TRANS-PACIFIC PARTNERSHIP AGREEMENT (TPPA)

by: J. Jayasiri

3 November 2015

‘Driving Transformation, Powering Growth’

USABC-MICCI TPP DISCUSSION

There are 30 Chapters in the TPPA…

1 – Initial Provisions27 – Administrative & Institutional Provisions28 – Dispute Settlement29 - Exceptions30 – Final Provision

2- Market Access3 – ROOs4 – Textiles and Apparel5 – Customs Administration6 – Trade Remedies7 – Sanitary and Phytosanitary8 – Technical Barriers to Trade9 – Investment10 – Cross Border Services11 – Financial Services12 – Temporary Entry13 – Telecommunications14 – E-Commerce15 – Government Procurement16 – Competition Policy18 – Intellectual Property Rights21 – Cooperation and Capacity Building22 – Competitiveness / Business Facilitation

17 – Competition (SOE)19 – Labour20 – Environment23 – Development24 – SMEs25 – Regulatory Coherence26 – Transparency and Anti Corruption

Standard Legal Chapters Traditional Trade Issues New Issues

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• 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 for 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)• GP is carved-out from ISDS for 3 years after entry into force for Malaysia.

Government Procurement (GP)

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GP: Market Access• Malaysia offered to open GP market subject to agreed thresholds in :

- GOODS

- SERVICES - CONSTRUCTION SERVICES

• Entities covered - All Ministries (including their agencies) & 4 statutory bodies under MITI

• Bumiputera policy preserved- 30% set aside for Bumiputera contractors (construction services)- margin of price preference (MOP) to Bumiputera suppliers & manufacturers

(goods & services)- Central Contract on existing items

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State Owned Enterprise (SOE)Rationale: To create a level playing field when SOEs having an advantage through

governmental assistance or preference competes with private entities. SOE chapter does not require parties to do away with SOEs.

Key Obligations:

i) adherence to commercial consideration and non-discrimination in sales and purchases; and

ii) avoidance of non-commercial assistance (subsidies) that cause adverse effects on TPP Parties

iii) Transparency

Flexibilities:

Text provides flexibilities in the form of exemption for SOEs with turnover below SDR 200 million; exemption for SOEs providing public goods and services mandate; exemption from obligation on non-commercial assistance if involved in services in the domestic market. SWF like Khazanah and Public Funds such as EPF, LUTH, KWAP are also exempted.

Country Specific Annex:

Malaysia has negotiated exemptions for specific concerns such as socio-developmental programmes of SOE like SME and Bumiputra and regional development agenda. Preferential purchases by SOEs up to 40% allowed for bumiputera / SME/ Sabah / Sarawak.

Driving Transformation, Powering Growth 5

IPR• Commitments include copyright extension; disciplines on

Geographical Indications; acceding to international treaties; border enforcement.

• Commitments on pharmaceutical: Patent term adjustment; patent linkage; data protection.

• Patent-protection clauses in the TPPA are not all that different from Malaysia's current regulations. Our laws provide patent protection for 20 years.

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

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Data Protection for Biologics • Agreement on Biologics gives two options for TPP Parties:

i. Countries can offer 8 years market protection for Biologics; or

ii. Countries can offer 5 years of Data Protection, and other measures such as regulatory measures and patent to deliver comparable market protection for biologics.

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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Labour

• Key obligation is to adopt and maintain the ILO Declaration 1998.• The elements :

1) freedom of association & right to collective bargaining; 2) eliminate forced labour;3) abolish child labour; 4) eliminate employment discrimination

• Bilateral Labour Consistency Plan with US.

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Non-Conforming Measures (Investment and Services)• 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

• MFN exemption for ASEAN preferences• Cultural services• Wholesale and distribution services• Air transport services

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Environment Chapter

• Objective : to provide for high levels of environmental protection and that encouraging trade and investment should not be at the expense of lowering environmental standards.

• Scope of chapter: enforcement of 3 Multilateral Environmental Agreements- Montreal Protocol, Marine Pollution and CITES; conservation and trade; climate change, trade and biodiversity; disciplines on use of marine fishery subsidies, co-operation and capacity building and dispute resolution.

• States have been excluded as only federal environmental laws are covered.

• In order to ensure that environmental laws are effectively enforced it is proposed that a national committee comprising all states be established to better coordinate all environmental matters and effective enforcement.

• More resources need to be allocated to ensure effective implementation of this chapter, especially at the State Level.

Driving Transformation, Powering Growth 10

Market Access

Malaysia’s Offer• 85% of tariff line eliminated upon entry into force;

64.5% are already without any duties• Sensitives products such as alcoholic beverages and tobacco

products eliminated over 15 years; sensitive auto products – over 12 years; iron and steel – 10 years.

TPP Partners Offers• Non-FTA partners will eliminate 95% of duties within 10 years.• EIF elimination range from 76 – 93%

Driving Transformation, Powering Growth 11

Product Import DutyBefore TPP

Duty After TPP Export value in 2014

(US$ mil)Electrical & Electronic Products

USCanadaMexicoPeru

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

9%

0% 11,138.0308.2

1,148.739.0

Rubber Products USCanadaPeru

2.4-14%5-15.5%

9%

0% 1,238.284.68.5

Palm Oil CanadaMexico

11%4%

0% 17.92.2

Transport Equipment USMexico

5%5-15%

0% 292.920.5

Wood Products including Plywood

Japan 6-10% 0% 1,103.4

Malaysia’s Export Which Will Enjoy Immediate Import Duty Elimination Under TPP

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• Agreed percentage of auto inputs from TPP countries to qualify for preferential access to TPP markets:(a) Finished Vehicles – 55 per cent regional value content.(b) Tractors - 55 per cent regional value content.(c) Auto parts – 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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Investment Chapter (ISDS)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.

• 2 cases against Malaysian Government- Philip Gruslin vs Malaysia- Malaysian Historical Salvors Sdn Bhd vs Malaysia

• 2 cases by Malaysian investors against foreign Governments- MTD vs Chile- Telekom vs Ghana

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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 years 6 months.

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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Way Forward Post AtlantaNext Steps for TPP Countries• 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

17Driving Transformation, Powering Growth

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

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

• Implications for FDI and current investors

• Disdvantaged in the regional supply chain due to loss of preferential treatment for raw materials and unfinished goods

• Lose out to new entrants joining TPP, example Korea, Taiwan. Indonesia?

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 2337Email: webmiti@miti.gov.my | Website: www.miti.gov.my