Reconsider TPPA in public interest

Use the next two years to think about the TPPA and its many implications for present as well as future generations of Malaysians.

LAST week, Malaysia’s Parliament authorised the government to sign and ratify the 6350-page Trans-Pacific Partnership Agreement (TPPA). Thankfully, as the Minister has emphasised, countries will not need to ratify the deal for about two years, and can withdraw after that, though neither option will be costless. Hence, it is important to use the next two years to have a careful consideration of the TPPA and its many implications for present as well as future generations of Malaysians.

Who gains how much?

Most people think the TTPA is about greater growth from freer trade. Nothing could be further from the truth. Even the overly optimistic computable general equilibrium (CGE) projections, made on methodologically moot grounds, recognise that more trade does not mean more growth. After all, freer trade not only means more exports, but also more imports. Without adequate compensatory mechanisms, nothing guarantees that all will benefit.

The net gains for growth from increased trade are difficult to estimate reliably, and depend very much on crucial assumptions made for modelling. Even the CGE models used for TPPA advocacy acknowledge limited net economic benefits from trade liberalisation. Hence, while the TPPA will result in greater trade, there is no reliable basis for assuming that increased trade will improve economic welfare for all.

More production for export will partly replace production for domestic markets. Exports are less labour-intensive and use more imported inputs than production for domestic markets. Businesses become more competitive by cutting labour costs, negatively affecting income distribution, thus further weakening domestic demand.

Both the USA and Malaysia are among the world’s most open economies, with little more trade to be gained by further reducing tariffs. The TPPA does not address many non-tariff barriers, e.g. the campaign against Malaysian palm oil.

The only US government study of the TPP’s growth effects did not see much growth from increased trade. The World Bank and Peterson Institute studies claimed more significant growth gains from large, but dubious projected increases in foreign direct investment (FDI). But there is no evidence that FDI reliably increases tax revenue, especially with the generous tax incentives offered by the authorities.

Cheap labour

As a middle income country, it will be difficult for Malaysia to compete successfully with Vietnam and other such developing economies on the basis of labour costs for the labour-intensive primary commodity and export-oriented manufacturing envisaged by the TPPA. All this is likely to work to keep Malaysia stuck in the middle income trap.

Yet, despite the exaggerated claims of its advocates, the TPPA provisions for the trade in goods are probably its least dangerous aspects. For example, TPPA provisions for further liberalisation of financial services will undermine national prudential regulation, exposing Malaysia to greater vulnerability from abroad, as if we have not learnt from the 1997-98 Southeast Asian financial crisis as well as the 2008-09 financial meltdown and ensuing protracted Great Recession.

Partnership?

Many ostensible provisions and safeguards in the TPPA have asymmetric implications. For instance, compared to Malaysia, the US federal government has much less scope for discretionary spending compared to its state governments which are, in many instances, larger than many other TPPA economies. Thus, exempting state governments from TPPA provisions, e.g. on government procurement, will have very different implications in the two countries.

Instead of trade, for Malaysia, the TPPA is mainly about greatly strengthening investor rights, including intellectual property rights (IPRs). But stronger IPRs hardly promote research. Instead, most contemporary IPR regimes actually impede innovation, besides undermining public health and consumer welfare by limiting competition and raising prices. The TPPA will thus allow ‘Big Pharma’ longer monopolies on patented medicines, keep cheaper generics off the market, and block the development and availability of similar new medicines.

Corporate interests

The collective drafting of the 6350 pages of the TPPA was ‘assisted’ by over five hundred official corporate advisers to the US Trade Representative (USTR) Michael Froman, greatly strengthening foreign investor rights at the expense of Malaysian business and public interests.

The TPPA’s investor-state dispute settlement (ISDS) system obliges governments to compensate foreign investors for the loss of expected profits in binding private arbitration, even when profits are made by causing public harm.

US corporate interests claim that ISDS is necessary to protect property rights where the rule of law and credible courts are lacking. But instead of reforms to improve the judiciary’s performance and reputation, the TTPA will expose Malaysia to new risks and liabilities.

ISDS provisions make it hard for governments to fulfil their basic obligations such as to protect their citizens’ health and safety, to ensure economic development and stability, and to safeguard the environment.

