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Impacts of North-South Free

Trade Agreements (FTAs)

Impak Perjanjian Perdagangan Bebas (FTA) antara Negara Membangun & Negara Maju

Third World Network3 December 2011, Kuala Lumpur

Apa itu FTA? Perjanjian perdangangan bebas antara

dua atau lebih buah negara Malaysian sedang merunding FTA bersama

Amerika Syarikat, melalui Perjanjian Kerjasama Trans Pasifik/Trans Pacific Partnership (TPP)

Kesatuan Eropah/European Union (EU) Objektif utama: Membuka pasaran,

termasuk untuk pemerolehan kerajaan, akibat mengurangkan tarif (cukai import) Bolehkah syarikat/petani Malaysia bertanding?

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Cost-benefit analyses European Union commissioned cost-benefit

analysis for its FTA with North Africa (including Turkey, Egypt, Israel, Jordan, Syria, Morocco = EMFTA) The independent analysis only considered lower tariffs

for industrial and agricultural products and services liberalisation.

It did not consider the inclusion of traditional losses for developing countries (intellectual property, investment, government procurement)

It found that the FTA would be bad for poverty, hunger, education and health in the developing countries involved

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Cost-benefit analyses continued EU’s cost-benefit analysis results continued

The FTA would cause: Significant rise in unemployment Fall in wages because of increased unemployment Loss of government revenue so reduced government spending on

health, education etc Worse living standards and health for rural women

Developing countries would have to take expensive and difficult mitigating measures which are not certain to work

(And there is less government revenue available for mitigating measurs or retraining workers because of the cut in tariffs)

African Union Ministerial Declarations have refused European Union FTA negotiations: On government procurement, investment or competition On intellectual property protection beyond WTO levels On tariff reduction until the WTO allows developing countries

to reduce tariffs by less in FTAs On services liberalisation beyond WTO levels

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Cost-benefit analyses continued Benefits erode over time as:

other countries negotiate EUFTAs and also get the lower EU tariffs on their exports

WTO negotiations lower EU tariffs for exports from 153 countries

Costs such as stronger intellectual property, EU competition in government procurement and service, and investor protection (if included) stay constant

Some of the countries which have said no to USFTAsSome of the countries that have withdrawn from USFTA negotiationsAustralia refused twiceSwitzerland (after 1 round of negotiations when USA refused to show sufficient flexibility in IP chapter and agriculture)Botswana, Lesotho, Namibia, South Africa, Swaziland (after almost 3 years of negotiations, because of IP, investment and government procurement demands)Argentina, Bolivia, Brazil, Paraguay, Uruguay, Venezuela (after 10 years of negotiations as part of the Free Trade Area of the Americas)

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Skop rundingan FTA sangat luas Market Access

Industrial Goods

Agriculture

Textiles

Technical Barriers to Trade

Sanitary and Phytosanitary Measures

Rules of Origin

Customs Cooperation

Investment

Services

Financial Services

Telecommunications

E-Commerce

Business Mobility

Government Procurement

Competition

Intellectual Property

Labour

Environment

Capacity building

Trade Remedies

Legal and Institutional

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Process USA: Strong influence of US companies on US

position USTR’s advisory committees: almost all members are

from industry USFTA text is often drafted by these committees

Companies that make big donations to election campaigns have ear of US Government

Malaysia: Under Malaysia’s Constitution, the USFTA does not have to be approved by the Parliament Malaysia’s laws (and possibly Constitution) will have

to be changed to comply with the USFTA These changes to the laws must be passed by the

Malaysian Parliament, otherwise tariffs can be raised on any Malaysian export to the USA if a successful challenge is made against Malaysia

Implication: Parliament has no choice, it must pass the law

Petanian

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What does the EU & US want? To export more of its subsidised products to Malaysia

Eg very subsidised chicken, eg: Ghana: In 1992: domestic poultry farmers supplied 95% of the

Ghanaian market, 2001: their market share had shrunk to 11%. This was because of large EU subsidies which meant that

imported chicken is available (wholesale) at a price that is only slightly more than half of the wholesale price of local chicken). So Ghana’s chicken farmers needed tariffs of 80% to be able to compete with subsidised EU chicken

Bolivia’s President Morales: a USFTA would only be good to invade the country with subsidized products, to the detriment of local producers and manufacturers

Risiko kepada petani-petani Mexico: Petani miskin menanam jagung tetapi

akibat FTA dengan US (NAFTA) Mexico menerima import jagung yang disubsidi dari US sebanyak 3 kali ganda dari sebelumnya

