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Parliament and private sector NGOs should be fully concepted in FTA negotiations with United States

Speech (9) on the Ninth Malaysia Plan
by Lim Kit Siang  

, Monday) :External trade has been a main driving force behind Malaysian economic growth. Export oriented policies together with large inflows of Foreign Direct Investment have served the nation well. Malaysia has played a prominent role in WTO deliberations by seeking equitable treatment for developing countries' exports in the markets of the developed countries but with adequate safeguards to ensure a level playing field. Nearer home, it has played a meaningful role in promoting the Asean Free Trade Agreement (AFTA).

There is thus no question that opening of markets has featured on the Malaysian development agenda. It is against this background that we must express surprise and concern that the 9th Malaysia Five Year Plan devotes no more than a passing paragraph. Reference is made to the fact that Malaysia will continue to adhere to WTO commitments and seek new bilateral agreements.

It is indeed most surprising and shocking that an issue as vital and important as this is treated in a cursory manner. I must also express grave concern that members of this House have been neither consulted nor informed of the ramifications of the recently concluded FTA with Japan. News reports and commentary by informed analysts indicate that this was very much a one sided agreement with the balance of gains accruing to Japan. The FTA has not been tabled in Parliament for information or debate. This is another example of the Executive branch treating the legislative with contempt.

On the heels of this agreement with Japan, MITI has proceeded to start preliminary discussions with the United States. According to the Bangkok Post (14 Jan 2006), last December, the Economic Affairs Counsellor at the US Embassy in Kuala Lumpur had said that Malaysia could sign an FTA before June 2007, as the Trade Promotion Authority (TPA) which grants the US President a fast track authority without going to Congress, is to be dissolved on 1 July 2007.

Based on the scope and pattern of FTAs negotiated by the US with other trading partners such as Australia, Chile, Singapore and the scope of work to be taken up under preliminary negotiations covering:

o        facilitation of trade and investment, including non-tariff barriers;

o        protection of intellectual property;

o        regulatory issues affecting trade and investment policies;

o        technology transfer;

o        biotechnology;

o        promotion and protection of investment.

the Consumers' Association of Penang (CAP) and Sahabat Alam Malaysia (SAM), the Third World Network have expressed their concerns in a memorandum to MITI. Indeed, Tun Dr Mahathir has expressed his opposition to a FTA with the United States.

It is also pertinent to note that Thailand-US negotiations for a FTA have stalled because of domestic opposition over contentious issues such as intellectual property, on access to medicines: extension of the term for drug patents; a provision for data-exclusivity for five years; and restricting the grounds for issuing compulsory licenses.

The global experience with FTAs involving the US is that it demands from its partners WTO-plus obligations. These include rules on investment, government procurement and competition law, which have so far been rejected by developing countries as subjects for WTO negotiations or rules. Issues like labour standards and environment are often included. Thus, new rules and obligations enter by the side-door through the FTAs. Such provisions go beyond what is required under the current WTO rules on TRIPs

The Plan provides no indication that MITI has prepared a framework to assess the benefits and costs of the FTA, in terms of its various components and of the various proposals and provisions, and the overall balance of benefits. The cost-benefit analysis needs to take account of: (a) gains and losses in trade terms: e.g. increase in exports, imports; (b) gains and losses in terms of jobs; (c) effects on the loss of policy freedom; (d) social effects: on access to medicines, to knowledge, food security etc; (e) effects on technology transfer.

To march into full negotiations with the US, without such an assessment is akin to flying blind and is an irresponsible step. For Malaysia, little immediate benefits are in sight.

Malaysia can expect little to benefit from market access in goods from the FTA with the US, since such access will inevitably be constrained and circumscribed by onerous conditions such as rules of origin and safeguard measures. On agricultural products, the gains will most certainly limited. For example, Australia could not get any extra sugar quota in its FTA with the US, and on beef, it only obtained an 18.5% increase in its quota, confined to manufacturing-grade beef spread over 18 years, or an extra half a cow, per farm, per year. Non-tariff barriers have also limited Mexico's expected exports of agricultural products to the USA under the North American Free Trade Agreement (NAFTA).

Malaysia has little to gain in the services area because of its lack of capacity and competitiveness.

On the basis of FTA agreements that the US has finalized with other countries, it is patently clear that a potential US-Malaysia FTA will be one sided, detrimental to national interests and be costly. Malaysia can be expected to have costs arising from additional intellectual property rights (IPR) obligations, going well beyond the TRIPS obligations. Regarding investment, government procurement, and competition, there can be expected to be major costs to Malaysia in terms of loss of policy space and the use of policy instruments.

The investment issue is a central part of the US agenda in many FTAs. US demands will in all probability go well beyond what was proposed in the WTO discussions on investment, which Malaysia has opposed. This is more than just a fear as the US - Singapore FTA demonstrates. The US-Singapore FTA has a broad definition of investors and investments, high standards for the right of establishment (i.e. the provision of strong pre-establishment rights), national treatment, prohibition of performance standards, freedom for fund transfers, an expropriation clause, as well as investor-to-state dispute settlement.

