TPP Basics: Export Taxes on Goods (Workshop by Sanya Reid Smith)

Export taxes have the function of keeping raw materials’ prices cheap within the country, so that local value-adding industries can thrive. However, under the TPP, Malaysia’s ability to adjust export taxes is restricted, potentially opening up a situation of economic colonialisation where developed countries in the TPP will be able to import raw materials for cheap, and export finished goods back to Malaysia, harming the local industries.

This series is brought to you by TPPDebate.org based on a recent NGO briefing on the Trans-Pacific Partnership (TPP) in Malaysia by Ms Sanya Reid Smith, an expert on Trade and Investment Rules. She has been monitoring the Trans-Pacific Partnership Agreement (TPPA) since 2011, and is also the resource expert for Bantah TPPA Malaysia. The entire talk is uploaded on YouTube in a seven part series and can be accessed here; this article is drawn mainly from Part 1 of the talk.The index of the series is attached at the end of the article.

Video starts at 6:29

Export taxes help value-added industries

What else is in the goods chapter, is Malaysia’s export tariffs. This is for those who are asking about colonialisation. So Malaysia today has export taxes on raw materials, like wood or crude palm oil. What that does is it keeps the price of wood in Malaysia cheap, because there’s an export tax. So it’s used for the furniture industry and the furniture that is made in Malaysia is cheaper than the world price. Because the wood was cheaper, because there was an export tax on the wood.The Malaysian furniture industry employs tens of thousands of people, they need the export tax on the wood to be sustainable.

The same for crude palm oil. Malaysia and Indonesia both grow palm oil. If Indonesia raises its export tax, and Malaysia doesn’t, the palm oil runs to Indonesia and is processed there, because both countries have too much refining capacity. So Malaysia needs to have an export tax to support the jobs and the value-added processing in palm oil refining, making it into soap, biscuits, chemicals, biodiesel and so on.

The same even for the steel industry. The steel industry in Malaysia is run on scrap metal because you have two ways to make steel: if you’re a big country, with a large population you can start from iron ore, dug up from the ground. But for a country the size of Malaysia you melt down the scrap metal, that’s why they steal the manhole covers, and melt it down, and turn it into boilers and video cameras. There’s not enough scrap metal in the world. Everybody wants it. Everybody’s stealing manhole covers. So Malaysia puts an export tax on scrap metal to make sure the steel industry has raw materials.

The developed countries don’t like export taxes in developing countries, because the developed countries don’t have raw materials anymore. They’ve cut down their forests, they’ve mined all their minerals, they want them to come cheap from the developing countries. Then they make them into furniture in America and send it back to Malaysia. They want the value-added jobs in their own countries. So the US and the European Union try to remove export taxes.

TPP restricts Malaysia’s ability to set its export taxes

The TPP doesn’t remove Malaysia’s export taxes, but it only can use them for the products listed, to the amount listed. So in future if Indonesia raises their export tax on crude palm oil, Malaysia cannot – so the palm oil will run to Indonesia and the value-added jobs will be in Indonesia. Because Indonesia is not in the TPP. Not yet.

So Malaysia is stuck. It can only use export taxes on what it has listed, to the amounts listed. So when your question is about ‘is the TPP economic colonialisation?’, if in the days of the colonies, the job of the developing countries was to send the raw materials to Britain, and they would process it, and send the furniture back, then it looks like this is what the TPP pushes developing countries in the TPP back towards.


Index of the Series

This series contains 20 articles on the TPP, and can be read in any order:

Transcriptions are kept chiefly ad verbatim, with some minor edits for readability. The text has also been checked by Ms Smith for accuracy.

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