Responses To NGOs On Free Trade Agreements (FTAs)

The recent food crisis has emphasised the importance of Malaysia's rice self-sufficiency goal.

- The EU and USA will not cut their agricultural subsidies in any FTA, but insist on Malaysia cutting its agricultural tariffs in the Goods Chapter of the FTAs.

- Malaysia's agriculture products such as rice, chicken will face stiff competition from subsidised agriculture imports from the EU and USA, resulting in prices of these items being sold at below cost of production. This will discourage Malaysians from venturing into farming of these products, which are essential for food security of the nation, as well as result in Malaysia, being more dependent on imported food.


The Ministry of Agriculture will continue to monitor developments to ensure that the supply of basic food is met through both domestic production as well as imports. The Third National Agricultural Policy is in place to ensure the viability and sustainability of domestic food producers, while at the same time ensuring that consumers are not burdened by high prices of basic food.

- Lowering or eliminating tariffs do not always lead to cheaper imports as prices are dependent on demand and supply. In the case of rice, there is also the element of product differentiation where imported rice may not necessarily be substitutes for locally produced rice. The cost of transporting agricultural products can also contribute to the continued high prices of these imported products.

- Even if lowering or eliminating tariffs do bring about increased imports of cheaper products, this means cheaper inputs for producers or cheaper consumables. In the case of agricultural products this can contribute towards lowering the cost of living for Malaysians.

- While it is acknowledged that FTAs do result in increased competition from the elimination/reduction of tariffs, competition can and often leads to increased efficiency in the allocation and utilisation of resources especially diverting limited resources to more productive forms of production.

- In cases where increased imports are perceived to be injuring domestic industries, there are mechanisms in-built into the FTAs which can minimise the effect. Safeguard Measures are some of the tools that can be used. Malaysia can also institute anti-dumping measures if it is found that the dumped imports i.e. goods sold below cost of production or priced lower than the domestic market, are affecting Malaysian producers.

- Monitoring of imports of essential food items such as poultry and poultry products, milk and milk products are undertaken through the Tariff Rate Quota (TRQ) mechanism. Market access is controlled through an “in and out-quota tariff” ranging from 10% to 50% and “in-quota volume” that is negotiated taking into account available domestic production.

Harder for Malaysian farmers to compete, for example by making inputs such as seeds more expensive due to stronger intellectual property protection (including via treaties such as International Convention for the Protection of New Varieties of Plants 1991).

Stronger intellectual property protection would also benefit Malaysia, as we mov e towards a high knowledge-based economy. In a knowledge-based economy, intellectual property is a catalyst for innovation and creativity and would encourage the development of R&D capability and expertise in producing better agriculture products.

- In Malaysia, the Protection of New Plant Varieties Act (PNPV Act) was put in place in 2004 to safeguard breeder's rights including the rights of small farmers to breed and develop new plant varieties. The implementation of the PNPV Act is currently undertaken by the Department of Agriculture.

- The National Intellectual Property Policy (NIPP) was launched in 2007 to develop intellectual property as a new engine of growth for the enhancement of social and economic prosperity.

- The objectives of NIPP include Highest Standard of IP Protection System; Promotion of IP-generated Activities; and Protection of National IP Interest.

Preventing Malaysian farmers, for example via the Competition Chapter under the EU FTA from undertaking activities such as cooperatives or joint marketing campaigns in order to fight the subsidised food imports.

The Competition Act 2010 aims to promote economic development by promoting competition, which also protects the interests of consumers.

- The Government will ensure that national interest is protected during the course of negotiations on the competition chapter in the Malaysia–EU FTA. Malaysia will not negotiate beyond what is covered in the Competition Act.

- The Competition Act 2010 does not prohibit any party from forming cooperatives so long as this does not lead to any anti-competitive practices.

The US and EU demand Malaysia to remove more than 80% of its tariffs on their products.

Malaysia's tariff regime effective 1 January 2010 indicates that 60.6 p er cent or 6,299 tariff lines were already duty free . Only 11.1 per cent or 1,156 tariff lines are subject to duties of more than 20 per cent. Among the products imposed with duties of more than 20 per cent were tropical fruits, rice, chemical products, ceramic products, rubber products, wood products, float glass, iron and steel, automotive, liquor, paper products, footwear as well as machinery and appliances.

