Questions on FTA for Rafidah to answer in the winding-up debate on Royal Address

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Debate on the motion of Thank On The Royal Address (Part 6)       
by Lim Kit Siang  
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(Dewan Rakyat, Thursday) : On Tuesday, Minister for International Trade and Industry, Datuk Paduka Rafidah Aziz, gave a 21-page reply to questions on the Malaysia-US FTA talks and developments.

On page 10 Minister Rafidah said that the sovereign right of government to make and implement certain national policies for the interests of the rakyat and country is one of the fundamental issues that are non-negotiable for Malaysia in any bilateral FTA.

Malaysian Sovereignty 

I want to raise 3 matters of vital public importance that are on the negotiation list. 

First is the issue of the mandatory labelling of genetically modified organisms (GMOs) and products containing GMOs. The Biosafety Bill that has passed the first reading in this House is necessary to safeguard public health and the environment. An important provision is the one that requires mandatory labelling, and we understand that Draft regulations for labelling of genetically modified food are ready and notified to the WTO. For consumers who may have allergenic reactions to certain GM products or have religious reasons to reject such products labelling is essential. 

I raise this because the US Trade Promotion Authority Act expressly states that labelling of biotechnology products is a practice that should be eliminated as it decreases US export opportunities when consumers choose not to consume GM food. The US Biotechnology Industry Organization (BIO) and the AMCHAM Malaysia/US Chamber of Commerce have opposed mandatory labelling of genetically modified products or foods in their public submissions to the US Trade Representative. In particular, AMCHAM Malaysia/US Chamber of Commerce state that such labelling  “should be firmly opposed by the U.S. in the FTA Negotiations”.

 
Many countries (such as Japan, China and many European countries, and even Australia which signed an FTA with the US) already require mandatory labelling. This is consistent with the WTO Agreement on Technical Barriers to Trade which states that “technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective”. The legitimate objectives include “national security requirements, prevention of deceptive practices, protection of human health or safety, animal or plant life or health, or the environment” (emphasis added). The prevention of deceptive practices includes product information and labelling, so it is clearly within our sovereign right to have mandatory labelling of GMOs and GM products. 

Under the Codex Alimentarius Commission, the joint WHO/FAO body regulating international food standards, the Committee on Food Labelling has been discussing a global standard for mandatory GM food labelling. The draft standard on GM labelling has support from a majority of the Committee, including Malaysia.

Is this one of the areas of national sovereignty that will be non-negotiable?

The second issue is the availability of affordable generic medicines. Data exclusivity is on the list of negotiation issues. I have spoken before on the so-called “WTO TRIPS Plus” provisions in FTAs already signed between the US and other countries. These are controversial and most trading partners have caved in believing that they will gain more trade and investments. Increased medicines costs from such provisions have been projected and warned by studies by the WHO and other UN agencies, as well as the World Bank.  Data exclusivity is not required under any international law. It is also widely acknowledged as one of many ways that big pharmaceutical corporations are trying to reduce and even eliminate competition from the generic medicines sector.  In Malaysia our domestic generic industry contributes more investment and income to the nation than foreign companies, and data exclusivity will harm our industry. 

Is data exclusivity also a non-negotiable issue for Malaysia? 

The third issue is capital controls. In her interview on RTM 1 this week, Minister Rafidah stated that capital controls are a non-negotiable sovereign right and that they are not part of an FTA.

However, all USFTAs with an investment chapter have a provision requiring free transfers of capital.[1] This includes profits, dividends and all transfers related to covered investments (which are very broadly defined). This requirement to allow free transfers of capital effectively prevents capital controls.

This prohibition on capital controls can be enforced in USFTAs via the investor suing the host government at an international tribunal.

According to a book edited by Singapore’s chief negotiator for its USFTA, even on the day scheduled to hold a press conference to announce the successful conclusion of the Singapore-USFTA negotiations (19/11/2002), the capital controls issue still had not been resolved because there was a fundamental gap in positions regarding the free transfer of capital provisions:

‘The “free transfer” clause was a feature of all bilateral trade and investment agreements that the US had concluded to-date. Making an exception for Singapore would set a bad precedent for all of the US’s future agreements. The free flow of capital was a central tenet of US international economic policy and strongly subscribed to by the US Treasury in particular. . . in an exchange rate crisis that threatened to severely destabilise the economy, Singapore needed the flexibility to take all appropriate measures, including, as a last resort, restrictions on capital flows when conventional monetary policy tools might be inadequate.’

So there were two more months of negotiations on capital controls alone in the case of Singapore. In the end, these extra negotiations got Singapore an annex which has some exceptions for certain capital controls, but it is not clear that it would be sufficient for an economy like Malaysia’s.

Is Malaysia likely to be able to get even Singapore’s level of exceptions for certain capital control measures?

Tariffs cuts

At page17 Minister Rafidah says that ‘In 2005 Malaysian exports were subject to import taxes and duties of RM16.1billion. It is estimated that through the FTA, in future the US will eliminate duties in the region of RM1billion’. This raises a number of questions:

1.   If this US FTA is supposed to bring such benefits to Malaysia, why does MITI’s own calculation estimate that it will only reduce the duties on Malaysian exports from RM16billion to RM15billion? How is this figure reached?

