PROPOSED MALAYSIA-UNITED STATES FREE TRADE AGREEMENT (MUFTA) IMPLICATIONS FOR MALAYSIAN ECONOMIC AND SOCIAL DEVELOPMENT

INTRODUCTION

This article explores the ongoing negotiations of the Malaysia-US Free Trade Agreement (MUFTA), highlighting key aspects of bilateral free trade agreements It outlines the framework of issues addressed in MUFTA and provides a detailed analysis of each chapter, offering insights into the complexities of the agreement.

Analyzing the text of an agreement is challenging when no formal agreement is in place, as is the case with MUFTA, which is currently under negotiation Additionally, the drafts from these negotiations remain inaccessible to the public.

The United States typically employs a standardized "template" for its negotiating stance in bilateral Free Trade Agreements (FTAs), leading to significant similarities in chapter headings and text across recent agreements Consequently, it is likely that the US will only agree to finalize an FTA if its provisions align closely with this established template.

The Singapore-US Free Trade Agreement (FTA) serves as a potential blueprint for a Malaysian-US FTA, prompting a detailed analysis and description based on this model.

This report addresses several topics related to the MUFTA, though it does not cover all aspects A future report may provide a more comprehensive overview We aim for this contribution to enhance the ongoing discussion surrounding the MUFTA.

DISADVANTAGES OF FTAS COMPARED TO MULTILATERAL TRADE AGREEMENTS

Bilateral agreements, particularly between developing and developed nations, are often viewed as less favorable compared to multilateral negotiations This preference for multilateral agreements stems from their potential to foster broader cooperation, enhance economic benefits, and ensure more equitable outcomes for all parties involved.

Bilateral agreements often cause "trade diversion," where partner countries prioritize products from their Free Trade Agreement (FTA) partner over potentially cheaper alternatives from non-partner countries This shift can lead to inefficiencies in the market, as consumers may end up paying higher prices for goods that could be sourced more affordably elsewhere.

In a Free Trade Agreement (FTA) between a developed country and developing countries, the latter often face a disadvantage in negotiations This stems from their limited economic capacity, less stable political environments, and fewer negotiating resources, which collectively place them in a weaker bargaining position.

The WTO acknowledges the principles of special and differential treatment, allowing developing countries to negotiate with a focus on non-reciprocity This framework enables these nations to avoid opening their markets or fulfilling obligations to the same extent as developed countries, thus fostering a more equitable trading environment.

Development principles are often missing in Free Trade Agreements (FTAs), or they are merely indicated through extended implementation timelines for developing nations These agreements primarily operate on a reciprocal basis, which can lead to unequal results due to the "equal treatment" of parties with differing capacities.

Many Free Trade Agreements (FTAs) encompass provisions that fall outside the scope of World Trade Organization (WTO) regulations Notably, numerous North-South FTAs introduce rules related to investment, government procurement, and competition law—topics that developing countries have historically opposed in WTO negotiations Additionally, these nations have declined to discuss labor and environmental standards within the WTO framework Despite this, such issues are now being incorporated into FTAs, raising concerns that the same objections held by developing countries regarding these subjects in the WTO should equally apply to FTAs.

Developing countries have previously enjoyed "flexibilities" in interpreting and implementing WTO rules related to intellectual property and services However, there are ongoing efforts by developed countries to eliminate these flexibilities in Free Trade Agreements (FTAs) If successful, these efforts would severely limit the "policy space" available for developing countries to achieve their development and socio-economic objectives.

The increasing number of agreements places significant strain on the personnel and financial resources of developing countries, necessitating a level of technical expertise that may not be readily accessible due to these limited resources.

The 2005 report titled "The Future of the WTO," commissioned by the WTO Director-General, critiques the rise of bilateral and regional trade agreements (RTAs) It argues that these agreements have undermined the most favored nation (MFN) principle, turning it into an exception rather than a standard, and have contributed to heightened discrimination in global trade.

However, it appears that FTA negotiations are moving ahead and negotiations on even more FTAs and RTAs are being announced.

Bilateral agreements may offer developing countries specific benefits, like improved market access to developed nations, but they also carry significant risks Developed countries, including the US and Japan, often leverage these agreements to secure concessions they couldn't achieve through the WTO, where developing nations have successfully resisted unfavorable terms in past negotiations.

CHANGING VIEWS ON THE EFFECTS OF LIBERALISATION

While advanced developing countries with liberalized economies can handle the pressures of rapid market opening, other developing nations may struggle to compete with this accelerated liberalization and the demands imposed by developed countries.

Until recently, a prevailing belief, heavily endorsed by the IMF, World Bank, and policymakers in developed nations, suggested that rapid liberalization is inherently beneficial for development This ideology underpinned the pressure exerted by developed countries on developing nations to swiftly reduce tariffs, eliminate non-tariff barriers, and liberalize their services, financial, and investment sectors.

There is increasing skepticism among civil society and policymakers about the traditional approach to rapid liberalization in developing countries, as it has resulted in significant import surges that negatively impact local industries, agriculture, and economic stability The emerging perspective suggests that developing nations need some level of protection to help local businesses and farms compete effectively in their domestic markets, mirroring the trade and industrial policies adopted by now-developed countries during their own developmental phases.

Developing countries require robust protection for their agricultural sectors due to the heavy tariffs and subsidies imposed by developed nations These subsidies allow developed countries to sell products at artificially low prices on the global market, creating unfair competition for farmers in developing nations To safeguard their agricultural interests, developing countries rely on tariff protection, particularly since the Uruguay Round has prohibited quantitative restrictions.

Developing countries have presented arguments in the WTO aimed at enhancing the development dimension through three main approaches: first, they seek to clarify, review, or amend existing WTO rules to address implementation challenges; second, they advocate for the strengthening of current special and differential treatment (SDT) provisions and the introduction of new ones where necessary; third, they emphasize the need for adequate SDT provisions in new rules or revisions of existing rules, particularly in the areas of agriculture and industrial products.

Developed countries are beginning to shift their approach to liberalization in developing nations, as evidenced by the UK government's decision to refrain from imposing liberalization on African and least developed countries (LDCs) This sentiment was echoed at the recent G8 summit, which highlighted a more lenient stance towards LDCs However, it's important to note that this change in policy appears to be limited to LDCs and may not extend to non-LDC developing countries Nonetheless, this evolving perspective on liberalization marks a significant development within the policy circles of developed nations.

4 “RECIPROCITY” AS A PRINCIPLE IN FTAs

Free Trade Agreements (FTAs) between developed and developing countries often lack a coherent development track, primarily focusing on reciprocity where both parties assume similar obligations The emphasis is predominantly on Market Access and National Treatment, aimed at opening markets to enhance business opportunities Unfortunately, these agreements typically overlook the developmental needs of poorer nations and fail to acknowledge the disparities in their negotiating capabilities and levels of development.

The demand for a solid framework by trade policymakers in developed countries highlights the necessity for Free Trade Agreements (FTAs) and Regional Trade Agreements (RTAs) to align with World Trade Organization (WTO) regulations, specifically Article XXIV of GATT 1994 This article allows for the establishment of FTAs under certain conditions, emphasizing that their primary purpose must be to facilitate trade among member territories without imposing barriers on trade with other countries Furthermore, it characterizes a free trade area as a collective of two or more customs territories where duties and restrictive trade regulations are largely eliminated for products originating from those territories.

Free Trade Agreements (FTAs) are generally expected to be reciprocal, as the provisions for Special and Differential Treatment (SDT) are not explicitly stated in the relevant Article These agreements require the elimination of tariffs and trade restrictions on "substantially all trade" between the involved parties, although the term "substantially all trade" lacks a clear definition During negotiations for Economic Partnership Agreements (EPAs) between the European Union and African-Caribbean and Pacific (ACP) countries, the EU interprets this to mean at least 90% of trade, while some ACP nations believe it refers to a minimum of 60% of trade.

Recent proposals have emerged to revise Article XXIV to explicitly support non-reciprocal relations in Free Trade Agreements (FTAs) between developed and developing nations The ACP Group has put forth such a proposal, and China has also introduced a development-oriented suggestion regarding Article XXIV.

Without clarification or revision, an FTA based on reciprocity between a developed and a developing country could severely disadvantage the developing nation, which typically has lower production capacity and higher tariffs on industrial goods The removal of tariffs may jeopardize the sustainability of local industries and farms in these developing countries.

MAIN FEATURES OF FTAS INVOLVING UNITED STATES

The main issues in FTAs that involve developed countries such as the US, EU and Japan typically include the following:

3 Specific services sectors financial services, telecommunications

5 Investment liberalization and investor protection

7 Competition issues: Business practices, monopolies and government-linked companies

8 Environment and food safety issues

Historically, only the first item was addressed in a Free Trade Agreement (FTA) However, the second and fourth issues emerged in the multilateral trading system during the Uruguay Round, which concluded in 1994 These new issues are now integral to the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO).

The Singapore issues, encompassing investment, procurement, and competition, were introduced to the WTO during the 1996 Ministerial Conference in Singapore Despite being discussed in working groups, developing countries opposed making them binding rules In July 2004, the WTO General Council decided to halt negotiations on these issues during the Doha work programme, leading to a cessation of activities in the working groups.

The Free Trade Agreements (FTAs) involving the United States address labor and environmental standards, which are excluded from rule-making in the World Trade Organization (WTO) This exclusion stems from concerns among developing countries that such standards could lead to protectionist measures against their exports Consequently, labor standards remain absent from discussions within the WTO framework.

The term "environment" encompasses a wide range of issues beyond just regulatory standards This paper specifically addresses the critical topics of biosafety and the labeling of products that contain genetically-modified organisms (GMOs).

It can be seen that subjects that have been rejected by developing countries as topics of negotiations or even discussion have made a comeback through the FTAs.

MARKET ACCESS IN GOODS

Developing countries often pursue Free Trade Agreements (FTAs) with developed nations due to concerns about being left behind in the global market As neighboring countries engage in FTA negotiations with developed economies—key players in their markets—there is a growing apprehension that those opting out of FTAs will fall behind competitively This fear drives many developing nations to seek FTAs to ensure they do not lose market opportunities and maintain their economic viability.

A developing country may perceive that joining a Free Trade Agreement (FTA) will enhance its market access to partner nations, as the FTA typically offers advantages such as reduced tariffs and quotas.

Developing countries must identify key products for export growth under Free Trade Agreements (FTAs) and realistically evaluate potential increases in market access This assessment should consider the costs associated with granting access to their own markets for trade partners, as well as concessions in related areas such as services, investment, and intellectual property.

Many countries that had hoped to obtain significant expansion of market access to the major developed countries have been disappointed in the results of the negotiations.

Developed countries face significant structural, legal, and political barriers that restrict market access for sensitive products These limitations are in place to protect domestic producers from potential disruptions that could arise from further market liberalization.

Smith (2005) highlights several structural challenges that hinder developing countries from securing market access in Free Trade Agreements (FTAs) with developed nations Primarily, the imbalance in bargaining power places developing countries at a disadvantage during bilateral negotiations Additionally, developed countries face difficulties in reducing or eliminating agricultural export and domestic subsidies for products that developing countries wish to export, as such measures would have to apply universally, benefiting non-FTA partners as well Furthermore, existing legal frameworks may limit the terms of reference for what developed countries can offer in these agreements.

U.S negotiators are limited by the Bipartisan Trade Promotion Authority Act of 2002, which restricts the terms they can offer in Free Trade Agreements (FTAs) This legislation prevents the conclusion of FTAs that do not align with its established guidelines.

The Act allows for a reduction in duty rates, specifically targeting those rates exceeding 5 percent ad valorem as of the enactment date, enabling a decrease to less than 50 percent of the current duty rate.

 ‘reduce the rate of duty below that applicable under the Uruguay Round Agreements, on any import sensitive agricultural product;’ o ‘The term “import sensitive agricultural product” means an agricultural product—

As a result of the Uruguay Round Agreements, the United States implemented tariff reductions, lowering the duty rate on specific articles to no less than 97.5 percent of the rate that was in effect on December 31, 1994, effective January 1, 1995.

 (B) which was subject to a tariff-rate quota on the date of the enactment of this Act’

The Act does not provide for special and differential treatment, as its negotiating objectives focus on achieving reciprocal market access, eliminating both tariff and non-tariff barriers, and establishing rules that align with those of the United States.

US negotiators are likely to face significant challenges in making concessions on agriculture and sensitive industrial products due to potential political backlash from influential lobby groups, including large farmers, food companies, labor unions, and Congress The narrow passage of the US-CAFTA agreement in 2005, which faced substantial opposition and was approved by only two votes, highlights the difficulty in accommodating the market access demands of developing country FTA partners, despite the minimal impact of CAFTA exports on the US economy.

Despite Singapore's strong negotiating position, it could not persuade the U.S to waive the "yarn forward rule" for textiles and apparel, which requires that products be made from yarn sourced exclusively from Singapore or the U.S This stipulation limits the use of more affordable yarn and fabric from other Asian countries Additionally, Singapore had to accept stringent customs procedures, including on-site inspections by U.S officials, to ensure compliance with these rules and implement further safeguard measures.

Negotiations on sensitive agricultural products are likely to be challenging, particularly as the US is unwilling to reduce agricultural subsidies in its free trade agreements (FTAs) This stance limits the potential concessions that could enhance market access for countries that export agricultural goods.

Australia, despite being a developed nation, struggled to negotiate better market access for its crucial sugar exports during Free Trade Agreement (FTA) discussions with the US, where sugar is heavily protected Prior to the FTA, Australia was limited to a sugar quota of 87,402 tonnes per year Throughout the negotiations, the Australian Government firmly stated that without concessions on sugar, there would be no agreement.

The primary objective of the United States in agricultural trade negotiations is to secure competitive opportunities for U.S agricultural exports in international markets that are comparable to those available to foreign exports in the U.S This includes efforts to reduce tariffs to levels that are equal to or lower than those imposed in the United States.

The U.S.-Australia Free Trade Agreement (FTA) did not increase quotas for Australia in key areas such as investment and intellectual property, despite significant efforts by the government to secure additional allowances (Smith 2005).

Manufacturing

Malaysia's manufacturing tariffs are generally higher than those of the United States, which means that in the effort to eliminate tariffs on "substantially all products," Malaysia will need to make greater concessions than the U.S This could lead to challenges for Malaysian industries, as they may struggle to compete with the influx of cheaper U.S imports.

On March 8, 2006, the US Trade Representative's Office launched the MUFTA and highlighted its "Economic and Strategic Benefits" for the U.S The document emphasizes that US exporters stand to gain significantly from the Free Trade Agreement (FTA).

Malaysia's average bound industrial tariffs are significantly higher than those of the United States, standing at 14.5% compared to the US's 3.7% Additionally, Malaysia's average applied tariff is 8.4%, which is more than double the US rate of 3.7%.

The US paper highlights significant disparities in tariffs between Malaysia and the US across various sectors For instance, transport equipment faces tariffs of 3.2% in Malaysia compared to 1.5% in the US Similarly, the tariffs on wood, pulp, paper, and furniture are markedly higher in Malaysia at 10.9%, while the US imposes only 0.7% In the leather, rubber, footwear, and travel goods category, Malaysia's tariffs reach 14%, in contrast to the US's 4.3% Electric machinery tariffs stand at 6.7% in Malaysia versus 1.9% in the US, and non-electric machinery tariffs are 3.7% in Malaysia compared to 1.2% in the US Textiles and clothing also show a significant difference, with Malaysia at 13.5% and the US at 9.6% Lastly, mineral products incur an 8.8% tariff in Malaysia, while the US charges only 1%.

The US National Association of Manufacturers forecast that US manufacturing exports to Malaysia could double by 2010 under a FTA.

The United States is focused on addressing Malaysia's current import restrictions on motor vehicles, as noted in the USTR's report on Foreign Trade Barriers The report emphasizes that Malaysia has historically shielded its automobile industry from international competition through significant tariffs and non-tariff trade barriers, with government policies creating a distinction between domestic and foreign vehicles.

The ongoing trade restrictions in Malaysia favor "national" cars over "non-national" vehicles, with a permit system and rebates for local manufacturers hindering open trade Non-Asean completely knocked down (CKD) cars face a significant financial burden, being subjected to a 10% tariff and an excise tax ranging from 80% to 200% The United States is expected to push for the removal of both tariff and non-tariff barriers on motor vehicle imports into Malaysia, which could have profound consequences for the domestic automotive industry.

Malaysian textiles companies are expecting to benefit from increased access to the US market However they will also face a number of hurdles, including the

The "yarn forward rule," applicable to FTA partners like Singapore, mandates that textiles and apparel imported from Malaysia into the U.S must utilize yarn sourced exclusively from Malaysia or the U.S This requirement prevents the use of more affordable yarn and fabric from other Asian countries Additionally, Malaysia is obligated to comply with stringent customs procedures to confirm that its textiles and apparel are domestically produced, which includes permitting on-site inspections by U.S officials and adhering to further safeguard measures concerning Malaysian textile imports.

Agriculture

In the agricultural market access section of the Free Trade Agreement (FTA), Malaysia is expected to face unfavorable terms The agreement will yield minimal benefits for Malaysia regarding access to the US agricultural market, while also requiring the country to liberalize its own agricultural sector.

US exports, and the US will probably not agree to having sensitive products such as rice exempted.

The United States is expected to provide limited market access in trade agreements, as demonstrated by the US-Australia Free Trade Agreement (FTA), where Australia did not secure additional sugar export opportunities Furthermore, the benefits for Australia in beef exports, which included a higher quota, were minimal, with estimates suggesting an increase of only "about half a cow, per farm, per year."

The United States will not agree to reduce its domestic farm subsidies in the Free Trade Agreement (FTA), asserting that such changes should be addressed through the World Trade Organization (WTO) These substantial subsidies result in artificially low prices for American agricultural products, leading to significant economic implications.

The presence of US subsidies hinders countries like Malaysia from entering the American market effectively If soybean subsidies were eliminated, production costs would be more accurately reflected in pricing, thereby enhancing the competitiveness of palm oil Although Malaysia could advocate for the removal of US subsidies, such a demand is likely to be met with resistance from the United States.

Subsidies allow the US to export farm products that would otherwise be uncompetitive by significantly reducing their prices, often below production costs To counteract this unfair advantage, countries must implement higher tariffs to protect their markets from being overwhelmed by these artificially low-priced US goods.

According to a recent UNCTAD paper, "Studies show that under the existing

In 2001, U.S agricultural policy faced challenges as the production costs for major crops significantly exceeded market prices, with corn prices 23% below production costs, wheat at 48%, soybeans at 32%, cotton at 52%, and rice at 45% Despite these financial struggles, the U.S maintained a substantial presence in global exports, accounting for 35% of cotton exports, over 20% of wheat, and approximately 10% of rice.

US exports benefit from subsidies that enable them to sell at lower prices, which undermines more efficient producers For instance, if these subsidies were eliminated and US soybean export prices rose, Malaysian palm oil, a competitor to soybean oil, would gain a competitive advantage in the market.

