Maximizing the Benefits of a FTA with America
Maximizing the Benefits of a FTA with America
(First posted on Malaysia-Today.net February 12, 2007)
I applaud the Abdullah Administration in pursuing a Free Trade Agreement (FTA) with America. That would lead to increased trade with and investments from America, as well as give Malaysians access to the largest and most lucrative market.
Under current “Fast Track” law, Congress has 90 days to approve or disapprove the final agreement in a straight up and down vote. That provision will expire this July, and with current sentiment, it is unlikely to be renewed. Without the “fast track” provision, negotiations would be drawn out and the final agreement nit-picked beyond recognition by Congress. Malaysian leaders should therefore conclude the current negotiations promptly and not be distracted by threatening comments from the likes of Congressman Tom Lantos. After all, public posturing is not an affliction peculiar only to American politicians.
Trade Minister Rafidah Aziz and other Malaysian leaders would be better off paying attention to the negotiations instead of responding to these American politicians. If she thinks negotiating with the professionals of the US Trade Representatives tough, imagine dealing with over 500 American politicians if she does not seal the agreement quickly.
Nor would it be fruitful to engage in an exercise of predicting who would benefit more. Of course a FTA would also benefit America, otherwise it would not have bothered to pursue it. Each party brings different sets of values and expectations to the negotiation. The appropriate benchmark should be whether each party is better off with or without the agreement. We should not let the promise of a perfect agreement block the pursuit of a good one.
Negotiating in a Less-than-Ideal World
In an ideal world such agreements would best be negotiated under international auspices, but the WTO is moving at a glacial speed. Next best would be for small nations to negotiate as a group for maximal leverage. ASEAN would have been the ideal vehicle, but that proved to be a futile hope. Fortunately such constraints did not preclude Malaysia from successfully negotiating FTAs with major countries like Japan, despite the “asymmetry” of the corresponding economies.
America too has concluded FTAs with countries that have even smaller economies than Malaysia’s. Chile for example does not feel disadvantaged by the lopsidedness of its negotiations with America. Thanks to their FTA, Chilean grapes are now readily available in American supermarkets in midwinter, much to the joy (and benefit) of American consumers and Chilean grape growers. The reverse is equally true; Chileans get to enjoy American grapes in July (their winter).
Malaysia cannot change the reality of the American economy being developed and 20 times larger, or that the Malaysian economy is still Third World. Malaysia should learn from the smaller nations that have successfully concluded a FTA with America.
There is something else that is within Malaysia’s control. It could ensure to have the most skillful lawyers, economists and negotiators on its side. International trade is a complex issue, especially when dealing with the world’s largest and most complex and sophisticated economy. The good news is that we have many such Malaysians; the bad news is that they are not in the civil service or may not even be in Malaysia. The government must therefore be willing to pay a premium price to secure their expertise.
To rely exclusively on in-house talent would be foolish; consider the recent debacle over the crooked causeway bridge.
Malaysia should focus not on her differences with America, rather on the commonalities. The American economy is as diverse as Malaysia’s. Cheap oil may be a bane to the American Northeast but boon to the Southwest. Outsourcing jobs may anger factory workers in the rust belt of mid America, but the resulting cheap imports from China is cheered by American consumers.
Likewise with Malaysia; cheap imported American rice may be detrimental to Malaysian rice farmers but good for consumers. FTA with America will not break Malaysian rice bowls instead they will be filled with cheap nutritious American rice.
NEP and FTA
The diversity of the two economies, each with its own conflicting internal demands, gives both sides a better appreciation of each other’s dilemmas. The fact that the American economy is developed while Malaysia is still developing should not be a barrier, as evidenced by America’s successful FTA with Mexico through NAFTA.
A major obstacle is Malaysia’s New Economic Policy, specifically the government’s procurement practices. Americans too have their own preferential policies; thus it should not be too difficult for them to appreciate the particular Malaysian sensitivity and agree to a separate “side agreement.” Malaysia is already committed to greater transparency and competitive bidding anyway.
Besides, opening public tenders to international bidding would ensure the government getting the best price and service. There is little reflected national glory if local companies were given contracts and the resultant work shoddy and cost inflated. Petronas Twin Towers was designed and built by foreigners; that did not in any way diminish Malaysia’s pride in it.
Those foreign companies after all employ Malaysians. American corporations in particular have already proven that they are the best and most enlightened employers locally.
As for the presumed impact on our rice farmers, it is well to remember that at present they are not competitive even in Malaysia. The solution for such inevitable dislocations from a FTA and globalization generally would be to equip our citizens with modern skills. Given a choice, those farmers would readily abandon their rice fields for the factory floor. Rice planting in the Malaysian way is brutal work; I have done my share of it. There is no point in romanticizing the chore.
Malaysia should instead invest in ensuring that its future farmers, like their American counterparts, be knowledgeable in modern farming skills. A FTA with America, by creating wealth through increased trade and investments, would enable Malaysia to achieve this objective much sooner.
China is currently attracting the bulk of foreign investments. American companies, like others, are now contemplating a “China plus one” policy should China again convulsed with another Cultural Revolution or similar mass madness. With a FTA, Malaysia would stand ahead of India, saddled with its lumbering bureaucracy. Compared to Vietnam, another emerging favorite, Malaysia offers superior English proficiency. Malaysia in return would also offer America a beachhead into the fast growing Southeast Asian and greater Muslim economies.
Malaysia should seize this unique opportunity and conclude a FTA with America by March of this year.
