Sun2Surf, Malaysia, 13 Apr 2006
Opening up to worries
The full interview
Jacqueline Ann Surin
theSun: What is globalisation all about?
Chee: Globalisation is a very broad term. It can be used to mean globalisation in terms of culture, in terms of social dimensions. Culture, obviously, you have the Hollywood culture, art and things like that. And in terms of social aspects, there are ideas around labour rights, and these are values which begin to influence certain countries and then you have ’international standards’ developing.
But the one that probably has the most impact in terms of how it touches every aspect of society would be economic globalisation. In terms of economic globalisation, you have two main areas. One is trade and the other one is finance.
Then within the word ’trade’nowadays, it is no longer what we used to think - just import and export of products. We used to think of trade as palm oil or rice or sugar or electronics or textile. However, the word ’trade’ is now used to cover many, many cross-border activities beyond goods. So, we are talking about, apart from your agriculture and industrial goods (the traditional trade areas), now we’re talking about trade in services. We are talking about how trade relates to investment.
Then you have intellectual property such as patents, trademarks and copyright. That is also brought under this term called ’trade’.
The idea [behind globalisation] really is to broaden the scope of access to the market and economy of countries, especially developing countries, by those transnational companies that are supplying all these different types of products or services or who can gain from intellectual property protection.
There are many, many big companies especially from, of course, the developed countries, especially the US, EU [European Union] and Japan. The companies have been built up, usually after receiving protection in their own countries for many years, and they are now strong enough and they are ready to move out to every corner of the world. Which means that they are very competitive. They have a lot of resources. And as we will talk about later, they are sometimes also very highly subsidised. It is very important for us to realise that a lot of these big companies are getting a lot of subsidies, whether directly or indirectly, from the taxpayers of their home countries.
So, when we talk about globalisation, it is really about removing the barriers, and the barriers can be both positive and negative. Some barriers are negative in the sense that it actually is not good for even the country itself but there are some so-called barriers which are important because they are actually about protection and safeguards.
The reason why we need to have these kind of protection or safeguards is because of the different levels of development of different countries at different times in their history. So, we broadly talk about developing and developed countries. Because we are not at an even, level playing field in terms of your level of development, therefore you have to take measures. If you are the government of a country, you need to look at your economy and decide which part of your economy needs to be given protection so that it can develop, grow, be strong to a level where it can compete with other companies and other enterprises from other countries, then you begin to open up.
So, it’s quite a sophisticated way of handling how you want to open up your economy.
Can you give examples of a positive barrier and a negative barrier for Malaysia?
Let’s look at forests for an example of a positive barrier. We have forests which we have been cutting for many, many years and we have big debates in this country about unsustainable logging, how we have lost a lot of our very rich biodiversity.
So, you may actually come to a point when you may want to ban the exports of logs and control the amount you want to exploit in your forest. So, you put trade restrictions in terms of exports of raw logs. Or, you say, ok, we restrict the amount. And whatever we cut, we want to have value-added manufactured products. So, you use export and import duties, these kind of economic instruments, to put restrictions.
Or it could be a case where you have an infant industry and you want to allow that industry, let’s say, textile, to develop. In the first stage, you take advantage of the fact that you have very cheap labour, and that’s your competitive advantage.
So, you have high import duties on garments so that your garment industry can grow.
Then as your production becomes more efficient and high-quality, and you can compete with other countries, you can lower those duties. At this stage, you may then decide to move away from garment manufacturing into let’s say producing the machines that will allow you to make the garments.
[At the machine stage], you might then lower the import duties for garments because your local industry has grown quite strong and you don’t mind letting in foreign garments into the country because you are now moving up to the next level.
To make machines, you want now to be able to protect that sector. Then, you might have high tariffs on the import of these machines, because otherwise if there are cheap machines coming in, then it is not worthwhile making them. And when your machine-making industry is strong enough, you can review the tariffs again, lower them and move on to designing your own machines and making them even better.
So, this is why the use of import taxes, export taxes and duties, in economics, is a very important tool because you may want to go up and down depending on the situation and the stage of development of that particular sector. When your machine making is competitive, you’re very good at what you do, you get good quality, you can compete, then you can start lowering the tariffs because even if someone else comes in from outside, you can compete with them and you can even export overseas.
But then globalisation right now tries to remove many policy choices and economic tools like tariffs.
Globalisation can be a neutral term. Because globalisation could mean for example, accepting that we are not just individual countries. There are many issues that are cross-border. If we globalise and interact with each other, we are also in the process of setting up, let’s say, global standards or global understanding of how we want to conduct our daily lives, in terms of business or whatever.
But, the kind of globalisation we see going on now in the WTO [World Trade Organisation], in the free trade agreements [FTAs] is really what we are talking about. It’s about opening up market access for the strong companies from rich countries in almost every sector of a targeted economy. Because they are ready to compete.
Either they are already big and strong, like I said, or they have a lot of subsidies like in agriculture. So, for different reasons, they are at a very advantaged level. Like services, their banks and their insurance companies and all their architects and engineers are ready to go out. Services, they are very strong. But the services sector in developing countries cannot compete because we are not as strong. So, the fact that they are strong, their inclination is to break all your market barriers.
[Actually], I don’t like to use the word ’barrier’ because it has a negative connotation, you see. What is at stake and what is discussed in terms of all these trade negotiations is that when you globalise, what you are actually giving up is your ’domestic or national policy space’.
This is the term that is actually of debate in the negotiations. This is always the fight. In the whole liberalising of your economy, opening up or globalising in the economic sense, it’s a tension over each country having the right to determine what kind of policies they want in their own country. It can be a social policy, economic policy, or financial policy.
And that policy is very important because depending on, like I said, the level of development in a country or within a sector in a country - one sector may be very advanced and other sectors may not be advanced - you need a very sophisticated management of your economy and your resources, including human resources.
