The Trans-Pacific Partnership: Should Malaysia Join?
The Trans-Pacific Partnership: Should Malaysia Join?
Benny Teh Cheng Guan
28 Apr 2010
In March, the United States Ambassador to Malaysia James Keith indicated that Malaysia should participate in the Trans-Pacific Partnership (TPP) agreement; a new regionalisation project that intends to expand the existing Pacific-4 Free Trade Agreement (P4 FTA). Malaysia, along with Japan and South Korea, have been identified as potential candidates soon after the US announced its decision to commit to the TPP during the APEC meeting in November last year. Should Malaysia join? More specifically, is Malaysia ready to get involved, recalling the stalled US-Malaysia FTA (USMFTA)?
The P4 FTA consists of Brunei, Chile, New Zealand and Singapore. Under the TPP, the new list would add the US, Australia, Peru and Vietnam to the original four.
When Malaysia was asked in November 2009 if it will participate, Prime Minister Najib Razak said that a study was needed and no indication of preference was made. In February 2010, however, Malaysia was reported to be interested in the TPP.
From an economic viewpoint, an expanded FTA like the TPP would yield positive results for Malaysia. As tariff barriers come down, trade volume will increase. Malaysian businesses will be able to tap into foreign markets more easily, apart from enhancing Malaysia’s attractiveness as a destination for investment. As Malaysia needs to make up for lost time due to the global economic crisis in achieving its Vision 2020, the TPP could provide opportunities to increase economic growth.
Certainly, the main attraction of the TPP is the presence of the US. But with the TPP, Malaysia will also be able to engage Australia and Chile at once instead of pursuing separate negotiations that are currently the case. Two important factors to consider would be the USMFTA that has been suspended since 2008, and separately, what would be the right time to join should Malaysia so decide.
The USMFTA signified Malaysia’s preparedness to engage the US. However, it came to a halt after eight rounds of negotiations with no end in sight. Unresolved contentious issues stalled the negotiation process. Beyond that, changes in US trade strategies under President Barack Obama’s new administration meant that the US is less eager now to focus on bilateral FTAs.
But even if it is the TPP, overcoming the outstanding issues is important to ensure a smooth process. The key issues that caused the impasse were market access for both parties on agricultural goods, Malaysia’s services sector liberalisation, government procurement, intellectual property rights (IPR) and the positive discrimination policy. Many of these issues have been addressed within the larger landscape of the recent economic crisis and domestic economic transformation policies.
In July 2007, Malaysia took a bold step amid pressure from the international community for the lack of enforcement in IPR protection to set up an Intellectual Property Court in every state. This was aimed at reducing the backlog in cases and developing an efficient prosecution with judges knowledgeable in such laws. Then in April 2009, two progressive steps were taken in liberalising the services industry. The longstanding 30 percent requirement for bumiputera ownership in 27 sub-sectors was lifted. This was followed by the decision to allow foreigners to own a controlling stake of 70 percent in investment banks and insurance firms.
Government procurement was a major stumbling block in practically every recent discussion. James Hookway of the Wall Street Journal recently wrote that "(t)he U.S. and European Union have singled out Malaysia’s insistence on maintaining preferences for ethnic-Malay owned businesses in government procurement contracts for stalling the development of free-trade pacts." However, efforts have been taken to develop a more transparent system. In early 2009, the Integrity Pact clause was introduced by the Finance Ministry to hold successful bidders accountable. From April 1st this year, bidders are required to sign the Bidder Declaration Letter and for those successful, the Successful Bidder Declaration Letter, which are aimed at preventing corruption. An online portal has also been set up by the Ministry to make public all the relevant information.
Steps are also being taken to restructure and transform the 40-year old affirmative action program; once seen as a “no-go” issue for the USMFTA. Under the newly announced New Economic Model (NEM), Najib Razak is adamant to restructure the program from a race-based to a needs and merit-based regime, targeting the bottom 40 percent of the population. Granted, it remains to be seen to what extent the government is capable of removing deeply embedded rent-seeking and patronage but the NEM is a positive step that should open the door to a more people and market friendly environment.
While agriculture remains a sensitive issue, the various efforts made since 2007 will place Malaysia on a better footing to re-engage the US for a free trade pact. As to the question of when to join the TPP, Malaysia can take a wait-and-see approach, but early participation will obviously allow Malaysia to better secure its interest as a founding participant and to preserve the relevance of negotiated chapters in the USMFTA.
From a strategic standpoint, however, Malaysia will have to evaluate the political impact of the TPP on existing initiatives being undertaken within the East Asian regionalism framework. The formation of the TPP and its subsequent expansion could divert attention and reduce the significance of regionalist projects such as the East Asia-wide Free Trade Area (EAFTA) and the Comprehensive Economic Partnership in East Asia (CEPEA). The TPP cannot be viewed purely for economic reasons as the US would like to claim since there is a high potential of it being developed into a Free Trade Area of the Asia Pacific (FTAAP) that will have widespread political implications.
Furthermore, a TPP with the US at the helm could substantially dilute ASEAN’s role as the principle driver of regional integration. ASEAN is, after all, the cornerstone of Malaysia’s foreign policy. If the TPP is able to expand and absorb ASEAN members, the US would be able to effectively bypass the tedious process of negotiating FTAs with individual ASEAN countries. It would not be good strategy for the US to continue down the old path of bilateralism as that will only put the US behind other Asian countries like India, Australia, New Zealand, Japan, China and South Korea who have concluded and implemented their FTAs with ASEAN. The TPP is, therefore, a good platform for the US to stay ahead in regional economic cooperation.
Compared to the USMFTA, the TPP is without doubt more beneficial for Malaysia economically, although it may well engender undesirable political effects on the direction and shape of Asian regionalism.
