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A Guide to the Trans Pacific Partnership Agreement (TPPA) – Why BANTAH?

Back in 2008, the Malaysian government concluded the signing of a US-Malaysia FTA with 58 “unresolved issues”, which discontinued the two-year negotiation. Among leading protagonists was then Agriculture Minister Tan Sri Muhyiddin Yassin, who mentioned that he would not compromise the livelihood of local farmers. He was even quoted as saying ‘over my dead body’. YB Khairy Jamaluddin led a protest, citing that the FTA would take away Malaysia’s sovereignty, while patent protection would deny access to generic medicine. What has changed in the past five years? One thing for sure, it is definitely not the content of the FTA.

Why Trans Pacific?

We can imply that TPPA is called Trans Pacific because of the geographic locations of the countries taking part in the negotiations. TPPA is unique in the sense that it is open-ended agreement. Any country interested to join can join in as long as they agree with concluded texts and the other countries agree to that entry.

Every country participating in the TPPA already has existing FTAs with America except Japan, New Zealand, Malaysia and Brunei. Japan and New Zealand are developed economies with very large trade sizes with other countries in the world, and Brunei is a resource-rich nation with a less significant trade size. That leaves Malaysia, which has most at stake as a developing nation and a new entrant to any FTA with America. For countries with existing FTAs with America, the TPPA will probably just result in minor additions to status quo. But for our small economy, the TPPA will entail a much bigger impact.

The first TPPA negotiation was held in March 2010 amongst 8 countries, while Malaysia joined in December 2010, followed by Mexico and Canada December 2012. Recently, Japan joined in at the Kota Kinabalu negotiation round.

Other US FTAs with Singapore, South Korea and Chile serve as good guidance for us to know what to expect in the TPPA. Also, they do not vary much from each other, about less than 5% of variance on average. This clearly indicates, on the part of the Americans, that there is standardized ‘template’ and  that there is reluctance to entertain non-conforming measures (termed as “exclusions”) at the negotiation table.

The content of TPPA’s texts is confidential and negotiations are held behind closed doors. What we have are five leaked chapters, namely Investment, Intellectual Property, Trade to Barrier and Regulatory Coherence. MITI reported that it has almost concluded 14 out of the 29 chapters.

On Investment and Sovereignty

This is arguably the biggest chapter, with linkages to most of the other chapters. This chapter will restrict the policy space of governments through its ‘Investor-To-State Dispute Settlement (ISDS)’ and the ‘State-to-state Dispute Settlement’ (SSDS) clauses. ISDS is a provision under the Investment Chapter which will essentially allow any corporation to take the Malaysian government to court for claims to damages or losses. TPPA supposedly “strengthens” trans-national ‘corporate’ justice (fairness and equity). What do fairness and equity mean here? Basically, MNCs can expect no local condition or regulation changes affecting them once there reside in a partner country. But actually, it is ticket for multinational corporations to trample over national legal systems through international arbitration tribunals comprising of three judges; two international and one local.

For example, if Malaysia suddenly happens to find out that a certain ingredient in tobacco is harmful, and decide to ban it 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 Malaysia, with interest. Such was the case with Phillip Morris, when it sued the Australian government over a new law on cigarette packaging. The same could happen if Malaysia decides to be more stringent with LYNAS, for example.

We can even say that legislators and the Parliament will be left redundant; their hands tied to enacting only laws that would not affect MNCs’ profitability and business viability! We recall Mexico being sued for USD 16 billion for disallowing removal of toxic waste harmful to its environment by an American corporation.

It is also widely known that developed nations like America and Japan are attempting the ISDS via the TPPA. It was not ratified previously under existing World Trade Organization (WTO) agreements. Although we can only assume that these clauses were not ratified then for its potential negative impacts, there is still reason to be cautious.

On Government Procurement and Petronas Vendor Development Program

With this chapter, all government procurement including that of GLCs and Petronas cannot in any way favor local contractors in any way deemed unfair to other corporations. There is a floor threshold for this ruling; from previous US FTAs, we expect it to be around RM 23 million and above. This leaves room for only the small peripheral contracts for local companies. Meanwhile, the government procurement bill is sized at RM130 billion, or 25% of the Malaysian GDP.

Empirical evidence has shown that 94% of the American government procurement goes to American companies (Khor, 2008) and only 6% goes to over 170 companies worldwide. Such limited potential gains from what is supposed to be opening our doors to America! It is in fact our floodgate that is being opened for America. What will happen to our local contractors especially oil and gas contractors? Can even our giants like Sapura Kencana and MMHE at their nascent stages survive the competitive onslaught from developed nations? Not to mention the smaller players. Even the Petronas Vendor Development Program and licenses will witness its death.

