Background

The Trans-Pacific Partnership Agreement (TPPA) builds on the FTA signed by the Pacific 4 (P4) countries, New Zealand, Singapore, Chile and Brunei Darussalam. The P4 FTA was signed in 2005 and came fully into force in 2009.
The P4 was then expanded and the TPPA negotiations began with the entry of the United States, Australia, Peru, and Vietnam in March 2010. The scope has been expanded to include new issues with the goal to develop a comprehensive and high standard agreement.
The TPPA is an initiative to establish an FTA among 12 countries with a market of 800 million people with a combined GDP of USD 27.5 trillion.
There are 21 working groups which have been established to undertake negotiations on:

• Market Access; 
• Technical Barriers to Trade;
• Sanitary and Phytosanitary Measures;
• Rules of Origin;
• Customs Cooperation;
• Investment;
• Services;
• Financial Services;
• Telecommunications;
• E-Commerce;
• Business Mobility;
• Government Procurement;
• Competition;
• Intellectual Property;
• Labour;
• Environment;
• Capacity building;
• Non-conforming measures;
• Trade Remedies;
• Horizontal issues; and
• Legal and Institutional.

Countries participating in the negotiations to establish the TPPA, are free to table proposals on any of the issues being negotiated. All proposals however, have to be agreed by consensus.

The scope of TPPA covers traditional FTA elements as well as new elements. Twenty one working groups have been established in the negotiations. Negotiations are based on the proposals tabled by negotiating countries. Proposals tabled are based on each of the TPPA member’s domestic consultation process which includes both industries and other stakeholders. This may differ from one country to another, and the objective of the negotiations is to find a common ground which meets the goals of all the Parties.

Every country approaches the TPPA differently. In the case of Malaysia, the Government entered the TPPA negotiation after a series of consultations and engagements with relevant stakeholders. The mandate to negotiate came from the Cabinet and Malaysian negotiators in various working groups are well assisted by legal experts. The 21 working groups are led by different Ministries and Federal Agencies according to the areas of responsibility.

The Minister had also provided clarifications and answered questions on the issues related to the negotiations. In addition, Members of Parliament have also been updated on developments in the negotiations.  Under the current system, all issues related to FTAs are raised in Cabinet to get the necessary mandate and instruction. In addition, issues deemed sensitive, area also discussed in the Economic Council (EC) chaired by the Prime Minister or at least in the National Development Planning Council, chaired by the Chief Secretary for guidance. The Government will not sign the TPPA until it is convinced that the agreement is in the best interest of the people.

The Cabinet has mandated MITI to co-ordinate Malaysia’s participation in the TPPA negotiations. MITI is the Chief Negotiator but other ministries and agencies lead the working groups for areas under their responsibility. 

With the mandate from the Cabinet, the lead ministries and agencies involved are focused on safeguarding Malaysia’s best interest in the on-going TPPA negotiations.

Before every negotiating Round, the Cabinet is briefed on all issues and for the necessary mandate to be given to all negotiators.

Consultations with various stakeholders prior to joining the TPPA negotiations have revealed an increasing request from Malaysian companies for more open markets and trade facilitative measures. There is an increasing number of Malaysian companies becoming global investors and they require a level of predictability that can be guaranteed effectively through binding agreements like FTAs. Concurrently, there is also interest from foreign companies in non-TPPA countries that are exploring Malaysia as a base for their operations to enjoy the benefits of the TPPA. The combination of greater market access for Malaysian products and services under the TPPA and the continued inflow of foreign investments will create a powerful catalyst in driving Malaysia’s economic transformation agenda.

With the TPPA, Malaysia will become an integral part of the greater economic integration within the Asia Pacific region. It will also significantly enhance Malaysia’s engagement with important trading partners such as the US, Canada, Mexico and Peru. As a member of the TPPA, Malaysia will also be able to increase our participation in the regional supply and value chains and facilitate access for Malaysian products and services into bigger markets.  

The Government is aware that while the TPPA would offer many benefits to Malaysia and its people, it also has a few challenges which the Government has to deal with and further negotiate for the best outcome. For instance, government procurement is one of the new elements in the TPPA which was never part of the FTAs that Malaysia has signed. This is one strategic area which the Government is negotiating cautiously after taking into consideration feedback from stakeholders, particularly on the need to safeguard the interest of local enterprises and the Bumiputera commercial and industrial community.

