Third party FTA effects on Singapore's economy and trade relation with Thailand : a CGE model

Abstract

In the recent years, the proliferation of Free Trade Agreements (FTA) has led to many studies analysing their direct impact on the countries involved. However, with an ever- expanding network of beneficial trade relations, little has been done to discern the indirect impact of FTAs formed in the perspective of a third party. As such, this report aims to find out the impact on Singapore’s economy and her trade relation with Thailand resulting from an FTA established between Thailand and a third party country, whereby all trade barriers between Thailand and the third party country are removed. Using a static GTAP model, which is derived from the CGE model, and together with a database from the year of 2001, counterfactual multi-sector and multi-regional simulations are made. The results suggest that even though negative effects are generally observed in terms of trade diversion, trade integration, intra-industry trade, welfare and employment, they are reassuringly small. At the same time, there are also sectors such as finance, services and maritime in which trade remains strong after a third party FTA is enforced.