Leaders from nine economies have agreed on the broad terms for a Trans-Pacific Partnership (TPP) and they have set an ambitious target of eight months to finalise it.
The agreement was reached on the sidelines of the Asia-Pacific Economic Cooperation (APEC) meeting in Honolulu.
Singapore Prime Minister Lee Hsien Loong said the TPP is an additional "safety raft" for APEC economies, with Europe mired in a debt crisis.
For Singapore, it'll provide another avenue for growth.
Leaders of the nine APEC economies have described the TPP as a "comprehensive, next-generation regional agreement" that addresses new trade issues in the 21st century.
The TPP is broader in scope, as compared with a traditional Free Trade Agreement (FTA).
It also has a new set of what is termed as "cross-cutting commitments" - which aims at reducing costs, promoting seamless trade flows and getting more small- and medium-sized enterprises to take part in international trade.
For Singapore, it offers a competitive advantage.
Prime Minister Lee Hsien Loong said: "When you are in an FTA, it gives you more assured access and better access into the markets, in this case America, Japan, Australia, Malaysia. You have different benefits. You can have benefits in terms of rules which are favourable to us. You can have benefits in terms of the tariffs, which could be lower, and therefore an advantage competing against other countries which are not within the FTA and have to face higher hurdles getting into that market.
"That means our products are more competitive and more exports from our producers from Singapore. We hope the next step beyond that is attracting more investments into Singapore in order to take advantage of the terms of the FTA and increase trade further.
"It is not just the existing business which may get slightly better margins. We hope new businesses will be stimulated by the FTA, and therefore grow the trade and relationship which has happened with our main partners."
Proponents of free trade say such knock-down effects will stimulate growth, jobs and reduce poverty and businesses have welcomed the move.
Singapore Business Federation CEO Ho Meng Kit said: "Right now, all our agreements are actually country-to-country but things are done on a business-to-business basis. Components are made in different countries and then assembled together so how do one figure out the rule of origin of say. For example, an Apple product is made in many different countries. It will make it much easier if there was a regional agreement whereby the rules of origin are uniform and simplified."
The TPP is seen as a pathway towards a larger Asia-Pacific-wide FTA.
Mr Lee described the timeline of eight months to get the TPP finalised as "ambitious" and added it will require goodwill and political will from all sides to make it possible.
Mr Lee said: "There has to be flexibility and there has also has to be political will - flexibility to make concessions for the other side, but political will when each participant has to make its own concessions on politically sensitive issues. Every country will have some politically sensitive issues.
"Setting the target of July next year is one way to put some pressure on the participants to settle soon and not to let it drag on. Because as you let the FTAs drag on, the situation is never static. New events develop and the economy changes even while you thought you have agreed. "
While Japan's inclusion into the partnership will increase the complexity of negotiations, Mr Lee reiterated the need for the world's third largest economy to be included in the TPP.
Mr Lee said: "With Japan applying to join the FTA and that being considered by the nine (economies), I think we will have a very significant step towards an Asia-Pacific Free Trade Agreement. That is something very beneficial to us because it will cover Japan. It will cover the key countries. In a time of instability in the world economy and when you look at what's happening in Europe, I think it will be an additional safety raft."
Officials will meet in December to schedule additional meetings. As for Japan, it will need the formal endorsement of all nine economies before it can confirm its membership into the TPP and observers say that may take some months to get sorted out.
The TPP is a Singapore initiative which had its roots in 2005 with just four economies - Singapore, Brunei, Chile and New Zealand.
The nine economies today include the US, Vietnam, Australia, Malaysia and Peru.
- CNA/fa
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