Hampir 2 juta petani Mexico terpaksa meninggalkan tanah mereka sejak NAFTA dikuatkuasakan

Akibatnya, rakyat Mexico keluar mencari kerja semakin bertambah, kemiskinan desa meningkat dan bertambahnya pengeluaran dadah secara haram

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What does the US want? continued Malaysia:

Currently has 40% tariffs on rice BUT based on previous USFTAs the US will require almost all

Malaysian tariffs (including on rice) to fall to zero Wants to reduce a growing food import bill

BUT increased imports of US agricultural products could worsen Malaysia’s foreign exchange and balance of payments

9th Malaysia Plan: Malaysia is aiming for 90% self-sufficiency in rice

But if Malaysia’s rice tariffs fall to 0% and with US subsidies on rice production, US rice would be cheaper, so there is likely to be a large increase in rice form the USA. So how will Malaysia achieve 90% of self-sufficiency in rice

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What does Malaysia want? If Malaysia hopes to export more agricultural products to

US, these are the problems: USTR could not offer lower agricultural tariffs under fast track Even if we get extra quotas/lower tariffs, the US subsidies may

still make Malaysian exports uncompetitive US cannot reduce its agricultural subsidies for products to one

country as it is not practical. Australia got:

no extra sugar sales to USA ½ cow per farmer per year extra beef sales to USA

Mexico got some extra fruit and vegetable exports But US blocked them via SPS measures and anti-dumping

complaints

Some other agriculture impacts Food security GMOs Mad cow disease Higher input costs for farmers:

UPOV on seeds Seizure of seeds at the border (EU) Data exclusivity on agricultural chemicals

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Pembuatan

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How did developed countries industrialise?

Former Head of the Macroeconomics and Development Policies Branch, UNCTAD: no country (except Hong Kong) has industrialized without using infant-industry-protection, http://twnside.org.sg/title2/t&d/tnd36.pdf

Next 2 slides are from http://twnside.org.sg/title2/t&d/tnd24.pdf

More info re trade & industrialisation (Akyuz & Shafaeddin): http://twnside.org.sg/publications_tnd.htm

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Country/Year Per capita Income (at

1990$)

Average applied tariffs

(%)

US 1820 1257 35-45

1875 2445 40-50

1913 5301 44.0

1950 9561 14.0

1980 18577 7.0

Germany 913 3648 13.0

1950 3881 26.0

1980 14113 8.3

France 1913 3485 20.0

1950 5270 18.0

1980 15103 8.3

UK 1913 5150 0

1950 6907 23.0

1980 12928 8.3

Developing Countries

2001

3260 8.1(2.1)*

LDCs

2001

898 13.6 (13.6)*

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Tariffs MT

LT HT

RL

Time

RL : Resource-based and labour-intensive producsroductsLT : Low technology-intensive productsMT : Medium technology-intensive productsHT : High technology-intensive products

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What Malaysia wants To export more electrical machinery, wood

products, textiles and clothing, rubber products Lower tariffs for Malaysian industrial goods being

exported to USA. But: US industrial goods tariffs are already very low,

(compared to Malaysia), so not much to gain Under fast track, the US could not reduce its remaining

high tariffs by much Any gains are eroded as:

Other countries sign USFTAs Industrial tariffs are lowered at the WTO

US will still protect its jobs eg yarn forward rule: Eg Singapore had to agree to the yarn forward rule in its

USFTA Singapore Government has said because of its USFTA it will have to restructure its textile industry and establish an agency to reskill its 10,000 textile workers.

Export taxes (EUFTA) lessons learned

Export taxes have been used by governments as a tool in their industrial policy since the 11th century

Europe used export taxes as a source of revenue and a means of preserving raw materials for domestic manufacture

for British King Henry VII, export taxes were most important tool in industrial development

Export tax info: www.twnside.org.sg/title2/par/Export_Taxes.doc

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Export taxes – examples continued

Chilean Government’s export duty on nitrate supplied about half of Chilean Government revenue for a long time

Value added processing, eg: Indonesia went from 4% of world market share in plywood to 80% in a few years due to a combination of export taxes, export restrictions and government procurement of domestic plywood

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Export taxes EU: > 50% of major mineral reserves are in

countries with GNI/capita ≤ $10/day EU RMI:

EU is “highly dependent on imports of strategically important raw materials”

“Securing reliable and undistorted access to raw materials is increasingly becoming an important factor for the EU’s competitiveness”

“Access to primary and secondary raw materials should become a priority in EU trade and regulatory policy.”

