Transcript of Minister for Foreign Affairs Dr Vivian Balakrishnan's Q&A Session at the Singaporean-German Chamber of Industry and Commerce Dialogue, 27 September 2023

Moderator (President of the SGC, Shirley Qi): As many of you know, German businesses are very much looking to diversify our markets and supply chains, to ensure resilience and sustainability. In your opinion, how can Singapore help? What role can Singapore play to support businesses?

Minister Vivian Balakrishnan: First, you start with assessing the strengths of the German economy. Germany, unlike many other EU members, has always maintained manufacturing capabilities at a high level, and at a proportion of GDP which exceeds that of most other European countries.

Second, if you think at a global level, what has happened in the last 45 years with the opening and reform of China, much of the industrial manufacturing capacity moved to China. But in the case of Germany, you continued to be able to manufacture and export to China competitively because of the higher value-added sophistication of German products. And, the fact that Germany was, in a sense, making the machines that make the finished products in other countries. You have achieved that in the last 45 years and China has been an enormous opportunity for Germany, and I believe it will continue to be. The next question now is, where are the other opportunities for a German economy with significant manufacturing strengths?

One other strength about the German economy is what you call the Mittelstand – these incredible, apparently small and medium-sized companies, some of which have been multi-generational and therefore have a long-term horizon to value-add and value-create. Putting these two unique strengths together, I again pose the question, where are the other opportunities? The key point I am making here is that in Southeast Asia, we have a population larger than that of the EU. Today, our combined GDP may only be USD3.6 trillion, but it will double, quadruple in the next 10 to 20 years – one generation from now. It is obvious therefore that the next large market for German companies should be Southeast Asia. That is why I am very glad that you have also made the argument now for an EU-ASEAN Free Trade Agreement. Where does Singapore fit into this? We are a hub, a city-state in the middle of Southeast Asia. We are host to 2,200 German companies already. Use us as a launchpad into the region.

We are now at a time when we are seeing enormous technological change, especially in digital technologies, Artificial Intelligence (AI), and quantum computing. We are seeing significant changes in energy sources, renewable energy, and sustainable development. We are also seeing, as we witnessed during COVID-19, enormous potential in biology and synthetic biology. Think of the mRNA vaccines as an example, another German product. With these new revolutions and new frontiers where Germany is competitive, it is a whole new market to open. I am therefore very optimistic. I remain optimistic about the potential and relevance of German companies and of German companies' opportunities, especially in Southeast Asia. Of course, you will continue to trade with China and increasingly, I am sure, with India and Africa. So, it is all positive.

Moderator: Thanks a lot, Minister, for this positive view. We should utilise our strengths, see the benefit and market potential in this region, and use Singapore as a hub to access this region. I understand that technology is also an area of potential growth. Any questions from the floor?

Linda Nguyen Schindler (Director of the AI Community Centre at German Accelerator Singapore): My question is about AI. You just spoke at the UN regarding AI and shared with other nations some tips on implementing AI. What was the mood like there when you shared these tips? What kind of questions were they asking? And what kind of opportunities did people in the room see?

Minister: AI was on many people's minds. I made the point that right now, everyone is captured by ChatGPT and generative AI. But I think that was almost yesterday. You need to prepare for a very rapid onset of AI agents with transactional ability. Not just AI that can recognise pictures, translate languages, and generate text, but AI agents that can transact, negotiate, buy, sell, and sign contracts. Just as generative AI can be quite difficult for you to be certain whether you are conversing with a human being or a computer, I think we are very rapidly coming to the age when AI agents with interactive transactional abilities are upon us. That is a much bigger deal in general. The point is to understand that we are at a turning point even for digital technologies in AI and this will be quite disruptive. It will be very disruptive to businesses, manufacturing, global supply chains, the way we operate within national boundaries, and legislative and policy frameworks. And it will certainly disrupt internationally.

