FAQs - May 2016

• As a trading nation with a small domestic market, Malaysia will continue to adopt an open trade and investment regime to promote economic growth, provide opportunities for high skilled employment and promote technological development and innovation. Hence, Malaysia needs to ensure that the global market is governed by transparent and predictable rules, and remains liberal. The WTO continues to remain our key priority. 

• As the WTO process takes longer, Malaysia has embarked on Free Trade Agreements to seek better market access opportunities for Malaysian goods and services from Malaysia.

• To-date Malaysia has signed 13 FTAs:
  • ASEAN Free Trade Area  (1992)
  • ASEAN-China  (2004)
  • ASEAN-Korea (2006) 
  • ASEAN-Japan (2008)
  • ASEAN-India (2009)
  • ASEAN-Australia-New Zealand (2009)
  • Malaysia-Japan (2005)
  • Malaysia-Pakistan (2007)
  • Malaysia-New Zealand (2009)
  • Malaysia-Chile (2010)
  • Malaysia-India (2011)
  • Malaysia-Australia (2012)
  • Malaysia-Turkey (17 April 2014)

• Besides the TPP agreement negotiations of which were concluded on 5 October 2015, Malaysia is also negotiating the following FTAs:
  • Regional Comprehensive Economic Partnership (RCEP) agreement;
  • Malaysia-EU FTA;
  • Malaysia-European Free Trade Association Economic Partnership Agreement (MEEPA); and
  • ASEAN-Hong Kong FTA.

• Malaysian exporters will gain competitive advantage over regional competitors in exporting products such as electrical and electronics, chemical products, palm oil products, rubber products, wood products, textiles as well as automotive parts and components.

• The TPP will provide preferential access for goods and services from Malaysia into four “new” FTA markets, namely the US, Canada, Mexico, and Peru. For these markets, exports are likely to increase upon entry into of force of the TPP, as:
  • import duties for almost 90% of the products will be eliminated in US.
  • import duties for almost 95% of the products will be eliminated in Canada;
  • import duties for almost 77% of the products will be eliminated in Mexico; and
  • import duties for almost 81% of the products will be eliminated in Peru.

• In addition, Japan did not include plywood in the Malaysia-Japan Economic Partnership Agreement (FTA) and the ASEAN-Japan FTA will offer preferential access to plywood and its products sourced from Malaysia.

• The rules of origin that allow for accumulation of inputs from all TPP parties will make it easier for goods from Malaysia to qualify for preferential duty. This also offers greater opportunities for Malaysian producers of parts and components products to supply to the regional value chain.

• The high regional value content in the rules of origin for automotive vehicles and parts and components will encourage auto manufacturers currently sourcing parts and components from outside TPP countries to source them from Malaysia.

• Malaysia will eliminate import duties for almost 85% of products imported from TPP countries upon entry into force of the agreement. We can generally expect consumers in Malaysia to enjoy a wider choice of better quality TPP-origin products at competitive prices. 

• The TPP is also expected to enhance transparency and good regulatory practices, both internally and among TPP members, through better coordination and information exchange.

• As in all negotiations, there is need for a balanced outcome for all parties. Hence the need to compromise in some areas. In the case of Malaysia, our mandate was based on the Constitution, preserving the rights of the states and ensuring key policies for socio-economic development are preserved, including our Bumiputera policies.

• In sensitive areas, Malaysia negotiated longer timeframe to implement obligations, especially for government procurement and state owned enterprises, and intellectual property rights. We also excluded certain sections or measures sensitive to Malaysia from the investment and services obligations, including land, privatization and divestment and Bumiputra preferences.

• The TPP reaffirms the sovereign rights of governments to regulate for public interest, including measures undertaken to protect human, plant and animal health, and national security.

• The State’s (Negeri) right to regulate in areas under the State list is preserved. For example, land approvals are subject to terms and conditions set by the States.

While there are 30 Chapters in the TPP, not all Chapters impact the implementation of Bumiputera policies. For the key chapters which impact on the implementation of Bumiputera policies, the following flexibilities are provided:
 

1. Government Procurement

• Flexibility provided for Bumiputera participation includes setting aside up to 30% for Bumiputera contractors in construction services that is open to TPP members. For construction services not open to TPP members, the current Bumiputra preferences will be maintained. In addition, the Central Contract programme and price preference for goods and services given to Bumiputera suppliers and manufacturers will be maintained.