For example, the world’s most widely used herbicide has been declared by the WHO to be carcinogenic. By banning such toxic materials, with the ISDS, the government would be liable to compensate its manufacturers not to harm our people, instead of forcing them to compensate those already harmed! Thus, the ISDS may even deter the government from banning the substance, putting people at risk.

Multilateralism

Like many other recent bilateral and plurilateral economic agreements, the TPPA has less to do with freeing trade, but instead advances the interests of powerful foreign business interests.

Concluding the TPPA before the mid-December Nairobi World Trade Organization (WTO) ministerial was then used by USTR Froman to try to kill the WTO Doha Round of trade negotiations, apparently also in line with the current European Commission commissioner’s preferences. The negotiation had begun in late 2001, after 9/11, with the promise of rectifying the anti-development and food security outcomes of the previous Uruguay Round following the Seattle WTO ministerial failure.

In spite of their denials, Asean members joining the TPPA have also effectively undermined existing commitments to the Asean Free Trade Area (AFTA) and Asean Economic Community (AEC).

The main US motivation for the TPPA has been to exclude China. At his State of the Union address, President Obama triumphantly announced, “With TPP, China does not set the rules in that region, we do”.

After being blocked from greater commensurate influence in the Washington-based Bretton Woods institutions, broad support for the Asian Infrastructure Investment Bank (AIIB), even from traditional US allies, was a major embarrassment to the US.

Neutrality

The political re-alignment also abandons the late Tun Razak’s commitment to make Asean a ‘zone of peace, freedom and neutrality’ (ZOPFAN), an irony for the host of the last Asean summit.

One may understand why Vietnam, at war with the US until four decades ago, is keen to join the TPPA, to strengthen its hand viz a viz China, but it too will be compelled to pay a high economic price for Uncle Sam’s ‘protection’.

Yet, despite its own problems with China, Philippine President Benigno Aquino Jr chose not to participate in the negotiations. Pre- and post-military coup Thailand, with an economy even more open than Malaysia’s, also chose to stay away. Why?

Singapore’s existing bilateral economic arrangements with the US go much further than the TPPA in line with its own unique strategic considerations. Of course, no serving government leader is going to offend the US by rejecting the TPPA outright.

Misgivings

Already, some other, mainly European governments have privately expressed their dismay at the TPPA provisions as it will weaken their own negotiating positions for the Trans-Atlantic Trade and Investment Partnership (TTIP). It is the US which has secured ‘first-mover’ advantage. It is unclear to most observers what great advantage Malaysia secured beyond some NEP ‘carve-outs’.

Since negotiations ended in Atlanta in October 2015, the minister in the new centrist Liberal Party Canadian government, an experienced former Financial Times editor, has already called for reconsideration of the TPPA provisions.

Australia and New Zealand, the public and parliamentarians are outraged about the onerous investment provisions of the TPPA after a 2016 World Bank report projected paltry gains for them.

Despite touting the TPP in Asia as his main foreign policy priority for 2016, Obama only spent 28 seconds of his hour-long State of the Union address on it, triumphantly announcing, "With TPP, China does not set the rules in that region, we do" (China excluded), making clearly the main US motivation while realising its widespread unpopularity with the American public, including his Democratic Party base. Even the libertarian Cato Institute has denounced the TPP as the tool of corporate lobbyists.

Caution needed

More careful consideration through more informed public discussion of the TPPA's many provisions can only help the nation.

According to a mid-2015 Pew Research survey, the strongest support for the TPP is in Vietnam, where 89% of the public backed it, while the weakest support was in Malaysia (38%) and the US (49%). The greatest outright opposition was in Canada (31%), Australia (30%) and the US (29%).

Malaysians (14%) were the least supportive of closer economic relations with the US while the most support for deeper economic ties with China was in Australia (50%) and South Korea (47%). Large numbers of Malaysians (43%) and Chileans (35%) wanted stronger commercial relations with both China and the US.

The greatest opposition to the US defence pivot was in Malaysia, where 54% believed it is bad because it could lead to conflict with China.

TPPA not costless

If the TPPA is simply a trade deal, there would be less grounds for concern. Unfortunately, its other provisions will undermine Malaysian development prospects and the public interest in the longer term, with diminished ability for the Government, Parliament and the public to set things right.

