Saturday, August 17, 2013

Trans Pacific Partnership Agreement: Parley at the summit – Firdausi Suffian - The Malaysian Insider

August 17, 2013

Winston Churchill coined out the term 'parley at the summit' during diplomatic talks with Soviet Union in 1950 described any treaties between states will always evokes a hazardous encounter between brokers.

But Churchill also said that international agreement is a dramatic act of will, opening up specular new vistas.

A moment when leader risk all before gaze of the multitude problems, a chance to make or break his reputation and a journey from which, once started, it is painfully hard to turn back.

The Trans Pacific Partnership Agreement saga is best described as uttered by Churchill about international diplomatic talk.

Whenever country engages in any trade agreement, representative will be thorough and cautious because once agreed treaties will be binding and members have to conform to all the terms of agreement.

However, one thing that everybody needs to know in any trade agreements is nothing is agreed until everything is agreed.  This is the main premise how agreement at international level operates.

Therefore domestic demand is not easily compromise to meet the international needs. 

International trade is an important contributor to Malaysia 's economic growth and development.

It's also reflect the country accepted the wave of liberalisation and globalisation rather operating its trade with higher restriction.

There are many literature and empirical evidence that prove only through progressive trade liberalisation a country can pursue a greater economic growth and a more competitive economic ecology.

But to achieve a liberalise economy or in another word freer trade across the world is not an easy task and some economics scholar argue that full liberalisation is just a utopian stage.

To make trade-off with country's domestic collective interest is quite impossible. This therefore surfaces the notion protectionism, where country needs to protect certain industries that have considerable interests to the country.

The multilateral trade system under World Trade Organisation, which Malaysia also a member, is a very good example that consensus to pursue a freer trade is quite unlikely.

After the Doha round the world witness that WTO members would not easily trade-off its domestic interest and country will not simply grant market access to a competitive industry flood its domestic market.

For instance, the US agricultural industry is highly protected although developing countries can offer a cheaper market price. Similarly, developing country will not simply offer developed country to have full access in its industrial sector.

However the establishment of WTO is not without merit, the rule-based multilateral trading system is to reduce the propensity of member countries to increase it trade barrier because the world learnt its lesson well after the trade war in 1930 a.k.a. the Great Depression.

The trade war happened due to country imposes import taxes indiscriminately to other country whichis more competitive then the retaliation by other countries continues till world economy collapse.

Therefore WTO is set up to ensure no haphazard taxes are imposed to discriminate other country's imports.

Although this is a positive moves from the international community and there are progressive changes around the international trading system, however to get 200 overs members of WTO arrives to a consensus on what and how to liberalise their economy is difficult.

There are so many interests that have to deal with therefore agreement are not easily accomodated.

Knowing such limitation, member countries in WTO have jumped to the bandwagon of 'regionalism'.

The simplest way to define this by having few countries to sign a trade agreement that is easier to come to conclusion as compared to larger members, for instance like Free Trade Agreement (FTA) and of course the controversial one Trans Pacific Partnership Agreement (TPPA).

Regional economic integration is not something new to Malaysia currently it has already implemented six bilateral FTAs with Japan, Pakistan, India, New Zealand, Chile and Australia.

Apart from ASEAN Malaysia has implemented five FTAs with Korea, China, Japan, India, and Australia-New Zealand.

Malaysia's trade with these FTA partners comprises 62 per cent of Malaysia's global trade in 2012. One has to note thatregional trading arrangement is of central to Malaysia to gain market access in the international market and remains an attractive location for foreign investment.

The original TPPA went into effect back in 2006, where there were only Brunei, Chile, New Zealand and Singapore in the initial round table ofdiscussion.

After two years, US joined the negotiation as notified by President Bush in the congress. This follow suits by President Obama stating that TPPA is of central to achieve a greater economic integration as part of increasing US export in the pacific.

In 2010, the 3rd round of negotiation in Brunei, the United State Trade Representative (USTR) notified the intention of Malaysia to join TPPA. To date there are 12 countries (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States and Vietnam) amid of negotiation process.

