Shankaran Nambiar
East Asia Forum
13 February 2016

Malaysia’s leadership must be extremely satisfied on two counts: their success in negotiating the Trans-Pacific Partnership (TPP) agreement and the parliament’s favourable position on the agreement.

It is amazing that Malaysia has negotiated to preserve the Bumiputera agenda, obtain a minimum five-year grace period to reform state-owned enterprises (SOEs), and gain exemption for Khazanah from investor-state dispute settlement (ISDS) provisions for two years after the deal comes into force.

There were fears that the TPP would necessitate the dismantling of SOEs, prise open the government procurement market and cause the whittling down of the Bumiputera agenda. Those anxieties are unfounded. The TPP has turned out to be an agreement where the Malaysian government can have its cake and eat it too.

While maintaining the Bumiputera agenda may be a victory of sorts in the short term, it reduces the impetus for drastic economic reforms. The push towards greater private sector participation, in particular, will be further postponed. Economic efficiency may have been sacrificed in an effort to appease a significant domestic political constituency. The TPP negotiations presented a trade-off between obtaining political support for the agreement and striving to achieve efficiency and greater social welfare gains. It seems that the end result tilted in favour of the former.

Many of the criticisms of the TPP that have been raised do not trouble the government. The government seems to believe that the ISDS clause is not a cause for concern. This is because it considers ISDS to be a standard addition to many free trade agreement packages. And the government has had experience from previous encounters with ISDS both in its favour and against it. Legitimately or otherwise, it thinks it has enough expertise to handle such disputes.

With regard to pharmaceuticals, Malaysia’s existing patent period and data exclusivity provisions are already the same as that of the TPP. But Malaysia will have to change its laws to comply with the TPP on biologics. On the face of it Malaysia appears to be on safe ground. Yet the Jordanian experience is deeply worrying: the prices of medicines in Jordan went up by as much as 20 per cent after its trade agreement with the United States.

International experience on intellectual property rights and the games that multinational pharmaceutical companies play has been a cause for concern. Yet, surprisingly, the Malaysian Organisation of Pharmaceutical Industries does not think that the TPP will have an impact on this sector. Hopefully, their assessment is correct. In any case, the government should take measures to improve the national healthcare system. The government should upgrade access to medicines and healthcare. And it should not shirk its responsibility of bearing the burden of healthcare costs, with or without the TPP.

One issue where both critics and supporters of the TPP agree is on Malaysia’s questionable readiness to take advantage of its exports. Many of Malaysia’s key sectors are low on value-addition. There are few sectors that are export-oriented, have high value-added contributions and are also technologically sophisticated. So Malaysia will not be able to wage a strong competitive war to increase the industrial value-added that would benefit domestic stakeholders. But this is a structural problem, a phenomenon that describes the nature of the economy. It does not apply specifically to the TPP.

There is also little doubt that the rate of growth of imports would likely be faster than exports post-TPP implementation. There are two reasons for this: the removal of impediments to trade would encourage greater imports, and with growing exports there would be a need to import more intermediate goods.

By seeking to join the TPP, Malaysia has signalled its reluctance to take on a leadership position with ASEAN. Vietnam, Brunei and Singapore are in the TPP. And Indonesia and the Philippines have expressed interest in joining. ASEAN being as loose an organisation as it is, and with members not being firmly and exclusively committed to it, Malaysia has opted to exploit its first-mover advantage.

Malaysia is confident that it can enjoy the best of both worlds by being in the US-led TPP and the Regional Comprehensive Economic Partnership. If Malaysia did not join the TPP, impelled by its loyalty to the notion of ASEAN centrality, it would be disadvantaging itself when additional ASEAN members participate in the TPP in future. The threat of being the last entrant into the TPP must have weighed heavily on the government’s strategy.

Malaysia’s membership in the TPP does not imply that is shifting away from China and moving closer to the United States. Much like Singapore, Malaysia will spread both its wings, courting the United States and China, extending concessions to both in equal measure, or as opportunities arise, regardless of their source.

Malaysia remains today, as it did 25 years ago: a nation that is dependent on trade and investment. It does not have the advantage of a huge market, a surplus of high-tech skills or cheap labour. Malaysia is, in a manner of speaking, a price-taker. There are adjustments that it must make as part of this process. That will include changes to domestic laws, especially with regard to labour and intellectual property rights, issues that the opposition party will rightly question.

The TPP is not the gold standard it was touted to be: major concessions have been made. Anybody who thought that the TPP would trigger a domestic reform process in Malaysia will be disappointed. The TPP may not turn out to be such a game changer after all. But, without the TPP, trade and investment might be diverted to Vietnam and Singapore. At least, Malaysia can now rest in the comfort that that will not happen.

Dr Shankaran Nambiar is author of The Malaysian Economy: Rethinking Policies and Purposes. He is also a senior research fellow at the Malaysian Institute of Economic Research.