Dr. Haniff Ahamat Assistant Professor Ahmad

slide1. Dr. Haniff Ahamat
Assistant Professor
Ahmad Ibrahim Kulliyyah of Laws, International Islamic University Malaysia
Email: ahaniff@iium.edu.my
Tel: 0139835468 The TPPA: Positive and Negative Impacts on Malaysia<br>
slide2. History of TPPA Started with 4 countries – Chile, Brunei, NZ & Singapore in 2005.
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:<br>
slide3. 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<br>
slide4. 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<br>
slide5. 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<br>
slide6. 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<br>
slide7. 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)<br>
slide8. 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<br>
slide9. 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.<br>
slide10. 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<br>
slide11. 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)<br>
slide12. Areas of Contention<br>
slide13. INVESTMENT<br>
slide14. 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<br>
slide15. Is international regulation on investment desirable? Attracting more FDI into Malaysia?

Protecting our FDI abroad?<br>
slide16. 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<br>
slide17. 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<br>
slide18. 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.<br>
slide19. 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;<br>
slide20. 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<br>
slide21. 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<br>
slide22. Expropriation Means deprivation by the State of foreign rights to property or its enjoyment (Brownlie)
The types of expropriation:
Direct expropriation – nationalisation or confiscation
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)<br>
slide23. Is expropriation legal? How expropriation is legal under IL?
Public purpose

In accordance with due process of law:
Include right to prompt review (judicial particularly) esp. in relation to valuation of the confiscated property.

Non-discrimination

Against compensation – expropriating country must pay compensation<br>
slide24. 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).<br>
slide26. 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)<br>
slide27. Arguments for ISDS ISDS provisions are already there in Malaysia’s FTAs
Malaysia’s companies investing abroad exceeds its FDI
Outbound – RM505 billion
Inbound – RM470 billion

Malaysian companies who invest abroad also need protection.<br>
slide28. 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 attorney’s fees.<br>
slide29. 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 9.20.2) – the language used is the claimant will “waive the right” to go to domestic courts.<br>
slide30. REGULATORY COHERENCE<br>
slide31. 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<br>
slide32. 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.<br>
slide33. 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<br>
slide34. 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 25.7.1)<br>
slide35. 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 Malaysia’s implementation of the RC Chapter through the contact point.<br>
slide36. GOVERNMENT PROCUREMENT (GP)<br>
slide37. Benefits of GP Chapter GP laws and policies more predictable, accessible and transparent.

Efficiency, competition & effectiveness will be the rule of the game

Art. 15.4.4 - A procuring entity shall use an open tendering procedure for covered procurement unless Article 15.9 (Qualification of Suppliers) or Article 15.10 (Limited Tendering) applies.

Value for money for taxpayers.<br>
slide38. 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<br>
slide39. 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<br>
slide40. 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<br>
slide41. 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<br>
slide42. 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<br>
slide43. 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<br>
slide44. GP chapter will not apply to (among others) PPP contractual arrangements including BOT
Procurement for religious purposes
Procurement for R&D<br>
slide45. Minimum thresholds for GP (for ministries & PM Dept) SDR1 = RM5.87<br>
slide46. COMPETITION POLICY, STATE OWNED ENTERPRISES (SOE) & CHAPTER<br>
slide47. 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”.<br>
slide48. 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)<br>
slide49. INTELLECTUAL PROPERTY CHAPTER<br>
slide50. Intellectual Property Chapter Protecting property rights, protecting innovation vs protecting public health.

WTO TRIPS’s standards vs the IP Chapter of the TPPA.<br>