Many well-intentioned Malaysians opposed to abuses of various kinds, support the TPPA, hoping that it will somehow eliminate corruption, improve governance and address other problems in the country. Unfortunately, this is merely wishful thinking. The TPPA is not a costless ‘hop-on, hop-off’ option, as some think.

By Dr Jomo Kwane Sunddaram

> Dr Jomo Kwame Sundaram was an Assistant Secretary-General in the United Nations system from 2005 to 2015 and received the 2007 Wassily Leontief Prize for advancing the frontiers of economic thought. The views expressed here are entirely the writer’s own.


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Make public TPPA cost, says Jomo

http://www.thestar.com.my/business/business-news/2016/01/12/jomo-make-public-tppa-cost/

KUALA LUMPUR: A former senior United Nations official and economist Jomo Kwame Sundaram said that while there are benefits to signing the Trans Pacific Partnership Agreement (TPPA), the cost of such an agreement must also be made known to the public.

He said at the 2016 TPPA Forum organised by the Malaysian Economic Association that gains from signing the TPPA in terms of economic growth were only “very modest” because Malaysia was already an open economy.

“These were also based on very questionable assumptions. Having more trade does not mean more economic growth. You have to note that having more trade may mean you export more but the country will also import more. So the (net) trade gains are very modest and the economic growth (accrued) is very very low,” Jomo said.

“However, there are huge risks involved because this is not just a trade agreement but more of a partnership agreement and most of the other requirements of the TPPA will introduce many constraints on the ability of Malaysia and others to catch up and accelerate growth and to develop the economy,” he said.

He said while there were various models to stimulate the outcome of the TPPA on the country, there was no disagreement among the different models that the increased trade benefit in terms of economic growth were only very modest.

“There will be increased trade but the benefits in terms of economic growth will only be realised only after 10 years and some countries may not even benefit in terms of growth,” Jomo said.

Jomo also said that there will be some impact on local companies that will face challenges because there will be fewer constraints on international companies.

However, the chief negotiator from the Ministry of International Trade and Industry Datuk J Jayasiri said that there will be gains for small and medium enterprises (SMEs) if they have enough capacity.

“SME Corp is helping in the upgrade of local SME’s capabilities while Matrade is promoting SMEs extensively to capitalise on the opportunities overseas,” Jayasiri said.

Jomo said that there should be an objective discussion on the matter noting that the gains were being described in such as way that the benefits were being presented without talking about the cost.

“We need to go into any deal with our eyes wide open and to be fully aware of the risks and cost as well as the potential benefits and the likelihood of achieving those benefits. So we have a slightly one-sided picture of what we do get from the TPPA,” he said.

“For people to say that we can pull out of this TPPA after six months of being in it is very deceptive. That is not the way the world works and is a very naive assumption. Say if somebody here doesn’t swim we cannot throw him into the deep end of the pool and say he will learn how to swim,” he added.

On another matter, Jayasiri said that Malaysia will be able to maintain export duties that will be imposed from the TPPA.

“For us in the Ministry, we feel that any market opening measures mean that exporters will have opportunities to go into new markets. If markets are closed it will be difficult for exporters to go into those countries,” Jayasiri said.

“Say if we are out of the TPPA, and our competitors are in the TPPA then it means our exporters will be at a disadvantage so it means we have to be in the TPPA to enjoy the preferential treatment through this,” he added.

By Daniel Tan The Star/Asia News Network

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rightwaysrichard.blogspot.com

TPPA debate will continue although concluded

Video: http://t.cn/RyEoAkLvhttp://english.cntv.cn/2015/10/09/VIDE1444344482352696.shtml



FINALLY, the negotiations on the Trans-Pacific Partnership Agreement have concluded. But that’s not the end of the story.

It will be many more days before the text is made public. Until then, there will still be so many questions unanswered.

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

Firstly, trade is only one part of the TPPA. As important, or more important, are other issues including investment, intellectual property, government procurement, state-owned enterprises, labour and environment.

These other issues are at the heart of the country’s socio-economic structures and policies.

On these issues, the TPPA may have problematic elements for Malaysia. The Malaysian negotiating team has been fighting to lessen the adverse impacts of the main proposals.

