Banking on TPP for Malaysia’s progress
October 3, 2015

BY AMCHAM PRESIDENT - 3 OCTOBER 2015

One of the most important topics in the American Chamber of Commerce recently is the Trans-Pacific Partnership Agreement (TPP). Negotiations for the TPP have been ongoing for five years and the 12 participating countries have made great strides to bring this historic agreement to a close. The TPP is a world class agreement designed to increase trade and market access to support economic growth. As such, it stands to bring great benefits to Malaysia and to the companies from within the partnership that have invested here.

The American Chamber of Commerce in Malaysia firmly believes that passage of the TPP will support Malaysia’s continued economic growth. By bolstering exports, supporting innovation, and creating jobs, TPP membership will enable Malaysia to achieve its goal of more quickly becoming a high-income, advanced economy. The TPP will open up markets and spur investments, joining together a group of nations that represent 40%1 of global GDP and approximately a third of world trade – collectively representing a population in excess of 750 million people. In addition to increasing access in countries with which Malaysia already has Free Trade Agreements (FTAs), TPP will give Malaysian firms market access to the US, Canada, Mexico and Peru, countries with which Malaysia currently does not enjoy FTAs.

With TPP and the removal of trade barriers, Malaysia’s GDP would likely be 5.6% higher and its exports 11.9% higher in 2025, according to some estimates.2 Some of the sectors in which Malaysia will benefit are textiles, apparel, commodities and the electronics industry.

In addition, participation in TPP will allow Malaysia to continue to build on its strength as the third largest recipient of Foreign Direct Investment (FDI) in ASEAN. AMCHAM notes that an increasing number of companies are exploring Malaysia as a potential base for regional operations Freer trade with the TPP member markets and “seal of approval” from TPP participation will encourage additional FDI.

Raising the Bar in Intellectual Property Rights (IPR) AMCHAM believes that enhanced protection for patents will strengthen Malaysia’s appeal as a destination for high-tech manufacturing, drive foreign investment and create jobs. The IPR Chapter calls for a high level of protection on design, trademarks and patents across geographical boundaries, which in turn encourages Malaysian companies to embark on further research and development. This promotes an environment that recognizes the societal benefit of innovation.

Opponents argue that enhanced IPR will cause the demise of the generic medicine industry, but they fail to acknowledge that the benefits of generic medicines are dependent on the creation of innovative drugs in the first place. Strong IPR protections support innovation. In fact, the TPP does not prevent generic drug growth. Previous free trade agreements have not resulted in limited access to generic medicines and, in some cases, have provided the impetus to create new production. For example, following the landmark 1991 North America Free Trade Agreement (NAFTA) with the United States and Canada, an innovative biopharmaceutical industry blossomed in Mexico as a result of enhanced IPR. Today, this industry is recognized as an important engine of the new knowledge-based economy. ProMexico, a trust fund of the Government of Mexico (subdivision of the Secretariat of Economy that promotes international trade and investment), has identified the biopharmaceutical industry as “the second most important industry of the private sector in Mexico,” reaching a market value of nearly USD$14 billion in 2012. The manufacturing component of the biopharmaceutical industry in Mexico currently generates more than 78,000 direct jobs and 300,000 indirect jobs.

Drug research and development leads to the discovery of future life-changing and life-saving medicines.

IPR provides incentives that spur research and development and helps ensure that the innovative biopharmaceutical companies that have invested in discovering and developing life-saving medicines can recoup their investments and direct those resources to research that will deliver new treatments for many years. After patents expire, the availability of generic drugs will continue to be widely used for decades to generate enormous health benefits for consumers.

Malaysia also stands to benefit through increased investment from multinational companies in the areas of R&D and clinical trials, potentially helping to build a local industrial base, and encourage the entry of more innovative products to the domestic market. With discussions ongoing, stakeholders should work to balance the provision of patent protections with the ability of developing countries to access needed medicines.

E-Commerce

E-commerce provisions may not have received much publicity in the TPP discussions thus far, but they remain critical to Malaysia’s vision of becoming an e-commerce and high-tech hub and will boost the efforts of Malaysian SMEs to better participate in the global marketplace. One of the most important provisions is the removal of impediments to digital trade. Based on details from the USTR’s recently released “Digital Dozen”3, these reforms will have the potential to significantly improve e-commerce for large and small companies alike, including the promotion of a free and open internet and securing the ability to engage in unimpeded cross border data flows. Together with the removal of digital customs duties, localization barriers and forced technology transfers, TPP will rewrite the rules of the road for e-commerce and help spur substantial innovation in Malaysia.

Malaysia has broad strengths in technology and e-commerce today, and as TPP member countries commit to these advancements, Malaysia will have access to more markets and the ability to develop new business models that enlarge trade and create additional jobs.

Financial Services

A TPP agreement with strong commitments in the financial sector would benefit Malaysian companies and the Malaysian economy. Permitting foreign financial institutions to choose their corporate form of choice, introducing clarity and certainty into the licensing approval process and easing limitations on participation in government-linked fundraisings will not disadvantage the Malaysian economy, rather the certainty will increase the availability of credit, stimulate capital formation and help attract foreign investment to the benefit of Malaysian and foreign multinationals operating in Malaysia. Permitting foreign firms to integrate and utilize the systems of their parent companies will enhance risk management and contribute to the stability of the banking system overall. Likewise, easing of limitations on foreign firms’ participation in the financial sector will open opportunities for Malaysian banks in TPP markets as they expand and seek opportunities in the region and beyond.

