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III. TRADE-RELATED ASPECTS OFINVESTMENT POLICIES
(1) Foreign Direct Investment: General Policy Direction
1. Singapore 'srapid economic growth hasbeentoalarge extent duetomassive foreign direct
investment (FDI) inflow.1In1993, foreign-owned companies accounted forabout 85percentofthe
direct exports ofthemanufacturing sector. Initially, themajority ofinvestments wereinpetroleum
refining andlower value-added electronics activities. AsSingapore upgraded tohigher value-added
industries, investment inelectronics, machinery, computers, pharmaceuticals andprinting expanded.2
2. Singapore 'spolicy toencourage FDIinvolves bothtaxandnon-tax incentives forforeign and
localfirms alike. Thispolicy complements Singapore 'sliberal exchange régime, withnoexchange
controls orformalities onpayments orcapital transfers inanyforeign currency ortoanycountry.
Inaddition, political stability, highly efficient transportation andtelecommunication systems, a
well-developed infrastructure andanenthusiastic workforce havecombined tomake Singapore agood
location forforeign investment.
3. Singaporean lawmakes nodistinction between domestic investment andforeign investment
except forlimitation onforeign ownership intelecommunications, financial services andthenational
airline inparticular. Foreign ownership ofcertain residential property requires approval from the
Controller ofResidential Property under theMinistry ofLaw. There canbenoforeign ownership
ofpublic utility services, arms andammunition.
4. Pioneer status taxincentives areadministered bytheEconomic Development Board. According
totheauthorities, there arenospecific obligations suchaslocal content, export performance or
technology transfer requirements attached tothese incentives.
5. In1993, theGovernment setupaCommittee toPromote Enterprise Overseas. TheCommittee
recommended thatGLCs andstatutory boards should partner private-sector companies inoverseas
ventures forming joint-ventures andconsortia. TheCommittee alsosuggested thattheEconomic
Development Board, theTrade Development Board andtheMinistry ofForeign Affairs (MFA) offices
overseas should work closely inhelping Singapore businessmen explore business opportunities inthe
region. These efforts include providing general andcommercial information, identification ofbusiness
opportunities, facilitating access togovernment officials inhostcountries, andestablishing anetwork
ofInvestment Guarantee Agreements.3
6. Faced withrising labour costs andshortage ofland, Singapore pursues a"regionalization"
policy andencourages companies toshiftlabour-intensive operations offshore. TheGovernment formed
theRegionalisation Steering Committee (RSC) tospearhead Singapore 'sRegionalization programme
(BoxIII.1). Target markets forSingapore 'sregionalization thrust include ASEAN, India, China and
Myanmar.
1TheratioofFDItoGDP issubstantially higher thanother rapidly industrializing countries (Table AIII.1).
2Ministry ofTrade andIndustry (1994), p.93.
3TanChwee Huat, pp.24-26.Singapore WT/TPR/S/14
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BoxIII.1: Regionalisation Steering Committee (RSC)
TheMinistry ofTrade andIndustry (MTI) spearheads Singapore 'sregionalization programme. Tothis
end,MTI anditsstatutory boards have actively worked towards establishing aframework foreconomic
co-operation withtarget countries, inorder tofacilitate theprivate sector 'sregionalization efforts.
Formed inMarch 1994, theRegionalisation Steering Committee (RSC) ischaired bythePermanent
Secretary ofMTI, withtheheads oftheEconomic Development Board, theTrade Development Board,
theSingapore Tourist Promotion Board andtheJurong Town Corporation asmembers. TheRSC meets
onabi-monthly basis.
Theterms ofreference oftheRSC are:toco-ordinate thework plans andfollow-up actions ofthe
various agencies intheir drive topromote regionalization; toprovide inputs andfeedback onthe
prospects andopportunities forregionalization; togiveconstant updates ontheprogress ofSingapore 's
flagship projects abroad; andforMTI topass onpolitical thinking andinstructions toagencies ina
systematic andco-ordinated manner.
Source: Government ofSingapore.
(2) Legal Framework ofForeign Direct Investment
7. There isnooverall lawgoverning FDI. However, theEconomic Expansion Incentives (Relief
from Income Tax)Act1995 specifies deductions. Anyone whowishes todobusiness inSingapore,
whether domestic orforeign, mustregister withtheRegistry ofCompanies andBusinesses (RCB) under
theBusiness Registration ActortheCompanies Act.
