Free trade agreements have been the battering rams that have been used by the political elite of advanced countries to create a lop-sided economy that favours billionaires, says Jeyakumar Devaraj.
Parti Sosialis Malaysia has been part of a network of groups that have objected to some of the trade agreements being negotiated by the Malaysian government.
We mobilised against the free trade agreement with the United States in 2005-2006, then against the TPPA in 2014–2016. Now we are part of a group responding critically to the proposals being brought up in the Regional Comprehensive Economic Partnership (RCEP).
The person on the street might wonder why the PSM is so much against these trade agreements? Is the PSM against trade? Or is the PSM opposing for the sake of opposing? Aren’t these trade agreements necessary for Malaysia’s continued growth?
This position paper attempts to answer these questions and explain why this sort of trade agreements have become harmful to the global economy. It also will argue that different sorts of trade agreements are possible and will proceed to sketch out the broad principles of people-centred trade agreements.
Is the PSM against free trade?
According to the Treasury’s Economic Report 2016/17, the value of Malaysia’s exports of goods and services in 2016 was RM829bn in current prices. This is 69 per cent of our GDP.
If we factor in the value of intermediate goods imported in order to manufacture electronic components and other exported goods, we would find that approximately 33 per cent of value added in Malaysia is for export. And that’s a huge percentage.
So obviously, no sane Malaysian would argue that Malaysia should cease trading. Engaging in the world market is an important source of income for the nation, and this engagement obviously has to continue.
What the PSM is protesting is the fact that trade agreements are being used to promote other non-trade-related issues. Barriers to free trade are regulations such as import taxes and tariffs. But the current trade agreements (eg TPPA and RCEP) spend a lot more time on other issues such as:
I. The rights of foreign investors. The TPPA for example enshrines the following as the inalienable rights of foreign investors:
- To receive “national treatment” which means that Third World governments will now be restricted from taking special steps to develop the capacity of local businesses.
- To be free of all requirements to develop local expertise or purchase from local suppliers.
- To invest in any sector of the economy that is open to private capital whether it be water supply, power generation or healthcare provision.
- The right to by-pass the Malaysian legal system and take their disputes with our government directly to a private international tribunal where the same group of lawyers change hats from being litigants to being judges from case to case!
II. Intellectual property rights which will strengthen the monopoly position that many large multinational corporations already have in the pharmaceutical and information technology sectors.
- Patent periods are extended using newer regulations.
- The onus of initiating action against patent infringements is being shifted from the originator company to governments.
- Copyright laws on books and internet knowledge are being strengthened.
TPPA Article 18.77 (6)(a): Each Party shall provide penalties that include sentences of imprisonment as well as monetary fines sufficiently high to provide a deterrent to future acts of infringement.
(Do you know that a three-month course of Sofosbuvir, an anti-viral drug, can cure 95 per cent of Hepatitis C patients? Unfortunately, most of the 300,000 patients with Hepatitis C in Malaysia cannot afford this drug which now costs RM150,000 for a three-month course for one patient. This is because Malaysia is party to some of the IPR agreements that exist. A three-month course of Sofosbuvir can be obtained in India for RM4,000. But Malaysian pharmacies are barred from procuring from India because it would infringe patent laws. So issues regarding strengthening intellectual property rights are not boring issues that academics discuss. They affect the lives of ordinary Malaysians!)
III. The right to bring in capital and to take out profits in any amount and at any time. The government’s powers to regulate capital movement are severely restricted.
Precisely because countries like Malaysia and Vietnam need trade with the US and with the European Union, the governments of the West are using trade agreements to ‘liberalise’ the global economy in ways that benefit the billionaire class – the richest 0.001 per cent of the population of the world!
The liberalisation of the global economy is the root cause of the economic malaise afflicting the world!
The collapse of the Warsaw Pact and the ensuing liberalisation of the world economy through the World Trade Organisation agreements and the various free trade agreements that have been agreed to, have resulted in the following processes:
- The off-shoring of production by multinational companies (MNCs) from the advanced economies of Europe and the US to Third World countries where wages are about a tenth of wages in the advanced countries.
- Production in Third World countries is often out-sourced to independent Third World contractors who the MNCs play off against one another to keep production costs and wages down.
- The MNCs sell these cheaply produced goods in the advanced countries at 80–90 per cent of the prices that existed prior to the outsourced production. Since their production costs are now only 10 per cent of what they were before, the MNCs make fabulous profits!
- The MNCs shift their headquarters to tax havens so that they can avoid paying taxes in their home country (whose military they still rely on to maintain the world disorder!)
- The MNCs also use transfer pricing to declare a large portion of their profits in the tax havens so as to avoid paying taxes.
- Countries all over the world have been reducing corporate taxes in an effort to keep their corporations at home. In Malaysia corporate tax has dropped from 40 per cent of profits in the 1980s to 25 per cent currently. We are still chasing Singapore which stands at 20 per cent currently. It is a “race to the bottom”.