Sovereignty

There are concerns that passage of the TPP will give foreign companies the ability to overturn Malaysian laws in the event of disputes. However, for TPP partners to facilitate foreign investment in member countries, a transparent and predictable investment regime is required.

With the Investor State Dispute Settlement (ISDS) mechanism, investors are given assurance that in the event of a dispute, the parties have recourse to international arbitration in addition to domestic courts.

ISDS in no way infringes on the policy freedom of sovereign governments--it merely outlines the process by which a dispute over the underlining substantive principles in the agreement will be arbitrated. ISDS is not something new to Malaysia. In fact, since 1963 Malaysia has signed and ratified 64 Investment Guarantee Agreements (IGAs) with countries including the US, Canada and Mexico, all of which have provisions on ISDS.

There are many private Malaysian companies which have become active overseas investors after securing market access to raw materials, strategic assets and new markets. From this perspective, the ISDS is not only valuable for foreign investors in Malaysia, but also Malaysian companies and investors who are increasingly looking outwards.

Government Procurement and State-Owned Entities (SOEs)

The issue of government procurement is a concern among all stakeholders. The ability to access government procurement for all companies, regardless of origin, on federal and state contracts will allow Malaysian companies a wide array of global public procurement opportunities. According to the WTO, government procurement accounts for some 15% to 20% of GDP on average in TPP-related countries.

Malaysia is not alone in having concerns around this issue. In fact many TPP partner countries, including the United States, have government procurement set asides in their respective countries and we expect that TPP will permit some appropriate discretion with participating governments.

With the acknowledgment of Malaysia’s preferences for the Bumiputra community and SMEs taken into account, there is still a need for TPP partner countries to come to mutual agreement through a holistic approach. Such agreement would result in expanded trade and development of production and supply chains among TPP partners.

Since SOEs are inherent in all TPP countries, a strong SOE provision in the TPPA aims to achieve competitive neutrality by ensuring a level playing field ensuring that SOEs do not receive competitive advantages beyond those enjoyed by private sector companies. This promotes a competitive and transparent business environment while ensuring a level playing field for all TPP members.

Labor and Environment

In the area of labor, the TPP will ensure that all partners promote fair labor practices and compete on the same level, and that no partner is placed at a competitive disadvantage. Worker’s rights are slowly but surely being recognized in many markets with the establishment of labor unions and relevant non-governmental organizations (NGOs). While there are inherent flaws in labor unions, these institutions help to guarantee basic rights such as fair pay, benefits, paid vacations and a safe working environment. The absence of such institutions can further lead to low wages and poor working conditions. As Malaysia seeks to strike a balance between workers’ rights and maintaining harmonious employer-employee relations within the context of the Malaysian economy, the importance of strong labor mechanisms deserves to be recognized.

The Environment provisions in the TPP mandate partners’ commitments to enforce domestic environmental laws while adhering to multilateral environmental agreements. This ensures that TPP partners do not waive or deviate from necessary environmental protections to encourage unsustainable trade or investment. As environmental sustainability is a key global concern, the provisions will also combat wildlife trafficking, illegal logging and fishing subsidies.

Conclusion

The initial idea in 2003 to promote trade liberalization within the Asia Pacific region by Singapore, New Zealand and Chile, which was then known as the Trans-Pacific Strategic Economic Partnership, has evolved from having only three member countries to 12 today. In an increasing globalized and competitive world, every nation is seeking to break down trade barriers and improve trade relations. The TPP is a multilateral trade agreement with broad-based membership that strives to create a “21st-century agreement” in an increasingly globalized economy.

We cannot discount the benefits that a free market will bring to Malaysian consumers. Market liberalization is key to ensuring sustained private consumption in the current backdrop of economic uncertainty and depressed consumer sentiment following the devaluation of the Malaysian Ringgit, drop in crude oil prices, and the recent implementation of GST. Enhancements in the form of tariff savings and regulatory simplification will help increase consumers’ purchasing power and expand the number of products available to them.

While each member country addresses its own issues in the various TPP chapters, it is crucial to consider the comprehensive benefits that TPP brings both now and in the future. As a progressive nation, Malaysia will gain access to further extend into international markets and spur the country’s economic growth to greater heights. It will put Malaysia in a more competitive position among ASEAN countries and ensure that Malaysia continues to foster new investments while expanding its current base.

AMCHAM, as the voice of American businesses in Malaysia, supports the successful conclusion of TPP as a further enhancement to U.S.-Malaysia relations. Our members believe that passage of this momentous agreement will create a variety of positive influences for business and market growth, and help bring our two nations closer together in a truly “win-win” partnership.

TPP 2015

The American Malaysian Chamber of Commerce (AMCHAM) is an international non-profit, private-sector business association representing over 350 US-affiliated companies that maintains a close relationship with many government bodies and international associations in Malaysia in an effort to deepen relations between the two countries.

Source: NST Online, Tuesday, 6 October 2015

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