That’s why we have the Ninth Malaysia Plan [9MP] and all the different policies. That’s what we are supposed to be trying to do. Each of the sectors, we need to have a different policy with of course, coherence among the policies.
So, that’s the kind of national policy space, which is part of your sovereignty. And every country starts with that because that is the logic of having your own sovereignty in your own society. However, globalisation as we are looking at it today is trying to reduce that national policy space so that you give up a lot of those rights to rules that have been set at the international level, where the powerful countries often hold sway over the weaker ones.
Does this reduce the sovereignty of a country to run its economy?
That’s right. It does reduce the sovereignty of a country.
Now, it’s true that there’s a history of international law being developed and accepted by countries but the principle is that where you do give up some of your policy space or limit some of your national sovereignty, it is actually done in a fair and equitable set of negotiations.
And that’s where state-to-state negotiations come in. So, we look at the United Nations [UN], we look at WTO or whatever, in principle, the idea is that nation states can come together and they can agree that there are many areas where they are willing to give up some of their national sovereignty or national policy space because of wider interests of the world community.
So, for example in the environmental field, we negotiate the environmental treaties in the UN. We see it in the area of labour rights where countries also negotiate. Some countries may have difficulties with many of these issues. Look at the United States, till this day they are still not a party to many of the ILO [International Labour Organisation] conventions.
Or even the major environment conventions such as the Kyoto Protocol on Climate Change or the Convention on Biological Diversity.
The UN is very democratic. Every country that is a member of the UN can take part in the negotiations. Sometimes the US simply does not want an international agreement, but they go to the negotiations to undermine and even try to prevent these agreements if they think it is not in their interest.
And more and more, it’s not even a question of the national interest of US citizens as a whole. We see the trend in the last 20 years, it’s more the interest of a sector of the corporations of the US that is dictating the US national position.
Many of the things we are talking about are also being questioned by US citizens, small and medium sized businesses in the US. They are also actually a victim of globalisation because the trend we see now is rules dictated very much by the strongest and most influential parts of each sector whether it’s pharmaceutical, whether it’s agriculture, whether it’s banking.
And so when we talk about globalising, one very important feature is how the rule-making at the international level in last 15 to 20 years has become more and more driven by very narrow, mostly corporate, interest and not even national governments weighing national interests, and weighing their national interests against broader international common concerns.
So, this is why in the last ten years, there has been this whole reaction to this kind of globalisation because it has led to a lot of negative impact. And this is across the world. It’s just that developing countries feel the impact in a more drastic way because they are already poor or vulnerable. For example, if you suddenly open up your economy and very cheap agricultural products which are highly subsidised from Europe and America come into the market, then the local farmers cannot sell their products. Even if they can produce, they can’t compete with the price. Eventually, they stop producing and livelihoods are affected.
In the manufacturing sector, opening up when local firms are not competitive can also lead to people losing their jobs. So, that’s why there’s this groundswell.
So, when you talk about the anti-globalisation movement, it’s really the people who have been victimised by the inappropriate opening up of national economies in accordance with international rules - these are laws that are legally binding on the government - and those rules and laws have been very much shaped, if not written, by some of the largest corporate interests in the world.
And a good example is the Intellectual Property Rights Agreement of the WTO. It was unashamedly admitted by the pharmaceutical, biotechnology and agribusiness industries that they were the ones who wanted an intellectual property agreement at the international level that will set for the first time a common international standard for all countries.
So, they were the ones who lobbied the Japanese, European and US governments. And they wrote, basically, the draft that eventually became the existing WTO agreement.
They wrote it. And this is not a secret.
In fact, the whole trade negotiations of the Uruguay Round in the 1980s to early 1990s was the round of trade talks where for the first time, corporate lobbying succeeded in rules that went into all these areas that we are talking about - services, investment and also intellectual property - and this whole transformation - this was a milestone - led to more loss of national policy space. For example, intellectual property has nothing to do with free trade because it’s [about] creating monopoly, you know.
When the whole package of the Uruguay Round of Agreements was concluded and the agreements were signed, Pfizer company actually bought an advertorial in The Economist in 1995 and there, one of the senior Pfizer officials actually described the whole process of how industry organisations went and approached the US government. The US government when approached by US industry said it was difficult for one country to bring in intellectual property suddenly in the middle of these negotiations. The advice was to go and get counterpart industry organisations to lobby the governments of Japan and Europe.
So, the benefitting industry actually told the whole story.
And intellectual property was not in the original agenda for Uruguay Round. It was supposed to be about tariffs and goods, and the course of negotiations, developed countries put in all these new things.
Some of the developing countries were aware of some of these problems and they said, no, they didn’t want intellectual property rights to be in there. [But there was] So much pressure!
And when industry wants a certain global set of rules, they are very organised. They will go and hook up with, or set up sometimes themselves, so-called think tanks and research institutions that are all really promoting a corporate agenda.
Then they get these think tanks and institutes to produce studies, and positive prospects give the agenda an academic legitimacy. And then, they will go to the political side and lobby. In the US, it’s quite well known and people know how it works, they will go and lobby the individual Congressman or woman to support a policy or law. So, they are very organised!
Thus, when we talk about globalisation, it’s not something that happens accidentally. It is about market access for goods and a whole range of economic activities. Whether it is Hollywood, or banks, or dried plums and sugar and beef or chicken, it’s about market access.
And this is the kind of worrisome globalisation that is not just a concern of Third World Network and many NGOs [non-governmental organisations]. Even governments in many countries have begun to realise the downside, [and are saying], ’Wait a minute, when we bought into the whole WTO package in the 1990s, there were figures given to say that if you sign the Uruguay Round package, many billions of dollars would be available for developing countries through liberalisation because you’ll get cheaper goods, and your economy will be growing because you’ll get investments, and all kinds of things.’
