Race-based policy spoils EU-Malaysian ties
Asia Times
Race-based policy spoils EU-Malaysian ties
By Anil Netto
29 June 2007
PENANG, Malaysia - Unexpected criticism of Malaysia’s race-based affirmative-action policy by the European Union’s top envoy reveals underlying concerns that this could be a major stumbling block to unrestricted market access for European multinational firms in the region.
On June 21, EU envoy Thierry Rommel sparked a furor when he said Malaysia’s so-called New Economic Policy (NEP), which favors economically disadvantaged ethnic Malays and other indigenous groups known as bumiputeras in business, share
ownership, employment and educational opportunities, amounts to protectionism and is discriminatory even in cases when foreign firms are in partnership with local partners.
"Malaysia claims these are infant industries that need to be protected, but in reality ... it is the [ethnic] Malay-centered policy that drives protectionist policies," he was quoted saying. Malaysia is sending an official protest to the EU over Rommel’s remark, contending that it "was tantamount to interfering in Malaysia’s domestic affairs and policies".
Rommel’s remarks are being seen as the opening salvo ahead of talks for a free-trade agreement (FTA) between the EU and the Association of Southeast Asian Nations (ASEAN), which are scheduled to begin next month. Free-trade critics have frequently pointed out that many now-developed countries, including the United States, practiced protectionism for decades in the early stages of their industrial development.
The EU has traditionally pursued a twin approach in its trade negotiations: a multilateral approach at the World Trade Organization (WTO) hedged by a host of bilateral FTAs that have grown in importance since the Doha Round of negotiations has stumbled. Unlike developed nations outside Europe, the EU has favored a bi-regional approach, preferring to negotiate with other trading blocs on a region-to-region basis - but only after contentious non-trade issues have been dealt with.
But despite having the most bilateral agreements, the EU has one huge blank spot on its world map: Asia. Last October, an EU document titled "Global Europe: Competing in the World" put EU competitiveness at the forefront of its trade policy and outlined a more aggressive approach in opening foreign markets to European firms. The document in particular highlighted the market potential of Asia.
Lagging behind the US and Japan, two of its major global competitors that have already moved ahead in the FTA stakes in Asia, the EU has now turned its attention to forging deals with ASEAN, South Korea and India. But unlike the United States’ and Japan’s FTAs, the EU’s aims to go through its bilateral arrangements, covering not only the reduction of tariffs but also the convergence of regulatory systems and the removal of non-tariff and technical barriers.
Malaysia’s NEP is a major stumbling block to this goal, especially its policy of favoring local bumiputera-owned firms in awarding government contracts. This same issue has delayed the still-ongoing Malaysia-US FTA negotiations.
The EU has been prepared to sponsor initiatives to liberalize a dozen priority sectors in ASEAN as it embarks on formal FTA talks in July in Vietnam. This month, it launched a RM33.2 million (US$9.5 million) program to support the ASEAN integration process, which is expected to give rise to a common ASEAN market by 2015. But critics have warned that an FTA with the EU would hasten the introduction of neo-liberal policies in ASEAN and actually harm local economies while widening income disparities.
"This EU-ASEAN Free Trade Agreement, like so many other FTAs, talks up the prospect of open-door trade, growth and all-around prosperity," said Glasgow-based political scientist John Hilley, who has written about neo-liberalism and Southeast Asian politics, in e-mailed comments. "But, behind every juicy free-trade carrot lurks a menacing neo-liberal stick."
Hilley said it is indicative of the EU’s own selective world view that it continues to maintain "fortress-type" protectionist policies against less developed countries, most notably in Africa, while at the same time advocating these kinds of free-market engagements. "Thus we have to look behind the fine words of such arrangements to see who mainly benefits from them. As ever, it’s the big multinationals," he said.
FTA advocates, however, argue that a bilateral pact with the EU holds out the prospect of greater access to lucrative European markets for the bigger enterprises within ASEAN. Others warn that an FTA could also be harmful for the small and medium-scale enterprises in the region.
In Malaysia, the NEP itself has given rise to a new ethnic-Malay middle class, but critics point out that it has also spawned a culture of corruption, cronyism and ethnic discrimination. Intra-ethnic and regional disparities have also widened. With the advent of neo-liberal policies in the late 1980s and 1990s, its effectiveness as a tool for wealth redistribution has been widely questioned.
Critics argue that the NEP has instead been used to promote the interests of the rich and entrench the ruling United Malays National Organization, whose politicians are loath to compromise on it. Not surprisingly, non-Malays who feel that the NEP discriminates against them would also like to see the back of this policy, and in general tend to welcome greater economic liberalization.
One Indian-Malaysian medical specialist who complained about discrimination in education and government jobs observed that middle-class non-Malays are caught between the status quo and full-blown liberalization.
"Where do we go from here? Only the multinational companies can provide the job opportunities for our children who are capable and brilliant," he remarked.
Economist Charles Santiago of the Kuala Lumpur-based Monitoring Globalization think-tank noted, "Non-Malays are so tired of the discrimination against them that many of them would support an FTA.
"But they have to keep in mind the larger implications of an FTA, which means that whether you are a Chinese, Malay or Kadazan [an ethnic groups indigenous to Sabah state] businessman or woman, you will face stiff competition from [transnational corporations] who are technologically superior," he warned. "It will be a takeover of our businesses in the long run."
He pointed out that the promises made by the EU in other countries it has free-trade deals with, such as Mexico, have not materialized. In the case of the EU-Mexico FTA that took effect in 2000, one report pointed out that Mexico’s trade deficit ballooned from $9.4 billion in 2000 to $16.9 billion in 2006.
"There is a hidden agenda here," said Santiago. "They [EU officials] are in effect saying, ’You guys open up your economy so that our European investors can take over your market.’"