These processes have resulted in:
- a net loss of purchasing power by the working class. The majority of displaced industrial workers in the advanced countries are either chronically unemployed or are re-employed in jobs that are less secure and with lower pay. Factory jobs have increased in the Third World, but wages are 10 times lower than in the West.
- a drop in corporate tax income in many countries because of tax evasion by the MNCs and the billionaire class. This has led to runaway sovereign debt in many countries of the world and pressures to reduce the social safety nets in these countries.
- Fabulous profits for the richest 0.001 per cent. This is reflected in the Oxfam report for 2017 that says:
Top 1% of the world’s population (70 million individuals) own as much wealth as the rest of the world’s population combined. In 2010, 388 individuals held as much wealth as the poorer 50% of the world’s population, while by 2015 the wealth of the richest 62 individuals matched the wealth of the poorer 50%.
– Oxfam report in January 2016
The net result is that global aggregate demand does not grow sufficiently to provide investment opportunities for all the surplus profits of the Billionaire class. Hence you have:
- low investment rates
- chronic unemployment especially among the youth.
- budgetary constraints for governments, and an increasingly high debt.
- diversion of some of the surplus profits into real property and the explosion of land and property prices, and the resulting homelessness in the millennial generation.
The stubborn recession that the world is experiencing is directly due to the fact that too much of the income of the world is being sequestered in the investment portfolios of the super rich – the billionaire class.
The TPPAs and the RCEPs strive to further liberalise the world economy in ways that will enable the super-rich and the MNCs to garner an even larger share of the wealth being produced. Obviously that is only going to aggravate the sluggishness of demand growth and recessionary tendencies in the global economy.
Features of a people-centred trade agreement
A people-cented trade agreement would attempt to correct the imbalances that have been created by a global economic order that gives far too many perks to the billionaire class. Just as the existing billionaire-centred trade agreements uses the carrot-and-stick mechanism of market access and punitive tariffs to create an environment more favourable for the huge MNCs, the people should lobby for agreements that use the same carrots and sticks (ie access to markets and tariffs) to achieve economic benefits for the majority.
Such an agreement would aim:
- to redistribute a greater share of the nation’s income to the poorer 80 per cent of the population by increasing the minimum wages in stages. This would grow aggregate demand and thus stimulate investments and job creation. Small and medium businesses would have a larger market to sell to. It would be a win-win situation for 90 per cent of the population.
- to close tax loopholes and ensure that the richest companies pay their fair share of taxes. There should also be gradual elevation of corporate tax rates. This would need the cooperation of all the countries in the region as otherwise, there would be capital flight out of the country that is unilaterally raising corporate taxes.
- to be more strict regarding the awarding of patent or copyright rights especially for goods and services that relate to healthcare and education. Much of what is canvassed under intellectual property rights arguments creates monopoly conditions for the large MNCs. This reality has to be exposed.
- the investor-state dispute settlement (ISDS) system has to be totally revamped. The foreign investor will have to file his claims in the host nation’s courts first and can only take the claim to an international tribunal upon exhaustion of remedies within the county’s own legal system (or if there are inordinate delays in the host country’s legal process). The international tribunal should be comprised of three judges from three of the countries participating in the trade agreement but which are not involved in the dispute being litigated. In the Trans-Pacific Partnership Agreement setting, this would mean that in the case of a US firm suing Malaysia, the three judges sitting on the tribunal would be drawn from three of the other 10 countries participating in the TPPA, ie not from the US or from Malaysia. And the trial should take place in Malaysia so that local groups and communities affected by the MNCs activities can attend the trial. It should be clearly stated that environmental and health issues take precedence over company profits in ISDS litigation.
A practical example
We need to work with the people’s movements in other Asean countries to lobby that the Asean free trade treaty incorporates an additional agreement that all participating countries commit to increasing their minimum wage by 10 per cent every year for the next five years.
This would increase the domestic market within Asean and present more business opportunities for entrepreneurs in Asean countries.
If a certain Asean country does not comply with the minimum wage increase, its exports to other Asean countries should be charged a cumulative import tax of 5 per cent for each year that it fails to comply.
In a similar manner, all Asean countries should agree to increase corporate tax by 1 per cent each year until they reach a tax level that is 40 per cent of profits.
This would augment government income which can be used to provide a better safety net for the population and to fund the switch to non-polluting sources of electricity generation. The increase in government expenditure would also augment aggregate demand in the Asean region and thus provide a deeper market for Asean businesses.
Asean countries that fail to increase their corporate tax as stipulated should face an additional tariff on the goods and services they export to other Asean countries.
The creation of deeper domestic markets in Asian and African countries would play a big part in weaning the developing countries off their dependence on the US and EU markets.
Runaway greed on the part of the billionaire class is a major cause of our economic problems today. The solution lies in curbing the excessive power and privileges that the super-rich enjoy and creating a more inclusive and environmentally sustainable economy.
An important component of that solution is the realisation that “free” trade agreements have been the battering rams that have been used by the political elite of advanced countries to create this lop-sided economy that favours the billionaires.
We have to take over these battering rams and put them to use to fashion a more just and stable world.