[But] for many countries, all they’ve had has been disillusionment ever since then for all the agreements and commitments that developing countries agreed to - services, intellectual property, and some aspects of investment measures - we’ve given up [a lot].
In Malaysia, as a WTO member, for example, if an investor comes, you cannot set conditions anymore on how much local content there should be in the products manufactured here, that is how much of the materials should be sourced from Malaysian suppliers.
Or in the past, we used to actually, as a condition of investment, require transfer of technology from the foreign investor. Now, bilateral Free Trade Agreements [FTAs] with countries like Japan and the US also restrict such conditions.
All these ’performance requirements’ are gradually prohibited. So, these are global and bilateral rules that restrict your room to basically shape your own industry and economy.
And that’s why there is a backlash. And the backlash is not just the demonstrations in the street. Governments in the last 10 years have been fighting very hard within the WTO context.
Because in the end, no matter how much demonstrations you have outside, if the governments involved in the actual formal negotiations don’t resist, don’t fight and don’t give their own alternative proposals to reshape the global rules, then everything will just go!
And it’s very, very tough. Malaysia is one of those countries that actually fought off quite a few things.
When the Uruguay Round ended in the early 90s, we had this first shift from the global system dealing with trade to all these other non-trade issues. And these other issues go into your economic policy and economic decision-making of your country.
The big industries and the developed countries’ governments in the Uruguay Round were very, very ambitious. First, they actually wanted a full agreement on investment which will increase the rights of investors and increase the protection of investors to a very high level.
Developing countries said, ’No, no, no.’ Because we all want foreign direct investment, but we want to be able to direct where the investment will go. And Malaysia is a very good example of a country that is very open but at the same time, we have a lot of rules because we want to make sure if we have foreign investments coming in, it must be building actual physical infrastructure and production plants and while you make your money, we also want to ensure that you keep some of the money in the country, you train us, and then we can learn and we can do it ourselves, you see. Or we had high tariffs because those were the sectors we wanted to develop.
So, all these were the policy tools that even in the 80s rich countries wanted to remove. So, they wanted a full agreement on investment. They didn’t get it. So, what happened with WTO is something called the trade-related investment measures agreement. So, the way these industries and developed countries’ governments brought in these issues which were not trade was to use the term ’trade-related’. They used that to justify bringing in [non-trade issues] into the new system of global trade.
Secondly, was services. They wanted minimal or no controls over foreign companies entering a country. So, for services, they also said, ’Open up every sector.’ Your banks, your supermarkets, everything. Not just lawyers, but also your architects, engineers; your advertising sector.
What they were pushing for was for an agreement that would say, everything is opened to foreign companies to be treated the same or can be treated better than your local company. This concept of ’national treatment’ is very deep in the WTO system. What it means is that a government cannot treat a domestic company better than the foreign company. But it can treat both equally, and it can treat the foreign company better. I cannot treat my domestic better than the foreigner. Then, they call it ’discrimination’.
So, services came in. At first, the original proposal from the rich countries was, ’Everything in your country is open to foreign companies to come in except if you carve out reservations [exceptions].’ So developing countries said, ’No, no, no.’ Services sector is a big part of our economy and if we open up then we’re finished!
So, they fought. At first they didn’t even want the services agreement, then they had no choice. They had to accept the services agreement. Then, they said, ’Ok. But we will accept only what is called a positive list’. In other words, only what I offer, I agree to give you, will be open. Everything else is not open.
The approach the developed countries always want is called the ’negative list’. In other words, everything is open except what I say cannot be opened at the time of the signing of the agreement.
Big companies and their supporting governments want a negative list approach for both investments and for services. And this is what they are now getting in the FTAs, which they cannot get in the WTO.
Malaysia is still willing to have a positive list for services. So, whatever Malaysia has not agreed to give, then that is closed. And it makes more sense. Because if I’m negotiating today, how can I anticipate all the different services in my country in the future that I may want to protect in order for the local firms to grow strong and competitive? You can’t possibly do that.
The third area is intellectual property. Developing countries lost out on that during the Uruguay Round. In 2002, the World Bank estimated that it would cost developing countries US$60 billion every year to implement the WTO intellectual property agreement.
See, there are only three net exporters of intellectual property in the world - the US, Switzerland and the European Union. Because they have so much of copyrights, and patents, and innovation in their own country, they are the ones who are exporting it. So, the rest of the world have to keep paying for the use of those technologies.
What was the developing countries supposed to get back in return? The two things which were fought out were textile and agriculture. Except that developing countries in those days were really negotiating with very little information, let alone analysis. So a lot of the data, the studies and analysis were coming out from the GATT [General Agreement on Tariffs and Trade, which has been superseded as an international organization by the WTO] Secretariat, from the World Bank, from the OECD [Organisation for Economic Cooperation and Development] and they all said, if you accept this package, then you will all benefit.
So, it was really done with very little real cost-benefit analysis by the developing countries for the developing countries. The major trade-off was intellectual property, services. In return, textiles were brought into the WTO after many years of protection of developed countries’ markets from competitive imports of developing countries.
The other promised benefit was market access for agriculture. So, that was the grand deal.
And within three to four years after the signing of the Uruguay Round Agreements, developing countries realised they had been had. So, the capacity of developing countries to prepare for negotiations, to negotiate well and to understand what we sign is absolutely crucial.
So, for many countries, they hardly negotiated because there were so many issues, it was so complex [and] all happening at the same time, and all of these are now legally-binding.
So, now it is openly acknowledged that many WTO rules are unfair, they are inherently out of balance against developing countries and then when you go back and hopefully start to look for subsidy reductions, you realised that the Europeans were very clever. They negotiated in such a way that they agreed to lower by what looked like a high percentage but in a group of products which is a very small part of their subsidies. These are also products that are not those which developing countries can export in large amounts. They’ve agreed to reduce [subsidies] but they haven’t reduced.
