Dr. Haniff Ahamat Assistant Professor Ahmad Ibrahim Kulliyyah of Laws, International Islamic University Malaysia Tel: The TPPA: Positive and Negative Impacts on Malaysia History of TPPA Started with 4 countries Chile, Brunei, NZ & Singapore in Then more States joined in including the US & Malaysia. A comprehensive new generation FTA concluded on 5 October 2015 (5 years of negotiations) Members are from Asia Pacific region: Negotiating members MALAYSIA Singapore Japan Brunei Vietnam Australia New Zealand Chile Mexico US Canada Peru 800 million people with combined GDP of USD 28 trillion and 40% of global trade. With no FTA(s) yet with Malaysia TPPA and WTO TPPA is a regional trade arrangement. It is a response to the stagnation in developments of the WTO post-Doha. It incorporates some WTO principles: National Treatment Most Favoured Nation It ensures deeper liberalisation commitments to be made: Intellectual property Government procurement It also disciplines State Parties in areas previously untouched: Investment Coverage of TPPA is non-traditional Initial Provisions & General Definitions National Treatment & Market Access for Goods Rules of Origin & Origin Procedures Textiles and Apparel Customs Administrations & Trade Facilitation Trade Remedies Sanitary and Phytosanitary Measures Technical Barriers to Trade Investment Cross-Border Trade in Services Financial Services Temporary Entry for Business Persons Telecommunications Electronic Commerce Government Procurement Competition Policy State-Owned Enterprises & Designated Monopolies Intellectual Property Labor Environment Cooperation & Capacity Building Competitiveness and Business Facilitation Development SMEs Regulatory Coherence Transparency & Anti-Corruption Administrative & Institutional Provisions Dispute Settlement Exceptions and General Provisions Final Provisions Arguments for joining TPPA Increasing access to a bigger market: 800 million population with GDP USD 28 trillion Malaysia would lose if not become party to TPPA now: US GSP status Flexibilities provided on halal, Bumiputera, transitional period As investment destination Arguments for joining TPPA Increasing the competitiveness of Malaysian industries Good and services can enter Malaysia with less restrictions Consumers will benefit from cheaper and good quality products Facing competition from AEC members Thailand, Indonesia, Vietnam (is also a potential TPPA signatory) Arguments for joining TPPA The new generation FTA TPPA will embrace higher standards not only on trade but also non-non-trade issues: E.g. anti-corruption, human rights protection TPPA may foster good regulatory practices (GRPs) transparency, stakeholder participation and accountability However. Higher international standards will be applied. Greater competition are we ready? Malaysian economy value creating or mere assembly? Laws and regulations have to be reviewed. TPPA and sovereignty Does TPPA erode our sovereignty? Proponents of TPPA argue that Malaysia also has FTAs with other countries. TPPA is not a new thing. Thus, we need to know what is the legal impact of the TPPA on Malaysia The Legal Impact of TPPA TPPA is a treaty. A treaty is binding on State Parties upon ratification. Article 27 Vienna Convention on the Law of Treaties: States are not allowed to use its internal law to justify breach of a treaty The issue of which is superior Malaysian law or TPPA? Such breach will be subject to dispute settlement mechanisms under the TPPA State-State Dispute Settlement Investor-State Dispute Settlement (under investment chapter) Areas of Contention Investment Government Procurement Competition Policy, SOEs & Designated Monopolies Intellectual Property Regulatory Coherence INVESTMENT TPPA Investment Chapter Disciplines regulatory conduct against foreign investors / investments. Obliges State Parties (Host States) to provide protection to investors/investments from other State Parties Is international regulation on investment desirable? Attracting more FDI into Malaysia? Protecting our FDI abroad? Some important features of the Investment Chapter Definition of investment is broad Scope of the investment rules National treatment MFN treatment Restrictions on performance requirements on investors Fair and equitable treatment Expropriation Free movement of capital Investor-State dispute settlement Definition of investment & scope of investment rules Definition of investment is broad & not exhaustive Include: Shares, IP rights, production contracts, rights under contracts, licenses & permits and movable/immovable property Bonds, debentures & loans (but does not include loans from one Party to another) Scope of the investment chapter: Applies to: Government laws, regulations & policies, whether by national or sub- national levels of government National Treatment & Most Favoured Nation No less favourable treatment can be given to foreign investors than domestic investors (National Treatment) No less favourable treatment can be given to investors from different State Parties (MFN) with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory. Restrictions on performance requirements TPPA restricts State Parties from imposing a performance requirement on foreign investors Performance requirement - must meet in order to establish or operate a business, or to obtain some advantage that is offered by the host state. Examples requirements to: export a certain percentage of total production; use local content Restrict sales in its territory transfer or share technology; Minimum standard of treatment Minimum standard of treatment is originally customary obligation on States to provide certain standards of treatment to aliens within their territory. National treatment standards vs international minimum standards The treatment includes due process of law, administrative fairness & protection by local law against abusive treatment by private actors. Minimum standards of treatment include fair and equitable treatment (FET) & full protection and security Fair and equitable treatment "fair and equitable treatment" in TPPA investment chapter includes obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world However based on decisions of international arbitration, the term FET as used in US and other developed countries FTAs can be interpreted as standstill on laws and regulations no new laws & regulations and no changing them, if has adverse effect on foreign investors. Walter Bau v Kingdom of Thailand Expropriation Means deprivation by the State of foreign rights to property or its enjoyment (Brownlie) The types of expropriation: 1. Direct expropriation nationalisation or confiscation 2. Indirect expropriation forced sales of property, cancellation of licences/permits to do business, exorbitant taxation. But States may not be responsible if injury results from bona fide regulation within the accepted police power of States (Sedco v NIOC) Is expropriation legal? How expropriation is legal under IL? 1. Public purpose 2. In accordance with due process of law: Include right to prompt review (judicial particularly) esp. in relation to valuation of the confiscated property. 3. Non-discrimination 4. Against compensation expropriating country must pay compensation Non Conforming Measures State Parties including Malaysia have listed measures in Annex I as non-conforming measures obligations do not apply. Those measures refer to specified legislation, by-laws and policy guidelines in specific sectors affecting investment (as well as cross-border trade in services). Investor-State Dispute Settlement (ISDS) Investor (claimant) makes a claim against Host State (respondent). The claim can be submitted under: ICSID Convention and Rules UNCITRAL Arbitral Rules Other arbitral institutions (but subject to agreement by claimant & respondent) Arguments for ISDS ISDS provisions are already there in Malaysias FTAs Malaysias companies investing abroad exceeds its FDI Outbound RM505 billion Inbound RM470 billion Malaysian companies who invest abroad also need protection. Improvements made to the ISDS Chapter Consultation process before dispute brought to Tribunal. Government has right to protect public health, national security & environment. Host State can make counterclaims. If claim is frivolous, Host State can be awarded reasonable amount of costs and attorneys fees. Issues remaining Consultation process is available only if both parties agree to resolve within 6 months. Only investor can be the claimant. Consent of he claimant will decide claim can be submitted to arbitration. Claimant will decide to exclude right to claim before domestic court or other dispute settlement bodies (Art ) the language used is the claimant will waive the right to go to domestic courts. REGULATORY COHERENCE How TPPA RC Chapter may look desirable? It requires the use of good regulatory practices in making and implementation of regulatory measures. Transparency, stakeholder participation & accountability Characteristics of RC ensuring regulatory measures (RMs) adhere to GRPs through review process and recommendations, intra-agency consultation and coordination (to address overlap and duplication), systemic regulatory improvements, and public reporting on the regulatory measures reviewed. RIAs and Reviews RIAs rationales for a particular regulatory proposal enumerating and assessing feasible alternatives relevant regulatory agency explain why selected alternative achieves policy objectives efficiently Reviews Modify, streamline or repeal covered RMs Transparency and Participation Documents that describe regulatory processes & procedures must be available to the public Information on new covered regulatory measures can be accessed by the public These however are subject to applicable laws and regulations Use of plain language Obligation to cooperate imposed on State Parties: But only with interested persons of other State Parties (Article ) Inter-State Institutional Arrangements RC Committee of the TPPA is established: Its role is to consider issues regarding the implementation of RC Chapter Interested persons can provide inputs to the Committee to enhance regulatory coherence. State parties must have `contact point other State Parties can request information regarding Malaysias implementation of the RC Chapter through the contact point. GOVERNMENT PROCUREMENT (GP) Benefits of GP Chapter GP laws and policies more predictable, accessible and transparent. Efficiency, competition & effectiveness will be the rule of the game Art A procuring entity shall use an open tendering procedure for covered procurement unless Article 15.9 (Qualification of Suppliers) or Article (Limited Tendering) applies. Value for money for taxpayers. Challenges to Procuring Entities National treatment and non-discrimination obligations: Cant discriminate between goods, services & suppliers (GSS) of local & foreign enterprises Cant discriminate between GSS of different State Parties. Cant discriminate between 2 local suppliers (1 uses local goods/services, 2 uses foreign) Offsets are prohibited Procuring entities must publish notice of intended procurement (NIP) (must be accessible to the public) to invite interested suppliers to submit request for participation or/and tender Challenges to Procuring Entities Conditions for participation must be limited to: Legal & financial capacities Commercial & technical abilities Conditions must not be that the supplier has been awarded contract by a Malaysian procuring entity or has prior work experience in Malaysia, Conditions must be specified in notices & tender documents unmentioned conditions cant be basis for evaluation Other obligations on procuring entity To inform tendering suppliers promptly the contract award decision. To state reasons why a supplier does not win a tender (upon request). To publish the award information including who wins and value of contract award. To provide for domestic review administrative or judicial Flexibilities allowed Transitional measures are allowed for developing countries like Malaysia: Price preference program Offsets Higher thresholds Must be within transition period Must still take steps to comply with GP Chapter Must be listed in Annex 15-A Who will be subject to GP Chapter? Procuring entities subject to the principles laid down in GP Chapter are as per Annex 15-A: Ministries & PMO, as well as their subordinates Subcentral government authorities are excluded. Other entities subject to the rules: Malaysian Investment Development Authority (MIDA) Malaysia External Trade Development Corporation (MATRADE) SME Corporation Malaysia Malaysia Productivity Corporation Flexibilities allowed for Bumiputera Construction services 30% of total value of construction services contracts above threshold. Goods & services price preference of % not more than 7% (TPPA source) / 3.5% (non-TPPA source) is allowed but only up to RM15million. TPP Parties RM500,000 RM1.5 million7% Above RM1.5 million RM5 million5% Above RM5 million RM10 million3% Above RM10 million RM15 million2.5% Above RM15 million0% GP chapter will not apply to (among others) PPP contractual arrangements including BOT Procurement for religious purposes Procurement for R&D Minimum thresholds for GP (for ministries & PM Dept) 1 st 4 th year 5 th 7 th year 8 th - 9 th year 10 th year onwards GoodsSDR1.5 million SDR0.8 million SDR0.13 million ServicesSDR2 million SDR1 million SDR0.5 million SDR0.13 million 1 st 5 th year 6 th - 10 th year 11 th 15 th year 16 th 20 th year 21 st year onwards ConstructionSDR63 million SDR50 million SDR40 million SDR30 million SDR14 million SDR1 = RM5.87 COMPETITION POLICY, STATE OWNED ENTERPRISES (SOE) & CHAPTER COMPETITION POLICY CHAPTER Obliges State Parties to enact and implement laws against anti-competitive behaviour. Also has specific provisions on consumer protection. However, there is risk that the Malaysian competition law (Competition Act 2010) has to conform to TPPA standards: economic efficiency and consumer welfare. SOE AND DESIGNATED MONOPOLIES CHAPTER Malaysia has significant presence of SOEs. TPPA does not prohibit the establishment of SOEs. Not all activities of SOEs are subject to TPPA Only those affecting trade or investment between Parties But not governmental activities Obligations imposed on SOEs & designated monopolies: Non-discrimination & commercial considerations in purchase or sale of goods or services Subsidy cant be given by Government to SOE if relates to production / sale of goods and cross border supply of services (must cause adverse effects to interest of other Parties) INTELLECTUAL PROPERTY CHAPTER Intellectual Property Chapter Protecting property rights, protecting innovation vs protecting public health. WTO TRIPSs standards vs the IP Chapter of the TPPA.