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How the Trans-Pacific Partnership Agreement (TPPA) can affect us

Malaysia signed on to the Trans-Pacific Partnership Agreement (TPPA), a deal that will apparently liberalise trade and investment between 12 Pacific-rim countries. However, trade is only covered in 7 of the 30 chapters of the Agreement. What about the other chapters? One thing is certain: TPPA, once implemented, will almost certainly have a significant impact on our lives, for better or for worse. This article aims to present the main issue surrounding TPPA.

The Trans-Pacific Partnership Agreement (TPPA), which has been touted as the biggest trade agreement in history, will apparently liberalise trade and investment between 12 Pacific-rim countries namely Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam. This region represents a combined annual GDP of US$27.5 trillion (40% of the world economy), and 800 million of the world’s population. Concluded after several years of negotiations on October 5, 2015, the agreement includes 30 chapters, of which only 7 chapters relate to trade in goods. The remaining include investment, trade in services, government procurement, state-owned enterprises, extension of intellectual property (IP) rights beyond World Trade Organisation (WTO) practices, labour and Investor-State Dispute Settlement (ISDS). The TPPA is highly controversial in nature, in part due to the secrecy surrounding the provisions in the agreement. Its potential impact on Malaysia necessitates that all of us do at least have some minimal understanding of the relevant issues.

Malaysia’s Ministry of International Trade and Industries (MITI) touts the TPPA “as an important step toward our ultimate goal of open trade and regional integration across the region.” Malaysia already has open trade with most of these countries. So why is there this new and complex agreement? What are the possible risks especially to the developing countries in this grouping such as Malaysia?

It is claimed that the removal of tariffs and easing trade will increase the total volume of trade within the countries involved. This then, supposedly, translates into faster GDP growth, while imports will become cheaper for consumers. Unfortunately, the prices of imported cars in Malaysia are unlikely to come down. This is important especially since cars are the second largest investment (although they only depreciate in value) consumers make after property. While there is a potential for non-TPPA based companies to invest in TPPA countries to exploit trade openness, Malaysia has however been open enough all this while to fit this criteria. On the flip side, many would argue that the TPPA agreeing to the continuation of preferential tender policies is only detrimental to the country. Affirmative action policies are effective only if implemented for a definite period of time. No serious economist would argue that such policies can be perpetual, and carried out without an end plan. Affirmative action policies create significant inefficiencies in the economy, and for Malaysia the present policies are unsustainable in the long term.

Trade liberalisation should, in principle, be accompanied by four fundamental economic freedoms. These are the free movement of goods, services, capital and labour. However, let us not hold our breaths regarding the latter. While US firms, which have a lower cost of borrowing compared to Malaysian firms, can invest in (or buy up) Malaysian assets, it is not going to get any easier for a Malaysian to move to United States and offer to work for lower wages than that which prevails there. With TPPA, Malaysia foregoes the benefits of the competitive advantage we have in labour cost by being unable to export our cheaper labour to richer countries. Just as “cheap” capital from the US can locate itself in Malaysia and utilise cheap Malaysian labour, free trade should also allow cheap labour from Malaysia to get located in the US and borrow at the prevailing domestic rates there.

Locally, much attention has been drawn on the ISDS by various groups. The ISDS grants corporations the right to sue a foreign government for losses that occur as a result of public policy. For instance, under a previous dispute settlement regime, the cigarette giant Philip Morris sued Uruguay and Australia for compensation as the company claimed that latter’s anti-smoking laws devalued the former’s cigarette trademarks and investment in the country. The suit on Australia forced New Zealand to cancel its own plans to introduce plain packaging for cigarettes. These and other on-going instances causes one to generally worry if the ISDS mechanism would only promote investor rights, without stipulating investor obligations, thereby strengthening corporate control over sovereign nations.

The text, which was previously available only to negotiators and corporations, was released on 5th November 2015. The corporation friendly text suggests that adoption of TPPA might severely limit the policy options available to governments for a whole range of issues including cigarettes, genetically modified organisms (GMO), affordable medicines, environment, intellectual property rights, foreign investment, and movement of capital by foreign banks. The agreement was signed on 4th February 2016, and ratification by the countries would need to be carried out within two years.  One thing is for sure though; TPPA does not promote equality.