It says it won concessions. But what these are, whether they are enough, and the effects are still not clear. What is clear is that “policy space” (a country’s freedom 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 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 will have to pay higher prices and Malaysian companies which cannot make or import generic versions 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 delaying 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.

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, and free transfer of funds, while prohibiting the host state from imposing performance requirements such as local content, technology transfer and joint ventures.

The TPPA also contains the investor-state dispute settlement system (ISDS), which enables foreign investors to sue the Government in an international tribunal.

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.

According to press reports, the TPPA has some safeguards such as diluting 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 for foreign investors and puts Malaysia in a defensive position.

On government procurement, the space that Malaysia has had to make policies on how the Government does its procurement will be curbed. The preferences given to locals will now give way to 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 final agreement 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, and their need to be non-discriminatory when purchasing materials (they cannot give preference to local companies).

The advocates of the SOE chapter seem to want to curb the advantages that SOEs may have, and enable the foreign companies to more effectively compete and take some of their market share. Malaysia has also been fighting for exceptions for some of its SOEs. The final outcome of this is not yet known.

Investment policy, government procurement, SOEs 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 other 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 whom we do not yet have a Free Trade Agreement.

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 that the TPPA will lead to a better trade balance, and there could be an opposite result.

The debate on the TPPA will intensify now that the negotiations have ended. The text should be made available as soon as possible, so that the discussions can be based on the agreement itself. After the TPPA, it will take another two years for the agreement to be ratified and come into force.

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.

BY MARTIN KHOR

Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.

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Investor treaties in trouble

Several countries are reviewing these agreements, prompted by the number of cases brought by foreign companies who claim that changes in government policies affect their future profits.

THE tide is turning against investment treaties that allow foreign investors to take up cases against host governments and claim compensation of up to billions of dollars.

Indonesia has given notice it will terminate its bilateral investment treaty (BIT) with the Netherlands, according to a statement issued by the Dutch embassy in Jakarta last week.

“The Indonesian Government has also mentioned it intends to terminate all of its 67 bilateral investment treaties,” according to the statement.

It has not been confirmed by Indonesia. But if this is correct, Indonesia joins South Africa, which last year announced it is ending all its BITS.

Several other countries are also reviewing their investment treaties.

This is prompted by increasing numbers of cases being brought against governments by foreign companies who claim that changes in government policies or contracts affect their future profits.

Many countries have been asked to pay large compensations to companies under the treaties.

The biggest claim was against Ecuador, which has to compensate an American oil company US$2.3bil (RM7.6bil) for cancelling a contract.

The system empowering investors to sue governments in an international tribunal, thus bypassing national laws and courts, is a subject of controversy in Malaysia because it is part of the Trans-Pacific Partnership Agreement (TPPA) which the country is negotiating with 11 other countries.

The investor-state dispute settlement (ISDS) system is contained in free trade agreements (especially those involving the United States) and also in BITS which countries sign among themselves to protect foreign investors’ rights.

When these treaties containing ISDS were signed, many countries did not know they were opening themselves to legal cases that foreign investors can take up under loosely worded provisions that allow them to win cases where they claim they have not been treated fairly or that their expected revenues have been expropriated.

Indonesia and South Africa are among many countries that faced such cases.

The Indonesian government has been taken to the International Centre for Settlement of Investment Disputes (ICSID) tribunal based in Washington by a British company, Churchill Mining, which claimed the government violated the United Kingdom-Indonesia BIT when its contract with a local government in East Kalimantan was cancelled.

Reports indicate the company is claiming compensation of US$1bil to US$2bil (RM3.3bil to RM6.6bil) in losses.

This and other cases taken against Indonesia prompted the government to review whether it should retain its many BITS.

South Africa had also been sued by a British mining company which claimed losses after the government introduced policies to boost the economic capacity of the blacks to redress apartheid policies.

India is also reviewing its BITS, after many companies filed cases after the Supreme Court cancelled their 2G mobile communications licences in the wake of a high-profile corruption scandal linked to the granting of the licences.

But it is not only developing countries that are getting disillusioned by the ISDS. Europe is getting cold feet over the investor-state dispute mechanism in the Trans-Atlantic trade agreement (TTIP) it is negotiating with the United States, similar to the mechanism in the TPPA.

