The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) came into force on 29 November, 60 days after ratification by Malaysia.
The decision to join the pact happened six days before the House was dissolved without parliamentary scrutiny and debate.
It was also unfortunate that the prime minister could only assume office on November 24, leaving five days for the new government (which had yet to appoint cabinet members) to halt Malaysia’s entry into the treaty
The International Trade and Industry Ministry with its narrow interests on Foreign Direct Investment and exports would hail CPTPP ratification as a “game-changer” so that Malaysia is “not left behind” in global market access.
But the CPTPP is not just a trade agreement; it has far greater policy impact. Only six of its 30 chapters are directly associated with trade.
The name CPTPP is also misleading. It is largely still the same Obama-led Trans-Pacific Partnership Agreement (TPPA), which the United States later walked out from, except that 22 of the TPPA’s 1000 provisions have been temporarily suspended.
The CPTPP is basically a tool preferred by powerful global capitalists (“foreign investors”) to expand their business reach, owning and thus controlling the domestic market in the name of investment, and using their financial power and economies of scale to squeeze out the domestic competitors.
The local economic pie has been shrinking for Malaysians since the liberalisation policy was introduced in the early 2000s.
Data show that in 1970, at the beginning of the New Economy Policy (NEP), corporate equity stood at 63.4% foreign ownership, 34% non-Bumiputera and 2.4% Bumiputera.
By 1990, foreign ownership had dipped to 25.4%, while both Bumiputeras
(19.3%) and non-Bumiputeras (46.8%) had benefitted from the policy due to restrictions on the the former.
However, the situation changed in 2003 when those restrictions were relaxed. By 2019, foreign equity ownership in Malaysia had bounced back to 45.5%, crowding out local ownership.
Bumiputera and non-Bumiputera ownership had shrunk to 17.2% and 25%, respectively.
The CPTPP could well take us back to 1970.
The CPTPP confers foreign investors with greater protection and rights, such as “fair and equitable treatment” and “national treatment” so that the investors can expect to enjoy policies that treat them as well as, if not better than, the locals. Pre-existing policies and measures are not to be changed so that their profits would not be affected.
But this is unrealistic and impossible. The government has to adapt to new situations and change policies from time to time as needs dictate, and it must have the room to do so.
This is a matter of national sovereignty.
When the government wants to propose a public policy, it should not have to check if it would run afoul of the CPTPP and risk triggering claims by investors in an international arbitration tribunal, a right provided in the pact.
CPTPP proponents told half-truths to assure the public not to worry because CPTPP temporarily suspended two types of breaches: investment contract with the government and investment approval by the government.
However, the most prevalent known ISDS cases are actually based on the types of claims in Section A of the CPTPP Article 9.1, which accounts for 94% of all cases in existing investment treaties and we can expect the same pattern for CPTPP.
This part is definitely not suspended. Even if there is no violation of the CPTPP provisions, a government measure that causes loss in profits (including expected future profits) can result in an ISDS case.
In fact, MITI’s consultant PriceWaterhouseCooper in the Cost-Benefit Analysis (CBA) report advises the government to set aside a budget to respond to possible ISDS claims.
The threat lurking from foreign investors is real and happening. In fact, several global legal firms offer themselves to help investors challenge COVID-19 measures impacting on their profits.
All levels of government (including state and local governments) are affected by CPTPP; government and GLC procurements have to open up to foreign bidders above a certain threshold amount.
For GLCs covered by CPTPP, a maximum of only 40% of their procurement can be reserved for local suppliers and contractors. This would leave Malaysians scrambling for the remaining economic pie.
The CBA report also indicated that by ratifying CPTPP, Malaysia would expect to have a much higher increase of imports (USD 10.8 Billion) than exports (USD 9.3 Billion) by 2030.
Influx of imported goods could easily replace local manufactured products, and some local businesses (especially SME) could shut down, resulting in unemployment. The CBA does not study this cascading effect on social welfare and security.
Furthermore, almost all import tariffs would be reduced to zero, this means the Federal Government would lose revenue, and would create greater constraints for the government to pay for increasingly more demanding operating budgets.
The new government needs maximum policy space to carry out much needed reforms and ensure the rakyat’s welfare and so cannot take on the costs and risks of CPTPP
130th article for Agora@TMI column, published on The Malaysian Insight, 15 Dec 2022
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