After 11 years without a trade agreement, Mercosur signed a free trade agreement (FTA) with Singapore in December. The announcement was made during the 63rd Summit of Heads of State of Mercosur, which also made Bolivia’s adhesion to the bloc official. Despite the Brazilian government’s best efforts to ensure that the main news of the event was the sealing of the agreement with the European Union, the announcements involving Singapore and Bolivia were the highlights of the meeting in Rio de Janeiro.
An FTA’s essence is the significant reduction or zeroing of import taxes between the signatory countries aiming at expanding trade between them. Each country’s tax system reflects its degree of trade openness. Singapore, for instance, is seen as an open economy oriented towards the foreign market. Around 99% of imports enter the country with zero tax. There are only four categories of taxable goods: alcoholic beverages, tobacco products, motor vehicles, and oil products. Moreover, the country has a broad network of free trade agreements: 27.
If taxes are already virtually zero, what are the benefits of an agreement with Singapore? In addition to the positive impacts on the Brazilian economy expected by the Ministry of Industry, Trade, and Services (MDIC), the agreement has a much broader importance. Firstly, it is the first FTA that Mercosur has signed with an Asian country. Currently, the South American bloc’s network of agreements has a low range, especially in the agricultural sector. One of the main reasons is the absence of Asia from this list.
In 2022, Brazil sold US$ 79 billion in agricultural products to Asia. This represented 50% of the sector’s total exports. As of November this year, that figure has already reached US$ 87 billion, and the Asian share has risen to 54%. China is clearly responsible for the lion’s share of it, but other Asian countries are actually gaining prominence as end destinations for Brazil’s agricultural exports; such is the case of Singapore, which bought US$ 675 million last year, 30% more than in 2021.
Singapore needs better natural conditions for agricultural and livestock production; therefore, it relies heavily on imports to ensure domestic supply. The country imports around 90% of the food consumed locally. This makes the Singaporean market extremely attractive to Brazil, the world’s third-largest food exporter.
Another reason why closer relations with Singapore are so important is its geographical location and the country’s significant role as Asia’s financial center. Singapore’s port is the second busiest in the world, and around 80% of the cargo that goes through it has other markets as its end destination. Moreover, the country has a framework of incentives to obtain foreign investment; for this reason, companies acting in the Asian market have chosen the country as a place to set up shop.
Singapore, which means “Lion City,” is a modern city-state with a robust innovation ecosystem and the look of a global metropolis. The country is slightly smaller than Goiânia, with around 5.8 million inhabitants and a GDP per capita almost nine times higher than Brazil.
Since Singaporeans speak the two main languages of the business world, English and Mandarin, the country strives to remain neutral in the geopolitical dispute between “West and East.” So that’s why Singapore hosted the historic meeting between then-US President Donald Trump and North Korean leader Kim Jong-un in 2018.
For Brazilian agribusiness, the agreement can potentially expand the sector’s exports, not only to Singapore but to other Southeast Asian countries. The terms negotiated in the FTA favor access for agricultural products, such as the acknowledgment of “pre-listing” as a process for qualifying companies. Through this process, the exporting country (in this instance, Brazil) informs the importing country (Singapore) of the business premises that can trade a certain animal product, without the express need for a local inspection.
In an increasingly complex international context, where uncertainty is the only certainty, the agreement signed with Singapore brings a rare aspect these days: predictability of rules. This feature is crucial, especially for the agricultural sector.
We hope this will be the first of several agreements to be signed with Asia and other regions where population growth and rising income have created greater demand for food. Brazil is already a main player in ensuring global food security and the only country in the world posited to increase its domestic production sustainably to meet its population’s and other nations’ needs.
Sueme Mori is the Director of International Relations at the Brazilian Confederation of Agriculture and Livestock (CNA)
*Article originally published on Broadcast