2. State Owner Enterprises

• SOEs will have the flexibility to give preferences to Bumiputera and SME suppliers up to 40% of their annual purchases.

3. Services and Investment

• Malaysia may maintain current policies and adopt new policies related to Bumiputera concerns through the creation of new and additional licenses/permits in investment and services. 

• Achieving sustainable public health outcomes depends on the interplay of national health policy, regulatory environment, trade and competition settings, procurement policies, innovation strategies and the intellectual property (IP) system.

• Patent is one of many types of IP. Patent protection is generally intended to strengthen market-based incentives for private-sector stakeholders to invest resources in product research and development of new technologies.

• Such incentives are considered especially valuable in the medical world, particularly in the development of new drugs, due to the considerable financial and technical resources required, coupled with the high risk of failure even at the late stage in product development and issues related to product liability.

• New drugs are expensive to develop, but are relatively cheap to reproduce. In such instances, it would be unsustainable for companies to invest capital in product development and regulatory approval if their competitors were in a position to immediately introduce replica products.

• However, the Government recognizes that innovation cannot take place in isolation from concerns about access to medicine, and access has to be seen in the broader context of the need for innovation and effective regulation.

• Without incentives, it is doubtful that the private sector would have invested so much in the discovery or development of medicines, many of which are currently used both in developed and developing countries. On the other hand, the Government is also aware of the concerns raised about the impact on the prices of pharmaceuticals in Malaysia.

• Malaysia’s objective in the negotiations was for the right balance to be achieved between providing strong intellectual property protection so that new medicines can continue to be discovered, and addressing the need to obtain essential medicines.

• In the TPP, all Parties understand developing countries’ need for access to affordable medicines, and agreed that the flexibilities and exceptions under the World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights are important to countries dealing with health crises including HIV/AIDS.

• Parties to the TPP have already affirmed their shared commitment to the Doha Declaration on TRIPS and Public Health, which aims to assist developing countries in addressing public health concerns through the WTO flexibilities.

• On the claims that the TPP will extend patent protection, it is important to note that the patent protection for pharmaceutical drugs remains at 20 years, in accordance with the TRIPS. Only in the event there is an unreasonable delay would the patent period be extended. Malaysia’s current processes in granting marketing approval and patent are effective and diligent, hence the likelihood of extending a patent period should not arise.

• On Pharmaceutical Data Protection, Pharmaceutical data protection has been in force in Malaysia since 2011 Pharmaceutical test data of innovator products is protected for a period of five years. During that period, the data related to safety and efficacy will belong exclusively to the pharmaceutical research company seeking regulatory approval. The Government has agreed to extend data protection to biologics products, so as to provide non-discriminatory treatment.

• Biologics refer to non-chemical drugs produced using biotechnology processes. They are among the most exciting developments in modern medicine but also the most complex and expensive. The shorter period of exclusivity will enable cheaper biosimilars to reach the market earlier.

• The final outcome on biologics gives two options for Parties: i) to provide for 8 years of data protection, ii) 5 years of data protection and other measures recognizing that market circumstances also contribute to effective market protection, to deliver a comparable outcome in the market. A review will be undertaken 10 years after entry into force of the TPPA.

• Malaysia is accorded a transition period of 5 years to introduce data protection for biologics.

• The final outcome in TPP is similar to Malaysia’s policy of introducing data protection of 5 years.

• One of the main concerns over the TPP is the inclusion of the Investor-State Dispute Settlement (ISDS) mechanism. ISDS is not new to Malaysia as we have included ISDS in our bilateral investment treaties (BITs) and FTAs. Foreign investors in Malaysia can bring an ISDS claim against the Government, and likewise, Malaysian investors abroad will also have the same protection mechanism in the TPP. It is important to note that there are a large number of Malaysian companies investing abroad today. In fact, as at the end of last year, the stock of Malaysian investments overseas has exceeded foreign direct investments into Malaysia. 

• TPP Parties retain their sovereign rights to regulate for legitimate public welfare objectives.

• TPP Parties can elect to deny ISDS for claims that challenge tobacco control measures.