Targets export taxes & restrictions and pre-establishment rights in mining

EUFTA: remove/restrict Malaysia’s export taxes

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Perkhidmatan

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Masalah akibat membuka sektor perkhidamtan Negara membangun tidak boleh bertanding

dalam sektor perkhidmatan Negara maju mempunyai syarikat gergasi e.g.

80% daripada pasaran global pelancongan dikuasai oleh 3 syarikat

Pendapatan akan dihantar balik ke EU/US Membuka sektor seperti air, telekom, elektrik,

bank, kepada syarikat asing mungkin tidak strategik

Dengan FTA, susah untuk mengelak atau mungurus krisis kewangan Tidak boleh mengguna ‘capital controls’

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What the US wants IMF: The United States, as the world’s principal exporter of

services, has a particular vested interest in market opening in this area World Bank: USFTAs lock in the services sectors

countries have opened at the WTO and push to break into the rest of the services sectors

USTR: Malaysia is often the country the US services industry most wants to break into

Service sectors USA is targeting: telecommunications, financial, energy, healthcare, distribution, professional, broadcasting: currently 80% of Malaysia’s TV programs must come from

bumiputera owned companies 60% of radio programs must be Malaysian No foreign ownership of terrestrial broadcast networks

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What the US wants (continued) Impact on economic stability

Could restrict ability to prevent/control financial crises IMF: expressed reservations to the U.S. government that

the limitations that the U.S.-Chile FTA imposed on the Chilean government regarding short-term capital inflows reduced the (Chilean) government’s ability to manage a macroeconomic crisis

Difficult to protect future sectors Telecommunications and insurance sector liberalisation was

so controversial in Costa Rica that it pulled out of its USFTA negotiations. (It later rejoined)

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What Malaysia wants Malaysia may want to export its

construction services, but: If Malaysia wants more Malaysians to get

USA visas USTR is not allowed to give them

If Malaysia wants the qualifications of its engineers, accountants, lawyers to be recognised in USA It is not necessarily in USTR’s control because

regulations are set by US states

Impak ke atas pekerja

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A variety of chapters can affect workers including: Lower tariffs on agricultural and manufactured

products increases import competition Opening of government procurement reduces jobs

for Malaysians Regulatory coherence chapter Investment chapter including

Investor protection Macroeconomic stability

Intellectual property chapter making medicines more expensive

What about a labour chapter?29

Pelaburan

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FTA melindungi hak-hak pelabur ‘Pre-establishment rights’: semua orang/syarikat EU/US

boleh masuk ke Malaysia Definisasi ‘pelaburan’/’pelabur’ sangat luas Segala tindakan kerajaan yang mengurangkan nilai

sesuatu pelaburan boleh dianggap sebagai ‘expropriation’ Langkah untuk melindungi kesihatan rakyat Langkah untuk melindungi alam sekitar Tindakan untuk memitigasi krisis kewangan Upah minimum, cuti hamil yang dibayai, undang-undang

keselamatan dan kesihatan di tempat kerja Pelabur asing boleh menggugat kerajaan Malaysia di

makamah antarabangsa; kalau ia menang, boleh menuntut kompensasi wang, termasuk interest

‘capital controls’ dilarang Di bawah USFTAs: 72 kes dengan tuntutan US$28billion

ke atas kerajaan yang terlibat

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What Malaysia wants More foreign direct investment (FDI), but:

World Bank and UNCTAD: no proof that stronger investor protection increases investment by foreigners

UNDP: no convincing evidence that an FTA with developed countries increases FDI

Economists: FDI depends more on market size, peace and stability, infrastructure etc

USTR cannot force companies to invest in Malaysia Even if stronger investor protection in USFTA

encouraged investment, it would also encourage unproductive and potentially destabilising short term capital flows because that is also protected

Even if get FDI in the form of factories in Malaysia, WTO no longer allows Malaysia to require local content and USFTA forbids technology transfer requirements, so not much value added possible

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Untuk lebih maklumat: www.ftamalaysia.org untuk berita, aktiviti,

kempen TPP dan FTA Malaysia yang lain (eg EU FTA)

www.twnside.org.sg untuk maklumat berkenaan FTA dan WTO

Ada soalan? Sila hubungi: twnkl@twnetwork.org

Terima kasih!