TPP Impacts: On the economy (Workshop by Sanya Reid Smith)

What is the impact of TPP on the economy? In this article, we explore this topic from different angles, such as trade balance and GDP growth. Malaysia’s trade balance will worsen if we join the TPP, by USD12bil a year, because imports will increase instead of exports. Claims that Malaysia’s GDP will grow are dubious, due to unrealistic assumptions of the Pricewaterhouse Coopers study.

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, Part 3 and Part 6 of the talk. The index of the series is attached at the end of the article.

Video starts at 8:56

Malaysia’s trade balance will worsen by USD12bil a year

The goods chapter is supposed to be where Malaysia gains. Generally developing countries are cheaper at making clothes than the US. Cheaper at making shoes, computers, these were supposed to be the chapters where Malaysia would benefit, to offset the 24 chapters that are costs (out of the 30 chapters).

But in these chapters alone, even the Pricewaterhouse Coopers study (which MITI commissioned and was released a month ago) admits that if Malaysia joins the TPP, Malaysia’s trade balance – how much it imports, how much it exports – will get worse by 12 billion US dollars a year. This is not surprising because today Malaysia’s tariffs are like this high – let’s say it’s 22%. US tariffs is 3%. Everybody goes to zero. Who is sacrificing more? Malaysia.

So Malaysia’s imports would increase by more than the US imports would increase. And Malaysia’s exports cannot increase by much because the US average tariff is only 3%. 3% to zero, not much difference. And to get to zero you have to comply with the rules of origin to prove that this [gestures at computer] is made in Malaysia, it goes back up to 5%.

If Malaysia does not join the TPP, its trade balance will go up. It will do better. So this was the PWC findings.

GDP will go up: under dodgy assumptions

Now, it’s not very pretty, right? Doesn’t look very pro-TPP. So then they dressed it up a bit. And they said, don’t worry about the trade balance, gross domestic product (GDP) will go up.

But when you look at the methodology that they use to get the results that GDP will go up, they admit that 90% of the increase in GDP is from their assumptions of something called “non-tariff measures” that will be cut by 50%. They don’t explain what is “non-tariff measures” except to say that it includes subsidies. Now, remember subsidies are not covered in the TPP. Sure, export subsidies are gone, but the US wasn’t using it. Domestic subsidies are still there, and can increase.

PWC findings is not based on the text

But PWC says, “let us assume that subsidies are cut by 50%” – then GDP growth is how many hundred billion. So they make up an imaginary text, and they say, “in my imaginary text, GDP will go up”. But what we have is 6000 pages of actual text, that the MITI minister Tok Pa will sign on the 4th of February this year, after the parliament debates it on the 26th, 27th, 28th of January. The Malaysian parliament will debate it and probably will have a whipped vote and pass it. Of course it doesn’t have to pass the Malaysian parliament under Malaysian law, they’re just doing it for debate purposes.

So the GDP growth in the PWC study is based on assumptions that do not reflect the actual reality of the text. Even though it was released after the text was released, and they said “we adjusted the key findings in accordance with the text” – it’s not based on the text. Then they say, don’t worry, a lot of investments will come. But that investment is made on even more dodgy assumptions according to economists.

So it still looks like in the TPP chapters where Malaysia is supposed to benefit to offset the costs, it’s a nett loss. 12 bil USD a year, the trade surplus gets less.

Video starts at 7:30

And if you look at other people’s studies, like the US Government did a study about the impact of the TPP on Malaysia – they found that by 2025, Malaysia’s GDP would increase by 0.01%. Like a rounding error, statistical error. Really small, basically. So for that, you have twenty four chapters of costs, like medicines’ high price for longer, copyright, the farmers, the fisher folk with no subsidies, all the different sectors we talked about lah, the ability to regulate ISDS… in return for 0.01%. So it’s not clear that the economic benefits outweigh the costs, on the economic side. Maybe there’s other considerations, but on economics it’s not clear, to me, that the benefits outweigh the costs.

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Foreign investment comes because of other factors

Foreign investment comes if you have a big population, a lot of people to sell to, Walmart, Tesco want to come to sell to your people, right? So that’s Brazil, India and China. Foreign investment comes if you have natural resources: oil and gas, minerals. Foreign investment comes if you have human capital, people who can work in the factories. Foreign investment comes if your electricity doesn’t go off ten times a day, your roads are not jammed, and you don’t have people bombing your factories in the middle of a war zone. These are what the economists agree are the main reasons for getting foreign investment. It’s not whether you sign this treaty or not.


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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