The Trans-Pacific Partnership: what is Malaysia’s rationale?

Author: Shankaran Nambiar, Kuala Lumpur

The Trans-Pacific Partnership (TPP) was signed in 2005 by Brunei, Chile, New Zealand and Singapore. Malaysia, as well as Australia, Canada, Peru, Mexico, the US and Vietnam, is currently negotiating to join the TPP.

Malaysia’s interest in the TPP, and its participation in numerous rounds of negotiations, is shrouded in secrecy. There is no public discussion on why Malaysia sees participation in the TPP useful to its interests, and no government studies to determine the costs and benefits of TPP membership have been disclosed.

One reason why Malaysia may have been convinced to pursue the TPP track lies in its earlier failure to see the US–Malaysia Free Trade Agreement come to fruition. The Malaysian government, perhaps, sees the TPP as a godsend to revive a missed opportunity. Given the pivotal role the US is playing in the architecture of the TPP, this could be Malaysia’s last chance to forge closer economic and strategic relations with the US. What could not be achieved directly can now be clinched surreptitiously.

Another but more trivial reason could be due to the herd mentality that surrounds trade agreements. An economy might feel that it is losing out by not being a signatory to an FTA.

A third possible reason is that the Malaysian government may feel more comfortable undertaking domestic reforms in the post-TPP environment. If the government is keen on transparency and liberalisation it could use the agreement against recalcitrant domestic lobby groups as a justification for undertaking difficult domestic reforms. But the commitment of the Malaysian government to such reform is doubtful.

Finally, Malaysia may be enamoured with the TPP because some efforts at economic modelling suggest that it will benefit by joining. For instance, Michael Plummer suggests that by being a member of the TPP Malaysia would achieve a GDP of US$422 billion by 2025.

Malaysia’s income would rise by 2.7 per cent with TPP membership, although Vietnam will see a gain of 15.5 per cent. Chile and Peru’s income would experience gains of 1.5 per cent and 2.5 per cent respectively, Singapore would gain by 0.6 per cent and the US by 0.2 per cent. Economies that have already liberalised and have carried out the necessary institutional reforms will experience smaller gains than economies that have not.

Malaysia’s engagement with the rest of the world, via its exports and imports, is also expected to improve through the TPP. Plummer’s economic model projects that Malaysia’s exports and imports will increase by US$16.4 billion and US$16.5 billion respectively. While it is encouraging to note that the model points to an increase in exports through the TPP, net exports will be negative. The bulk of exports are expected to come from the manufacturing sector. That by itself is commendable, but the subsectors that contribute to exports are not consistent with Malaysia’s development plans. The machinery (US$3.9 billion), electrical equipment (US$3 billion) and food and beverages (US$2.4 billion) subsectors record the largest exports. The export of transport equipment will do poorly in spite of the TPP, and the same is the case with textiles, apparel and footwear. It seems that the TPP will not help Malaysia to shift its textiles, apparel and footwear sectors to a knowledge-based platform that will bring about a surge of exports.

Unfortunately, exports from the services sector are expected to account for a mere US$0.6 billion. This is certainly not congruent with the government’s plans for Malaysia to develop as a knowledge-based economy. One would expect that with all the measures taken to bring Malaysia out of the middle-income trap, it would have a more vibrant services sector. Besides, it has been the government’s vision that the services sector will drive growth.

Aside from the allure of positive results, the government, perhaps, values its strategic relations with the US. These political ties could be valued much more than the government dare admit.

The US knows that it needs the TPP to pursue its own agenda of growth with employment. But Malaysia does not seem to have such clarity of purpose. The Malaysian government has not made public any well-defined strategy in terms of its international economic relations. The absence of any public dialogue on the TPP conceals the government’s vision, if it has one.

Shankaran Nambiar is an economist who consults for national and international agencies. He lives in Kuala Lumpur.

 An earlier version of this article was published in the Edge Financial Daily.