Malaysia may encounter challenges as the US pushes for zero agricultural tariffs within a specified timeframe Similar to the impact of NAFTA on Mexico, which saw a dramatic increase in farm imports from the US—nearly tripling corn imports and more than quintupled imports of soybeans, wheat, poultry, and beef—Malaysia could experience significant shifts in its agricultural landscape This trade agreement led to rural job losses in Mexico, totaling between 2 to 3 million, highlighting potential risks for Malaysia's agricultural sector.

The US government aims to boost exports of agricultural products to Malaysia, focusing on key items such as rice, soybeans, chicken, and beef To facilitate this, it seeks to eliminate tariffs on American farm products in Malaysia.

A USTR fact sheet on the FTA states that there will be opportunities for US agricultural exporters The US exported US$400 million of farm products to

Malaysia in 2005 It said that US growers of fruit, vegetables, nuts, processed horticultural products and other food producers would benefit (USTR 2006)

Rice has become a significant concern in Malaysia, where a 40% tariff is implemented to safeguard local rice farmers The country adheres to a policy that designates a single importer, BERNAS, and enforces quotas on the amount of foreign rice that can be imported.

In the ongoing Free Trade Agreement (FTA) negotiations, the United States is expected to request a gradual reduction of the rice tariff to zero and the elimination of non-tariff barriers, which may involve dismantling the quota system and the import monopoly held by BERNAS.

The rice sector in Malaysia plays a crucial role in maintaining food security and supporting rural livelihoods, with approximately 296,000 farmers relying on rice cultivation for their income Of these, 116,000 farmers are exclusively dedicated to growing padi In line with these efforts, the Malaysian government established a self-sufficiency target of 90% for rice by 2010, an increase from 72% in 2005, as outlined in the 9th Malaysia Plan.

If the rice tariff were reduced to zero then the US rice (which has subsidies from the

US government so that it can be sold at 25% below the cost of growing it) could seriously undermine local rice production

In recent FTA negotiations, Malaysia has placed rice and tobacco on its exclusion list, as reported by The Star on January 15, 2007 Agriculture Minister Tan Sri Muhyiddin Yassin emphasized that the Cabinet's decision reflects a commitment to protecting the livelihoods of local farmers, asserting that the government will not make compromises in this regard.

The government prioritizes the interests of farmers and will not compromise on issues related to rice, even if it prevents the signing of the Free Trade Agreement (FTA) Should the United States raise this concern, the government is prepared to respond with a firm stance, indicating that they can either accept the terms or walk away.

The Minister's remarks followed protests from farmers and NGOs, who expressed concerns that the MUFTA would allow the import of subsidized US rice without border protections, potentially threatening local rice production and negatively impacting farmers' livelihoods and income.

G ENERAL

Before the Uruguay Round, many developing countries opposed the inclusion of trade in services and intellectual property rights, fearing these agreements would harm their interests and local businesses Despite their concerns, services were incorporated into the Round with the promise that developing nations would benefit from improved market access for their goods in agriculture, textiles, and clothing—areas where they had a comparative advantage and faced various trade barriers However, the actual outcomes in textiles, clothing, and agriculture did not meet the expectations of these developing countries, leaving them disappointed with the results.

The World Trade Organization (WTO) permits member countries to choose their own pace and extent of services liberalization, particularly benefiting developing nations These countries have the flexibility to experiment with liberalization in specific sectors to assess potential benefits, without the obligation to commit to irreversible measures in the WTO framework.

The WTO employs a positive list approach, allowing countries to commit to liberalization solely in sectors they include in their schedules For each selected sector, nations have the flexibility to determine the level of liberalization they wish to adopt across the four modes of service delivery Additionally, countries can impose restrictions, such as limitations on foreign equity ownership or national treatment in Mode 3, which pertains to "commercial presence."

The General Agreement on Trade in Services (GATS) includes specific "special and differential treatment" clauses that permit developing countries to liberalize their services sectors at a slower pace than developed nations Key development provisions are outlined in Article IV and Article XIX (2) of the GATS, as well as in the March 2001 Guidelines and Procedures for Negotiations on Trade in Services, which serve as the foundational document for ongoing services negotiations.

F EATURES OF S ERVICES CHAPTERS IN FTA S

Many developing countries are cautiously navigating the General Agreement on Trade in Services (GATS) by selectively liberalizing specific sectors at their own pace They hesitate to increase their binding commitments within the World Trade Organization (WTO) due to concerns about potential negative repercussions, as reversing such commitments can be challenging Additionally, these countries face supply constraints and ongoing protectionism in developed markets, which limits their ability to benefit from global liberalization Consequently, they may incur more costs than advantages from liberalizing their own markets Ultimately, these nations retain the right to determine their liberalization strategies and the sectors they choose to open up, if at all.

Developed countries are increasingly frustrated with the slow progress of developing nations in the World Trade Organization (WTO), particularly as services now represent the largest sector of the global economy Major service enterprises in developed countries are eager to access the markets of developing countries In response, these developed nations are advocating for the use of Free Trade Agreements (FTAs) to expedite the liberalization process in developing economies.

In contrast to the WTO’s positive list approach to liberalization (under which a country does not commit to liberalise except in the sectors it lists down in a schedule),

US Free Trade Agreements (FTAs) predominantly employ a negative list approach, committing to open all sectors unless explicitly excluded In contrast, developing countries advocate for a positive list approach, allowing them greater flexibility and control over their commitments This method is considered less risky, as it prevents countries from inadvertently overlooking sectors or making uninformed exclusions.

The developed countries prefer the negative list approach, as this would make it easier for developing countries to commit to liberalization measures in more sectors The

The United States employs a negative list approach in its Free Trade Agreements (FTAs) with developing nations, exemplified by the US-Singapore FTA In this framework, only the sectors explicitly listed in the schedule are subject to restrictions regarding national treatment, market access, and local presence, allowing for greater flexibility in trade relations.

The negative list approach limits the policy space for developing countries and contradicts the WTO's more development-friendly positive list framework This method undermines the principles and service structures that developing nations have vigorously advocated for within the WTO Key risks associated with the negative list approach include reduced flexibility and diminished opportunities for growth in these countries.

1 Due to this methodology, the developing country will be vulnerable to greater pressure to liberalise.

2 The country may not be sufficiently aware of all the service sectors and sub- sectors, and thus may not list all the sub-sectors it wishes not to liberalise.

The country may struggle to foresee which sectors it will want to promote domestically in the future, leading to potential regrets over liberalizing certain industries.

The country may overlook the potential risks associated with liberalizing specific sub-sectors, making it challenging to reverse such decisions when necessary to safeguard domestic businesses or the economy, particularly during financial crises.

5 The country will not be able to predict which new services sectors may emerge in future, and thus cannot exclude these in the list

The US-FTA chapter on cross-border services addresses the supply of services across borders but excludes commercial presence and investment, which are addressed in the investment chapter with its own dispute settlement system Additionally, the annexes within the services chapter outline specific reservations that detail exceptions for certain service sectors from the commitments established in both the services and investment chapters.

The US-Singapore Free Trade Agreement defines "Cross-Border Supply of Services" as the provision of services from one Party's territory to the other Party's territory, exemplified by a consultant in one country offering advice to a client in another country.

The Jordan-US Free Trade Agreement (USFTA), signed in 2000, stands out as one of the earliest agreements of its kind, predating the current fast track legislation This agreement allows for trade and communication through various channels, including mail, phone, and internet services, reflecting a modern approach to international commerce.

Cross-border trade, as outlined in the General Agreement on Trade in Services (GATS), encompasses various modes of service delivery Mode 1 involves services provided from one party's territory to another, while Mode 2 refers to consumption abroad, exemplified by a Singaporean student studying in the US Additionally, Mode 4 pertains to the movement of individuals, such as nationals of one party working in another's territory However, it's important to note that Article 8.2.4 of the US-Singapore Free Trade Agreement clarifies that this chapter does not impose any obligations regarding the access of nationals from one party to the employment market of the other, nor does it grant rights concerning such access or employment.

The investment dimension of services, while not explicitly included in GATS, is addressed within the investment chapter, where the rights of foreign investors are clearly outlined.

This chapter addresses the regulations imposed by one Party that impact cross-border trade in services provided by the other Party's service providers It also encompasses measures affecting the supply of services by investors or investments as outlined in the investment chapter Key aspects include the production, distribution, marketing, sale, and delivery of services, as well as the purchase or use of services, access to distribution, transport, or telecommunications related to service supply, and the requirement of a bond or security for service provision.

The key principles of the agreement encompass national treatment for foreign service suppliers, most favored nation treatment, and unrestricted market access Both parties commit to not imposing limitations on the number of service providers, the total value of service transactions or assets, the total number of service operations, or the number of personnel employed in specific service sectors.

There are also provisions on freedom for transfer of funds and payments, on domestic regulation, transparency and professional services

In US Free Trade Agreements (FTAs), a negative list approach is employed, meaning that all sectors and activities are fully liberalized except for those specified in the annexes, which contain schedules of exceptions.

D OES THE DEGREE OF LIBERALIZATION MATTER FOR DEVELOPMENT ?

Developed nations promote rapid and extensive liberalization of services in developing countries, often supported by institutions like the World Bank that push for efficiency improvements However, a more prudent strategy for developing nations is to adopt a cautious stance on services liberalization to ensure sustainable growth and stability.

Maintaining or expanding local participation in services is crucial for developing countries, particularly in the wake of colonial history where foreign firms dominated sectors like finance and distribution Post-independence, governments implemented strategies to boost local ownership and control in various industries, including banking, insurance, and transportation While state monopolies existed in essential services such as railways and telecommunications, the privatization process opened the door for local companies to compete This shift was often supported by government initiatives that favored local entities and regulated foreign competition, leading to a significant increase in local involvement in the economy.

The services sector is currently the largest in many developing countries, where local firms have a significant presence and can effectively compete, especially compared to the manufacturing sector Upgrading technology and techniques can often be achieved by local firms through the importation of modern technology, without the need for large foreign firms to dominate Local firms possess inherent advantages in understanding local conditions and customer needs, making it essential for the strengthening and development of the domestic economy This sector presents opportunities for training and developing local entrepreneurs, as well as addressing social imbalances Additionally, the service sector encompasses various strategic sub-sectors that contribute to overall economic growth.

(a) Economically strategic sectors, eg finance, distribution);

(b) Essential to national economic security (energy and power, telecommunications, transport, postal, water);

(c) Critical for the public interest and to meet social needs (water, education,health, etc)

Foreign investment offers advantages but also comes with costs, necessitating a careful balance The services sector primarily generates "non-tradable" services, leading to substantial foreign exchange losses due to profit outflows from foreign service providers, despite the majority of their output being utilized locally.

For strategic and security reasons, it is also important that there be local control over several services sectors, including water, electricity, finance, telecommunications, etc.

To avoid or cushion financial crises, there should also be significant local participation in banking, insurance, etc.

Public services essential for basic needs, including water, education, health, and electricity, must be diligently protected Prioritizing the fulfillment of these needs is crucial, particularly for vulnerable populations such as the poor.

Effective regulation of the sector is essential within national development policy, ensuring that foreign participation is strategically integrated into a planned framework This framework must consider the involvement of domestic firms, economic conditions, financial stability, infrastructure needs, public requirements, and social development Rapid and excessive liberalization of critical sectors, particularly through legally binding rules of a Free Trade Agreement (FTA), could jeopardize the establishment of a cohesive national services strategy.

N EED FOR A COMPREHENSIVE NATIONAL SERVICES PLAN

Developing countries should establish a comprehensive national services master plan to create a coherent policy framework This strategic plan will enable them to effectively define their positions in alignment with national interests, particularly in contexts such as the World Trade Organization (WTO) and potential Free Trade Agreements (FTAs).

A key aspect of the service plan is determining the level of local versus foreign involvement across different sub-sectors, as well as fostering the growth of each sub-sector It is essential to strategically and publicly address critical areas such as finance, telecommunications, water, and health services.

Many countries do not have such a comprehensive plan At best they have a plan for subsectors, such as financial services or health services

Until such a services plan is formulated, it would not be possible for a country to properly decide on which sectors to commit to liberalise and to what extent.

SERVICES: IMPLICATIONS OF MUFTA FOR MALAYSIA

INVESTMENT: LIBERALISATION AND INVESTOR PROTECTION

S INGAPORE I SSUES

The "Singapore issues," which encompass investment, competition, and government procurement, have been removed from the WTO negotiating agenda for the time being, particularly during the Doha work programme This decision reflects the stance of numerous developing nations, such as India and Malaysia.

Indonesia and the Philippines have actively sought to exclude certain topics from the multilateral trade agenda, as these issues are often introduced by the United States and other developed nations in bilateral Free Trade Agreements (FTAs).

B ACKGROUND TO INVESTMENT ISSUE

Developing countries expressed strong opposition to the introduction of an investment agreement in the WTO, fearing it would limit their ability to establish independent investment policies Their concerns included the ability to set conditions for foreign investment, such as entry and equity requirements, performance obligations, and regulations on fund transfers.

Many bilateral Free Trade Agreements (FTAs) with developed countries now feature investment agreements that reflect the preferences of these nations For example, the US-Singapore FTA encompasses a wide definition of investors and investments, establishes high standards for the right of establishment and national treatment, prohibits performance standards, and ensures freedom for fund transfers It also includes an expropriation clause and allows for investor-to-state dispute settlement, enabling foreign investors to bring claims against host governments in international courts Notably, the expropriation clause often has a broad interpretation, covering "regulatory takings" and losses stemming from changes in government regulations This framework permits investors to seek compensation for alleged expropriation losses, a scenario frequently seen in cases arising under NAFTA.

Developing countries must carefully consider whether to include an investment component in their Free Trade Agreements (FTAs) and ensure that such a component does not impose standards that could harm their investment and development policies It is crucial to maintain national policy flexibility regarding the definition and scope of investment, rights to establishment, types of foreign investment encouraged or discouraged, national treatment, fund transfers, performance requirements, and dispute settlement systems The experiences of Malaysia during the 1997-2000 financial crisis highlight that certain policies may conflict with potential FTA provisions Therefore, it is argued that binding investment rules should be excluded from FTAs between developed and developing countries, especially given the concerns of developing nations about the negative impacts on their development, as reflected in the WTO's decision to refrain from negotiating an investment agreement.

The investment topic has long been a contentious issue within the WTO framework Initially included in the Doha agenda established in 2001, negotiations on investment and other “Singapore issues” faced significant pushback, particularly during the Cancun meeting in 2003.

2004, investment was dropped off the Doha negotiations agenda by the WTO GeneralCouncil.

The investment debate has resurfaced prominently in bilateral free trade agreements, becoming a crucial battleground for discussions on the inclusion of investment provisions Currently, the focus is on determining whether to incorporate investment clauses and the specific nature of these chapters within FTAs.

Developed countries have a longstanding history of trying to convince developing nations to adopt a binding international investment treaty During the Uruguay Round, investment rules were included in the Agreement on Trade-Related Investment Measures (TRIMS) negotiations, but developing countries successfully limited the agreement to trade-related measures only In 1995-96, developed nations attempted to negotiate an investment agreement through the WTO, resulting in the Singapore Ministerial's decision to form a working group for discussions rather than a binding agreement Further efforts through the OECD and the Doha Round also failed to yield results Currently, these developed countries are pursuing investment agreements through bilateral free trade agreements (FTAs).

M AIN DESIGN AND STRATEGIC AIM OF THE US

International investment agreements, particularly those found in bilateral free trade agreements (FTAs), have consistently showcased key features championed by major developed nations While some details may vary, the fundamental characteristics have remained stable over the years These agreements typically emphasize protections for foreign investments, mechanisms for dispute resolution, and the promotion of fair and equitable treatment for investors, ensuring a conducive environment for international economic cooperation.

Foreign investors are granted significant rights to entry and establishment in member countries, often with minimal conditions, allowing them to operate freely in host nations In Free Trade Agreements (FTAs) involving the USA, investors enjoy "pre-establishment" rights, which facilitate investment even before entering the country, ensuring minimal regulatory barriers Conversely, "post-establishment" rights allow host countries to determine the acceptance of investors and impose conditions on investments if they choose to permit entry.

The principles of "non-discrimination" and national treatment ensure that foreign investors receive equal rights compared to local investors, meaning they cannot be treated less favorably This national treatment guarantees that foreign investments are afforded the same or better conditions as domestic ones, while measures that favor local investors may be restricted to prevent discrimination against foreign entities.

Investment is defined broadly, encompassing various forms such as foreign direct investment (FDI), portfolio investments, credit, intellectual property rights (IPRs), and even non-commercial organizations, as outlined in the proposed OECD Multilateral Agreement on Investment (MAI) This comprehensive definition is also reflected in free trade agreements (FTAs) involving the USA, covering all sectors except for security and defense.

The host state is prohibited from imposing performance requirements on foreign investors or investments, except for specific exceptions outlined in the Free Trade Agreement (FTA) This includes restrictions on equity, mandatory technology transfer, requirements to utilize local materials, and regulations aimed at boosting exports or limiting imports, all of which are either banned or regulated under the agreement.

 Rights given for funds transfer: Obligations to allow free mobility of funds into and out of the country, thus restricting or prohibiting regulations/controls on funds transfer.

 Protection of Investors’ rights against expropriation: There would also be strict standards of protection for foreign investors' rights, especially in relation to

"expropriation" of property A wide definition is given to expropriation in the MAI model; it includes "creeping expropriation" In FTAs involving the US,

Indirect expropriation refers to the loss of goodwill and potential future profits for a company or investor due to government actions or policies In cases of such expropriation, the host state is obligated to fully compensate the investor, including interest at a commercially reasonable rate.

The agreement is legally binding and includes provisions for dispute resolution in specific international courts In many Free Trade Agreements (FTAs) involving the USA, the dispute settlement mechanism allows investors to file cases against the host country in these designated courts.

T HE NEED FOR SPACE AND FLEXIBILITY FOR INVESTMENT AND DEVELOPMENT POLICIES AND THE

Foreign investment plays a significant role in development, presenting both advantages and challenges To maximize benefits and mitigate negative impacts, effective government regulation and policy are essential Historical experiences of various countries demonstrate that governments have employed diverse policy tools to shape and manage investment It is vital for developing nations to retain the flexibility and policy space necessary to implement these strategies effectively.

Due to its particular features, foreign investment can have the tendency towards adverse effects or trends that require careful management These include:

The movement of funds into and out of a country can contribute to financial fragility and may lead to destabilizing financial activities Additionally, these fund flows can impact the balance of payments by increasing imports and investment income outflows, necessitating a balance through export earnings and new capital inflows If a natural balance is not achieved, regulatory measures may be required to stabilize the situation.

(c) possible effects on the competitiveness and viability of local enterprises;

(d) possible effects on balance between local and foreign ownership and participation in the economy.

(e) possible effect on the balance of ownership and participation among local communities in the society.

On the other hand foreign investment can make positive contributions, such as:

(a) use of modern technology and technological spillovers to local firms.

(c) contribution to capital funds and export earnings

To achieve a net positive effect and balance the negative and positive outcomes, governments play a vital role in implementing sophisticated investment and development policies.

