TRANS-PACIFIC PARTNERSHIP AGREEMENT...

TRANS-PACIFIC PARTNERSHIP AGREEMENT (TPPA)

by:

Datuk J. Jayasiri

23 October 2015

‘Driving Transformation, Powering Growth’

Background

• Origins from the (P4) free trade agreement signed by New Zealand, Singapore, Chile and Brunei in 2005 – entered into force in 2009.

• TPPA began with inclusion of the United States, Australia, Peru and Viet Nam in March 2010. Scope expanded to include new issues.

• First Round – March 2010. Malaysia 9th Member in October 2010.

• Canada and Mexico joined in December 2012 (15th Round) and Japan in July 2013 (18th Round).

• Membership in TPPA is voluntary.

• Building Block for FTAAP – Free Trade Agreement of Asia Pacific.

Driving Transformation, Powering Growth 2

The TPPA negotiations started in 2010


+ +

TPPA

Building Block for FTAAP – Free Trade Agreement for 21 APEC Economies

2009 (P4) 2010 2010 - 2013

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Disclaimer: This document is for information purposes only, and does

not constitute legal advice

TPPA: A National Endeavour


1. MITI

2. Ministry of Finance

3. Ministry of Domestic Trade, Co-Operatives and Consumerism

4. Ministry of Agriculture & Agro-Based Industry

5. Ministry of Plantation Industries and Commodities

6. Ministry of Natural Resources and Environment

7. Ministry of Human Resources

8. Attorney General’s Chambers

9. Ministry of Communications and Multimedia

10. Royal Malaysian Customs Department

11. Department of Standards Malaysia

12. Bank Negara

13. Ministry of Health

14. Ministry of Home Affairs

15. Khazanah Nasional

16. Securities Commission Malaysia



There are 30 Chapters in the TPPA…

1 – Initial Provisions 2 – National Treatment for Market Access for Goods 27 – Administrative & Institutional Provisions 28 – Dispute Settlement 29 - Exceptions 30 – Final Provision

3 – ROOs 4 – Textiles and Apparel 5 – Customs Administration 6 – Trade Remedies 7 – Sanitary and Phytosanitary 8 – Technical Barriers to Trade 9 – Investment 10 – Cross Border Services 11 – Financial Services 12 – Temporary Entry 13 – Telecommunications 14 – E-Commerce 15 – Government Procurement 16 – Competition Policy 18 – Intellectual Property Rights 21 – Cooperation and Capacity Building 22 – Competitiveness / Business Facilitation

17 – Competition (SOE) 19 – Labour 20 – Environment 23 – Development 24 – SMEs 25 – Regulatory Coherence 26 – Transparency and Anti Corruption

Standard Legal Chapters Traditional Trade Issues New Issues

5 Disclaimer: This document is for information purposes only, and does


Ministerial Meeting in Atlanta


Date : Scheduled from 30.9.2015 to 1.10.2015, extended

3 days

Outcome : Announcement of Conclusion of TPP Negotiations on

5 October 2015 but pending decision to sign



Way Forward Post Atlanta Next Steps

• Technical cleaning up (market access, NCMs and SOE schedules)

• Legal scrubbing

• TPP Document to be made public (when all details finalised)

• Signing (90 days after US President notifies Congress)

• Ratification (2 years after signing)

For Malaysia

• Debate in Parliament

• Completion of ISIS and PwC studies (2 weeks after release of documents)

• Stakeholder engagement

• Decision on signing

• Ratification

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Key Areas Resolved in Atlanta

• Rules of Origin: agreed on percentage of auto inputs from TPP countries to qualify for preferential access to TPP markets

• Market access for dairy products

• DE biologics:

- protection of 8 years OR 5 years plus other measures - to be reviewed after 10 years

• Labour Consistency Plan (side letter): for Brunei, Viet Nam, Malaysia

• Tobacco carve-out: Agreed to ISDS carve-out - members can choose to deny ISDS rights to foreign investors with

regard to tobacco control measures (which include production, distribution, labeling, marketing, enforcement, etc.)

