Martin Khor on TPPA

July 15, 2013

Global Trends by MARTIN KHOR

What to expect in TPPA talks

Martin-Khor-Global-Trends-1The nature and effects of free trade agreements has become a topic of public discussion, especially with the round of talks of the Trans Pacific Partnership Agreement (TPPA) about to take place in Malaysia (in Kota Kinabalu, Sabah).

Not much is known about the TPPA drafts. But with some of its chapters leaked on the Internet and since much of the TPPA is likely to be similar to bilateral FTAs that the United States has already signed, we can have a good idea of its main points.

As can be expected, there are many contentious issues to consider, especially for developing countries like Malaysia.

On Trade

On trade itself, the TPPA countries will have to remove tariffs on almost allMITI's Mustapha Mohamedproducts coming from one another. Perhaps only one or two products can still be protected. The main implication is that local producers and farmers would have to compete with tariff-free imports from other TPP countries.

Ironically, agricultural subsidies which is the main trade-distorting practice of developed countries like the United States, have been kept out of the TPPA, thus depriving developing countries of what would have been their major gain.

On Services and Investments

On services and investments, we can expect the TPPA countries to be pressured into opening all their industrial and services sectors.Exclusion of any sector will have to be listed and this is subject to negotiations.

In the investment chapter (0f TPPA),the country will have to commit not only to liberalise the entry of foreign companies but also to protect the foreign investors’ rights in an extreme way that goes far beyond what is recognised in national laws and courts. For example, the foreign investor includes any person or company who has an asset (factory, land, shares, contract, franchise, intellectual property, etc). “Fair and equitable treatment” to be given to them has been interpreted in past cases to include a standstill on (no changes in) regulations.

Thus any new law or change to existing laws and regulations that a foreign investor claims will affect its future revenues can be challenged in an international tribunal for monetary compensation. The regulations could be economic, social, health and environment related.

TPP countries have agreed to allow foreign companies to sue governments in any international court( usually ICSID, based in Washington DC) for compensation. Expropriation is defined as not only confiscation of property (for eample, nationalisation) but also reduction of revenues due to regulatory changes.

These investor-state disputes can cause countries a lot. A court award an American oil company USD2.3 billion (RM7.1 billion) against Ecuador’s government in 2012. Indonesia is being sued for USD2 billion (RM6.2 billion) for withdrawing a contract that a state government made with a British oil company.

Government procurement

The TPPA will also open up government procurement, with foreigners being allowed to bid on similar terms as locals for goods, services and projects above a threshold value. Existing preferences for local companies will be affected,as will be the ability to use government spending to boost the domestic economy and as a major social and economic policy instrument.

Since government procurement contracts are considered investments, the foreign supplier can sue the government at an international tribunal by claiming unfair treatment including a renegotiation of contract.There is also  a sub-chapter on state owned enterprises (SOEs). The United States and Australia are proposing disciplines on the operation of SOEs in which the government has a share.

syedalialattas0903This would restrict the state to state’s ability to government to govern or manage government-linked companies, or provide incentives and preference. For Malaysia, this would affect the New Economic Policy programmes and activities, which are deemed  to be discriminatory . This would also have  serious implications  for developing countries whose success is based on the role of the state in the economy and on public-private partnership.

On Intellectual Property

The chapter on Intellectual Property has generated public debate because it obligates the TPP countries to have IP laws far beyond WTO rules. Longer patent terms and restriction of the state’s policy freedom to promote generic medicines are expected to raise the prices of medicines and other pharmaceutical products.

Tight copyright rules would affect dissemination of knowledge including books. periodicals and journals and digital information.Local producers in industry may find it more difficult to upgrade their technologies and local farmers could have less access to agricultural inputs including seeds.

There are many benefits to foreign investors and companies. Local companies would lose a lot of their present preferences and incentives. They cannot stake a claim to “fair and equitable treatment”  or sue the government in a foreign court, like a foreign company can.