8. TheRCB, under theMinistry ofFinance, isresponsible fortheadministration oftheCompanies
ActandtheBusiness Registration Act,which regulate thesetting-up andoperation ofcompanies and
businesses. Anyone whointends tooperate abusiness must firstregister afirmorincorporate a
company. Professionals likeaccountants, medical doctors andlawyers neednotregister withtheRCB
astheyareregulated bytheirrespective professional bodies.4
9. Individuals andcompanies registering abusiness firmaseither asoleproprietorship ora
partnership neednotbeSingaporean norincorporated inSingapore. Aforeign firmwhich isnot
registered inSingapore mustregister under theCompanies Actbefore itcanregister abusiness firm.
Every business firmisrequired toappoint amanager whowillberesponsible forthemanagement
ofthebusiness. However, themanager mustbeaSingaporean, Permanent Resident orEmployment
Passholder. Toformacompany, theremustbetwodirectors, oneofwhom mustalsobeaSingaporean,
Permanent Resident orEmployment Passholder.5
10. Branches offoreign companies areregistered, notincorporated, under theCompanies Act,
Cap. 50.Inmost cases, theRCB takes about nineworking daystoregister aforeign company and
issuetheCertificate ofRegistration.6Foreign companies registered inSingapore donothaveautomatic
rights tostation expatriate staffatthebranches inSingapore. Allapplications tostation expatriate
4Registry ofCompanies andBusinesses, (1993).
5Registry ofCompanies andBusinesses (1993), p.12-13 andp.38.
6Registry ofCompanies andBusinesses (1993), pp.30-31.WT/TPR/S/14
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staffmustbereferred forconsideration totheController ofImmigration under theMinistry ofHome
Affairs.
11. There aresome limitations onforeigners 'establishment inthefinancial service industries (see
alsoChapter V).There isnorestriction onforeign ownership offoreign banks. Foreign equity is
limited to40percentoflocally incorporated banks. Foreign shareholding inafinance company has,
since September 1971, beenlimited to20percentofthefinance company 'sshare capital. Foreign
ownership ofStock Exchange ofSingapore (SES) member securities companies isgenerally limited
to49percent,withthepossibility ofincreasing thestake to70percentafterthreeyears ofsuccessful
operations. However, suchcompanies canbe100percentforeign owned iftheydonotdealwith
residents intransactions oflessthanS$5million eachinSESsecurities. Inward portfolio investment
isencouraged bytheGovernment, andthere aregenerally norestrictions onnon-residents 'purchase
orsaleofstocks, shares, bonds orother capital ormoney market instruments.
12. Foreign insurance companies need approval (licensing) from theMonetary Authority of
Singapore. There isnorestriction onforeign ownership offoreign insurance companies. Inthecase
oflocally owned direct insurance companies, foreign participation islimited toaminority controlling
equity stake unless exceptional circumstances justify aforeign party taking amajority equity stake,
forinstance, ifthelocally owned direct insurance company isinserious financial difficulty.
13. Foreign ownership isrestricted forcertain basictelecommunication services (Chapter V(4)(iii)).
Forvalue-added-network (VAN) services, there isnorestriction onforeign equity participation. For
telecommunicationservicesinwhichcompetitionhasbeenintroduced,theTelecommunicationAuthority
ofSingapore limits foreign equity participation to49percent.
14. Inindustries other thanfinancial andtelecommunication services, restrictions onforeigners '
access existforthepurposes ofpublic safety, pollution control andindustrial relations. Aspecial licence
isrequired from theGovernment (Registrar ofManufacturers) tomanufacture thefollowing goods:
(a)under theFirstSchedule oftheControl ofManufacture Act,certain ironandsteelproducts, beer
andstout andfirecrackers, and(b)under theSecond Schedule oftheControl ofManufacture Act,
cigarettes andmatches. Government approval isrequired forforeigners investing inanyproperty other
thanlandandbuildings forindustrial andcommercial purposes andresidential housing unitsinapproved
buildings. Foreign equity holding innewspapers islimited to10percent. There canbenoforeign
ownership ofelectricity, water supplies, gas,airport services, portservices, arms andammunition.
15. Except forownership limits insome sectors described above, foreign firms areeligible for
incentives onequal footing withlocalfirms.
16. There arenorestrictions onoutward foreign direct investment.
17. According totheauthorities, Singapore doesnotadminister anyTrade Related Investment
Measures (TRIM), andonlyminimum changes areexpected asaconsequence oftheUruguay Round.
