|
||
|
Malaysia and the USTR Report Dear friends and colleagues We are pleased to share with you the first of a two-part Third World Network report which highlights what the United States wants from Malaysia, as reflected in the US Trade Representative’s (USTR) recently released National Trade Estimate Report on foreign trade barriers (March 2013). More specifically, we highlight what the US regards as laws, regulations, policies and practices in Malaysia that have the effect of protecting domestic goods and services from US corporate interests, supporting Malaysian exports overseas, and which the US therefore wants reduced or eliminated. These include Malaysia’s tariff system in relation to its sensitive agriculture sector, its government procurement regime, the practice of imposing performance requirements so as to affect technology transfer, and a myriad of other areas and sectors that it regards as being plagued by barriers to US firms seeking to trade and invest in Malaysia. The USTR even takes umbrage at Malaysia’s religious regulations, such as the latter’s requirement “that slaughter plants maintain dedicated halal facilities and ensure segregated transportation for halal and non-halal products,” and its relatively strict standards for processing and storage facilities. These barriers – which the US obviously wants removed - are targeted in the Trans-Pacific Partnership Agreement (TPPA) that Malaysia is currently negotiating. With best wishes Third
World Network (Kuala Lumpur, 15 May (Fauwaz Abdul Aziz) In March this year, the United States Trade Representative – the counterpart of Malaysia’s Ministry of International Trade and Industry (MITI) – published its annual National Trade Estimate Report and listed out in 406 pages what it regards and treats as “foreign trade barriers” that need to be dismantled for their adverse effects on US firms’ export of goods and services and foreign direct investment. The ‘2013 National Trade Estimate Report on Foreign Trade Barriers’ list of trade barriers covers everything from the myriad laws, regulations, policies, “recommendations” and “practices” of about 60 countries and groupings (such as the EU) related to manufacturing, agriculture and finance to even their health and religious standards that the USTR says are in place to “protect domestic goods and services from foreign competition”, support the export of goods and services overseas, and protect and promote foreign ownership of copyright, patents, trademarks or other “intellectual property rights”. It is worthwhile to consider what exactly the USTR regards as trade barriers in Malaysia that it has deemed to be fair target for reduction or elimination through either negotiations in free trade and investment agreements (more on the Trans-Pacific Partnership Agreement later) or through “results-oriented actions” by US enforcement agencies. In the report section on Malaysia (pages 249-254) , the USTR takes issue with Malaysia’s tariffs, which are usually higher for tariff lines with significant local production and lower for imported raw materials. It admits that US firms would increase exports and investment into Malaysia if tariffs were reduced “on such products as frozen uncooked poultry parts, restaurant equipment, and food and confectionary products.” The USTR also admonishes Malaysia for its high specific tariff rates on products such as agricultural goods and those related to import-sensitive and strategic industries such as in construction equipment, agricultural, mineral, and motor vehicle sectors. But take the example of agriculture: it - along with fisheries and forestry - accounts for up to 8% of Malaysia’s gross domestic product, involves a total of 6.8 million hectares of cultivation (comprising of oil palm, rubber and rice) and the labour of around one million workers. While Malaysia’s oil palm and rubber estates owned by large agribusiness firms are generally doing very well (Malaysia is the second largest producer and exporter of palm oil and products made from palm oil; it accounts for about 15% of world production and 30% of world trade in vegetable oils), it is a far cry from the situation of the nation’s 300,000 farmers who depend to varying extents on rice for their livelihood, with about 116,000 farmers exclusively involved in the cultivation of padi. Smallholders farm 680,000 of the 682,000 hectares of land in total that is under rice cultivation. The rice sector in Malaysia is protected by the very tariffs the USTR finds so offensive in order to ensure food security (we have a self-sufficiency target 71% in the 10MP) and to protect rural livelihoods. Malaysian rice farmers’ meagre incomes (on average, rice farmers earn RM1,400 per month, while fruit farmers earn an average of RM1,860 per month) which are among the lowest nationally and a far cry from their urban counterparts. At present there is not much import of US rice into Malaysia because of Malaysia’s 40% tariff and the quota maintained on non-ASEAN rice imports. If the 40% tariff is removed, and US rice (which has subsidies from the US government so that it can be sold at 25% below the cost of growing it) is allowed to compete freely, its price may become competitive with local rice as tariffs on US farm products are reduced to zero. The US has expressly sought to export more of its rice, soya bean, chicken and beef to Malaysia. If that happens, Malaysia could end up as Mexico, which saw a nearly tripling its imports of US corn after it signed the North America Free Trade Agreement (NAFTA) with the US (and Canada) and the increase of more than five-fold its imports of soybean, wheat, poultry and beef. Between 2 to 3 million jobs were lost in rural Mexico since NAFTA. The USTR report also cited as objectionable Malaysia’s government procurement policy, particularly it preference for bumiputera and other domestic suppliers, its local partner requirements if foreign companies’ tenders are to be considered, and the preference of state-owned enterprises (ie, government-linked companies) for bumiputera suppliers. International tenders, the report laments, are only invited “where domestic goods and services are not available.” But where’s the problem that warrants these policies being called trade barriers and their removal? All countries – including the US when it was first developing its modern industries – used ‘protectionist’ policies to support national objectives and aspirations. The Malaysian government seeks greater participation of bumiputera because the latter are still farthest behind socio-economically. (Despite the New Economic Policy, bumiputera share of capital ownership (at par value) of limited companies stood at 21.9% in 2008, although the group