• In the case of Malaysia, ISDS will not apply for a 3-year period after entry into force for government procurement projects below specified thresholds for contracts.

• Additional improvements to the ISDS mechanism:
  • expedited review and dismissal of claims without merit (frivolous claims) and investors to pay for attorney fees and costs for frivolous claims;
  • consolidation of claims arising from same events or circumstances;
  • cannot make a claim if more than 3 years and 6 months have elapsed;
  • pre-requirement to resolve a claim through consultation and negotiation before elevating to a formal dispute; and
  • decision to not renew or maintain a subsidy is not an expropriation.

• The TPP does not provide for the right of entry of foreign labour. The entry of foreign workers, including professionals, will continue to be governed by Malaysia's own laws and regulations and will be based on the needs of the industries. The Government will continue to prioritise employment opportunities for local workers.

• The Labour Chapter in the TPP contains disciplines that promote workers welfare and rights, including clauses relating to minimum wage and occupational safety and health, which Malaysia has already implemented.

• In 2014 alone, companies from across the world, including the United States, Australia, Europe and Northeast Asia, have either set up shop or expanded their existing operations in Malaysia. Of the 773 manufacturing projects which started production in 2014, 34.7% were foreign owned.  These created 35,130 jobs, of which 25% or 8,700 were at executive level requiring tertiary education.

• Some of the MNCs in Malaysia have strong linkages to our SMEs resulting in job creation and business opportunities in the software, packaging and display solutions and design and manufacturing of machine parts sector.

• SMEs are already competing under existing FTAs, where more than 90% of import duty has been eliminated.

• SMEs will benefit from the TPP as they now have access to a more liberalized market under the TPP for their exports, in particular access to the 4 new markets where Malaysia does not currently have an FTA. They are US, Canada, Mexico and Peru.

• SMEs will benefit through participation in the regional supply chain as more inputs will be sourced from TPP members to meet the rules of origin requirement.

• Under the TPP, a chapter is dedicated to facilitate SMEs participation in the global supply chain, by enhancing transparency and sharing of information on-line, as well as developing capacity building programmes to assist SMES.

• The TPP A will be signed by all parties on a date to be collectively decided.
• The Agreement will enter into force 60 days after the date on which all original signatories have ratified the Agreement. 
• If not all original signatories have ratified the Agreement within 2 years of the Agreement, then the Agreement will enter into force 60 days after the expiry of this period if at least six of the original signatories, which together account for at least 85 per cent of the combined gross domestic product of the original signatories in 2013 have ratified the agreement. 
• If both the aforementioned scenarios do not take place, the Agreement will enter into force 60 days after the date on which at least six of the original signatories, which together account for at least 85 per cent of the combined gross domestic product of the original signatories in 2013, have ratified the Agreement.  

• Almost all obligations as enumerated in the TPPA are subject to the dispute settlement mechanism. However, some Chapters such as Competition, Regulatory Coherence, Small Medium Enterprises (SME) Development, Capacity Building and Competitiveness and Business Facilitation provides for a specific carve-out from the application of the dispute settlement mechanism.

• ensure that its laws, regulations, procedures, and administrative rulings of general application are promptly published or otherwise made available in a manner that enables interested persons and Parties to become acquainted with them;

• establish or maintain judicial, quasi-judicial, or administrative tribunals or procedures for the purpose of prompt review and correction of final administrative actions, as well as the rights to be accorded to Parties during such proceedings;

• any offence as underlined in Anti-Corruption Chapter shall be prosecuted and punished in accordance with each Party’s domestic law, and that Parties shall ratify and accede to the 2003 United Nations Convention against Corruption (UNCAC);

• shall not fail to effectively enforce the laws or other measures adopted or maintained to comply with the obligations as stated under Section C of this Chapter.

• As transparency is an essential element that would attract trade and investment, there are various provisions in TPP which require a TPP Party, in one form or another, to publish or notify trade measures for the information of the TPP Parties. These measures include laws, regulations, regulations, procedures, requirements, or practice.

• There are also various obligations on notifications to ensure and promote good governance amongst TPP Parties.

• The patent protection for pharmaceutical drugs remains at 20 years, consistent with the WTO TRIPS agreement. Only in the event there is an unreasonable delay would the patent period be extended. Malaysia’s current processes in granting marketing approval and patent are effective and diligent, hence the likelihood of extending a patent period should not arise.