Two weeks ago, Germany told the European Commission that the TTIP must not have the investor-state dispute mechanism.

Brigitte Zypries, a junior economy minister, told the German parliament that Berlin was determined to exclude arbitration rights from the Transatlantic Trade and Investment Partnership (TTIP) deal, according to the Financial Times.

“From the perspective of the [German] federal government, US investors in the European Union have sufficient legal protection in the national courts,” she said.

The French trade minister had earlier voiced opposition to ISDS, while a report commissioned by the UK government also pointed out problems with the mechanism.

The European disillusionment has two causes.

ISDS cases are also affecting the countries. Germany has been taken to ICSID by a Swedish company Vattenfall which claimed it suffered over a billion euros in losses resulting from the government’s decision to phase out nuclear power after the Fukushima disaster.

And the European public is getting upset over the investment system. Two European organisations last year published a report showing how the international investment arbitration system is monopolised by a few big law firms, how the tribunals are riddled with conflicts of interest and the arbitrary nature of tribunal decisions.

That report caused shock waves not only in the civil society but also among European policy makers.

In January, the European Commission suspended negotiations with the United States on the ISDS provisions in the TTIP, and announced it would hold 90 days of consultations with the public over the issue.

In Australia, the previous government decided it would not have an ISDS clause in its future FTAs and BITS, following a case taken against it by Philip Morris International which claimed loss of profits because of laws requiring only plain packaging on cigarette boxes.

In Malaysia, the ISDS is one of the major controversial issues relating to the TPPA. Many business, professional and public-interest groups want the government to exclude the ISDS as a “red line” in the TPPA negotiations.

Prime Minister Datuk Seri Najib Tun Razak had also mentioned investment policy and ISDS as one of the issues (the others being government procurement and state-owned enterprises) in the TTPA that may impinge on national sovereignty, when he was at the Asia-Pacific Economic Cooperation Summit and TPPA Summit in Indonesia last year.

So far, the United States has stuck to its position that ISDS has to be part of the TPPA and TTIP. However, if the emerging European opposition affects the TTIP negotiations, it could affect the TPPA as this would strengthen the position of those opposed to ISDS.

Meanwhile, we can also expect more countries to review their BITS. Developing countries seeking to end their bilateral agreements with European countries can point to the fact that more and more European countries are themselves having second thoughts about the ISDS.

Contributed by  Martin Khor Global Trends The Star/ANN

• The views expressed are entirely the writer’s own.

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TPPA negotiations hot up in early 2014

Due to the United States political calendar and congressional politics, the TPPA negotiations will heat up 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 meeting in February.

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

Prime Minister Datuk Seri Najib Tun Razak himself, at a meeting in Bali last October, highlighted government procurement, state owned enterprises, investor-state dispute system and intellectual property as some of the issues that may infringe on sovereignty, implying that there should be careful consideration and caution during 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 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 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 RM2bil 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 compromise or flexibility is 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, 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.

Global Trends by Martin Khor

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An eventful week on the TPPA

Last week saw a series of important events on the hot topic of Trans-Pacific Partnership Agreement, with the official round in Brunei and a round table in Kuala Lumpur, leading to the question: What next?

LAST week saw many important developments on the Trans-Pacific Partnership Agreement (TPPA).

The 19th round of the negotiations concluded in Brunei after an intense week. It emerged that many issues are still controversial and that the target of signing the treaty by year end cannot be met.

Malaysia’s tone at the negotiations has also changed, with Inter-national Trade and Industry Minister Datuk Seri Mustapa Mohamed informing his counter parts of the domestic opposition to the TPPA and various issues which Malaysia has problems with.

Malaysia’s negotiators earned bouquets from NGOs for tabling a new proposal that tobacco control measures should be excluded altogether from TPPA disciplines.

Meanwhile in Kuala Lumpur, a roundtable workshop on the TPPA brought together 200 people. Keynote speaker Tun Dr Mahathir Mohamad reaffirmed his opposition to the TPPA and urged the Government not to join it.

The Aug 26-27 round table was organised by the MTEM (Malay Economic Action Council) and the Perdana Leadership Foundation.

