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Disclaimer: This document is for information purposes only, and does not constitute legal advice TPPA : Negotiations, Benefits and Challenges by Strategic Negotiations Division 23 February 2016 e-City Hotel @One City Organized by Malaysian Plastics Manufacturers Association 1

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Page 1: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice

TPPA : Negotiations, Benefits and Challenges

by

Strategic Negotiations Division23 February 2016

e-City Hotel @One City

Organized byMalaysian Plastics Manufacturers Association

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Page 2: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice 2

Malaysia, an open economy, with asmall domestic market, needs tolook beyond our borders for trade,investment and economic growth…

Page 3: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Malaysia’s Trading Partners 2015

China RM230.9 billion

15.8% share

SingaporeRM 190.56 billion

47.5% share of total trade with ASEAN

(13% of Malaysia’s total trade)

ASEAN RM 401.4 billion

27.4% shareAustralia

RM 45.54 billion3.1% share

TaiwanRM 60.3 billion

4.1% share

USARM 129.0 billion

8.8% share Japan RM 127.4 billion

8.7% share

IndiaRM 46.8 billion

3.2% share

GermanyRM 43.3 billion

2.9% share

EURM 148.5 billion

10.1% share

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Page 4: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

FTAs Developments

To date, Malaysia has established and implemented (concluded, signed andimplemented):

• seven bilateral FTAs : Japan, Pakistan, New Zealand, India, Australia, Chile and Turkey.

• six regional FTAs : China, Korea, Japan, Australia, New Zealand and India.

Concluded but have yet to Sign

• ASEAN-Japan Comprehensive Economic Partnership (AJCEP) Agreement (Services)

Signed but have yet to Implement

• Trans-Pacific Partnership Agreement (TPPA)

FTAs under Negotiations

i. Malaysia- EU FTA (MEUFTA)

ii. Malaysia-EFTA Economic Partnership Agreement (MEEPA)

iii. Regional Comprehensive Economic Partnership (RCEP)

iv. ASEAN-Hong Kong FTA (AHKFTA)4

Page 5: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

• Negotiations concluded on 5 October 2015.

• A comprehensive FTA comprising binding rules and disciplines and marketaccess commitments , reflected in chapter texts, annexes, schedules andside letters.

• Membership is open to all APEC economies but can consider non-APECcountries.

• Current membership: Australia, Brunei, Canada, Chile, Japan, Malaysia,Mexico, New Zealand, Peru, Singapore, Vietnam and US.

• Interest shown by Korea, Taiwan, Indonesia, Thailand and Philippines.

• Widely expected to be a building block towards the wider Free Trade Area ofthe Asia Pacific.

Brief Background

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Page 6: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

4 February 2016 – Signing of TPPA

• Parliament had approved Malaysia’s participation in TPP and this pavedthe way for Malaysia to sign the TPP in Auckland, New Zealand on 4February 2016.

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Page 7: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Current Status

Signing is an indication that the 12 countries accept the outcome of the negotiations

and will start their domestic process to ratify the Agreement in order to bring the

Agreement into force.

Ratification of the TPPA is likely to take place within 2 years after which the

Agreement will enter into force (early 2018) for those countries that have ratified the

Agreement.

Malaysia’s Domestic Process

Malaysia is taking the necessary steps in order to meet the deadline for ratification.

Malaysia will amend the relevant laws within the stipulated time in order to be able

to ratify and be within the group of countries to implement the TPPA as early as

possible.

Malaysia has already identified the legislations that require amendments and have

already actively started consultations on the amendments.7

Page 8: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

30 Chapters in the TPPA…

1 – Initial Provisions27 – Administrative & Institutional Provisions28 – Dispute Settlement29 - Exceptions30 – Final Provision

2- Market Access3 – ROOs4 – Textiles and Apparel5 – Customs Administration6 – Trade Remedies7 – Sanitary and Phytosanitary8 – Technical Barriers to Trade9 – Investment10 – Cross Border Services11 – Financial Services12 – Temporary Entry13 – Telecommunications14 – E-Commerce15 – Government Procurement16 – Competition Policy18 – Intellectual Property

