By Fiona Chan

EXPORTERS of food and telecommunications equipment look set to be among the major beneficiaries of the new free trade agreement signed with six Gulf states on Monday.
The pact waives tariffs for 99 per cent of Singapore's exports to the Gulf Cooperation Council (GCC), which comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

This means major savings for companies here, as only 10 per cent of exports are currently tariff-free.

Under the agreement, which is likely to take effect next year, all imports from the GCC will also not be taxed, said the Ministry of Trade and Industry (MTI).

Firms yesterday welcomed the removal of export tariffs, saying it would encourage them to do more business with Middle Eastern countries.

Chocolate producer Aalst Chocolate expects to increase exports to all six GCC countries once the deal takes effect. 'The Middle East as a whole is an important sector for us, making up about 10 to 15 per cent of our business,' said Mr Tham Ngo Hock, the company's general manager of sales and marketing. 'This can probably grow to about 20 per cent after the tariffs are removed.'

The pact will help the firm, especially in Saudi Arabia, which Aalst has identified as a 'growth area' because of its larger population and size.

But Saudi Arabia charges a 15 per cent tax on imports, compared with 5 per cent in other GCC countries, said Mr Tham. 'Hopefully, with this agreement, all the tariffs will be rationalised to zero per cent, which is what we are enjoying with Korea, Australia and the United States,' he added.

Eliminating tariffs would make Singapore exports better able to compete in the Middle Eastern markets, said Mr Daniel Lim, executive director of Hosen Group, which exports canned food to the GCC countries.

'We hope this can make us more competitive in terms of cost and allow us to export more.'

The market for food products in the Middle East is 'very competitive', added Mr James Lim, director of Tat Hui, which exports Koka instant noodles. 'With the tariffs removed, we will have more margin to play around with and that will put us in a better position to compete with the local producers.'

But not all exports will get a boost from the free trade agreement.

Pokka Singapore, which exports about $20 million in beverages to the GCC countries, said only half its products would enjoy tariff-free status.

'Half our exports are made outside Singapore and the other half made here. The Singapore-made products will qualify, but not the others,' said Mr Eugene Tan, Pokka's chief financial officer.

Still, the trade pact comes at a good time, said Mr Renny Yeo, chairman of Singapore Cables Manufacturers. It could bring some relief amid a fall in export demand from other countries, he added.

'The rest of our markets are slowing down, so the Middle East is definitely of interest to us, especially with the free trade agreement now.'

Singapore Cables recently started exporting electric cables for construction, infrastructure and trains to Dubai.

Mr Yeo, who is also president of the Singapore Manufacturers' Federation, said many members are keen on exploring opportunities in the GCC. 'This (deal) will definitely be advantageous to Singapore companies, and we expect that more will be willing to look at new markets in the Middle East now.'

Singapore exporters that stand to benefit most are those dealing in telecommunications, electrical and electronic equipment, petrochemicals, jewellery, machinery and iron- and steel-related industries, said MTI.

Food exporters will also benefit from the free trade pact as the GCC imports up to 90 per cent of its food, a market valued at $18 billion a year.

Food exports from Singapore to the UAE alone jumped 67 per cent last year to $171 million, according to Mr Zainul Abidin Rasheed, Senior Minister of State for Foreign Affairs.

Singapore is the first country to sign a free trade agreement with the GCC, which is its seventh largest trading partner. Bilateral trade hit a record of $42.4 billion last year, with total exports to the GCC amounting to about $7.5 billion.

This article was first published in The Straits Times on December 17, 2008.