So, it depends on who you speak to. Some people are obviously most concerned about the impact of AI on jobs, on companies, bottom lines, which is fair enough. Others, at a different level, are concerned about the impact of AI on politics and society. Misinformation, targeted political campaigns, with not only AI crafting the messages but deciding which demographic group is most susceptible to a particular message. How will this impact contests for votes in politics in all societies? What does this mean for polarisation and division within societies? So that is the second aspect, the impact of AI on societies and politics.

Another level in which AI can disrupt the world, which we talked about at the UN, was the fact that if you look at what is happening in Ukraine now, you have got drones. You sometimes have swarms of drones. Drones in the air, drones on the water or underwater. We have already reached a stage where many of these weapons do not have a human finger on their triggers. In real-time, when there are so many targets coming in and you have to destroy as many of the incoming missiles as possible, you cannot afford to wait for a human being to say, “I think that is a missile”. You cannot wait for a human being to fire off every trigger. The point is that we are already at the age of autonomous weapons systems.

Now that is at the theatre level, at an operational level, but at the strategic level, it means a future Chancellor, a future President, or a future Prime Minister, will have very little time to decide whether this is an all-out war and whether to respond immediately. In fact, if you make a comparison to the Cold War, we had a few close shaves but we survived  the Cold War. Mutually Assured Destruction ensured enough deterrence that no one pressed the nuclear button in the first instance. But once you have AI systems and you are facing a decision, it may not be as simple as deciding based on deterring another human being whom you have met, whom you understand and whose thought processes you can sort of presume. If you really have competing AI systems in two different countries making strategic decisions, the structure of deterrence and the strategic calculations are likely to be augmented. The point which I made at the UN was that, just as we had during the Cold War, once the Soviet Union and the United States and its allies realised that both are realities and both have far more destructive power than necessary, there started to be discussions on strategic arms limitations. I do not think it will be very soon, but at some point in the future, similar strategic discussions would need to occur between the superpowers and their allies on how they are going to ensure that these new artificially intelligent, enhanced weapons systems and deterrence systems will continue to have a human being in the room and will give time to leaders to assess situations and make decisions, either to launch an attack or counter an attack or a pre-emptive strike. I may sound alarmist, but I am just pointing out the range of possibilities, and this is truly a transformational technology which the world needs to come to grips with.

Moderator: Indeed, I think as business leaders, all of us here need to keep ourselves alert. This is a very disruptive transformation, not only at the operational level, but also at the strategic and security levels. Further questions?

Friedhelm Best (HIMA Asia Pacific): Good afternoon, Minister Balakrishnan. Friedhelm Best from the company HIMA, German Mittelstand. There are many Mittelstand companies in Germany and Mittelstand companies are looking for opportunities. What is your outlook of Free Trade Agreements in the next five to ten years and what are some platforms in Singapore that German Mittelstand companies who are thinking about their mid to long term plans can work with?

Minister: Let me answer that on two levels. I once met the owner of a Mittelstand in Germany. He said he was the seventh-generation owner of his company, and his job was not to just look at the next quarter, but at four or seven generations down, to ensure that this company would still exist. It reflected that although the company was a small or medium-sized company, they had a very long-term outlook. In order to survive with that long-term outlook, you do need to project trends, (including) technology trends. You need to have an assessment of the way your strategic environment is changing. And you need to have an idea of where opportunities are both regionally, as well as the type of markets and technologies which are emerging. I believe this is the strategy of German companies.

From Singapore's point of view, we already have free trade agreements that cover 90% of our trade. It is not just about pursuing free trade agreements for the sake of it. Although I would point out that Singapore still has the highest ratio of trade to GDP in the world. Our trading volume is three times our GDP. I do not think any other country has that kind of ratio. When Singapore says we believe in free trade, and that we want to encourage greater global economic integration, we mean it. It is not a negotiating point. It is our life-blood.

