CPTPP debate picks up steam as deadline looms

This article first appeared in The Edge Financial Daily, on August 27, 2018.

Ong says though CPTPP’s overall trade and economic benefits are reduced compared to the TPP, the benefits are still positive. The Edge file photo

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KUALA LUMPUR: With less than six months left to the February 2019 “deadline” and with a new government in place, the debate on whether Malaysia should ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is picking up steam.

It appears that at least a couple of domestic regulations have been modified in order to align Malaysia’s regulatory environment with those stipulated under the trade agreement.

According to Deputy Minister of International Trade and Industry (Miti) Dr Ong Kian Ming, 17 laws remain to be amended or introduced, two down from the 19 announced by former minister of international trade and ministry Datuk Seri Mustapa Mohamed in March this year.

“Ministers in some of the key ministries have been briefed with regard to the costs and benefits of the CPTPP. These are the ministries which have to pass the legislative changes as part of the process of ratifying the agreement,” Ong told The Edge Financial Daily in an email exchange.

It was earlier announced that the laws to be amended included those on issues of labour, environment and international property.

In the briefing, the costs and benefits have been updated following the US decision to pull out from the original TPP, Ong shared.

The CPTPP requires six of its 11 signatories to ratify the agreement before it can come into force, which has been targeted for early next year. But members can still ratify the agreement and participate in the deal after the deadline has passed.

So far, only Japan, Singapore and Mexico have ratified the agreement. Other signatories, besides Malaysia, are Australia, New Zealand, Canada, Chile, Peru, Vietnam and Brunei.

With 22 provisions of the original TPP agreement having been suspended by the 11 signatory nations before it was rebranded CPTPP, experts and industry players are still disputing whether or not the new deal is detrimental to Malaysia’s economy and civil society as a whole.

 

Benefits are still positive

“Although we were looking at several big issues, the main reason we signed the TPP was because it was supposed to give us more access to the US market,” said Wong Chen, member of parliament for Subang who was also on the parliamentary caucus for the TPP.

Now that access to the US market is no longer on the table, the resulting contribution to Malaysia’s gross domestic product (GDP) growth is less than 1% and therefore negligible, he told The Edge Financial Daily over the phone.

A December 2015 PricewaterhouseCoopers report commissioned by Miti showed that Malaysia’s GDP stood to grow between 0.6 percentage points (ppts) to 1.15ppts from the TPP.

Although Ong acknowledged that the overall trade and economic benefits of the CPTPP are reduced compared to the TPP, he argued that the benefits are still positive because of the market access Malaysia has to new potential trading partners.

“(There are) three new countries which Malaysia currently does not have any free trade agreements with, namely Canada, Mexico and Peru, which are the 10th, 15th and 48th largest economies in the world respectively,” Ong said.

A Moody’s Investor Services report dated March 9, 2018 also highlighted these nations, adding that Malaysia’s palm oil, rubber and electronics exporters will be among the beneficiaries of the CPTPP.

“Tariff concessions under [the] CPTPP will give Malaysian exporters a competitive edge over non-CPTPP countries like China,” said Adli Amirullah, economist at the Institute for Democracy and Economic Affairs.

On top of that, Adli argues that Malaysian manufacturers can benefit from an increased range of high-quality inputs, especially from Japan and Mexico.

“[The] CPTPP invites foreign exporters to exert competitive pressure on local manufacturers. Thus, consumers can expect to benefit from a decrease in prices and increase in quality of products,” he said.

Referring to the same report by Moody’s, Adli highlighted that Malaysia was found to gain the highest real income effects of the CPTPP among participating countries, with real income to rise by 3.1% or US$21 billion by 2030.

As such, the diversion of trade away from Malaysia and toward the CPTPP block is a “very relevant concern” if Malaysia does not sign the agreement due to the lower or near-zero tariffs levied on participating countries, he said.

“Countries like Vietnam, who already enjoyed lower labour costs, may even become more attractive to import from compared to Malaysia,” Adli pointed out.

 

But not everyone agrees

“The argument [by proponents of the CPTPP] is that we will be left out of future trade discussions if we don’t participate, but that’s not true. Countries will still trade with us if the government is confident (in running) things properly,” Wong said.

Professor Jomo Kwame Sundaram, a member of the prime minister’s Council of Eminent Persons who recently called for Malaysia to “withdraw gracefully” from the trade deal, pointed out additional risks to participating in the agreement.