Rights21 – Cooperation and Capacity

Building22 – Competitiveness /

Business Facilitation

17 – Competition (SOE)19 – Labour20 – Environment23 – Development24 – SMEs25 – Regulatory Coherence26 – Transparency and Anti

Corruption

Standard Legal Chapters Traditional Trade Issues New Issues

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Page 9: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Flexibilities that We Have Obtained in TPP

• Transition Period

• Threshold

• Non-Conforming Measures – Annexes

• Bumiputera Policies

• State Governments (ie. GP, GLCs, Environment, Land related matters)

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Page 10: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Flexibilities to Pursue Current Policy

i. Bumiputera

• carve out from investment and services obligation with regard to preferentiallicences to Bumiputera; as well as introduction of subsidies and grants tomeet Bumiputera development objectives.

ii. Government Procurement (GP)

• accorded transitional thresholds that will allow the Government toprogressively liberalise the government procurement market over severalyears.

• also obtained a number of exclusions from GP obligations – procurementbelow threshold.

iii. State Owned Enterprise (SOE)

• preference to Bumiputera enterprises in their purchase of goods and services.

• cumulative preference (Bumiputera Policy, entities located in Sabah andSarawak and SME) up to 40 percent of the annual budget for purchases ofgoods and services.

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Page 11: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Legal and Institutional Issues

Entry into Force• 60 days after the date on which all original signatories have notified the Depositary

in writing of the completion of their applicable domestic procedures (ratification);

• If not all signatories have ratified within 2 years of the date of signature , 60 daysafter the expiry of this period if at least six of the signatories, which togetheraccount for at least 85 per cent of the combined gross domestic product of theoriginal signatories in 2013 have ratified; or

• If both do not take place, 60 days after the date on which at least six of the originalsignatories, which together account for at least 85 per cent of the combined grossdomestic product of the original signatories in 2013, have ratified.

TPP Commission• Comprising representatives of all parties, responsible for the administration of the

Agreement, including review of Agreement; supervise work of all Committees;resolve difference or disputes regarding interpretation or application of Agreement;and issue interpretation of the agreement.

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Page 12: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Legal and Institutional Issues (cont…)

AccessionOpen to any State or separate customs territory that is a member of APEC, and suchother State or separate customs territory as the Parties may agree . Parties to decide onaccession procedures .

WithdrawalParties may withdraw from this Agreement by providing written notice of withdrawal tothe Depositary and the other Parties. Withdrawal shall take effect six months afterwritten notice.

Exceptions• general exceptions;• security exceptions;• temporary safeguard measures (capital controls);• taxation measures;

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Page 13: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Investment

• Key obligations of market access and protection through non-discriminatorytreatment, minimum standard of treatment and disciplines on expropriation,transfers, performance requirement and board of directors.

• Safeguards and exceptions available.

• Non-conforming measures – Annex I (binding current non-discriminatorymeasures) and Annex II (policy space for existing discriminatory measures )

• ISDS – outlines procedures for settlement of disputes between foreigninvestor and host government.

• Improvements and safeguards in TPPA – government’s right to regulate;avoiding frivolous claims; interpretation by Joint Commission binding onTribunal.

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Page 14: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Non-Conforming Measures (Investment and Services)

• Bumiputera preferences and land policies

• PETRONAS’ role under the Petroleum Development Act (PDA)

• Right to impose any condition when disposing assets of SOEs for the firsttime; and for subsequent transfers of assets in strategic sectors

• MFN exemption for ASEAN preferences

• Cultural services

• Wholesale and distribution services

• Air transport services

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Page 15: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Investment (ISDS)

• Investor-State Dispute Settlement (ISDS) is NOT new for Malaysia

• 74 Bilateral Investment Treaties (BITs)

• 8 FTAs (Malaysia-Japan, Malaysia-India, Malaysia-Pakistan, Malaysia-NewZealand, ASEAN-China, ASEAN-Korea, ASEAN-Australia-New Zealand,ASEAN-India) which contain ISDS provisions.