According to Dr.Chandra Muzzafar, that TPPA would bring huge benefits to Malaysia with as much as US $ 40 billion (RM 128.4 billion) in annual export gains and US $ 25 billion in annual income gains by 2025."

Small and medium enterprises (SMEs) in particular will reap a bonanza andgives Malaysia preferential access to a US $ 15 trillion economy, which means access to the US $ 500 billion in US government tenders.

The so-called windfall TPPA remains contentious to Malaysian. Among controversial issues that were raised is transparency of the negotiation.

Unlike any other international trade agreement, TPPA has transparency issues at the outset. Since US joined the negotiation, the US Trade Representatives Office has been reluctant to reveal its negotiation position even to members of the US Congress.

Only 'selective beneficiaries' are given the details of the agreement and they are required to sign a non-disclosure agreement (NDA). Conversely in Malaysia the government has engaged consultation with the NGOs and business groups to assess implication of trade agreement.

Despite the consultation with NGOs being described as tokenism by pundits, Malaysia government consulted more than 10 NGOs and few business stakeholders.

NGOs like Majlis Tindakan Ekonomi Melayu and the Third World Network have vehemently voiced out their concern that this agreement can cause adversaries effect to domestic economy and the main loser will the Bumiputra SME.

To avoid further public scepticism, government has set up 'TPPA open day' as part of soliciting the main issues of the agreement with the public.

This is a good initiative from the government as to be seen as transparent in the public eyes.

The concern of the agreement also emphasis that US pharmaceutical industry has wider access to Malaysian market by foisting unbalance intellectual property right rules.

Such rules will heavily protect patents drugs which in turnincreases price of medicine since purchase of generic drugs will at difficult.

Therefore, consumers have to bear higher price of medical care. The flipside of the patent drugs argument creates incentive for Malaysian firms to produce better medicine so that it can be patented and internationally recognised.

This encourages research and development across Malaysia firms to innovate quality drugs not just for domestic consumption but able to compete with international industry.

The main question is does Malaysian willing to pay higher medical cost? To what extent Malaysian pharmaceutical industry can compete with the US?

This agreement also somehow put country financial regulation at stake. It was learnt that TPPA impedes use of capital control policy.

This policy is recognised by IMF as important instrument of macro-prudential policy and itcould also strengthen central bank's capacity to regulate the entry and exit of speculative capital.

One has to remember that Malaysiarelative success in developing regulatory mechanisms during and after the 1998 Asian financial crisis is via capital control, hence should there be any another crisis TPPA may incapacitate our central bank.

TPPA may also threaten our national sovereignty due to the presence of Investor State Dispute Settlement (ISDS).

This dispute mechanism grants investors the right to initiate dispute settlement proceedings against foreign governments in their own right under international law.

Hence violation of any provision in the treaties, company can sue the government outside Malaysia judicial system. Should Malaysia lose the case, there is a risk for the government to legislate new law based on the foreign company interest.

This challenges country's sovereignty since law is enacted through democratic process based on the common interest not foreign company demand.

However, another aspect of ISDS, it creates incentive for partner to be cautious dealing with businesses and operates in more transparent way.

Eventually this creates a more competitive economic ecology of all partners. If ISDS has serious implication, Malaysia can always omit in the agreement just like Australia.

In sum international trade agreement is not something new to the government. I believe Malaysian chief negotiatorin TPPA is sly enough to weigh the pros and cons of the agreement.

It goes without saying that this agreement will bring new vista for Malaysia economy but no good things come for free.

There are always losers in any trade agreement so government needs to provide safety net for the 'disadvantage group'.

Love it or hate it a country could not ignore the benefit of regionalism most importantly negotiators have to put public interest as a sine qua non.

This is easier said than done because the greedy commercial lobbyists will always find ways to camouflage their commercial interests in social well-being. – August 17, 2013.

* Firdausi Suffian is a lecturer in Faculty of Administrative Science and Policy Studies at University Teknologi Mara, Sabah.

* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insider.
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