The participants came up with 75 “red lines”, or positions that are non-negotiatble, that they would like the Government to adopt.

Prime Minister Datuk Seri Najib Tun Razak received the “red lines” document from the MTEM leadership at the group’s Hari Raya open house on Aug 28.

Mustapa also announced that the Government was going ahead with organising two cost benefit studies on the TPPA’s impacts on national interests and on SMEs and the bumiputra economy. Only if there are net benefits will the country sign the treaty.

It looks like the strong views voiced by various groups and politicians have influenced the Government’s thinking.

A strong sign of this was at the ministerial meeting of TPPA countries in Brunei on Aug 22-23. Chaired by the American Trade Represen-tative, the meeting was supposed to give ministers the chance to clear the contentious issues that the technical negotiators could not settle, and thus pave the way to a quick conclusion.

Instead, the ministerial meeting turned into an anti-climax as some ministers did not attend, and some others who attended did not stay for the press conference that lasted only 20 minutes.

And instead of clearing hard issues, the ministerial meeting gave a chance to some ministers to highlight contentious issues themselves.

Mustapa was one of those who took that opportunity. “I drew attention to the growing discomfort domestically arising from Malaysia’s participation in the TPP negotiations, the outreach activities that had been undertaken and the concerns raised by the various stakeholders, specifically on the issue of lack of transparency and disclosure of information on the texts being negotiated,” said the minister in a statement.

He also highlighted the difficulties Malaysia has on government procurement, the need for exclusions of SMEs and preferences for bumiputra which are required for the Malaysian government to continue with its socio-economic development goals and affirmative action policy.

He also underscored that Malaysia had serious difficulties with the current proposal on state-owned enterprises, which is seen to go beyond the stated objective of creating a level playing field as it had serious implications for Malaysian SOEs.

And on intellectual property, he reiterated Malaysia’s strong position on access to affordable medicines while on environment, that there was a need to safeguard the state governments’ jurisdictions.

The following day, Malaysia also caused quite a stir by putting forward a new proposal to totally exclude tobacco control measures from the disciplines of the whole TPPA.

This was warmly welcomed by public health groups, which then called on the US and other countries to agree to the Malaysian position.

At the MTEM round table in Kuala Lumpur, Dr Mahathir gave a 40-minute critique of the TPPA, the problems it would create for domestic policy and why Malaysia can expand its trade even without such agreements. He ended with a strong call to the Government not to sign the treaty.

For two days, the participants discussed specific TPPA issues in six breakout groups and at the closing plenary they adopted 75 “red lines” which they called on the Government to take on as part of its negotiating positions.

The “red lines” include a rejection of the investor-state dispute settlement system, the exclusion of the chapters or sections on government procurement and state-owned enterprises, and demands that the intellectual property chapter does not require obligations that are stronger than the World Trade Organisation’s rules, especially with regard to patents and medicines, and copyright issues.

It should be noted that some of these civil society “red lines” correspond to the concerns that Mustapa had taken up at the TPPA ministerial meeting.

It looks as though the Govern-ment’s position has been affected by the voices of civil society, business and experts.

A key question, of course, is whether in taking up these issues, the minister and the negotiators will make their own “red lines” out of the concerns.

The next question is whether the other TPPA participants will accommodate themselves to Malaysia’s positions. And if not, then what happens next.

In any case, it has been a very interesting week or 10 days, full of events and developments, on the hot issue of TPPA, both at the official meeting and on the home front.

  Contributed by Martin Khor Global Trends:

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TPP affecting health policies?

The present debate on the TPPA in Malaysia is part of the global discussion on how trade and investment treaties are affecting health, including access to medicines and tobacco control.

ARE big companies making use of trade and investment agreements to challenge health policies? Evidence is building up that they do so, with medicine prices going up and tobacco control measures being suppressed.

This issue came up in Parliament last week when International Trade and Industry Minister Datuk Seri Mustapha Mohamed said the Government would not allow the Trans-Pacific Partnership Agreement (TPPA) to cause the prices of generic medicines to go up.

He added he would defend existing policies on patents and medicines and if we don’t agree with some of the terms, we can choose not to sign it.