• 2 cases against Malaysian Government

- Philip Gruslin vs Malaysia

- Malaysian Historical Salvors Sdn Bhd vs Malaysia

• 2 cases by Malaysian investors against foreign Governments

- MTD vs Chile

- Telekom vs Ghana

• Safeguards in TPPA15

Page 16: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Labour

• Not about movement of labour.

• Key obligation is to adopt and maintain the ILO Declaration 1998.

• The elements :

1) freedom of association & right to collective bargaining;

2) eliminate forced labour;

3) abolish child labour;

4) eliminate employment discrimination

• Bilateral Labour Consistency Plan with US .

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Page 17: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Price of Medicine

• Claim that the price of medicines will rise astronomically as aresult of stronger patent protection.

• In reality, the patent-protection clauses in the TPPA are not allthat different from Malaysia's current regulations. Our lawsprovide patent protection for 20 years. TPP requires extensiononly if there is unnecessary delay in approval.

• One other point: We need to realise that prices of drugs arenot solely determined by patent protection.

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Page 18: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Price of Medicine (cont..)

Protection of test data / Data Exclusivity (DE) for:

(a) small molecule (other than biologics medicines)

• In Malaysia, the DE Directive, which has been in force since2011, allows the protection of pharmaceutical test data ofinnovator products for a period of five years.

• In the TPPA, Malaysia will continue to provide test dataprotection for pharmaceuticals for five years.

• The DE period starts from the approval date in Malaysia.

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Page 19: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Price of Medicine (cont..)

Protection of test data / Data Exclusivity (DE) for:

(b) Biologics: non-chemical drugs such as vaccines, gene therapy

• Malaysia currently does not provide data protection forbiologics, the obligations is similar to current practiceprovided for small molecules (5 years).

• ‘Access window’ specific for Malaysia to encourage early entryof new medicines, both small molecules and biologics.

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Page 20: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Threat to SMEs

• Malaysian SMEs are already competing under liberalizedenvironment. Under the existing FTAs, imports duties on >90% of the products into the Malaysia has been abolished.

• With TPPA:

Market access opportunities

SMEs can expand networks

Capacity building

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Page 21: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

SMEs

• Dedicated Chapter 24 - to support the growth of SMEs byenhancing their ability to participate and benefit from theopportunities created by the TPPA.

- creation of public website to provide on-line exchange ofinformation to assist SMEs;

- establishment of SME Committee to provide platform toshare best practices; and

- undertake capacity building programes to help SMEsintegrate into the global supply chain.

• Benefits for SMEs in Malaysia:

New market access : Mexico, Canada, Peru and USA21

Page 22: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Market Access

Malaysia’s Offer -goods

• 85% of tariffs to be eliminated upon entry into force;64.5% are already without duties

• Tariffs on sensitive products eliminated over 10-15 years

TPP Partners’ Offer -goods

• Immediate elimination by US (90%), Canada (95%), Mexico and Peru (80%)

• Japan – wood products

Services

• Opportunities for Malaysian service providers in professional,construction, telecommunication, oil and gas, health, education andfinancial services

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Page 23: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Commitments

Country

Offers on Import Duty Elimination (%)(TPP)

Current Duty Free %

(MFN)

Entry into force(TPP)

≤5 years(TPP)

5≤10 years(TPP)

More than 10 year/

tariff-caps(TPP)

1 Australia 48 93.04 6.82 0 0.13

2 Brunei 77 92.03 0.34 7.52 0.10

3 Canada 72 94.86 2.45 1.45 1.26

4 Chile 0 95.07 2.19 2.63 0.10

5 Mexico 59 76.99 2.62 18.14 2.25

6 New Zealand 59 94.61 1.82 3.13 0.44

7 Peru 70 80.72 4.91 5.52 8.85

8 Singapore 100 100 0 0 0

9 United States 41 89.64 4.27 2.72 3.36

10 Vietnam 32 65.83 23.79 8.16 2.23

11 Japan 41 87.40 3.16 5.40 4.04

12 Malaysia 65 84.71 8.55 5.84 0.90

Page 24: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Tariff Elimination: Petrochemical, Chemicals & Plastics Products