But we also realise that the world is changing for a variety of factors. Number one, the strategic rivalry between the superpowers. Number two, the experience of COVID-19, which exposed fragilities in some global supply chains. Number three, the technological changes which are occurring at the same time. All three factors, rivalry, agility of supply chains, and the technological revolution, mean that the way we organised our companies for the last 40 to 50 years, which was basically assembling global supply chains on the basis of cost efficiency, I think that presumption is now being deeply questioned. Therefore, simply saying, let us have free trade agreements – that is not going to be enough. Because your agreements now have to take into account several other factors. Number one, you do need to take into account your domestic factors. With free trade, there are winners and losers. There are some sectors of the economy and there are some workers who may be facing more competition or more disruption. It is the responsibility of the local government to look after their interests, either to help the workers transit, upscale, change industry, or to create the necessary social security safety nets. If you do not do that domestic part, you very quickly lose political support and you cannot embark on cost-effective, efficient economic integration, even though it makes sense on a purely economic perspective.

Number two, the days where inventories were run “just in time” – today they have been replaced by “just in case”. COVID-19 suddenly reminded everyone that you need to have “just in case” even for simple things like masks. Taking into account the resilience of supply chains is an eminently sensible thing to do. Its implication is that reliable and honest suppliers and partners who stick to the rule of law, who comply with the sanctity of contracts, in fact become more valuable. In the case of Singapore, we have made sure that for every crisis, whether it was the oil crisis in 1973 or COVID-19, Singapore complied with every single agreement that we signed. It may cost us a bit more, it may be inconvenient, but that reputation for reliability, honesty, and transparency, especially during a time of crisis, becomes very valuable. So that is another aspect which I would emphasise.

The third thing is the geostrategic rivalry, which has led to a proliferation of terms. At first, it was “bifurcation”, then it became “decoupling”. Now the in-phrase is “de-risking”. They are playing with words. It reflects that a world with less strategic trust is a world which will be more expensive because you no longer source from the most cost-effective source. You now have to take into account other national security considerations. It will also be a world in which progress will be slower because instead of all of us competing and innovating on the same ecosystem and therefore accelerating the rate of progress, we will now try to keep more trade secrets rather than intellectual property. It will be a world in which progress might slow down. If you also end up in a world which is less interdependent, people might be more willing to take hostages – I mean it figuratively – it would be a more disruptive and perhaps less peaceful world.

Germany assumed that greater dependence on Russia for natural gas, which was the cheaper source of natural gas for Germany, that interdependence would create greater stability and increase the prospects for prosperity. As events unfolded last year, it showed that dependence, or even interdependence, can quickly sometimes, even before you realise it, become a strategic vulnerability. The point I make to you is that many of the presumptions that businesses and even countries operated on before last year no longer apply. So, for a small and medium sized company in Germany, you have to take into account all these medium- and long-term trends and decide, how do you operate your company safely so that four generations from now, your great grandson, will be able to take over the company.

It is a very challenging time but it is also a very exciting time because so many things are happening. If you just look in terms of the changes, digital, AI, quantum, synthetic biology, and in energy, I think our world is going to look very different 10 to 20 years from now. But the decisions we make in the next five years will be critical. It is a wonderful time to be alive and we are witnessing a revolution in our times.

Moderator: Thanks a lot, Minister, for this very thoughtful insight. We will take a very last question.

Goh Ruoxuan (The Business Times): Hi Minister I wanted to ask whether you could possibly give us a sense of how close we are to an ASEAN EU FTA.

Minister: I would say we are one step closer because at least the Singaporean-German Chamber is campaigning for it too. I think the logic for it is obvious. As I said in my remarks earlier, because ASEAN is so diverse, I will not pretend that negotiations will be as straightforward as it was, say, between the EU and Singapore. So, it will take some time. But I also want to take Dr Philippi’s advice that we do not let perfection be the enemy of the good. Let us watch this space.

Moderator: Definitely. This is also the reason why we put forth this Position Paper. We know that (an EU-ASEAN FTA) will definitely not happen tomorrow, but we should continuously work on it.

Minister: It is important to hear from the German businesses here. There are 2,200 of you and your views count.

Moderator: Thanks a lot. Ladies and Gentlemen, we have come to the end of this event today. Please join me for a big round of applause for Dr Vivian Balakrishnan.

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