“The CPTPP has committed Malaysia to further trade liberalisation, accelerating deindustrialisation, besides constraining the growth of modern services, development finance and ‘policy space’,” he wrote in an opinion piece.

 

Intellectual property rights still contentious

Even if there are real gains to be made in terms of trade and economic growth, there is the question of whether this may come at the expense of unfavourable changes to Malaysia’s regulatory sovereignty.

“The investor-state dispute settlement (ISDS) provisions will limit the rights of the people and elected representatives on all matters if these rights conflict with the financial interests of foreign corporations,” said Wong.

That said, several of the suspended provisions concern the heavily contended ISDS mechanism.

“The application of investment agreements and investment authorisations under the scope of ISDS has been suspended under the CPTPP. In other words, foreign companies [can)] no longer sue governments over breach of investment contracts using ISDS.

“Some of the patent protection provisions which affect pharmaceuticals including biologics have also been exempted under the CPTPP,” Ong said.

Prime Minister Tun Dr Mahathir Mohamad, in an interview with Thai public broadcaster Thai PBS several weeks ago, had said that “the condition which allows companies to sue governments is no longer something we need to fear” under the CPTPP.

Malaysian pharmaceutical players, however, remain concerned over provisions that enable patent linkage, which could inhibit the registration of genetic medicines, thus making medication more expensive for the Malaysian public.

According to Chemical Company of Malaysia Bhd (CCM) group managing director Leonard Ariff Abdul Shatar, regulators had implemented patent-linkage in Malaysia about a month ago.

“We are in the midst of a patent battle at the moment. I can challenge a patent because this is a registration I got before the new regulations [took effect],” he shared with The Edge Financial Daily.

This is despite patents typically being a civil right, and not one that the state is responsible for protecting, he said.

Here’s another aspect to consider: The suspension of these 22 provisions does not amount to an outright rejection of them by members, raising worries that if the US does decide to rejoin the pact, existing members may be pressured into lifting the suspensions.

Although US President Donald Trump pulled his country out of the TPP, there is no knowing whether or not he could change his mind on participating in the deal if it may spite China, which is not a member of the agreement, or whether a future US president may decide to rejoin the deal.

“Signing the CPTPP will upset China, which may result in two paths: China will demand the Regional Comprehensive Economic Partnership (RCEP) on the same terms as the CPTPP or China will trade less favourably with us,” Wong said.

RCEP includes all 10 Asean nations, and Australia, China, Japan, Korea, India as well as New Zealand, which altogether make up some 30.4% of global GDP, according to Miti.

Dr Mahathir has voiced his support for continuing negotiations with RCEP, saying that as a powerful and rich country, China cannot be ignored.

However, Moody’s reported that gains from the RCEP would likely be lower than the CPTPP despite the inclusion of more sizeable countries, as the RCEP is narrower in scope and would overlap with existing arrangements, such as the Asean-China Free Trade Agreement.

The investor services provider had referred to an October 2017 report by the Peterson Institute for International Economics, which argued that Malaysia stands to gain an 8.6% or US$42 billion increase in exports via the CPTPP and just 3.4% or US$17 billion via the RCEP.

Despite this, Ong said Miti continues to play an active role in the RCEP negotiations, including at the sixth RCEP Ministerial Meeting which will take place on Thursday and Friday in Singapore.

 

Process not transparent

It has been said that negotiations of the CPTPP were kept under wraps under the previous administration, contrary to the high level of public engagement ahead of the TPP signing.

“The changes in the CPTPP [from the TPP] were not tabled or discussed in Parliament. We don’t know what they are, the process was not transparent,” Wong said.

CCM’s Leonard echoes this, saying there was little industry engagement when it came to the negotiations of the CPTPP, despite Miti having engaged industries ahead of the TPP.

“Those days, they gave a lot of industry meetings for the TPP. We were invited to speak against it. But for the CPTPP, it was very quiet,” he shared.

Ultimately, the decision to ratify the CPTPP rests with the Cabinet, which will take the disputed factors into consideration before arriving at a decision whether or not to continue with the process, Ong said.

According to Dr Mahathir, Malaysia cannot withdraw from the agreement without losing credibility as the previous government had already signed it.

“We will have to go ahead with CPTPP,” he said.

Jomo, however, said that opting out can be done simply by not ratifying it.