Remaining concerns regarding the TPPA

Media Statement by Dr. Ong Kian Ming, MP for Serdang, on the TPPA Part 2 on the 15th of January, 2016

Remaining concerns regarding the TPPA

In my statement yesterday, I praised Minister of Trade and Industry, Mustapha Mohamed and his team at MITI for their efforts in public engagement and in allowing public access to the documents related to the Trans Pacific Partnership Agreement (TPPA). But despite the efforts of the Minister and his team at MITI, there are some key concerns regarding the TPPA which have not be adequately addressed. I will highlight 5 areas of concern here.

(i)                  Exemptions for Public Private Partnership (PPP) contracts and the BERNAS monopoly on importation of rice

Malaysia was very successful in negotiating for a number of carve-outs, exemptions and exceptions for itself in the TPPA especially in the areas of government procurement and state-owned enterprises. While some of these carve-outs are useful in providing an adjustment period for the government and Malaysian companies to prepare for the full impact of the TPPA, a few carve outs have a negative effect on Malaysians. Public Private Partnerships (PPP) are not subjected to the government procurement provisions under the TPPA. This means that the practice of awarding lopsided contracts via direct negotiation such as toll concessionaires will continue unabated. The government could have made a stronger argument for Malaysians to support the TPPA if it had subjected PPPs to more open and transparent competition but sadly this was not the case.

Similarly, the carve out which Malaysia negotiated for Bernas to remain as the sole importer of rice in Malaysia decreases the potential benefits of the TPPA to the Malaysian consumer. The National Impact Assessment (NIA) produced by the Institute of Strategic and International Studies (ISIS) highlights the benefits of additional food security and access to supply of imported rice via Vietnam which is a member of the TPPA. The TPPA will limit the use of export restrictions on rice by countries such as Vietnam, which took place in 2008 when the price of rice experienced a sudden and significant rise. The ISIS report also highlights the potential huge savings of billions of ringgit by the government as a result of having a more stable supply of imported rice. Sadly, such savings will not materialise as a result of BERNAS maintaining its monopoly on the importation of rice. The “large net welfare gains and a significant reduction in Government expenditures” which “are likely if all forms of Government interventions were to be eliminated and a free market allowed” will not take place.[1]

When I highlighted these two carve-outs to the Minister at the recent TPPA dialogue organised by MITI, he explained that the reason for these carve-outs is because Malaysia wanted to maintain flexibility in these areas. This is a poor excuse for maintaining policies which are beneficial to a select and politically connected few but which hurt the average Malaysian in the pocketbook. A TPPA which forced BERNAS to relinquish its monopoly position would have been easier to support.

(ii)                The possible impact of unionization, especially of foreign workers in certain sectors such as the plantation sector

The Labour chapter in TPPA has a positive impact on the ability of workers to form unions, to organize strikes and to affiliate with international bodies. Indeed, Malaysia was one of the four countries singled out (together with Brunei, Vietnam and Mexico) by a group of senior Democratic senators where protection of labour rights needed to be increased as part of the TPPA. The possibility of the increase in the frequency of strikes by workers were highlighted in both the ISIS as well as the PwC reports. The TPPA will force Malaysia to amend its laws so that we can be in line with the International Labour Organization’s (ILO) best practices.

The ISIS NIA report states that the following laws will have to be amended in order to comply with ILO best practices:

  1. Employment Act 1955;
  2. Trade Union Act 1959;
  3. Child and Young Persons (Employment) Act 1966;
  4. Passport Act 1966 (implementing regulations);
  5. Industrial Relations Act 1967;
  6. Sabah Labour Ordinance (Cap. 67);
  7. Sarawak Labour Ordinance (Cap. 76);
  8. Private Employment Agencies Act 1981; and
  9. Workers‘ Minimum Standards of Housing and Amenities Act 1990.

NGOs and political parties which are supportive of labour rights should welcome the provisions of the labour chapter in the TPPA. It is likely that labour rights will be one of the key focus areas in the process of ‘certification’ by the United States, especially if a Democrat wins the White House in 2016, since pro-labour groups which are seen to be closer to the Democrats will continue to put pressure on the President and Democratic Senators to ensure compliance on the protection of labour rights.

Where there are concerns is the process by which new unions are formed and the composition of these unions. For example, the National Union of Plantation Workers currently represent the shrinking number of Malaysians who are working in the plantation sector. What if the foreign workers who currently dominate the plantation sector decides to form a separate plantation workers union where they hold all the power positions of leadership? Will this result in a situation where non-Malaysian plantation workers are able to negotiate a better deal from their employers than their Malaysian counterparts because of their strength in numbers relative to the number of Malaysians who are still in this sector? Will such a demarcation also apply to other sectors and industries which are currently dominated by foreigners? The officers at MITI said that they will speak to each sector and the relevant ministry to chart out the path towards unionisation but I do not feel confident that there is a clear roadmap ahead in terms of ensuring equal labour protections for both Malaysians as well as foreign workers.

