LAST TUESDAY, SM Mohamed Idris, president of the Consumers Association of Penang, weighed in on behalf of those opposed to Malaysia being a party to the ambitious but controversial Trans-Pacific Partnership (TPP) multilateral trade agreement being negotiated between 12 countries, including the US and Japan, which together account for 39% of global GDP.
In his April 14 op-ed in The Malaysian Insider, Mohamed Idris said China, India and Indonesia are not party to the TPP and Malaysia would do better by focusing on strengthening regional trade relations rather than chase after the elusive TPP “pie in the sky”, which comes with clauses that could undermine the country’s sovereignty.
“We reiterate our call to the government to withdraw from negotiations for an agreement in which costs far outweigh the purported benefits. Do not sign away our future,” he writes.
Tan Sri Ramon Navaratnam, chairman of Asli Centre of Public Policy Studies, however, reckons that Malaysia stands to lose out over the longer run should TPP succeed and the country is not a party to the agreement.
It is understood that Malaysia has existing free trade agreements (FTAs) with 7 of the 11 TPP countries, namely Australia, Japan, Vietnam, Brunei, Singapore, New Zealand and Chile. The current exceptions are Canada, Mexico, Peru and the US but the TPP ultimately wants to include all countries in the Asia Pacific. South Korea, Taiwan, the Philippines, Laos, Colombia, Indonesia, Cambodia, Bangladesh, Thailand and India are said to have expressed their interest to be TPP members.
“There are areas such as healthcare and labour, where the cost and benefit analysis needs to be properly looked at … In any negotiation, there is give and take and it is up to our negotiators to get the best deal for us. It is important that we engage and negotiate. We are not Indonesia or China, which are big and can ask to join anytime they please,” Navaratnam tells The Edge.
As to whether provisions against state-owned enterprises (SoEs) in the TPP could cause serious operational constraints and even sanctions for state-owned Petroliam Nasional Bhd (Petronas) or Khazanah Nasional Bhd, he reiterates there will be a chance to discuss the necessary carve-outs or exclusions to protect national interests.
“We should not let vested interest stand in the way. We should think longer term and be prepared to compete on level playing grounds,” he said, adding that Parliament is slated to hear results of the cost and benefit analysis of the TPP by the third quarter of this year.
It is hard to tell who is right, as a proper analysis cannot be done until the text of the agreement is made public. What’s known, however, is negotiations for TPP have reached a make-or-break point.
If US President Barack Obama does not get the “fast track” Trade Promotional Authority (TPA) from Congress in the coming few weeks, chances are that he will not have enough time to complete the TPP before the end of his two-term presidency in January 2017, let alone see TPP sealed within the intended year-end deadline, experts say.
It remains to be seen if competition from the China-led Regional Comprehensive Economic Partnership (RCEP) — which includes 15 other Asian countries including Malaysia, Singapore, Japan and India — would garner Obama the necessary votes to push the TPA through.
“The trade deal I’m negotiating now, the TPP, would reform NAFTA with higher labour standards, higher environment standards, new tools to hold countries accountable, would focus on impacts it’s having on American workers and would make sure that the rules of the 21st century economy in some of the largest markets in the world aren’t written by China. They need to be written by the United States of America,” according to the text of Obama’s speech in Cleveland on March 15.
Phil Levy, Senior Fellow on the global economy at policy think tank The Chicago Council on Global Affairs, thinks there is a “50:50 chance” of the TPA being passed “at best” and that’s required for TPP negotiations to move forward.
“I’m more pessimistic and I’d like to be wrong, I hope the optimists are right but the politics of TPA are very difficult. We’re pushing close to our presidential elections [in November 2016 and] this is not just a statement on President Obama but traditionally, when you get to the last quarter of a two-term president’s term, people are less focused on the incumbent and more on who’s coming next and that makes it tough,” Levy says.
According to him, the TPA is essential for TPP negotiations to close because without TPA, Congress can pick on every clause negotiated with partners instead of passing or rejecting an agreement in whole. Catherine Novelli, US undersecretary of state for Economic Growth, Energy and the Environment, told reporters in Singapore on April 1 that she expects the TPA legislation “to be passed soon, within the next month or so”.
Whether this is overly optimistic will be known soon enough. With the wording of the bill agreed upon by key US congressional leaders last Thursday (April 16), committee level votes are reportedly planned for this week.
It is worth noting that Hillary Rodham Clinton, who announced her presidential bid on April 12, had yet to make clear her position on the “fast track” bill or the TPP, which is opposed by trade unions because past trade agreements such as NAFTA are seen to have taken away American jobs.
In an op-ed in The Washington Post in February, fellow Democrat Senator Elizabeth Warren said everyone should be opposed to the Investor-State Dispute Settlement (ISDS) provision in the TPP agreement that she says would allow multinational corporations to challenge US laws in special courts preceded by highly paid corporate lawyers. Politicians in Australia and Canada are also reportedly opposed to ISDS.
Economist Paul Krugman, in his Feb 27 column in The New York Times, questioned the rationale of the US push on TPP: “The economic case is weak, at best, and his own party doesn’t like it. Why waste time and political capital on this project?”
Krugman gave another “thumbs down” to the TPP in his March 11 column and argued that it’s “impossible to claim that TPP could add more than a fraction of one percent to the incomes of the nations involved; even the 0.5% suggested by Petri et al looks high to me.”
Findings by Peter Petri from the Peterson Institute for International Economics in 2011 on the TPP, widely cited by the trade pact’s proponents, was also recently disputed in a January 2015 paper by Rashmi Banga at the UNCTAD’s Unit of Economic Cooperation and Integration among Developing Countries (ECIDC).
According to Banga, Petri’s method of computable general equilibrium analysis (CGE) can lead to over-estimation of production-linked gains from trade. He recommends that all regional and bilateral FTAs be analysed with respect to their contribution to domestic value added (DVA) exports and not gross exports. His conclusion is that Malaysia stands to lose out as it has seen a trend of declining DVA exports with respect to all major TPPA members.
“Malaysia’s balance of trade will worsen by around US$1.5 billion per annum with imports rising by around US$3 billion and exports by around US$1.5 billion,” writes Banga, who also estimates that Malaysia would only retain within the country US$42 of every US$100 increase in exports to the US.
For now, Levy sees provisions on SoEs to be the largest hurdle for Malaysia and Vietnam in signing the TPP. Government procurement and bumiputera policies are also seen as major barriers for Malaysia.
Levy, for one, would not be surprised if yet another delay is announced for the conclusion of the TPP, which was originally supposed to have been completed by mid-2012. The successive failure to meet deadlines, he says, shouldn’t be surprising, given the nature and scope of the TPP where more than half of the 29 negotiated chapters involve non-trade matters such as intellectual property, government procurement, competition, labour and the environment.
“People do not want to be labelled as protectionists so they’ll say I’m supportive of free trade so long as say [provisions to curb] currency manipulation is in there… But it is not so easy to have a multilateral agreement on [where monetary policy becomes currency manipulation],” Levy says.
Just as the last significant deadline went and passed with the addition of new members into the negotiating pool, he reckons more members could well be accepted again “in lieu of real progress” if negotiations cannot close by year end.
This article first appeared in The Edge Malaysia Weekly, on April 20 - 26, 2015.
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