TPPA– Malaysia gets to keep the NEP


February 14, 2016

TPPA– Malaysia gets to keep the NEP

by Dr Shankaran Nambiar

http://www.themalaysianinsider.com

Malaysia’s leadership must be extremely satisfied on two counts: their success in negotiating the Trans-Pacific Partnership Agreement (TPPA) and the Parliament’s favourable position on the agreement.

It is amazing that Malaysia has negotiated to preserve the Bumiputera agenda, obtain a minimum five-year grace period to reform state-owned enterprises (SOEs), and gain exemption for Khazanah Nasional from investor-state dispute settlement (ISDS) provisions for two years after the deal comes into force.

There were fears that TPPA would necessitate the dismantling of SOEs, prise open the government procurement market and cause the whittling down of the Bumiputera agenda. Those anxieties are unfounded. TPPA has turned out to be an agreement where the Malaysian government can have its cake and eat it too.

While maintaining the Bumiputera agenda may be a victory of sorts in the short term, it reduces the impetus for drastic economic reforms. The push towards greater private sector participation, in particular, will be further postponed.

Economic efficiency may have been sacrificed in an effort to appease a significant domestic political constituency. TPPA negotiations presented a trade-off between obtaining political support for the agreement and striving to achieve efficiency and greater social welfare gains. It seems that the end result tilted in favour of the former.

Many of the criticisms of TPPA that have been raised do not trouble the government. The government seems to believe that the ISDS clause is not a cause for concern. This is because it considers ISDS to be a standard addition to many free trade agreement packages.

And the government has had experience from previous encounters with ISDS both in its favour and against it. Legitimately or otherwise, it thinks it has enough expertise to handle such disputes.

With regard to pharmaceuticals, Malaysia’s existing patent period and data exclusivity provisions are already the same as that of TPPA. But Malaysia will have to change its laws to comply with TPPA on biologics.

On the face of it Malaysia appears to be on safe ground. Yet the Jordanian experience is deeply worrying: the prices of medicines in Jordan went up by as much as 20% after its trade agreement with the United States.

International experience on intellectual property rights and the games that multinational pharmaceutical companies play has been a cause for concern. Yet, surprisingly, the Malaysian Organisation of Pharmaceutical Industries does not think that TPPA will have an impact on this sector.

Hopefully, their assessment is correct. In any case, the government should take measures to improve the national healthcare system. The government should upgrade access to medicines and healthcare. And it should not shirk its responsibility of bearing the burden of healthcare costs, with or without TPPA.

One issue where both critics and supporters of TPPA agree is on Malaysia’s questionable readiness to take advantage of its exports. Many of Malaysia’s key sectors are low on value-addition.

There are few sectors that are export-oriented, have high value-added contributions and are also technologically sophisticated. So Malaysia will not be able to wage a strong competitive war to increase the industrial value-added that would benefit domestic stakeholders.

But this is a structural problem, a phenomenon that describes the nature of the economy. It does not apply specifically to TPPA.

There is also little doubt that the rate of growth of imports would likely be faster than exports post-TPPA implementation. There are two reasons for this: the removal of impediments to trade would encourage greater imports, and with growing exports there would be a need to import more intermediate goods.

By seeking to join TPPA, Malaysia has signalled its reluctance to take on a leadership position with Asean. Vietnam, Brunei and Singapore are in TPPA. And Indonesia and the Philippines have expressed interest in joining.

Asean being as loose an organisation as it is, and with members not being firmly and exclusively committed to it, Malaysia has opted to exploit its first-mover advantage.

Malaysia is confident that it can enjoy the best of both worlds by being in the US-led TPPA and the Regional Comprehensive Economic Partnership. If Malaysia did not join TPPA, impelled by its loyalty to the notion of Asean centrality, it would be disadvantaging itself when additional Asean members participate in TPPA in future. The threat of being the last entrant into TPPA must have weighed heavily on the government’s strategy.

Malaysia’s membership in TPPA does not imply that is shifting away from China and moving closer to the United States. Much like Singapore, Malaysia will spread both its wings, courting the United States and China, extending concessions to both in equal measure, or as opportunities arise, regardless of their source.

Malaysia remains today, as it did 25 years ago: a nation that is dependent on trade and investment. It does not have the advantage of a huge market, a surplus of high-tech skills or cheap labour.

Malaysia is, in a manner of speaking, a price-taker. There are adjustments that it must make as part of this process. That will include changes to domestic laws, especially with regard to labour and intellectual property rights, issues that the opposition party will rightly question.

TPPA is not the gold standard it was touted to be: major concessions have been made. Anybody who thought that TPPA would trigger a domestic reform process in Malaysia will be disappointed.

TPPA may not turn out to be such a game changer after all. But, without TPPA, trade and investment might be diverted to Vietnam and Singapore. At least, Malaysia can now rest in the comfort that that will not happen. – East Asia Forum, February 14, 2016.

http://www.themalaysianinsider.com/sideviews/article/is-tppa-really-a-leap-forward-for-malaysia-shankaran-nambiar#sthash.osOpc0uf.dpuf

 

18 thoughts on “TPPA– Malaysia gets to keep the NEP

  1. No self respecting international/multinational business entity would be caught dead, dealing with these useless monopolistic Bumi-First-To-Last SOE/GLCs. They will add the ‘corruption’ margin into their inflated debit account, or they’d demand ridiculous free giveaways/infrastructure/tax-free breaks. That’s ‘normal’ international business tactics according to the cretins a’ la Bumi economic/finance stalwarts.

