By Stephanie Jacob
The two cost-benefit analysis studies on the Trans-Pacific Partnership (TPP) agreement commissioned by the government have both concluded that, on balance, Malaysia’s participation in the trade deal would result in nett economic gains.
The studies were done by PwC Advisory Services Sdn Bhd and the Institute of Strategic and International Studies (Isis).
PwC said: “TPP agreement presents nett economic benefits to Malaysia, but there will be adjustment costs to firms… structural reforms and a period of adjustment by firms will be required to maximise realisation of potential benefits and mitigate potential costs”.
Malaysia’s participation in the TPP agreement is projected to deliver nett economic gains, with gross domestic product (GDP) to increase by US$107 billion (RM452.9 billion) to US$211 billion from 2018 to 2027, said PwC.
It added that export-orientated firms in the textiles, automotive components, and electrical and electronic (E&E) sectors are expected to benefit from increased market access to the TPP agreement countries.
The study also concluded that not participating in the comprehensive trade deal would result in a nett loss for Malaysia, with GDP projected to decline by US$9 to US$16 billion over the 2018-2027 period.
It said: “Investment is also projected to decline by cumulative of US$7 billion to US$13 billion over the 10 year period. Taking consideration of the potential GDP gains forgone from TPP agreement participation of US$107 billion to US$211 billion, the total opportunity cost (opportunity cost=cost incurred + benefits forgone) of not participating in the TPP agreement, in GDP terms would amount to US$116 billion to US$227 billion over 2018-2027.”
Meanwhile, think-tank group ISIS said: “Malaysia’s participation in the TPP is on balance, in the national interest. To be sure, critical domestic issues will have to be addressed and cannot be taken lightly.
“They will need to be managed politically and through public policies if they are not to be economically and socially disruptive… The realities of global political economic developments, however, mean that Malaysia must secure its future with the necessary institutional frameworks to be able to engage, advance and defend its interest.”
Isis opined that the government had secured “numerous exclusions and exemptions” which protected the national interest. And added while it might not be viewed as being favourable by all parties, it is still better than had been previously expected.
“The national independent analysis (NIA) concludes that the TPP should still set into motion significant structural changes that will result in net positive outcomes,” said the think tank.
In terms of security, Isis noted that the government still has the policy space to control food and energy security, health and safety and technology and security. It cited the ability to carry out compulsory licencing during health emergencies as an example.
With regards to the social impact of the TPP, Isis noted that the government has largely retained the ability to continue its affirmative action policies. Isis acknowledged that liberalising market access to government procurement will cause some short-term discontentment, but said that in the long run, it would lead to a more equitable and efficient system.
It added the TPP agreement should have an ultimately positive impact on the cost of living as it will lead to greater access to, and competition in, Malaysian markets, although the prices of some goods and services would not reduce as the government still retains the right to impose domestic regulations and competitive supply conditions.
Isis said its analysis does not indicate that there will be a significant impact on timely access to affordable or essential medicine due to safeguards and the nature of intellectual property provisions in place.
Addressing the impact on Malaysia-China economic relations, Isis said: “As a rising global economic, military and political power… Malaysia requires the most intensive engagements with China across a wide spectrum of activities but this should not be at the expense of equally intensive engagements with others.”
The think tank also suggested that a failure to participate in TPP agreement could adversely impact attempts to restart the Malaysia-European Union (EU) free-trade agreement (FTA) negotiations. It said this is because the latter has similar requirements and standards to the TPP.
Should Malaysia opt out of the TPP, it could be seen as an unwillingness to commit to such a trade deal. Isis said: “The failure to effect the TPP could turn out to be a double jeopardy by denying Malaysia both access to the Trans-Pacific and the European countries”. It could also adversely affect the Malaysia-US relationship.
On the economic front, both Isis and PwC highlighted the removal of substantial tariff restrictions to four new markets – the US, Canada, Peru and Mexico, as being a key benefit for Malaysia.
However, both were keen to emphasise the need to reduce non-tariff barriers or measures (NTB or NTM) and for domestic reforms. Isis said: “The less Malaysia liberalises, the smaller the effect of the TPP.”
Meanwhile PwC said: “While participation in the TPP agreement is projected to generate nett economic gains for the Malaysian economy, the government and key industries need to collaborate closely in undertaking measures to maximise the realisation of the potential benefits and pre-emptively mitigate the potential costs from the TPP agreement.
“In particular, given that the TPP agreement would enter into force within two years (projected by 2018 as at time of writing) should Malaysia choose to participate, it is important that the planning and implementation of immediate-term capacity building measures and medium-term structural reforms be undertaken imminently.”
In particular, PwC said that NTM’s would be the key difference in how much benefits Malaysia reaps from the TPP. It said that its projection that GDP could increase by US$107 billion to US$211 billion was dependent on a 25% to 50% removal of NTMs. On the other hand, should only the tariffs go, PwC estimates that GDP would only increase by US$12 billion.
PwC also noted that the TPP agreement will accelerate Malaysia adoption the International Labour Organisation (ILO) rights and this could lead to increased costs for companies in the event of labour disputes.
Under the TPP agreement, freedom of association under the ILO Declaration of Fundamental Principles and Rights at Work 1998 would allow workers in Malaysia to form multiple unions in an organisation, be members of multiple unions across occupations and industries, and hold strikes based on the consent of a simple majority, highlighted PwC.
Malaysian companies are concerned that this will lead to more labour disputes which in turn would cause production disruptions and lead to cost increases.
However PwC said: “Adoption of the ILO rights under the TPP agreement would not preclude Malaysia from implementing additional domestic regulations that could help to manage risks of costly labour disruptions.
“For example, the government may continue to implement conditions as prerequisites for legal strikes to be carried out, such as achieving a minimum quorum or a simple majority threshold by secret ballot, and providing adequate notice. Such regulatory measures and guidelines would… manage the risks of disruptions arising from labour disputes. The implementation of such domestic measures is practiced in the more advanced economies such as the EU, and several regional economies such as Singapore.”
PwC also noted that the role of state-owned enterprises (SOEs) in supporting nation building agendas might change under the TPP agreement. Under the TPP agreement, SOEs will need to practice non-discriminatory treatment and this might affect policies like preferring Made-in-Malaysia products.
Furthermore, SOEs valued above SDR200 million (RM1.15 billion) would also not be eligible for non-commercial assistance (NCA). NCA things like grants or debt forgiveness, loans, loan guarantees or other types of financing on terms more favourable than would be commercially available to the SOE.
This could limit the ability of SOEs to carry out their development agendas, such as pioneering new growth areas and advancing bumiputera and small and medium enterprises’ capabilities, said PwC.
Nonetheless, Isis highlighted that there have been exemptions which will give SOEs room to continue on their economic agendas. It said: “Exclusions and exemptions for SOEs provide them room for them to continue carrying out social and economic development programmes, albeit with greater focus and transparency.
“Given that SOEs manage national resources, however, complying with the TPP will have positive consequences as a result of greater competitiveness and good governance.”
You must be logged in to post a comment.