- The overall tariff profile for Malaysia in 1 January 2010 :

Tariff Rate	No. of lines	% share
0	6,299	60.6
>0-5	916	8.8
>5-10	662	6.3
>10-15	245	2.4
>15-20	1,026	9.9
>20	1,156	11.1
Specific TRQ	74 18	0.7 0.2
Total	10,396	100.0

- The Government has continued to protect sensitive sectors by placing in longer transition period before implementing full liberalisation, adopting tariff capping, including the sensitive products under the Exclusion List as well as implementing safeguard mechanism amenable under the WTO.

- Studies have shown that there is close correlation between trade liberalisation and investments. Urata (1995) has examined the growth of the electronics industry in East Asia, and found that there is a correlation between direct investment and trade in electronics goods in the region

The EU is likely to require Malaysia to limit its use of export taxes in an FTA (for example by preventing the increase of existing export taxes or the introduction of new export taxes).

Malaysia is amenable to the proposal that there will be no new imposition of export taxes in the future. However, Malaysia will maintain the export taxes currently imposed for commodity products as it is justifiable under WTO . Under the WTO, export taxes are not prohibited even though it may seem to be contrary to the “spirit of free trade”.

- Malaysia imposes export taxes on 38 tariff lines (7 tariff lines for palm oil and 31 for timber) out of 515 lines for commodities. This is WTO- consistent.

- Malaysia imposes a 15% duty on export of logs (HS 4403) in the form of bulks, saw logs and veneer logs, to all destinations. Further, as part of its commitment under Sustainable Forest Management (SFM), Malaysia practices annual coupe for timber felling which limits the production of timber from natural forest. The imposition of export taxes will also ensure adequate raw materials for domestic needs and the development of value-added industries.

- In the case of palm oil products, Malaysia imposes export duties ranging from 5-20% covering, among others, seedlings, crude palm oil and crude palm kernel oil.

The EU and USA want IPR commitments that are WTO plus (TRIPS plus). The EU would also require Malaysia to seize imports and exports of generic medicines (through broader border measures) which would mean fewer generic medicines available to Malaysians.

In accordance with TRIPS Agreement, Malaysia will ensure the following flexibilities are retained in any FTA:

i. Exclusion from patentability any diagnostic, therapeutic and surgical method for the treatment of humans or animals;

ii. Compulsory licensing and government use; and

iii. Protection of test data with all the safeguard mechanisms as provided for under Article 39.3 of TRIPS Agreement.

- The Government is also aware of the public health needs. Decisions on patent-related issues will be driven by the need for greater accessibility of medicines.

- TRIPS provision allows generic pharmaceuticals produced under compulsory license to be used primarily for domestic purpose . This could disadvantage developing countries that lack manufacturing capacity for producing their own generic pharmaceuticals.

- In the Doha Declaration on TRIPS and Public Health, WTO Members adopted the Protocol Amending the TRIPS Agreement. The Protocol allows Members to export or source generic pharmaceuticals produced using compulsory license from third countries.

- Ministry of Domestic Trade, Co-operatives and Consumerism is taking the necessary steps to ratify and accept the Protocol. As at 2 February 2011, 33 Members including the US and EU have ratified the protocol. WTO Members are expected to ratify the Protocol by 31 December 2011.

- According to Ministry of Domestic Trade, Co-operatives and Consumerism, the amendments of the Patent Acts are expected to be tabled during the Parliament session in June 2011. Once the Parliament passes the amendments of the Patent Acts, Malaysia will ratify and accept the Protocol on Public Health which will provide wider access to cheaper medicines through compulsory licensing.

- EU FTA provisions with respect to generic medicine would want data exclusivity ( DE ) to be included under the Patents and Public Health provision. As stated earlier, Malaysia will ratify and accept the Protocol on Public Health once the Parliament passes the amendments of the Patent Acts in June 2011.

Generic drugs should not be restricted in any manner, as generics are cheaper than patented medicines.

- The United Nations Committee on the Rights of the Child has expressed concern over the way in which TRIPS plus provisions in other USFTAs may harm access to affordable medicines and has repeatedly urged countries negotiating such agreements to ensure they do not negatively affect the right of children to access affordable medicines.

- How will Malaysia ensure that FTAs do not affect the provision of generic medicines, especially for HIV/AIDS.

Generally all innovator products are invariably protected by patents. As such it is generally accepted that the provision of DE does not alter the accessibility of generic products in the country.

- But there may be extremely rare situations where DE becomes crucial and may have an impact on the availability of generic products. In these rare instances, the Ministry of Health has sufficient safeguard mechanisms in place to ensure any negative impact that may result from the DE implementation will be minimised.