An investment agreement proposed by its advocates could hinder the attainment of a favorable outcome, as it would significantly limit the flexibility and scope for investment and development policies.

Agreements designed to protect foreign investors often limit the rights and policy space of governments in developing countries, leading to significant challenges in economic, social, and political decision-making This imbalance affects local participation and ownership, the equitable distribution of shares between foreign and local stakeholders, and the capacity building of local firms and entrepreneurs Additionally, such agreements can undermine government authority in critical areas like investment choices, fund transfers, and the enforcement of performance requirements that support development goals, including technology transfer and the establishment of social and environmental regulations.

Proponents claim that investment agreements can boost foreign direct investment (FDI) in developing countries; however, evidence suggests otherwise FDI tends to flow towards nations that are already well-developed, possess abundant resources and infrastructure, or have large market potential.

Pursuing a binding investment agreement poses risks to development, social policies, and nation-building strategies Therefore, it is essential to prevent the investment issue from entering negotiation phases In the working group, compelling arguments should be presented to demonstrate that establishing investment rules is neither appropriate nor advantageous for the WTO or Free Trade Agreements (FTAs) During discussions on clarification and modality, these points should be emphasized to reinforce the stance against such agreements.

C ONCLUSIONS

There should not be an investment chapter of the kind envisaged by the developed country proponents in a FTA

Establishment rights and national treatment for foreign investors should not be governed by legally binding agreements, particularly those that permit investor-state dispute settlement, which allows investors to sue host countries.

The principles established for trade relations, such as national treatment and Most Favored Nation (MFN) under GATT and WTO, are unsuitable for investment contexts and could hinder the development goals of developing countries Historically, these nations have maintained the autonomy to regulate foreign investments, and imposing restrictions on their rights and policy frameworks could lead to negative consequences for their economic growth and development.

A balanced regulatory framework should focus on regulating corporations rather than governments, and it could be designed to be non-legally binding An effort to create such a framework was previously initiated at the

UN in the 1980s, when a code of conduct on transnational corporations was negotiated However the negotiations failed to produce an outcome.

INVESTMENT: IMPLICATIONS OF MUFTA FOR MALAYSIA

TELECOMMUNICATIONS

The Free Trade Agreement (FTA) with the United States must include a dedicated chapter on Telecommunications, addressing services, investment, and competition policy This chapter serves as a framework for how the US intends to integrate these three critical components across various sectors.

The United States advocates for liberalization and national treatment to enable its firms to establish and operate in local markets Key competition issues include addressing anti-competitive practices, regulating designated monopolies, and overseeing government-linked companies The objective is to create regulations that ensure local entities permit American companies access to their facilities while preventing government authorities from providing support to local telecom government-linked companies or being swayed by them.

The US-Singapore FTA includes key telecommunications provisions that guarantee access for enterprises to public telecommunications networks and services in both countries It mandates obligations for telecom service suppliers to ensure interconnection with the facilities of the other Party's public telecommunications providers Additionally, the agreement outlines competitive safeguards, fair treatment by major suppliers, and requirements for unbundling network elements, co-location, resale, interconnection, and pricing of leased circuit services.

There are also provisions relating to independent regulation and privatization, universal service, licensing process, allocation and use of scarce resources, etc.

To align with the US requirements in the financial services and telecommunications sectors, Malaysia must substantially revise its policies, leading to significant implications for these critical industries.

Below are some key elements of the Telecommunications chapter in the Singapore-US FTA, which gives a picture of what is in store for the Malaysia-US FTA.

SCOPE AND COVERAGE: Covered are measures affecting trade in telecommunications services It does not apply to measures relating to cable or broadcast distribution of radio or television programming.

ACCESS TO AND USE OF PUBLIC TELECOMMUNICATIONS TRANSPORT NETWORKS AND SERVICES:

Each Party must guarantee that enterprises from the other Party can access and utilize public telecommunications networks and services, including leased circuits, within its territory and across borders This access should be provided on reasonable, non-discriminatory terms, ensuring fairness in timeliness and transparency.

Each Party shall ensure that such enterprises are permitted to: (a) purchase or lease, and attach terminal or other equipment that interfaces with the public telecommunications network;

Service providers may offer solutions to single or multiple end-users through leased or owned circuits, establish connections between these circuits and public telecommunications networks, and integrate with circuits leased by other companies They are also responsible for executing essential functions such as switching, signaling, processing, and conversion, while having the flexibility to utilize their preferred operating protocols.

Each Party agrees to allow the enterprises of the other Party to utilize public telecommunications networks and services for information transfer within its territory and across borders This includes access to information stored in databases or in machine-readable formats within either Party's territory.

INTERCONNECTION WITH SUPPLIERS OF PUBLIC

Each Party must guarantee that public telecommunications service suppliers within its jurisdiction facilitate interconnection, either directly or indirectly, with the facilities and equipment of the other Party's public telecommunications service suppliers This requirement emphasizes the importance of cooperation among major suppliers to ensure seamless communication services.

1 Each Party shall ensure that any major supplier in its territory accords suppliers of public telecommunications services of the other Party treatment no less favorable than such major supplier accords to itself, its subsidiaries, its affiliates, or any non- affiliated service supplier regarding:

(a) the availability, provisioning, rates, or quality of like public telecommunications services; and

(b) the availability of technical interfaces necessary for interconnection.

A Party shall assess such treatment on the basis of whether such suppliers of public telecommunications services, subsidiaries, affiliates, and non-affiliated service suppliers are in like circumstances.

Each Party is required to implement effective measures to prevent major suppliers of public telecommunications services within its territory from engaging in anti-competitive practices, either individually or collectively.

(b) For purposes of subparagraph (a), anti-competitive practices include:

Engaging in anti-competitive practices can manifest in several ways, including cross-subsidization that undermines fair competition Additionally, utilizing information acquired from competitors for anti-competitive purposes poses significant risks to market integrity Furthermore, failing to promptly provide suppliers of public telecommunications services with essential technical and commercially relevant information hinders their ability to deliver effective services, ultimately affecting the overall competitiveness of the telecommunications sector.

Both Parties acknowledge their provision of access to unbundled network elements and agree to empower their telecommunications regulatory bodies to mandate that major suppliers offer unbundled access to network elements for public telecommunications service providers from the other Party This access must be granted under reasonable, non-discriminatory terms—ensuring fairness in pricing, conditions, and timeliness—while maintaining transparency in the supply of public telecommunications services.

The determination of the necessary network elements to be made available within a Party's territory, as well as the eligible suppliers for these elements, will be guided by the applicable national laws and regulations.

(c) In determining the network elements to be made available, a Party’s telecommunications regulatory body shall consider, at a minimum, in accordance with national law and regulation:

Access to proprietary network elements is crucial for ensuring that suppliers of public telecommunications services from one Party can effectively offer their services The inability to provide access to these elements may significantly hinder their operational capabilities.

The ability to replicate or source network elements at reasonable costs is crucial, ensuring that the absence of these elements from a primary supplier does not hinder other public telecommunications service providers in delivering competitive services.

(iii) whether the network elements are technically or operationally required for the provision of a competing service; or

(iv) other factors as established in national law; as that body construes these factors.

FINANCIAL SERVICES

In US FTAs with developing countries, there is usually a special chapter on financial services The FTA with Malaysia will not be an exception.

The financial services chapter of the US-Singapore Free Trade Agreement (FTA) encompasses investors, investments, and cross-border trade, ensuring adherence to national treatment and Most Favored Nation (MFN) principles It prohibits limitations on the number of financial institutions, the total value of transactions, and employment within the sector, while also preventing restrictions on specific legal entities or joint ventures Additionally, each Party must allow financial institutions from the other Party to offer any new financial services that are permitted for their own institutions, and includes provisions for liberalization in cross-border trade and the composition of senior management and boards of directors.

There are also annexes of “non-conforming measures” similar to the chapter on services in general, as well as general exceptions.

There are generally similar clauses on financial services in the US-Chile agreement.

To align with the financial service requirements set by the US, Malaysia must substantially realign its policies in these critical sectors, leading to significant implications.

Below are some key elements of the Financial Services chapter in the Singapore-

US FTA, which gives a picture of what is being demanded by the US for the Malaysia-US FTA.

SCOPE AND COVERAGE: Measures relating to: (a) financial institutions of the other Party;

This chapter addresses the investments made by investors from one Party in financial institutions located within the territory of the other Party, as well as the cross-border trade in financial services Key provisions from the services and investment chapters are applicable here, particularly regarding Expropriation, Transfers of Funds, and Investor-State Dispute Settlement, which covers claims related to breaches of Articles concerning Expropriation, Transfers, Denial of Benefits, and Special Formalities and Information Requirements.

1 Each Party shall accord to investors of the other Party treatment no less favorable than that it accords to its own investors, in like circumstances, with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of financial institutions and investments in financial institutions in its territory.

2 Each Party shall accord to financial institutions of the other Party and to investments of investors of the other Party in financial institutions treatment no less favorable than that it accords to its own financial institutions, and to investments of its own investors in financial institutions, in like circumstances, with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of financial institutions and investments.

3 For purposes of the national treatment obligations, a Party shall accord to cross- border financial service suppliers of the other Party treatment no less favorable than that it accords to its own financial service suppliers, in like circumstances, with respect to the supply of the relevant service.

1 Each Party shall accord to investors of the other Party, financial institutions of the other Party, investments of investors in financial institutions, and cross-border financial service suppliers of the other Party treatment no less favorable than that it accords to the investors, financial institutions, investments of investors in financial institutions and cross-border financial service suppliers of a non-Party, in like circumstances.

2 A Party may recognize prudential measures of the other Party or of a non-Party in the application of measures covered by this Chapter

3 A Party according recognition of prudential measures under paragraph 2 shall provide adequate opportunity to the other Party to demonstrate that circumstances exist in which there are or would be equivalent regulation, oversight, implementation of regulation, and, if appropriate, procedures concerning the sharing of information between the Parties.

MARKET ACCESS FOR FINANCIAL INSTITUTIONS

A Party shall not adopt or maintain, with respect to financial institutions of the other Party measures that:

(a) impose limitations on (i) the number of financial institutions whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test;

(ii) the total value of financial service transactions or assets in the form of numerical quotas or the requirement of an economic needs test;

The total quantity of financial services output can be quantified through designated numerical units, such as quotas or by conducting an economic needs test to assess financial service operations.

The total number of individuals that can be employed within a specific financial service sector or by a financial institution is determined by a numerical quota or an economic needs test, which assesses the necessity for personnel directly involved in delivering a particular financial service.

(b) restrict or require specific types of legal entity or joint venture through which a financial institution may supply a service.

CROSS-BORDER TRADE IN FINANCIAL SERVICES

1 Each Party shall permit, under terms and conditions that accord national treatment, cross-border financial service suppliers of the other Party to supply the services it has specified in an Annex.

2 Each Party shall permit persons located in its territory, and its nationals wherever located, to purchase financial services from cross-border financial service suppliers of the other Party located in the territory of the other Party This obligation does not require a Party to permit such suppliers to do business or solicit in its territory

Each Party must allow the financial institutions of the other Party to offer any new financial services that are permitted for its own institutions under similar conditions, without the need for additional legislation Each Party can decide on the institutional and legal framework for providing these new services and may mandate authorization for their delivery If authorization is required, it must be granted or denied within a reasonable timeframe, and refusals can only occur for prudential reasons.

SENIOR MANAGEMENT AND BOARDS OF DIRECTORS

1 A Party may not require financial institutions of the other Party to engage individuals of any particular nationality as senior managerial or other essential personnel.

2 A Party may not require that more than a simple majority of the board of directors of a financial institution of the other Party be composed of nationals of the Party, persons residing in the territory of the Party, or a combination thereof.

Articles relating to national treatment, MFN treatment, market access, cross-border trade, senior management/boards) that do not apply to:

(a) any existing non-conforming measure that is maintained by a Party listed in the relevant Annex.

(b) the continuation or prompt renewal of any non-conforming measure referred to in subparagraph (a);

An amendment to any non-conforming measure mentioned in subparagraph (a) is permissible, provided that the amendment does not reduce the measure's conformity compared to its status prior to the amendment.

A Party shall not be prevented from adopting or maintaining measures for prudential reasons.

G OVERNMENT P ROCUREMENT IN T RADE A GREEMENTS

Government procurement plays a crucial role in some countries, often surpassing trade in both value and volume of goods and services, accounting for 15 to 30 percent of GNP This process involves government expenditures on goods and services, including projects, while excluding personnel costs As a significant tool of government policy—economic, social, and political—many governments implement guidelines that prioritize local companies and individuals These guidelines may include reserving certain projects exclusively for locals or permitting local bids to exceed foreign proposals by 10 to 20 percent in cost.

Procurement is not governed by WTO rules like market access and national treatment Instead, there exists a plurilateral agreement on government procurement within the WTO, which is optional for member countries, leading to minimal participation from developing nations.

Developed countries have sought to establish a multilateral agreement on government procurement within the WTO, aiming to make participation mandatory for all members However, developing nations have resisted this initiative, viewing it as a matter of national policy that the WTO's trade rules do not adequately address As a compromise, developed nations suggested a narrower agreement focused solely on enhancing transparency in government procurement processes, which would not require opening markets or granting national treatment to foreign entities This proposal aimed to mandate clearer rules regarding tender opportunities, applicant eligibility, and project outcomes without necessitating foreign access Despite extensive negotiations, this limited transparency agreement was ultimately rejected in July 2004 and remains outside the scope of the WTO.

Procurement, a trillion-dollar industry, has become a key focus for developed countries aiming to enhance their market presence To support their companies, these nations are incorporating comprehensive procurement chapters in their Free Trade Agreements (FTAs), addressing crucial aspects such as market access and national treatment.

F EATURES OF GOVERNMENT PROCUREMENT IN FTA S INVOLVING USA

In U.S Free Trade Agreements (FTAs), the government procurement chapter significantly expands the scope beyond the World Trade Organization's (WTO) previous discussions, which were limited to transparency without addressing market access Unlike the WTO's focus, which aimed solely at enhancing transparency in government procurement, FTAs enable foreign companies to compete equally with local firms for government contracts This shift could severely restrict the ability of developing countries to favor local businesses, undermining a vital tool for stimulating their domestic economies.

The FTA chapter encompasses essential components such as mutual market access to each party's government procurement market, ensuring national treatment for foreign firms and products It features a broad definition of government procurement that includes national, regional, and municipal levels, as well as various types of government business Additionally, the chapter specifies "threshold levels," which are monetary values that determine the applicability of the agreement, activating only for contracts valued at or above these thresholds.

The US-Chile Free Trade Agreement includes a government procurement chapter aimed at enhancing market access Its primary goal is to eliminate barriers that hinder the supply of goods and services, including construction services, thereby ensuring comprehensive coverage of procurement markets.

The scope of procurement encompasses all contractual measures, including purchases, rentals, leases (with or without an option to buy), build-operate-transfer contracts, and public works concession contracts However, it excludes non-contractual agreements and government assistance like grants, loans, and subsidies, as well as purchases financed by international grants, hiring of government employees, and services provided to regulated financial institutions.

The agreement covers procurement carried out by entities listed in an annex For Chile, these include 20 federal Ministries, many regional governments and 341 municipalities

For the US, they include 79 federal departments and many offices of state governments.

The annex has established uniform threshold levels for both countries, setting the procurement limit at $56,190 for goods and services and $6.48 million for construction services at the central government level For the sub-central level, the thresholds are $460,000 for goods and services and $6.48 million for construction services.

The key principles governing government procurement are National Treatment and Non-Discrimination, which require that each Party must treat the goods, services, and suppliers of the other Party no less favorably than it treats its own.

Both Parties must ensure that locally established suppliers are treated equally, prohibiting any discrimination based on the level of foreign affiliation or ownership Additionally, no locally established supplier should be disadvantaged simply because they offer goods or services from the other Party.

The key implications of this policy are that the government is required to treat foreign companies equally or better than domestic firms, future contracts will not favor national companies, and local companies distributing foreign goods and services must receive the same treatment as those supplying locally produced products.

The prohibition of offsets is a key principle in procurement, stating that "an entity shall not consider, seek or impose offsets at any stage of a procurement." This rule is particularly relevant as many developing countries utilize offsets to lower the overall cost of purchasing goods and services.

The agreement mandates that the entities must publicly announce a notice inviting potential suppliers to submit their tenders for the procurement This notice will detail the procurement's description, outline the requirements suppliers must meet, specify the deadlines for tender submissions, and indicate the delivery dates for the goods being procured.

The article outlines key provisions regarding procurement processes, including the publication of procurement measures and notices of intended procurement, as well as establishing time limits for the tendering process It emphasizes the importance of providing comprehensive information on intended procurements, detailing technical specifications, outlining conditions for participation, and specifying tendering procedures, ultimately guiding the awarding of contracts.

(8) information on awards; (9) ensuring integrity in procurement practices; (10) domestic review of supplier challenges

The detailed provisions establish a country's procurement policy and practices, particularly regarding contract awards They stipulate that government institutions must award contracts to suppliers deemed fully capable of fulfilling the contract, selecting the tender that offers the most advantageous terms based on the specified requirements and evaluation criteria in the tender documentation.

Companies facing supplier challenges in the domestic review process for government contracts can present their cases to an independent authority This authority is tasked with implementing prompt interim measures to safeguard the supplier's ability to engage in procurement processes and ensure compliance with procurement regulations Such measures may involve suspending the awarding of contracts or halting the execution of contracts that have already been granted.

The country must guarantee that all documents pertinent to a procurement challenge are accessible to the review authority Suppliers should be allowed timely access to relevant documents and the opportunity to present their case The entity being challenged is required to provide a written response to the supplier's claims, and the review authority must issue prompt written decisions that include clear explanations for each ruling.

A country may alter its coverage provided it offers acceptable compensatory adjustments to the other party, ensuring that the level of coverage remains comparable to what was in place prior to the modification, and this must be done within 30 days.

A procurement committee shall also be set up, including to consider further negotiations to broaden the coverage including with respect to sub-federal entities and state-owned enterprises.

N ATIONAL POLICY CHANGES NEEDED DUE TO FTA

To implement the obligations, a developing country would have to undertake reforms and new procedures.

Many developing countries prioritize local suppliers in government procurement, but a crucial reform would involve eliminating this preferential treatment in favor of equal or even superior treatment for foreign suppliers, as outlined in Free Trade Agreements (FTAs) This policy shift could lead to various significant consequences.

New procedures must be adhered to under the FTA, which outlines the permissible conditions for suppliers wishing to engage in procurement It details the required tendering processes and mandates the establishment of independent review institutions These institutions are crucial for allowing suppliers to contest decisions regarding the awarding of procurement contracts.

E ROSION OF POLICY SPACE AND IN THE ROLE OF GOVERNMENT PROCUREMENT

There is a significant role of government procurement in socio-economic development and national policy This role would be much eroded by the FTA

In many developing countries, a significant portion of the national income is derived from government expenditures, which encompass the acquisition of goods, payment for diverse services, and investment in various projects, ranging from the construction of schools and roads to the development of large-scale mega-dams and industrial complexes.