So the ongoing new round [of negotiations], called the Doha Round, is supposed to really push for real reductions, and the developed countries are resisting like mad. So, agriculture is still a major fight. And so, we had a raw deal.
What are some of the treaties or instruments that determine how globalisation affects us?
The whole package of agreements that we have signed in the Uruguay Round are the main ones for economic globalisation. These are your WTO agreements.
There is the Marakesh Agreement, which set up the WTO, and then all these other agreements come as a package. So, it was a ’take it or leave it’. You couldn’t say ’I don’t like intellectual property, so I won’t sign that one.’ They put it all together.
This is the approach of the multilateral trade system when it comes to this kind of rules. Take it or leave it, one big package.
Wherelse in the UN system, some agreements you don’t want, you don’t sign. You can pick and choose. So, for a few of the good environmental agreements, some developed countries will not sign up. But there is no choice in the global trade arena.
And the most important aspect of the WTO is a separate agreement that establishes the dispute settlement system. This is the ’secret’ of the WTO. Why it is so powerful. Why many governments are so afraid of it.
It’s because if you were to break any of the UN treaties, there’s no enforcement mechanism. But in the trade arena, if any WTO member country complains of a violation and if a settlement cannot be reached, it goes to a WTO panel. And if you are found to be in violation, you have to change your law or government action concerned or you have to compensate the party [a monetary sum] that has succeeded in the challenge.
And if you don’t pay, then [the complainant] can cross-retaliate against other parts of your economy.
And developed countries continue to want more agreements in the WTO. New agreements! So, there were three new agreements they wanted as soon as the Uruguay Round ended [in 1994]. The minute the ink was dry, they started to put on the table three more agreements in Singapore at the first ministerial meeting.
They wanted investment. A full investment agreement which they didn’t get in the Uruguay Round. They wanted an agreement on government procurement, the other part of an economy where it is multi-billion dollar spending by every government. So, foreign companies want equal access to government contracts. So everything from your pencil to your hydropower dams, to your schools, to your roads, whatever government spends on.
The other is competition. It sounds nice, competition usually means you want to break up a monopoly. But the idea of a competition agreement in the WTO is again market access and national treatment. They say that it’s ’not fair’, for example, in Malaysia, when we don’t allow foreign banks to come in. That it’s ’anti-competitive’. Then they tell consumers that it’s very good, competition means you will get better service and cheaper service.
But their idea of competition is they want to come in and be treated equally with or better than your local company. So, whatever they call it, it is always about market access into your entire economy.
Would you say that the WTO is more powerful than the UN?
Oh, ya! Definitely.
Malaysia has also started entering into several free trade agreements with developed countries in recent years. We signed one with Japan last December, and are negotiating with Australia and New Zealand. An FTA with the US was also launched in early March and will formally begin in June.
What are FTAs? Are they also part of the march towards globalisation?
Ok, I would say that in the last five, six years, developing countries have actually increased their own ability to negotiate on a better footing with the developed countries in the WTO. ’Re-shaping’ and ’managing’ globalisation are terms that are rather common now.
One reason is the amount of information [available], and also if you were implementing the agreements, you realised, ’Oh my god, a lot of problems.’ And then the actual impact plays out. Some gains, more losses. And some countries, no gains and big losses.
So, a hard learning curve?
A hard learning curve.
And a country like Malaysia is interesting because a lot of our achievements, for example, being very export-oriented, getting a lot of investments geared up in the 80s and 90s.
Sometimes people say it’s because of all these WTO rules that we have become so successful but we forget that we had investment policies, industrial policies, we had a lot of policies in this country that were already there since 70s and 80s, and a lot of the successes actually took place because those policies existed.
Of course, we have our problems. But, what country doesn’t have problems with policy or implementation?
But we had those hard core economic and development policies. Take our financial policy. Unlike some other countries, Malaysia did not liberalise so much its financial sector, that’s why we did not suffer as bad in the 1997 financial crisis and we also had capital controls. [So], when WTO came along, we were already doing quite well. There were also some benefits but to say all the successes of Malaysia was because of the WTO rules and agreements, I would say, is not a correct statement.
Because we have very clear national policies when we want to negotiate, we are guided by our national policy. Now, I think auto is a very good example. For the average Malaysian, what is so aggravating is that cars are all so expensive, right? So, we are looking at the price of cars, and the fact that we have to go and buy Proton which is highly subsidised. People say, ah, you just want to protect a very inefficient sector.
It’s not so simple. We have to decide, what is the Malaysian vision about industrial development? If you look at the 9MP, there are many very ambitious goals, and some of them are good goals. For example, upscaling our manufacturing, adding value. We want to develop other parts of our economy. We want to deal with better healthcare, we want to improve education, we are going to cut down food import bills. All these means you need the whole range of economic instruments from tariffs to policy.
And if you open up everything in your country and legally bind yourself and [stand to be punished] if you break the rules, then you have limited or even no more policy space.
And in WTO, whatever you open up, no going back. They call it a ’standstill’. So, it is constantly opening up more and more and the term ’progressive liberalisation’ is used to say, ’Don’t worry, we are doing it progressively. We are not opening up all at the same time.’
But, progressive depends on how you do it also. And once you open, you cannot retreat. No rolling back.
If you want to go back, you can under exceptional circumstances like if you have a problem with your balance of payment but the situations are very narrow and the government’s actions will all be judged by the WTO system, and a country can complain against you.
And FTAs are one way...
FTAs are one way to get what they [developed countries] didn’t get in WTO.
What has happened is, because developing countries increased their knowledge, increased their capacity to work together much more than before, and as you said, the learning curve was very steep and hard.