    Selling Tanah Pusaka or Strategic National Assets at ‘market’ (actually pasar malam-gelap) prices to foreigners is the height of economic treason, is it not? Otherwise known as “Monetization” or “Asset Stripping”.

    Btw, didja know that Mauritius besides the Caymans (and other dodgy tax-free) centers of Hifalutin’ Finance are also being investigated by the US treasury? That’s where stashes of laundered ‘terror’ dough are said to exist. Did i hear someOne say ISIS like?

  2. TPPA has turned out to be an agreement where the Malaysian government can have its cake and eat it too.”

    Are we so sure? The literature on FTAs seems to confirm one point — that over and over again developed nations have always come out winners at the end of the day. Having the cake and eating it must come at a cost — there is no free lunch and advanced nations are loathe to give free lunches; and rightly they shouldn’t because of the crutch mentality free lunches engender. So we must ask at this point even after the signatures were put down in New Zealand recently — what concessions did we give, knowingly as well as unknowingly, in the main, to the United States, Japan and Australia? I mention these three because they are the big players of the game.

    I will get back to concessions, if any, given away by us unknowingly later.

    The push towards greater private sector participation, in particular, will be further postponed. ¶ Economic efficiency may have been sacrificed in an effort to appease a significant domestic political constituency. TPPA negotiations presented a trade-off between obtaining political support for the agreement and striving . . . It seems that the end result tilted in favour of the former. ”

    Is Dr Shankaran here saying that this is no piece of cake? We can’t have what is being touted as a win-win Agreement for Malaysia to continue to be hobbled by economic policies of questionable efficiency and then call this cake — it is a plain giveaway by the US and the other industrialised countries — you can have it your way but you will not be productive! And Dr Shankaran confirms what must be obvious to the other parties especially the US and Japan that, “Many of Malaysia’s key sectors are low on value-addition. ¶ There are few sectors that are export-oriented, have high value-added contributions and are also technologically sophisticated. So Malaysia will not be able to wage a strong competitive war to increase the industrial value-added that would benefit domestic stakeholders.” Competitive advantage? Zilch!

    http://www.huffingtonpost.ca/2016/02/12/japan-says-it-wasn-t-excluding-mexico-and-canada-during-tpp-side-talks-with-u-s_n_9220950.html

    We thought that the U.S. represented Canada and Mexico
    “Japanese officials say they believed they were also negotiating with Canada and Mexico when they struck a controversial side agreement with the United States on automobiles last year during the Trans-Pacific Partnership talks.

    They discussed that agreement with U.S., which angered Canada and Mexico, in a briefing ahead of a Friday meeting between Foreign Affairs Minister Stephane Dion and his Japanese counterpart, Fumio Kishida.

    The Japan-U.S. deal on rules of origin in the auto sector would have allowed a higher percentage of Japanese parts in cars in North America’s highly integrated industry. The fallout stalled completion of the 12-country Pacific Rim deal by at least two months.

    The Japanese officials say they were surprised to learn that they had negotiated a deal with only the United States.

    Mexico’s former ambassador to Canada has said the side deal angered the Canadians and Mexicans and nearly drove the two countries from the bargaining table. . .

    We thought that the U.S. represented Canada and Mexico,’ said one.

    They did not explain why they thought the United States was negotiating on behalf of Canada and the Mexico. ‘We were very surprised’ to learn ‘Canada had not been consulted by the U.S.,’ said one official.”

    So Canada and Mexico unknowingly allowed the United States to negotiate with Japan on their behalf!

    Were we also a victim of such perfidy — by whom and with whom?

  3. Yes, CLF, Dr. Nambiar is trying be subtle in his comments. What is so sacrosanct about NEP? Let us face the fact that it is a dismal failure. It has not made the Malays any better intellectually and economically. In fact, it is UMNO crony capitalism. Because of this, NEP will not be reformed. The Malays who have become very dependent on a nanny state will want to keep it. Why work and compete when you have a government which is committed to granting handouts so that the Malays do not have to work. Empowerment does not exist in the Malay lexicon. Good luck to the Malays.–Din Merican

  4. TPPA has turned out to be an agreement where the Malaysian government can have its cake and eat it too.”

    Are we so sure? The literature on FTAs seems to confirm one point — that over and over again developed nations have always come out winners at the end of the day. Having the cake and eating it must come at a cost — there is no free lunch, and advanced nations are loathe to give free lunches; and they rightly shouldn’t because of the crutch mentality free lunches engender. So we must ask at this point even after the signatures were put down in New Zealand recently — what concessions did we allow, knowingly as well as unknowingly, in the main, to the United States, Japan and Australia? I mention these three because they are the main players of the game.

    I will get back to concessions, if any, which were given away by us unknowingly later. Hopefully there were none.

