The Application Of The Principle Of Trade Deflection In Singapore-Sichuan Coorperation

Sichuan province lies in the inland of China, and it is surrounded by many hills. The disadvantages in location largely put limits on its communication with the out world, especially in trade. Nowadays the situation of trade is quite complicated, especially after the economic crisis in2008, more and more trade remedies flooded to our country, which made the Sichuan suffered.Singapore is a hub of world trade, which can compensate the weaknesses of Sichuan as a port. In recent years, Singapore has established more and more extensive free-trade arrangements with many countries, while China is suffering from unfair treatment in international trade because of non-market economic satus. Therefore, we believe that it is needed for Sichuan to establish deeper trade relations with Singapore. That means making full use of Singapore as a springboard, which on the one hand to figure out the geographical disadvantage problems of Sichuan; on the other, to wind the trade barriers against Chinese products (in particular categories of products exported by Sichuan) set by some importing countries.Experiences can be found in the cooperation between mainland and Hong Kong in1980s.That is, re-export the importing-restricted goods via a free port. Especially, it is the so-called "trade deflection" when happened in an FTA.Based on the principle of trade deflection, a theoretical model is established. By analyzing the benefits and costs of the trade deflection, we found the condition under which it occurs, that is, the savings of tariff payments through the implementation of the trade deflection is greater than the costs, such as costs in additional transportation and in getting the "passport" to the target importing country. On this basis, we furtherly found that the gains from trade deflection maximize when the deflecting country has FTA partnership with both the exporting country and the target importing country; and when the deflecting country lies on the searates between the exporting country an the target im porting country, in which case, there’s no the additional transportation costs:and When the trade barriers set by the target importing country is extremely high. After that, in this paper, we applied the model in the trade cooperation between Sichuan and Singapore. The first step is finding the target importing countries. According to the condition of maximizing the return of trade deflection, the target importing country should be the ones who have the FTA with Singapore, who occupy a large account in Sichuan’s exporting and whoes direct sealine to Sichuan rightly via Singapore. We screened and finally targeted the United States and India as the importing countries. The second step is selecting the proper exporting products. By finding out the Chinese commodities which has limites when exporting to India and the US, especially the ones produced in Sichuan, we can get a list of products which is proper to trade in this way. Finally, we give Sichuan government and related companies some relative suggestion and guidance on implementing trade deflection.