Malaysia and 11 other countries are in the final stages of negotiating a major agreement, the Trans-Pacific Partnership Agreement (TPPA). Over the past five years, government, business and civil society have debated at length about the agreement and the negotiating positions Malaysia should take to protect its interests and maximise the potential benefits.

While we have resolved most of the issues of contention, a significant one remains on the table - involving two state-owned enterprises (SOEs). As the government sets about to make this crucial decision, the Federation of Malaysian Manufacturers (FMM) would like reiterate the potential positive impact that a successfully concluded TPPA can have on business and the economy and highlight the downside risks, if we fail to conclude.

This is particularly pertinent given the current environment of uncertainty, both in the global and domestic economy as growth prospects of our major trading partners soften and exports decelerate.

The successful conclusion of the TPPA is important not just in the context of the current economic environment but to the sustainability of economic growth for Malaysia moving forward. It holds immense potential for boosting exports, generating economic growth and creating employment.

It also promises Malaysian companies and TPPA countries a degree of transparency and predictability in investment rules and tariff concessions. It will provide a competitive edge over our regional competitors, allow us to diversify and deepen our exports and markets and build investor confidence in Malaysia. Why we need to successfully conclude the TPPA:

1. Enhances the competitive advantage - The 12 countries negotiating the TPPA agreement will offer an unprecedented market of 793 million people, with a combined GDP of US$27.5 trillion. A study conducted by the Petersen Institute estimates that world income would rise by US$295 billion per year on the TPPA track and confirms that Malaysia is second only to Vietnam in terms of benefits to be derived from TPPA.

Exports are estimated to increase by 11.9 percent and GDP by 5.6 percent compared to pre-TPPA. This will enhance Malaysia’s position as an attractive location for global production and hence create more job opportunities and other technological and economic spin-offs for the economy.

2. Opens new export markets - Sixty-two percent of Malaysia’s trade is covered by seven bilateral FTAs with Japan, Pakistan, New Zealand, India, Chile, Australia and Turkey and five regional FTAs through Asean (AseanN and China, South Korea, Japan, India and Australia-New Zealand).

To enhance competitiveness and increase trade we need the TPPA to open up another 10 percent of duty free trade with new non-FTA markets namely US, Canada, Mexico and Peru. Some examples of manufactured products that would benefit from duty free access accorded by the TPPA are:

  • Malaysia’s main export products (i.e. electrical and electronic products, rubber gloves, palm oil products and plywood and timber products) will enjoy immediate tariff elimination.
  • Malaysian exporters to the US and Canada are increasingly interested to see the negotiations concluded, especially with the graduation of Malaysia from the list of countries that enjoy tariff reductions from the General System of Preferences (GSP) in 2014. As a result of the graduation Malaysian businesses pay higher duties in their exports to Canada from this year on. For example Malaysian palm oil exports to Canada attract 11 percent duty. The conclusion of the TPPA will counter the impact on companies exporting to Canada.
  • The textile industry is expected to increase its exports by 20 percent with the elimination of duties on textiles in the TPPA countries.
  • In terms of glove exports, there has been a continuous increase in demand of Nitrile Glove in the US. There are concerns that China will become more competitive in the exports of Nitrile Gloves in the near future. Malaysia’s participation in the TPPA will give our glove manufacturers an advantage over China in such exports to the US.
  • The US which continues to be Malaysia’s fourth largest trading partner after Singapore, China and Japan, accounts for about 10 percent of Malaysia’s total exports. Trade with the US which has been in a relatively narrow range of goods (E&E, Rubber gloves, palm oil) can be diversified with the TPPA.
  • Mexico has a highly protective tariff regime with some imports attracting tariff rates higher than 35 percent; the highest rate for agricultural products reaches 72 percent. Mexico levies a much higher average tariff on processed products than on raw materials, and the most concerned industries include textiles, clothing, leather, and basic metal industry. For instance the average applied tariffs for foods and beverages are 42 percent, tobacco (53 percent) and textiles (14 percent). The TPPA will provide the leverage needed by Malaysian exports to the Mexican market.

3. Provide savings - TPPA savings will include merchandise fees and duties as follows:

i. Exporters will save an estimated US$150-200 million from the waiver of US merchandise fees (charges range from US$28-485 per shipment).

ii. Elimination of import duties by TPPA countries will save about US$1.2 billion in import duties; and

iii. Elimination or reduction of duties, an additional 12.4 percent of their exports to TPPA countries.

4. Expand access to government procurement - As the US government is a large purchaser of goods and services, the TPPA will provide Malaysian businesses the opportunity to access the huge foreign government procurement market and assist also in creating a level playing field for local companies bidding for foreign government tenders. For example in recent years, the US federal government spent an estimated US$60 billion annually on information technology. According to the Australia’s Department of Foreign Affairs and Trade, the Australia-US Free Trade Agreement provided an estimated US$200 billion of US federal government and 28 state governments’ procurement market to Australian companies.

5. Address the ‘Vietnam Effect’ - Malaysia now lags behind many of the Asean economies in expanding its global market share.

Vietnam for instance is ahead of Malaysia in this aspect as it not only a negotiating member of the TPPA and Regional Comprehensive Economic Partnership (RCEP), it is also finalising negotiations of the Vietnam-EU FTA which is expected to be implemented at year-end. Aside from eliminating tariffs, Vietnam will also remove almost all of its export duties.

The agreement will also create new market access opportunities in services and investment with the opening up of the financial services, telecommunications, transport, and postal and courier services. On government procurement, the EU and Vietnam have agreed on disciplines largely in line with Government Procurement Agreement (GPA) rules of the WTO.

As Vietnam is able to offer these concessions with the EU, it will be advantageous for Vietnam to do the same with TPPA. When Vietnam joins the ‘big boys’, Malaysia would be negatively impacted. The opportunity cost of not aligning ourselves with the global economy now would only get costlier for Malaysia over time.

Concluding the TPPA is central to Malaysia aspirations to enjoy sustainable growth and move into the ranks of a high income nation. If we fail to conclude the TPP, our Asean neighbours currently negotiating the TPPA i.e. Vietnam, Singapore and Brunei will move ahead strongly and we run the risk of being relegated to the sidelines. Indeed re-location of our exporting industries to Vietnam cannot be ruled out.

We recognise that there are challenges in implementing such a broad and high level agreement across different parties and some balance has to be struck to ensure benefits far outweigh the costs. In making such an important decision we call on all parties, especially the government, to focus on the overall interests of the nation and economy and not on the narrow interests of specific groups.

We need to focus on the big picture and be more global in our outlook if we want sustainability and growth going forward. Being an open and competitive trading economy has served us well in the past and we have registered substantial benefits from the FTAs that we have concluded thus far.

The FMM strongly believes that TPPA will contribute significantly to improving market access, expanding exports, increasing economic activities and enhancing employment moving forward. It will also increase the attractiveness of Malaysia as destination for investment. Not concluding the TPPA is not an option if we want to enjoy sustainable rates of economic growth and move quickly into the ranks of a high income country.

The sooner the TPP can be agreed upon and implemented, the earlier these benefits can be realised. We fully support and look forward to the early and successful conclusion of the TPPA this year.

SAW CHOO BOON is president of the Federation of Malaysian Manufacturers (FMM).