makes up at least 62% of the national population. The official bumiputera share of national equity ownership is currently around 19%; the majority of bumiputera companies are small, with 65% earning less than RM250,000 a year; most bumiputera businesses are either small or micro-enterprises; 42% of all bumiputera businesses have less than five workers each; 21% have 5-50 workers; companies in which at least 51% of their equity are held by bumiputera make up only 25% of the 800,000 registered companies.) Furthermore, isn’t the transfer of technology from developed country multinational corporations to local/domestic industries a laudable policy for a developing country to follow? Or should foreign investors merely reap what they can out of ‘Third World’ nations and leave without giving back a little something to the host populations. Government procurement should, in fact, be preserved as a tool to reduce the outflow of foreign exchange and create opportunities for local companies in the services sector. By restricting the Malaysian government from keeping or passing any law that stipulates training or recruitment of the local workforce by US companies or in investment sectors, transfer of technological know-how, skills and other forms of knowledge and information to our country will be negatively affected. Malaysia taxes raw exports of palm oil, rubber, steel scrap, and timber products to discourage their export, encourage domestic processing and to enhance Malaysia’s export (of processed goods) capabilities. Yet, according to the USTR report, these export taxes (of between 10 to 30 percent) ad valorem are objectionable and should be removed, even though these are allowed by the World Trade Organization. Just as the USTR report cites as trade barrier Malaysia’s laws, regulations and policies relating to foreign investment in large retail stores, telecommunications, financial services, professional services, petroleum and gas and mining, specifically, its restrictions on foreign equity and requirements that foreign firms enter into joint ventures with local partners. On the issue of investing in land, the USTR report admonishes Malaysia for requiring foreigners seeking to acquire land to obtain prior approval from the relevant state authorities for any acquisition of land for agricultural, residential, or commercial purposes. State authorities may impose conditions, including thresholds, for foreign ownership. So what the USTR is seeking is for the Federal Constitution to be amended in order, for example, so that its companies and citizens are able to acquire land in Selangor without having a Malaysian partner with an interest of at least 49 %; or in order to own any agricultural land in Johor (which prohibits foreign ownership of agricultural land). It seeks to upset the distinct federal-state arrangement over matters that had been agreed to five decades ago and, if to be reviewed, should be done so only in the context of a national debate and on terms to be determined by the nation’s own citizens. The USTR report cites a myriad of other areas and sectors that it regards as being plagued by barriers to US firms seeking to trade and invest in Malaysia, such as the issue of foreign equity ownership in the telecommunications sector and financial services (currently capped at around 70 % in most cases), the guidelines relating to the share of locally-made goods and products on the shelf spaces of department stores, supermarkets, and hypermarkets, the prohibition against foreign lawyers from litigating (except on an ad hoc basis) and from practising real property law, or from affiliating with local firms or using the name of an international firm. In the architectural services, the USTR objects to laws stipulating that foreign architectural firm may operate in Malaysia only as a joint-venture participant in a specific project with the approval of the Board of Architects, that Malaysian architectural firms may not have foreign architectural firms as registered partners or that foreign architects may not be licensed in Malaysia, but are only allowed to be managers, shareholders, or employees of Malaysian firms. Similarly, it finds fault in the requirement that foreign engineers may be licensed by the Board of Engineers only for specific projects and must be sponsored by the Malaysian company carrying out the project, and that a foreign engineering firm may establish a permanent commercial presence only if all directors and shareholders are Malaysian. In its six-page section on Malaysia, the USTR even takes umbrage at Malaysia’s religious regulations for affecting the ability of US firms to export to Malaysia, such as the latter’s requirement “that slaughter plants maintain dedicated halal facilities and ensure segregated transportation for halal and non-halal products,” and its relatively strict standards for processing and storage facilities. The USTR goes to the extent of recommending that Malaysia conform instead to the more flexible (religiously) meat-processing standards of the Rome-based Codex Alimentarius. Malaysia is, of course, only one out of about 60 or so countries and groupings (such as the European Union) whose laws, regulations, policies and practices the Obama administration has found to be less than unsatisfactory, from the vantage point of US firms. But what does all this mean for Malaysia’s economic and development trajectory? What is the significance of these comments by the USTR about other governments’ trade and investment policies? This brings us to the matter of the Trans-Pacific Partnership Agreement (TPPA), which we had raised in the beginning of the discussion. After all, the US seeks the reduction or elimination of all the trade barriers mentioned above through either negotiations in free trade and investment agreements or through results-oriented actions by US enforcement agencies. As for trade negotiations, Malaysia is one of 12 participants in the TPPA talks seeking to establish a comprehensive, “next-generation” regional agreement to liberalise trade and investment, the other participants being the US, Australia, Brunei, Canada, Chile, Mexico, New Zealand, Peru, Singapore, and Vietnam. Japan is expected to formally join the negotiations very soon. Given the outrageous secrecy and lack of transparency characterising the negotiations over the TPPA – which will cover almost 500 million people in the Asia-Pacific region – the USTR report offers some very concrete indications (for the rest of us not privy to the closed-door negotiations) as to the very real ‘asks’ that are driving the US agenda. - Part II: Malaysia and the TPPA [The above report is available online at http://www.ftamalaysia.org/article.php?aid=318]
|
||