Public sector spending, which includes expenditures from state and municipal governments, statutory bodies, and state-run enterprises, can be significantly larger than a country's total imports or exports In certain nations, public sector expenditure accounts for 30 to 50 percent of Gross National Product (GNP), while imports typically represent only 10 to 30 percent of GNP Notably, even when excluding government employee salaries, government expenditure frequently surpasses the total value of imports.

Governments have the autonomy to determine the allocation of funds, manage the procurement of goods and services, and oversee the tendering process, including the evaluation of applications and project awards, all in accordance with their respective laws and regulations.

Government procurement is often viewed as a national prerogative, facing challenges from Parliaments, opposition parties, and public interest groups in some countries However, it is rarely questioned as an issue of a country's sovereign right to make determinations in this area.

Government procurement is notably sensitive and has been exempted from WTO rules, including national treatment and most-favored-nation principles, as outlined in the GATT, agriculture agreement, and services agreement Although there exists a plurilateral agreement on government procurement, participation is optional, leading many developing countries to opt out.

Government procurement and policies related to it have very important economic, social and even political roles in developing countries:

Government expenditure plays a crucial role as a macroeconomic tool, particularly during recessions, to mitigate economic downturns By focusing on locally produced materials, governments can effectively adjust spending levels as part of fiscal policy to influence demand and stimulate economic growth.

Many developing countries implement national policies that prioritize local firms, suppliers, and contractors to enhance the domestic economy and encourage local participation in economic development Government procurement serves as a key policy instrument to create more opportunities for local enterprises, thereby increasing their economic share and fostering community benefits.

Many developing countries implement policies to support underrepresented groups in economic activities Procurement policies serve as a crucial tool to enhance participation equity among diverse communities within a nation Additionally, these policies can address regional disparities by designating specific provinces a certain percentage of procurement opportunities.

In procurement or concession bids involving foreign firms, there may be a preference for awarding contracts to companies from specific countries, such as other developing nations or certain developed countries that have established special commercial or political ties.

E FFECTS OF GOVERNMENT PROCUREMENT LIBERALIZATION UNDER FTA

There would be serious effects from a FTA’s government procurement chapter on developing countries

Countries entering Free Trade Agreements (FTAs) with government procurement chapters will be prohibited from favoring local companies in the supply of goods and services, as well as in project concessions While a positive list approach allows parties to specify sectors and thresholds, the implications for developing nations could be significant and detrimental.

Opening government procurement to national treatment and Most-Favored-Nation (MFN) principles would significantly limit the ability of governments to leverage procurement as a tool for development.

An increase in foreign share can undermine government efforts to stimulate the economy during a downturn, as a larger portion of any rise in public spending is likely to be directed towards imported goods This shift reduces the multiplier effects of government expenditure on the domestic economy, ultimately hindering economic recovery.

The capacity to support local businesses and specific socio-economic groups, ethnic communities, or underdeveloped areas would be significantly limited This limitation arises from the requirement of "national treatment," which mandates that foreign companies be allowed to compete for contracts related to goods, services, and development projects.

The most-favoured-nation clause would limit the ability to prioritize specific foreign countries, particularly if government procurement were established as a multilateral agreement within the WTO.

Government procurement policy plays a crucial role in fostering economic and social development, making it essential for developing countries to maintain full autonomy and flexibility over their procurement practices.

It is crucial to exclude government procurement from bilateral trade or economic agreements, particularly as developing countries have worked hard to remove this contentious issue from the current Doha work programme in the WTO At a minimum, there should be national discussions regarding the potential impacts of including a government procurement clause in a Free Trade Agreement (FTA).

In Free Trade Agreements (FTAs) between developed and developing countries, the developed nation often benefits more from government procurement market access due to its superior supply capacity Conversely, many developing countries struggle to leverage such opportunities to the same extent, highlighting an inherent imbalance in the inclusion of this provision within FTAs.

GOVERNMENT PROCUREMENT: IMPLICATIONS OF MUFTA FOR MALAYSIA

BACKGROUND TO THE ISSUE

Competition policy, particularly within trade agreements, is a multifaceted issue that primarily focuses on limiting the influence and operations of large corporations, especially multinational companies.

Trade officials in developed countries often interpret "competition" differently, viewing it through the lens of "competition policy" tied to market access They advocate for the principle of "free competition," which implies that foreign firms should have equal opportunities to compete with local businesses in developing countries This perspective suggests that any preferential treatment or support afforded to local firms should be reduced or removed, enabling foreign companies to engage in a fair competitive environment.

Transnational corporations (TNCs) from the US, Europe, and Japan are positioned to compete with local companies in developing markets; however, they possess significant advantages such as size, financial resources, advanced technology, established marketing networks, and strong brand recognition Consequently, the notion of a "level playing field" is misleading Local companies in developing countries face substantial challenges without assistance or preferential treatment, as they lack the familiarity with local languages, customs, and distribution systems that TNCs have developed over generations.

A few years ago, the EU, along with Japan and the US, attempted to establish a competition agreement within the WTO aimed at allowing foreign companies to compete on equal footing with local businesses by eliminating preferences and subsidies for domestic firms The proposal was later refined to focus on key areas such as non-discrimination principles, transparency, procedural fairness, addressing hard core cartels, and frameworks for voluntary cooperation, while still leaving the door open for a comprehensive implementation of the original broader proposal in the future.

Free Trade Agreements (FTAs) involving the US often mandate that developing countries implement competition legislation However, development economists argue that the competition policy framework established in the US and other developed nations may not be suitable for developing economies There are concerns that such frameworks, promoted by FTAs, could stifle the growth of local firms and hinder their ability to compete with larger foreign companies, particularly in a globalized market Consequently, the competition dynamics within FTAs present a highly complex challenge.

Economists advocate for tailored competition policies and laws in developing countries to meet their specific development needs Ajit Singh suggests that the competition policy model used by Japan during its developmental period in the 1960s and 1970s is particularly relevant for these nations This approach involved creating policies that protected local firms from the overwhelming presence of large, anti-competitive foreign corporations, allowing domestic businesses to grow and thrive.

U.S Free Trade Agreements (FTAs) often incorporate competition policy elements across various chapters, not just in dedicated competition sections For instance, the FTA with Singapore includes competition provisions within the telecommunications chapter, mandating that government-linked companies in telecom activities must not influence government policy-making Additionally, it ensures that partner companies have access to essential telecommunications infrastructure in the host country.

The United States seeks to leverage competition principles to diminish the market advantages of local firms, arguing that preferential treatment from the national government discriminates against foreign companies Additionally, the US aims to curtail the influence of government-linked companies by claiming that government assistance to such firms constitutes anti-competitive behavior, regardless of ownership.

Competition law and policy play a crucial role in benefiting a country's economy It is essential for each nation to have the flexibility to adopt a model that fits its unique circumstances and can evolve over time to meet changing conditions This adaptability is particularly vital in the context of globalization and liberalization, as local businesses increasingly confront intense competition from foreign entities.

Developed countries advocate that competition policy should ensure an "effective opportunity for competition" in local markets for foreign firms, aligning with the WTO's core principles However, this approach may limit a country's ability to establish its own tailored models of competition law and policy, reducing the necessary flexibility to address unique market conditions.

To effectively address competition in developing countries, a new paradigm is needed that aligns competition law with broader national objectives, such as industrial policy and local sector competitiveness amidst liberalization The traditional competition models of the UK and US may not be suitable for these nations Conversely, the Japanese model from the 1950s to 1970s could offer valuable insights, though its implementation may be restricted by the US-EU frameworks governing WTO principles like "national treatment" and "market access."

To foster a competitive and developmental framework, local firms and farms must enhance their capabilities to succeed in the local market before expanding internationally This process is time-intensive and necessitates significant support from the state, which should nurture, subsidize, and encourage local enterprises Additionally, protecting local capacity is essential for maintaining and improving competitiveness over time.

The global market operates freely and vigorously until local capacities are fully established Therefore, it is essential for development strategies to take precedence, ensuring that competition and competition policies align with the primary development objectives and needs.

Currently, there is a lack of consensus among countries regarding the concept of competition within the WTO framework, particularly concerning its interaction with trade and development The complexities surrounding competition, competition law, and competition policy, along with their relationships to trade and development, are significant Proponents of a WTO agreement, particularly the EU, advocate for multilateral rules that require member nations to establish national competition laws and policies These laws and policies are expected to align with the core WTO principles of transparency and non-discrimination, including Most-Favored-Nation (MFN) and national treatment Consequently, the placement of competition issues within the WTO context may influence how these subjects and agreements are addressed, with the core WTO principles being applied to competition matters.

TOWARDS A DEVELOPMENT FRAMEWORK ON COMPETITION FOR DEVELOPING COUNTRIES

B TOWARDS A DEVELOPMENT FRAMEWORK ON COMPETITION FOR DEVELOPING COUNTRIES

Developing countries can challenge the conceptual and negotiating frameworks of developed nations by advocating for competitive advantages for local firms They argue that without such support, smaller enterprises cannot compete with large foreign conglomerates, potentially leading to their demise While some local businesses may survive due to established distribution systems and deep local knowledge, these advantages could be undermined by competition policies in the WTO or FTAs Developed countries may exert pressure on local firms to open their marketing channels to foreign competitors, threatening the viability of these smaller enterprises.

Many developing countries contend that favoring local businesses is a pro-competitive strategy, as it allows smaller firms to compete against powerful foreign corporations that could dominate the local market By ensuring that international giants do not receive equal treatment, local small- and medium-sized enterprises can better withstand competition and thrive in the face of globalization.

Developed countries argue for a "level playing field" that allows their large firms to compete equally with smaller local businesses, pushing for this interpretation of "competition" to be embedded in WTO law or Free Trade Agreements (FTAs) Ironically, this approach could result in foreign monopolization of markets in developing countries.

Competition is perceived differently across various regions, particularly from the viewpoint of developing countries, which face challenges such as mega-mergers and acquisitions that jeopardize local firms' competitive standing Additionally, the misuse of anti-dumping measures by developed nations acts as a barrier against products from developing countries, while restrictive practices by large corporations further stifle competition Unfortunately, these concerns are often overlooked by major economies, particularly the US, which continues to leverage anti-dumping actions for protectionist purposes Within free trade agreements, the push for national treatment for foreign firms and a competitive environment in host nations tends to favor stronger negotiating parties, often at the expense of developing countries Consequently, these nations may be compelled to adopt national competition laws that do not align with their unique circumstances, limiting their governments' ability to support local businesses and hindering local firms from engaging in beneficial practices.

A conceptual framework is essential for understanding competition from a developmental viewpoint Competition law and policy should align with national objectives, such as industrial policy, to support local firms and sectors in thriving, especially amid growing liberalization.

From a development perspective, a competition and development framework should have the following elements:

Local industrial and service companies, along with agricultural farms, need to enhance their competitive capacity, beginning with the local market and eventually expanding to international markets Achieving this goal requires a long-term commitment and cannot be accomplished quickly.

The state must play a crucial role in nurturing and supporting local firms through subsidies and encouragement To enhance local competitiveness, it is essential to build capacity while also providing necessary protection for these businesses.

To effectively navigate the global market, it is essential to prioritize development strategies that enhance local capacity This approach necessitates formulating competition policies that align with and support the overarching development goals, ensuring that competition serves as a tool to address key developmental needs.

Conventional competition models may not suit developing countries, as alternative models could be more effective However, the adoption of these models may face challenges or restrictions due to WTO agreements that adhere to its core principles.

Cambridge University Professor of Economics, Ajit Singh, argues that the US and European competition law models are unsuitable for developing countries and may hinder their growth He advocates for the Japanese model from the 1950s and 1960s, which effectively used competition law to protect emerging domestic firms from large foreign entities while fostering local industries through targeted industrial policies This approach, which integrates competition policy with industrial policy, contrasts sharply with the competition agreements proposed in Free Trade Agreements (FTAs), which aim to eliminate such supportive frameworks that could benefit developing nations.

Incorporating competition policy into a Free Trade Agreement (FTA) is not justified, as FTAs should primarily focus on trade If competition policy is included, it would impose binding regulations on the competition laws of developing nations The principles of "market access" and "national treatment" within the FTA could lead to a competition chapter that disproportionately favors developed countries, undermining the developmental needs of emerging economies.

In trade discussions, particularly regarding Free Trade Agreements (FTAs), developing countries can present their unique perspectives on competition, potentially advocating against the inclusion of a competition chapter Trade expert B.L Das recommends that these nations articulate their viewpoints and propose alternative ideas to shape the dialogue effectively.

Obligations of the foreign firms to the host country.

Obligation of the home government to ensure the foreign firms fulfil their obligations.

To enhance the competitiveness of domestic firms, it is essential to implement strategies that involve collaboration between local businesses, government entities, and a potential multilateral framework This approach will particularly support small firms in maintaining their competitive edge and fostering growth in the market.

Competition impeded by government action (for example, anti- dumping action).

Competition impeded by IPR protection

Global monopolies and oligopolies and their effect on local firms in developing countries.

Big mergers and acquisitions (by transnational companies) and their effects on developing countries.

W HAT THE US P ROPOSES ON C OMPETITION IN ITS FTA: A NTI -C OMPETITIVE B USINESS

A typical competition chapter in a U.S Free Trade Agreement (FTA), exemplified by the FTA with Singapore, addresses three key areas: anticompetitive business conduct, designated monopolies, and government enterprises These subjects highlight the regulatory framework that the FTA aims to establish for the operation of domestic companies.

The chapter emphasizes the importance of addressing anti-competitive business practices, government-designated monopolies, and government-linked companies (GLCs), as these can hinder bilateral trade and investment To maximize the benefits of the Free Trade Agreement (FTA), both Parties must implement effective competition policies and collaborate to prohibit such conduct, ensuring a fair and economically sound trading environment.

On ANTICOMPETITIVE BUSINESS CONDUCT, the countries commit:

Singapore is committed to implementing measures to prohibit anticompetitive business practices and to take action against such behaviors This commitment includes the introduction of a competition law, as indicated in a footnote of the Singapore-US Free Trade Agreement (FTA), which states that Singapore is expected to enact general competition legislation by January 2005, just a year after the FTA was signed.

(b) To establish an authority to enforce its measures to proscribe anticompetitive business conduct

(c) That the enforcement policy of the national authority includes not discriminating on the basis of the nationality of the subjects of their proceedings

(d) That a court will give opportunity to a person charged to be heard and to review the sanction.

When a country establishes a monopoly that could impact the interests of another country, it must implement conditions to minimize or eliminate any potential harm to the benefits of the other party Additionally, the country is required to provide written notification to the other party regarding the designation of the monopoly and any associated conditions.

(b) A general competition law will be enacted by a certain date and it shall not exclude government enterprises.

(c) They ensure that any privately-owned monopoly that it designates after the agreement is signed and any designated government monopoly:

The Party must act consistently with its obligations under this Agreement when a monopoly exercises any delegated regulatory or governmental authority, including the ability to grant import or export licenses, approve commercial transactions, or impose quotas, fees, or other charges.

The entity operates strictly based on commercial factors when buying or selling the monopoly product or service in the designated market This includes considerations of price, quality, availability, marketability, and transportation.

The agreement ensures non-discriminatory treatment for covered investments, goods, and service suppliers from the other Party during the purchase or sale of monopoly goods or services in the relevant market.

The company refrains from leveraging its monopoly status to participate in anticompetitive practices, either directly or indirectly, through interactions with its parent company, subsidiaries, or other entities under common ownership, in non-monopolized markets within its jurisdiction that could negatively impact covered investments.

On GOVERNMENT ENTERPRISES, the commitments in the Singapore-US FTA are that:

Each Party must guarantee that any government enterprise operates in accordance with the obligations outlined in this Agreement, particularly when exercising regulatory, administrative, or governmental authority delegated to it This includes powers related to expropriation, licensing, approval of commercial transactions, and the imposition of quotas, fees, or other charges.

The United States commits to providing non-discriminatory treatment by government enterprises in the sale of goods and services to covered investments Similarly, Singapore will ensure that its government enterprises adhere to the same standard of non-discrimination.

The entity operates strictly based on commercial factors when buying or selling goods and services, taking into account aspects like price, quality, availability, marketability, transportation, and other relevant terms It ensures non-discriminatory treatment for covered investments, U.S goods, and U.S service providers in all its transactions.

The company must not engage in anti-competitive agreements with competitors that restrict pricing, output, or customer allocation without valid efficiency reasons Additionally, it should avoid exclusionary practices that significantly reduce competition in Singapore, ultimately harming consumers.

Singapore shall refrain from influencing or directing the decisions of its government enterprises, either directly or indirectly, except as permitted by this Agreement Nonetheless, Singapore retains the right to exercise its voting rights in these enterprises.

(e) Singapore shall continue reducing, with a goal of substantially eliminating, its aggregate ownership and other interests that confer effective influence in entities.

Singapore is required to publish an annual consolidated report detailing key information for each covered entity, including the cumulative percentage of shares and voting rights owned by Singapore and its government enterprises The report must also describe any special shares or voting rights held by these entities, list the names and titles of government officials serving on the board of directors, and provide information on the entity's annual revenue or total assets, depending on its qualification as a covered entity.

Upon receiving a request from the US concerning a specific enterprise, Singapore will provide relevant information about any enterprise that is neither a covered entity nor an excluded enterprise, acknowledging that this information may be publicly disclosed.

COMPETITION POLICY: IMPLICATIONS FOR MALAYSIA OF MUFTA

BIOSAFETY AND LABELLING OF GENETICALLY MODIFIED ORGANISMS

In the ongoing MUFTA negotiations, Malaysia may face pressure from the United States to eliminate policies that mandate the labeling of food and products containing genetically modified organisms (GMOs) This request aligns with similar demands made in other Free Trade Agreements (FTAs) and could significantly impact Malaysia's Biosafety Bill and Food Act, both of which currently enforce mandatory labeling for GMO products.

Malaysia's Biosafety Bill, recently presented to Parliament, aims to regulate activities involving genetically modified organisms (GMOs) and their products due to potential environmental and health risks This legislation follows a precautionary approach, aligning with Malaysia’s commitments under the Cartagena Protocol on Biosafety Additionally, Malaysia is engaged in international discussions regarding the Cartagena Protocol, particularly in ongoing negotiations for an international framework addressing liability and redress for damages caused by GMOs.

The US is not a party to the Cartagena Protocol.

The Biosafety Bill has an enabling clause that provides for the identification and labeling of GMOs and items containing GMOs

The Ministry of Health has proposed new regulations under the Food Act 1983 that mandate the labeling of genetically modified foods These regulations aim to ensure consumers receive accurate information regarding whether a product contains genetically modified ingredients, specifically when the GM content exceeds 3% of the total.

There are several reasons why such labelling is important:

1) Labelling is important for consumer choice, so that consumers can choose whether or not they want to eat GM food

Genetically Modified Organisms (GMOs) may have unintended allergenic effects, potentially triggering allergies in sensitive individuals Clear labeling of GMO content in food products is essential to inform consumers and protect those with legitimate health concerns, such as severe nut allergies For instance, if a gene from a nut is incorporated into a GMO, individuals with nut allergies need to be aware of this to avoid potentially life-threatening reactions.