(First posted on Malaysia-Today.net February 12, 2007)
I applaud the Abdullah Administration in pursuing a Free Trade Agreement (FTA) with America. That would lead to increased trade with and investments from America, as well as give Malaysians access to the largest and most lucrative market.
Under current “Fast Track” law, Congress has 90 days to approve or disapprove the final agreement in a straight up and down vote. That provision will expire this July, and with current sentiment, it is unlikely to be renewed. Without the “fast track” provision, negotiations would be drawn out and the final agreement nit-picked beyond recognition by Congress. Malaysian leaders should therefore conclude the current negotiations promptly and not be distracted by threatening comments from the likes of Congressman Tom Lantos. After all, public posturing is not an affliction peculiar only to American politicians.
Trade Minister Rafidah Aziz and other Malaysian leaders would be better off paying attention to the negotiations instead of responding to these American politicians. If she thinks negotiating with the professionals of the US Trade Representatives tough, imagine dealing with over 500 American politicians if she does not seal the agreement quickly.
Nor would it be fruitful to engage in an exercise of predicting who would benefit more. Of course a FTA would also benefit America, otherwise it would not have bothered to pursue it. Each party brings different sets of values and expectations to the negotiation. The appropriate benchmark should be whether each party is better off with or without the agreement. We should not let the promise of a perfect agreement block the pursuit of a good one.
Negotiating in a Less-than-Ideal World
In an ideal world such agreements would best be negotiated under international auspices, but the WTO is moving at a glacial speed. Next best would be for small nations to negotiate as a group for maximal leverage. ASEAN would have been the ideal vehicle, but that proved to be a futile hope. Fortunately such constraints did not preclude Malaysia from successfully negotiating FTAs with major countries like Japan, despite the “asymmetry” of the corresponding economies.
America too has concluded FTAs with countries that have even smaller economies than Malaysia’s. Chile for example does not feel disadvantaged by the lopsidedness of its negotiations with America. Thanks to their FTA, Chilean grapes are now readily available in American supermarkets in midwinter, much to the joy (and benefit) of American consumers and Chilean grape growers. The reverse is equally true; Chileans get to enjoy American grapes in July (their winter).
Malaysia cannot change the reality of the American economy being developed and 20 times larger, or that the Malaysian economy is still Third World. Malaysia should learn from the smaller nations that have successfully concluded a FTA with America.
There is something else that is within Malaysia’s control. It could ensure to have the most skillful lawyers, economists and negotiators on its side. International trade is a complex issue, especially when dealing with the world’s largest and most complex and sophisticated economy. The good news is that we have many such Malaysians; the bad news is that they are not in the civil service or may not even be in Malaysia. The government must therefore be willing to pay a premium price to secure their expertise.
To rely exclusively on in-house talent would be foolish; consider the recent debacle over the crooked causeway bridge.
Malaysia should focus not on her differences with America, rather on the commonalities. The American economy is as diverse as Malaysia’s. Cheap oil may be a bane to the American Northeast but boon to the Southwest. Outsourcing jobs may anger factory workers in the rust belt of mid America, but the resulting cheap imports from China is cheered by American consumers.
Likewise with Malaysia; cheap imported American rice may be detrimental to Malaysian rice farmers but good for consumers. FTA with America will not break Malaysian rice bowls instead they will be filled with cheap nutritious American rice.
NEP and FTA
The diversity of the two economies, each with its own conflicting internal demands, gives both sides a better appreciation of each other’s dilemmas. The fact that the American economy is developed while Malaysia is still developing should not be a barrier, as evidenced by America’s successful FTA with Mexico through NAFTA.
A major obstacle is Malaysia’s New Economic Policy, specifically the government’s procurement practices. Americans too have their own preferential policies; thus it should not be too difficult for them to appreciate the particular Malaysian sensitivity and agree to a separate “side agreement.” Malaysia is already committed to greater transparency and competitive bidding anyway.
Besides, opening public tenders to international bidding would ensure the government getting the best price and service. There is little reflected national glory if local companies were given contracts and the resultant work shoddy and cost inflated. Petronas Twin Towers was designed and built by foreigners; that did not in any way diminish Malaysia’s pride in it.
Those foreign companies after all employ Malaysians. American corporations in particular have already proven that they are the best and most enlightened employers locally.
As for the presumed impact on our rice farmers, it is well to remember that at present they are not competitive even in Malaysia. The solution for such inevitable dislocations from a FTA and globalization generally would be to equip our citizens with modern skills. Given a choice, those farmers would readily abandon their rice fields for the factory floor. Rice planting in the Malaysian way is brutal work; I have done my share of it. There is no point in romanticizing the chore.
Malaysia should instead invest in ensuring that its future farmers, like their American counterparts, be knowledgeable in modern farming skills. A FTA with America, by creating wealth through increased trade and investments, would enable Malaysia to achieve this objective much sooner.
China is currently attracting the bulk of foreign investments. American companies, like others, are now contemplating a “China plus one” policy should China again convulsed with another Cultural Revolution or similar mass madness. With a FTA, Malaysia would stand ahead of India, saddled with its lumbering bureaucracy. Compared to Vietnam, another emerging favorite, Malaysia offers superior English proficiency. Malaysia in return would also offer America a beachhead into the fast growing Southeast Asian and greater Muslim economies.
Malaysia should seize this unique opportunity and conclude a FTA with America by March of this year.
posted by M. Bakri Musa | 1:48 PM
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