And when people are protesting in your streets and your farmers suddenly cannot sell his produce, or the costs of medicines have skyrocketed because of patents...that’s why the Group of 90, Group of 20 - all these new groupings of developing countries on agriculture and other issues [were formed].
Because among developing countries, we are also competing but at least we are coming together and saying, look, there are some of these issues we have to fight together, otherwise all of us will lose.
So, these groups are fighting on like-minded issues. Malaysia took the lead in the Asean group [in Singapore at the first meeting of WTO ministers] on ’no new issues’ but eventually we understand that our International Trade and Industry Minister Datuk Seri Rafidah Aziz agreed to ’study groups’ on the topics. Not to negotiate but to study. It was a compromise.
The WTO then set up three working groups to study these issues [investment, competition and government procurement].
Now in the WTO, the minute you have your little toe in, then the demanding countries will just pressure you. The whole system is about that, you know. You give a little bit, then they will come and get more, and more.
The other side kept trying to upgrade [to the negotiations stage] to have three new agreements. Fight, fight, fight. For eight years this was a major fight. Many NGOs from all over the world, many developing countries. Fight, fight, fight. At every ministerial round, you know, these issues came up.
So, finally in Cancun, 2003, decision time came. The decision to proceed to negotiations formally [on these three new issues], or to say that we want to close shop on these three issue. Huge fight.
That’s when Malaysia, under our former Prime Minister [Tun Dr Mahathir Mohamad], took a position: ’These are non-negotiable issues.’ All the studying and discussions we’ve had in the last few years have come to the conclusion that these three issues should not be WTO agreements because they are actually anti-development. So, Malaysia led the fight.
Minister Rafidah was the spokesperson for all the developing countries that got together to say no. So, they did it. Major hard fight, you know. Campaigns, pressure, lobby, demonstrations, everything. So, finally in Cancun 2003 in that ministerial meeting, these three issues were put to sleep for the time being.
Then the FTAs came in. Because the US companies and industries didn’t get what they wanted. [And] they see all these barriers. They want to enter developing countries such as China, India, Brazil, Indonesia, Malaysia.
Although Malaysia is a small country but our economy is quite vibrant. So, for the US service industry, they’ve always wanted to come into Malaysia but many of our sectors are still protected, or we have opened some up on a unilateral basis - this means we choose to open up on our own terms, and can also reverse the situation if the need arises.
An FTA would lock us in. The US also wants to export more things to us, like rice. We have a 40% tariff on rice imports. The US wants their FTA partners to agree to move quickly or immediately to zero tariffs so US growers and manufacturers can increase exports of their products.
So, they are now using the FTA as a vehicle.
So, developed countries are using the FTA as a vehicle...
Yes, as a vehicle to get areas that they did not get in the WTO.
So, all the things that developing countries fobbed off in the WTO, these are actually agreed to [in the FTA] because then the US is actually picking off countries one-by-one.
Bilateral agreements are not new. People have been doing bilateral investment, trade agreements, cooperation agreements, all kinds of bilateral agreements have been around for a long, long time. But, this recent trend of free trade agreements at the bilateral level with [developed countries like] the US, or with Japan, or with Australia, New Zealand are very different. And at the head of the pack is the US.
So, the US was the one that started going out first. Their foreign policy and their economic policy are very meshed together. They look at trade and economics as a tool of foreign policy. So, for them the FTAs are beyond trade, going into investment and all those issues, you know.
It’s also very strategic and political. So, if you look at a lot of the proliferation of the FTAs, one justification is that the WTO is moving so slow, and that’s why countries must do all these FTAs.
But, the WTO is a huge machinery! They are very complicated agreements. They are lots of commitments. So, what is the rush to keep on having new agreements?
So, when they say it’s slow, they mean it’s slow because it’s not giving them what they want. Wherelse there is so much that needs to be done already at the WTO, including changing some of the rules, and interpreting them to be development-friendly.
[In fact], developing countries have put on the table more than a hundred proposals called ’implementation issues’. They’ve done their studies and said, ’Look, these are the things that need to be adjusted, this is how we want to have safeguards.’ So, there’s a lot of work to do. But some developed countries make it sound as if everything is ’Die! Collapse! Cannot move.’ Because they are not getting their way. So, they [use] the FTA route.
At the same time, after Sept 11, there was this whole, in a way, belief that you had to go into some countries and use trade to forge alliances, so FTAs are also very enmeshed with defence and security issues, the war against terrorism.
Now, the UNDP [United Nations Development Programme] has done an excellent report on the political dimension of FTAs. For example, Australia and New Zealand were both being considered for FTAs with the US. Australia, because it supported the war on Iraq, got the FTA. New Zealand did not support the war in Iraq, and also because it doesn’t allow nuclear submarines to enter its waters, so the US said it will not enter into an FTA with New Zealand.
And then you look at what are the countries they [the US] went for first. Jordan, Bahrain, in the Middle East.
So, this is a further march towards globalisation?
Yes, it is. In a way, the FTA is bilateral, but if you look at the content, they are asking you to change your laws and policies to open up your economy. So, it is again about giving up your national sovereignty. Giving up your policy space.
And although in the beginning it looks like a country is only giving a concession to the US, but you think about it, if the commitment is to change let’s say your patent law, to allow patenting of animals [which Malaysian law does not allow now], you don’t just change your law, and say, ’Ah, only for US.’ No.
So, you are changing your entire law, then everybody can get the same benefit.
And every one of these agreements have an MFN [Most Favoured Nation] provision. This means anything better you have given another country in another FTA must also be given to the US. So, like the ones you sign with the US, will always have this provision.
