TPP Basics: What-ifs (Workshop by Sanya Reid Smith)

What if we don’t sign? What if we don’t comply? What if we want to withdraw? In this article we address the commonly heard concerns on the TPP from the Malaysian perspective.

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 Parts 5 and 7 of the talk. The index of the series is attached at the end of the article.

1. What if we don’t sign?

Video starts at 3:02

We already have a good baseline with existing treaties and WTO

One thing you might hear a lot about with the TPP is that these countries have 40% of gross domestic product, 800 million people, we must be in it to win it, we have to be in the market. But remember the baseline today: all the 12 TPP countries are in the World Trade Organization (WTO) already, where the US is not allowed to raise their tariffs above the level that they are bound at at the WTO, even on Malaysia’s products, even if Malaysia doesn’t sign the TPP. They are locked in. They cannot go above to punish Malaysia. And the locked tariff rate, on average, is 3 percent in the USA. It’s pretty low, because remember, when you go to zero tariffs, it costs you five percent in costs of compliance with the rules of origin to get to the zero tariffs.

So, we’re all in the WTO already to start with. Furthermore, Malaysia already has free trade agreements with low or zero tariffs with all the TPP countries except four. Of those four it’s the US, who already has low bound average tariffs at the WTO, 3 percent, so not much difference going to 0% in the TPP. Canada, has low average bound tariffs at the WTO of 6%, and that leaves Mexico and Peru. If it is really such an important thing to get Malaysian exports into Mexico and Peru, then you have a free trade agreement lah with Mexico and Peru, where we just have six chapters about removing tariffs and none of these chapters on intellectual property, ISDS and these other things.

Video starts at 8:03

Most countries in the world do not have an FTA with the US

I counted, and there are about sixty countries who started negotiating a free trade agreement with the US. Always very optimistic. ‘I will get a good deal, my prime minister is special friends with the US president, he goes to his ranch for BBQ. I will get a special deal,’ that’s what the Australians thought for their prime minister. He got the same deal as everybody else, the same text because the US has a template: ‘you sign here.’

So a lot of countries, after twenty five rounds of negotiations, where they had not succeeded in making any significant change to the initial US template that came, they looked at the final version and said ‘you know what, this doesn’t suit my country’s national interest, thank you, but no thank you, I won’t sign.’

40 out of 60 countries walk away from a US FTA

And this is what Switzerland did. Switzerland was negotiating a US free trade agreement, they looked at it after two or three rounds, they said to the US: ‘Must you have this on intellectual property and agriculture?’ US said, ‘We must. It’s our red line.’ Switzerland then said, ‘Thanks but no thanks, let’s stay friends but we don’t need this free trade agreement. We can continue to trade with each other under the World Trade Organization where we all have low tariffs. Let’s just carry on without it.’

So out of the sixty countries it started negotiating with, 20 signed. Two-thirds walked away, because it didn’t suit them. So the majority don’t start negotiating, and from all those who negotiate, two-thirds don’t sign because it’s so bad for them. Very few sign, very few can cope with the substance of what the US insists on.

2. What if we don’t comply?

Video starts from 9:26

Economic sanctions make TPPA very enforceable

Once you sign, and it comes into force – what happens if you don’t comply? So, remember that it is state-to-state dispute settlement for most of the chapters. Say you don’t give the longer patents or the longer copyrights. The US government can sue the Malaysian government at an international tribunal. Malaysia would lose. The US tariffs, or the taxes, on Malaysian exports would be raised until Malaysia changes its law to comply. So the palm oil lah, the electronics, the baju, everything… pays a higher tariff in the US, and they lose market share there. Until Malaysia changes its law, its Constitution, whatever that is violating.

So it is very enforceable, and most countries cannot withstand that pressure. Once there are tariff sanctions they say, ‘Ok ok. I do. I agree.’ The EU and the US actually can withstand the sanctions. There are some famous cases where, I think, the US sued the EU, because of the EU’s regulations on GMOs or beef hormones, and the EU lost. But the EU said ‘never mind, this is so important for my health, I don’t care lah. America, you keep your 100%, 1000% tariffs on French cheese, never mind, I keep my laws.

They could tahan because they are rich lah, but can Malaysia tahan if its exporters are screaming – the palm oil, the electronics, all facing tariffs? Most countries say, ‘Ok ok, I change my law to comply.’

For further information on non-compliance, see the other articles on investor-to-state dispute settlement (ISDS) and taxpayers.

3. What if we withdraw?

Video starts at 13:56

No country has yet left a US FTA

In the TPP, you can withdraw with six months’ notice in writing. So Malaysia just writes a letter, six months later it takes effect, and you are out. But, there has never been a country that has withdrawn from a US free trade agreement once it takes effect, because politically it might look a bit unfriendly, ‘I’m not friending you anymore, right? I’m withdrawing.’

Certain effects of TPP are irreversible even after withdrawal

Also, some things are irreversible, if your patients have died with no medicines, you can’t bring them back to life. If your farmers have been pushed off the land, can they go back to the land? Like in NAFTA, the North American Free Trade Agreement with Canada, Mexico and the US. Remember that you have to remove your tariffs, on the US farm products. But the US keeps their domestic subsidies. So Mexico removed their tariffs on US corn under NAFTA. But the US kept their subsidies to their corn farmers. The US corn was so cheap into Mexico, that one-third of the Mexican farmers went bankrupt. They lost their land, could not compete with the subsidised US corn, it was so cheap.

So sure, you can withdraw from NAFTA, but what happens to all the farmers who lost their jobs? What happens to the industries that collapsed? What happens to the patients who died with no medicine? Some things are very hard to reverse. So yes, in theory you can. But we don’t see it in practice. We see a lot of countries decide not to sign, but once they are in you don’t see them get out. Malaysia could always be the first, but hasn’t happened so far. Malaysia boleh, kan?

Can you be sued for leaving the TPP?

I think, from memory, in the investment chapter they have a six-month waiting period, before they can sue and they are supposed to consult and negotiate before the actual suing takes effect. I think they’d be one day late if they did it the next day (after the country’s notice to leave the TPP).

Malaysia’s existing investment treaties often have what we call survival clauses, that even when you withdraw they can still sue for another 5, 10, 15, 20 years. That’s what happened to some of the Latin American countries. Thank goodness that the survival clause is not in the TPP.

Lawsuit risks still there even after withdrawal from TPP

But, for example say Malaysia opens certain sectors in the TPP, right? We open mining, bauxite mining, uranium mining, etc, because of the forced opening to foreign investors in the TPP. Say we have a new bauxite mine license given to an Australian. Malaysia then withdraws from the TPP and says, ‘now that we have withdrawn, we are cancelling all those licenses we were forced to give. We cancel that bauxite mine, we don’t want it anymore.’ Or a new government says ‘we don’t want bauxite mining anymore.’

Even though you cancel the license after you have left the TPP, foreign investors could still sue under other treaties that have ISDS. For example, Australia and Malaysia already have investment protection through the ASEAN-Australia-New Zealand free trade agreement. The Australian shareholder in the bauxite mine could still sue under the existing investment protection provisions in some of Malaysia’s other 74 treaties with countries concerned for the lost profits he would have made if he could have kept his bauxite license. So, even though he can’t sue under the TPP anymore, remember Malaysia still has all those other treaties it has signed, so it could still be sued under those ones.


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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