How the Trans-Pacific Partnership Agreement Will Strengthen Singapore’s Innovation Economy (Like America’s)

November 3, 2016

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Notwithstanding the continued and misinformed pillorying the Trans-Pacific Partnership (TPP) agreement has received on the U.S. presidential campaign trail, the TPP will be very beneficial for its signatory nations, not only the United States, but also other partner countries, such as Singapore. As Singapore continues its efforts to transform a small island nation into a global innovation hub, the innovation-enabling trade regime the TPP fosters will benefit all industries but especially advanced technology ones, in areas such as life sciences and information technology, on which Singapore’s economy (like America’s) increasingly thrives. 

Founded in the 1700s as a regional trading hub, Singapore has since flourished into a major global trade player by ensuring that trade remains central to its economy. In 2015, the value of goods and services it traded was three times its gross domestic product. Trade’s importance to Singapore’s economy can be seen from its various liberal trade policies, which include zero tariffs on over 99 percent of its imports and international free trade agreements with 31 of its trading partners, including the United States, China, and the European Union. These trade policies keep the cost of imported components low while maintaining favorable market access to the world’s largest markets for producers, thereby enabling Singapore’s seamless integration into global value chains. The TPP takes the next step in extending the range of nations with which Singapore has free trade arrangements while bolstering the global edifice of free trade on which Singapore’s economy fundamentally depends. 

Recent articles in Singapore’s media have made the convincing case for TPP’s overall positive impact on the Singaporean economy. They have emphasized that the TPP will allow Singapore to remain at the forefront of frontier-advancing biomedical innovation, support its information and communications technology (ICT) enterprises while accelerating Singapore’s transformation into a smart city, and secure its financial sector as a pillar of economic strength. 

The biomedical and information technology sectors are critical components of Singapore’s shift to a more innovation-based economy. In 2015, biomedical manufacturing accounted for 20 percent of Singapore’s manufacturing base, while the IT sector contributed 4.2 percent to the economy. Singapore’s expectations for the innovation potential of these sectors are significant, with the National Research Foundation investing almost US$14 billion in science and technology research and development (R&D) over the next five years, the most it has ever invested in R&D. 

While investment in R&D reflects Singapore’s domestic innovation policy, the TPP reflects Singapore’s international innovation policy. The TPP, through its intellectual property (IP) chapter, sets up strong rules that will aid Singaporean innovators—it strengthens Singapore’s already robust IP protections, reduces barriers to digital trade, and provides a higher common standard of IP protection across TPP member countries. 

In the biomedical sector, the TPP increases the biologic data exclusivity period Singapore provides from five years to eight years. This incentives further investment in next-generation biologic medicines by extending an intellectual property environment that provides a longer period of protection for the investments biotech companies undertake in clinical trials to prove the safety and efficacy of novel biologic drugs. From initial basic research to commercial development, data exclusivity is necessary for biologic medicines because these compounds rely heavily on data—be it big data analytics, manufacturing process data, or data from the clinical trials proving the efficacy and safety of the compound. Robust data exclusivity periods allow biotech companies to invest in risky R&D with the confidence that other competing firms will not be able (within a proscribed period of time) to use the innovator’s clinical trial data to prove the safety and efficacy of a similar compound. The increased protection the TPP enables will attract greater levels of R&D investment and complement current biotech R&D investments, while drawing further activity to Biopolis, Singapore’s biomedical R&D hub.

Beyond life sciences, the TPP’s e-commerce chapter will update the rules for digital trade in a large segment of the global economy. It includes ground-breaking rules to protect the movement of data, which is the modern lifeblood of the economy. For example, global data flows increased by 45-fold between 2005 and 2014. With increasing volumes of data collected and used to great effect, such as Singapore’s current development into a smart city, the TPP offers an international framework that establishes rules to use, govern, and protect these exponentially increasing streams of data.

The TPP includes three key provisions that will be crucial to Singapore’s digital economy:

  1. It prohibits data localization, which is a policy that certain governments, such as in Indonesia, use to make companies store data within the country in which they are doing business. By prohibiting this practice, Singaporean ICT businesses competing to offer digital services in other TPP countries can operate in the most efficient and cost-competitive manner.
  2. It prohibits tariffs levied on the flow of digital goods and services such as software, music, and content. Just as free trade agreements encourage trade in physical goods and services, this clause will ensure that these free trade principles are equally applied to the digital economy.
  3. It precludes countries from implementing technology-based trade barriers. Signatory countries cannot apply country-specific technical requirements for certain ICT imports. This allows ICT innovators to focus on creating new technologies rather than spend resources to tailor a technology to a specific country’s cumbersome needs

One step that Singaporean policymakers should take to improve upon the TPP is to work with the United States to address issues with the TPP’s special treatment of financial data. As ITIF has explained, it was a mistake for the United States to exempt financial data from the TPP’s rules against data localization. This financial data carve-out would have unnecessarily raised costs for financial services firms—costs that would be passed on to businesses and consumers—while also potentially validating the false belief that storing data outside a country is somehow riskier than storing it locally. 

Thankfully the United States has recognized that this provision was mistaken and is now leading efforts to rectify it. The proposed fix applies a patch through rules in the Trade in Services Agreement (TiSA), but Singapore, along with three other TPP members, are not part of the TiSA negotiations. Singapore should work with the United States to address this outside of TiSA, as the finance sector accounts for 12 percent of Singapore’s economic output, not to mention the high priority initiatives the Monetary Authority of Singapore has rolled out to develop fintech innovation.  

Singapore’s global competitiveness depends on being innovative. The TPP includes several 21st century trade provisions that will enable further innovation in Singapore by complementing current investments in R&D while setting up the rules for a competitive innovation-driven digital economy. Such deals are important for Singapore’s continued success in a competitive global market and protecting valuable Singaporean IP.