8 Driving Transformation, Powering Growth Disclaimer: This document is for information purposes only, and does


Malaysia’s concerns and sensitivities

Areas

• Sovereignty; right to regulate

• Bumiputera issues

• Government Procurement

• State-owned enterprises

• IPR - Pharmaceutical

Flexibilities accorded to Malaysia:

• Longer transition period

• Differential treatment such as more favourable thresholds; lower commitments; exclusions

9 Driving Transformation, Powering Growth Disclaimer: This document is for information purposes only, and does


Key Outcomes for Malaysia

i. Government Procurement

ii. State Owned Enterprises (SOEs)

iii. IPR Chapter & Affordable Medicines / Data Protection for Biologics

iv. Labour

v. Non-conforming Measures

vi. Market Access for Goods

vii. Textiles

viii. Rules of Origin (Auto)

ix. Investment (ISDS) and Safeguards



i. Government Procurement



• Rules on non-discrimination, transparency and processes

• Obligation to open GP market for construction, goods and services based on a country offer

• Malaysia is accorded delayed application of 3 obligations under GP Chapter:

- 3 years for domestic review procedures (avenue for supplier to challenge any breach of GP Chapter)

- 5 years for dispute settlement

- 12 years for phasing out offsets (procurement other than for security/defence)

• Malaysia is also accorded delayed application of Investment-State Dispute Settlement (ISDS) for 3 years under Investment Chapter.

Government Procurement (GP)



GP: Market Access

• Thresholds for opening up GP market to TPP suppliers through gradual reduction based on transitional period:

- GOODS: transition of 7 years - SERVICES: transition of 9 years - CONSTRUCTION SERVICES: transition of 20 years

• Entities covered by obligations - All Ministries based on listed agencies under the respective Ministries - Statutory bodies under MITI

• Bumiputera policy preserved - 30% set aside for Bumiputera contractors (construction services) - Price preference for goods and services to Bumiputera suppliers & manufacturers - Central Contract on existing items



Exclusions For Malaysia

Examples of main exclusions

• Entities that are not offered - Some federal agencies - All state govt. and local authorities - Most statutory bodies and all government companies

• Procurement below thresholds

• Procurement in relation to: - Essential security interests - Rural development and poverty eradication programmes - Program Perumahan Rakyat - Public Private Partnership (PPP) contracts - Dredging services and slope works - Religious purposes - Local handicraft, national treasures and national heritage - Uniforms, text books and milk and food programmes for pre-school and school

children - Inputs for agro-food production - Research and development

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ii. State Owned Enterprises (SOEs)

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Main Obligations • SOE to purchase goods and services in line with

commercial considerations and not to discriminate

• SOE not to cause adverse effect when they receive non commercial assistance

• SOE operations to be transparent including if matters that affect trade and investment including programs on Non Commercial Assistance


Flexibilities • Preferences for Bumiputera Policy, SME and companies from Sabah

and Sarawak

• Preferences for Petronas, Felda and Development Financial Institutions

• Independent Pension Fund

• Sovereign Wealth Fund

• Non Commercial Assistance for domestic services excluded

• Threshold – SOE with annual revenue of SDR 200 million excluded from most obligations


iii. Intellectual Property Rights & Pharmaceuticals

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IPR Chapter & Affordable Medicines

• A claim is that the price of medicines will rise astronomically as a result of stronger patent protection.

• In reality, the patent-protection clauses in the TPPA are not all that different from Malaysia's current regulations on this subject. Our laws provide patent protection for 20 years.

• Protection need to be extended only if there is unnecessary delay in patent approval.

• One other point: We need to realise that prices of drugs are not solely determined by patent protection.

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Data Protection for Biologics • Biologics : Non-chemical drugs such as vaccines, gene therapy. • Agreement on Biologics gives two options for TPP Parties:

i. Countries to offer 8 years market protection for Biologics; or ii. Countries to offer 5 years of Data Protection, and other measures such as

regulatory measures and patent to deliver comparable market protection for biologics.

• There is a review mechanism 10 years after entry into force of TPP. • Transition period of 5 years for Malaysia to introduce data protection for biologics. • Confirmation that Parties are not prevented from taking measures to protect public

health.

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iv. Labour

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Labour • Key obligation is to adopt and maintain related principles of the ILO

Declaration 1998.

• Malaysia, Brunei, and Vietnam will bilaterally work with US on Labour Consistency Plan (LCP)

• The elements of LCP are as follows:

- Reforms to labour legislations (freedom of association & right to collective bargaining; eliminate forced labour; abolish child labour; eliminate employment discrimination)

- Institutional reforms and capacity building, including enforcement

- Promote transparency and sharing of information

- G-G Senior Official Committee / 7 years to assess progress

- Technical assistance by ILO

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v. Non-conforming Measures (NCMs)

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Exclusions from Investment and Services Chapter obligations

• Bumiputera preferences and land policies

• PETRONAS’ role under the Petroleum Development Act (PDA)

• Right to impose any condition when disposing assets of SOEs for the first time; and for subsequent transfers of assets in strategic sectors

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vi. Market Access

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• Malaysian companies will benefit from preferential access (most import duties to be eliminated at entry into force) in new FTA markets: US, Canada, Mexico and Peru

• Malaysian manufacturers will gain competitive advantage over regional competitors by: - enjoying preferential import duties when exporting to TPP

member countries; and - saving imports costs for raw material/inputs from TPP

member countries as Malaysia will also be reducing/eliminating its import tariffs.