    The push towards greater private sector participation, in particular, will be further postponed. ¶ Economic efficiency may have been sacrificed in an effort to appease a significant domestic political constituency. TPPA negotiations presented a trade-off between obtaining political support for the agreement and striving . . . It seems that the end result tilted in favour of the former. ”

    Is Dr Shankaran here also saying that this is no piece of cake? We can’t have what is being touted as a win-win Agreement for Malaysia to continue to be hobbled by economic policies of questionable efficiency and then call this cake — it is a plain giveaway by the US and the other industrialised countries — you can have it your way, and you will continue to be inefficient!

    Dr Shankaran confirms what must be obvious to the other parties especially the US and Japan that, “Many of Malaysia’s key sectors are low on value-addition. ¶ There are few sectors that are export-oriented, have high value-added contributions and are also technologically sophisticated. So Malaysia will not be able to wage a strong competitive war to increase the industrial value-added that would benefit domestic stakeholders.” Competitive advantage, anyone? Zilch!

    A short tale of deceit from http://www.huffingtonpost.ca/2016/02/12/japan-says-it-wasn-t-excluding-mexico-and-canada-during-tpp-side-talks-with-u-s_n_9220950.html

    “Japanese officials say they believed they were also negotiating with Canada and Mexico when they struck a controversial side agreement with the United States on automobiles last year during the Trans-Pacific Partnership talks.

    They discussed that agreement with U.S., which angered Canada and Mexico, in a briefing ahead of a Friday meeting between Foreign Affairs Minister Stephane Dion and his Japanese counterpart, Fumio Kishida.

    The Japan-U.S. deal on rules of origin in the auto sector would have allowed a higher percentage of Japanese parts in cars in North America’s highly integrated industry. The fallout stalled completion of the 12-country Pacific Rim deal by at least two months.

    The Japanese officials say they were surprised to learn that they had negotiated a deal with only the United States.

    Mexico’s former ambassador to Canada has said the side deal angered the Canadians and Mexicans and nearly drove the two countries from the bargaining table. . .

    We thought that the U.S. represented Canada and Mexico,’ said one.

    They did not explain why they thought the United States was negotiating on behalf of Canada and the Mexico. ‘We were very surprised’ to learn ‘Canada had not been consulted by the U.S.,’ said one official.”

    So Canada and Mexico unknowingly allowed the United States to negotiate with Japan on their behalf!

    Were we also a victim of such perfidy — by whom, with whom, and at which point along the way in this reprehensible side agreement sessions with our negotiators left out in the cold?

  5. Correction :
    . . .what concessions did we allow, knowingly as well as unknowingly, in the main, to the United States, Japan . . . read as: . . . what concessions did we give, knowingly as well as unknowingly, in the main, to the United States, Japan . . .”

  6. “the Jordanian experience is deeply worrying: the prices of medicines in Jordan went up by as much as 20% after its trade agreement with the United States.”

    Malaysian companies are not worried because they’d for some time jacked up prices to most unreasonable levels. Take, for example, a bottle of the Multivitamin Centrum, with about a hundred or so tablets. The local pharmacy sells each bottle for about a hundred ringgit – or over 80 ringgit during a “cheap sale.” In the US you can get it for about 10 USD. Even at the present exchange rate each bottle costs only about 40 plus ringgit. Malaysian pharmacies are ripping off consumers like there’s no tomorrow.

  7. In trade the State does not make money by selling the ” Lesen”. It makes money when the “Lesen” makes money. A point to ponder by TPA.

  8. What not noted here is the impact that TPP might have on the agriculture sector of Malaysia. Per my reading, NAFTA led to a dramatic shut down of some 500,000 small farms in Southern Mexico because they could not compete with the larger agribusinesses in the US, resulting in the increase of poverty in Mexico and creating more illegal immigrants crossing to the US. What will the impact of TPP be on Malaysia’s farmers and their families?

  9. /// the Malaysian government can have its cake and eat it too ///

    Allow my to split some hairs. Why can’t anyone have a cake and eat it too? You have a cake, you proceed to eat it. Finished. End of story.

    What is too much to bear is to eat the only cake, and still have it.

    The Malaysian government ate the cake and still have it.

  10. Dr Phua, the chill to the bones notwithstanding, thanks for the last two links.

    We have been assured by MITI that our government is not unfamiliar with what ISDS demands of the State when a dispute breaks out and also that our civil servants are up to the challenge of facing the other side, which will of course be a corporate giant with near unlimited financial resources and the best legal expertise money can buy.

    Will our government give as much information and as quickly as possible when fire breaks out? Which company is suing us; for what reason; how much compensation is being sought; where the dispute will be adjudicated; who will represent us and the estimated legal costs; will our defence team be outsourced completely to foreigners, etc.

    We ought to remember the point made by Dr Munir that sovereign states have scored a paltry 30 percent success rate in ISDS?

    Or should we celebrate now that Najib has promised to build a “Greater” Malaysia as long as he is power?

    Always a cautious optimist just to avoid slipping into mild depression, I will put some money aside for the celebration — when Pax Malaysia it is.

    I am serious.

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