CAP: TPPA section on state enterprises appears damaging

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The TPPA has gone much too far in seeking to cripple  the existing SOEs so that big foreign companies can take over their market share, warns the Consumers’ Association of Penang (CAP).

The Ministerial meeting of the Trans Pacific Partnership Agreement (TPPA) that took place in Hawaii did not reach a conclusion of the negotiations because many important issues of public interest have not been resolved.

Moreover the public in Malaysia and other countries are still in the dark over what was being negotiated or agreed to.

Even if other countries are willing to reach a conclusion to the whole TPPA draft, Malaysia should not agree to such a conclusion. Instead, the Malaysian delegation led by Dato Sri Mustapa Mohamad, Minister of International Trade and Industry, should give a complete briefing to the public and ask our views on the issues, before deciding whether to join the conclusions of the negotiations.

This need for seeking the views of the public is even more necessary given the information now available on “state owned enterprises” (SOEs) which is one of the most contentious sections of the TPPA. An official summary of the issues and principles of this sub-chapter was made available on Wikileaks on 30 July 2015.

This official document confirms that the concerns raised by CAP on the inclusion of SOEs in the TPPA are fully justified.

CAP, together with other NGOs, had earlier commented that the TPPA would put a lot of pressure on the government to force government-linked companies (GLCs) to give up important social and economic roles that they are playing in our society. The TPPA would also prevent the government from giving support to these companies.

CAP believes that there are certain shortcomings in GLCs and SOEs in Malaysia and in their operations, their transparency and accountability. There should therefore be reforms to the governance and operations of these companies.

But the countries that are pushing the SOE chapter in the TPPA have gone much too far in seeking to curb, cripple or even kill the existing SOEs, so that the big foreign companies of the TPP partner countries can increase their opportunity to take over their business and market share.

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Thus, to join the TPPA in the hope that this will reform the SOEs would be like throwing out the baby  with the bath water.

Many SOEs in Malaysia have many social roles to play, which are to serve the community. They are not profit-oriented and thus it is very inappropriate to force them to behave just like private companies. Doing so would prevent them from playing their social roles, and the public would be the loser.

These roles include providing health care, education, water supply, telecommunications, financial services, transport infrastructure and some goods such as food and medicines. They often also generate business for local private companies through their procurement policy in giving preferences to the locals when buying supplies of goods and services.

It is also important that publicly owned enterprises provide a complement to private companies in Malaysia, and especially a counterweight to the large foreign companies which otherwise would dominate several sectors of the economy.

But the TPPA paper on “SOE Issues for Ministerial Guidance”, which has been the basis for negotiations in the TPPA, seems to ignore these social and economic national functions of SOEs and only insists that SOEs be treated in the same way as private companies.

The obligations in the TPPA on SOEs and government-authorised monöpolies have serious implications.

First, the government must ensure that SOEs and government-authorised monopolies act on the basis of “commercial considerations” and accord “non-discriminatory treatment in purchases and sales.”

This implies that the SOEs and monopolies are not allowed to subsidise or provide subsidised prices that would be unfair competition to private companies.

This also prevents SOEs and monopolies from giving preference to local companies when purchasing materials and services. Opening up this procurement business, worth many billions of ringgit, equally to foreign companies would adversely affect the business of thousands of local vendors and threaten many thousands of jobs. It would also seriously affect the policy of promoting Bumiputra businesses.

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Second, the TPP paper says that the SOEs must comply with the obligations in the Agreement when acting under government authority. This implies that the SOEs will have to comply with the obligations in all the TPPA chapters.

Third, there must also be “impartial regulation of commercial SOEs and private companies”. This implies that SOEs and private companies must fall under the same regulations. At present, there may be differences in regulation because SOEs may be required to perform certain social and public functions.

Fourth, the TPPA will also constrain the support that the government provides to the local SOEs, especially if this causes adverse effects to the companies in other TPPA countries.

At present, the government gives many types of support such as preferring to make use of the SOEs and their products and services, for example in banking; or by providing equity, credit, land and loan guarantees.

Admittedly, there can be and in some cases there has been misuse of these types of support to SOEs and government monopolies, and there should be urgent reforms undertaken to curb such misuses or abuses.

But for the TPPA or an internationally binding agreement to prevent or constrain the government from assisting enterprises which belong to it would be to drastically erode the viability and survival of the public sector in economic and social sectors.

This would eventually have very serious consequences that potentially include raising the prices and costs to the public of essential goods and services, making some goods or services unavailable because it is not profitable to produce them, and enabling foreign companies to take over the market share of local companies.

What is also of concern is the definition of SOEs that will come under the TPPA disciplines. SOEs may include not only companies and agencies that are 100 per cent government-owned, but also companies in which the state as well as state agencies have a partial share. They may also include state-related enterprises at federal government and local governments.

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The TPPA is likely to have “exceptions” and flexibilities, in that the government can list which are the companies and agencies it would like to exclude from the TPPA disciplines on SOEs. But it is unknown what the extent of these flexibilities will be.

Moreover, the other TPPA countries would have to agree, should Malåysia propose that it excludes, for example, Petronas, Khazanah, Proton or government-owned banks. They may not agree to the full exclusion list submitted by Malaysia.

It is also likely that future public enterprises will not be exempted.

In Malaysia, SOEs and government-designated monopolies play an extremely important role in the economy as well as in the social sectors. In fact, the economic development of the country has depended on the combined functions of the state, the government agencies and designated monopolies, the state-owned enterprises and the private companies (some of which are also partially owned by the government).

The short TPPA paper that has been made publicly available reveals that the SOE chapter will potentially undermine this successful combination of the various institutions and enterprises in Malaysia.

CAP therefore calls on the government to:

  • not agree to the conclusion of the TPPA negotiations,
  • reveal to the public the details of the chapter on SOEs as well as other related chapters,
  • carry out a full assessment of the SOE chapter on its effects on the public interest, on social needs of the people, as well as on the future operations of SOEs and government monopolies, and on local companies that presently benefit from the operations of the SOEs and monopolies.
  • also assess the impact on the overall structure and prospects of the Malaysian economy.

CAP is also convinced that the TPPA contains many pitfalls, with many serious consequences for the country, and especially the people. We therefore reiterate our call to the government not to sign the TPPA and indeed to stop taking part in the negotiations.

S M Mohamed Idris is president of the Consumers’ Association of Penang

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