Investors claiming to have suffered losses due to expropriation within a broad definition can take up cases against the host government for compensation. Many such investor-to-state cases have been taken up under NAFTA. Malaysia could suffer heavy penalties under the expropriation and dispute settlement provisions.

Malaysia has led the developing countries in WTO in opposing the start of negotiations on an investment agreement in the WTO, because this would prevent or reduce the freedom to determine their own investment policies, such as choice of and conditions for foreign investment, including entry requirements, equity requirements, performance requirements, regulations on funds transfer etc.

It is clear that concessions in this regard will clearly collide with many of both current and new policies that are espoused in the 9th Five Year Plan. This is an example of a confused set of contradictory policies. An example that highlights this contradiction is the pursuit of new Guidelines for Distributive Trades which will enforce ownership requirements. Under a US-Malaysia FTA, these would be illegal. The Government would then face two options: either retreat by rescinding the rules or face US counter measures and penalties.

The US posture on FTAs typically requires the partner country to enact competition legislation. Under the provisions of a competition policy and framework the growth and survival of local firms against the large foreign companies is especially affected. Again enactment of such legislation will be at conflict with many existing Malaysian laws.

Much the same could be said about procurement rules governing Government purchases of goods and services and award of projects. Procurement rules will demand all government procurements to be subject to open bidding. The stark issue is: Is the Government able and willing to do away with reserved contracts, negotiated contract procedures?

The FTAs concluded by the US typically incorporate provisions concerning intellectual property rights that go well beyond the TRIPS under WTO. These cover not just issues of copyrights and piracy to new areas touching on biotech rights. FTAs remove or reduce the flexibilities provided for in the TRIPS Agreement, and establish even higher standards of IPRs in developing countries. These are not academic issues as they have a bearing on the ability for Malaysia to move ahead in the biotech area, an intention spelt out in the Plan.

There are grave dangers and risks involved in entering into an FTA with the US. Neither the Plan nor Ministerial statements to-date indicate that the issues have been studied nor a clear policy is in place on the broader issues of FTAs. Embarking on this path without adequate preparation, is the height of folly and almost suicidal. What is equally startling is that there is no indication that the Government has a clear notion of the policy conflicts that will surface once a FTA with the US is in place.

Which will prevail: the policy framework in the Plan or the provisions of a US FTA? Is the ability to make future policies to be surrendered to a foreign government? We urge the government not to embark on such FTAs which will be imbalanced and detrimental to the interest of Malaysia and the general public. The private sector NGOs and Parliament need to be consulted before further steps are taken.

It is legitimate to demand of the Government that there be full disclosure by way of a White Paper, public hearings and a debate in this House. Sleep walking to the negotiating table is not in the national interest. The national interest demands diligence on the part of the Government, a full evaluation of the issues, the calculation of costs and benefits. It is only then can Malaysia hope to have a FTA agreement that contains adequate safeguards and is balanced and equitable.

It is indeed most disconcerting that critical decisions affecting national policies and development are being made in an opaque manner. Equally disconcerting is the fact that the approach being taken shows up the incompetence of the Government in formulating and pursuing effective policies that are not contradictory, inconsistent, and detrimental to the concerns and interests of every citizen.

At the launch of the US-Malaysia Free Trade Negotiations in Washington on 8th March 2006, the Minister for International Trade and Industry, Datuk Paduka Rafidah Aziz, declared that the Malaysian government had �done our arithmetic and its very clear the benefits far outweigh the costs that Malaysia and the US will have to face� in the US-Malaysia FTA.


Rafidah should inform Parliament and the nation what is the �arithmetic� that she said the government had done to show Malaysia will benefit from US-Malaysia FTA � and in particular, what calculations the Government has made for market access gains and losses.


I have two specific questions here:


  • Should we not be strengthening competitiveness and resilience of the domestic sectors before allowing for liberalisation of the sectors? Measures to face the downside of the risks from liberalisation are not clear.   Under the reference to FTAs, all that is stated is that more efforts will be made to prepare the local private sector for progressive liberalisation and rising competition.   More clarity is needed in terms of concrete plans to understand what plans are in place. In particular, how will the SMEs cope? Do they even know what is in store for them?


  • Why is the time schedule of the US-Malaysia FTA so intense and conditioned by the US fast track authority when so much is at stake?   It is unrealistic to complete negotiations by the end of the year.  Potential controversial areas: intellectual property rights, financial services, other services, investment (although we have opened the door to Japan already and will need to give the same if not more if the US so demands).


In this connection, I call on Rafidah to clarify whether it is true that she had committed Malaysia to the AFTA agreement a decade ago without first getting Cabinet endorsement.  If this is true, this is a precedent not to be followed with regard to the US-FTA  - as there must not only be Cabinet but also Parliamentary sanction.


*  Lim Kit Siang, Parliamentary Opposition Leader, MP for Ipoh Timur & DAP Central Policy and Strategic Planning Commission Chairman

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