Response to Minister Idris Jala on TPP

Minister Idris Jala writing about the Trans-Pacific Partnership (TPP) in the business section of The Star newspaper on 5 August 2013, (titled ‘A fair trade agreement among Pacific rim economies can be enormously beneficial’) noted that ‘it is highly unlikely that we are going to be squeezed by any one party.’ It is true that there are 12 countries negotiating the TPP; however one of them is the United States.

A comparison of all past US free trade agreements (FTAs) shows that the USA has a strong template and that perhaps only 5% of the FTA text it proposes can be changed. This was the case even when groups of countries (e.g. 6 Central American countries) were negotiating with the US.

Other countries negotiating USFTAs often realise that the inflexible US template does not suit them and, having started the USFTA negotiations, do not complete them.

Of the 63 countries which have started USFTA negotiations, only 20 actually signed the USFTA. The other 43 countries walked away when they realised the provisions the US was insisting on were not in their national interest.

This includes Malaysia, which under its former Prime Minister Datuk Seri Abdullah Badawi decided not to sign a USFTA. According to reports, the Cabinet then had 58 red lines which the US was insisting on.

Based on past USFTAs which are all very similar, this was presumably the same text as the US is insisting on in the TPP (e.g. removal of rice tariffs, opening government procurement, strong protections for American investors in Malaysia, stronger intellectual property protection causing medicine and textbook prices to remain high for longer etc.).

Unfortunately the leaked TPP texts show that the US is insisting on the same provisions as are in its past US FTAs and which have been proven to restrict countries’ sovereignty and require them to change their laws.

For example, the leaked TPP investment chapter contains provisions that allow investors from other TPP countries to sue the Malaysian government at an international tribunal for monetary compensation (and compound interest) for non-discriminatory laws including for health, consumer protection and the environment.

This can be seen in past cases brought by investors under the same protections in other treaties which have resulted in a government having to pay compensation to a foreign investor when it took environmental measures to comply with an international environmental treaty, a reversal of a ban on a dangerous chemical, or a ban on a toxic waste dump that could have polluted the water supply.

USFTAs require countries to join a treaty protecting plant varieties (International Union for the Protection of New Varieties of Plants or UPOV 1991) where the UPOV Secretariat has said that this will require Malaysia to change its plant variety protection law in favour of seed companies and away from farmers.

It is true that Malaysia is a country with a small domestic market that needs to export.  But will it be able to significantly increase its exports under the TPP and at what cost?

Malaysia already has free trade agreements (FTAs) with most TPP countries and those that it does not have FTAs with, it can already export to them under the World Trade Organization’s tariff rates.  For example, Malaysia does not have a USFTA, but according to the WTO, 88% of Malaysia’s non-agricultural exports (and 82% of agricultural exports) already enter the US with zero tariffs and this cannot be raised under the WTO rules.

One of the few remaining exports that faces higher tariffs into the US are textiles and clothing.  However the US always insists (and is insisting in the TPP) that to get lower tariffs on textiles and clothing into the US, you must use the thread from the US.  This is known as the ‘yarn forward rule’ and would force Malaysian manufacturers to import the more expensive thread from the US, which would make Malaysian textiles and clothing more expensive than competitors from non TPP countries, even with the lower tariffs under the TPP.

Other projections of the benefits of the TPP for example by the Peterson Institute for International Economics referred to by the Minister, have been heavily criticised for their assumptions and for their failure to include any of the costs such as higher medicine prices or textbook prices.

As the Ministry of International Trade’s summary of the United Nations Development Programme (UNDP) study points out, 82% of the welfare gains from the TPP and 75% of the GDP gains from the TPP could be achieved by Malaysia voluntarily removing its tariffs tomorrow, without having to sign any TPP.

So if Malaysia wants these welfare and GDP gains, it could achieve almost all of them without signing the TPP according to the UNDP.  Of course this does not consider the other implications of removing Malaysia’s tariffs, including for Malaysian producers such as rice farmers.

Malaysia can try and protect sensitive sectors the way the Minister suggests.  However, based on past USFTAs:

• Only government procurement contracts below $7.4million for construction contracts and below US$193,000 for all other contracts can be reserved for Malaysians.

• Offsets will not be allowed in the procurement that is opened and even the procurement of GLCs that meet the definition may be opened with no minimum threshold contract value.

• If Malaysia is lucky, it will be able to keep tariffs on US rice (which would otherwise be cheaper than Malaysian rice because of its large subsidies which will not be reduced in the TPP), but not on any other US product.

• The US will not allow or make it even the difficult to use health and environment exceptions to apply to the investment chapter.

• The US will not allow any effective capital controls, even in a situation like the 1997 Asian financial crisis (when Malaysia successfully used capital controls)

Since the TPP will be a legally binding and extremely enforceable economic agreement, it is important to see the actual words before it is signed, so that those who have concerns can effectively express them.  If it only becomes public once it has been signed, then it is too late to change it.

Given the experience with past US FTAs, it hard for us to accept that the TPPA would be one that is fair and in the public interest.

Letter to the Editor – 12 August 2013