On SMEs and Agriculture

Among other things, The TPPA aims at trade liberalization and tariff reduction, which may cause drastic loss of jobs in many sectors. A direct impact is downward pressure on workers’ wages, expanding even further the currently large income disparity gap. Mexico serves as a good reminder; following the signing of the North American Free Trade Agreement (NAFTA) with Canada and the US, three million out of ten million Mexicans lost their jobs.

Tariff reductions will adversely impact particularly agricultural products. Promoting efficiency and healthy competition, however noble, becomes unfair when more than 90% of Malaysian companies in the agriculture sector are SMEs. They will face unfair competition from giant agricultural exporters from TPPA countries such as the US, Canada, and Japan, whose governments in the TPPA will not reduce huge subsidies to their farmers. A study by UNCTAD showed that subsidies reduce the price of American rice crop by 45% below cost of production, soybean by 32% and cotton by 52%. A rough calculation indicates that their rice can flood the Malaysian market at as low as RM1.40/ kg– what will happen to BERNAS, and more importantly, local planters then?

On Intellectual Property – Medicine Patent and Copyright

The Big Pharmas will get medicine patents and obtain longer patents easily. This would also render generic medicines more difficult to or delayed access, such as medicines for cancer, HIV and other chronic illnesses. For example, Herceptin which is used for cancer, currently costs RM8,000 per cycle and is used for 17 cycles. Treating a lung cancer patient costs an average of MYR 44,725 ($14,455) per year, per patient. The chance of access to these medicines for those unable to afford these exorbitant prices becomes slimmer as access to generic medicine is delayed through TPPA as developed countries may seek to extend the life of the patent beyond the 20 year period.

Just as the TPPA’s intellectual property (IP) protection measures would make medical treatment more expensive for ordinary Malaysians, educational and research activities could also be harmed and made more expensive due to more stringent copyright laws proposed. These include the ‘digital commons’ such as the Internet-based resources. Current copyright law is proposed to be extended from 50 years to 120. That’s also 70 more years of limited accessibility to students and academia due to prohibitive prices of book and references.

On Tobacco control and Public Health

Tobacco is not a product with our average demand profile– it kills at least 50% of its consumers prematurely. Malaysia, along with all other TPP countries except the USA, is party to the WHO Framework Convention on Tobacco Control (FCTC) which requires countries to regulate tobacco, reduce its use and withhold grant incentives to the tobacco industry. The FCTC is a binding international treaty and Malaysia has been a Party; this entails the aligning of national policies with the goal of reduction in tobacco use and regulating the tobacco industry. Many provisions in various TPPA Chapters contradict those in the FCTC. This alone is cause for concern considering the potential conflicts between the two in the future, and more importantly the general harm to public health of a more heavily tobacco-consuming society.

On Capital Control Capability

Another major consequence of the TPPA is restriction on our capability to enforce capital control. According to Reinhart & Roghoff (2009), periods of high international capital mobility have repeatedly produced international banking crises, not only as witnessed here at home and in the region in 1997, but also historically. When financial systems are adequately regulated, the scope for damaging financial cycles can be contained, or at least leave the economy less prone to such large cyclical swings as seen in today’s more liberalized environments. The idea is not to destruct efforts for a liberalized and efficient financial sector, nor to hinder Malaysia’s competitiveness in attracting foreign investments. Rather, it is to cushion impacts of economic shocks to the most vulnerable Malaysian businesses and entrepreneurs. It is not archaic to take some heed from temporary capital controls measures as undertaken during the Asian Financial Crisis. Even the IMF admits to the role that capital control played in expediting our recovery compared to that of Indonesia and Thailand.

On Telecommunications

A chapter on telecommunications is another notable feature of an FTA, which undoubtedly is discussed in the TPPA as well. The telecommunication plans to promote competitive access for telecommunications providers among TPPA countries. Telecommunication enterprises from other TPPA countries must be ensured access to existing infrastructure of a public telecommunications network through interconnection and access to physical facilities. In the case of Malaysia, we are concerned for the viability of TM Berhad who has been undertaking capital expenditure to wire-up the country expansively with high-speed broadband on fibre optics on a Public-Private Partnership basis. Providing access to foreign competitors on existing infrastructure will put serious strain onto TM’s business viability, perhaps even driving our local telecommunication giant into its doldrums.

The Issue of Export Taxes

Export taxes are imposed on importers of primary goods. It functions in two ways; it raises government revenue and develops local intermediary industries. Export taxes raise prices for raw materials in the export market making final products that we produce domestically, cheaper and more attractive than those produced abroad. TPPA attempts to have a say in this too. By reducing or abolishing export taxes, a country like Malaysia who still mostly exports primary goods will see partner countries enjoy our primary resources at much lower prices, thereby killing our local intermediate producers like fittings and furniture, palm oil refiners or food manufacturers. I will not be exaggerating to say that this sounds suspiciously similar to the days of our colonial masters extracting Malaya dry of its natural resources!

