Why is the Malaysian government so keen to join, considering the dubious economic benefits as well as huge risks involved, wonders Jomo Kwame Sundaram.
Malaysia’s Parliament has a rare opportunity to unite across party lines to protect the public interest for present as well as future generations.
For the Trans-Pacific Partnership Agreement (TPPA) to come into effect, it must first be ratified by national legislatures.
Even advocates claim limited net economic benefits from the TPPA, with the widely-cited Peterson Institute projections suggesting modest additional GDP growth after 10 years.
A more realistic UN Global Policy Model (GPM) incorporates effects on employment excluded by prior TPP modelling using controversial computable general equilibrium (CGE) models.
Using existing CGE projections of TPPA trade impacts, it offers more realistic macroeconomic projections, considering changes in employment and inequality, and their impacts on economic growth.
Benefits to aggregate demand and economic growth are even more limited than the Peterson Institute’s already modest claims, and negative for some countries as the TPPA will likely lead to employment losses and increased inequality.
The UN GPM finds that the TPPA will generate net GDP losses in some countries, while economic gains will be negligible for other participating countries – less than one per cent over 10 years for developed countries, and less than three per cent for developing countries.
These projections are similar to the Peterson Institute’s finding that TPPA gains will be small for many countries.
The TPPA will also lead to employment losses in all TPPA countries, totalling 771,000 lost jobs, as well as greater inequality, with a lower labour share of national income.
Furthermore, the TPPA will lead to losses in GDP and employment in non-TPPA countries.
These projections are largely due to two changes due to the TPPA.
First, production for export will partly replace production for domestic markets, with negative consequences, as exports are less labour-intensive and use more imported inputs than production for domestic markets.
Second, businesses in participating countries will strive to become more competitive by cutting labour costs, negatively affecting income distribution, thus further weakening domestic demand.
More trade does not equal higher GDP
The TPPA is not mainly about ‘free trade’.
Both the USA and Malaysia are among the world’s most open economies; there is little more to gain by further reducing tariffs.
The main remaining trade constraints are non-tariff barriers which the TPPA does not address, for example, the campaign against palm oil.
Similar CGE models have yielded very different projections on economic gains.
One difference is due to whether trade growth enhances economic growth. There is no evidence that trade expansion increases GDP growth, let alone economic welfare improvements.
The Peterson Institute’s modest growth gains are largely due to huge, but dubious projected increases in foreign direct investment (FDI), rejected by the USDA’s Economic Research Service study.
To make matters worse, there is no strong evidence that FDI reliably increases economic growth.
OECD countries with more competent trade negotiating capacity – such as the US, New Zealand, Canada, Australia, Japan – had delayed TPPA agreement in Honolulu in mid-2015 before the Atlanta deal in October.
The delay was due to squabbling over how best to manage trade in particular areas, reflecting influential lobbies in their countries; thus, the TPPA will likely advance interests contrary to freer trade.
Foreign investors vs public interest
Instead, the TPPA is mainly about greatly strengthening intellectual property and investor rights.
The evidence shows that stronger IPRs hardly promote research, but actually impede innovation. This is besides undermining public health and the common good by limiting competition and raising consumer prices.
The TPPA will strengthen IPRs for big pharmaceutical, information technology, media and other companies, for example by allowing pharmaceutical companies longer monopolies on patented medicines, keeping cheaper generics off the market, and blocking the development and availability of similar new medicines.
The recent prosecution of Martin Skrelly for a Ponzi scheme instead of ‘price-gouging’ cases, exposes the limits of US IPR legislation.
The TPPA will also strengthen foreign investor rights at the expense of local businesses and the public interest.
The TPPA’s investor-state dispute settlement (ISDS) system will oblige governments to compensate foreign investors for losses of expected profits in binding private arbitration!
ISDS will confer on private foreign investors the right to sue national governments for regulatory or policy changes that, they claim, diminish the expected profitability of their investments.
It has been and can be applied even where rules are non-discriminatory, or profits are made by causing public harm.
Double whammy for taxpayers
Foreign corporate interests insist that ISDS is necessary to protect property rights where the rule of law and credible courts are lacking — clearly displaying contempt for national courts.
Yet, the same is being sought by the US in the Transatlantic Trade and Investment Partnership (TTIP) deal with the EU.
