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FTAs actually restrict free trade

New Straits Times, Malaysia

FTAs actually restrict free trade

By Tun Dr Mahathir Mohamad

3 August 2013

We are told that when trade is free, there will be more trade and nations will prosper. To achieve even freer trade the nations of the world must enter into free trade agreements.

Somehow, attempts at agreements on trade have failed repeatedly. What is the reason for this failure? Principally, the failure is because of attempts to regulate trade through agreements rather than to free trade.

And the laws and terms of the proposed agreements very often override national laws. In other words, far from making international trade free, the agreements are actually intended to regulate trade by international agreements and laws.

The Trans Pacific Partnership Agreement is certainly one such agreement. Far from freeing trade, the TPPA proposes to regulate trade through restrictive agreements. There is also an element of threat in that if the TPPA is not accepted than the recalcitrant nations will face restrictions against their freedoms to trade with members of the TPPA that they have enjoyed before.

How will the TPPA restrict and regulate trade? If the participating nations practice policies intended to protect its economy or have laws to govern its wellbeing and should these be in the way of businesses owned and operated by companies of the other members of the TPPA, then the agreement will supersede national laws and policies.

A case in point is that of Peru. Like any other country Peru has laws against pollution. If an industry releases toxic substances into the environment, the government can act to shut down the offending company.

Recently, Peru, which is party to a FTA with the United States, has been required to pay Renco the largest ever damage award of US$4.2 billion (RM13.68 billion) for stopping the processing of its products that had contaminated the La Oroya River and had poisoned 95 per cent of the children there. The award was made by the settlement of investment disputes based on estimated loss of (future) profits.

It is said that health and environment will be exempted but the exception is conditional on the government action being "not more trade restrictive than necessary" and is deemed to be non-discriminatory. The investor-state dispute settlement will determine this. There is no appeal.

Governments of TPPA countries will expose themselves to being sued by private companies in a court which may not have the interests of the countries concerned at heart. Even local governments may be sued by foreign investors thus making foreign direct investment risky.

In Malaysia, economic policies are used to correct social ills. These may be against the interests of foreign companies and we may have to abandon our policies regardless of the damage to society.

Perhaps some in Malaysia will welcome this. But discrimination in favour of local companies in government contracts and procurements will also be exposed to litigation under the TPPA.

The TPPA is touted as a multilateral agreement for free trade. In fact, it is an agreement to restrict trade.

The member countries and their traders must adhere to the legal conditions for trading or face litigation.

There is also an implied threat that if a country fails to join the TPPA its trade with member countries will be restricted. In other words, the TPPA will restrict trade to member countries.

Malaysia has been trading with all the countries of the TPPA while abiding by their laws, rules and regulations. No one can deny that Malaysian trade with these countries has grown tremendously. As the TPPA will favour trade among member countries, if Malaysia does not join the TPPA, Malaysia will lose its trade with them. How then can one regard the TPPA as an agreement to improve free trade in the world? In fact, it restricts trade between member countries by putting them under the laws and regulations of the TPPA, while at the same time keeping out non-member countries.

Treaties are binding and the TPPA is more binding than other agreements because disputes can only be decided by the International Centre for Settlement of Investment Disputes, an international court clearly tasked with upholding the TPPA.

Malaysia must think carefully about joining the TPPA or accepting the terms spelt out in small print in the 29 chapters of the paper. The draft is crafted by the huge corporations of the US and they must have their own interests at heart.

And we know their interest is to penetrate the markets of the resource rich but poorly developed countries.