|TPP: What’s the rationale for Malaysia?|
|In The Edge Financial Daily Today 2012|
|Written by The Edge Financial Daily|
|Tuesday, 11 September 2012 12:01|
The Trans-Pacific Partnership (TPP) was originally called the Trans-Pacific Strategic Economic Partnership Agreement. The signatories to this agreement, which was signed in 2005, were Brunei, Chile, New Zealand and Singapore.
Malaysia’s interest in the TPP, and its participation in numerous rounds of negotiations, though, has not been publicly discussed as to why does Malaysia see participation in the TPP as useful to its interests. It is not surprising that any studies conducted to determine the costs and benefits of being a member of the TPP have not been disclosed.
One reason why Malaysia may have been convinced to pursue the TPP track lies in the earlier failure to see the US-Malaysia Free Trade Agreement (USMFTA) come to any fruition. The government, perhaps, sees the TPP as a chance to revive a missed opportunity that came in the form of the USMFTA.
Since the US is playing a pivotal role in the architecture of the TPP, this is Malaysia’s last chance to forge closer economic and strategic relations with the US. What could not be achieved directly can now be clinched surreptitiously.
A third, but more trivial reason, could be due to the herd mentality that surrounds trade agreements. It is felt that an economy is losing out by not being a signatory to an FTA.
Finally, the Malaysian government probably feels more comfortable undertaking domestic reforms in the post TPP.
This would probably be the case if the government is keen on transparency and liberalisation, but has a recalcitrant domestic lobby to contend with. In such a case, subsequent to gaining membership into a trade agreement, the government would use the agreement as a justification for undertaking difficult domestic reforms.
With Singapore as a beneficiary of an FTA with the US, Malaysia could feel that it would be disadvantaged without any such strategic instrument. The TPP proffers such a possibility, although the link to the US would be rather circuitous.
It has been reported that at least one model suggests that Malaysia would gain significantly from the TPP. It suggests that by being a member of the TPP, Malaysia would achieve a GDP of US$422 billion (RM1.31 trillion) by 2025.
With TPP membership, Malaysia’s income would rise by 2.7%, although Vietnam will see a gain of 15.5%. Chile and Peru would experience income gains of 1.5% and 2.5%, respectively. Singapore would gain by 0.6%, and the US by 0.2%.
Countries that have already liberalised their economies and have carried out the necessary institutional reforms will experience smaller gains than economies that have not. Thus, it stands to reason that Malaysia will gain more than Singapore.
In any modelling exercise, it would not be surprising to see small, open economies benefitting from FTAs. By their very nature, small, open economies are outward looking, and tend to gain from arrangements that promote liberalisation.
Malaysia’s engagement with the rest of the world, via its exports and imports, is also expected to improve through the TPP. Exports are expected to increase by US$16.4 billion, while its imports will increase by US$16.5 billion. It is encouraging to note that the model points to an increase in exports through the TPP. However, net exports will be negative.
The bulk of exports are expected to come from the manufacturing sector. That, by itself, is commendable; but the sub-sectors that contribute to exports are not consistent with Malaysia’s development plans.
The machinery (US$3.9 billion), electrical equipment (US$3 billion) and food and beverages (US$2.4 billion) sub-sectors record the largest exports. The export of transport equipment does poorly in spite of the TPP, and the same is the case with textiles, and apparel and footwear.
It does not seem that the TPP will help Malaysia to shift its textiles, and apparel and footwear sectors to a knowledge-based platform that will bring about a surge of exports.
Unfortunately, as the results from this modelling exercise reveal, exports from the services sector are expected to account for a mere US$600 million. This is certainly not congruent with the government’s plans for Malaysia to develop as a knowledge-based economy.
One would expect that with all the measures taken to bring Malaysia out of the middle-income trap, it would have a more vibrant services sector. Besides, it has been the government’s vision that the services sector will drive growth.
Aside from the allure of positive results, the government, perhaps, values its strategic relations with the US. These political ties could be valued very much more than the government dares admit.
The keenness to be a part of the TPP could be motivated by an entirely different factor: the government’s lack of courage to independently pursue its own economic strategies — because if Malaysia is to court any set of countries, then it should be fast growing economies of China, India and Indonesia.
The US is clear that it needs the TPP to pursue its own agenda of growth with employment. There definitely would be other strategic reasons for formulating the TPP. But Malaysia does not seem to have such clarity of purpose.
Even if the government has a well-defined strategy in terms of its strategic economic relations, this will never be known. The absence of public dialogue on the TPP conceals the government’s vision, or even the lack of one.