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Country

Range of

MFN

Import

Duty (%)

Entry Into Force

(%)

Less Than 5

Years

(%)

6 to 10 Years

(%)

More Than 10

Years

(%)

Canada 2-15.5 100 - - -

Mexico 5-30 89.1 0.6 10.3 -

Peru 9 99.4 - 0.6 -

US 0.03-12.6 92.7 6.1 1.2 -

Page 25: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

50% of our plastics exported to TPP Markets

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No Products

Exports to

TPP Countries

(RM Billion)

Exports to ROW

(RM Billion)

% of Exp. to TPP / ROW

2014Jan-Sept

20152014

Jan-Sept 2015

2014 Jan-Sept 2015

1.Chemical andChemicalsProducts

13.7 11.0 51.4 40.6 26.6% 27.1%

2.PetroleumProducts

36.4 18.0 70.4 39.6 51.7% 45.4%

3. Plastics Products 5.9 4.7 11.9 9.3 49.6% 50.5%

TOTAL 56.1 33.7 133.7 89.5 41.9% 37.6%

Page 26: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Opportunities for Petrochemical, Chemicals & Plastics Products

• Export growth into Mexico could be expected as it currently imposes high tariffs

for plastics and chemicals & chemical products.

• With the implementation of the TPP, Mexico is expected to provide new

opportunities to the local chemical and plastics sector by increasing potential

market access from the entry into force and over 10 years elimination of import

duty.

• The 100% elimination at entry into force by Canada will increase opportunities for

local players in the petroleum products, plastics and chemicals & chemical

products sectors. Malaysia exported RM182.8 million of these products to Canada

in 2014.

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Page 27: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Why TPPA?

• Trade : 4 new preferential markets

• Investment : Attracting FDI and preserving existing investors

• International standards – Labour and Environment

• Good governance- transparency, anti corruption

• Negotiated rules have addressed key concerns

• Sensitive issues have safeguards, transitions and other flexibilities

• Confirms Malaysia is an open trading nation that is business friendly, worker friendly and environment friendly

• Staying out signals inability to accept disciplines and negotiate high standard FTAs.

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Page 28: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Challenges of TPPA

• Local companies have to improve productivity and their products’ qualityto continue to be competitive in local and global markets

• Local products have to meet certain standards – may increase productioncost

• Employers have to bear additional costs to meet the required standardsfor human resource and environment management

• Government will incur additional cost due to the monitoring andenforcement activities

• Potential labour strike – negative impact to the country’s economy

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Page 29: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Non-participation in TPPA

Trade Rules

• No opportunity to write rules that takes into account the interestsof Malaysia.

• Agreement cannot be changed if Malaysia decided to join later.

Competition

• Malaysian exporters will not have preferential access in the hugeduty-free market of 800 million people and a GDP of USD27.5trillion. This market is expected to be further expanded to othercountries like Korea, Taiwan, Indonesia and other APEC economiesjoining TPP.

• Viet Nam and Singapore may be more competitive than Malaysia

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Page 30: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice Disclaimer: This document is for information purposes only, and does not constitute legal advice

Non-participation in TPPA cont…

Investment

• Malaysia will become a less attractive investment destination forinvestors.

• Existing investors will also consider moving out to other TPPcountries. For example:

Intel invested in the same field of E&E/ICT in Malaysia and VietNam.

• Malaysian investors in TPP countries/markets will not be protectedand do not enjoy the preferential treatment.

• Malaysia may become less attractive to its own investors .

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Page 31: TPPA : Negotiations, Benefits and Challenges

Disclaimer: This document is for information purposes only, and does not constitute legal advice

Please visit www.miti.gov.my for the legal texts of the TPPA, a summary of the Agreement, FAQs and other

useful material.

Thank you

Menara MITINo. 7, Jalan Sultan Haji Ahmad Shah, 50480 Kuala Lumpur, Malaysia

Tel: 603-8000 8000 | Fax: 603-6201 2337 | Email: [email protected] | Website: www.miti.gov.my

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