Global Trends by Martin Khor

Monday, 12 October 2015

TPPA: The debate will continue

Although the TPPA negotiations have concluded, the text is not yet made public, and the debate on its effects and implications will go on.


Finally, the negotiations on the Trans Pacific Partnership Agreement (TPPA) has concluded.  But that’s not the end of the story yet. 

In each TPPA country, including Malaysia, the public may have its chance to know what the agreement is all about.  But that will take still more time. It could be more than 30 days before the text is made public in the United States, and thus to the world.

Until then, there will still be so many questions unanswered, as to how the TPPA will affect Malaysia and Malaysians.

However, enough is known from media reports and interviews and from leaked texts and analyses, to make some preliminary comments.

Firstly, trade and market access is only one part of the TPPA.  More important in impact are other issues including investment, finance, intellectual property, government procurement, state owned enterprises, labour, environment.

These other issues are at the heart of socio-economic structures and policies within the country, whilst trade which is about border issues of exports and imports.

On these non-trade issues, the TPPA can be expected to have many problematic elements for Malaysia.  The Malaysian negotiating team has been fighting to lessen the adverse impacts of the main proposals in these issues.

It says it won concessions, especially on Bumiputra policy, government procurement and state owned enterprises.

But what these concessions are, whether they are enough, and what the effects of the concluded text will be, can only be properly known when the text is made public.

What is clear is that “policy space” (the degree of freedom of a country to formulate its own policies) would be very significantly narrowed as a result of the TPPA.

On intellectual property, the blow is perhaps the most obvious.  Most of the patents filed in Malaysia are owned by foreigners.  So when patent laws are made stronger, it will benefit foreigners who are the patent holders.

The enhanced monopoly given to patent holders will have adverse effects on Malaysian consumers who have to pay higher prices and Malaysian companies which are forbidden to make or import generic versions of the patented products during the patent term.

The renowned medical group, Doctors Without Borders (MSF) condemned the TPPA as the “worst trade agreement for access to medicines”. Patients and treatment providers in developing countries will be the TPPA’s big losers as it will raise the prices of medicines by extending the monopolies enjoyed by the big drug companies and further delay price-reducing generic competition, according to MSF.

The term of the patent may be lengthened (by adding time taken to register the medicine or approve the patent).  Data exclusivity is to be granted for five years (or possibly for more than that, for the new drugs known as biologics), during which the generic companies are not allowed to rely on the test data of the originator firm when they apply for marketing approval from the health authorities.

On investment, the TPPA opens the road for foreign companies to be treated as well or better than locals, thus giving them rights of entry and ownership, free transfer of funds, while prohibiting the host state from imposing performance requirements such as local content, technology transfer and joint ventures.

There is a powerful mechanism giving immense power to the foreign investors, the investor-state dispute settlement system (ISDS), under which the investors can sue the government in an international tribunal for violating their rights.

Changes in government policies can lead to claims that this is unfair treatment and the foreign investor can ask for compensation for loss of expected future profits.  There are already hundreds of ISDS cases made against governments arising from other free trade agreements or bilateral investment treaties.

According to press reports, the TPPA has some safeguards such as to dilute the ability of companies to make frivolous claims. Exactly what these are, is not known.  The ISDS in any case remains intact as a powerful tool which foreign investors can use and which puts TPPA countries like Malaysia in a defensive position.

On government procurement, the policy space that Malaysia has had to make policies on how government does its procurement will be curbed.  The preferences given to locals in projects and purchases of goods and services will now be countered by national treatment for foreign companies.

Malaysia has been negotiating for more exceptions in terms of the “threshold” of level of expenditure or project value where preferences for locals can still be given, and an exception for Bumiputra policy.   Details of the thresholds for Malaysia and the Bumiputra exceptions, and the adequacy of these, are still not known.

On state owned enterprises (SOEs), the TPPA will impose disciplines and rules on how these SOEs operate, the subsidies they can or cannot get, how  their purchase of materials will have to be “non-discriminatory” (that is, they cannot give preference to local companies), etc.

The aims of the advocates of the SOE chapter seem to be to curb advantages that SOEs may have, and to enable the foreign companies to more effectively compete with SOEs and take some of their market share.

Malaysia has been uncomfortable with the SOE chapter and at first sought a total exception, which did not succeed.  It would have tried to place many SOEs on a list of exceptions (meaning these enterprises do not have to comply) but how many and the nature of the exceptions are not known.

Investment policy, government procurement and state owned enterprises, and access to medicines, are right at the heart of Malaysia’s political economy and socio-economic structures.

Policies that have been at the centre of the country’s economic and political development, have now to be defended as exceptions and flexibilities, and there is a limit to what the TPPA partners will accept.

The chapters on these issues are bitter pills to swallow and the debate will continue on whether they are worth swallowing.

The direct trade aspects of the TPPA should have such enormous benefit that they more than offset the disadvantages of the other issues. Otherwise, why join the TPPA?

However, Malaysia’s tariffs are on average higher than those of the United States, the main country with who we do not yet have a FTA.

If tariffs go to zero through the TPPA, Malaysia will thus have to cut its tariffs by more than the US.  Whilst we may gain extra exports through the TPPA, we will also have to import more. 

There is no guarantee in other words that the TPPA will lead to a better trade balance, and possibly there may be a reverse.

The debate on the TPPA, which has already gone on for some years, will intensify now that the negotiations have ended.

The government appears to strongly support its signing. Parliament will have a say, although if the whip is applied, the executive’s wishes will be obeyed.

The text should be made available as soon as possible, so that the discussions can be based at last on the agreement itself.

Even if Malaysia joins the others to sign the TPPA, it may be another two years before the agreement is ratified by all countries, and before it comes into force.   

It is not certain that the United States will actually ratify, because of public opposition and the scepticism of its Congress.

Thus the TPPA is not a “done deal” and the real debate may only be beginning now. It is unfortunate that till now the text is not available.