• Only Malaysia and Vietnam are allowed to maintain export taxes/export charges. Malaysia collects about RM2billion from export taxes annually.

Market Access

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Import Duty Elimination on Malaysia’s Sensitive Products • Malaysia will eliminate import duties for highly sensitive products -

alcoholic beverages and tobacco products - within 15 years. However, Malaysia is allowed to maintain or adjust excise duties for these products.

• Import duty for rice will be eliminated within 10 years. However, Malaysia reserves its right to maintain the current importation and distribution system.

• Import duty (30%) for sensitive automotive products - e.g. CBU vehicles - will be eliminated within 12 years. Other automotive products will be eliminated between 5 and 10 years. Import duties for ASEAN have been eliminated and will be eliminated for Japan and Australia in 2016.

• Import duty for sensitive iron and steel products will be eliminated within 10 years. Tariffs on other products will be eliminated between 5 to 7 years.

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Product Current Import Duty

(Before TPP)

Duty Eliminated in stages

(After TPP)

Export value in 2014

(US$ mil)

Electrical & Electronic Products

US Canada Mexico Peru

3-5% 5-11% 5-15%

9%

0% 11,138.0 308.2

1,148.7 39.0

Rubber Products US Canada Peru

2.4-14% 5-15.5%

9%

0%

1,238.2 84.6 8.5

Palm Oil Canada Mexico

11% 4%

0%

17.9 2.2

Transport Equipment US Mexico

5% 5-15%

0%

292.9 20.5

Wood Products including Plywood

Japan 6-10% 0%

1,103.4

Malaysia’s Export Which Will Enjoy Immediate

Import Duties Elimination Under TPP

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vii. Textiles

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Textiles

• 72.9% textiles tariff lines constituting 36.44% of total exports to US will get duty elimination upon entry into force. Without TPP, only 11% of tariffs or 0.9% of total exports are duty free.

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viii. Rules of Origin (Auto)

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• Agreed on percentage of auto inputs from TPP countries to qualify for preferential access to TPP markets: (a) Finished Vehicles – agreed 55 per cent regional value

content. (b) Tractors - agreed 55 per cent regional value content. (c) Auto parts –agreed RVC for 25 auto parts ranging

between 45% to 55%.

• Malaysian parts and component producers can benefit from this outcome and participate in the regional supply chain for auto-parts. In addition, the rules will also encourage investment from other TPP Parties to invest in Malaysia.

Rules of Origin (Auto)

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ix) Investor-State Dispute Settlement (ISDS)

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Investment Chapter

Investor-State Dispute Settlement (ISDS) is NOT new for Malaysia

• 74 Bilateral Investment Treaties (BITs)

• 8 FTAs (Malaysia-Japan, Malaysia-India, Malaysia-Pakistan, Malaysia-New Zealand, ASEAN-China, ASEAN-Korea, ASEAN-Australia-New Zealand, ASEAN-India) which contain ISDS provisions.

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ISDS - Safeguards

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• Provisions on mandatory consultation and mediation.

• Investor/claimant – must prove losses suffered arising from a breach of the obligations of the investment chapter; burden on investor to prove its claims.

• Discourage frivolous claims:

- preliminary objection procedure to quash frivolous claims

- requiring investor to pay attorney fees and reasonable costs to the host state government

• No claims allowed after lapse of more than 3-year 6months.

ISDS – Safeguards cont… • Governments (thru the TPP Commission) can issue

interpretation of the investment chapter which is binding on a tribunal

• Transparent proceedings:

- open hearing to public

- notices of arbitration, pleadings, submissions, awards made public

• Permit submission of amicus curiae briefs by experts

• Consolidation of claims, arising out of similar events, relating to issue of law or fact

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Going forward, we believe TPP will …

• Further promote our trade and investment agenda

• Ensure Malaysia moves in tandem with regional and global development, especially in keeping abreast with our competitors

• Ensure Malaysia keeps pace with international standards – labour, environment

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• Trade Rules: More onerous commitment if join later

• Lose out to new entrants joining TPP, example Korea, Taiwan and other APEC economies

• Viet Nam and Singapore will have advantage over Malaysia through preferential access to TPP markets

• We will be disadvantaged in the regional supply chain due to loss of preferential treatment for raw materials and unfinished goods.

Non-participation in TPPA / Cost of late entry

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Thank you

Block 10, Government Offices Complex, Jalan Duta, 50622 Kuala Lumpur, Malaysia

Tel: 603-8000 8000 | Fax: 603-6201 2337 Email: [email protected] | Website: www.miti.gov.my

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