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We wish to respond to an article on the Trans-Pacific Partnership Agreement (TPPA) published by YABhg. Tun Dr. Mahathir Mohamad on his personal blog dated 31 December 2015.
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A number of issues were raised by our former Prime Minister in his article and we would like to address them accordingly as follows:
On the decision that will be made by the Government to go ahead and sign the TPPA regardless of the opposition voiced against it
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As in any decision making process, the Government weighs in the pro-cons of a policy before making a decision, and the same goes for TPPA. Various engagement sessions were held by the government with the relevant stakeholders to highlight the issues during negotiations as well as explaining the outcome of the TPPA after the conclusion of the negotiations.
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The strong feelings expressed by Bumiputera stakeholders during the engagement that we had have emboldened us in protecting our core policies including the Bumiputera agenda throughout the multiple rounds of negotiation. Similarly, the concerns raised by various parties have also guided our approach during the negotiations – which had eventually resulted in a much watered down Investor-State Dispute Settlement (ISDS) mechanism, among other things.
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Additionally, two Cost-and-Benefit Analyses (CBAs) were done by PwC Malaysia and the Institute of Strategic and International Studies (ISIS) Malaysia respectively on our participation in the TPPA. While the Government recognises that there are costs to be incurred, the benefits outweigh those costs. There will be some challenges to be addressed if we were to join the TPPA but the Government is of the view that overall Malaysia stands to benefit from our participation in the TPPA.
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Unlike other Free Trade Agreements (FTAs), an exception was made to the TPPA as the Government will bring it for a special parliamentary sitting scheduled at the end of January. The decision on Malaysia’s participation will only be made after it has been deliberated and voted in the Parliament. Malaysia is the only country that is seeking for parliamentary approval before the signing of the TPPA where there is no requirement to do so under domestic law.
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Moreover, if we decide to be a party of the TPPA, there will also be a two–year ratification period following the signing. As such, the entry into force of the TPPA is only expected to take place earliest at early 2018.
On the withdrawal from TPPA will result in bankruptcy for the Malaysian Government since we could be sued by the investors via ISDS as a result of the loss in their future profit.
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Withdrawal from the TPPA is allowed under Article 30.6 as follows:
“ i. Any Party may withdraw from this Agreement by providing written notice of withdrawal to the Depositary. A withdrawing Party shall simultaneously notify the other Parties of its withdrawal through the contact points.
ii. A withdrawal shall take effect six months after a Party provides written notice to the Depositary, unless the Parties agree on a different period. If a Party withdraws, this Agreement shall remain in force for the remaining Parties.”
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Since withdrawal under the TPPA is allowed, withdrawal as such is an exercise of our rights and not a breach of the agreement.
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Foreign investors can bring the Government to ISDS for a breach of any obligation under the Investment Chapter of TPPA. However, if Malaysia signs the TPPA, but then decides to withdraw, the protection under the Investment Chapter would be inapplicable to foreign investors. Therefore, the mere act of withdrawal will not result in Malaysia being sued by a foreign company.
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Malaysia’s withdrawal in effect would release it of its obligation to accord protection to investments under TPPA. For example, if Malaysia withdraws from TPPA, no company which is already established in Malaysia can take the Government to dispute under ISDS unless if there was an actual breach during the times when we were still a party (again, withdrawal in itself is NOT a breach) and cannot bring an ISDS action (which is no longer available anyway with the withdrawal) solely because it suffers loss of profit.
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It is not true that mere act of withdrawal from the TPPA would bankrupt the Government. The Government can be sued for breach of the Investment Chapter of the TPPA, and if the breach is proven, compensation may have to be paid. However, withdrawal from TPPA does not constitute a breach of TPPA.
On Malaysia’s rapid growth in the past without entering treaties such as the TPPA
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Malaysia had achieved a strong economic growth over the period 1988-1997 prior to the East Asian financial crisis, averaging 9% annually. The robust growth recorded over this period was mainly supported by our involvement in the global trade and the strong performance of our export-oriented manufacturing and services sectors. The average annual contribution of goods and services exports to GDP across this period was 81.3%.
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Indeed, Malaysia was once the 17th largest trading nation but we should also bear in mind that the external environment at that time was less challenging – there was not much competition for our commodities and we were accorded with preferential treatment under the Generalised System of Preferences (GSP) by the United States. The United States’ GSP provides preferential duty-free treatment for over 3,500 products from a wide range of designated beneficiary countries, including many least-developed beneficiary developing countries.
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Today, the landscape has changed significantly. Malaysia has graduated from the GSP and more of our competitors are having preferential market access. For instance, Singapore has recently signed an FTA with the European Union which removes nearly all tariffs between the country and Europe. Therefore, if we do not integrate ourselves into a regional trade framework such as the TPPA, our current ranking as the 24th largest trading nation may drop further. Our early participation in the TPPA will allow us to establish first-mover advantage ahead of other non-TPP countries. In the event we are not part of the TPPA and Vietnam is, we think companies located in Malaysia will suffer a loss in competitive advantage.
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Our participation in the TPPA will not constrain us from participating in other regional trade arrangements. We will continue to promote free trade policies and economic growth with a balanced approach which will provide us the flexibility to safeguard sensitive areas, such as our Bumiputera policies.
Ministry of International Trade and Industry
4 January 2016
About MITI :
The Ministry of Commerce and Industry was established in April 1956 then was renamed as The Ministry of Trade and Industry in February 1972. On 27 October 1990, the Ministry was separated into two Ministries which are; Ministry of International Trade and Industry (MITI) and Ministry of Domestic Trade and Consumer Affairs (KPDN).
MITI is the key driver in making Malaysia the preferred destination for quality investments and enhancing the nation's rising status as a globally competitive trading nation. Its objectives and roles are oriented towards ensuring Malaysia’s rapid economic development and help achieve the country's stated goal of becoming a developed nation by 2020.
Media enquiries :
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Last Updated 2016-01-05 16:14:36 by Azuna Hasbullah atau Abd Rahman