18. Singapore hassigned bilateral investment protection agreements withthefollowing countries:
Belgium-Luxembourg, Canada, China, theCzech Republic, France, Germany, Mongolia, Netherlands,
Pakistan, Poland, RiauArchipelago, SriLanka, Switzerland, theUnited Kingdom, theUnited States,
andVietNam. Under these agreements, investments bynationals orcompanies ofbothcontracting
parties ineachother'srespective country areprotected foraspecified period, usually 15years, againstSingapore WT/TPR/S/14
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warandnon-commercial risksofexpropriation andnationalization. Most ofthesecontain tax-sparing
clauses toensure thatthebenefit ofSingapore 'sinvestment incentives remain withtheinvestor.7
19. Singapore hasconcluded double taxation treaties withanumber ofcountries: Malaysia, Japan,
United Kingdom, Australia, Belgium, Germany, France, Thailand, Switzerland, Denmark, Sweden,
Norway, Israel, China, Netherlands, NewZealand, Canada, Italy, Philippines, SriLanka, theRepublic
ofKorea,Bangladesh,Finland,ChineseTaipei,India,Pakistan,Poland,andVietNam.TheGovernment
ofSingapore hasalsoratified limited taxtreaties withSaudi Arabia regarding airtransportation, and
Chile regarding shipping.8Although theagreements varyintheircontent, mostinclude mutual grant
ofmost-favoured-nation status andinvestment guarantee provisions.
(3) Trends inInward andOutward Foreign Direct Investment
20. Inrecent years, foreign direct investment made upapproximately 80percentoftotalinvestment
inmanufacturing. Forinstance, in1994, outofthetotalinvestment ofS$5.8 billion inmanufacturing,
foreign direct investment accounted for79percent, i.e.,S$4.3 billion.
21. Most oftheFDIoriginated intheUnited States, Japan, andtheEuropean Union. In1994,
theshares oftheUnited States, Japan, andtheEuropean Union amounted to57,21and21percent
ofmanufacturing investment. Since 1989, share ofinvestment fromtheUnited States hasincreased,
while investment from Japan andtheEuropean Union hasdecreased (Table III.1).
Table III.1
Netforeign direct investment commitments inmanufacturing intoSingapore, byorigin, 1989-1994
(S$m1llion)
Country 1989 1990 1991 1992 1993 1994
United States 520.2 1,054.8 969.2 1,201.4 1,452.2 2,451.7
Japan 541.2 708.2 713.2 858.0 778.4 913.8
Europe 544.2 435.3 684.2 618.7 881.9 907.0
EU 525.4 395.5 615.9 536.1 795.7 893.0
non-EU 18.8 39.8 68.3 82.6 86.2 14.0
Others 19.8 19.6 94.5 55.0 63.5 54.9
Foreign investment 1,625.4 2,217.9 2,461.1 2,733.0 3,177.1 4,327.4
Local investment 333.3 269.5 472.9 748.0 745.5 1,437.2
Total investment 1,958.7 2,487.4 2,934.0 3,481.0 3,922.6 5,764.6
Source: Department ofStatistics Singapore, Yearbook ofStatistics 1994.
22. In1994, investment intheelectrical/electronic machinery, industrial chemicals andpetroleum
sectors accounted for68percentoftotalnetinvestment commitments inmanufacturing. Inthesame
year, theshares ofinvestment inindustrial chemicals andpetroleum increased from11and15percent
to21and20percent,respectively. Theshare ofinvestment intransport equipment increased gradually
from 3percentin1989 to10percentin1994 (Table III.2).
7Dun&Bradstreet (1994/95), p.1276.
