIS 
 
STATE PASS USTR FOR AUSTR BWEISEL AND EBRYAN 
DOC FOR CPETERS 
 
E.O. 12356: N/A 
TAGS: ECON, ETRD, EINV, EFIN, KTDB, EAIR, SN, IN 
SUBJECT: SINGAPORE AND INDIA SIGN COMPREHENSIVE ECONOMIC 
COOPERATION AGREEMENT (CECA) 
 
REF:  04 SINGAPORE 3294 
 
1.  Summary.  The Comprehensive Economic Cooperation 
Agreement (CECA) signed June 29 in New Delhi by Indian Prime 
Minister Manmohan Singh and Singapore Prime Minister Lee 
Hsien Loong solidifies a growing trade relationship between 
India and Singapore.  This is India's first free trade 
agreement that goes beyond trade in goods, and one that 
fosters Singapore's ambition to serve as India's gateway to 
the region's economies, especially ASEAN.  The CECA 
addresses trade in goods and services, investment, mutual 
recognition of professions as well as enhancements to the 
bilateral double taxation avoidance agreement and the air 
services agreement.  U.S. companies stand to gain in sectors 
such as electronics and pharmaceuticals.  The full text of 
the agreement, which comes into effect August 1, 2005, can 
be viewed at: 
 
.  End Summary 
 
CECA - Key features 
------------------- 
 
2.  Trade in goods: 
 
-- Effective August 1, Singapore will eliminate all duties 
on goods (40% local content) made in India, except for 
tobacco and cars. 
 
-- India will reduce or eliminate tariffs on approximately 
75% of Singapore's exports (40% local content) within five 
years.  Singapore industries that benefit include 
electronics, instrumentation, pharmaceuticals and plastics. 
 
3.  Trade in services: 
 
-- Singapore's three largest banks -- DBS Group Holdings, 
United Overseas Bank (UOB) and Oversea-Chinese Banking Corp. 
(OCBC) -- will be allowed to operate branches in India as 
wholly owned subsidiaries, on par with Indian banks. 
Alternatively, as foreign banks, they can open a combined 
total of 15 branches over four years.  Indian banks may 
apply for wholesale bank licenses in Singapore and up to 
three qualifying full bank licenses. 
 
-- Indian-owned or controlled funds can invest an additional 
US$250 million in equities and instruments listed on the 
Singapore Exchange, in addition to the Indian government's 
US$1 billion cap that they can already invest abroad. 
 
-- Professional bodies in both countries -- accounting and 
auditing, architecture, medical doctors, dental and nursing 
services -- will conclude agreements within a year 
recognizing their members' respective educational and 
professional qualifications. 
 
4.  Investments: 
 
-- The Singapore government's two investment arms, Temasek 
Holdings and Government of Singapore Investment Corporation 
(GIC), can each acquire up to 10% of an Indian listed 
company.  Previously, India did not recognize Temasek and 
GIC as distinct entities, and restricted them to a combined 
cap of 10% on investment in individual Indian companies. 
 
5.  Enhanced Double Taxation Agreement (DTA): 
 
-- Singapore and India have agreed to revise their existing 
DTA, signed in 1994, to effectively grant Singapore similar 
status to Mauritius, whose companies can invest in India 
without paying capital gains tax (Singapore has no capital 
gains tax).  Note:  Despite changes in the DTA to facilitate 
information-sharing in the hope of reducing tax fraud, 
restrictions like those in Singapore's other DTAs limit the 
information-sharing's contribution to effective law 
enforcement.  End note. 
 
6.  Air Services: 
 
-- Both Singapore and India have committed to explore 
further aviation-related liberalization through their 
bilateral Air Services Agreement, and to an open skies 
agreement for charter flights. 
 
Growing Trade and Investment Ties Underpin the CECA 
--------------------------------------------- ------ 
 
7.  According to Singapore government statistics, two-way 
trade between Singapore and India rose nearly 50% in 2004 to 
US$7.2 billion or roughly half of total India-ASEAN trade. 
Singapore runs consistent trade surpluses with India (US$1.4 
billion in 2004); its top export items are overwhelmingly 
high-tech related.  Cumulative two-way trade for the first 
five months of 2005 increased 45% over the same period in 
2004 to US$4.0 billion, the fastest rate among Singapore's 
top trading partners, including China.  India is Singapore's 
14th largest trading partner, and is expected to be among 
its ten largest trading partners by 2006.  According to 
OECD, India received US$5.3 billion in FDI in 2004; 
Singapore has become one of its significant foreign 
investors, with Temasek Holdings alone estimated to account 
for nearly US$1.5 billion.  Temasek has invested in banks, 
pharmaceutical manufacturers, a hospital chain, and a major 
rice exporter.  Government-linked SingTel has also made 
large investments in the telecom sector.  PSA and SembCorp, 
among others, have concentrated on key infrastructure 
projects at airports and ports. 
 
Opportunities for U.S. Companies 
-------------------------------- 
 
8.  U.S. companies that are locally incorporated 
subsidiaries should be accorded the same treatment under the 
CECA as Singapore companies.  U.S. companies in general 
stand to gain from tariff reductions in sectors such as 
consumer electronics and pharmaceuticals.  This is not the 
case for the petrochemicals sector, however, which India 
managed to keep outside the scope of tariff concessions, 
citing competitive concerns for what it considers to be one 
of its key industries.  Other products not covered by the 
CECA include steel, satellite receivers, motor vehicle 
engines, cosmetics, and tobacco and cigarettes. 
 
FERGIN