1a) Explain the possible impacts of Free Trade Agreements on Singapore's economy.

Intro

-Def FTA-free trade agreement, in modern usage, trade or commerce carried on without
such restrictions as import duties, export bounties, domestic production subsidies, trade
quotas, or import licenses.
-Purpose is to to  X by removing/reducing trade barriers at same time faciliatate trade
to bring abt growth in all ctries involved
-std must identify both +ve and 0ve impacts

Body

+ve
-specialise in gds with CA, expl gains fr specialization-world o/p , additionally tariff
concession means sg goods relatively cheaper by exports therefore export rev will
-lower price for consumers
-variety of gds
-competition amongsts producers will allocate res eff, quality also will tend to rise
-local prod can access large foreign sector-grow Int EOS, context of sg and
semiconductor ind or even smaller design labels etc like clothing
- aside from trade, FDI and inflow increase, poss BOP surplus
- in turn leads to FOREX rising SGD appreciate-ext stability
-Overall impact on AD too, CIG all rise too, ( discuss multiplier K) , increase NY,
UNN. SR growth assuming below full N.
-LR there will capital and tech transfer, accumulation will further enhance LT growth and
move AS outwards

However certain condition may exist to help/worsen situation

-ve
-structural UNN simply because our economy constantly evolving therefore change in
structure will mean problems. We lose CA to other ctries who can achieve CA, eg LCD
production form SG to China. Skills need be upgraded.
-even with growth, UNN may not fall instead may rise as tech replaces humans so jobless
growth
-AD may bring benefit, however if close to full N then dd pull inflation will result
-reliance of imports also key issue. Although X rev may be high may lead to more M
expdture, this may lead to deteriorating curr acc balance. Simply cos we need more
imports to grow, if expdture exceeds rev then above will happen.
- at the same time reliance on M may lead to imported inflation- eg sand price Indonesia
-furthermore higher cost of prod from poss inflation may lead to capital flight-BOP
deficit
-disparity in income resulting from exporting industries earning more profit than
domestic industries.
Concl
FTA bring benefit and pitfall-depends on sentient situation, BUT LR benefits seem to
outweigh SR drawbacks esp in view of ST UNN and LT growth. Govt policy also crucial
in guiding economic growth.

LEVEL Descriptors Mark

Range
1 Sketchy and vague explanation of both positive and negative 1-3
impacts of FTAs
2 One sided discussion or underdeveloped two sided argument 4-6
reference to content is weak
3 Thorough discussion of both positive and negative impacts which 7-10
include BOTH micro and macro effects

1b) Discuss the effectiveness of using protectionism to address a balance of trade

deficit.

Intro

Defn- act of restraining trade between states, through methods such as tariffs on
imported goods, restrictive quotas, and a variety of other government regulations
designed to discourage imports, and prevent foreign take-over of domestic markets and
companies. Thrust is to switch C of foreign gds to domestic ones. Clear distortion in
market creates ineff BUT also used to protect initial ind and avoid massive UNN, ind
dumping & any trade deficit

Tariffs & subsidies

If SG faces this may practice tariffs on incoming gds and subsidies on exports to
improve pr competitiveness and therefore X rev. dependant on few factors.
- Elasticity- assumption is both elastic BUT SR due to rigidity may not happen in fact
may worsen BOP but LR most likely to be better- J curve- similar to depreciation in this
respect.
- retaliation fr other partners-may undermine action of protectionism, esp if heavily
dependant on imports, say Brunei and SG imports become exp then cannot benefit from
subsidies
-subsidies may have high opp cost

Exchange rate

State may resort to artificially controlling currency to achieve similar protectionist

measures. Eg when ctry deliberately devalue its currency to make imports more
expensive and X cheaper.
-success depends on similar elasticity conditions prescribed earlier, if dd of X & M are
elastic- X >M correction of BOT deficit.
- again retaliation by trading partners
-more serious is issue of capital flight which is hard to reverse and very impt for economy
like ours.

Other policies need be enacted to address effectively BOT

FP/MP-contractionary
-expl how FP/MP work when contracting show impact on imports-correcting BOT.
However must note that impact of FP/MP is only temporal, eventually same problems
will creep in. In fact MP is even more problematic because it affects interest rate which
may cause problems with Money supply

Export growth

Prob most effective to address trade n termas of export growth.

Country may lose CA in traditional industries, so high level of protectionism may be
installed merely to protect infant industries
Allowing them to grow has the added benefit of addressing UNN , however at some pt
state must weane industry off govt help in all form and allow it to function
competitively. In view of this ss side policies, R&D, retraining and infrastructural
changes may have added benefit to ind IF some level of protectionism is given.

Concl

In SR many measure to reduce BOT, protectionism is one of many. LR it may be

hazardous to economy. However in all aspects it is only temporary, at the end state must
strive for genuine export competitiveness.

LEVEL Descriptors Mark

Range
1 Answer focuses on only protectionism and response ignores 1-4
validity of other measures or merely mentions them without
substantiation
2 Response includes other measures with some idea of their 5-8
limitations
3 Clear explanation of protectionism as well as other measures 9-11
including full extent of their impact including limitations of
measures
E1 States that protectionism is not only way to reduce deficit, some 1-2
effort to explain why
E2 Clearly explain why protectionism may not be best solution 3-4
clearly indicates why