The Trans-Pacific Partnership Agreement or TPPA is recognised as the largest trade-liberalising pact in a generation. It is also the most criticised free trade agreement of recent times, thanks to negotiations cloaked in secrecy and predictions of its far reaching impact on the economic landscape of member countries. Regarded as a game changer, the TPPA is expected to set the tone for trade in the 21st century.
Following five years of intense negotiations between 12 Pacific Rim countries, the contents of the TPPA was reportedly agreed on Oct 5, 2015, settling matters relating to the lowering of trade and non-tariff barriers, the establishment of common framework for intellectual property, standards for labour law and environmental law, and the establishment of an investor-state dispute settlement mechanism (an independent platform for dispute resolution for foreign investors), among others.
The 12 member countries are Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam.
The core of the TPPA is to enhance trade and investment among partner countries, to promote innovation, economic growth and development, and to support the creation and retention of jobs.
What is in for us?
As a member of the TPPA, Malaysia would be obligated to open its doors and level the playing field for foreign companies wanting to do business here, thus, drastically increasing the level of competition in the domestic business landscape.
“Being largely a trading nation, what choice do we have in an increasingly globalised and borderless world?” asked International Trade and Industry Minister Datuk Seri Mustapa Mohamed, who spoke on the subject at the #TanyaGomen dialogue session titled Are you brave enough to take the TPPA challenge organised by the Economic Transformation Programme recently.
Trading is the country’s economic lifeline and we are constantly looking for a much larger market which will be readily accessible with the TPPA, said Mustapa, adding that the country is already signatory to 13 other free trade agreements.
TPPA will provide Malaysian-owned businesses the first ever Free Trade Agreement between Malaysia and the US, Canada, Mexico and Peru, in addition to enhancing access to eight other markets.
In theory, Malaysia will gain access to a market of 800 million people with a combined GDP of US$27.5 trillion. According to a report from the Peterson Institute of Economics, Malaysia stands to gain US$41.7 billion increase in exports and US$26.3 billion in income gains by 2025 if it stays on the TPPA track.
Malaysian businesses and investments have long ventured beyond our shores; and with TPPA we are removing the barriers in our market in order to gain access to a much larger market that includes the United States, pointed out Mustapa.
At present 42% of Malaysian small and medium-sized enterprises (SMEs) are involved in cross-border and international trade. Malaysia’s direct investments overseas stands at RM522 billion, as opposed to RM477 billion worth of capital flow into the country. Sixty percent of foreign direct investment or FDI is from TPPA member countries.
According to Mustapa, the country’s involvement at the negotiations stage was crucial because it enabled Malaysia to ensure that our core policies would not be compromised, while having the opportunity to decide on future trade terms for the pact.
“If we only choose to join, say 10 years later, when instead of 12 countries, there are already 20 countries involved, and we are pressured as a country dependant on trade to join, by then we would not be able to negotiate as we have today. We would have to accept the terms based on what had been decided by other countries.
“The TPPA has its pros and cons, but the government’s stand is that the good outweighs the bad. We will have to wait for parliament to decide and for the cost-benefit analysis, “he said, adding that the decision has to be made fairly and objectively, after taking into account various perspectives.
He further added that Malaysia has the option of withdrawing from the TPPA even after ratifying it, if the pact no longer works for the country.
“There will not be a penalty for leaving because TPPA is a voluntary pact. We will, however, no longer be as competitive when compared with other member countries.”
Walking away would also mean facing significantly higher tariffs in developed markets like Canada, where Malaysia may no longer be eligible for the Generalised System of Preferences (GSP) programme, he added. Under the GSP, developed countries grant preferential treatment to eligible products imported from developing countries so that the products would be competitive in the developed market.
The parliamentary hurdle
According to Mustapa, the TPPA has to be tabled and debated in parliament by mid-January next year and only upon parliamentary approval can Malaysia sign the agreement. Once signed, TPPA will move into a two-year ratification phase where the rules and regulations will be streamlined based on the terms contained in the agreement.
“At the ratification stage, if the laws tabled are not approved by parliament, Malaysia can decide to back out,” said Mustapa, adding that he hoped lawmakers would come to understand the pact, and its impact on our economic growth and competitiveness.
The text of the TPPA is expected to be released soon, and parliamentarians will be given time to go through the document before it is tabled. Any disagreement to what has been decided during negotiations would mean going back to the drawing board with the 11 other nations, warned Mustapa.