Questions linger over ART deal

Debate is still going on over Malaysia’s recently signed trade agreement with the United States. 

IT has been 10 days into the signing of Malaysia’s trade agreement with the United States, but the dispute over its fairness and potential benefits for Malaysia continues unabated.

Critics argue that the Agreement on Reciprocal Trade (ART) is not only heavily skewed towards the United States, but also significantly undermines Malaysia’s sovereignty.

The ink on the agreement has dried, but it does not look like a done deal yet based on the widespread dissatisfaction.

Although ART successfully secured critical exemptions from the 19% tariff imposed on 1,711 essential Malaysian exports, the general view among analysts is that the agreement is a poor deal for the country with major concessions of commitments against limited benefits.

There are many who are clamouring for it to be reviewed on the grounds that it compromises Malaysia’s sovereignty, regulatory autonomy and independent foreign policy. They include politicians from both sides of the divide, economists, civil society groups and NGOs.

Among the harshest critics are the Consumers’ Association of Penang and Sahabat Alam Malay­sia, which declared that ART “strips away our regulatory autonomy, subordinates our foreign policy to Washington’s interests, constrains our ability to raise revenue and commits us to spending a staggering US$220bil over the next decade”.

“This is not a reciprocal trade agreement. It is a capitulation dressed up as commerce.”

Much of the flak is directed at two contentious sections: Article 5 (Complementary Actions/ Econ­omic and National Security) and Article 3 (Digital Trade and Technology).

Article 5.1 requires Malaysia to “adopt or maintain a measure with equivalent restrictive effect” as a measure adopted by the United States, or agree to an acceptable timeline for implementation, to address a “shared economic or national security concern”.

Article 5.3 stipulates that if Malaysia enters a new bilateral trade agreement with a country that “jeopardises essential US interests”, the United States may terminate the agreement and reimpose higher tariffs.

Malaysia initially faced a tariff rate of 24%, which was later revised upwards to 25%, before the 19% under ART.

Critics argue that this compels Malaysia to follow or adopt measures with “equivalent restrictive effect” to any unilateral US economic or national security sanctions against third countries like China or Russia or other BRICS members regardless of Malaysia’s own interests or a United Nations mandate.

This is effectively seen as forcing Malaysia to take sides in geopolitical conflicts, something that is totally against its long-held non-aligned stance.

The government, however, has vehemently defended the Article, stating that it requires action only for shared concerns and “in accordance with domestic laws and regulations”.

Officials maintain that these “guardrails” ensure Malaysia retains flexibility and is not obligated to act if a “concern” is solely an American issue.

They have noted that Malaysia is only obliged to align its measures with the United States on a case-by-case basis when both countries share economic or security concerns, and not automatically.

The question is, have such assertions been effective enough to counter accusations that they signal a sizeable surrender of Malaysia’s economic and political independence?

As for Article 3.3, which requires Malaysia to “consult with the United States before entering into a new digital trade agreement with another country that jeopardises essential US interests”, critics claim that this is tantamount to giving the United States “veto power” to decide on countries that Malaysia can form digital trade agreements with.

The government has also defended this by saying it is a consultation process and Malaysia retains the right to chart its own course based on national interests.

The core of the debate is whether the inclusion of these conditions are a necessary and pragmatic approach to manage relations with the world’s largest economy and Malaysia’s largest trading partner – with bilateral trade amounting to RM325bil last year.

Among ART’s major features is that Malaysia has committed to reducing tariffs on various US goods such as chemicals, machinery and agricultural products.

The agreement also addresses various non-tariff barriers affecting trade, such as the acceptance of US safety and quality standards for manufactured products and streamlined regulations for food and agricultural imports.

Several commitments are also included that focus on economic and national security, likely aimed at countering Chinese influence.

Under digital trade and services, the deal includes provisions to ensure freer digital trade and addresses discrimination against US tech companies.

While the deal provides enhanced access to a significant market for Malaysian exports, the reciprocal nature of the tariffs may not favour Malaysia, limiting negotiations on other goods.

Increased US investment in Malaysia may spur economic growth, but adhering to stricter US standards may increase costs for Malaysian businesses.

On Oct 30, Prime Minister Datuk Seri Anwar Ibrahim told the Dewan Rakyat that ART was signed because the country needed high investments and trade from the United States.

In responding to critics, Anwar said ART also had an “exit clause” and the question of handing over the country’s trade sovereignty to the United States did not arise.

“I don’t want to be apologetic; why did we sign it anyway? Because we need high investments and trade with the United States,” he said.

Anwar said ART was also being scrutinised by China on whether the clauses in the agreement would cancel the possibility of cooperation with Beijing.

“Of course, anything done by America is scrutinised line by line by China. Does a decision like in semiconductors, rare earths, preclude, cancel the possibility of cooperation with them? No, there is an exit clause,” he said.

His mention of the “exit clause” – Article 7.5 of ART – highlights the fact that anything is possible and nothing has been set in stone.

The clause, which comes under Section 7 (Termination), reads: “Either Party may terminate this Agreement by written notification to the other Party. Termina­tion shall take effect 180 days after the date of the notification.”

Media consultant M. Veera Pandiyan likes this observation by Aristotle: “All virtue is summed up in dealing justly.”

The views expressed here are the writer’s own.