January 16, 2016
Politics aside–TPPA is Good for Malaysia
by Tan Sri Dr. Munir Majid
The Trans-Pacific Partnership Agreement (TPPA) is a huge commitment and it is unsurprising it has engaged enormous public interest. The debate over it, however, will only serve the nation well if is not excitable and emotional, not just alarmist without suggesting means of enhancing Malaysia’s capability, and not purely academic or self-serving.
The excitable and emotional arguments are largely political in nature, another stick with which to beat the government. Too many important national interests are involved for the TPPA to be political football. Statements like exiting the TPPA would bankrupt Malaysia are an alchemy just to stop Malaysia signing it, not a considered argument on the cost and benefit of being a member of the TPP.
Tun Dr Mahathir, who made this remark, has associated Malaysia and bankruptcy all too often that one worries if this is what he wishes on a Najib Malaysia. But Malaysia is not Najib. We are a nation that must make itself compete and survive well into the future beyond the politicians that had led, or now lead us.
It has been asserted also that the TPPA would cause Malaysia to lose its sovereignty. Malaysia alone among the 12 set to sign it? Lose sovereignty to whom? The US? All 11 surrendering their sovereignty just like that? Vietnam, after over two generations spilling blood for its freedom and still now struggling against Chinese over the South China Sea claims? Singapore, so jealously guarding its sovereignty in the last 50 years after separation from Malaysia?
What utter nonsense this assertion is. It is in the exercise of its sovereignty that Malaysia is entering into this agreement, with obligations and privileges, challenges and opportunities, and associations in a bloc which represents 40% of the world economy.
The study by the Institute of Strategic and International Studies (I must declare my interest as a director, but I had absolutely no involvement in the study) concludes the Malaysian national interest is served by signing the TPPA which underpins the great openness of the Malaysian economy and underlines Malaysia’s continued commitment to that openness. It would be worthwhile for sovereignty-phobic critics of the TPPA to read the report on the International Trade and Industry Ministry (Miti) web-site.
I would expand to say the TPPA makes geopolitical sense for Malaysia as it introduces an American presence of balance in the region, not against, but with China. It is never any good for small countries when one major power dominates. They should be adept at engaging both powers in a positive sum relationship, as Singapore does so well.
PKR President Dr Wan Azizah Wan Ismail said last Tuesday the opposition party would not support the TPPA because it is geopolitical. Yes, it is also geopolitical. What about it? How does the PKR want Malaysia to sit between China and the US? What exactly does the opposition want?
I am reminded of an old dictum about opposition in parliament: to propose nothing, oppose everything and to turn out the government. However, as I said, the TPPA is a great event. It is too important for the country to be a play-thing of party politics.
There had been grave concerns expressed about how the TPPA would wipe out national policies on bumiputras and SMEs, state-owned enterprises and government procurement – part of what the PWC cost-benefit study commissioned by Miti calls the “”thematic issues” – but after these concerns were well (some say too well) managed through higher threshold levels and extensions of time, the aim moved to the fact the TPPA has overwhelmingly more chapters on issues not related to trade.
This is very true. It covers qualities, standards and principles of good governance, transparency, accountability and incorruptibility in extenso. What is the problem? Do we want bad governance, opaque and unaccountable systems, and corruption? It cannot but be a good thing that associated countries are being moved in the direction of higher standards and better quality rule.
Then, comes the question why do we have to rely on an “external” regime to improve ourselves and, sometimes in the same breath, the assertion the TPPA cannot solve all Malaysia’s governance issues in any case.
So, which and what is it? It has never been the contention that the TPPA is a one-shot panacea for Malaysia’s political, social and economic problems. But it is a jolly good start and boost. And it is, furthermore, freely sought by Malaysia, in the exercise of its sovereign right. The TPPA will assist in the injection of higher disciplines and standards of governance as well as of justice – such as for workers through acceptance of International Labour Organisation requirements (not unknown in this country as the electrical and electronic industry already conform but not extensively enough practised in other sectors).
There are a number of obligations Malaysia has undertaken, especially through the United Nations system, which it has not always fulfilled, like with the Universal Declaration of Human Rights. With the TPPA, Malaysia will not easily escape obligations it has made – another good discipline.
However, depending on the extent and complexity of the obligations, it can also expose Malaysia to means of legal redress that could be overwhelming. There is therefore merit in the fear expressed that the TPPA, through Chapter 9 on Investment, could place Malaysia at risk under the Investor State Dispute Settlement (ISDS) provisions in the second section of that chapter.
