Singapore’s services trade with Russia could be at risk if Moscow retaliates for sanctions over Ukraine: analysts

Singapore could lose out on much of the trade in services with Russia it had hoped for after imposing sanctions for the war in Ukraine, analysts say, if Moscow acts on its warning that bilateral economic ties and deals may suffer.

Russian envoy to Singapore Nikolay Kudashev said in an interview with the South China Morning Post last week that Singapore’s unilateral sanctions against Russia ran counter to the development of bilateral ties and that economic deals would be under “severe supervision”.

The island republic is the only Southeast Asian nation to have sanctioned Moscow for its invasion of Ukraine, imposing export controls on items that can be used to inflict harm on Ukrainians and directing financial institutions to not deal with a list of Russian entities.

Just before the war broke out, Singapore and Russia were about to put the finishing touches on the “services agreement” aspect of a free-trade pact between the city state and the Eurasian Economic Union of post-Soviet states.

The main Eurasian Economic Union-Singapore Free Trade Agreement was signed in 2019 including a deal on tariff-free non-service merchandise trade.

Asian nations shouldn’t focus on Ukraine war, says Russia’s envoy to Singapore

If Russia were to call time on negotiations over the services part of the pact then Singapore might miss out on revenue from exporting financial services, said Julien Chaisse, a trade professor at City University of Hong Kong who specialises in international economic law and the World Trade Organization.

“If Singapore does not conclude its services negotiations with Russia, it does not render the EAEU-Singapore FTA useless, because the framework agreement already regulates trade in goods, import licensing, rules of origins, trade remedies … It’s already a big chunk of Russia-Singapore trade relations.” he said.

“But as long as there’s no services agreement, Singapore companies are the main losers, as services and investments really are Singapore’s export priorities.”

However, existing projects and deals between the two countries would be protected by existing agreements such as a bilateral investment treaty even if the service component was “amputated” from the main deal, Chaisse.

Singapore’s trade ministry confirmed on Monday that negotiations were continuing.

Professor Bryan Mercurio, who specialises in international economic law at the Chinese University of Hong Kong, agreed that if Russia makes good on its threat, Singapore could miss out on the opportunity to “get deeper into the Russian market”.

“Financial services would be the key. There could possibly be gains for other professional services for example, architecture, engineering, legal … but these would be limited to a few niche sectors,” he said.

Singapore’s services exports are dominated by transport and financial services, and account for nearly 60 per cent of the city state’s gross domestic product.

Will Russia’s Asia pivot and China’s help soften blow from sanctions?

But Singapore and Russia have no bilateral services trade at present, according to economists Bernard Aw and Eve Barre of Paris-listed credit insurer Coface SA.

It was only late last year during an inter-governmental commission meeting that both side agreed to start exploring collaborations in infrastructure, transport, logistics and shipbuilding – with the Northern Sea Route, a shipping lane in Arctic, being mentioned – after flagging the imminent conclusion of negotiations on the services aspect of their free-trade agreement.

At the time the original free-trade deal with Russia was signed, Singapore’s trade ministry envisaged it enabling companies to collaborate with Russian partners in service sectors such as tourism, innovative technologies, smart city solutions, and education.

It was also seen as offering a boost to bilateral financial, transport and telecoms services trade.

Ukraine invasion: Singapore aside, rest of Asean’s ambivalence is ‘shocking’

Singapore Prime Minister Lee Hsien Loong who witnessed the signing said the trade deal was significant as it showed the two countries’ “resolve to resist the tide of [trade] protectionism”.

Chaisse, the trade professor, said existing deals – and new investments – will continue to be protected by a long-standing bilateral investment treaty between Singapore and Russia, whose “survival clauses” will protect mutual investments for years, he said.

Such bilateral investment treaties protected deals last year when the European Parliament suspended the Comprehensive Agreement on Investment between the European Union and China.