2.   Does this estimate of RM1billion saving take into account that the US is predicted by economists to import less in the years to come because of its trade deficit? Therefore there would be less ‘cake’ to share among all the countries seeking to export to the USA.

3.   The US President (executive) only has the power under the current Trade Promotion Authority Act (due to expire in June 2007) to cut industrial tariffs that are more than 5% by less than 50%. US trade analysts think it will be politically difficult for the US Government to cut tariffs, particularly in sensitive sectors, given the US trade deficit is reaching levels that may cause the US$ to crash [Malaysia currently enjoys a trade surplus of US$24 billion a year with the US which they want to reverse.]

Do predictions that there will be greater market access for Malaysian products take into account that the US market share for Malaysia is likely to shrink:

a.    Because other USFTAs will reduce US tariffs for imports from those countries so Malaysia may be competing with them

·      eg USFTAs already signed but not yet in force (eg Peru, Colombia, Panama) and

·      USFTAs currently being negotiated (eg South Korea) and

·      Future USFTAs (eg with the rest of ASEAN as President Bush has said he is aiming to do)

b.    If the WTO’s Doha Round is concluded, US tariffs will be cut (by a line by line ‘Swiss formula’) for exports from all 149 WTO Member countries to the US.  

4.    What will Malaysia have to give up to obtain this RM1billion savings in duties?

a.    According to the US Government, Malaysia’s average bound tariff is nearly four times higher than the USA’s and 1/3 of Malaysia’s industrial goods tariffs are unbound. ‘Unbound’ means that Malaysia can raise these tariffs whenever it likes, as high as it likes, for example for revenue or industrial development reasons.

b.    Based on other USFTAs, Malaysia will have to reduce all of its tariffs on US products to 0% and lock them there. Even if the USA also did this (which is unlikely and not legally possible under the TPA), it is a much greater sacrifice for Malaysia as it has to bind all of its unbound tariffs at 0% and also make a much bigger reduction because it is starting from higher tariffs than the USA.

c.    Even if this RM1billion in duties on Malaysian exports is saved, how much more will the US save when Malaysia has to reduce or eliminate its tariffs on US exports? Ie how much revenue will the Malaysian government lose if it eliminates its tariffs on all US products?

d.    Malaysia is currently enjoying a trade surplus with the US. A USFTA may cause Malaysia’s trade balance with the US to worsen, for example the US National Association of Manufacturers predicts it could double its exports to Malaysia in the first two years of a USFTA.  

Is the US asking for all of Malaysia’s tariffs on US products to be eliminated and bound at 0%? Have the above questions been considered in MITI’s predictions of tariff gains for Malaysian exports?

Can MITI provide the detailed cost-benefit studies done? Have these studies also estimated the costs and will those estimates also be made public? For example, Colombia estimated that the impact of the intellectual property provisions in its USFTA would require extra spending on medicines of US$1.5 billion per year, from the year 2030. Based on existing USFTAs which are all very similar, these likely costs, such as in higher medicine prices, more expensive textbooks for longer, stronger protection for investors, more competition for Malaysian services and manufacturing companies and less government procurement going to Malaysians will stay constant while the benefits of lower tariffs are likely to erode over time. 

Textiles

Malaysia’s textile industry is singled out as a major beneficiary in a FTA with the US (page 17 of Minister Rafidah’s statement).

1.    The TPA states that if industrial tariffs are more than 5%, the US negotiators can only offer cuts of less than 50%.

a.   cuts beyond this must be done by Congress passing legislation and given the closeness with which CAFTA and the Oman-USFTA passed Congress, the Democrats’ control of Congress and the current anti-free trade mood in Congress, it is not guaranteed that Congress will agree to such tariff cuts and

b.   US trade analysts think it will be politically difficult for the US Government to cut tariffs, particularly in sensitive sectors, given the US trade deficit is reaching levels that may cause the US$ to crash [Malaysia currently enjoys a trade surplus with the US which they want to reverse.]

2.    Does this optimistic prediction of an increase in Malaysian textile exports to the US take account of the rules of origin that countries have had to agree to in other USFTAs (such as the ‘yarn forward’ rule) which would effectively require Malaysian textile manufacturers to use the more expensive US thread thus hampering their competitiveness?

3.    If a USFTA is so good for a developing country’s textile and apparel industry, then why did Singapore’s apparel industry’s exports to the USA dramatically shrink after its USFTA? According to US Government statistics, the year before the Singapore-USFTA started, Singapore was exporting US$233million of knitted apparel and US$37million of non-knitted apparel to the US. By 2006, exports had fallen to US$139mil (knit) and US$6.3mil (non-knit).  

Can the the full study that Minister Rafidah cites regarding projected textile industry gains and all of its assumptions should be released to the public?  

Services

The Minister assures us that liberalisation of services will be in a progressive manner following the capability of the local industry to compete.

Has Malaysia agreed to liberalise its services in a US FTA on a positive list basis (as it is at the World Trade Organization) or via a negative list (as all USFTAs except Jordan’s require)?

(22/3/2007)