Singapore had launched negotiations on an updated bilateral investment treaty (BIT) with the UK as part of the UK-Singapore Free Trade Agreement (UKSFTA) earlier this year. The negotiations seek to modernize the existing BIT to bring the bilateral investment relationship into step with the current international investment environment and rules.
In March 2023, the UK and Singapore announced that their governments had launched negotiations on a new UK-Singapore Bilateral Investment Treaty (UKSBIT). The new UKSBIT will seek to provide “updated protections for investors venturing into the UK and Singapore markets.
According to Singapore’s Ministry of Trade, the UK is the biggest European investor in Singapore while Singapore is the third-biggest Asian investor in the UK.
Data from the UK’s Department for Business and Trade stated that the total trade in goods and services between the UK and Singapore for 2022 totaled £20.2 billion (US$25.6 billion). Further, total UK exports to Singapore amounted to £13.2 billion (US$16.7 billion) with total UK imports from Singapore amounted to £7 billion (US$8.9 billion) for the same year.
As of 2021, UK investments in Singapore totaled £11.4 billion (US$14.5 billion) while Singaporean investment in the UK totaled £12 billion (US$15.3 billion), representing an almost three-fold increase from £4.1 billion (US$5.2 billion) in 2012.
The proposed UKSBIT will replace the existing BIT between the two countries.
The negotiations, which the two parties committed to under the UKSFTA, must be concluded within four years of the UKSFTA coming into force, which occurred in February 2022.
Why are the UK and Singapore negotiating a new BIT?
The first UK and Singapore BIT was adopted in 1975. This BIT provided protection for British and Singaporean investors with the aim of creating favorable conditions for nationals or companies of both countries to invest in each other’s territory, as well as granting them the right to freely repatriate their invested capital.
It also included a most-favored nation (MFN) clause, which ensures that neither nation can treat investors from the other country any less favorably than it treats investors that are its own citizens.
However, many clauses of this BIT are outdated, and updating the agreement was made a requirement under the UKSFTA.
The “joint declaration on investment review” in the UKSFTA states that two countries have committed to “review their mutual investment legal framework, the investment environment and the flow of investment between them with a view to updating their investment relationship”. Negotiations must commence within two years and conclude within four years of the UKSFTA coming into force.
What will change in the new BIT?
In 2020, recognizing that many countries around the world were updating old BITs to make them relevant to the modern global economy, the United Nations Conference on Trade and Development (UNCTAD) released the International Investment Agreements Reform Accelerator.
This accelerator focuses on eight provisions commonly found in international investment agreements (IIAs) that are in most need of reform. The reforms remain in line with the UN’s sustainable development goals (SDGs) by providing SDG-oriented policy options, and consider each country’s right to regulate IIAs.
The eight provisions most in need of reform included in the accelerator are:
- Definition of investment
- Definition of investor
- National treatment
- Most-favored-nation treatment
- Fair and equitable treatment
- Full protection and security
- Indirect expropriation
- Public policy exceptions
It is possible the new UKSBIT will take into consideration these reform proposals, providing updated definitions and scopes of key terms and protections.
A likely change in the new UKSBIT is the addition of provisions that strengthen each contracting state’s “right to regulate” the BIT; that is, giving the state more powers to regulate industries or achieve certain policy objectives without the risk of raising disputes with foreign investors. Such provisions may come under the “public policy exceptions” outlined in the accelerator.
Stronger rights to regulate have already been added to several renewed BITs between other countries.
In relation to states’ right to regulate, many new BITs have also removed provisions on investor-state dispute settlement (ISDS), a highly controversial mechanism which allows foreign investors to sue the host government of contracting countries in an international arbitration tribunal. ISDS has consistently come under fire for giving powers to foreign companies at the expense of the host country pursuing its own national interests.
The current UK-Singapore BIT includes an ISDS clause, and it is likely that this will either be removed or recontextualized in the new UKSBIT. This is evident in the statement from the UK Secretary of State, which asserts that the UK government “will not compromise on our high environmental, public health, animal welfare and food standards, and we will maintain our right to regulate in the public interest”.
It also states that “this negotiation will not open the NHS [National Health Service] to further competition and overseas companies will not be able to take legal action to force us to do so”, indicating that the government will maintain the right to protect certain domestic industries and policy objectives.
In addition to updating the protections offered to investors and the contracting countries, the negotiations will also focus on ways to facilitate bilateral investments and create a friendly environment for foreign investors in both host countries.
Deepening UK-Singapore trade and investment ties
A major impetus for the development of UK-Singapore relations is Brexit. Since the UK’s exit from the European Union in 2020, the island nation has had an increasingly complex trading relationship with the bloc, adding to pressure to form closer ties with other trade and investment partners.
Recent years have therefore seen a bolstering of UK-Singapore economic relations with the adoption of agreements and treaties, including:
- The UKSFTA, adopted in February 2021;
- The UK-Singapore Digital Economy Agreement (DEA), adopted in 2022; and
- The UK-Singapore Green Economic Framework, adopted in 2023.
The UK also recently acceded to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP), of which Singapore is also a member. The UK’s accession will supplement its existing FTAs with member countries, providing more business opportunities for British companies to access new consumer markets and vice versa.