Labeling is essential for informing consumers about the presence of genetically modified organisms (GMOs) in food products, especially for those with religious, ethical, or moral concerns For instance, Muslim consumers would benefit from labels indicating if a pig gene has been used in a GM food, while vegetarians would require clear labeling to identify GM tomatoes that contain fish genes, ensuring they can make informed dietary choices.

Labeling requirements would necessitate that GMO-exporting countries separate their genetically modified and non-genetically modified crops, thereby transferring the responsibility of segregation from importing nations, such as Malaysia, to the exporting countries themselves.

Over 40 countries, including China, Japan, Australia, and many European nations, have implemented mandatory labeling for genetically modified (GM) foods The Codex Alimentarius Commission, a joint WHO/FAO body overseeing international food standards, is currently evaluating a global standard for GM food labeling through its Committee on Food Labelling This draft standard has garnered support from a significant majority of the Committee members, including Malaysia.

The US Bipartisan Trade Promotion Authority Act 2002 which grants the US Trade Representative negotiating authority (ie the fast track legislation) in Section 2102

‘Trade Negotiation Objectives’ clearly states that

The United States aims to enhance its agricultural export opportunities by establishing clear rules and effective dispute resolution mechanisms This effort focuses on eliminating unfair practices that limit market access and distort agricultural markets, particularly for import-sensitive products Key concerns include unjustified trade restrictions and commercial requirements, such as labeling, that impact new technologies, including biotechnology.

US companies, supported by the Biotechnology Industry Organization (BIO) and the AMCHAM Malaysia/US Chamber of Commerce, have urged the USTR to leverage Free Trade Agreement (FTA) negotiations to oppose mandatory labeling for genetically modified (GM) products These organizations advocate against GMO labeling, highlighting the need for the USTR to challenge Malaysian measures that impose such requirements.

The US biotech industry argues that labeling biotech foods may mislead consumers by suggesting they differ from conventional foods or pose potential risks As a result, they have urged the US government to resist such labeling in the Malaysia-US Free Trade Agreement (MUFTA) Additionally, the paper critiques Malaysia's national stance during the negotiations of the Cartagena Protocol on Biosafety.

Concerns arise regarding the influence of BIO members on USTR's Free Trade Agreement (FTA) demands, as some of these members also serve on USTR’s Advisory Committees These committees are responsible for ensuring that US trade policy aligns with national commercial and economic interests, raising fears that the specific interests of the BIO industry may disproportionately shape trade negotiations.

Malaysian consumer and other public health interested groups have supported the Malaysian government in having GM mandatory labelling provisions in the interest of consumer welfare and public health

Scientists agree that genetically modified (GM) foods differ significantly from conventional foods and carry potential health and safety risks For ethical and health reasons, consumers deserve transparency and the option to choose whether to consume GM foods.

It should be noted that Australia has signed an FTA with the US, yet it still has a mandatory labelling law in place.

Malaysia can assert its right to uphold its policies and regulations regarding GM labeling, as outlined in the Biosafety Bill and the Food Act Additionally, the country can maintain its stance in international discussions, including those under the Cartagena Protocol and the Convention on Biological Diversity.

OTHER ENVIRONMENT ISSUES

Convention on Biological Diversity

Malaysia, recognized as a megadiverse country, is a signatory to the Convention on Biological Diversity (CBD), while the United States is not As a proponent of international efforts against bio-piracy, Malaysia actively seeks to secure equitable benefits for nations rich in biodiversity and traditional knowledge.

Malaysia advocates for a robust international framework on access and benefit-sharing to protect its biological resources from exploitation and commercialization abroad This approach aims to guarantee that the benefits derived from these resources are equitably shared with the country, indigenous peoples, and local communities Ongoing negotiations under the Convention on Biological Diversity (CBD) are focused on establishing this necessary regime.

Peru and Colombia, recognized as megadiverse nations, initially supported an international legal framework for regulating access to genetic resources and ensuring equitable benefit sharing However, as part of their US Free Trade Agreements (USFTAs), they have signed a side letter that contradicts their earlier stance, stating that individual contracts are adequate to address access and benefit sharing issues instead of pursuing a global treaty.

Contracts between parties with unequal power dynamics have failed to effectively prevent biopiracy and guarantee fair benefit sharing Malaysia should maintain its position on this matter, especially in light of the potential implications of a similar side letter in the Malaysia-UAE Free Trade Agreement (MUFTA).

Environmental implications in relation to the Investment chapter

All U.S Free Trade Agreements (FTAs) include investment chapter provisions that significantly impact environmental policies These provisions will similarly affect the Malaysia-U.S Free Trade Agreement (MUFTA) Consequently, environmental measures implemented by the Malaysian government to safeguard the environment could face challenges under this framework.

“expropriation”, which is defined broadly, leading to an obligation to compensate US investors and/or change Malaysian laws, regulations, measures etc

US companies will now have the authority to directly sue the Malaysian government for compensation Should the Malaysian government fail to fulfill its payment obligations, the US government reserves the right to impose tariffs on Malaysian exports.

Numerous environmental cases have been initiated against Canada, Mexico, and the United States under the North American Free Trade Agreement (NAFTA) Similar legal actions are anticipated for countries like Malaysia as they enter Free Trade Agreements (FTAs) with the United States.

Among the environment-related cases under NAFTA are the following:

Methanex, a Canadian corporation, has filed a lawsuit against the United States, claiming damages of USD 970 million after California eliminated a chemical additive that contaminates groundwater.

Canada's environmental regulation prohibiting a harmful chemical linked to global warming and neurotoxicity faced a legal challenge from the US corporation Ethyl, which demanded USD 250 million in compensation Ultimately, the case was resolved with a settlement, resulting in Ethyl receiving USD 13 million.

 US chemical company Crompton has challenged a voluntary agreement established by Canada to restrict production of the chemical lindane (a pesticide that is a possible carcinogen) Crompton is seeking damages of USD

Glamis Gold, a Canadian company, is pursuing $50 million in compensation from the United States due to a California regulation mandating the backfilling and restoration of open pit mines, which poses a threat to sacred Native American sites.

Metalclad, a US company, filed a lawsuit against Mexico seeking $90 million after a Mexican municipality denied a construction permit for a toxic waste dump, alongside the governor's establishment of an ecological preserve in the area The company ultimately won the case, resulting in a compensation payment of $15.6 million.

S.D Myers, a US waste treatment company, has contested Canada's temporary ban on hazardous PCB exports This ban was implemented as Canada evaluated its commitments under the Basel Convention, which governs the transboundary movements of hazardous wastes.

Disposal S.D Myers sued for USD 20 million, won the case and was paid USD 4.8 million (Myers case)

While not all cases have favored foreign investors, they highlight potential strategies for companies to contest environmental regulations through investment chapters Even without initiating lawsuits, the mere threat of legal action can deter governments from implementing policies aimed at environmental protection.

Concerns arise regarding Malaysia's capacity to meet its commitments under multilateral environmental agreements (MEAs) like the Convention on Biological Diversity (CBD), the Cartagena Protocol on Biosafety, the Kyoto Protocol, and the Basel Convention, especially given the strong rights held by investors Notably, the United States is not a party to any of these agreements.

Malaysia's obligations under a Multilateral Environmental Agreement (MEA) could lead to expropriation, forcing the country to choose between breaching its MEA commitments or compensating at fair market value, including reasonable interest Concerns remain unaddressed by current US Free Trade Agreements (USFTAs), as their provisions still mandate that environmental regulations align with the investment chapter.

Government procurement and implications for the environment

There are also legitimate concerns about the restrictions the government procurement chapter of USFTAs puts on the ability to specify environmentally-friendly products or processes.

For example it may prevent Malaysia from being able to specify that:

 food for Malaysian Government canteens, hospitals or schools comes from local farmers (to reduce transport miles, the amount of preservatives and the amount of packaging)

 food procured by the Malaysian Government is not genetically modified, notwithstanding any Malaysian biosafety laws or decisions made under them

 products supplied to the Malaysian Government should be made of recycled materials, e.g paper, or materials that are less ozone-depleting.

BACKGROUND

WTO’s TRIPS Agreement

The incorporation of Intellectual Property Rights (IPRs) into trade agreements, particularly through the TRIPS Agreement within the WTO, has sparked significant controversy This issue continues to generate debate among economists, including notable figures like Joseph Stiglitz and Jagdish Bhagwati, who have criticized the inclusion of IPRs and TRIPS in the WTO framework.

High intellectual property rights (IPR) standards, as promoted by TRIPS, are increasingly seen as unsuitable for the developmental needs of developing countries Michael Finger, the former head of the World Bank’s trade research department, estimated that the annual cost for these nations to meet TRIPS obligations is around US$60 billion, which significantly outweighs any potential benefits from increased market access in agriculture and textiles resulting from the Uruguay Round negotiations.

Developing countries are actively seeking to clarify and amend certain aspects of the TRIPS agreement to mitigate its negative impact on development A key development in this movement is the Doha Declaration on TRIPS and Public Health, which emphasizes that developing nations can utilize "flexibilities," like compulsory licenses, to counteract the monopoly rights granted to patent holders.

Developing countries are advocating for amendments to the TRIPS agreement to combat "biopiracy" by mandating that patent applications for biological resources disclose their countries of origin and include proof of benefit-sharing agreements While TRIPS necessitates the patenting of certain life forms, such as microorganisms and microbiological processes, it permits nations to prohibit the patenting of other life forms, like plants and animals, allowing them the flexibility to define what constitutes an invention and what is eligible for patent protection.

The TRIPS agreement mandates intellectual property protection for plant breeders' varieties, shifting the decision-making power from individual countries to a global standard However, it also grants nations the flexibility to establish their own unique systems for protecting plant varieties, allowing for the inclusion of farmers' rights to save and utilize seeds.

IPR negotiations shift to FTAs

As awareness of the development dimensions of intellectual property rights (IPRs) grows among WTO negotiators, developed countries are pushing for higher global IP standards through WIPO In response, many developing nations are advocating for a "development agenda" within WIPO and are opposing efforts to harmonize patent and copyright laws to these elevated standards.

Developed countries are increasingly using Free Trade Agreements (FTAs) to limit the flexibilities allowed under the TRIPS agreement and to impose stricter Intellectual Property Rights (IPR) standards in developing nations This focus on IPR in bilateral FTAs, particularly from countries like the US and Japan, aims to advance their interests beyond the existing WTO-TRIPS framework Consequently, these agreements pose significant risks to the use of TRIPS flexibilities concerning patents and access to medicines, the protection of plant varieties through sui generis systems, farmers' rights, biodiversity, and the prohibition of patenting certain life forms.

Free Trade Agreements (FTAs) may complicate disclosure requirements for patent applications related to biological resources, potentially hindering transparency Additionally, these agreements often impose stricter copyright laws on developing countries, which can negatively impact technology transfer and limit access to vital information and technology.

Before the TRIPS Agreement, nations could adjust their intellectual property (IP) protection levels according to their development needs Many industrialized countries, including the USA, Europe, Japan, South Korea, and Taiwan, maintained low IP protection until it became advantageous for them For instance, Switzerland only permitted chemical patents starting in 1978, while Italy, Sweden, and Switzerland did not allow medicine patents until the same year Spain, on the other hand, refrained from granting patents on chemicals or medicines until 1992, citing concerns over the affordability of higher medicine prices resulting from such patents.

The Commission on Intellectual Property Rights emphasizes the importance of integrating development objectives into intellectual property rights policy-making, advocating for extensive consultations prior to any changes in IP laws to align them with agricultural, health, and industrial development goals Furthermore, it warns that developing countries may face substantial costs if they hastily implement an IP regime that does not correspond to their developmental stage.

In 2005, the 9th Malaysia Plan reported a significant net outflow of royalties amounting to RM5.7 billion, highlighting a concerning trend where 98% of patents granted in Malaysia are awarded to foreign entities.

Developing countries are predominantly net importers of technology, a trend that is also evident in industrialized nations like Australia, where 90% of patents are granted to foreigners Most countries globally fall into the category of net intellectual property importers, with the notable exceptions being the United States and the European Union.

Expanding and extending intellectual property protection in Malaysia, despite its limited capacity for generating domestic intellectual property, is likely to lead to an increase in royalty outflows.

5 Commission on Intellectual Property Rights, Study Paper 1a, Intellectual Property and Economic Development: Lessons from American and European History, B Zorina Khan.

6 Human Development Report 2001, United Nations Development Programme.

The report titled "Integrating Intellectual Property Rights and Development Policy" was produced by the Commission on Intellectual Property Rights, established by the British Government It emphasizes the importance of aligning intellectual property rights with development policy to foster economic growth and innovation The full report can be accessed at http://www.iprcommission.org/graphic/documents/final_report.htm.

The report by the Commission on Intellectual Property Rights, established by the British Government, emphasizes the critical connection between intellectual property rights and development policy It highlights the need for a balanced approach that fosters innovation while ensuring equitable access to knowledge and resources This integration is essential for promoting sustainable development and addressing global challenges For more details, refer to the full report available at http://www.iprcommission.org/graphic/documents/final_report.htm, specifically on page 161.

The report by the Commission on Intellectual Property Rights, established by the British Government, emphasizes the importance of integrating intellectual property rights with development policy to foster innovation and economic growth The findings highlight how effective IP frameworks can support sustainable development goals and enhance the welfare of communities For more detailed insights, refer to the full report available at http://www.iprcommission.org/graphic/documents/final_report.htm, specifically on page 162.

11 ‘Integrating Intellectual Property Rights and Development Policy, report of the Commission on Intellectual Property Rights established by the British Government, http://www.iprcommission.org/graphic/documents/final_report.htm

12 http://www.ipaustralia.gov.au/about/statistics.shtml

Despite the US's insistence on keeping the intellectual property chapter of the MUFTA negotiations confidential, we can infer potential US demands by analyzing existing US Free Trade Agreements (USFTAs).

The USA is a net IP exporter 13 and so if it can obtain broader and longer periods of IP protection, the profits of its companies will increase.

Implementing and enforcing an intellectual property (IP) regime can be costly, particularly in developing countries where resources are limited and legal systems are underdeveloped The opportunity costs of effectively managing the IP system are significant, encompassing expenses related to verifying patent claims during both the application process and in court, as well as costs associated with adjudicating infringement cases Additionally, the inherent uncertainties of litigation contribute to these considerable financial burdens.

Industry influence

The USTR has consistently advocated for industries with significant intellectual property protection, including pharmaceuticals, software, and the film and television sectors To align U.S trade policy and negotiation goals with commercial and economic interests, the USTR relies on guidance from private sector committees.

The committees consist of various stakeholders, including pharmaceutical and chemical companies, the Biotechnology Industry Organization, and copyright owners like Time Warner Additionally, they include organizations such as the International Intellectual Property Alliance, the Recording Industry Association of America, the Intellectual Property Owners Association, and the Motion Picture Association of America.

The pharmaceutical industry spent US$91.4million on 675 lobbyists to engage members of the US Congress and Administration 18 This is seven lobbyists per US

Between 1991 and 2001, the net surplus of royalties and fees in the US, primarily from intellectual property transactions, rose from $14 billion to over $22 billion However, in 1999, the World Bank reported that developing countries faced a deficit of $7.5 billion in royalties and license fees This highlights the disparity in intellectual property benefits between developed and developing nations.

The report by the Commission on Intellectual Property Rights, established by the British Government, emphasizes the importance of integrating intellectual property rights with development policy It highlights the need for a balanced approach that fosters innovation while ensuring equitable access to knowledge and resources This integration is crucial for sustainable development and economic growth For more detailed insights, refer to the full report available at http://www.iprcommission.org/graphic/documents/final_report.htm.

The report by the Commission on Intellectual Property Rights, established by the British Government, emphasizes the importance of integrating intellectual property rights into development policy This integration aims to enhance innovation and economic growth while ensuring equitable access to knowledge and resources The findings highlight the need for a balanced approach that fosters creativity and supports sustainable development For more details, visit the full report at http://www.iprcommission.org/graphic/documents/final_report.htm.

16 http://www.ustr.gov/Who_We_Are/Mission_of_the_USTR.html

The U.S Trade Representative (USTR) provides a list of advisory committees that play a crucial role in shaping trade policy These committees consist of experts and stakeholders who offer insights and recommendations on various trade issues Their contributions are essential for ensuring that U.S trade agreements are beneficial and address the concerns of different sectors For more detailed information, visit the USTR's official website.

Senator 19 It also makes contributions to US election campaigns For example the top

25 pharmaceutical firms donated US$48.6million from 1997-2002 20

By contrast, the Commission on Intellectual Property Rights states that the imperative

Developed countries must align their intellectual property (IP) standards in regional and bilateral trade agreements with their broader goals of promoting international development and reducing poverty Negotiators should consider the financial impact of elevated IP standards on developing nations, alongside the advantages for their own industries It is crucial to avoid allowing domestic industrial and commercial interests in developed countries to dictate IP policy, as this could undermine development objectives.

MUFTA WILL OBLIGE MALAYSIA TO SIGN UP TO MANY INTERNATIONAL IP TREATIES

The intellectual property rights (IPR) chapter in US free trade agreements (FTAs) mandates that participating countries commit to various international treaties, primarily under the World Intellectual Property Organization (WIPO) While Malaysia is a WIPO member, it has only ratified a limited number of these treaties During the Malaysia-U.S Free Trade Agreement (MUFTA) negotiations, the U.S is expected to push for Malaysia's accession to additional treaties that primarily serve U.S interests, potentially at the expense of Malaysia's own benefits.

 The Patent Cooperation Treaty (WIPO).

 The WIPO Copyright Treaty (WIPO)

 The WIPO Performances and Phonograms Treaty

 International Union for the Protection of New Varieties of Plants (UPOV

 Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure

Malaysia is a member of the Patent Cooperation Treaty but not of the other four.

Malaysia's hesitance to participate in various treaties under the World Intellectual Property Organization (WIPO) is well-founded The Commission on Intellectual Property Rights has advised that developing nations, including Malaysia, should exercise caution before committing to the WIPO Copyright Treaty.

The report by the Commission on Intellectual Property Rights, established by the British Government, emphasizes the crucial relationship between intellectual property rights and development policy It highlights how effective integration of these rights can foster innovation and economic growth, ultimately benefiting society as a whole For further insights, refer to the full report available at http://www.iprcommission.org/graphic/documents/final_report.htm, specifically pages 162-3.

The report by the Commission on Intellectual Property Rights, established by the British Government, emphasizes the importance of integrating intellectual property rights with development policy to foster innovation and economic growth It highlights the need for a balanced approach that supports both creators and the broader public interest, ensuring that intellectual property frameworks contribute effectively to sustainable development goals For further details, refer to the full report available at http://www.iprcommission.org/graphic/documents/final_report.htm.

