ON November 15, International Trade and Industry Minister Mohamed Azmin Ali signed the Regional Comprehensive Economic Partnership (RCEP) agreement on behalf of Malaysia.

Besides the obviously upbeat minister, spokesmen from certain business circles and pro-market think-tanks, opinions and voices about the trade agreement are few and far in between.

Beyond general media coverage, the public has little information and when the agreement was made public after the signing, few understood its implications and even fewer asked if RCEP is necessary for our country.

For starters, RCEP is not the type of trade agreement that most of us may think. It is not only about exporting and importing goods, but instead consists of 20 chapters. It is part of a trend of agreements started by the United States around 1994 that are designed to open up national economies (especially developing countries like Malaysia) to foreign companies and banks.

The US “template” includes services (retail, banking professional, and everything we can think of that is not goods), intellectual property, investment (focused on giving foreign investors more rights), government procurement and many areas where foreign entities desire to profit from.

The early version of several RCEP chapters that were leaked revealed many controversial aspects of the US-led Trans-Pacific Partnership Agreement (TPPA), such as the right of foreign investors to sue a host government and intellectual property obligations that would result in extended monopolies and more expensive medicines and turning agriculture seeds into private property at the expense of small farmers.

When the Trump administration walked out of the TPPA, Japan played a key role in forging the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) that incorporates all the TPPA provisions and suspended for the time being a number of controversial intellectual property requirements. Malaysia signed the CPTPP but has not ratified it, the step needed to be legally bound.

Not surprisingly, there were protests in many of the countries that negotiated RCEP over the past few years over the migration of problematic TPPA/CPTPP provisions into the RCEP negotiations.

Some RCEP countries also said no, which resulted in an agreement that does not have many TPPA/CPTPP provisions that give more rights to foreign corporations and intrude into national development policy making. But developing countries, including Malaysia, have agreed to more market access for foreign service providers and investors in areas that could impact negatively on local firms, especially SMEs.

A worrying trend has already been set in motion. Foreign equity share of the Malaysian economy has increased from 25% in 1990 to 37% in 2011 to 45.3% in 2015.  This was due to the liberal unilateral opening up of the economy to foreign players since 2009, especially in the services sector, noticeably in the insurance and private hospital sector.

If this continues (which we expect is the case until now), local small- and medium-sized firms will be crowded out, and national wealth distribution policies especially towards the poor and marginalised will be undermined.

RCEP started as an Asean initiative to create a regional market with six non-member countries (China, India, Japan, South Korea, Australia and New Zealand). However, India decided to pull out last November.

For RCEP to enter into force and become operational, the next step is ratification by at least six Asean members and three non-Asean members. Before Malaysia decides to ratify, a close study of the now public agreement is needed to assess the impact on the country.

RCEP aims to expand market access among participating countries by lowering tariffs on imported goods. Apart from dealing with traditional goods trade, RCEP also opens up the services sector, introducing more protection for foreign investors in ways that restrict what a government may need to regulate (e.g. in a Covid-19 pandemic) and new rules on e-commerce.

Proponents might argue that RCEP is good for our economy, but unlike TPPA where a partial cost benefit analysis was done, this time the government did not even produce any assessment to show this claim.

Let’s just look at goods trading (import and export): 10 out of 15 biggest trading countries with Malaysia, are RCEP signatory countries. Last year, Malaysia had about 60% import and 56% export dealing with the RCEP countries; the trade balance recorded a surplus of RM51 billion.

Surplus is a good thing, but if we examine closely, the trade balance mostly came from Singapore (RM47.6 billion). Singapore is well known in the world for zero tariffs on almost every traded good, and has already removed 100% of its tariffs in existing trade agreements with RCEP countries including Malaysia.

Therefore, RCEP would not make any difference. Also, all Asean countries are already in the Asean Free Trade Area, thus the focus of RCEP for Asean countries is effectively the markets of the five non-Asean countries that have signed on. For that, Malaysia had achieved a negative trade balance of RM30.3 billion in 2019 with the latter. The significant deficit was with China.

The difference between RCEP and TPPA/CPTPP in terms of content, may also give the impression that the former is more “lenient” on certain requirements. 

For example, RCEP does not yet have the problematic “investor-state dispute settlement” mechanism in place that allows foreign investors to directly sue the government. However, even if RCEP has diluted some of the worst aspects of CPTPP, one should not be lulled into thinking that RCEP is any less pro-corporate/big business.

If RCEP were so upbeat and positive, then why did India quit? What was it worried about?

That could be a signal of risks and problems to come. Indian Prime Minister Narendra Modi claimed that the decision not to join RCEP is because India’s key concerns were not addressed.

India would not want to compromise on the core interests of farmers, traders, workers and the poor. In a nutshell, India worries that if cheaper Chinese goods flood the local market, domestic producers might not be able to compete. India identified and flagged the three most vulnerable sectors: textiles, dairy and agriculture. Even without RCEP, India already has a goods trade deficit with China.

So, why do these so-called free trade agreements (FTAs) matter to us? Firstly, they have a very broad scope touching on almost all aspects of our economy and lives, not just trade. So, we need to look at the details and be clear about the pros and cons and how different parts of our society will be impacted.

Secondly, the government will have to amend federal or even state and local government laws, regulations and policies so that they will not be in conflict with the agreement. Put simply, the bigger and “more comprehensive” an FTA the government takes on, the more public policies would be affected and put under great pressure to be changed. Future policy-making space would be constrained too. Is it good for democracy?

The sovereignty of the country means protecting the policy space and right for all levels of our government and lawmakers to make rational policies in the best interest of the nation, and not because any FTA compels them to do or not to do so.

So, the question remains, under RCEP, which reality is more likely: Malaysia produces and exports more goods or will it import more? If our country were to import more cheap goods, wouldn’t our local producers of similar kind be affected?

A look at the most recent 12-12 online big sale of products would show that much of them came from and were made in China. This is already happening even before RCEP kicks in.

Most likely consumers would not complain about cheaper goods, but if jobs and livelihoods are lost in the long run with the squeezing out of SMEs and farmers that cannot compete fairly against the big foreign companies and producers, how will we buy?

Some politicians and civil servants might have a romantic fantasy about FTAs. In their mindset, the more FTAs the country signs, the better it is for the economy.

Prominent economist Jomo Kwame Sundaram recently cautioned that gains from FTA are minuscule and the claims of benefits by proponents are exaggerated, as they often ignore most costs and risks associated with such agreements.

In conclusion, the government and people should be reminded that there are many ways to develop and grow the economy. The high economic growth period for Malaysia in the 1990s was achieved without much fanfare of FTAs.

Prudent, visionary, sustainable and comprehensive economic planning should be the key, and the government of the day should pay heed that foreign equity share of the Malaysian economy is already very high. 

If our trade, investment and economic policies generally are not corrected, more rakyat will be left behind. – December 14, 2020.

* Lim Chee Han is a founding member of Agora Society and a policy researcher. He holds a PhD in infection biology from Hannover Medical School, Germany, and an MSc in immunology and BSc in biotechnology from Imperial College London. Health and socioeconomic policies are his concerns. He believes a nation can advance significantly if policymaking and research are taken seriously.