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