For example, we signed with Japan already. Oh, that’s another horror story! In the MFN provision with the US, whatever we give to Japan we must now give to the US. And then in the one with Japan, you also have an MFN provision there to say that, we sign with Japan first, [but] whatever we are going to sign later on with other countries that is better than what we’ve given Japan, then Japan has the MFN privilege and can also enjoy the addiitonal benefit. That means, Japan will get the extra benefits we may give to the US, or Australia and New Zealand.
So, if these two agreements have MFN provisions, whatever I give you, I have to give the other. Whatever I give the other, I have to give you. So, then, it’s no longer bilateral. After you sign a few of these, then you are ’globalised’.
Do we need to be worried as a developing nation and as consumers? What is at stake for Malaysia?
Absolutely. You think of any developing country, and we stand to lose our sovereignty or we restrict our sovereignty to the extent that we cannot freely make our own policies, our own laws that are most suited to the needs of our country, and those policies can change as your country changes.
We should not lose that flexibility to make those changes as and when we need them.
It’s every part of your economy, you know, that is targeted. A good example is the 9MP. The fact that we have this five-year plan means that the government sits down, it thinks about what it wants to achieve in each of these sectors.
If you take each of these sectors, you can have a mirror in terms of the FTA topics. Each of the FTA commitments will affect all our goals and ambitions in our own development plan in one way or another.
So, you’re tying your hands in achieving those targets when you go into these kinds of agreements without doing a proper cost-benefit analysis.
So, WTO is going on. It’s the same things that are being asked for in WTO, that developed countries are asking for in FTAs. But we are giving in to FTAs faster than we are at the WTO.
The one year assessment by Australia itself showed that in the last one year since their FTA with the US came into force, the exports from the US into Australia have gone up but the Australian exports to US have gone down. This is the Australian government’s own data. So, there’s a big debate going on in Australia now [about this].
Not surprisingly, in Malaysia, we are worried. Third World Network has been studying all these different agreements [FTAs with the US] that have so far been signed. In some countries, even when there are strong protests - the biggest open fights have come around health issues because the intellectual property provisions will actually kill the generic production of cheaper drugs, so people cannot get affordable medicines and health costs will go up very high - so all health ministries in all these concerned countries really fight these FTAs.
But then all the other things will always be agreed and the intellectual property will be the last thing to be resolved and then the pressure will be on these Health Ministry people. Colombia’s negotiator from the Health Ministry during the negotiations with US, walked out. He even resigned from the government in protest when the US position was not to be softened at all and his government appeared pressured to give in.
So, in terms of the cost of medicines, in terms of opening all the different economic sectors, even if we carve out exceptions and reservations, we have opened the door for continuing bilateral pressure to keep opening up more and more, without a proper understanding of the impact on local industries and farmers, and ways to cushion the impact.
In the Japan-Malaysia agreement, Malaysia has made reservation in the investment part. But the country has now gone on the ’negative list’ approach, you know. This means Japanese companies are to be given national treatment except where reservations have been listed.
So, hopefully the government has thought about everything! But, whatever you’ve not thought about is now open, you know.
And there is also a commitment that Malaysia and Japan will continue in the implementation phase, to try to reduce or remove all these reservations.
First of all, where was the cost-benefit analysis for Malaysia as a whole? Even with market access and goods, where is the cost-benefit analysis?
And then for investment, we’ve given the right to a private investor to sue the government. This is the thing that transnational corporations always wanted in all the attempts to get global rules on investment, that have been fought out over sixty years. There have always been attempts at different times to have an international treaty on investment that will increase investor’s rights and protection.
So, one of the scariest things about the investment chapter in all these FTAs with Japan, US, and even to be expected with New Zealand and Australia that we are doing, is the right given to a private investor to sue the government.
TWN has described the WTO’s Sixth Ministerial Meeting in Hong Kong in December last year as one that resulted in serious disadvantages to developing countries. How so?
Three big issues. One is the non-agricultural market access, or NAMA. Under the existing GATT rules, lowering of tariffs to increase global trade is the goal but it is left to each country to decide on the products and the level of tariffs.
For example, the average cut that developing countries are currently committed to is 28%. How you cut and where you cut is up to the country concerned. As long as the average is 28%. So, in case of more sensitive products, a country still has room to move.
Then this proposal came from the US in the lead up to Hong Kong that we must start negotiating market access for non-agricultural products and have zero tariffs for all non-agricultural goods. Zero tariffs would be the rule. Of course, developing countries said, ’No. Cannot, cannot.’
Different formulas came from different groups. What is now called the "Swiss Formula" gained support from developed countries. The fight in Hong Kong was what formula to use to decide how much you’re going to cut all your industrial goods’ tariffs.
And some developing countries had also come out with a counter proposal. They said, it’s not just numbers. You see, the developed countries already have quite low tariffs except for some of their highly protected [products]. Most of their tariffs are very low, maybe average about 3% to 4%. Developing countries are the ones that use high tariffs because we want to develop our industrial sector.
So, if you use a simple arithmetic formula, if you use the same percentage cut [across the board for all products], it will be very different from the current situation and there will be big cuts for developing countries. A 20% cut of a 3% tariff is very little, right. For a developing country, a 20% of 35% is very, very big. So, this very simplistic formula was objected to.
A group of developing countries came out to say, you must put in a development dimension, put in different co-efficients so you can calculate more flexibly. Basically, we lost that battle in Hong Kong.
So now we have the so-called Swiss Formula, with a little bit of maneuvring room, but not much so far in the Geneva follow-up negotiations that are going on.
And it’s not like before, where 28% average, you can choose what you want to cut. Here whatever is the final formula that is agreed will apply to every product. Every product. Regardless. So this is the major shift.
So, the nett effect is that the tariff cuts for developing countries will be much more drastic?
Much more drastic than for developed countries!