23 ‘Integrating Intellectual Property Rights and Development Policy, report of the Commission on Intellectual Property Rights established by the British Government,

WIPO strongly advocates for enhanced intellectual property (IP) protection in developing countries, often overlooking the potential negative impacts of such measures Approximately 90% of its funding is derived from patent applicants, raising concerns about its priorities The Commission on Intellectual Property Rights notes that while WIPO is attentive to the needs of industries heavily reliant on IP, it appears less responsive to the interests of consumers and users of IP-protected products.

Developing country governments are advocating for reforms within the World Intellectual Property Organization (WIPO) to enhance its focus on development, citing concerns that its current bias towards stronger intellectual property protection negatively impacts the efforts of other United Nations agencies, including the World Health Organization and the United Nations Development Programme.

‘Development Agenda’ This has been echoed by the Commission on Intellectual Property Rights established by the British Government.

Malaysia must exercise caution when considering treaties that mandate stronger intellectual property (IP) protection, given the potential negative impact on development and access to knowledge It is essential to conduct thorough cross-sectoral consultations and detailed cost-benefit analyses before making any decisions regarding such agreements.

Analysis of the nature and effects of the above treaties are made in this report in various sections below.

IMPACT OF MUFTA ON ACCESS TO MEDICINES

Prior to the WTO’s TRIPS Agreement, countries could exempt medicines from patent protection, facilitating the production and importation of affordable generic drugs However, the TRIPS Agreement mandated patent protection for medicines, complicating the promotion of generics Despite this, countries can still utilize certain flexibilities within TRIPS, such as compulsory licensing Unfortunately, free trade agreements (FTAs) with the US often undermine or eliminate these vital flexibilities.

Generic medicines are chemically identical to their branded counterparts, such as paracetamol, which is known as 'Panadol' and produced by GlaxoSmithKline In contrast, the generic version may be manufactured by companies like Hovid Berhad in Malaysia.

The report by the Commission on Intellectual Property Rights, established by the British Government, emphasizes the critical connection between intellectual property rights and development policy It highlights how effective integration of these two areas can foster innovation and economic growth, ultimately benefiting society as a whole For a comprehensive understanding, refer to the full report available at http://www.iprcommission.org/graphic/documents/final_report.htm, specifically on page 157.

The report by the Commission on Intellectual Property Rights, established by the British Government, emphasizes the need to integrate intellectual property rights with development policy to foster innovation and economic growth It outlines strategies for balancing the protection of intellectual property with the interests of developing nations, ensuring that these rights contribute positively to societal advancement For more detailed insights, refer to the full report available at http://www.iprcommission.org/graphic/documents/final_report.htm, specifically on page 157.

The Malaysian Government has conducted tests to confirm that these alternatives are equally safe and effective as their branded counterparts, as highlighted in the report by the Commission on Intellectual Property Rights established by the British Government.

A study by Malaysian academics revealed that patented medicines can be up to 1,044% more expensive than their generic counterparts in Malaysia The country boasts 27 generic medicine manufacturers capable of producing over 80% of the products listed in the National Essential Drugs List of Malaysia.

If the Malaysia-US Free Trade Agreement (MUFTA) is signed, Malaysia will be required to amend its laws to accommodate extended patent protections for a wider range of medicines, longer patent durations, and monopolies through 'data exclusivity' even in the absence of patents, all of which exceed the obligations set by the TRIPS Agreement.

At the WTO Doha Ministerial, developing countries reaffirmed their rights under the TRIPS agreement, allowing them to utilize compulsory licenses, government use, and parallel importing to access essential medicines The meeting clarified the available policy measures aimed at enhancing access to affordable medications.

US bilateral free trade agreements (FTAs) with various countries restrict the flexibilities allowed under World Trade Organization (WTO) rules Consequently, developing countries involved in these FTAs face challenges in implementing measures like compulsory licensing or "government use" to supply affordable generic medications to patients.

Examples of this include the following (the first four listed below are from the Médecins Sans Frontières paper, “Access to Medicines at Risk Across the Globe”) include:

Data exclusivity is not mandated by the WTO, allowing generic producers to utilize data submitted by patent holders for drug safety approvals However, in bilateral Free Trade Agreements (FTAs), the US aims to establish exclusive rights over this test data, hindering generic companies from registering equivalent versions of patented drugs This restriction complicates the implementation of compulsory licenses and limits the availability of generic medications If adopted in the Malaysia-U.S Free Trade Agreement (MUFTA), such provisions would significantly harm Malaysia's generic drug industry and restrict consumers' access to affordable imported generic drugs, mirroring limitations found in the US-Singapore agreement and other recent US FTAs.

27 ‘TRIPS, Patents, Technology Transfer, Foreign Direct Investment and the Pharmaceutical Industry in Malaysia’, Ida Madieha Azmi and Rokiah Alavi, Journal of World Intellectual Property, Vol 4 No 6, November 2001.

28 http://www.mopi.org.my/home.html

The lifespan of drug patents typically lasts 20 years from the filing date, in accordance with WTO requirements However, prior to the TRIPS agreement, many countries offered shorter patent durations Through the Free Trade Agreement (FTA), the United States aims to extend patent life beyond the standard 20 years, arguing that pharmaceutical companies should be compensated for any "unreasonable" delays by national drug authorities or patent offices during the examination or approval process This proposed extension would add to the patent duration based on the time deemed "unreasonable."

Evergreening refers to the practice of drug companies attempting to extend patent protection by applying for new patents on "new uses" of existing products after the original patents expire This strategy has raised concerns, as the World Trade Organization (WTO) does not mandate member countries to grant patents for new uses of existing substances The United States seeks to include provisions in Free Trade Agreements (FTAs) that would enable companies to obtain new patents for each new use, effectively prolonging patent protection beyond its original expiration Such patents on new uses are a requirement in several U.S FTAs.

The TRIPS agreement permits countries to issue compulsory licenses for producing or importing generic drugs without imposing strict conditions, as affirmed by the Doha Declaration on TRIPs and Public Health, which grants nations the autonomy to decide the criteria for such licenses However, U.S Free Trade Agreements (FTAs) impose restrictions on the issuance of compulsory licenses, allowing them only under specific circumstances such as addressing anti-competitive practices, public non-commercial use, or in cases of national emergency These limitations reduce the flexibility or "policy space" for governments to utilize compulsory licensing effectively, as mandated by several U.S FTAs.

(e) “Linkage” or making the drug regulatory authority play the role of a “patent police” Before medicines can be sold, they need “marketing approval” from the

The Health Ministry's drug regulatory authority is responsible for ensuring that drugs are safe and beneficial, but it typically does not oversee patents or their status However, several Free Trade Agreements (FTAs) with the US have altered this role, effectively designating the drug authority as part of the "patent police." These FTAs stipulate that the drug regulatory authority cannot grant marketing approval to any third party before the patent term expires unless the patent owner consents, a requirement that goes beyond the provisions of the TRIPS agreement.

The restriction on generic products throughout the entire patent term renders compulsory licenses or government use orders ineffective, preventing the registration of any generic medicines produced or imported under such measures This limitation significantly hinders governments' capacity to safeguard public health, especially during emergencies like bird flu or SARS.

EFFECTS ON PATENTING OF LIFE, BIODIVERSITY, GENETIC RESOURCES,

Background

The Free Trade Agreement (FTA) will significantly impact several interconnected issues, including the patenting of life forms, particularly microorganisms, as well as biodiversity and traditional knowledge Additionally, it will affect agriculture and the livelihoods of farmers, particularly concerning the saving, control, and use of seeds.

1 At present, the WTO’s TRIPS agreement allows countries to exclude the patenting of plants and animals However some US FTAs (for example with Chile) oblige the country to make available “patent protection for plants that are new, involve an inventive step and are capable of industrial application.”

2 The TRIPS agreement makes it mandatory for WTO members to patent micro- organisms and certain microbiological processes However it is left to members to determine what types of micro-organisms to allow for patenting For example, some countries do not allow patenting of naturally-occurring micro-oragnisms Malaysia’s Patent Act only allows for the patenting of “man-made microorganisms” Malaysia, like many developing countries, interprets this to exclude naturally-occurring

US Free Trade Agreements (FTAs) often mandate that participating countries adhere to the Budapest Treaty on the International Recognition of the Deposit of Microorganisms for Patent Procedures This requirement significantly enhances the patenting process for microorganisms, facilitating greater innovation and protection in biotechnology.

3 The TRIPS agreement allows WTO members the choice of patenting plant varieties or establishing a “sui generis” system of intellectual protection for plant varieties This gives countries the freedom to chose their own system, and some countries have stressed the right of farmers to save and re-use their seed However the US FTAs oblige countries to be members of the UPOV 1991 treaty, which provides a lot of rights to plant breeders and companies, while the rights of farmers to save and re-use seeds are very limited.

Malaysia has played a pivotal role among developing nations in advocating for international agreements like the Biodiversity Convention (CBD), which affirm countries' sovereign rights over their genetic resources and combat bio-piracy through patent protections However, the implementation of Free Trade Agreements (FTAs) threatens to undermine Malaysia's capacity to safeguard these rights effectively.

UPOV 1991, Plant Varieties protection and Effect on Farmers’ Rights

The obligation under the US Free Trade Agreement (FTA) to safeguard new plant varieties (NPV) has sparked concerns, particularly as the WTO TRIPS Agreement allows member countries to choose their method of protection, whether through patents, a sui generis system, or a combination of both In line with this, Malaysia has taken steps to enact legislation to protect NPVs.

In 2004, Malaysia enacted a unique law designed to safeguard New Plant Varieties (NPV), striking a balance between the rights of commercial plant breeders and the interests of traditional farmers who also cultivate NPV This legislation also addresses biosafety concerns, ensuring comprehensive protection within the agricultural sector.

The United States is a signatory to the International Convention for the Protection of New Varieties of Plants, which established the International Union for the Protection of New Varieties of Plants (UPOV) This convention was originally adopted in 1961 and has undergone revisions in 1972, 1978, and beyond.

Since the introduction of UPOV 1991, each revision has granted greater intellectual property (IP) protection to institutional and commercial plant breeders, while most developing countries have opted out of UPOV membership Among the 63 current UPOV members, only a handful are from developing nations, primarily adhering to the earlier UPOV 1978 framework The adoption of UPOV 1991 poses significant challenges for small farmers, who represent the majority in these countries Furthermore, increasing pressure from bilateral Free Trade Agreements (FTAs) with the United States, including those established since NAFTA, mandates that participating countries become members of UPOV 1991.

Plant varieties, such as the D24 durian, represent specific types of the same plant and are often developed by multinational agricultural companies like Monsanto These plant breeders aim to maximize profits by imposing restrictions on farmers regarding the use of their developed varieties Therefore, plant variety protection legislation must strike a balance between the rights of the farmer, as the user, and the plant breeder, as the creator of the intellectual property Additionally, it is crucial for plant breeders to balance the interests of public researchers in developing countries, such as Malaysia, with those of foreign researchers to ensure that the benefits of research and the use of local materials primarily support the countries involved.

Patents on plants and plant varieties provide the strongest form of intellectual property (IP) protection, as they prevent farmers from saving seeds for replanting or exchanging them with others Additionally, these patents restrict the use of patented materials for further research by third parties While the TRIPS Agreement does not mandate World Trade Organization (WTO) member countries to permit patents on plants, animals, or plant varieties, certain Free Trade Agreements (FTAs) with the United States, such as the one with Chile, require signatories to allow such patent protections.

The International Convention for the Protection of New Varieties of Plants (UPOV) 1991 is the second most robust form of intellectual property protection for plant varieties, though it is not mandated by TRIPS for member countries This treaty was primarily designed for the commercial farming systems of developed nations, favoring formal plant breeders in laboratories while inadequately protecting the rights of small farmers to breed and develop new varieties In contrast, UPOV 1978 offered a more equitable balance between farmers and breeders; however, Malaysia is no longer eligible to join UPOV 1978.

Malaysia's Protection of New Plant Varieties Act 2004 serves as a sui generis law to safeguard new plant varieties, in line with TRIPS regulations The country has chosen not to adopt UPOV 1991, which is deemed appropriate given the current state of agricultural research and development in Malaysia Joining UPOV 1991 could potentially favor foreign breeders' rights over those of local farmers and researchers Instead, Malaysia's sui generis law is recognized as a model for other nations due to its farmer protections and its ability to enhance local research capacity.

Since the implementation of the North American Free Trade Agreement (NAFTA) in 1994, every country entering a US Free Trade Agreement (USFTA) has been required to adopt UPOV 1991 While Malaysia is not currently a party to UPOV 1991, joining would necessitate significant changes to its existing sui generis regime Key changes would include the removal of protections for farmers and indigenous communities who have cultivated their own plant varieties over generations, which currently safeguards against biopiracy for 15 years Additionally, UPOV 1991 would eliminate provisions that allow small farmers to freely exchange seeds and sell farm-saved seeds in emergencies, instead mandating a compulsory license for such transactions.

The report from the Commission on Intellectual Property Rights highlights significant concerns regarding Malaysia's intellectual property framework, specifically in relation to plant variety protection Key issues include the challenges and time-consuming nature of obtaining rights, the need to limit the issuance of compulsory licenses, and the removal of Malaysia's authority to prevent the registration of environmentally harmful plant varieties Additionally, the report emphasizes the elimination of protections against biopiracy, which currently requires transparency about genetic resource sourcing and the consent of indigenous communities Furthermore, it points out the lack of safeguards ensuring that plant varieties developed from Malaysian resources remain accessible for local research.

Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the

Microorganisms for the Purposes of Patent Procedure

The Budapest Treaty on the International Recognition of the Deposit of Microorganisms for Patent Procedures addresses the significance of microorganisms in patent law While the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) does not specifically define microorganisms, they encompass a variety of biological entities such as bacteria, cells, enzymes, proteins, and genes.

TRIPS does not mandate that countries become signatories to the Budapest Treaty While Malaysia is not a participant in the Budapest Treaty, the USA is a member Notably, the majority of US Free Trade Agreements (USFTAs) have stipulated that the countries involved must join the Budapest Treaty.

The Budapest Treaty facilitates the patenting of microorganisms across multiple countries by allowing nations to require applicants to deposit a sample of the microorganism, addressing the challenge of adequately describing such entities in patent applications This requirement supports the patent system's fundamental principle, which grants inventors a 20-year monopoly in exchange for detailed disclosure of their inventions, enabling public access after the patent term By mandating the deposit of microorganism samples at designated storage facilities, countries ensure sufficient disclosure to justify patent protection.

Patent applicants face significant challenges in obtaining patents across multiple countries due to the high costs and logistical demands of sending microorganism samples to each jurisdiction This process complicates the patent application procedure, particularly in nations that adhere to the Budapest Treaty, which facilitates the international exchange of biological materials.

48 UNCTAD-ICTSD Resource Book (2005), available online at http://www.iprsonline.org/unctadictsd/ResourceBookIndex_update.htm

As of March 2006, obtaining a patent in certain countries requires submitting a microorganism sample to one of the 37 international depositary authorities, which include seven in the United Kingdom, three in the Russian Federation, and three in the Republic of Korea Other countries with depositary authorities include China, Italy, Japan, Poland, Spain, and the United States, each hosting two, while Australia, Belgium, Bulgaria, Canada, the Czech Republic, France, Germany, Hungary, Latvia, India, the Netherlands, and Slovakia each have one The majority of these depositories are located in developed countries, which hold the majority of the deposits.

If Malaysia signs the Budapest Treaty, it is expected to see an increase in microorganism patent applications due to a simplified application process Consequently, if these applications are approved at a similar rate, there will be a rise in patented microorganisms within the country This development may lead to higher input costs for Malaysia's food, medical, agricultural, and biotechnology sectors.

Thai industries depend heavily on imported micro-organisms, with annual costs ranging from RM5.2 billion to RM6.2 billion According to Day-cha Siripatra, chairman of the Khao-Kwan Foundation, the potential patenting of micro-organisms by Japan under the Japan-Thailand Economic Partnership Agreement could result in losses of several hundred billion baht annually for Thailand This is particularly concerning as the country relies on Effective Micro-organisms (EM) imported from Japan to support various industries and address environmental issues.

In Malaysia, 98% of patents are granted to foreign entities, a trend that has persisted over the past five years This dominance is expected to lead to an increase in royalty outflows, resulting in significant foreign exchange losses for the country.

Concerns have been raised regarding the management of international depositary authorities, which may hinder a country’s ability to protect its rights over biological samples Malaysia, rich in biodiversity, particularly in microorganisms, faces risks of biopiracy Additionally, there are fears that these authorities may handle samples contrary to the originating country's wishes A notable example is Indonesia, which provided its bird flu virus samples to the World Health Organization, only for them to be transferred to an Australian company that developed a vaccine, subsequently requiring Indonesia to pay commercially for it rather than providing it for free.

Data exclusivity and farmers

The data exclusivity provisions in US Free Trade Agreements extend to agricultural chemicals, restricting generic suppliers from utilizing the test data of the original registrants.

50 http://nationmultimedia.com/2007/02/17/business/business_30027112.php

51 http://nationmultimedia.com/2007/02/17/business/business_30027112.php

52 http://nationmultimedia.com/2007/02/17/business/business_30027112.php

53 http://www.thejakartapost.com/detailheadlines.asp?fileid 070212.A07&irec=6 chemicals in order to get the safety approval to market their generic products.Data exclusivity is not required by TRIPS 54

Based on other USFTAs, this would mean that no generic version of a herbicide or pesticide can be registered and therefore used in Malaysia for ten years.

The introduction of ten years of data exclusivity for agricultural chemicals in Australia, as part of the Australia-US Free Trade Agreement (FTA), has raised concerns among Australian farmers They argue that this change could severely impact independent generic chemical companies that supply affordable chemicals Farmers urge the Senate Committee to consider removing data protection from the FTA or excluding Chapter 17 on intellectual property from the agreement, enabling Australia to establish its own regulations that better serve its market and stakeholders.

Generic agricultural chemicals are significantly more affordable, costing two to three times less than patented versions, which can greatly benefit Australian farmers These chemicals account for 10% to 14% of total input costs, highlighting their importance in the farming industry.

Australian farmers operate without subsidies for input costs, such as chemicals, and manage to thrive in a distorted global market by minimizing these expenses The emergence of a competitive generic chemical market has been crucial for meeting their needs and ensuring their international competitiveness However, the potential implementation of certain laws in Australia could jeopardize local generic companies and the beneficial competition they provide, threatening the sustainability of Australian agriculture.

The farmers asked that ‘data protection be taken out of the Intellectual Property Chapter or the entire Chapter be set aside for re-negotiation.’ 58

The Malaysian Government must assess whether data exclusivity on agricultural chemicals will increase input costs for farmers by 10%-20% If this is the case, will farmers receive compensation throughout the duration of the Malaysia-United States Free Trade Agreement (MUFTA)? Such cost increases would exacerbate the existing challenges farmers face due to heightened competition stemming from MUFTA.

54 Protection of Data Submitted for the Registration of Pharmaceuticals: Implementing the Standards of the TRIPS Agreement, Carlos Correa, South Centre (from: www.southcentre.org/publications/ protection/protection.pdf).