- The Ministry of Health has developed a data exclusivity (DE) mechanism for pharmaceutical products. The DE proposed provides a 5-year protection of test data. However this runs concurrently from the original implementation of the DE and as such effectively ensures the protection period is less than 5 years to assure faster access of these products in the country.

- In addition, Ministry of Health will assure that the implementation of DE will be on Malaysia's own terms and will have sufficient safeguard measures so that the accessibility of medicines is not hampered. The concerns of local industry will also be taken into account in formulating any policy involving patent issues and DE.

- In doing so, the Ministry of Health has taken 5 safeguard measures as directed by the Cabinet in its implementation of DE which include the following:

i. 5 year DE protection which runs concurrently with that of the country of origin;

ii. DE only for second indication and not for changes in dosage forms and strength etc;

iii. the Drug Control Authority of Ministry of Health (MOH) will have sole authority to decide on DE;

iv. the imposition of DE will not adversely affect MOH's right to issue compulsory licensing; and

v. the proposed DE will also incorporate a number of additional safeguard measures during implementation that effectively address the concerns of local generic industry.

- In the US FTAs , provisions on DE protection are normally for 5 years with important distinction that it does not run concurrently. Malaysia's concurrent administration of DE effectively limits the DE period to less than 5 years.

- As for agricultural chemical products, the Pesticides Board, which is under the Ministry Of Agriculture and Agro-Based Industry, is the regulatory agency responsible for control of pesticides (agricultural chemicals) through the enforcement and implementation of The Pesticides Act 1974.

- The Board shares the opinion of many developing countries in that in any FTA, there should not be any attempt of the developed economies or blocs, to push for terms that will result in situations where the other party ( developing countries in particular ) is denied access to affordable, safe and effective pesticides which are required to control various crop pests and diseases in agricultural production , as well as vector-borne diseases in the public health sector.

- While the Pesticides Board observes the provisions of TRIPS and implements the requirements of DE in pesticide registration (authorisation to import, manufacture and sell in Malaysia), it also allows registration of generic pesticides under the current system of registration in order to ensure availability of affordable, safe and effective pesticides in the country.

ADDITIONAL INFORMATION

- DE is the protection of confidential data relating to information on medicinal products or agricultural chemical products.

- DE protection is required under the Article 39 of Section 7 on Protection of undisclosed Information of the TRIPS Agreement where Members in approving the marketing of pharmaceutical or of agricultural chemical products which utilize new chemical entities, the submission of undisclosed test or other data , the origination of which involves a considerable effort, shall protect such data against unfair commercial use.

- In addition, Members shall protect such data against disclosure, except where necessary to protect the public, unless steps are taken to ensure that the data are protected against unfair commercial use.

- Pesticides are divided into 2 types under present regulatory system of pesticides in Malaysia, namely proprietary and commodity (or generic) pesticides.

- A pesticide is considered generic if it has been registered in the country for more than 10 years. It is estimated that about 95% of the pesticides currently registered in Malaysia are generic.

- Under the current registration system, generic pesticides can be registered by any local company, with minimal data requirement and the application is processed through a simplified procedure, provided that the pesticide product meets the requirements of the Pesticides Act 1974 in terms of efficacy, safety and quality.

- Accessibility to affordable, safe and effective pesticides in Malaysia is therefore not really an issue.

- Registration of proprietary pesticides requires more data and information in support of the application, before approval can be considered. In most cases, only multinational companies (usually from developed countries) who first developed the proprietary pesticide have the ability to meet this requirement.

- As development of a proprietary pesticide requires a considerable amount of financial investment, time and effort on the part of the company to generate data in meeting the requirements of the regulatory authority and consistent with TRIPS, the Pesticides Board is obliged to protect such data and information. This is provided under the Pesticides Act.

- Such proprietary data cannot be used to consider a registration application for the same pesticide which is made by another company, unless written consent is obtained from the originator of the data, and provided that the specifications are identical or similar. The pesticide in question will only fall under the category of generic registration requirements, once the 10-year period is reached

The EU and USA want rights for their investors which limit Government's ability to regulate. The provisions on expropriation and ‘fair and equitable treatment' without sufficient safeguards will affect the Government's ability to implement ordinary regulations.

- In addition, these investment chapters, under the investor-to-state dispute settlement mechanism, allow disputes to be brought up at international tribunals, whereby investors will be able to sue the Government for millions of dollars in compensation for lost of profits arising from Government regulations.

- In negotiating the provisions of the Investment Chapter, the government will ensure that the interest of the investor as well as the interest of the Government is safeguarded.