Recognising the scandalous way US tobacco companies have used ISDS to resist curbs on smoking, tobacco can apparently be ‘carved out’ from some aspects of ISDS.
But the basic problem remains: ISDS provisions make it hard for governments to fulfil their basic obligations – to protect their citizens’ health and safety, to ensure economic stability, and to safeguard the environment.
The most popular herbicide sold in the world has been declared by the WHO to be carcinogenic. By banning such toxic materials, with the ISDS, the government would be liable to compensate the manufacturers not to harm its own people, instead of forcing them to compensate those already harmed!
The taxpayer will be hit twice – first, to pay for the health damage caused, and then to compensate the manufacturers for their lost profits if the government bans it.
Thus, the ISDS may even deter the government from banning the substance, putting the public at risk.
This brief review has not addressed many other aspects of the TPPA.
However, suffice it to say that except where they multi-lateralise existing bilateral and other commitments, most impose other risks and potential liabilities for developing countries such as Malaysia.
For example, despite the bitter consequences of the 1997-98 Asian financial crisis as well as the 2008-09 financial meltdown and ensuing protracted Great Recession, the liberalisation of financial services will undermine national prudential regulation and expose economies to greater vulnerabilities from abroad.
Also, many ostensible safeguards have asymmetric implications.
For instance, the US federal government has much less scope for discretionary spending compared to state governments which are, in many instances, even larger than other TPPA economies, which means exempting state governments from TPPA provisions, such as procurement, will have very different implications.
TPPA actually undermines multilateral trade agreements
Multilateralism? Like many other recent bilateral and plurilateral trade agreements, the TPPA has less to do with freeing trade, but instead advances the interests of the powerful business interests involved.
As trade liberalisation guru Professor Jagdish Bhagwati has shown, such agreements are not only sub-optimal, but also serve to undermine trade multilateralism as well as multilateralism more generally.
The rush to conclude the TPPA before the mid-December Nairobi World Trade Organisation (WTO) ministerial meeting undermined the Doha ‘Development’ Round of trade negotiations, which began with the promise of rectifying the anti-development and food security outcomes of the previous Uruguay Round (following the Seattle WTO ministerial fiasco).
By undermining the WTO multilateral trade negotiations, such bilateral and plurilateral trade agreements undermine multilateral trade liberalisation.
Asean members joining the TPPA also undermine existing commitments, for example to the Asean Free Trade Area (Afta) and the Asean Economic Community (AEC).
Such political re-alignment abandons our late second prime minister Abdul Razak Hussein’s commitment to make Asean a ‘zone of peace, freedom and neutrality’ (Zopfan), an irony for the host of the last Asean summit.
It is no secret that the main US motivation for the TPPA was to exclude China. Broad support for the Asian Infrastructure Investment Bank (AIIB), even from traditional US allies, was a major embarrassment.
One can understand why Vietnam, an erstwhile US enemy, was keen to join the TPPA, in order to strengthen its hand in its often difficult bilateral relations with its giant neighbour.
But why is the Malaysian government so keen to join, considering the dubious economic benefits as well as huge risks involved.
Najib’s pivot to America
In response to US President Barack Obama’s ‘pivot to Asia’, Prime Minister Najib Abdul Razak may want to signal his own ‘pivot to America’.
Already, US allegations of human and labour rights violations, which had previously disqualified Malaysia from consideration, were dropped in time.
Now that the Najib administration’s political preference has been clearly signalled, we must now turn to the long-term welfare of Malaysians.
Hence, it would be appropriate for the TPPA parliamentary vote to be a matter of conscience for all members of Parliament without party whips being exercised.
After all, President Obama has more, albeit shrinking support from Republicans, than from his own Democrats, for the TPPA.
Criticisms of the TPPA have been growing among US politicians, not only among all Democrat presidential contenders, but also the leading Republican presidential aspirants.
If the TPPA is simply a trade deal, there would be less grounds for concern.
Unfortunately, its other provisions will undermine the Malaysian public interest, with the ability for the government and the public to set things right, irreversibly signed away.
Members of Parliament — from the BN and the Opposition — have an opportunity to reject this threat to the Malaysian public interest.
They are our last defence against a TPPA ‘own-goal’.
Jomo Kwame Sundram was an assistant secretary general responsible for analysis of economic development in the United Nations system during 2005-2015, and received the 2007 Wassily Leontief Prize for Advancing the Frontiers of Economic Thought.