TPPA - A horror story

Saleh Mohammed | .

The opportunity to air our views about the Trans-Pacific Partnership Agreement (TPPA) is still on. I do hope Malaysians of all walks of life will write or get their views heard whether agreeing or otherwise.

I am now penning my third article on this subject in the last two months. I may not join the rank of experts in this subject matter but focus is a powerful ally for gaining expertise.

Immediately after concluding negotiations a couple weeks ago and touching down on Malaysian soil, our hard working MITI minister did not waste much time. He wanted to meet representatives from Khazanah Nasional and Petronas to discuss areas where the two firms can implement disciplines prescribed by the TPPA.  

Other recent statements skewed to this target include from former WTO general council chairman, Federation on Malaysian Manufacturers (FMM) and Credit Suisse report.

Above all, in May 2014, the Malaysian Prime Minister himself reassured Malaysians that we stand to gain from an expanded market base as the 12 countries will potentially increase to 20 in time to come. And Malaysia would have a lot to lose given that it is an export-oriented country.

We heard justifications like our economy will get a boost of up to 5.5% by 2025, structurally positive to embrace foreign competition, long-term, should boost the dynamism of corporate Malaysia and improve efficiency and productivity over time. This is done by a US-based Institute. Other benefits include will foster global value chains among its participants and facilitate trade flows, it will diversify and deepen the country’s exports as it promises a degree of transparency and predictability in investment rules, tariff concessions and avenue to address non-tariff barriers, will provide a competitive edge over our regional competitors and build investor confidence in Malaysia.

These are almost all subjective.

There may be a few more benefits but the real cost benefit analysis (CBA) is yet to be seen after talking about it for a long time.

While waiting for the CBA let us examine the base line or starting point at which the criteria are measured. Also, the assumptions used for future scenarios.

For the last 10 years since 2005, annual exports to the USA was around US$30b. The highest was US$36b in 2006. Our bilateral trade with them in 2014 was only RM116.75b (8%) as against total trade of RM1.45T.

In 2014, trade with our current FTA partner countries was RM906.6b (approx 62% of total trade). It is estimated that around 50% of exports to FTA partner countries were through preferential access.

ASEAN with a growing middle-income group as well as development and reform initiatives remained a strategic trading partner for Malaysia, accounting for 27% of Malaysia’s total trade in 2014 (valued at RM389.03b). China remained Malaysia’s largest trading partner for the sixth consecutive year since 2009. Malaysia’s trade with China in 2014 was RM207.85b (14% of total trade) and there is deep integration of the supply chain between both countries.

Trade with the EU was about 10% of total trade.

A study was done, in 2012, while the USA imposed tariffs worth US$207m on our exports to the them, we imposed tariffs of US$720m on them. So if both sides remove all tariffs (except maybe on one product) in the TPP, Malaysia is losing 3.5 times more tariff revenue than the USA. This is contrary to the special and differential treatment for developing countries agreed to by all WTO members (including the USA). The understanding is for developing countries to do less liberalisation than developed countries.

For the records, we have with Japan the Malaysia-Japan Economic Partnership Agreement (MJEPA) that came into force in July 2006. We also have had AFTA with Singapore since 1993.

How much more do we expect to trade with USA and get what is seen as beneficial? And the more pertinent question is why did we ‘break’ the FTA negotiations with the EU and pushing to finalise the TPPA? The EU has negotiated FTA with Singapore and is currently negotiating with Vietnam.

Indonesia wanted to wait after progress was made on both Indonesia’s trade agreement with South Korea and the Regional Comprehensive Economic Partnership (RCEP). It seems the economic benefits from the RCEP would be higher than those from the TPPA. Next, is that Indonesia is not yet ready to commit and undertake restructuring in intellectual property, environmental protection, labor reforms and state-owned enterprise reform.

Thailand is interested in joining the ambitious TPPA but needs to study the terms and conditions.

Going back to June 2005, negotiation began between Malaysia and USA for a free trade agreement headed by the then Minister of International Trade and Industry (MITI), Rafidah Abdul Aziz. USA then, is Malaysia's largest trading partner.

In January 2009, the then MITI minister, Tan Sri Hj Muhyiddin Yassin announced that negotiations have been suspended temporarily. This action is a protest against the American support of an Israeli invasion of Gaza. The negotiations hanged in the balance as USA gave priority to regional economic association, particularly the TPPA. As of today, we need to consider whether we are on a level playing field with USA.

Are we not doing enough to embrace foreign competition; improve efficiency and productivity and diversify and deepen our exports? How would the promises of a degree of transparency and predictability in investment rules and avenue to address non-tariff barriers, provide a competitive edge over our regional competitors and build investor confidence. Again, these are all very subjective.

Future business environment will be more complex.

As a layman, if it is supposed to cater for free trade why of its 29 chapters, only five deal with traditional trade issues.

As to the secrecy of negotiations, the US Trade Representative Office (USTR) responded that "some measure of discretion and confidentiality" are needed "to preserve negotiating strength and to encourage our partners to be willing to put issues on the table ...”. Even the majority of Congress is kept in the dark while representatives of US corporations are being consulted and made privy to details of the agreement.

It also remains to be seen how the TPPA would handle a situation when the Fed intends to normalise its monetary policy. This is because the Fed’s position has caused serious depreciation, and to some extent, misalignment of currencies especially in the emerging markets.

I trust the Economic Planning Unit (EPU) and other think-tanks will have a say before any decision is made on the TPPA. During my days, the EPU is the main government agency responsible for planning and policy change in the country. Of late, I am not very sure. With the inception of PEMANDU and its various acronyms, I guess the function is now transferred to the latter.

There should also be town hall meetings to get feedback from the public/voters.

Finally, if all else fail, do refer to the website of the Office of the United States Trade Representative on what is the TPP - it writes the rules for global trade - rules that will help increase Made-in-America exports, grow the American economy, support well-paying American jobs and strengthen the American middle class. It will also eliminate more than 18,000 taxes & other trade barriers on American products that put American products at an unfair disadvantage.

It is all about America and nothing mention on benefits to the other partners.

With China announcing the New Silk Road Initiative and launching of the Asian Infrastructure Investment Bank, don’t you think it is a horror story for USA?

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