TPPA - An Open Letter to MPs

Saleh Mohammed | .

Dear Malaysian Parliamentarians,

Assalaamu’alaikum and salam sejahtera.

I may not represent a majority of the populace but I am sure I am speaking for many of the silent Malaysians.

 Before putting down my thoughts please be reminded of your oath when taking office. It is a moral ideal of service for the good of our beloved country and your commitment to uphold high moral standards as our representative - ‘wakil rakyat’.

This is my fourth article on this subject since August 2015 and hopefully this will be my last.

The basis used is the ‘Study on Potential Economic Impact of TPPA on the Malaysian Economy and Selected Key Economic Sectors’ prepared by PwC Advisory Services Sdn Bhd (PwC).  

PwC was appointed to conduct an objective analysis of the potential economic costs and benefits and the study DOES NOT MAKE STRATEGIC RECOMMENDATIONS on Malaysia’s position towards TPPA membership. Separately, the Institute of Strategic and International Studies Malaysia (“ISIS Malaysia”) has been commissioned to conduct another study on the impact on Malaysia’s national interests.

What worries me and I think is the most important point, is the purpose of the study. It is very restrictive. A study that has a long-term or perpetual effect on a country should have more than a 10-year projection and not limited to 10 economic sectors. Apparently, this is at the direction of PwC clients.

How about the services sector which makes up more than 50% of our GDP (e.g. Finance, banking, insurance, medical tourism, tourism, transport, telecommunication, energy and defence that was created after the government created the Malaysia Defence Industry Council?

How about the effect on consumers?

Parliamentarians, you are our ‘wakil rakyat’. Have you given thought as to why we as consumers had been left out?

Former Bolivian president Jorge Quiroga when he was in KL a couple months back said “Treat your people as mature citizens and explain the situation to them...” and he also explained the need to think long term.

PwC cautioned, despite all the simulated increase in investment sums, the CGE model used does not account for the diverse risk-return profiles of individual firms and investors. THIS WILL LEAD TO AN OVERESTIMATION OF POTENTIAL GAINS.

Also keep in mind, it was highlighted that the INCREASE IN IMPORT GROWTH IS PROJECTED TO OUTPACE INCREASE IN EXPORT GROWTH, as the reductions in import tariffs and non-tariff measures (NTM) are larger for Malaysia relative to the other TPPA countries. The average import tariff imposed by Malaysia was 2.4% as of 2014, while the average import tariff imposed by the TPPA countries (excluding the ASEAN economies) was 1.2%.

The size of the TRADE SURPLUS IN 2027 WILL BE SMALLER  at around US$30 billion compared to the baseline scenario of about US$40 billion where TPPA does not exist. In the event Malaysia does not participate in the TPPA, the trade balance is projected to remain largely unchanged from the baseline scenario.

Despite using on 10 economic sectors, POSITIVE IMPACT IS ONLY ON 5 based on the CGE model and they are textiles, wood, automotive components, plastics and E&E sectors. Textiles sector will register the largest gains in output growth followed by construction and E&E. These 3 sectors combined contribute only about 10% share of GDP in 2014.

It has a NEGATIVE IMPACT on the oil and gas sector whose share of GDP is 12%. PETRONAS stands to benefit very little from TPPA as 74% of its exports are to non-TPPA Parties.

For the E&E sector, it has moved up the rank in the value chain with the activities shifting towards front-end research and development and back-end market exploration. The trade-weighted average tariff rate for Malaysia’s E&E exports to the TPPA countries is presently already very low at 0.07%. About two-thirds of Malaysia’s E&E exports to the TPPA countries already enjoy 0% tariff. An elimination of all tariffs would have resulted in tariff savings of 0.5% of Malaysia’s E&E exports to the US or 0.1% of Malaysia’s total E&E exports in 2014.

A pertinent point to note is the US government is generally restricted from acquiring goods and services, including E&E, from Malaysia under the US Federal Acquisition Regulation (FAR; 2015)

Further, to fully realise the benefits of the TPPA, we need to address structural issues e.g. difficulties in recruiting sufficient skilled labour. It is assumed, the additional economic activity could create 1-2 million jobs by 2027. But the number of jobs created or sustained would be less if productivity increased sharply.

Measures to strengthen capabilities of domestic firms; this could involve industry consolidation - CAN WE DO WITHIN TIME CONSTRAINT OF 2 YEARS?

Capacity building measures to strengthen capabilities of national car vendors - WHAT HAPPENED OVER THE LAST 30 YEARS!

More high-skilled workers needed to support higher upstream investments, higher-tech manufacturing and R&D.

Are our policies geared towards achieving the above needs?

