The Trans-Pacific Partnership Agreement (TPPA) And What It Means For Malaysia

Illustration by Michelle Leong

The Trans-Pacific Partnership Agreement (TPPA) has been a hot topic in recent years. Some of the concerns brought up by Malaysians are largely negative, as they are afraid that their livelihood and also living cost may be affected with stronger competition, globally.

So, what exactly is the TPPA? The TPPA is a proposed regional regulatory and investment treaty aimed at creating a platform for economic integration across the Asia Pacific region.

To date, 12 countries throughout the Asia Pacific region have participated in negotiations on the TPPA:

The proposed agreement originated in 2005 as the Trans-Pacific Strategic Economic Partnership Agreement (TPSEP or P4), and included just New Zealand, Chile, Singapore and Brunei.

It was the United States’ (US) participation and its subsequent dominant role in the negotiations of the partnership that resulted in the expansion of its membership, as well as having a primary role in its agenda setting.

The good: What is TPP actually proposing to do?

TPP is basically a giant free trade agreement that would eliminate tariffs on goods and services, and harmonise various regulations between the partner countries.

What’s a tariff? In simple terms, a tariff is tax that adds to the cost of imported goods and services.

As just one example: US poultry currently faces a 40% tariff in Malaysia. Under a TPP agreement, these duties will be reduced to zero, making US poultry more affordable in Malaysia.

In theory, by eliminating tariffs on goods and services, the TPP will open up the markets and promote a more level playing field for manufacturers, workers, service providers and farmers in the United States and across the Asia-Pacific region.

Provisions of the TPPA are purportedly designed to ensure fair competition between state-owned enterprises and private companies, as well as to improve the transparency and consistency of the regulatory environment to make it easier for small-and-medium-sized businesses to operate across the region. If it comes through, the TPP could boost exports and economic growth, creating more jobs and prosperity for the 12 countries involved.

According to an analysis supported by the Peterson Institute, the TPP could provide global income benefits of an estimated US$223billion per year by 2025. The analysis also estimates that the TPP could generate roughly US$305billion in additional world exports per year by 2025, including an additional US$123.5billion in US exports.

Whatever transpires in the negotiations will affect a population of roughly 800 million from the 12 countries – that’s almost double that of the European Union’s single market. As is, the 12-nation would-be bloc is currently responsible for 40% of world trade.

The bad: What are critics saying?

Critics of the TPP are mainly against the secrecy involved in the negotiations, in which governments are seeking to bring in sweeping changes that voters have no knowledge of. Even lawmakers of the TPP member countries have no knowledge of the negotiating text.

So far, all the information we have comes from documents that were leaked – it has 29 chapters with regulations regarding food safety, financial services, copyrights, who can buy what product from where and so forth.

Campaigners allege that the proposed clauses favour corporate profit over public interest and will likely result in the removal of measures designed to protect local industries.

Meanwhile, defenders say that the reason why the negotiation details have not been made in public is because no formal agreement on them has been reached yet.

What is important to note is that TPP is not merely about tariffs, imports or overseas jobs. If it comes through, it could herald a new set of complex international regulatory systems, including intellectual property law, with limitations to free speech, privacy and public health.

 

Some clauses under the TPP could even allow foreign investors or corporations to take action against local governments for actions that are deemed to hurt profits (or even potentially hurt profits) or violate their rights to be treated “fairly”.

The Chinese dilemma

Notably absent from the agreement is China. This is deliberate and is meant to tip off the trade dominance of China in East Asia.

When everyone signs this agreement and no tariffs apply, goods from China will go from the cheapest to more expensive. This could potentially put their economy at risk as their economy is based primarily on exports.

What does it mean for Malaysia?

Malaysia joined the TPP in 2010 and will theoretically stands to gain access to a market of 800 million people with a combined GDP of US$27.5 trillion.

So it’s all good right?

Not so fast. A leaked draft of the TPPA suggests that a proposal has been tabled to provide large pharmaceutical companies new rights and powers to increase medicine prices and limit consumers’ access to cheaper generic drugs.

Potentially higher medical costs

The TPP includes provisions that will further protect the monopoly that pharma companies currently hold over drug patents, lock in high drug prices and block cheaper, generic versions from entering the market for years.

This will make access to lifesaving medication much harder and for people in developing countries in the TPP (including Malaysia), denying consumers access to HIV/AIDS, tuberculosis and cancer drugs could be deadly.

 

In February 2014, Malaysian protestors dressed as zombies outside a Kuala Lumpur shopping mall to protest the impact of the TPP on the price of medicines, including treatment drugs for HIV.

Protestors, comprising members of the Malaysian AIDS Council and HIV-positive patients, explained that the cost of treatment drugs could go up from RM500 – RM600, to almost RM3,600 per month if the TPP happens.

It could spell bad news for SMEs

With the TPP, participating countries will have to remove tariffs on almost all products coming from one another. When this occurs, local producers and farmers will lose their competitive advantage and will have to compete with tariff-free imports from other TPP countries.

On the other hand, provisions under the TPP could also make it easier for SMEs to gain access to foreign markets and to operate across the region, so things could go either way for these industries.

The local government could lose out

If enacted, the TPP would support multinational corporations (MNCs) and give them the power to undermine policies and priorities on national and local levels.

What this means is that MNCs can expect no local condition or regulation changes affecting them when they reside in a partner country. For example, if Malaysia suddenly finds out that a certain ingredient in tobacco is harmful, and decide to ban it and thereby affecting the profitability of a tobacco MNC, the MNC has the right to sue the government for potential profit loss for the remaining period of their permit in the country, with interest.

The same could happen if Malaysia decides to be more stringent with LYNAS in the future.

To put this to the extreme, legislators and the Parliament may well be relegated to enacting only laws that will not affect MNC’s profitability and business viability.

What happens if Malaysia walks away?

The most obvious repercussion is that Malaysia could face significantly higher tariffs for some of its exports and lose out on access to a wider and more developed markets.

According to the minister of international trade and industry, Datuk Seri Mustapa Mohamed, Malaysia will miss out on an opportunity to write the rules for future trade in the TPP if it backs out at this stage.

So far, 19 formal rounds of TPP negotiations have been held by all member countries.

Negotiators are currently working through issues like market access and chapters like government procurement, intellectual property and state-owned enterprises, and has stopped giving themselves deadlines to conclude the talk.

So will the trade deal happen? We will just have to keep our fingers crossed…and wait.