WITH the signing of the Regional Comprehensive Economic Partnership (RCEP), the stage is set for Malaysia to tap into the world's largest free trade area (FTA) of a market of 2.1 billion people, accounting for approximately 30 per cent of the world's GDP.
Up next is the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) – spanning the Asia-Pacific Rim countries and home to 95 million consumers, contributing around 13.5 per cent of global GDP.
The CPTPP, or the new version of the TPP, remains highly controversial. It's good that International Trade and Industry Minister Datuk Seri Azmin Ali reiterated that there's no timeline to ratify the CPTPP, and that it must be dependent on the CPTPP being about "fair" trade, not just "free" trade.
Under the CPTPP, state aid rules remain a major concern. As highlighted in a report by Khazanah Research Institute (KRI), Chapter 17 of the CPTPP specifically mandates a "level playing field" between state-owned enterprises/SOEs (government-linked companies/GLCs) at the federal level and non-SOEs (read: foreign investors). This would definitively impact the advantages enjoyed by our GLCs.
In addition, the TPP was also opposed within Malaysia on grounds of investor-state dispute settlement (ISDS) and intellectual property rights (IPR). Firstly, on ISDS, which basically means disputes between the government and foreign investors are to be arbitrated by a non-judicial tribunal outside of the country's sovereign jurisdiction.
Given developments post-TPP, which spills over into the current CPTPP context, the worry is that in the event our government chooses to cancel or renegotiate a contract with a foreign investor as was the case with the East Coast Rail Link (ECRL), just to give an example, will this expose us to ISDS proceedings?
Secondly, on IPR, there's the well-acknowledged and well-founded argument that the TPP would have resulted in the prices of drugs soaring, thus impacting the low income group, due to patent enforcement and licensing requirement.
Now under the CPTPP, the suspension of longer patent periods for innovative medicines and shorter periods for copyright protection may be welcomed, but will the inbuilt bias against data localisation work to the disadvantage of new entrants into the CPTPP market, not least, Malaysia?
Data localisation means data collected is first approved by the host country, before being transmitted across borders. Prohibiting data localisation benefits countries with strong patent applications and track records. New data from one country can be used as part of the subsequent newer patent submissions in another country, with all the ramifications on us, including loss of tax revenue due to ease of transfer pricing, for example.
Ironically, this undermines the level playing field. Thirdly, on electronic commerce – will our accession to the CPTPP render the digital service tax (DST) under the Service Tax Act (2018) susceptible to legal challenge as being incompatible with the provisions on electronic commerce as per Chapter 14 (of the CPTPP)?
The relevant provisions mention the prohibition of the "imposition of customs duties on electronic transmissions". Will the DST be interpreted under the ISDS as constituting a violation of the government's "investment obligation", where the digital content providers that are foreign service providers (FSPs) have operations in Malaysia, whether outsourced or through subsidiaries?
Furthermore, will the DST be deemed a form of customs duties and, therefore, a form of protectionism? Bearing in mind, legal action can still be initiated by an interested party based in Malaysia with legal standing on the basis of judicial review. Thus, the relevant stakeholders who may be aggrieved needn't go through the ISDS, which of course has a much higher threshold, for example, requiring demonstration of loss of investments.
As we pause to consider ratification of the CPTPP, have we weighed the potential impact on intra-Asean cooperation and regionalisation? Will the CPTPP also simultaneously weaken Asean's "centrality" as the "fulcrum" of the wider Asia-Pacific cooperation – which lies at the core of the RCEP?
The government is right to focus on intensifying intra-Asean cooperation by prioritising the RCEP. In doing so, we're tapping into the vast potential of the Asean and wider RCEP market that's also more supply-chain resilient while at the same time taking advantage and playing a part in shaping the supply chain reconfiguration.
* The writer is Head of Social, Law and Human Rights at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research