• It is important to note that ‘early working exception’ is permissible, which permit the testing of a drug for establishing the bio-equivalency of generic products before the expiration of the relevant patent. In other words, this ‘exception’ permits an early introduction of generic drugs as soon as the patent expires and thereby allows consumers to gain access to drugs at lower prices.

• Apart from patent, another concern always raised by the public is on test data protection (or commonly referred to as data exclusivity - DE). Test data protection is the protection of pharmaceutical test data concerning the safety and efficacy of an innovator product. In Malaysia, test data protection has been introduced since 2011, which allows the protection of pharmaceutical test data of innovator products for a period of five years. In the TPP, Malaysia will be able to continue to provide test data protection for five years. This protection will also be extended to biologics, for the same period of time.

• The test data protection in Malaysia has sufficient safeguard mechanisms to ensure that any negative impact could be minimized. As a condition for test data protection, the innovator has to apply for registration of pharmaceuticals in Malaysia within 18 months from the date the product obtained its first marketing approval in any other country. The purpose of this ‘window’ is to encourage pharmaceutical companies to market their new drugs early to Malaysia, and subsequently creating a pathway for affordable generic drugs to market it later.

• The TPP does not prevent the Government from taking any measures to protect public health and in particular, to promote access to medicines for all by using the flexibilities in accordance with The Declaration on the TRIPS Agreement and Public Health, also known as the Doha Declaration.

• In fact, every country in the TPP have already affirmed their shared commitment to the Doha Declaration on TRIPS and Public Health, which helps least developed and developing countries address public health problems through the WTO TRIPS flexibilities.

• Malaysian suppliers are able to expand and penetrate overseas market through wider GP market access opportunities for their products and services.

• For example, the Buy American Act restricts products and services that come from non-FTA country to be supplied to the US Government. With TPP, this restriction will be waived for Malaysian products, services and suppliers.

• When Malaysian suppliers participate in GP of other TPP countries, they will be given the same treatment as the local suppliers and shall not be discriminated against in the procurement process. This means, a Malaysian company selling to Vietnam will receive the same treatment as Vietnamese suppliers.

• Malaysian suppliers are also able to establish networking and integrated supply chain with TPP suppliers which they will enjoy from trade facilitation, reduced trade barriers and lower tariffs on imported materials/components.

• The GP Chapter provides predictability to suppliers on the whole procurement process and reduce risk of doing business.

• Suppliers are provided an avenue through Domestic Review mechanism to lodge complaints and challenge the agencies on irregularities of GP obligations throughout the whole tendering process as well as enable them to obtain fast and effective remedies.    

• The GP Chapter adopts good governance and best practices, enhances transparency in procurement processes and thus, brings greater alignment of Malaysia’s GP to international practices. 

• Adherence to the GP chapter could be a platform for Malaysia to improve its global position, such as in the Global Competitiveness Index and Corruption Perception Index.

• The Government will have better selection and obtain best value for money based on wider range of offers from local and international suppliers as a result of competitive bids.

• Malaysian companies would still be able to participate in Malaysia’s GP market as usual and may have the advantage of understanding the local environment and structure. Furthermore, Malaysian companies could explore the possibility of establishing business partnership with other TPP companies to leverage on each other’s strength and tap business opportunities in Malaysia as well as other TPP countries.

• Malaysian companies should not fear the different levels of development between TPP countries. Malaysia has a competitive advantage particularly in exporting electrical and electronics, chemical products, palm oil products, rubber products, wood products, textiles as well as automotive parts and components. Therefore, Malaysian companies should take the opportunity to participate in the huge TPP GP market.

• The Government has ensured that Bumiputera policy in GP will continue to be implemented after TPP enters into force for procurement that is subjected to TPP. The measures include:

  • 30% set aside for Bumiputera contractors in construction services open to TPP countries.

  • Price preference for goods and services to Bumiputera suppliers & manufacturers.

  • Central Contract on existing items.

• For procurement that is not covered under TPP, the Government may introduce any GP measures to support the development of Bumiputera companies.

• The Government can no longer impose local content requirement as conditions in the contract for procurement that is covered under the TPPA obligations.

