Global Trends by Martin Khor

Monday 13 January 2014

TPPA talks to hot up in early 2014

Due to United States political calendar and Congressional politics, the TPPA negotiations will heat up in the first few months of the new year.


One of the major developments in the new year will be the negotiations and in fact the fate of the Trans Pacific Partnership Agreement (TPPA), which has stirred a lot of interest and controversy not only in Malaysia but also in the United States, whose government is its prime mover.

The first half of 2014 will be decisive because the US will hold mid-term Congressional elections in November, and that nation’s attention will focus on that after mid-year. 

Since free trade agreements are so controversial and in fact unpopular among the public in that country, the TPPA and other FTAs will be hard for the US President and his administration to champion near the election period.

This may explain why the US is in such a hurry to finish the TPPA negotiations as soon as possible.  It had placed a deadline of end of 2013, but that has passed without success.

Indeed, the Ministerial meeting in Singapore in the first half of December revealed many outstanding differences.

So, the negotiations will become even more intense in the next few months, with a possible Ministerial in February.

Malaysia is one of the significant countries that have raised several concerns about the proposals by the US. 

The Prime Minister Datuk Seri Najib Abdul Razak himself, at a meeting in Bali last October, highlighted government procurement, state owned enterprises, investor-state dispute system, intellectual property as some of the issues that may infringe on sovereignty, implying that there should be careful consideration and caution during the negotiations.

The US Trade Representative Michael Froman visited Malaysia a number of times to meet with some Ministers and Parliamentarians.  He reportedly assured them of the United States’ understanding of  Malaysia’s concerns, which he implied would be taken into account.        

Malaysians are thus waiting to see how much flexibility will be given to accommodate the various concerns of the public and the government.

For instance, Malaysia formally proposed a comprehensive “carve-out” (exclusion from disciplines in the TPPA chapters) for tobacco control measures, a move that was advocated by health groups and the Health Ministry, and which has won warm congratulations from the public and media around the world, including in a New York Times editorial.  

According to media reports, Malaysia has also opposed proposals for tight intellectual property rules that for instance extend the present terms for patents for medicines, and asked for high thresholds for government procurement, and exemption for its Bumiputra policies, while also challenging the proposed disciplines on state owned enterprises and the investor-state dispute system.

On goods market access, Malaysia will also find difficulties with the proposed ban on export duties.  Recently the association of palm oil refining companies warned that their operations would be threatened or have to shut down if the TPPA forces the country to abolish its long-standing export tax on crude palm oil.

A ban would also cause the government to lose around RM2 billion annually in revenue, which would be a serious blow to efforts to reduce the budget deficit. 

The question is whether Malaysia’s demands will be met.  Even if compromises or flexibilities are offered, it is crucial to examine how genuine or adequate they are.

Often, the only “flexibility” is a longer period granted to implement the specific rule in question.  That is not really much use.

Even if an exemption is given, it may be limited or useless.  For example, in an early version of the investment chapter, available on the internet, there is a clause that nothing in the chapter prevents the countries from undertaking health and environmental policies.  But it also says provided those policies are consistent with the chapter, thereby negating the apparent space provided for exclusion. 

Thus the devil is really in the details, as the saying goes.  And the details have to be carefully scrutinised, because it is an old negotiating tactic to show a spirit of understanding and compromise politically but remain steadfast and uncompromising in the legal texts, and it is the latter that counts.

Another key point is that the US negotiators and government have little room to provide compromises, even if they want to.  That is because it is the Congress that has the real power over trade matters, including the TPPA.

Last week, some members of Congress introduced a bill to provide the US President with fast-track authority, which means that a trade agreement like the TPPA can only be adopted or rejected by Congress, but cannot be amended by it.

Without this fast track authority, there is no confidence among other countries that what the US negotiators agree to or sign will be agreed to by Congress, which can reject certain parts of the TPPA and demand changes.

As a condition for giving the fast track authority, the advocates are asking the US government to take a strong stand on issues.  This puts pressure on the US negotiators not to compromise, even if they wanted to.

For example, the bill says that on state owned enterprises the US should seek commitments that eliminate unfair competition favouring SOEs doing commercial activity and ensure that their practices are based solely on commercial considerations.  Government policies and the SOE practices would have to abide by eliminating discrimination and market-distorting subsidies.

The US is already proposing that SOEs cannot discriminate when they buy and sell goods and services, and that they cannot receive any advantages such as cheaper loans or land and business from the government.

This would for instance imply SOEs being prohibited from giving preferences for Bumiputra companies in their procurement.  If the definition of SOEs also include private companies in which government agencies have a share, the net will be cast very wide.

It is however still unlikely that the proposed bill will pass, as many Democrats are opposed to fast track and some Republicans just don’t want to give President Obama anything he wants.

But here’s the problem.  If fast track is given with the conditions attached, the US negotiators will have to abide by them and can’t show required flexibilities.  If there is no fast track, the proposed texts agreed to by the US can more easily be rejected by Congress.

Either way, there is only so much the negotiators can give in response to demands made by Malaysia or other countries, and even then the compromises can be rejected by Congress.

Which goes to show how difficult FTAs are to negotiate or conclude when the US is involved, for commerce and politics are all mixed up in the pot.