As for wage increase, the benefit from tariff cuts is projected to be small, raising wage growth by only 0.08 point. In contrast, wage growth is projected to be largely unchanged if we are not in.

One of our resolve is to escape the middle-income trap. If we are still highlighting conventional manufacturing exports, it is likely we will still be ‘trapped’. We should be shifting towards high-technology manufacturing operations and R&D and complemented by the development of more advanced business services and other capabilities.

So, the “Vietnam effect” should not be overplayed.

How would the cost of future participation in the TPPA could be higher and the extensive safeguards secured would be foregone in the event of Malaysia’s non-participation? Have we not carved it out during negotiations?

Sir Richard Branson, founder of the Virgin Group said first is not always the best by sharing his expensive experience in producing the first flat-bed seat in a business-class cabin. Getting things right first is better than being the first...

On the requirements for State-Owned-Enterprises (SOE), efforts to support local enterprises, such as “Buy Malaysia First”, may be affected. Commercial viability to pioneer new growth areas and support Bumiputera and SME development may also be affected

Only around 40% of SMEs are likely to be positively impacted by the market access for goods, investment and cross-border trade in services chapters due to greater market access.

For Investor-State Dispute Settlement (ISDS), though there are some safeguards, the Government could incur higher administrative costs. 

The study actually refer to the assumptions where all tariffs are eliminated and NTMs are reduced by 25~50% across the 12 prospective member countries. More than 90% of the economic gains including projected GDP increases are attributable to lower NTMs. e.g. quotas, price control, exports restrictions, or contingent trade protective measures, as well as other behind-the-border measures, such as competition, trade-related investment measures, government procurement or distribution restrictions.

The actual reduction of a prospective member country’s NTMs may be lower in the event the respective member country secured and implements the concessions in the TPPA to protect its domestic interests e.g. there was a side-deal between Japan, USA Canada and Mexico on automobiles in July 2015 "because Tokyo wants to maintain tariffs on various agricultural products”.

On the US invite to China, why would China sign up to US-prescribed rules on labour or environmental standards, with no guarantee of obtaining reciprocal trade benefits from the US that it would undoubtedly find politically difficult to deliver? CNN reported that one goal of TPPA is to neutralize China's power in global trading and make American companies more competitive.

According to the New York Times, "the clearest winners of the Trans-Pacific Partnership agreement would be American agriculture, along with technology and pharmaceutical companies, insurers and many large manufacturers" who could expand exports to the other nations that have signed the treaty.

Doctors Without Borders, known as Médecins Sans Frontières (MSF), expressed that they were "extremely concerned about the inclusion of dangerous provisions that would dismantle public health safeguards enshrined in international law and restrict access to price-lowering generic medicines for millions of people." It will further delay price-lowering generic competition by extending and strengthening monopoly market protections for pharmaceutical companies."

Economist Robert Reich contends that the TPP is a "Trojan horse in a global race to the bottom, giving big corporations and Wall Street banks a way to eliminate any and all laws and regulations that get in the way of their profits."

According to Politico, many expect US Congress to vote on this ‘hot-button’ bill either during the Summer of 2016 or in the lame-duck session after the 2016 elections. The Congress could still hand Obama a defeat, or a long delay. Why then are we rushing it in January 2016?

Our prime minister opines that the benefits of joining the 12-nation TPPA far outweigh disadvantages because the member nations make up 40% of global GDP and a third of world trade. Our trade with our nearer neighbours are significantly larger and some of the members in the TPPA are already our friends in Asean.

How about the larger planned Free Trade Area of the Asia Pacific (FTAAP), which will include not only China but Russia as well. Even our Asean Economic Community (AEC) seems to attract attention from the ‘big boys’. Economists Joseph Stiglitz said the TPP will help counter the trend toward greater economic integration, which excludes the US, in the Asia-Pacific region.

Hopefully, the country’s removal from the US' list of worst offenders in human trafficking, currency manipulation and environmental degradation is not a political play to remove an obstacle to Malaysia signing onto the TPP.

Essentially, tariff reductions form only a small part of this ‘free trade agreement’.

The CGE models are quantitative, they are not empirical in the sense of econometric modelling. They are theoretical models.

After what have been said above and if certain parties believe liberation depends on this agreement, take a breather and think whether we cannot liberalise without it.

To pull out after enforcing is not a credible option.

Malaysian Parliamentarians, while we appreciate you have your party’s whip or ‘enforcers’ in parliament but have you got the mandate from the rakyat you represent on this particular issue? If not, please do or they will ‘whip’ you later.

In this area, I am not very sure whether the government knows best or the majority of the rakyat knows best since PwC did not give a recommendation as a professional.

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