Importance of developing an export risk management plan
Even if you have successfully handled the risks of doing business in Singapore, it does not mean you will also successfully handle the risks of exporting. Exporting will expose you to a different set of risks which are likely more difficult to assess and manage than the domestic risks you are used to. However, you can manage risks well with good prior planning. Risk management is not about removing risks altogether. It is about putting yourself in a better position to handle risk when a risk event occurs.
To develop your own export risk management plan, you need to identify the risks first, and subsequently assign a weightage to each risk subject to the potential effect of its occurrence, on your business. For certain types of risks, you can buy insurance coverage such as credit risk cover, country risk cover and transit risk cover. For other types of risks, you can adopt business practices to mitigate the impact of unfavourable incidents.
Potential risks you may encounter
We highlight only the most common risks which exporters are likely to encounter. In addition to relying on this guide, you should also do your homework by:
· Reviewing your own unique situation;
· Identify any risk you will likely encounter which is not covered by the scope of this guide;
· Assess these risks; and
· Incorporate them into your risk management plan.
Your objective is to develop a risk management plan which is customised to your own unique business, and is as comprehensive as possible.
Risks can be classified into the following types:
· Country risk
· Business risk
· Financial risk
· Logistics risk
· Legal risks
· Risks from unforeseen circumstances
Free Trade Agreements (FTAs)
FTAs are legally binding international treaties between two or more trading partners that seek to promote trade by reducing barriers to trade in goods, services and investment.
Who stands to benefit from FTAs?
With Singapore being an open trading economy, a vast majority of imports already enter Singapore tariff-free. FTAs serve to benefit Singapore exporters most, in particular those in the following categories:
· Singapore-based exporters/manufacturers whose products currently face tariff restrictions and qualify to receive preferential tariff treatment under FTAs beyond a trading partner's World Trade Organization (WTO) commitments.
· Singapore-based exporters/manufacturers whose products are traded between FTA partner countries stand to benefit from less stringent rules of origin.
· Singapore-based service suppliers and investors for whom trading partners commit to safeguard market access, protect investments and ensure business certainty under FTAs.
Businesses face unique situations according to their industry dynamics. As such, FTAs may benefit some businesses more than others.
You may not need to leverage on FTAs if :
· Your product is already enjoying 0% import tariffs in your export market (s), i.e. Most Favoured Nation (“MFN”) rate is already zero.
· There are existing WTO agreements which eliminate tariffs without the need to use FTAs (e.g. the WTO Information Technology Agreement (“ITA”), which eliminates tariffs on IT products).
· Your product is exported to a Free Trade Zone (“FTZ”).
Free Trade Agreements (FTAs) consist of three main areas:
· Trade in goods: Seeks to remove tariffs and address non-tariff measures
· Trade in services: Deals with regulations to ensure market access and national treatment
· Investment: Seeks to protect and promote investment
In keeping pace with an ever-changing global landscape, the scope of our FTAs is expanding to include more issues of interest to businesses, such as e-commerce, intellectual property rights, competition, government procurement and dispute settlement.
International Investment Agreements (IIAs)
An IIA (also commonly called "bilateral investment treaty ("BIT") when used in a bilateral context, or "investment guarantee agreement ("IGA")) promotes greater investment flows between two signatory countries and sets out standards of protection for investments made in one country by investors from the other country.
An IIA contains obligations on the host country, which may include:
· Treating foreign investors as favourably as domestic investors or foreign investors from other countries;
· Treating foreign investors fairly and equitably, as well as giving them protection and security;
· Establishing clear limits on the expropriation of investments and compensating foreign investors should expropriation occur;
· Allowing foreign investors to freely transfer their capital in and out of the host State;
· Allowing foreign investors to submit investment disputes to international arbitration.
IIAs are not the same as Investment Chapters in FTAs, which generally go beyond the scope of IIAs and include other elements such as investment liberalization and investment facilitation.