The Pastoralists and Graziers Association of W.A (Inc) and the Generic Agricultural Chemical Association submitted a statement to the Senate Select Committee regarding the Free Trade Agreement between Australia and the United States Notably, the members of the Pastoralists Association contribute significantly to the agricultural sector, producing 2 million tonnes of wheat annually.

The Pastoralists and Graziers Association of W.A (Inc) and the Generic Agricultural Chemical Association submitted a joint response to the Senate Select Committee regarding the Free Trade Agreement between Australia and the United States Their submission outlines key concerns and recommendations related to agricultural practices and chemical regulations under the proposed agreement.

The Pastoralists and Graziers Association of W.A (Inc) and the Generic Agricultural Chemical Association submitted a response to the Senate Select Committee regarding the Free Trade Agreement between Australia and the United States Their submission addresses key concerns and perspectives on the implications of the agreement for the agricultural sector.

The Pastoralists and Graziers Association of W.A (Inc) and the Generic Agricultural Chemical Association submitted a joint statement to the Senate Select Committee regarding the Free Trade Agreement between Australia and the United States Their submission highlights key concerns and recommendations related to agricultural practices and chemical regulations impacted by the agreement.

(often subsidized) imports as tariffs are reduced or eliminated, and higher costs of seeds due to the strict IP to be introduced for plant varieties.

PATENT COOPERATION TREATY

TRIPS does not require countries to join the Patent Cooperation Treaty (PCT). However, all recent US Free Trade Agreements have required the countries signing them to join the PCT 59

Patents are granted on a national basis, meaning a global patent application is not possible The Patent Cooperation Treaty (PCT) facilitates easier patent applications across multiple countries by standardizing the application process Participating countries in the PCT are obligated to adhere to this standardized procedure, allowing applicants to submit their requests to various nations simply by selecting an option.

The Patent Cooperation Treaty (PCT) significantly aids countries with inventors seeking to secure patents internationally In Malaysia, a striking 98% of patents granted over the past five years have been awarded to foreign applicants, highlighting the trend of foreign ownership in the patent landscape.

Last year, Malaysia joined the Patent Cooperation Treaty (PCT), simplifying the patent application process for foreigners and anticipating a surge in patent submissions Historical data from WIPO indicates that countries that joined the PCT have experienced significant increases in patent applications, with China seeing a five-fold rise, Iceland a twelve-fold increase, and Vietnam a remarkable fifteen-fold boost.

As of now, 61 countries remain non-members of the Patent Cooperation Treaty (PCT), including several ASEAN nations like Brunei, Cambodia, Myanmar, and Thailand Additionally, some higher-income countries such as Saudi Arabia, Kuwait, Lebanon, and Malta have yet to join the PCT, despite having per capita incomes exceeding that of Malaysia.

If the Patent Cooperation Treaty (PCT) leads to an overwhelming number of patent applications, resulting in delays in examinations by the Intellectual Property Corporation or an increase in patent monopolies on medicines, Malaysia has the option to withdraw from the PCT without penalty, provided the Malaysia-US Free Trade Agreement (USFTA) has not been signed Historically, countries have adjusted their intellectual property protections; for instance, the Netherlands once abolished its patent law before reinstating it.

However, Malaysia is likely to have to commit to remaining in the PCT if it signs a MUFTA because all recent USFTAs have had this obligation This (and other

60 http://www.mipc.gov.my/index.php?option=com_content&task=view&id=3&Itemid

Several countries, including Canada, Croatia, Israel, Mexico, New Zealand, Serbia and Montenegro, and Turkey, experienced notable increases in patent applications Among the countries with adequate data, Algeria was the only one that did not show a significant rise in patent applications upon joining the Patent Cooperation Treaty (PCT).

62 United Nations has 191 Members and PCT has 130 Members (from http://www.wipo.int/treaties/en/ShowResults.jsp?lang=en&treaty_id=6 accessed on 28 April 2006)

64 Schiff, E (1971) “Industrialisation Without National Patents: The Netherlands 1869-1919,

Switzerland, 1850– 1907”, Princeton University Press, Princeton. provisions such as non-violation complaints and the investment chapter) may make it harder to withdraw from the PCT or other WIPO treaties.

The rapid increase in patents in Malaysia will have several effects A few examples are given below.

Effects on the 9 th Malaysia Plan

The 9th Malaysia Plan highlights the significance of enhancing the quality of life, particularly in health, as outlined in Chapter 20 If Malaysia signs the Patent Cooperation Treaty (PCT), a larger share of medicines will become patented, resulting in higher monopoly prices for these drugs A study funded by the World Health Organization revealed that a family of three with minor health issues would require two months' salary from the lowest-paid Malaysian government official to afford just one month of medications if generic options were not accessible.

Moving up the value chain

The 9th Malaysia Plan emphasizes the need for Malaysia to advance up the value chain, particularly in higher technology industries where technology itself serves as a crucial input However, if a significant portion of machinery is patented in Malaysia through the Patent Cooperation Treaty (PCT), this could lead to increased input costs due to higher royalty payments, hindering Malaysia's ability to progress Furthermore, the proposed US Free Trade Agreement (USFTA) could exacerbate this challenge by mandating that all Malaysian tariffs be set at 0%, thereby exposing new industries to immediate competition and making it difficult to establish higher-value industries from the outset.

Chapter 6 of the 9th Malaysia Plan emphasizes the importance of biotechnology for the nation's development To effectively cultivate a biotechnology industry in Malaysia, it is crucial to limit the number of patents granted domestically Instead, the focus should be on securing patents in key international markets, particularly the USA and the European Union, where Malaysian biotechnology products can thrive.

Malaysia’s economic growth is affected if Malaysians are sicker

The World Health Organization's Commission on Macroeconomics and Health discovered that a 10% increase in life expectancy at birth correlates with an annual economic growth increase of 0.3-0.4%, assuming other factors remain constant In contrast, high malaria prevalence can lead to a decline in economic growth by over 1% each year.

SCOPE OF PATENTABILITY

In October 2005, a research report was conducted by University College Sedaya International and University Sains Malaysia in collaboration with the World Health Organization, focusing on a survey of medicine prices, availability, affordability, and price components in Malaysia, utilizing the WHO/HAI methodology.

TRIPS permits nations to exclude patents on plants, animals, and medical methods, addressing ethical and cultural concerns surrounding the patenting of life Furthermore, many essential medicines, including the last effective treatments for malaria in certain regions, are derived from plants Granting patents on these plants could lead to monopolies, making vital medicines unaffordable for those in need.

However, US FTAs can require countries to allow patents on some or all of these things

US national patent law permits patents for various innovations, including agricultural developments Notably, there have been 600 patents issued specifically related to rice, highlighting the scope of patentability within this sector.

US in 2000 and the rate of patenting is rapidly rising 70

In the United States, the introduction of patents for surgical procedures led to a surge of lawsuits among medical professionals However, this troubling situation was addressed in 1996 when the American Medical Association and Congress intervened, establishing that doctors could not sue one another for utilizing patented surgical techniques.

USFTAs can mandate countries to grant patents for new applications of existing medications, which poses significant risks due to the decline in the development of entirely new drugs With advancements in computerized testing, pharmaceutical companies can rapidly evaluate thousands of existing medications for efficacy against various diseases, making this approach more cost-effective and efficient than developing new drugs from scratch Allowing patents for new uses means that a drug like AZT, initially patented for cancer treatment, could receive an additional 20-year patent for its effectiveness against HIV/AIDS This practice prolongs the monopoly on these medications, delaying the entry of generics into the market and maintaining high prices for consumers.

The Commission on IPR recommends that ‘maximum use be made of the possibilities under TRIPS of excluding such inventions from patent protection.’ 73

TRIPS does not mandate software patents, and many countries opt not to grant them In contrast, the United States permits software patents, raising concerns among information technology lawyers regarding specific provisions in US free trade agreements (USFTAs).

The report titled "Integrating Intellectual Property Rights and Development Policy," published by the Commission on Intellectual Property Rights established by the British Government, emphasizes the critical relationship between intellectual property rights (IPR) and development policy It highlights the need for effective IPR frameworks to foster innovation and economic growth, while also addressing the challenges faced by developing nations in accessing and utilizing these rights For more detailed insights, refer to the full report available at http://www.iprcommission.org/graphic/documents/final_report.htm.

The Commission on Intellectual Property Rights, established by the British Government, emphasizes the need to integrate intellectual property rights with development policy in its report This integration is crucial for fostering innovation and ensuring equitable access to resources, ultimately supporting sustainable development goals For more detailed insights, refer to the full report available at http://www.iprcommission.org/graphic/documents/final_report.htm.

71 http://www.nytimes.com/2006/03/19/opinion/19crichton.html? ex72379600&enfdcde5df677af77&eiP70 Congress added subsection (C) to 35 USC 287 to fix the problem.

72 For example Art 15.8.1 (b) Oman-USFTA.

The report by the Commission on Intellectual Property Rights, established by the British Government, emphasizes the importance of integrating intellectual property rights with development policy to foster innovation and economic growth It outlines strategies for balancing the protection of intellectual property with the needs of developing nations, ensuring that these rights contribute positively to development goals For more detailed insights, refer to the full report available at http://www.iprcommission.org/graphic/documents/final_report.htm.

The UNCTAD-ICTSD Resource Book (2005) highlights the potential implications of international agreements on software patents For a comprehensive overview of the various provisions in the Australia-US Free Trade Agreement (FTA) that impact software, refer to the detailed comparison table available online.

The vibrant open source software community in Malaysia may face significant challenges similar to those observed in the USA, where a single patent can jeopardize an entire project In 2003, the USPTO granted approximately 45,000 software patents, making it increasingly difficult to audit software for compliance with the vast number of existing patents This issue is underscored by a US court case where alleged infringement of just one software patent led to a staggering US$521 million in damages.

COPYRIGHT

Copyright term extensions

TRIPS requires copyright protection for a period of at least 50 years from publication or making (when it is not calculated on the basis of the life of a natural person) 90

By contrast, US free trade agreements (USFTAs) require copyright to last for 70, 95 or 120 years 91

89 Australian Libraries Copyright Committee submission to Senate Select Committee on the Free Trade Agreement between Australia and the United States of America

91 The North American Free Trade Agreement was signed before TRIPS and it has a copyright term of

Jordan’s USFTA establishes a unique copyright period of 50 years, differing from other USFTAs that typically mandate a 70-year duration Notably, Oman’s agreement stipulates varying copyright protection lengths of 70, 95, or 120 years, depending on the measurement system employed.

Malaysia's copyright law safeguards literary, musical, and artistic works for the duration of the author's life plus an additional 50 years post-mortem Similarly, sound recordings, broadcasts, and films are protected for 50 years following their initial release However, if Malaysia signs the MUFTA, it may need to extend copyright protection to a minimum of 70 years, which could significantly impact the country's capacity for knowledge and innovation due to this 40% increase in copyright duration.

A report commissioned by the Senate Committee, authored by a former Assistant Commissioner at the Australian Productivity Commission and current trade expert at the Australian National University, reveals that extending the term of copyright from 50 to 70 years could increase Australia’s net royalty payments by as much as $88 million annually.

The economic burden of obtaining permission to reproduce copyrighted works can be significant, with studies indicating that the cost for permission to copy out-of-print or commercially unavailable materials ranges from $150 to $200, often without any assurance of a response Additionally, increased royalty payments, much of which are sent overseas, further contribute to these financial challenges.

In light of the USA's extension of copyright from 50 to 70 years, Justice Breyer highlighted that the costs of obtaining permission for copyrighted works could escalate significantly, potentially reaching millions of dollars He noted that securing clearance for a single work requires around a dozen man-hours, and the College Art Association warns that the expenses associated with obtaining permission for single images, short excerpts, and other brief works can become excessively burdensome.

The Copyright Term Extension Act of 1998 effectively creates a copyright term that is nearly perpetual, extending the duration by 20 years—the longest extension since the founding of the United States This legislation primarily benefits heirs, estates, or corporate successors rather than the original authors Ultimately, instead of fostering the advancement of knowledge and learning, the Act hinders the progress of 'Science,' as intended by the Framers.

Australian universities expressed concerns regarding the implications of extending copyright terms in the country John Mullarvey, the executive director of the Australian Vice-Chancellors Committee, highlighted that universities currently spend $20 million on copyright-related expenses.

92 It is also in her ‘The Australia-US Free Trade Agreement: An Assessment’, Pacific Economic Papers

93 ALIA Submission to Senate Committee.

94 Dr Rimmer’s Submission to the Senate Select Committee on the Free Trade Agreement between Australia and the United States of America

95 Dr Rimmer’s Submission to the Senate Select Committee on the Free Trade Agreement between Australia and the United States of America

Dr Rimmer's submission to the Senate Select Committee on the Free Trade Agreement between Australia and the United States highlighted concerns regarding the financial implications of extending copyright protection He noted that increasing the duration of copyright by 20 years would significantly raise the total costs, although he could not estimate the exact amount.

Individuals in remote areas who depend on online resources like Project Gutenberg for free access to electronic books will face a 20-year delay before they can access titles that are currently under copyright.

Copyright term extensions do not effectively foster creativity, which is the primary goal of copyright law A study by Milton Friedman and 17 other economists, including five Nobel Prize winners, revealed that the economic advantage gained by copyright owners from an additional 20 years was less than $0.01 per year for each work, demonstrating that such extensions lack a sustainable economic rationale.

Expressions of concern in Australia about the extension of copyright duration to

The Australian Federal Government signed the Australia-US Free Trade Agreement (USFTA), which included a controversial extension of copyright duration to 70 years, despite previous assessments indicating that such an extension was not advisable.

The Hon Darryl Williams, Minister for Communications, Information Technology and the Arts, announced that the Australian Government will not negotiate with the US on extending copyright terms He emphasized that maintaining the current copyright duration aligns with government policy due to the significant negative financial implications such an extension would impose on Australia Williams stated that his department, DCITA, assessed the potential costs and determined that revisiting this policy was not feasible.

The Office of Regulation Review, part of the Productivity Commission and the Australian Government's key advisory body on microeconomic policy, submitted recommendations to a Committee reviewing the Copyright Act They advised against extending copyright terms, arguing that such an extension would yield minimal tangible benefits while posing significant potential costs.

 it represents an unjustifiable redirection of funds (i.e economic rents) from Australian consumers and secondary producers without commensurate benefits;

 it would be likely to cause an increase in net royalty flows to overseas authors and publishers;

97 ALIA Submission to Senate Committee.

98 Media Entertainment and Arts Alliance Supplementary Submission to the Senate Select Committee on the Free Trade Agreement between Australia and the United States of America

99 http://www.pc.gov.au/commission/index.html

 there is no evidence that it would provide a significant incentive to produce works not already being produced’ 100

The NSW Government expresses concern over the proposed extension of copyright protection from 50 to 70 years post-author's death, highlighting its potential financial burden on libraries, universities, and schools This extension could hinder the entry of works into the public domain, thereby restricting access to information and stifling creativity and knowledge dissemination, which are essential tenets of library services.

The Queensland Government is worried that changes to copyright laws could lead to substantial increases in fees for large-scale users, such as government entities, libraries, universities, TAFEs, and other educational institutions There are also industry concerns that extending copyright protection may hinder innovation by limiting access to intellectual property for extended durations To address these issues, the Queensland Government suggests exploring a funding mechanism to help educational and research institutions manage the additional 20 years of copyright protection.

Anti-circumvention provisions

A technological protection measure (TPM) is a digital lock on digital material to stop access or copying This can prevent even legal copying, for example if the copyright

106 Council of Australian University Librarians (CAUL) submission to Senate Select Committee on the Free Trade Agreement between Australia and the United States of America According to their

The Council of Australian University Librarians (CAUL) encompasses all university libraries in Australia, operating within an educational framework that generates substantial copyright material As their primary focus is to facilitate access to information, copyright plays a crucial role in their operations Therefore, CAUL is deeply invested in the creation of fair and effective copyright legislation.

Article 17.1.9 outlines an exception for works whose copyright has expired, as stated in Article 17.1.10 For instance, if a book's copyright expired in 2000, and the AUSFTA took effect on January 1, 2005, that book would not regain copyright protection until 2020 due to the extension of copyright terms.

After 70 years, the copyright on a movie or book expires, yet a Trusted Platform Module (TPM) can still prevent digital copies from being duplicated, creating an additional and potentially limitless monopoly beyond copyright Legal copying scenarios include a visually impaired individual using software to read a computer file aloud and making backup copies of legitimate software for recovery purposes Additionally, practices like region coding for DVDs and anti-copying measures on music CDs further complicate the landscape of digital content access.

PC, encrypted software requiring entry of a registration code before being installable, passwords and encryption used to prevent unauthorised access to online databases’ 110

TPMs can severely limit access to knowledge, particularly in developing countries where internet connectivity is poor and online resource subscriptions are often unaffordable This exclusion can hinder these nations' participation in the global knowledge economy and adversely affect their development by restricting access to vital information Consequently, it is considered premature for developing countries to be expected to exceed TRIPS standards regarding this issue.

Some scientific databases secured by technological protection measures (TPMs) can only be accessed from a specific terminal in the library, limiting access for distant students and researchers Additionally, even if a Malaysian Government Ministry purchases a CD containing a copyright-free database, TPMs may still prevent the Ministry from making legal copies for staff education.

Circumvention devices can bypass Technological Protection Measures (TPMs) and are permitted under the TRIPS agreement While the WIPO Copyright Treaty includes an anti-circumvention provision, it also allows for national copyright exceptions However, US Free Trade Agreements (USFTAs) impose stricter regulations than those in the WIPO Copyright Treaty Notably, Malaysia is not a signatory to the WIPO Copyright Treaty.

All USFTAs since NAFTA have required countries to ban the act of circumventing a TPM (i.e penalizing the user, see below) and the manufacture,

Despite the US Government's assertion that Technological Protection Measures (TPMs) are intended solely to safeguard copyrighted material, real-world applications reveal a different scenario For instance, in 2003, an attempt to obtain an exception for bypassing DVDs of films that had entered the public domain was denied, as the request was linked to elements that could still be copyrighted, such as a new introduction to the classic film.

109 In the US, the publishing industry considers providing such software to be a violation of the anti- circumvention provisions.

110 Australian Parliamentary Library Current Issues Brief No 3 2004-5, http://www.aph.gov.au/library/pubs/CIB/2004-05/05cib03.pdf

The report by the Commission on Intellectual Property Rights, established by the British Government, emphasizes the need to integrate intellectual property rights with development policy It highlights how effective management of intellectual property can foster innovation and economic growth, particularly in developing nations The report advocates for a balanced approach that supports both the protection of creators' rights and the accessibility of knowledge, ensuring that intellectual property frameworks contribute to sustainable development For more detailed insights, refer to the full report available at http://www.iprcommission.org/graphic/documents/final_report.htm.

112 Art 11 for copyright and Art 18 of the WIPO Performances and Phonograms Treaty for related rights

In April 2005, Bruce A Lehman, Assistant Secretary of Commerce and Commissioner of Patents and Trademarks, presented a briefing paper for the Electronic Frontier Foundation regarding Technological Protection Measures at the WIPO Inter-Sessional Intergovernmental Meeting The discussion highlighted that the proposed WIPO Treaty would permit fair use exceptions while also addressing the importation and distribution of circumvention devices, which could be deemed legal under national copyright law for non-infringing purposes.