8Dun&Bradstreet (1994/95), p.1276; andtheinformation provided bytheGovernment ofSingapore.WT/TPR/S/14
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Table III.2
Netinvestment commitments inmanufacturing byindustry, 1989-1994
(Gross fixed assets atend-year, unit: S$million)
Industry 1989 1990 1991 1992 1993 1994
Electrical/electronic machinery and
supply776.9 1,197.1 1,260.4 1,275.2 1,321.0 1,542.2
Industrial chemicals 213.5 265.9 322.0 294.3 783.5 1,192.8
Petroleum andpetroleum products 290.0 381.0 99.5 454.2 84.6 1,180.3
Transport equipment 50.8 114.1 124.3 167.1 341.2 555.4
Fabricated metal products 101.0 103.1 127.1 152.5 147.9 324.5
(non-electrical) Machinery 131.0 186.2 376.5 343.7 330.8 276.5
Paper products andprinting 93.8 76.2 109.4 89.5 92.2 268.4
Non-metallic mineral products 0.0 9.0 47.9 63.1 126.1 206.8
Other chemical products, except
plastics21.7 35.0 243.4 248.4 340.4 113.9
Food, beverages andtobacco 34.1 43.8 39.8 76.5 92.9 36.3
Plastics products 37.8 8.9 87.2 110.8 48.3 26.9
Precision equipment andoptical
goods93.0 21.1 34.0 138.3 113.7 19.6
Basic metal industries 86.6 0.0 2.8 34.3 68.4 6.6
Leather andrubber products 0.0 10.0 4.4 2.8 1.7 2.6
Wood products andfurniture 2.1 8.6 2.8 4.6 24.7 0.0
Garment andfootwear 0.4 0.2 5.7 10.0 2.4 0.0
Textile 2.0 2.8 11.2 5.2 0.0 0.0
Others 24.1 24.3 35.7 10.5 1.8 11.9
Total 1,958.7 2,487.4 2,934.0 3,481.0 3,922.6 5,764.6
Source: Department ofStatistics Singapore, Yearbook ofStatistics 1994.
23. Outward investment bySingapore companies (excluding financial institutions) wasrelatively
lowinthe1980s. Attheendof1981, thestock ofSingapore 'soutward direct investment wasS$1.7
billion. Over therecent years, FDIflows outofSingapore haveincreased rapidly inparallel with
the"Regionalisation" policy. In1993, itamounted toS$21.2 billion. Almost halfofSingapore 's
investments wereinASEAN andtheother EastAsian countries andwerelargely inthemanufacturing,
commerce andrealestate sectors. TheUnited States andEurope together accounted forabout one-sixth
ofitsinvestments, which waslargely infinancial services (Table III.3). In1993, FDIflows into
Malaysia were 22percentofthetotal.9
9Ministry ofTrade andIndustry (1994), p.94.Singapore WT/TPR/S/14
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Table III.3
Foreign direct investment flows outofSingapore, bycountry, 1990-1993
(S$million)
Country 1990 1991 1992 1993
Asia 7,013 7,402 9,209 11,480
ASEAN 3,567 3,996 4,897 5,934
Hong Kong 2,266 2,369 3,051 4,026
China 240 220 283 444
Chinese Taipei 495 287 350 355
Japan 52 74 76 109
Others 394 457 554 613
United States 690 1,304 1,590 1,755
Europe 1,095 1,398 1,480 1,550
Australia 531 570 637 374
Others 4,293 4,511 4,826 6,081
Total 13,622 15,184 17,741 21,240
Source: Government ofSingapore.
24. More thanhalfofSingapore 'soutward FDIhasbeen concentrated infinancial services.
However, inrecent years, theFDIoutflow inmanufacturing hasincreased (Table III.4). In1993,
theshare offinancial services andmanufacturing inSingapore 'sFDIoutflow amounted to55percent
and22percentofthetotal, respectively.
Table III.4
Foreign direct investment flows from Singapore, byindustry, 1990-1993
(S$million)
Industry 1990 1991 1992 1993
Manufacturing 2,395 2,901 3,760 4,613
Construction 70 72 130 199
Commerce 1,504 1,606 1,967 2,068
Transport andstorage 347 245 290 322
Financial services 7,301 8,648 9,753 11,723
Realestate 1,213 859 963 1,295
Business services 512 605 595 767
Others 280 247 283 254
Total 13,622 15,184 17,741 21,240
Note: Figures include stocks ofattributable reserves ofoverseas subsidiaries andassociates.
Source: Government ofSingapore.WT/TPR/S/14
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25. Uptotheendof1994, more thanS$500 million ofSingapore investments hadbeenmade in
theGrowth Triangle ofIndonesia, Malaysia andSingapore (Singapore-Johor-Riau), mainly Riau. The
Singapore-Johor linkhasalsobeen strengthened, withSingapore companies investing more than
1.5billion Malaysian dollars inJohor.10
26. Asignificant focus ofthe"Regionalisation" policy isonChina. Themostambitious project
thereistheestablishment ofanindustrial township inthecityofSuzhou inChina. Signed inFebruary
1994, theproject isexpected toattract US$20 billion ininvestment andhouse 600,000 people. Another
comprehensive project isbeing established inWuxi. More recently, attention hasalsobeenfocused
onIndia, where Singapore hashelped tobuild theS$250 million information technology parkin
Bangalore.11
10Economic Development Board (1995), p.8.
11Asian Business (1994), p.32.