Trade agreements and health concerns are linked because some companies selling tobacco, medicines and food are using these agreements to sue governments that introduce new regulations to safeguard public health.

Malaysia will host the next round of the TPPA negotiations this month, so the debate on these issues can be expected to continue.

The World Health Organisation’s Director-General Dr Margaret Chan recently noted that corporate interests are preventing health measures.

The cost of non-communicable diseases are shooting up. The costs for advanced cancer care are unsustainable, even in rich nations and some countries spend 15% of the health budget on diabetes.

“In the developing world, the cost of these diseases can easily cancel out the benefits of economic gain,” she said. It is harder to get people to adopt healthy lifestyles because of opposition by “unfriendly forces”.

“Efforts to prevent non-communicable diseases go against business interests. These are powerful economic operators. It is not just Big Tobacco anymore. Public health must also contend with Big Food, Big Soda and Big Alcohol. All of these industries fear regulation and protect themselves by using the same tactics,” said Dr Chan.

Those tactics include “front groups, lobbies, promises of self-regulation, lawsuits and industry funded research that confuses the evidence and keeps the public in doubt”.

Many studies show how trade agreements with the United States or Europe have raised the prices of medicines because of the constraints placed by the FTA’s strict patent rules on the sale of cheaper generic medicines. Patients have had to switch to costlier branded medicines.

One study estimated that Colombia would need to spend an extra US$1.5bil (RM4.74bil) a year on medicines by 2030 or people would have to reduce medicine consumption by 44% by that year.

“Data exclusivity”, one of the features of the FTA, has delayed the introduction of cheaper generic versions of 79% of medicines launched by 21 multinational companies between 2002 and mid-2006 and, ultimately, the higher medicine prices are threatening the financial sustainability of government health programmes.

The tobacco industry is also making use of trade and investment agreements to challenge governments’ tobacco control measures.

According to an article by Prof Mathew Porterfield of Georgetown University Law Centre, the company Philip Morris has asked the US government to use the TPPA to limit restrictions on tobacco marketing.

In comments submitted to the US trade representative (USTR) , Philip Morris argued that Australia’s plain packaging regulations would be “tantamount to expropriation” of its intellectual property rights, and complained of the broad authority delegated to Singapore’s Health Minister to restrict tobacco marketing.

In order to address these “excessive legislative proposals”, Philip Morris urged USTR to pursue both strong protections for intellectual property and inclusion of the investor-state dispute settlement mechanism in the TPPA.

The company has instituted legal cases against Uruguay and Australia for requiring that cigarette boxes have “plain packaging”, with the companies’ names and logos disallowed.

These cases are under bilateral investment agreements. The company claims that the packaging regulations violate its right to use its trademark, and also violate the agreement’s principle of “fair and equitable treatment”.

It claims that a change in government regulation that affects its profits and property is an “expropriation” for which it should be compensated.

Under such agreements, companies have sued governments for millions or even billions of dollars.

The provisions in the bilateral investment treaties are also present in trade agreements including the TPPA. Companies can directly sue the governments in an international court, under an investor-state dispute system.

Having been sued by the tobacco company for its health measure, the Australian government has decided not to enter any more agreements that have an investor-state dispute system.

In the TPPA negotiations, Australia has asked that it be granted an exemption from that agreement’s investor-state dispute system. So far, such an exemption has not been agreed to.

The controversies over how trade and investment agreements are threatening health policies will not go away, because the rules are still in place and new treaties like the TPPA are coming into being.

A “Google search” on this issue will yield hundreds, in fact, many thousands of documents. And the number will go up as long as the controversy continues.

Global Trends
By MARTIN KHOR

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Looming danger on contrast and competition of economic models

The successful East Asian model of ‘state-driven capitalism’ is being threatened by TPPA proposals.

The Trans-Pacific Partnership (TPP) is a secretive, multi-national trade agreement that threatens to extend restrictive intellectual property (IP) laws across the globe and rewrite international rules on its enforcement.

MANY articles and books have been published on the contrast and competition between the present Western and the Asian-style economic models.

Western countries are said to have the free-market model based on competition among private firms, with the government taking a hands-off approach.

East Asian countries are branded as practising “state capitalism” in which the government plays a major role in helping the local private sector and the state also fully or partially owns many enterprises.