The other worrying thing was on services. Because the developed countries have been so unhappy because if you use the positive list, you have a right to say ’No’ to opening up any service sector. Because that’s the way the WTO agreement on services was set up.
But the developed countries are very unhappy because the developing countries are not giving offers.
So, they tried on the road to Hong Kong, to turn the thing around, to change the way of negotiating access for services, to turn it into a negative list. That was the first attack. Of course, developing countries said, ’No way we are going to accept that.’ So, they didn’t get it transformed into the positive list approach but they introduced what they call the ’plurilateral approach’. And this is what was adopted in Hong Kong.
And it’s very dirty. Because developing countries, including Malaysia, objected all the way to Hong Kong. We said, ’Look, we already have guidelines on negotiations of services agreed in 2001. These are basically one-to-one [negotiations].’ But we lost that battle in Hong Kong.
So, it’s still a positive list [a country can choose what to offer] but under the plurilateral approach, countries can come together - let’s say, Japan, Hong Kong, Singapore, US, EU - can come together as a group and make a demand on Brazil, or Malaysia. So, a group of countries can ’invite’ you to a discussion and then to negotiate. Some countries can say, ’I don’t want to accept your invitation.’ But then, with each step the pressure grows.
So, now the architecture of the negotiation has been changed somewhat.
We believe that Malaysia has probably received many requests. And Malaysia has been identified as one of the countries which is the most closed on services and yet with the most potential because we are a middle income country. That’s why they have targeted us.
In your press statement, TWN says that despite massive opposition from a large number of developing countries, including the G90, for five days, the developed countries eventually got what they wanted in Hong Kong. How did this happen?
[Sighs] Actually, it’s interesting, the Minister of Foreign Affairs of Brazil who leads the Brazilian delegation and is the leader of the G90 - very, very experienced diplomat - and he said, ’You know, they wear you down.’
Despite the opposition, the other side is just so adamant, so you are the one who actually will keep comprising along the way.
Would you say that the resistance by developing countries is worn down by a very sophisticated machinery?
It’s not even sophisticated. It’s bully-ish!
Logic is actually on the side of the developing countries. Logic, impact, the whole issue of equity. And these ministers are saying, ’Look, we’re not talking rhetoric here, you know.’ These are life and death issues. If you have a high IP [intellectual property], then we cannot get medicines. We’re talking about farmers, our workers, our entire future.’
The logic of the argument on the other side, it isn’t there. They want to level the playing field because they say that they are disadvantaged!
Most developing countries are saying, ’Look, the world is not equal because the reality is we have very disparate levels of development.’
Even a country like Malaysia, Malaysia has come quite a long way compared to many developing countries, ya. And we’ve come a long way because we have actually used our national sovereign right to determine our national policy and national development choices by also managing globalisation. And managing it in a way that we can still have flexibility.
Like [having] capital controls is a very good example. Because we were not locked in back in 1997/8, we could take measures [like that]. They were legal. They were politically unacceptable and Malaysia got criticised for it but they were legal and we have the right to do it, and we did it.
Now, in these FTAs, that right even for capital controls during a financial crisisis is going to be restricted because the wording in the Japan-Malaysia agreeement and the US agreement with Chile, it must be a ’serious or severe situation’ of balance of payment. So, they put in qualifying words. You can do it but it must be for a serious or severe situation. And then you can do it but you must inform your partner in the trade agreement as soon as possible and they can ask you questions.
By the way, even the IMF has approached the US to express their concern that the restrictions on capital controls in the US-Chile FTA will be harmful for Chile.
Knowing the way it all works, why would Malaysia or any country go and negotiate an FTA if it’s going to not benefit us?
You’re asking the question that everybody asks. Why would we do it?
That is what we’re asking. If the answer is, ’Oh, we are going to gain market access, so we will trade off some other thing’, then the question is how the government decides on this trade off.
Even with market access, what are we getting? Import? Export? Where is the cost benefit analysis? Where is it?
Now in Australia, there was this big public debate and hearings in Parliament. Because in Australia, the government has to go round to different parts of the country and explain to the public and businesses. In the US, they set up very formal committees with very active industry participation. Public hearings have to be held over 90 days before formal negotiations can start. Very systematic. But here, we don’t know.
When Minister Rafidah was in Washington, D.C. and it came to question time, the media asked about the huge protests in Thailand [because during the last round in Chiang Mai, it was intellectual property on the table], and about the Malaysian situation. Her answer was that in Malaysia, there is no opposition. Everybody is very happy. The matter has been discussed in Cabinet. There are some people who are concerned but once they find out everything, they will also be alright [with the FTA].
And then she says, ’We have done our arithmetic’, and that the benefits [of signing an FTA with the US] far outweigh the costs. This is all on the USTR [US Trade Representative] website.
So, we said, ok. Where is the arithmetic? CAP [Consumers Association of Penang] sent a memo at first with many concerns before the official launching and the Minister replied that the national interest will be protected and there are consultations with all government ministries and agencies as well as the private sector.
We hope that there can be more detailed discussions that are two-way and that can broaden to include NGOs and citizens’ groups such as the Positive Malaysian Treatment Access and Advocacy Group [MTAAG+] which has sent an open letter to the Prime Minister on the concerns of the HIV-positive community.
The multilateral approach at least, for all the problems with the WTO, it is a bit more open. We complain that it is so untransparent, so undemocratic. Now you close the door, one-to-one, it’s even worse.
What is at stake if Malaysia doesn’t sign these FTAs?
This is the thing. It seems that with these recent FTAs, the Prime Ministers and Presidents meet and commit to an agreement first. It will be interesting to actually go behind the scenes and find out what the actual process is.
That’s why the UNDP report on the political dimension of FTAs is quite interesting.