The Trade and FDI Myth

Back to trade itself, it has always been expected that the main benefits of signing an FTA with the US will be reflected through higher gains in trade benefits. How is it then that even in the case of a relatively stronger economy such Singapore, trade deficit had only widened from USD1.4 billion in 2003 when they signed the agreement, to USD4.3 billion in 2004 and USD6.9 billion in 2006 to USD10.5 billion in 2012?! Furthermore, no evidence of increased long term quality investments and FDI were found in bilateral trade agreements, according to a report by the United Nations. While trade diversion is a valid concern, the loss of incomes and benefits from trade diversion as a result of opting out of TPPA, must be determinedly greater than the various losses and costs that the TPPA entails to the larger economy.

Protests around the World against US FTA

It is not uncommon for nations worldwide to protest against FTAs with America. In Guatemala, two died protesting, and the people of Guatemala brought the government to court claiming that the FTA would go against at least 130 Acts in the Guatemalan constitution. In Ecuador, emergency had to be declared due to massive demonstrations. Chief negotiators in Thailand and Colombia also resigned from their positions in protest. In South Korea, a protestor burnt himself to death to show protest against an FTA that it had with the US, which only passed by Parliament after the ruling Government effectively locked up the opposition.

Countries like Argentina, Bolivia, Brazil, Paraguay, Uruguay, Venezuela, South Africa, Botswana, Lesotho, Namibia and Swaziland had also previously engaged in negotiations with America for an FTA, but they were never signed.

In Malaysia, the Third World Network (TWN) and the Consumers Association of Penang (CAP) have been at the forefront of engaging with US-Malaysia FTA issues since 2008, and has continued to do so with the TPPA. Notable efforts have surfaced again lately in light of the TPPA negotiations and the leaked chapters. On 6th of June 2013, YB Nurul Izzah issued a press statement questioning the secrecy of the TPPA negotiation and asked pertinent questions; whether Malaysia plans to trade its sovereignty for free trade. She continued to put pressure from Pakatan Rakyat which led to the setting up of a parliamentary caucus and increased engagement from MITI.

Simultaneously, momentum continues to build up with NGOs such as BLINDSPOT, MTEM, MAC, MTUC, GBM, IKRAM continuously engaging in forums and public awareness efforts. These efforts encourage the public to demand their engagement with the government in the negotiations. Other high profile figures like Tun Mahathir and Liow Tiong Lai also openly expressed opposition to the TPPA further fuelling efforts for public to engage in the issue.


Badan Bertindak Bantah TPPA (The Coalition Act against TPPA)

Badan Bertindak Bantah TPPA or simply known as BANTAH TPPA is a coalition of 52 Non-Governmental Organisations and 7 Coalition Councils formed with the aim of raising the people’s awareness with regards to TPPA in a sincere effort to ensure Malaysia gets the best out of TPPA. Our view is that the TPPA is straddled between the hopes of a relatively small circle of multinational corporations, whose commercial interests stand to benefit the most from the proposals, and the fears of civil society organizations representing the people of all 12 TPPA countries. In fact, the TPPA is neither about fair trade nor even about free trade alone, since it seeks to lock in the monopolistic position of big corporations over their industries. It is about ensuring the protection and prioritization of corporate interests above those of public welfare, safety and the socio-economic interests of less affluent economies than the obvious economic master here, which is America.

We note that America is assisted by a special advisory committee of 1,000  industry experts. We demand the same for Malaysia. A coveted UNDP study is insufficient to ensure the public that our livelihoods and that of our future generations are not under threat. Given the track record, Malaysia is not exactly a master at negotiations, having lost Block L and M, a skewed water agreement with Singapore, Batu Puteh island to name a few. Negotiators from MITI alone cannot decide the fate of Malaysia.

Ultimately, BANTAH TPPA demands for the Government of Malaysia to suspend or pull out its involvement in the TPPA negotiations unless and until, an impartial and comprehensive cost-and-benefit-analysis and a comparative advantage study are carried out, disclosed and publicly debated by all stakeholders in Malaysia, that the texts are examined, scrutinized and assessed by parliament to rectify the TPPA as negotiated is indeed in Malaysia’s favour and interests, that the concerns are seen to have been incorporated into Malaysia’s positions and proposals for the TPPA; and that a popular referendum is held to determine to what extent Malaysians are in support of their government signing and ratifying the TPPA.

We demand for the government to adopt a transparent stance in this and for the voices of the various stakeholders amongst the people of Malaysia are considered in this negotiation round. Or else, pull out from TPPA negotiations in an absolute manner. A textbook outline of the benefits of free trade will not suffice; the TPPA may be a free trade agreement in form, but it is an imperialistic regulatory agreement in substance.

Attention and empathy is needed from civil society itself. Academics, industry experts, practitioners and even lay people who are concerned about the future of Malaysia must search, aim to understand research, speak out and write to contribute to current efforts to demanding the best out of our negotiations. Else, we really should be bidding our farewell to America and run for the door.

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