Intellectual Property Rights (IPR) is another difficult area that raises many concerns. One of the main concerns on IPR revolves around access to affordable medicine and healthcare as well as longer protection term which might delay manufacturing of generic drugs.  
Malaysian negotiators will continue to negotiate an outcome that would allow Malaysians to access affordable medicine and healthcare.

There is also concern over the proposals to discipline State owned enterprises (SOEs) that compete with government assistance (SOEs) in order to create a level playing field between SOEs and private enterprises. Malaysia will negotiate appropriate flexibilities to allow for the continued involvement of SOEs in the Malaysian economy. 

Once realised, the TPPA will result in a huge duty free market for Malaysian goods and services. Market access for our goods and services to 800 million people is not an opportunity that we can afford to miss, especially given that we are an open economy, highly-dependent on international trade.

By not joining the TPPA, Malaysia would be at a disadvantage in terms of seeking bigger and better market access for Malaysian products and services. The impact of that disadvantage will be even more significant should countries such as China, South Korea, Taiwan, Thailand and other competitors decide to join the TPPA later. 

A decision not to participate in the TPPA will result in Malaysian exporters being less competitive in the TPP market because Malaysia will be excluded from enjoying the preferential tariffs compared with countries like Vietnam and Singapore that are our competitors.
In an increasingly competitive global environment, our absence from the TPPA will also make Malaysia less attractive as an investment destination, compared with other TPPA members. Investors’ perception of Malaysia will also be affected. As investors avoid Malaysia, this could result in less opportunities for job creation. Similarly, Malaysian companies that are investing in the TPP countries, will not enjoy the privileges and investment protection as provided under the TPPA.

The TPPA is expected to become a platform for the Free Trade Agreement for the Asia Pacific (FTAAP) involving the 21 APEC member economies. By not being in the TPPA, we will not have a first mover advantage to write the rules and ensure our interests and sensitivities are addressed.

Abandoning the TPPA negotiations now would mean allowing other countries to set the terms of the agreement without having to consider the interests and concerns of Malaysia. Acceding to the TPPA later would result in Malaysia having to accept the rules, disciplines and terms and conditions decided by others.

While the negotiating texts have never been made public as negotiations are on-going, the Government has and will continue to share its negotiating position with relevant stakeholders during the consultation sessions.

A level of confidentiality is required for two main reasons: (a) regulations and the evolving process of negotiations and rules surrounding the TPPA oblige negotiators to maintain confidentiality of the negotiating texts and (b) negotiators advancing the interests of Malaysia strategically do not want to publically disclose their bargaining positions to ensure the best outcome during the negotiations.

The position of all the TPPA members is for this Agreement to be a building block for the Free Trade Agreement of the Asia-Pacific (FTAAP) which would encompass all the APEC economies, of which China is also a member. Membership in the TPPA is voluntary. Every member of APEC, including China, is free to decide when to join the TPPA.

Malaysia and China enjoy close diplomatic and commercial relations, and China is a very important trading partner to Malaysia. Both countries have also embarked on several joint programs including the Malaysia-China Kuantan Industrial Park (MCKIP). As such, Malaysia would certainly welcome China into the TPPA.  

The Government has taken a conscious decision to address SME concerns in all areas under negotiations. These concerns, such as increased competition, are addressed through longer transition periods for liberalisation. It is also addressed in the form of carve-outs for government procurement and through higher thresholds.  The TPPA also aims to develop uniform rules to ensure predictability. The Government is well aware that there are concerns regarding the sustainability of SMEs in light of increased competition from large international corporations. As such, these concerns are being addressed by the government. 

For example, the Government has forwarded a position to enable SMEs to be integrated in the regional supply and value chains and ensure that there are transitional arrangements in place to facilitate SMEs to adapt to increased competition.  The Government will also ensure that large corporations do not abuse their positions and adopt monopolistic behavior which could impact SMEs.  In addition, there are also carve-outs in terms of Government Procurement, whereby a number of projects at certain thresholds are only available to Malaysian SMEs. 

