Response to Mustapa Mohamed’s speech in Parliament, Part 2

This is TPPDebate.org’s 2nd-part response to International Trade and Industry Minister Datuk Seri Mustapa Mohamed’s speech yesterday, on day 1 of the debate and vote on the TPPA in Parliament.

 

What Mustapa said (source):

Malaysia risks losing foreign investment and its competitiveness should it reject the TPP. “We (federal government) want the country to be more progressive, but I am worried that the country will slip should it take the path of anti-foreign investment and anti-trade (by rejecting the trade pact).”

Our response:

Malaysia did not sign the Malaysia-US FTA in 2007. Back then, PM Abdullah Badawi chose not to sign, because the cabinet decided it was not on Malaysia’s national interest. What happened after that? Nothing happened. Malaysia kept exporting as it has been until today, and kept getting foreign direct investment.

So if Malaysia doesn’t sign the TPPA, what happens? We continue as today.

 

What Mustapa said (source):

Mustapa said Malaysia now had the choice to be open or stay closed.

Our response:

So, not signing into the TPP will suddenly make Malaysia become North Korea? Malaysia is already a member of the WTO and will continue doing business, as usual, as it is doing today.

 

What Mustapa said (source):

He added that the ISDS would also protect local investors overseas. “ISDS is meant to protect local investors in countries that have signed trade agreements with Malaysia.”

Our response:

This is an extremely asymmetrical concession. How many Malaysian companies are investing abroad? You have Petronas, Sime Darby Bhd and Khazanah Nasional Bhd. Which others? How many US companies are operating in Malaysia? Is there space in this page to list all of them down?

In addition, Malaysian investors can already trust to have a fair trial at domestic courts in developed countries, namely USA, Canada, Australia, New Zealand, Japan, and Singapore. Brunei and Vietnam are in ASEAN, so investors already have extra protection under the ASEAN free trade agreement. Malaysia already has a treaty with Chile which protects Malaysian investors in Chile. That leaves Mexico and Peru. Is it worth all the trouble of ISDS just to have Malaysian investors protected in Mexico and Peru? How much investment from Malaysia will there be in Mexico and Peru? How does it compare with the amount of US investment in Malaysia?

 

What Mustapa said (source):

“ISDS is nothing new in Malaysia. Until today, we have signed 74 bilateral trade agreements and eight free trade agreements that contain ISDS.

Our response:

Yes, but none of those FTAs are with the United States.

When you look at statistics from ISDS cases, the American investors are among the most litigious in the world. According to Sanya Reid Smith, American companies sue twice as often as next the most litigious country’s investors. And when they sue, they have a 98% chance of a broad interpretation of their rights. So when they sue you are almost always going to lose.

Giving these same rights to the Americans is a big deal, a big extra exposure of legal liability.

 

What Mustapa said (source):

Mustapa said the investor-state dispute settlement (ISDS) does not restrict the Government’s rights to supervise matters related to public health, safety and environment.

Our response:

One of the ways that“fairly and equitably” treatment for investors can be interpreted, is that the government cannot change the laws and regulations, or have new laws and regulations, in a way that harms the foreign investor from the other TPP countries.

Because of NAFTA, which has similar provisions to TPP, Canada has become the most-sued country under free trade tribunals in the world. About 63 per cent of the claims against Canada involved challenges to environmental protection or resource management programs that allegedly interfere with the profits of foreign investors. The government has lost some of these environmental challenges and has been forced to overturn legislation protecting the environment.

If it happens to Canada, why will it not happen in Malaysia?

In 2007, Italian investors sued South Africa in relation to its Black Economic Empowerment Act that aims to redress some of the injustices of the apartheid regime. As a consequence, the South Africa Government has moved to terminate its investment treaties that include ISDS because its review found that they “pose risks and limitations on the ability of the government to pursue its constitutional-based transformation agenda” and “growing risks to policymaking in the public interest”.

Why is Malaysia going in the opposite direction?

What amount of money can be requested in awards under ISDS? There is no limit in the TPP. In 2014, the Russian Government lost one case and had to pay the foreign investor 50 billion USD. They had 180 days to find the money.

Does the Malaysia Government have a spare US$50billion to spend like this?

 

What Mustapa said (source):

Explaining further, Mustapa said Malaysia would also lose out on abundant business and investment opportunities if the country choses to opt out of the TPPA.

Our response:

Brazil has no investment treaty in force, and yet they are the 5th largest recipient of foreign direct investment in the world. This is because foreign investment comes if you have a big population, so companies can sell their products; if you have natural resources, such as oil, gas, minerals; if you have human capital, people who can work in the factories.

These are what the economists agree are the main reasons for getting foreign investment. It’s not whether you sign this treaty or not.

 

What Mustapa said (source):

Malaysia must not lose out while other countries benefit from the Trans-Pacific Partnership Agreement (TPPA).

50 years ago, Singapore was poorer than Malaya but now their per capita income was five times that of Malaysia. “Look at Singapore that does not have oil reserves or even palm oil but it has five times higher income per capita than us because of its open system policy.”

Our response:

Singapore is not richer than Malaysia just because of its open system policy. Among other things, Singapore established an education system which created a world-class workforce to fulfill their ambitious economic goals.

Interestingly, under ISDS provisions, Malaysia risks having to compensate foreign investors with multimillion awards. This money to pay them will come from taxpayers. Hence, that money will not be used for government spending, such as education. That happened to the Philippine government, which spent US$58 million defending two cases against a German investor; this money could have paid the salaries of 12,500 teachers for one year.

 

What Mustapa said (source):

“This could result in Malaysia gradually being left behind and the development gap between all three countries [Singapore, Vietnam, Malaysia] will widen as the TPPA will bring many benefits to countries participating in it especially in terms of more market access and state-of-the art technology.”

Our response:

A free trade agreement alone does not mean that the investor will bring along state-of-the-art technology. Indeed, even though Vietnam already has a free trade agreement with the US, signed in 2000. Back then, the US was being heralded as “a strategic investor” who would become “the top investor” in Vietnam.

However, so far the US is only the seventh largest foreign investor in Vietnam, behind many ASEAN countries. They have been unable to attract high tech, because of the difficulties finding skilled workers in the country. In addition to unskilled labour, US businesses cite the lack of policy transparency and corruption for not investing more in the country.

 

What Mustapa said (source):

He said operation costs for SMEs would also be less due to the decreased import duty, which would lower the cost of importing raw goods.

Our response:

Similarly, SMEs from all other countries will be able to access Malaysia’s raw goods with decreased import duty. Currently, an SME in the USA is more competitive than a similar SME in Malaysia. If they are both able to access Malaysia’s raw materials at the same price, then the Malaysian SME is at a disadvantage and will not be able to compete in the domestic market, let alone overseas.

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