- Investment provisions do not restrict the ability of government to regulate. Instead the provisions provide assurance to the investor that their investments will be protected in accordance with the laws of the country.

- In the context of the European Union and Trans-Pacific Partnership Agreement, negotiations are still at initial stages. The government will ensure that such provisions do not jeopardise government's ability to regulate.

- The Expropriation provisions provide for assurance to the investor that in the event the government expropriate or nationalise the investor's property (direct takings), or through a measure (indirect expropriation) which contribute to the investor's losses, then the government will pay compensation.

- Expropriation must be for a public or lawful purpose, on a non-discriminatory manner, with payment of prompt, adequate and effective compensation and in accordance with due process of law.

- The Fair and Equitable provisions provide assurance to the investor in terms of the minimum treatment an investor/investment will receive. In the event of a dispute it will be based on the specific facts prevalent at the point of time.

- Under the Investor State Dispute Settlement (ISDS) provision, an investor needs to prove that the losses suffered are as a result of an act of the government which contravenes the investment agreement.

- The disputing parties are also given an opportunity to amicably resolve the disputes , by way of consultations, conciliation, mediation or by any other means specified within the provisions of the FTA. Thus the Government has the flexibility to settle a case amicably without being brought to a Tribunal.

Environmental measures (such as banning exports of toxic waste, refusing to allow a toxic waste dump and banning a neurotoxin) have already been successfully challenged under these chapters in other USFTAs.

- Climate change measures and labour laws such as minimum wage and occupational health and safety requirements could also be successfully challenged.

The provisions of the FTA with the EU and TPP are still being negotiated. The FTA will provide for flexibilities in implementation of measures relating to the environment, as well as health and safety requirements.

- On labour laws, these provisions are currently being negotiated. Malaysia will ensure that adequate flexibility is provided in the implementation of labour obligations.

The Commission of Experts of the President of the United Nations General Assembly on Reforms of the International Monetary and Financial System, which included the Bank Negara Governor, Tan Sri Dato' Sri Dr Zeti Akhtar Aziz and was chaired by Nobel Prize winner Professor Joseph Stiglitz recommended a number of financial reregulation measures which should be taken to prevent another financial crisis similar to the current one from occurring and to make it easier to deal with one once it occurs.

- Many of these measures (such as Glass-Steagall type firewalls and capital controls that are long-term for both on inflows and outflows) are unlikely to be permitted by the EU and USA in their FTA negotiations

Our expectations of the TPP and the EU agreements are that they will deliver significant benefits to Malaysia.

- These agreements will complement Malaysia's on-going efforts to enhance the role of the financial sector as an important enabler and driver of economic growth. They will also facilitate greater investment flows to support Malaysia's target of becoming a high-income economy by 2020.

- The Government recognises that there will be risks related to the FTA obligations, including the potential limitations on Malaysia's ability to manage inflows and outflows of short-term capital which could jeopardise our financial system and the sustainability of our balance of payments.

- As a small open economy, the Government intends to negotiate the FTA obligations to ensure that there will be sufficient policy space to introduce necessary measures to ensure the overall soundness and stability of our financial system as well as the economy as a whole.

- Taking lessons from recent global financial crisis, the Government will negotiate balanced trade and investment agreements that take into account the interests of both advanced and emerging market economies.

Findings from the Sustainable Impact Assessment (SIA) of the FTA between the EU and ASEAN0 published by the European Commission (Trade) in June 2010 result in the following outcomes:

- the overall effects of an FTA are substantial and positive for Malaysia in the long run :

- GDP could increase by 7.42%;

- skilled real wages could increase by 8.56% with unskilled real wages by 8.7 %; and

- value of exports could increase by 8.32%.

- Malaysia stands to gain most in the textile, clothing and footwear sectors; and the leather sector is expected to increase substantially (up to 154 %).

- The demand for especially skilled but also unskilled workers will see an increase as there is a shift towards higher value added and skilled activities.

- Malaysia will see positive real income effects (especially in the clothing and motor vehicles/parts sector) and thus GDP would again grow in the longer run.

- Positive effects on health and safety issues through the incorporation of standards and further assistance with implementation of international agreements and conventions in this area.

- In terms of the effect on employment, the growth of industries under the FTA is expected to be matched by increased employment. At the same time the booming sectors, e.g. automotive parts and textiles industry is expected to pull out employment of the declining sectors (the sectors of gas, machinery and equipment manufacturing and minerals production are expected to decline).

- As an indirect result of higher incomes, spending and investment in Malaysia due to the FTA, there is likely to be an increase in spending on education, thus improving education levels.