Investor-State Dispute Settlement (ISDS) is a form of recourse allowed to investors for international arbitration in addition to domestic courts. Malaysia has already signed 74 Investment Guarantee Agreements (IGSs) since 1963, and most of them contain provisions for settlement of disputes through international arbitration. To date, only two cases have been brought against Malaysia under the ISDS; one was decided in favour of the Government while the other was annulled. ISDS provisions are also important in protecting the interest of Malaysian companies investing abroad. For instance, the provisions have been used by Malaysian companies on two occasions (MTD Vs Chile and Telekom Malaysia vs Ghana) to protect their investments abroad. In one case, the decision was in favour of the Malaysian investor while in the other, a settlement was reached between the disputing parties. 

While Malaysia is committed to protect foreign investors and their investments, these investors are required to adhere to domestic rules. Furthermore, the ISDS does not prevent the Government to legislate and to regulate.

Malaysian negotiators are fully aware of the concerns on ISDS which covers a wider area in the TPPA and would be seeking to address these concerns in the negotiations.

The Government will ensure that the extent of market opening in government procurement is guided by our stakeholders interests and concerns. The thresholds in our market access offers (i.e., the value of bids that will be open for bidding by companies from the TPPA Members) will be decided in consultations with our stakeholders. Areas of interests to the Bumiputra business community and SMEs have been excluded from Malaysia’s offers. 

The current proposal related to patents would have an impact on cost of drugs and healthcare. Malaysia has made it clear that the Agreement MUST NOT have a negative impact on the healthcare of Malaysians.  Malaysians must continue to receive quality healthcare and have access to affordable medicines, including generic drugs.  The TPPA will have to work around these priorities.

Malaysia recognizes that pharmaceutical companies invest heavily in research and development, and there is no inexpensive way to innovate and produce drugs.  Malaysia also recognizes that such innovation must be rewarded adequately as there must be an incentive for pharmaceutical companies to remain in the business, continue to innovate and produce drugs that are necessary to address new diseases.  Malaysia remains convinced that a balance can be struck between protecting the right of such pharmaceutical companies and the rights of the general populace to affordable medicines.

Malaysian negotiators will continue to negotiate an outcome that will ensure Malaysians will continue to have access to affordable medicine and healthcare. 

While acknowledging that it is important to allow both local and foreign companies to grow, Malaysia is advancing the argument that countries have different economic systems in place with SOEs and GLCs playing important roles. In the case of Malaysia, SOEs or GLCs are an important tool for the Government to achieve social and development goals, and also an important catalyst to develop sectors viewed as strategic where there is no commercial presence. To do this, some support is required especially where the commercial incentive is lacking. Consequently, Malaysia is seeking flexibilities in the agreement that will allow the continued participation of such entities in our economy and provide public and social goods and services.

In the TPPA negotiations, while all countries are free to table proposals, agreement must be on a consensus basis.  So while the US or any other country may wish to table many proposals, the final outcome must be based on consensus. Every country has an equal voice in the TPPA negotiations and the negotiations are also based on the principle of a single undertaking, where nothing is agreed until everything is agreed.

One of the main benefits of the TPPA to consumers is trade liberalisation. Tariff elimination, a key feature of FTAs, allows the consumers to enjoy a wider range of imported goods and services, with better quality and at competitive prices. In addition, manufacturers are able to source cheaper inputs as a result of liberalization.

Gradual competition brought about by liberalisation has made domestic producers of goods and services suppliers to be more competitive. A good example is the local furniture industry. Gradual liberalisation has resulted in better quality products for the domestic consumers and made the industry competitive in the international market. In the services industry, the liberalisation of the education sector has allowed Malaysians to be educated locally in reputable institutions at a much lower cost.

The TPPA also deals with technical regulations on products and health and sanitary matters. These chapters build on the WTO provisions and will facilitate regulators to ensure that consumers are protected through standards and health and food safety measures.

The TPPA does not contain any proposals or recommendations that are in conflict with existing regulations adopted by the regulatory bodies in Malaysia, such as the Peraturan-Peraturan Makanan 1985. The Authorities of a country have the right to determine the information to be obtained concerning the content of food ingredients but the confidentiality of the information provided must be maintained and not to be manipulated. The TPPA does not prevent the national authorities to obtain the contents of the food from the food manufacturers for the purpose of safety and protection.

Government agencies such as JAKIM or the Ministry of Health are entitled to obtain the contents of the food from the manufacturer for the purpose of inspection to determine the content of the food or product. In addition, under the Chapter on Sanitary and Phytosanitary in the TPPA, Halal issues have been excluded from the agreement.