Who says we'll lose out?

Publication: NST

Date of publication: Aug 22, 2013

Section heading: Main Section

Page number: 020

Byline / Author: By Dr Irwan Shah Zainal Abidin

MUCH has been said about the Trans-Pacific Partnership (TPP) agreement. Negotiations for this plurilateral (a multi-national legal or trade agreement between countries) and multilateral agreement are ongoing where, so far, 14 of the 29 chapters of the TPP texts have been concluded, although the details are still confidential.

Both the pro- and anti-TPP camps have valid arguments. But it is imperative for the TPP to be analysed in a holistic manner, that is, to examine its costs and benefits in the context of the whole ecosystem of the economy, the global economy, and the new world order that we live in today.

It is also critical to appreciate its theoretical underpinnings.

Our national agenda is clear - to achieve a high-income and developed nation by 2020.

In fact, Prime Minister Datuk Seri Najib Razak recently said this could be achieved two years earlier, in 2018.

In other words, the need to improve quality and sustainable gross domestic product (GDP) growth towards this end is more crucial than ever.

This is where the benefits of TPP come into the picture. Since the onset of the world financial crisis in 2007, our growth model has been driven by domestic demand. This cannot be done at the expense of our external sector, as we have only a population of 29 million and we need to raise our level of competitiveness regionally. More importantly is the need to contain our household debt to GDP ratio, which is now the highest in the region.

Recently, international rating agency Fitch Ratings downgraded Malaysia's credit rating outlook. As a result, the borrowing costs have risen in the form of yields on 10-year sovereign bonds and, eventually, will lead to a depreciation of the ringgit.

All this will deter attempts to attract more capital to fund projects under the Economic Transformation Programme (ETP).

One of the main reasons for the downgrading of the credit outlook from "stable" to "negative" is the debt and deficit levels, including the government's guaranteed debt.

Although it is commendable that the government has formed a fiscal committee recently, the policy options to address them are limited. The implementation of the goods and services tax (GST) and the subsidy rationalisation appear unlikely to happen any time soon.

In addition, exports have contracted significantly recently. What is more alarming is that this downward trend in trade and current accounts is expected to continue in the near future.

The state of the global economy is no better. Chief among them is the slower growth of China.

In addition, there are still no clear signs that the eurozone economies are going to recover any time soon. The United States, the world's largest economy, is contemplating another round of quantitative easing, which, if it happens, will have serious implications for Malaysia and the rest of the world.

I have noticed that most of the arguments against TPP are similar to the views aired by detractors of globalisation.

I might buy some of their arguments if we were still living in the 1990s. But living in the 21st century, with the New Economic Model (NEM), and all the transformational programmes and policies, we are ready for TPP. Perhaps the issue of national sovereignty and rising cost of certain things, especially specialised drugs, must be looked into here.

TPP, as an initiative to establish a free trade agreement, is a form of economic integration in international trade. It is not the strongest type of regionalism, such as a common market or economic monetary union. It is, in fact, one of the weakest, together with other forms, such as the preferential trade agreement. Therefore, TPP does not involve the elimination of all forms of barriers and free movement of factors of production.

It is clear that in managing globalisation, the world has become increasingly regionalised. Many empirical studies have shown that regionalism promoted rather than impede trade.

To believe that strong countries like the US will get all the benefits under the TPP is a grave misconception. This is because under a free trade arrangement, the gains from trade are not dependent on absolute advantage, but rather on comparative advantage.

In other words, even the trading country has no advantage in terms of productivity or competitiveness, gains of trade are still possible. When it comes to exploitation under the agreement, the question that needs to be asked shall not only be in matters of how much the exploitation would be, but more essentially, the alternative available.

Dr Irwan Shah Zainal Abidin,

Senior Lecturer, School of Economics, Finance and Banking, Universiti Utara Malaysia