Good to have Taiwan aboard TPP

With the 12-member Trans-Pacific Partnership (TPP) agreement settled in principle, the focus has shifted to the 6,000-page document (available in full on the International Trade and Industry Ministry portal) and what it entails.

Before its release, there was much talk about the dangers of the Investor-State Dispute Settlement (ISDS) and how this would leave governments open to litigious actions, as well as changes on intellectual property and patent extensions that would make essential medicines, especially in developing countries, more expensive.

The negotiations were also widely criticised for the cloud of secrecy under which they were conducted. However, this is common practice during international trade deals, as the participating parties need to be able to state what trade-offs they are willing to concede without the fear of political backlash.

In the end, at least in regard to Malaysia, a lot of the more hyperbolic rhetoric proved unwarranted. International Trade and Industry Minister Datuk Seri Mustapa Mohamed, together with chief negotiator Datuk J. Jayasiri, were able to secure many carve-outs for Malaysia, especially in state-owned and Bumiputera businesses.

As the pact moves toward implementation, various other countries have expressed serious interest in joining.

While they will no longer have the negotiating power of the original 12 members, instead having to largely sign on to what the other parties have agreed to, Columbia, Philippines, Thailand, Taiwan, South Korea and Indonesia have all declared their willingness to be a part of the TPP in the future.

In the case of Taiwan, there are various diplomatic hurdles to be overcome, yet they have made a positive economic case as to why they should be included in the TPP.

Last week, the findings of a study commissioned by the Taipei Economic and Cultural Office in Kuala Lumpur, and carried out by the Asian Strategy & Leadership Institute, were released.

The study, entitled “Trans-Pacific Partnership agreement: Impacts and Opportunities for Taiwanese and Malaysian Companies”, assesses the likely effects of Taiwan’s entry into the TPP on Malaysian and Taiwanese industries.

The study involved an economic equilibrium approach using a comprehensive database of hundreds of countries and regions, and dozens of sectors. This allowed researchers to estimate the extent of the impact on a particular interested sector in question, given the effects on other sectors that are already taken into account in the simulation.

While this is crude in the sense that it will obviously not include the concessions and trade-offs that are part of any international agreement of this kind, it does give a broad look at individual sectoral and overall economic welfare and gross domestic product (GDP) changes.

Results from the study show that the positive effects of Taiwan entering the TPP, both on Malaysia’s imports and exports, as well as on Taiwan’s, outweigh the negatives. This would translate into Malaysia’s overall welfare improving by US$249 million (RM1.07 billion) with Taiwan’s entry.

The results also indicate that Taiwan’s entry into the TPP will further strengthen Malaysia’s already positive position, with a rise in GDP from US$451 million without Taiwan’s entry, to US$602 million with.

This means that Taiwan’s entry into the TPP not only improves its own economic welfare by US$2,079 million and GDP by US$557 million, but also helps enhance Malaysia’s economic welfare and GDP.

These figures show that Malaysia’s economy will benefit from Taiwan joining the TPP, and what is earned in trade creation will more than offset any trade diversion.

The most pertinent point driving Taiwan’s desire to become a part of the TPP is the expected trade diversion that will result by not joining. When only looking at the trade relationship with Malaysia, imports sourcing, and to some extent, exports, will be diverted away from Taiwan in their absence.

The amount gained from sector to sector in Malaysia varies, however, it seems that the agriculture sector will be the only area negatively affected. The study shows that this will already happen under the current 12-member agreement, but will be slightly higher with Taiwan’s inclusion.

The study also features the results of a perception survey in which 72 Taiwanese companies in Malaysia, or Malaysian companies with business and trade with Taiwan, are interviewed.

Here, 58 per cent of the firms surveyed believe that Taiwan should participate in the TPP, while only three per cent answered in the negative.

A sizeable amount remained unsure. These simulation and survey results are consistent. Both indicate that the potential gains of the pact outweigh the losses. However, the survey results also strongly suggest that there is a lack of detailed understanding among industry players on what the TPP is about.

This is not an isolated case, and is a point that should be taken onboard by policymakers in Malaysia. A multilateral trade deal as important, and with such wide-ranging impacts as the TPP, should be thoroughly articulated so that mistruths and over-the-top scare campaigns are cut off before they take root.

Article published in the New Strait Times.