• Generally, the core principle of a free trade agreement (FTA) is to accord the products and suppliers of the FTA partners the same treatment as local products and suppliers.

• Therefore, under TPP, the products and suppliers of other TPP countries will receive the same treatment as local products and suppliers. Likewise, Malaysian products and suppliers will be accorded the same treatment when they participate in GP of other TPP countries. This will benefit Malaysian suppliers in having a fair opportunity to compete in government contracts.

• Meanwhile, Malaysia is allowed a 12-year transition period to implement the obligation to prohibit offsets. Therefore, the Government may impose local content requirements within this period under the offsets programme.

• All Ministries and agencies listed under the respective Ministries are subjected to the GP obligations. 

• Only a limited number of statutory bodies are subjected to the GP obligations.

• All state governments, local authorities and government companies are not subjected to the GP obligations.

• This is the first time Malaysia is negotiating a GP Chapter in its FTA. Therefore, TPP countries acknowledge the need for Malaysia to be given certain flexibility before full compliance of the TPP obligations.

• These include:

  • More favourable thresholds for goods, services and construction services and a longer implementation period.

  • Delayed application of Domestic Review Procedures (DRP). This recourse mechanism will provide fast, effective remedies for irregularities in the tendering process, starting from tender advertisement until award of contracts, relating to procurement conducted by agencies.

  • Delayed application of Dispute Settlement Mechanism (DSM). This recourse mechanism is for disputes to be settled between governments.

  • Delayed application of Investor-State Dispute Settlement (ISDS). ISDS provides recourse for disputes on GP contracts that has been awarded to a TPP company, provided the contract and the company meet the criteria set forth under the Chapter.  

• Malaysia managed to obtain a number of exclusions from GP obligations. Among the main exclusions are:

  • Entities that are not offered:

    • Some federal agencies.

    • All state governments and local authorities.

    • Most statutory bodies and all govt. companies.

  • All procurement below the thresholds.

  • Procurement in relation to:

    • Essential security interests.

    • Rural development and poverty eradication programmes.

    • Program Perumahan Rakyat.

    • Public Private Partnership (PPP) contracts.

    • Dredging services and slope works for construction services.

• Under the GP Chapter, companies (both local and TPP companies) can lodge complaints and challenge on procurement process or an award through Domestic Review Procedures. The complaints or challenges will be reviewed by an impartial administrative or a judicial authority. The recourse mechanism will provide fast, effective remedies for irregularities in the tendering process, starting from tender advertisement until award of contracts, relating to procurement conducted by agencies.

• The Agreement also provides recourse for disputes on a country’s compliance to TPP obligations through government-to-government under the Dispute Settlement Mechanism (DSM). The disputes will be reviewed by a panel.

• In addition, there is another avenue, namely Investor-State Dispute Settlement (ISDS) under the Investment Chapter.  ISDS provides recourse for disputes on GP contracts that has been awarded to a TPP company, provided the contract and the company meet the criteria set forth under the Chapter.   

1. suspension of further reduction of any customs duty rate provided for under the TPPA on the affected goods; or
2. increase of customs duty rate on the goods to a level prevailing before the safeguard action.

• To ensure environmental protection will not be jeopardized by trade and investment activities. Parties cannot be exempted from implementing its environmental laws to gain advantage and benefits from trade and investment activities.

• The Environment Chapter in TPP requires all parties to enforce all their environmental laws effectively. All Parties retain their rights to regulate and enforce their own environmental laws. For Malaysia as well as other countries, States environmental laws are exempted under TPPA.

• No. There will be no environmental laws that need to be amended in order to fulfil the obligations under the Environment Chapter. However, more resources may be required and administrative measures need to be taken in order to ensure effective implementation of this chapter.

• Companies that decide to do business in any TPP country are expected to adhere to the environmental rules, regulations and standards required by that country.

• It is widely understood that subsidies on fisheries can affect and harm the fish stock. Subsidies on fisheries encourage fishermen to fish more often, hence lead to depletion of the fish stock due to overfishing. The Environment Chapter in TPP focuses on conservation and sustainable use of biological resources which includes marine fishes. Therefore, elimination of fisheries subsidies is an important provision to ensure the sustainability of the fish stock.

• Notwithstanding this, certain subsidies to fishermen meant for poverty alleviation are allowed.