Under US Free Trade Agreements (USFTAs), end users of circumvention devices may face liability for circumventing technological protection measures (TPMs), even if they are unaware of their actions, such as using a multi-region DVD player Liability arises if the user had reasonable grounds to know they were circumventing a TPM Additionally, the Australia-United States Free Trade Agreement (AUSFTA) holds distributors of circumvention devices accountable, regardless of their knowledge of the device's nature This situation raises concerns for Australians who may lack the technical understanding necessary to recognize when they are inadvertently circumventing TPMs.

Australian consumers, it should be even more true for a developing country such as Malaysia.

While there is a provision allowing users to request exceptions to the circumvention ban every four years by demonstrating adverse impacts on their non-infringing use, a similar system in the USA has faced significant challenges.

The process allows for the circumvention of technological measures but does not legalize the tools needed for this circumvention, limiting its application to a small group of tech-savvy individuals capable of creating their own tools Consequently, blind individuals must independently develop computer programs to read content aloud, as no one is permitted to create, distribute, import, or share these tools with them or their associations.

 Consumers without lawyers to represent them find they cannot use the process because it is so complex

 It is a costly and time consuming process, so it makes it particularly difficult for the non-profit sector who are most likely to need such exceptions

Many DVDs are now region-locked, meaning they can only be played in specific areas of the world, which poses challenges for consumers seeking to access content across different regions This restriction is part of broader copyright regulations that affect how films are distributed and viewed globally.

115 The Chile-USFTA at least limits the liability to when the user actually knew that s/he was circumventing a TPM.

116 Kimberlee Weatherall’s submission to the Senate Select Committee on the Free Trade Agreement between Australia and the United States of America.

117 For example Article 17.4.7(e)(viii) of the AUSFTA.

Kimberlee Weatherall's submission to the Senate Select Committee addresses key issues regarding the Free Trade Agreement between Australia and the United States, highlighting concerns related to intellectual property and copyright laws The submission emphasizes the need for careful consideration of the implications of such agreements on local industries and innovation For further insights, refer to the detailed analysis available at the Electronic Frontier Foundation's website.

The American Foundation for the Blind has submitted a request for an exemption, which can be accessed at http://www.copyright.gov/1201/2006/comments/discipio_afb.pdf Additionally, the transcript of the testimony is available at http://www.copyright.gov/1201/2006/hearings/transcript-mar29.pdf Notably, a limited exception for blind users was granted in 2003, details of which can be found at http://www.copyright.gov/1201/2003/index.html.

 It is very difficult to credibly prove harm from copyright For example of the

392 comments in one batch and 5 days of hearings in the 2003 inquiry, only two exemptions were granted

MUFTA obliges Malaysia to join WIPO 1996 Internet Treaties

Numerous Free Trade Agreements between the US and other nations mandate the ratification of the WIPO Internet Treaties, specifically the WIPO Copyright Treaty (WCT) and the WIPO Performers and Phonograms Treaty (WPPT) These treaties were established following a Diplomatic Conference on Copyright and Neighbouring Rights, initiated by the US in December 1996.

The treaties enacted in 1996 are based on studies provided by national governments, especially those of the US, European Community, and Japan, highlighting the influence of lobbying efforts in these nations.

Critics argue that the treaties were created to address domestic opposition in the US regarding enhanced copyright laws The establishment of these internet treaties provided the US government with a basis to enforce standards aligned with its multilateral commitments, while also promoting the global adoption of robust copyright protections.

IP standards preferred by certain individuals and organizations in the US The US, in response to the WCT, legislated the Digital Millennium Copyright Act, which goes beyond the WCT 126

The Electronic Frontier Foundation, a US-based digital civil rights organization, highlights that the anti-circumvention provisions of the DMCA are often misused to suppress legitimate activities instead of effectively addressing copyright infringements.

126 Musungu, S, Dutfield, G., “TRIPS plus Multilateral agreements and a TRIPS-plus world:

The World Intellectual Property Organisation (WIPO) available at http://www.quno.org/geneva/pdf/economic/Issues/Multilateral-Agreements-in-TRIPS-plus-English.pdf

It illustrates how they are being invoked against consumers, scientists, and legitimate competitors, rather than pirates 127

The WCT has faced significant criticism for exceeding the requirements set by TRIPS and the Berne Convention, as it grants copyright holders exclusive rights in the online environment and mandates countries to implement effective legal remedies against the circumvention of technological protection measures (TPMs) Concerns raised by the Electronic Information for Libraries (eIFL) highlight the potential negative impact of these provisions on access to information and the balance between copyright protection and user rights.

TPMs are unable to differentiate between legitimate and infringing uses of copyrighted material While these copy-control mechanisms are designed to prevent unauthorized reproductions, they can inadvertently restrict individuals, such as students or visually impaired users, from making lawful copies that fall under fair use or other legal copyright exceptions.

Long-term preservation and archiving are crucial for safeguarding cultural identities and promoting the diversity of languages and peoples However, the implementation of Technological Protection Measures (TPMs) and Digital Rights Management (DRM) systems poses a risk to these efforts With DRMs typically lasting only three to five years, their obsolescence could compromise the integrity of future public records, unless libraries are granted the right to circumvent these restrictions.

Protecting the public domain is essential, as technological protection measures (TPMs) persist even after copyright terms expire Consequently, content may remain inaccessible despite the absence of rights, ultimately diminishing the public domain.

The UK Commission Report on IP and Development emphasizes the necessity for further analysis on effectively protecting digital content and the rights of holders while ensuring adequate access and fair use for consumers It highlights the importance for policymakers to understand the implications of the shift towards online distribution and technological protection of content, particularly concerning developing countries.

The report highlights concerns about the clarity of "fair use" requirements in the current environment, urging developing countries to carefully consider the implications of joining the WIPO Copyright Treaty It warns against following the legislative practices of the US and EU, particularly in relation to the DMCA, suggesting that such actions may not be beneficial.

While some believe that the Malaysian Copyright Act sufficiently incorporates standards from the WCT, including Technological Protection Measures (TPMs), it is crucial to recognize that national laws can be amended, potentially jeopardizing access to knowledge and public interests Therefore, ratifying the WCT is essential to ensure these standards are upheld and protected against future changes.

127 Digital Rights Management: A failure in the developed world, a danger to the developing world, Cory Doctorow http://www.eff.org/IP/DRM/drm_paper.php

Electronic Frontier Foundation, Unintended Consequences: Seven Years under the DMCA

In April 2006, the implications of international treaties like the World Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT) became evident, as countries are obligated to adhere to their minimum standards This adherence creates challenges in reversing established policies.

To fully understand the costs and benefits of signing onto the WIPO internet treaties, it is essential to engage various stakeholders, including libraries, open source initiatives, industry representatives, internet service providers, and relevant NGOs, in comprehensive discussions and analyses.

However, given the US template in their FTAs, Malaysia would be obliged byMUFTA to join these two WIPO treaties.

Some implications of Copyright section for Malaysian society

The following are some implications for Malaysian society:

1 MUFTA will oblige Malaysia to change its laws and policies on copyright in many ways Malaysia would have to:

(a) Extend the length of copyright from 50 to 70 years.

(b) “Lock in” technological protection measures through the FTA

(c) Join the WIPO “internet treaties” (copyright and performers/phonograms) which would in turn lock the country into the treaties’ obligations.

The proposed changes would significantly tilt the balance away from public interest, imposing greater constraints on library users and negatively impacting access to knowledge.

(e) Implications for the 9 th Malaysia Plan

The Ninth Malaysia Plan emphasizes the importance of enhancing knowledge and innovation capacity while fostering a 'first-class mentality.' Chapter 11 focuses specifically on the enhancement of human capital, highlighting its significance in driving national development.

Furthermore, Chapter 5 of the Ninth Malaysia Plan focuses on ‘mainstreaming technology and communications technology’.

In addition, Chapters 4, 6, 8, 20 in the other Thrusts all place high priority on human resource development

Human resource development is heavily dependent on access to information and USFTAs restrict access to knowledge in the ways outlined above

Malaysia, as a signatory to the United Nations Convention on the Rights of the Child (CRC), is obligated to uphold its provisions, including the right to education The proposed Malaysia-U.S Free Trade Agreement (MUFTA) could significantly affect children's rights by extending copyright terms on textbooks and educational materials to 70 or 95 years This extension may lead to higher costs for these essential resources, potentially limiting access for children, as parents and the Malaysian Government may struggle to afford them through programs like the Textbook Loan Scheme.

TRADEMARKS

ENFORCEMENT

The enforcement section of TRIPS clarifies that it does not mandate the establishment of a separate judicial system for enforcing intellectual property rights, nor does it limit the ability of member countries to enforce their laws generally Additionally, it specifies that there are no obligations regarding the allocation of resources between the enforcement of intellectual property rights and general law enforcement This provision was included in TRIPS to alleviate the concerns of developing nations.

The enforcement chapter of USFTAs stipulates that a decision made by a USFTA country regarding the allocation of enforcement resources does not exempt that Party from adhering to the intellectual property (IP) chapter.

US Free Trade Agreements (USFTAs) can include up to 11 pages of detailed enforcement guidelines Some of these guidelines outline the implementation of enforcement at the level established by the Trade-Related Aspects of Intellectual Property Rights (TRIPS), while others mandate significantly stronger enforcement measures than those required by TRIPS.

129 Malaysian Government Report to the Committee, Document CRC/C/MYS/1, 22 December 2006.

133 UNCTAD-ICTSD Resource Book (2005), available online at http://www.iprsonline.org/unctadictsd/ResourceBookIndex_update.htm

134 For example Art 16.9.4 Singapore-USFTA.

135 Such as the Australia-USFTA. of USFTA IP chapters are particularly detailed about internet service provider liability

Internet service providers (ISPs) offer a range of services, including internet access and web hosting for millions of webpages While individuals can freely publish content on these pages, this can lead to copyright infringements involving books, articles, music, or movies In many jurisdictions, ISPs are not held responsible for the copyright violations present in the content hosted on their platforms.

In the USA, conflicting court rulings have created uncertainty regarding the liability of Internet Service Providers (ISPs) for copyright infringement committed by their users, particularly concerning copyright-infringing content hosted on their platforms To address this issue, ISPs have sought legislation that offers 'safe harbours' to limit their liability while conducting regular business, provided they meet specific conditions However, these safe harbours have faced criticism for being overly restrictive and procedurally complex, making them challenging for ISPs to utilize effectively.

TRIPS does not require internet service providers to be liable for copyright infringing material put on websites they host by others 140

USFTAs contain these ISP safe harbours USFTAs may create ISP liability in countries where none previously existed because:

Recent US Free Trade Agreements (USFTAs) classify temporary reproductions, such as those created in a computer's memory while accessing a webpage, as copyright infringement Given that digital communication inherently involves the serial reproduction and distribution of these temporary copies, Internet Service Providers (ISPs) may encounter heightened liability concerns.

TM Net provides a variety of services including web hosting, domain hosting, server hosting, online storage, media hosting, and the TM Net e-browse platform, as detailed on their official website.

In the United States, copyright law encompasses two key doctrines: vicarious copyright liability and contributory copyright liability A recent report highlighted that temporary reproductions created by computers in their memory can also constitute copyright infringement, which implies that Internet Service Providers (ISPs) may be held liable for caching copyrighted material.

138 http://www.eff.org/IP/FTAA/ISP_june05.pdf

139 For example http://www.eff.org/IP/FTAA/ISP_june05.pdf

TRIPS does not mandate secondary liability or the copyrightability of temporary reproductions The only relevant provision that might imply secondary liability is Article 41.1, which calls for "effective action against any act of infringement." However, this article does not necessitate the establishment of secondary liability laws, and significant WTO members do not endorse such liability.

The United States has not pursued legal action against countries for failing to comply with TRIPS regulations regarding temporary reproductions, indicating that such reproductions are not mandated by TRIPS This is further evidenced by the fact that numerous countries do not recognize temporary reproductions as copyrightable, yet they remain unchallenged by the U.S for non-compliance with TRIPS.

All US Free Trade Agreements (USFTAs) since NAFTA, including Article 16.4.1 of the Singapore-USFTA, establish that authors, performers, and producers of phonograms, along with their successors, hold the exclusive right to authorize or prohibit reproductions in any form This includes both permanent and temporary reproductions, with temporary reproductions deemed infringing under copyright law, and no limitations provided for such infringements.

The presence of safe harbours can introduce liability that did not previously exist in domestic law, effectively establishing a de facto liability standard in the USA Copyright owners have leveraged this by suing ISPs for not adhering to safe harbour conditions, using non-compliance as evidence of copyright infringement However, under US law, it is important to note that failing to meet safe harbour requirements does not automatically imply infringement; it still requires proof based on general legal principles.

The non-violation provision in the dispute settlement chapter of all US Free Trade Agreements (USFTAs) applies to the intellectual property chapter, implying that if the United States reasonably expected a country (M) to establish Internet Service Provider (ISP) liability, but M fails to do so, the US Government may sue M at an international tribunal Should the US win the case and M does not amend its laws to impose ISP liability, the US could respond by raising tariffs on M's exports to the United States.

How ISP liability works in USFTAs

To qualify for the safe harbour provisions under the Australia-US Free Trade Agreement (AUSFTA), individuals or companies must be classified as an 'internet service provider' (ISP) and engage in one of the specified activities Additionally, the ISP must adhere to the conditions associated with each activity to ensure compliance.

If an ISP fulfills all necessary criteria, they cannot be penalized by courts for permitting copyright infringements on their networks However, courts retain the authority to instruct the ISP to remove or restrict access to infringing content or to terminate the accounts of offending users.

IMPLEMENTATION

Countries considering a US Free Trade Agreement (USFTA) should be cautious about exploiting loopholes during implementation, as the U.S Trade Representative (USTR) is actively advocating for enhanced intellectual property (IP) protections beyond the USFTA's initial requirements This push for stronger IP safeguards will be emphasized throughout the implementation process, including in the drafting of relevant legislation.

After Guatemala completed its US Free Trade Agreement (USFTA), the United States Trade Representative (USTR) provided four pages of specific comments and requests, highlighting key areas of concern and requirements.

IPRS: SUMMARY ON EFFECTS OF MUFTA

NEED FOR POLICY FRAMEWORK AND ASSESSMENT OF COSTS AND BENEFITS

Negotiating a Free Trade Agreement (FTA) is a critical endeavor, as its outcomes significantly influence development policy and socio-economic conditions While FTAs can lead to export gains, they may also increase imports, affecting the trade balance and national debt Additionally, reduced tariffs can trigger import surges that threaten local industries and agriculture, diminish tariff revenue impacting government budgets, and limit a country's policy options for implementing social and economic strategies Therefore, it is essential for a country to establish key prerequisites before entering FTA negotiations.

A comprehensive national development policy framework should include a cohesive overall strategy along with specific sectoral plans for agriculture, industry, and services, as well as targeted issue-based policies addressing foreign investment, local economic participation, and intellectual property rights.

The proposals from FTA partners can be evaluated within a structured framework, which also helps define a country's stance in FTA negotiations Without this framework, identifying the goals and benefits of engaging in FTA discussions becomes challenging.

A comprehensive framework is essential for evaluating the benefits and costs of the Free Trade Agreement (FTA) This framework should analyze its different components, proposals, and provisions, ensuring a thorough assessment of the overall balance.

Assessing the benefits and costs of a Free Trade Agreement (FTA) involves several key factors: first, the impact on trade, including changes in exports and imports; second, the implications for job creation and loss; third, the influence on policy space and flexibility for the country; fourth, the social effects on access to essential services such as healthcare, education, and food security; and finally, the effects on technology transfer Additional considerations may also be included in this evaluation.

The costs and benefits of a Free Trade Agreement (FTA) encompass various elements, such as market access for goods and services, intellectual property rights, investment opportunities, competition regulations, government procurement, and standards for labor and the environment Additionally, the social and environmental implications of these agreements can be evaluated to understand their broader impact.

Developing countries often anticipate advantages from Free Trade Agreements (FTAs) with developed nations, particularly in terms of market access for their goods However, this potential benefit must be balanced against the concessions granted to the developed partner in their domestic market If the developing country struggles with production and export capabilities, or if the developed country does not provide substantial concessions, the outcome could be a net cost rather than a benefit, especially in reciprocal FTAs without special and differential treatment (SDT) for the developing nation.

Developing countries are likely to incur additional costs from increased intellectual property rights (IPR) obligations beyond those outlined in TRIPS, primarily due to the foreign ownership of most patents and copyrights These costs manifest as heightened royalty and licensing fees, leading to a loss of foreign exchange, as well as inflated prices for protected products Furthermore, the social implications include reduced access to essential medicines, limited availability of knowledge, diminished farmers’ rights to seeds and resources, and threats to food security.

Investing in developing countries often incurs significant costs, particularly in terms of diminished policy space and limitations on regulatory measures for foreign investment, including entry regulations and performance requirements The potential for expropriation claims from investors can create a chilling effect on national policies, hindering the ability to leverage investment policy to enhance local economic participation and support the growth of domestic firms and farms.

Government procurement plays a crucial role in enhancing the domestic economy and addressing social inequalities, but the loss of policy space can significantly undermine these efforts The mandate for national treatment of foreign goods, services, and firms may lead to diminished market share for local businesses and a decrease in foreign exchange earnings Additionally, the effectiveness of fiscal policy could be compromised; for instance, increased government spending aimed at stimulating economic growth may yield limited results if there is a higher outflow of funds due to increased imports of goods and services procured by the government.

The potential loss of policy space and options extends to non-trade issues, including competition policy, labor standards, and environmental regulations, which can significantly impact the competitive position of local enterprises.

An example of a simple cost-benefit chart is given below It can be made more complex, reflecting the realities of the particular country concerned.

Example of FTA Cost-benefit Framework

1 Market access in goods: a Agriculture b Industrial

1 Market access into country: a industrial goods b agriculture

2 Market access in services: a commercial services b labour

2 Market access into country Services

5 Possible investment and technology flows

3 Intellectual property (a)Access to medicines (b) Lifeforms

(c) Plant varieties (d) Biodiversity and disclosure requirements

(e) Copyright and access to information (f) Broadcasting 4., Singapore Issues (a) Investment (b) Government procurement (c) Competition policy

To effectively consider entering negotiations for a Free Trade Agreement (FTA), the country must establish a robust institutional framework and resource base This involves organizing negotiation teams, defining objectives, and conducting the negotiations with input from various government agencies Engaging stakeholders, including local businesses, trade unions, farmers, consumers, and groups focused on health and environmental issues, is crucial due to the FTA's potential widespread impact on society.

National decisions regarding Free Trade Agreements (FTAs) involve several key considerations: determining the willingness to enter negotiations, establishing negotiation strategies, deciding which issues to include or exclude, presenting positions, evaluating the counterpart's stance, continuously weighing the costs and benefits of proposals, and ultimately deciding whether to conclude negotiations in light of unresolved issues.

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