ISIS: TPP requires significant structural changes to reap net positive outcomes

The Trans-Pacific Partnership (TPP) should set into motion significant structural changes that will result in net positive outcomes for Malaysia, according to a premier think-tank.

Institute of Strategic and International Studies (ISIS) in its National Interest Analysis (NIA) report said Malaysia's participation in the TPP was, on balance, in the national interest.

This NIA was part of the cost-benefit analysis study on TPP released by International Trade and Industry Ministry today.

ISIS stressed that critical domestic issues would have to be addressed in areas relating to Bumiputera, labour, investor-state dispute settlement, intellectual property and state-owned enterprises.

The think tank said the realities of global political economic developments, however, meant that Malaysia must secure its future with the necessary institutional frameworks to be able to engage, advance and defend its interests

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ISIS said the government procurement threshold for supply of goods and services

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- ISIS

Under the TPP, the government has secured numerous exclusions and exemptions to safeguard the interest of the country and stakeholders.

"These might not be uniformly viewed as favourable or sufficient but nonetheless, they are more favourable to Malaysia than originally expected," the report noted.

ISIS believed that joining the TPP was consistent with Malaysia's New Economic Model and ambition to become a high-income economy.

Through TPP, Malaysia would have fewer tariff restrictions in four new markets namely, the US (90 per cent), Canada (95 per cent), Mexico (77 per cent) and Peru (81 per cent).

On Bumiputera participation, ISIS said the government procurement threshold for supply of goods and services is expected to change the status quo of Bumiputera participants.

"Recipients of contracts above relevant thresholds will now have to compete openly and those below the thresholds remain unaffected," it said.

For construction contracts, ISIS said there was a 30 per cent Bumiputera reservation ensuring that there would be minimum Bumiputera participation.

It said there was policy space for equity ownership by Bumiputera in real estate, oil and gas and privatised government-owned assets.

"The government can continue offering direct assistance through licensing and permits to Bumiputera as well as maintain the right to control activities such as gambling permits and products such as information content and alcohol.

"Halal certification, syariah legal services, religious schools, pilgrimage and zakat continue to be controlled by the state," it noted.

On investor-state dispute settlement (ISDS), ISIS said this topic was not new as provisions were already present in Malaysia's Bilateral Investment Treaties and Free Trade Agreements.

"All TPP participants are subject to the same investment rules and regulations," it said.

On State-Owned Enterprises (SOE), ISIS said Malaysia is able to comply with TPP obligations on competition policy through the Competition Act 2010.

There are concerns raised by Khazanah Nasional Bhd over its ability to comply with these disciplines and carry out social and economic programmes.

However, TPP does require conformity to certain disciplines covering non-discriminatory treatment and commercial considerations in the domestic market and non-commercial assistance in overseas markets, it noted.

On Intellectual Property (IP), ISIS said the impact on prices of medicine would be minimal when the agreement comes into force.

It said there was a data exclusivity (DE) period of five to eight years for biologic drugs, but this impact may not be significant since an 18-month access window safeguard applied.

"Malaysian consumers may incur increased burden from additional royalty payments to foreign content creators amounting to US$115 million a year due to copyright extension from 50 to 70 years for books, music and films," it said.

On rice, ISIS said the issue of food security was addressed because Malaysia has the right to adopt or maintain any measures relating to wholesale and distribution services for rice.

"Regulator of rice industry and distributor, Bernas, will still maintain its control over rice supply and hence its price.

"The price of rice may not decrease in the short-run, as tariff is only eliminated in the 11th year," it said.

On alcohol and tobacco, ISIS said the government can still maintain the implementation of price and supply control on these products indefinitely under the TPP through excise duty and restricted license distribution.

It said the transition period for tariff elimination is 15 years.

On automobiles, ISIS said cars from Japan and the US are expected to be cheaper to import in the first 12 years.

"The government, however, will be able to maintain the excise duties prevailing at that time," it noted.