It would be wrong nevertheless to say Malaysia would be taken to the cleaners each time, based on a historical analysis of how big business have been hauling governments to court or arbitration – and winning big.
The score for governments winning is 37% of the time, which may not be too comforting. While there is a point to be made about governments keeping to their legal commitments and not moving goalposts, as happens all too frequently with Latin American governments which have lost substantially in frequently cited cases, there is the feeling that big business, particularly Americans, are testing and bending the rules, if not the arbitrators.
Miti has argued there are sufficient provisions in the TPPA to limit and inhibit big business alacrity for legal redress, as in time accorded for other means of settlement to be used and as in provision for the TPP Commission under Chapter 27 to interpret the agreement. However, given the risk factor, it would be a good idea for Miti to organise a small caucus of legal experts, business leaders and government officials to go through the whole gamut of dispute settlement provisions and interpretation under the TPPA with an emphasis on the ISDS.
The PWC cost-benefit study notes in consultant fashion the ISDS “may increase cost to the Government” which includes I would suggest direct loss, professional and proceedings cost and also administrative preparedness. It is the last, I would venture, that the government should give a lot of attention to as Malaysia has to improve legal administrative capability.
We have been caught short many a time on details and record-keeping which has lost us a number of international cases. If we add to this English language capability which has deteriorated, the ISDS exposure could become larger than it already is. So government and administration have to improve. And thus so many fears because we feel we are so inferior and not prepared.
We are not that inferior but we must be better prepared. This applies of course particularly in the competition for markets which the TPPA opens up.
Here economists are having a merry old time arguing about what exactly are the real economic benefits of the TPPA. This is not unknown among economists, only one of whom in my knowledge, predicted the 2008 financial market crash and subsequent economic crisis. Indeed the Queen of England, when opening the New Academic Building of the London School of Economics in November 2008, had asked all those many economists there why none of them saw the crash coming. (They were lost for words and the Queen was not amused: worth at that time about £320mil, the Queen had lost £25mil in a personal investment portfolio).
So on to economists and their little battles over what they never get right. There is the contention now that the PWC cost-benefit study was wrong to base its TPPA economic benefits conclusions on the CGE (Computable General Equilibrium) model which is wanting and inaccurate. There is a Tufts university study based on a UN model which contends the economic benefits of the TPPA are very small, with a very interesting finding of negative effects on growth, employment and income distribution in the U.S. – the usual suspect and prime mover of the TPPA.
The PWC study on the other hand finds the net gains to the overall Malaysian economy of the TPPA are a higher GDP by US$107bil-US$211bil in the period 2018-2027 and additional investment of US$136bil-US$239bil. It reports a narrower trade surplus impact in 2027 of 4.3%-5.2%.
The study however underlines there will be adjustment costs to firms from increased competition and cross-sectoral TPPA obligations. In other words, a lot depends on what firms do in open markets: there are opportunities and challenges. There are details of course on which sectors are likely to benefit the most and which will be under threat. The study has also been made available on the MITI web-site.
Another independent recent study by the World Bank also found positive economic benefits for Malaysia from being involved in the TPPA. Importantly, the FMM reports that 62% of export growth is because of reduced trade barriers (The PWC study sees over 90% of economic gains are driven by reduction on non-tariff measures by 25%-50%).
Whatever the models and assumptions, how much Malaysia benefits economically from the TPPA depends on what our firms do. They have a good export growth track record. And there are four new export markets in countries with whom Malaysia has no FTA that will be opened up, three of them really sizeable markets: the US, Mexico and Canada. However Malaysian firms also have to adjust domestically against imports.
The economists and writers, some ideologised against big business, can pontificate and go on about this and that model, but it is the doers that matter. Malaysian firms and the Malaysian people have to step up the challenge.
In such a detailed and comprehensive as well as a demanding and complex agreement such as the TPPA, there will be fear and trepidation. But remember, everyone is bound by it, including the U.S. (where there also exist so many fears and doubts which would not arise if it were all for America)
It is not just the TPPA that demands we are agile and competitive. There is already the AEC. The RCEP is slotted to be in place by the end of this year. ASEAN countries are negotiating a free trade agreement with the EU. The FTAAP (Free Trade Area of the Asia Pacific) will come.
It is the fear of competition which is mainly driving criticism of the TPPA. But there is really no where to hide. As one of the world’s most open economies, Malaysia is already in the mix. We can and must compete.
Tan Sri Munir Majid, chairman of Bank Muamalat and visiting senior fellow at LSE Ideas (Centre for International Affairs, Diplomacy and Strategy), is also chairman of CIMB Asean Research Institute.