And I think some of the Prime Ministers or Presidents may not be aware that these are a different kind of agreement compared to those olden days bilateral cooperation. So, they handshake first, and then they go back and say, ’Negotiate.’ So, it’s working backwards because it’s a political commitment at the highest level, then whether or not your trade minister is going to say, ’Well, Prime Minister, I don’t think it’s a good idea’ [is another thing].
But many trade ministers believe it’s good. I don’t know whether it’s because they don’t understand. Because the more we look into this, we don’t understand why they think FTAs are so necessarily automatically good.
When you go down from the ministers to the officials, we find that many people in the commerce or trade ministries in different countries, including Malaysia, also have their concerns because these are very comprehensive agreements, you know. They have nine to ten topics which are all very complex, and they all have major implications. Certainly other ministries in countries involved in FTAs with the US have serious concerns.
Now Rafidah’s letter in reply to CAP, essentially says, ’Don’t worry. We’ve taken into account everything. The agreement with Japan, we consulted everybody.’ And also the assurance that Malaysia has its sovereignty and that negotiations are guided by our policies.
But if you look at the Japan agreement, the agreement is actually changing our policy in a number of important areas. On intellectual property, it is going to require us to change two of our laws, one of which is to allow discoveries of naturally-occuring microorganisms to be patented. I don’t know whether the full implications are known or not.
We [also] put investment onto a negative list. Now, was that a conscious Malaysian government decision to do that [when in the past developing countries fought for a positive list approach]? We are told, ’Don’t worry, because we’ve carved out all the reservations so that policies like the NEP [National Economic Policy] will not be affected.’
But, you have changed to a negative list which was not our policy before. Unless, that policy has been changed and nobody told the public.
So, your question is very good. And we are asking the same question of the government. So, everybody is now asking their governments, ’Where is the cost benefit analysis?’ This is serious. Where is the cost-benefit analysis?
Which is why we are pushing, ’Look, tell us, show us.’ So the second letter from CAP after they received the transcript of Rafidah’s speech [from the USTR website], was, ’Where is your arithmetic? Where is the cost-benefit analysis?’
Now, we’re going to the [Malaysian] Parliamentarians because national laws and policies are at stake...
Can consumers and citizens do anything?
Some NGOs are trying to do something. Because there’s no right to information in this country, we write and write and write and send all our concerns on many issues, and then we are often told, ’Thank you very much. We’ll take all your concerns into consideration.’ Or, ’Trust us. We’ll take care of the national interest.’
One, this is a government that is now saying it wants more transparency. In fact, NGOs have been told in the first speech that our Prime Minister made in his first Budget consultation with public interest groups, and I remember he said, ’NGOs are very important. Not just to work with government but as a watchdog.’
So, now we have done and continue to do research. We have downloaded every agreement from the USTR website and we’re very happy MITI [Ministry of International Trade and Industry] has put up the Japan agreement but it was done after the fact. But, where is the cost-benefit analysis for the Japan agreement?
Now that we’ve signed and committed ourselves to all those things, how are we going to cope with it? There will be 10 sub-committees for each topic under that agreement. Have we prepared ourselves? There will be adjustments because once you start liberalising under these agreements, there will be sectors that will feel the pinch.
As NGOs, some of us decided we needed to get this issue out to the public.
We need to get our Parliamentarians [involved]. Because in the end, laws will have to be changed. And sometimes, countries may even have to change the Constitution. Guatemala had to change sections in their Constitution after they signed some FTAs with the US.
Some NGOs have gone to the media, but somehow the media doesn’t [seem interested].
When we spoke to Parliamentarians, both in Barisan [National] and Opposition, again what struck us what they didn’t realise the comprehensive nature of the agreements and also the implications.
More and more, we need to explain to citizens. Some of these things are not so simple to understand. Because in the end, you may have cheaper cars because you have opened up the sector, but you may have no jobs. And will your SMEs [small and medium enterprises] be able to compete?
We’re not saying close up but we must know how to manage opening up our economy. Because, wherever you open, there’s going to be an impact. How to deal with that impact? We talk about ’progressive liberalisation’, but the FTA is not progressive, you know. Practically every part of our policy is on the table now. Not just policies but laws, administrative measures, guidelines.
There is a lack of transparency in the information, in what is being offered and what is being demanded. No process of tapping the best within the country, in and out of government to really help to do the measuring, before we even enter into a negotiation.
Now, we’ve officially launched a number of negotiations with developed countries [the US, Australia and New Zealand], then politically it might seem difficult to back off, but then, in the end we have to ask ourselves whether we want to save face or save the country’s future.
Is there an alternative to WTO?
I remember many NGOs from all over the world only began to understand the implications of all these global trade rules, towards the end of the Uruguay Round. But then we actually at TWN, we were campaigning with many other NGOs to say that the WTO shouldn’t be set up because it was a very dangerous system that was going to be formalised.
So, we said WTO in the form that it was being crafted should not come into being.
Our position is we need a multilateral trading system because there is a lot of cross border trade. We do need a good multilateral trade system but it has to be one that really is not just fair but has a development dimension to it.
Which is what the UN has always been very clear about. In the UN, when we make all these global rules or standards, it’s always in the context of development. Recognising that development in different countries is unequal.
And since this last round of globalisation, we actually do need rules on corporate accountability, you need rules to make sure trade is smooth but taking into account all development dimensions.
And also because of this kind of skewed globalisation, we’ve got more inequities now. So, your rules need to be even more development-friendly. More human-friendly.
So, we actually took a position against the WTO. Nevertheless, it came into being. It was a compromise for developing countries. It was either that or unilateral sanctions against developing countries.
But we found out later, the rules (within the WTO) themselves were not fair. And the institution that comes from the rules are also not fair.
Of course, we cannot just wish the WTO away. It’s not going to close down.
Then, TWN and many other groups around the world, continue to try to give the reality of what is inside the WTO rules and globalisation.