The Western countries are increasingly attacking the Asian model, claiming that state-owned companies or state-aided commercial firms have an unfair advantage vis-à-vis foreign firms competing with them.

In our region, countries with a substantial role of the state include China, Malaysia, Vietnam and Singapore. Of course, in Japan and South Korea, their domestic firms grew to become world-beaters with the systematic backing of their governments.

For these countries, the so-called state capitalism (or in the case of socialist countries, market-oriented socialism) have worked well through industrial development and relatively high and sustained economic growth.

Some Western countries have been trying to curb or even eventually eliminate the Asian model of state-owned or state-aided capitalism.

This is largely hypocritical because the America, European and Japanese agricultural sectors are highly subsidised and protected; many of their farms could not survive without massive state aid and high import tariffs.

Many of their banks and industrial firms are also subsidised in various ways, including through multi-billion dollar bailouts in the wake of the recent financial crises.

This has not stopped these countries from attacking the Asian model. The latest attempt to curb this model is through the negotiations in the Trans Pacific Partnership Agreement (TPPA), a trade and investment treaty involving the United States, Canada, Malaysia, Singapore, Vietnam, Brunei, Peru, Chile, Australia and New Zealand.

The TPPA contains an important section on State-Owned Enterprises (SOEs), championed by the United States and Australia.

The TPPA drafts are secret, so the text of the SOE section is not known. However, it can be anticipated that the section will contain disciplines to curb and shape the behaviour of three types of SOEs.

The recently concluded US bilateral FTAs contain a competition chapter that deals with two types of SOEs. For example, the US-Peru FTA has disciplines on designated monopolies and state enterprises, and it is likely that the United States will propose something similar in the TPPA.

That FTA says that government monopolies shall act solely in accordance with commercial considerations, including with regard to price, quality, availability, transportation, when buying or selling the monopoly goods or services.

They shall provide non-discriminatory treatment to investments, goods and services of other TPPA members. And they shall not use their monopoly position to engage in anti-competitive practices through its dealings with its parents, subsidiaries or other enterprises with common ownership in a non-monopolised market that adversely affect the investments of other countries.

State enterprises shall similarly provide non-discriminatory treatment in the sale of goods or services to investments of other countries.

More importantly, the United States and Australia are proposing a third type of SOE to be subject to disciplines. According to press reports, Australia has also introduced the principle of “competitive neutrality” to discipline the SOEs.

How this principle will apply can be anticipated from the Australian government’s competitive neutrality guidelines.

This is based on the concept of a “government-owned business”. The state-owned business enterprise which competes with private companies may obtain advantages, impeding the ability of the private sector to compete on equal terms.

According to the Australian guidelines, these advantages include exemptions from taxes; cheaper debt financing (because of the low-risk classification or government guarantees); absence of need to make a commercial rate of return; and exemption from regulatory constraints or costs.

To offset these advantages, the Australian guidelines cover how government businesses should pay taxes in full; pay back to the central government the difference in their loan costs vis-à-vis private sector loan costs; pay licence fees equivalent to the central government; and ensure they obtain a commercial rate of return.

It is likely therefore that the draft of the TPPA will have disciplines along the lines above on a third category of SOEs, government-linked business entities involved in commercial activities that compete with the private sector.

The proposed disciplines could be along the line that “advantages” enjoyed by government-linked businesses such as those mentioned in the Australian guidelines be disallowed.

The implications for Malaysia, Vietnam and Singapore would be serious because their national economies are characterised by important roles of state-owned enterprises or government-linked companies.

The countries would have to move away from their successful development model and economic structure.

Moreover, SOEs have many functions including providing social services to the public, ensuring that poor and vulnerable groups are given special consideration.

This often means that SOEs cannot operate on solely commercial grounds; and that several of them depend on government subsidies and assistance, and there are also cross-subsidies in that the profitable aspect of an SOE may finance non-profitable (but socially important) activities. There is a danger that the TPPA section on SOEs will prevent or hinder the socially useful functions of SOEs.

The TPPA negotiations are still going on, and a text on the SOEs section is not yet final, so there is scope for different views to be expressed.

GLOBAL TRENDS By MARTIN KHOR

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