Should Malaysia Ratify CPTPP?

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or the CPTPP, is a free trade agreement between 11 countries in the Asia-Pacific region. The signatories of the agreement, as of March 2018, were Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

The CPTPP is the successor to the Trans-Pacific Partnership (TPP), which was the original free trade agreement (FTA) between the United States and the 11 members of the CPTPP. The TPP was an ambitious FTA that had been negotiated for almost a decade under US leadership. Not only was the agreement broad, covering two-fifths of the world economy, it was also comprised of 30 chapters that covered areas from tariff reductions to labour standards and intellectual property rights. The concluded TPP Agreement was signed in New Zealand in February 2016 by all 12 countries.

However, on 23 January 2017, the US government decided to withdraw from the TPPA. Because the US accounted for 60% of the combined GDP of the 12 TPP members, the agreement could not enter into force without its participation. Nevertheless, in light of US withdrawal, the governments of the remaining 11 countries affirmed the economic and strategic importance of the TPP and met on several rounds to find ways to implement the agreement. On 8 March 2018, the 11 countries signed the CPTPP, essentially agreeing to enable the ratification of the Agreement in order to bring it into force.

Source: IDEAS, CPTPP: The Case for Ratification (January 2019)

Malaysia and the CPTPP

Malaysia signed the CPTPP along with the other signatories, however following the General Election in May 2018 the Pakatan Harapan government expressed scepticism over the benefits of the CPTPP. To date Malaysia has not ratified the deal.

  

What are the benefits of the CPTPP?

The benefits of the CPTPP primarily relate to the enhancement of trade among countries in the Asia-Pacific. If fully implemented, the 11 CPTPP countries will become a consolidated economy that represents 495 million consumers and 13.5% of global GDP. It is estimated that the CPTPP will generate global income benefits worth US $147 billion.

·       An integrated market of 495 million people with a combined output of US$10 trillion, representing 13.5% of the world economy.

·       According to IDEAS, Malaysia will prove to be the biggest winner of the CPTPP as the agreement would provide export access to markets that benefit palm oil, rubber, and electronics.

·       USD$147 billion in global income gains.

·       Hailed as the 21st century trade agreement.

The CPTPP will give Malaysia market access to Canada, Mexico and Peru- three countries with whom Malaysia has no free trade agreement and representing a combined market size 10 times bigger than the Malaysian economy. According to a study by Moody’s, Malaysia will prove to be the biggest winner from the revised CPTPP agreement. That is because the deal will provide export access to markets that will benefit palm oil, rubber, and electronics exporters.

Source: IDEAS, CPTPP: The Case for Ratification (January 2019)

Figure 1 above illustrates the significant economic benefit for Malaysia of acquiring access to significant new markets in Canada, Mexico and Peru

What are the concerns?

Rashmi Banga (UNCTAD) in a paper written in March 2019, suggests that Malaysia’s exports will rise marginally as Malaysia already has FTAs with top 3 export markets i.e. Japan, Singapore and Australia. If Malaysia remains out of CPTPP the decline in exports is much smaller than the rise in imports if it joins the CPTPP. The estimated tariff revenue loss to Malaysia of joining CPTPP is USD1.6 billion per annum.

IDEAS lists the arguments against CPTPP and the counter-arguments in favour thereof in their paper dated January 2019. Briefly, these include: Investor-State dispute settlement mechanism; price of medicines will rise; and constrained policy “space” in health, capital controls and procurement.

Eonomist Jomo Sundaram says a lot of “propaganda” to ratify CPTPP is based on falsehood. So he has urged Putrajaya to do nothing. He cites the Rashmi Banga paper to fortify his view. The downside according to him is Proton and Perodua will be impacted severely and plastic waste imports from Japan, Australia and Singapore would increase. The biggest mis-information is from those pushing for the trade pact, according to Jomo.

IDEAS on the other hand sees the benefits from:

·       Strengthened transparency and anti-corruption measures;

·       Improved governance of GLCs;

·       Increased accountability to Government; and

·       More transparent procurement system

Historically, Malaysia’s economic growth is driven by openness to trade. And so ratification will lead to reforms, sustainable development and good governance.

But how do we end this debate? The Government could be more transparent with its views on CPTPP and have public forums to discuss the issues. Also, the Government could appoint independent trade expert/s to review the pros and cons of CPTPP and table a bill in parliament for debate. That may take some time but it is better than be swayed by sentiments that never seem to end.

Reference:

1. CPTPP: The Case for Ratification, Laurence Todd, Manucheher Shafee, IDEAS

2. Say goodbye to Proton if you ratify trans-pacific trade pact, Jomo warns Government, Robin Augustin,  (www.freemalaysiatoday.com)

3. CPTPP: Implications for Malaysia’s Merchandise Trade Balance, Rashmi Banga, March 15, 2019