Policy Matters - The TPPA: Malaysia’s leap ahead?

THE team at the Ministry of International Trade and Industry must be extremely satisfied on two counts: their success in negotiating the Trans-Pacific Partnership Agreement and the Parliament's favourable position on the agreement.
It is amazing that Malaysia has negotiated skilfully enough to preserve the bumiputra agenda, obtain a minimum five-year grace period to reform state-owned enterprises policies, and gain exemption for Khazanah from investor-state dispute settlement (ISDS) provisions (for two years after the deal comes into force).
Further, 30% of government procurement has been reserved for bumiputra contractors (for construction services), and bumiputra suppliers and manufacturers would continue to enjoy price preferences for goods and services. The value of contracts set aside for bumiputra firms will start with US$63 billion (about RM266 billion) in year one and taper to US$14 billion by 2020.
There were fears that the TPPA would necessitate the dismantling of SOEs, and prise open the government procurement market and cause the whittling down of the bumiputra agenda. Those anxieties are unfounded. It has turned out to be an agreement where the government can have the cake and eat it.
Many of the issues that critics raised do not trouble the government very much. On the ISDS, the government probably feels that it is not cause for concern for two reasons. One, it seems to think that ISDS is a part of many free trade agreement packages, and so is to be accepted as "part of the deal". Two, the government has had experience from previous encounters with ISDS both in its favour and against it. Legitimately, or otherwise, it thinks it has enough expertise to handle such disputes.
With regard to pharmaceuticals, Malaysia's existing patent period is 20 years, in line with that required by the TPPA. This is also the case for data exclusivity, where Malaysia's provisions are already the same as that of the TPPA. However, it is not so with biologics. Malaysia will have to have its laws comply with the TPPA on biologics. On the face of it we appear to be on safe ground. But, the Jordanian experience is deeply worrying because the prices of medicines in Jordan went up by as much as 20% subsequent to its trade agreement with the US.
Although international experience on intellectual property rights and the games that multinational pharmaceutical companies play has been a cause for concern, surprisingly the Malaysian Organisation of Pharmaceutical Industries (Mopi) remains sedate on the likely impact of the TPPA on the local pharma industry. They do not think that the TPPA will have an impact on this sector. Hopefully, their assessment is correct. In any case, the government should take measures to improve the national healthcare system. The government should upgrade access to medicines and healthcare; it should not shirk its responsibility of bearing the burden of healthcare costs, and this with or without the TPPA.
There may be debate on some of the issues that have been mentioned up to this point. But there is less doubt that Malaysia's readiness to take advantage of its exports is questionable when viewed from the perspective of the value-added contribution of various sectors. Many of Malaysia's key sectors are low on value-addition. Although the electrical and electronics sector accounts for about 30% of Malaysia's exports, its value added is low. The value added contributed by the oils and fats and palm oil sectors are high, but then these sectors are not significant in terms of technological sophistication. There are few sectors that are export oriented, have high value-added contributions and are also technologically sophisticated. The oil refining sector is one such example. This generally implies that Malaysia will not be able to wage a strong competitive war to increase the value added that will benefit domestic stakeholders. However, this is a structural problem, a phenomenon that describes the nature of our economy. It does not apply specifically to the TPPA.
There is also little to squabble about the possibility that the rate of growth of imports would likely be faster than exports post-TPPA implementation. There are two reasons why imports would grow quickly. First, the removal of impediments to trade would encourage greater imports. Second, with growing exports there would be a need to import more intermediate goods (or inputs necessary to produce output). The latter reason is due to the structure of the Malaysian economy: we do not produce the necessary inputs locally and so have to import them. This happens even now.
Taking a regional perspective, by wanting to get into the TPP, Malaysia signals its reluctance to take on a leadership position with Asean. That is a somewhat tricky problem. Vietnam, Brunei and Singapore are in the TPP. President Jokowi in his meeting with President Obama has indicated his interest in getting into the TPP. The Philippines has made discreet queries on the prospect of joining the fold. Asean being as loose an organisation as it is, and with members not being firmly and exclusively committed to it, Malaysia has opted to exploit its first-mover advantage.
Malaysia is confident that it can enjoy the best of both worlds by being in the TPP and the RCEP. By not joining the TPP, so as to declare its loyalty to the notion of Asean centrality, Malaysia would be disadvantaging itself when additional Asean members participate in the TPP. The threat of being the last entrant into the TPP must have weighed heavily on the government's strategy, if it at all has one that is openly shared among policy thinkers and advisers.
China probably watches the TPP drama with wonderment. China does not need to join the TPP. The US might have engineered the TPP with the intention of containing China's progress, but China is too much of a juggernaut to be held in check with the TPP. China is bent on setting the global agenda on its own terms. The Asian Infrastructure Investment Bank and the One Belt, One Road are strategic initiatives that underline this. Besides, China has revived the Free Trade Area of the Asia Pacific (FTAAP) proposal. Closer to home, China's investments in the country are increasing. This does not take into account our trade ties with the eastern giant.
Malaysia's membership in the TPP does not imply a shift in Malaysia's leanings. Malaysia has hardly been drawn by ideological positions, save perhaps for its inclusion in the Non-Aligned Movement, a relic of the Cold War period. Much like Singapore, Malaysia will spread both its wings, courting the US and China, being equally close to both, extending concessions to both, in equal measure, or as opportunities arise, regardless of source.
Malaysia remains today, as it did perhaps 25 years ago, a nation that is dependent on trade and investment. It must join the fray to attract trade and investment. It does not have the advantage of a huge market, a surplus of high-tech skills or cheap labour. Malaysia is, in a manner of speaking, a price-taker. There are adjustments that it must make as part of this process. That will include changes to domestic laws, especially with regard to labour and IPRs, issues that the Opposition will rightly want to question.
The TPPA is not the gold standard it was touted to be. Major concessions have been made. Anybody who thought that the TPPA will trigger the domestic reform process in Malaysia will be disappointed. The TPPA may not turn out to be such a game changer, after all. Without the TPPA trade and investment might have been diverted to Vietnam and Singapore. Now we can rest in the comfort that that will not happen.
Dr Shankaran Nambiar is author of The Malaysian Economy: Rethinking Policies and Perspectives. The views expressed in this article are his personal views. Comments: letters@thesundaily.com