Cautious stand on FTA talks

  • Business
  • Monday, 29 Jan 2007

Free trade agreements with the US have affected many countries adversely. There is a need to be cautious in negotiating such an agreement. 

THE Malaysian government is undertaking a series of bilateral negotiations with the United States to conclude what would be a preferential free trade agreement (FTA) with the world’s only superpower. 

From the US perspective, the US-Malaysia FTA (USMFTA) makes good business sense, as Malaysia is the US’s 10th largest trading partner and its largest trading partner in Asean. The FTA would facilitate further US trade and investment in Malaysia.  

From the Malaysian government’s perspective, the USMFTA is key in ensuring continued foreign direct investment (FDI), especially from the US, and to keep pace with other Asean members. The main challenge Malaysia faces is that its comparative advantage as an FDI destination has eroded over the years.  

In negotiating the USMFTA and weighing options between attracting FDI and achieving development goals, the Malaysian government must note that an FTA between a developed and developing country exacerbates existing inequalities between and within the two countries as the FTA “levels the playing field” among unequal partners. The developing country tends to suffer disproportionately. 

The US economy dwarfs the Malaysian economy, as do US corporations. As an analogy, the Fortune 500 is filled with US multinationals while Petronas is the only Malaysian multinational that has been consistently placed in the Fortune 500. These inequalities are likely to worsen, as FTAs seldom include protection for the losers.  

In Mexico, 2 million farmers have lost their jobs due to the North American Free Trade Agreement (Nafta) as subsidised agricultural products from the US flooded the Mexican markets. Similarly, the US Peru FTA has allowed subsidised US agricultural products to flood the Andean Common Market through Peru, causing further hardship in a country where over half of its 27 million citizens live below US$1 a day.  

The US–Jordan FTA and the Central American Free Trade Agreement (Cafta) have made Jordan and the Central American economies locations for producing labour-intensive goods for the US market. Singapore, a close ally of the US, saw its trade deficit with the US increase by 200%, a rise of US$2.9bil in the first year upon signing the FTA. The same effect occurred to Australia, too, as its trade deficit increased by US$1.7bil in the first year of its FTA with the US.  

US trade surplus with Singapore tripled after the first year of the FTA reaching US$4.3bil. US trade surplus with Australia grew by 31.7% and exports to Australia increased by 11.7% in the first quarter of 2005. 

The Cafta is expected to reduce the US trade deficit with the region by US$756mil.  

The US is very keen on the USMFTA. The US government, the US Chamber of Commerce – the world's largest business federation with over 3 million members – and its partner, the American-Malaysian Chamber of Commerce (Amcham) has continually affirmed the need for the USMFTA.  

The US Chamber of Commerce and Amcham know exactly what they want. They have made a 98-page public submission on the USMFTA to the US government. They influence the US Trade Representative to pursue certain key issues that are in direct contention with development objectives and policies that the Malaysian government declares it will not trade away. 

The Malaysian government must stand firm. Workers will likely suffer the most should the government not include specific reference to implementing International Labour Organisation (ILO) Core Labour Standards in the USMFTA. It would be wise for the Malaysian government to discuss the USMFTA with the Malaysian Trade Union Congress (MTUC) to ensure that Malaysian and guest workers in Malaysia benefit.  

In Thailand, South Korea, Central and South America, thousands of citizens have demonstrated against the FTAs with the US. These citizens are against FTAs as they see the FTAs as only meeting the interests of corporate America.  

There have been many protests against the FTAs with the United States, such as in South Korea – Reuterspic

The Malaysian government therefore must rally public support, including that of the worker movements in favour of the USMFTA, as this will be in the interest of the nation.  

Ultimately, the Malaysian government must also explain its strategy to the Malaysian public on how the so-called “spaghetti” of FTAs that Malaysia is getting involved in will benefit Malaysia in the long run.

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  • The writer is a senior research officer at the Malaysian Institute of Economic Research (MIER) 

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