(iii)               The higher possibility of American corporations using the Investor State Dispute Settlement (ISDS) against the Malaysian government

My concerns regarding the Investment Chapter of the TPPA which allows foreign companies to sue sovereign governments in international arbitration courts is very specific. Many people may be unaware that there are already Invest State Dispute Settlement provisions in a number of Malaysia’s Free Trade Agreements (FTAs) and bilateral investment treaties (BITs). For example, Lynas, an Australian company, can bring ISDS proceedings against the Malaysian government if its license to import unprocessed rare earth from Australia is cancelled, even if it was based on environmental concerns or non-compliance. This is because Malaysia is part of the Australia-New Zealand-Asean Free Trade Agreement and we have also signed an Investment Protection and Promotion Agreement (IPPAs) with Australia.[2]

It must also be stated that ISDS cases are not as common as one may think. Over the past 30 years, there has only been one ISDS case involving Australia which is the often cited Philip Morris plain packaging tobacco case. Recently, an international arbitration court in Singapore ruled in favour of the Australian government.[3] In addition, tobacco has been explicitly carved out from the ISDS provisions in the TPPA.[4]

It must also be recognized that the ISDS provisions also accords protection to Malaysian companies who have made significant investments in other countries. A former counsel at an international organisation handling ISDS cases refers to this specific point in an opinion piece published by the Malaysian Insider.[5]

With all this being said, my main concern surrounding the ISDS provisions in the TPPA is the higher likelihood that the Malaysian government will be dragged for international arbitration by an American company. Under the North American Free Trade Agreement (NAFTA) involving the US, Canada and Mexico, a total of 35 ISDS lawsuits have been filed against the Canadian government, a total of 22 against the Mexican government and a total of 20 against the US government. Canada has lost or settled six claims with a total payout of US$170m in damages while Mexico has lost five cases and paid out U$$204m in damages. In comparison, the US has never lost a NAFTA ISDS case or any ISDS case, for that matter.

On the other hand, US companies have used ISDS 132 times or 22% of global ISDS claims since 1987 and US companies have won or settled 48 cases, lost 35 and have 37 cases pending.[6]

The evidence shows a clear trend that US companies are far more effective in using ISDS in their advantage compared with non-US companies. It is this asymmetry which raises the most concern since Malaysia has very little experience in fighting against the might of the law firms which represent the big US multinationals.

(iv)              The unknown effect on the future prices of medicines that fall under the ‘biologics’ category

Again, my concern on the possible impact on the price of medicines as a result of the TPPA is very specific. It would be wrong to assume that the price of your Panadol at the local pharmacy, or other currently available generic drugs, would suddenly experience a significant increase as a result of the TPPA. This is simply untrue since the patent protection for the ‘original’ drugs have already expired. Furthermore, it is not as if Malaysia has no current patent protection for pharmaceuticals.

Table 1 in the ISIS NIA report summarizes the main differences in terms of intellectual property protection for pharmaceutical products (See below). The main difference is that under the TPP, a period of patent protection of between 5 to 8 years will be given to large molecule or biologic drugs, which is not currently available under Malaysian law. The ISIS NIA report indicates a negative impact on Malaysia in terms of the price of medicines but the type and number of medicines which will be affected by the extra protections afforded by the TPPA remains unclear. The ISIS NIA report cites the figures from the Pharmaceutical Association of Malaysia which says that between 5-10% of total pharmaceutical sales comprises of biologic medicines. It is unclear whether or not the percentage of drugs that fall under the biologic medicines category will grow in the future. If it does, then the effect of the TPPA on the price of medicines could increase over time. More clarification is needed on this point especially from the Minister of Health and officials representing the Ministry of Health who have been very quiet on this aspect of the TPPA.

Source: ISIS NIA Report

(v)                Copyright extension from 50 years to 70 years under the TPPA

My final area of concern is in the extension of copyright provisions from the currently existing 50 years to 70 years under the TPPA. The ISIS NIA report indicates that this will have a negative impact on the country. Malaysian consumers will have to fork out an estimated US$115 million a year over the long term as a result of this copyright extension (Think Micky Mouse, Disney and Hollywood related products!). This is a clear indication of the lobbying power of a small number of powerful US based companies who will reap the bulk of the rewards of this copyright extension.

There has been a lot of misinformation and inaccurate information being circulated regarding the potential negative effects of the TPPA. Here, I have highlighted 5 concerns using evidence and analysis from the ISIS and to a lesser extent, the PWC report, both of which were commissioned by the government of Malaysia. If these concerns are not properly and honestly addressed by the Minister of Trade and Industry, they would constitute sufficient grounds not to support the TPPA.

Dr. Ong Kian Ming
Member of Parliament for Serdang

[1] The ISIS NIA report quoting the study of Vengedasalam, et.,al, 2011, Malaysian Rice Trade and Government Interventions, University of Sydney.