Despite becoming a signatory to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Malaysia has yet to ratify the agreement, citing concerns over the required governance reform that will impact their preferential Bumiputera policies.
Malaysia joined the Trans Pacific Partnership (TPP) in the third round of negotiations in October 2010 and signed the agreement in February 2016 with 11 other founding members. The exit of the US from the TPP-12 is a big loss for Malaysia as it is the main source for Malaysia’s potential export gains in terms of market access since there is no bilateral agreement between the two countries. The new Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (or TPP-11) that replaced the TPP-12 is therefore considerably less attractive to Malaysia. Nevertheless, Malaysia did become a signatory to the CPTPP on 8 March 2018 in Santiago due to the changes made in the new agreement while the administration at that point in time was also keen to continue engagement with the other TPP-11 countries. While the negotiated content of the original agreement is basically maintained, 20 articles of the TPP-12 have been temporarily postponed, including the strong commitments on intellectual property that the US had raised before. Specifically, 11 of the 20 articles are on intellectual property. For the dispute solution mechanism between governments and investors (ISDS), the CPTPP has narrowed the mechanisms available for foreign investors to sue the host member state.
However, the new administration formed after the 14th General Elections in May 2018 has expressed repeated concerns about the implications and potential impact of the agreement and it has called for a review of the agreement’s impact on Malaysia. It should be noted that the previous administration had already commissioned two impact studies, one from Institute for Strategic and International Studies and another from Pricewaterhouse Coopers. The results from these two studies were also made available to the public. Instead, reservations over selected issues such as the ISDS, Intellectual Property Rights (IPR) and government procurement continued to prevail. Significantly, the new administration has not set a deadline for ratifying the agreement. In addition, the administration has stated that the CPTPP will only be ratified after the government is certain that it is beneficial to the country.
Holding on to NEP in turn has repercussions on the reforms needed in the CPTPP.
While the debate over ratification is couched over specific issues, the concern lies more on the broader implications of ratifying the agreement. The CPTPP is said to be a comprehensive and progressive agreement, requiring reforms in the governance of a country. Detractors call this a constraint on the policy space of a country. Yet reform, including especially institutional reform, is the rallying call of the new administration before and after GE14. The reforms required in the CPTPP should be seen as improving governance and ratifying the agreement will therefore send a positive signal to the world that Malaysia is indeed moving forward in its reform agenda. It is precisely this reform agenda that is expected to contribute towards future economic growth, by instilling greater investor confidence both externally and internally.
What then is holding back the new administration from ratifying the agreement? Mahathir has alluded to the matter when he reportedly couched the argument for a further study on the impact of the CPTPP, within the context of Malaysia’s multi-racial composition and the unequal distribution of wealth among the races. Thus, it is the distributional impact of the CPTPP that holds back the ratification – the fear that ratification and the ensuing opening up of the economy as well as better governance, will adversely affect the Bumiputeras and heighten racial tensions in the country. This is line with the new administration’s view that the needs of Bumiputeras are guaranteed. The New Economic Policy (NEP), which upholds preferential treatment in the name of better income distribution among the races, will therefore be maintained, albeit based on needs and not race alone. Holding on to NEP in turn has repercussions on the reforms needed in the CPTPP, such as for example, the reforms of state-owned enterprises or government-linked companies (GLCs).
Therein lies the heart of the problem – trade policies in Malaysia have to walk a fine line between the need to foster growth through progressive liberalization and the need to continue preferential policies. But not ratifying will have growth consequences that may implicate the future of the new administration, which will have to face the electoral wrath of the voters a few years down the road, should economic growth falter in the ensuing years. Keeping still by delaying ratification for as long as possible, if not forever, is not the answer either as other countries, including competitors such as Vietnam are moving forward. By default, keeping still is the same as moving backwards on the “openness” of Malaysia’s economy. Can Malaysia really afford to miss the boat?