Naturally, there are pros and cons to any agreement. Any potential gain for a country in exports or investments  should be weighed against potential loss to domestic producers, and especially the loss to the government in policy space and potential payout to foreign investors claiming compensation.

7 thoughts on “Martin Khor on TPPA

  1. We don’t know enough of the TPPA to comment on its merits or lack of…but from what has been leaked there are concerns. It has been said that the TPPA is a trade deal in name only. While it has many aspects of the average trade agreement, this one goes a lot further and sets up chilling constraints on how each country manages its domestic regulation.

    Why are all of the negotiations on the agreement secret in all countries? It has been reported that it would seriously hinder a country managing its own affairs in the future. And it is not just environmental regulation that would be impacted. The TPPA’s tentacles also extend to things like workers rights, health care and intellectual property. It has been claimed that In short democracy and self determination are all on the line. MITI has some explaining to do.

  2. TDM wants to involve PRC.
    I want an AC moored between KK and Labuan.
    A PRC frigate moored off Bintulu recently and their seamen were having porridge and smiling at Malaysian. Our RMN did nothing but shit bricks.

  3. “The Best Way to Rob a Bank Is to Own One”
    So is TPPA robbing us? It might be good to be robbed. If we fight back we might get killed. I would welcome TPPA with open arms but first show me your mani.

  4. MITI must give statement on issue of Tobacco trade. It must be consistent with Framework Convention for Tobacco Control (FCTC). Because there are nation in the TPPA group that has not been the party to FCTC. Article 2 of FCTC restrict any treaty or agreement that contradict it’s provisions. The health and well being of the people of Malaysia is at stakes . The AG Office should take up this legal issue and make sure Malaysia is protected . The gain from TPPA has yet to be seen but for sure we are selling cheap our right and freedom and our children right and freedom for a promise of future wealth that no body can be sure off , accept projection base on industries data.

  5. Smoking? Tobacco? I ‘m addicted to it – a most foul and malignant habit, i admit.
    So you think the tobacco thingy can derail TPP? Nah, wet dreams – even Oz and NZ will have to play-smoke along. There are seriously more substantive issues.

    This article, is a no-brainer – in fact it’s totally brain-dead. I have part of the specifics, but i can’t tell you guys cuz otherwise what is there to negotiate? If the Parliament knows – what is the point of negotiating. You fellas never play poker or mah-jong ah?

    The best path, is that only the members within the Parliamentary caucus be informed of the progress or lack thereof. They can give inputs, cuz the midgets in the Ministries and Agencies are cretins. Whatever is left of the Old-Guard is being pensioned off.

    As for Octo’s blabbering and incontinence, remember – it’s him that started the spiral inexorably downwards. Btw i’m not a negotiator, cuz nobody listens to me – including my GR puppy. I can only mediate, whine and bark at ‘Infantile’, ‘Senescent’ and ‘Somnolent’ wish-lists and selfish agendas.

  6. For Third World countries agricultural products is the key The EU and US have kept processed agricultural products off the table for decades and have benefited from it. Duties or/ and subsidies will price your processed agricultural products out of their market. They just want you to export raw materials only.

    We need negotiators who will not give an inch because this has been going on ever since I joined service in 1968. Yes prices for raw materials have gone up but they have not kept pace with prices we have to pay for finished products in spite of them being manufactured in our backyard. Just take the price of VW Beetle as an example. I paid RM6,100 for a 1300 in 1968. My neighbour just paid RM 210,000 for an improved and higher powered product. But certainly the car has not improved by 36 times when compared to the on in 1968.

    In many instances we have unilaterally done away with out import duties for manufactured goods without getting a corresponding benefits for our manufactured products. They are after the lucrative Trade in Services and government procurements in our markets. Please do not yield until and unless they have matched every sen in opening up our markets for services and government procurements. All previous negotiations on free trade were stalled because of agricultural products. Yes, they have yielded on Textile, Footwear and garments, even that was based on quotas. But that is all we can expect them to yield under TPP. Thank you and God Bless.

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