World Economy

Need for Capacity Building

Need for Capacity BuildingNeed for Capacity Building

The cost-benefit analyses done by the Malaysian Institute of Strategic and International Studies and PricewaterhouseCoopers on the 6,000-page Trans-Pacific Partnership agreement raise the important question of the country’s readiness to compete in a free market of unequal partners.

The 12 countries involved are Australia, Brunei, Canada, Chile, Japan, Mexico, New Zealand, Peru, Singapore, United States, Vietnam and, of course, Malaysia. That the robustness of the local economy needs improvement is clearly spelt out by the PwC analysis, which states that immediate capacity building measures are necessary and, in the medium term, some structural reforms, reported.

ISIS, focusing on public policy, suggests the need to politically manage the TPP waters through public policies if it is not to be economically and socially disruptive. Nevertheless, the economic advantage speaks of a gross domestic product growth of $211 billion over 10 years. If, however, Malaysia decides not to ratify it, it stands to incur a cumulative GDP loss of $16 billion over 10 years.

Non-participation might also negatively impact Malaysia-US relations, giving rise to challenges, such as certification requirements. The projected economic gains for the country are attendant upon the government and key industries being closely coordinated “to realize the potential benefits and mitigate the costs from the TPP”.

For example, up-skilling resulting from the shift to high-tech manufacturing is an important factor for the export industries standing to benefit, such as textiles, and electrical and electronic sectors. But, as for the downside—long points of contention in the debate in the country—such as the Investor State Dispute Settlements, which entitles foreign corporations to sue the government for projected loss of profit due to public policies, the PwC study urges safeguards to prevent suits and preserve policy space for such areas as health, security and the environment.

 Limits on Cronyism

Another factor seen as possibly disruptive to the economy is the liberalization of labor laws. Restrictive unionization practices will end and, with that, an anticipated increase in disruption due to strikes. But, moves to further democratize the country cannot be viewed as all bad when they are intended to improve the employment conditions.

TPP would also limit cronyism with the restriction placed on government procurement exercises, but exemptions are in place to ensure that the constitutional provisions for Bumiputeras and native peoples’ privileges will remain intact.

In short, as is true of all free trade arrangements, the benefits must be fought for, especially when trading partners include mature, advanced economies such as the US and Japan.

Furthermore, these freedoms can be subject to certification requirements challenging the standards of local production, which again should be viewed positively. What is certain is that without structural improvements, Malaysia would be hard-pressed to avail itself of the advantages of markets that TPP opens. But are not these improvements already part and parcel of transformations going on in the country to facilitate its escape from the middle income trap?

TPP cannot but make them happen because ratification means faltering is not an option. Hence, the government and key industries need to work closely to realize the potential benefits and mitigate the costs from TPP.