As Malaysia is poised to sign the Trans-Pacific Partnership Agreement
(TPPA), Klang MP Charles Santiago warned that it could backfire on
Malaysia's hopes that it would increase foreign direct investment (FDI).
He pointed to an academic paper, which says that a bilateral investment treaty (BIT) can reduce FDI inflows when it comes to countries with high political risk – a category that Charles argues includes Malaysia.
The paper reads: “Where a country exhibits high levels of political risk, there is a marginal benefit in signing a treaty and, for particularly risky countries, BITs may actually have "a negative effect on FDI inflows.”
The paper was authored by the US-based law assistant professor Susan D Franck, and was published in the Global Business & Development Law Journal in 2007.
In addition, Charles pointed out that several other studies have shown that the data is inconclusive on whether trade agreements can indeed improve FDI inflows.
In contrast, other factors such the the size of a market turned out to be stronger determinant of FDI flows and trade agreement by itself cannot turn a weak investment climate into a strong one.
These issues, he said, should have been highlighted in the national interest analysis on the TPPA, which was conducted by Institute of Strategic and International Studies (Isis) and was released yesterday.
“The Isis study should have pointed these out, that there is no strong, significant correlation between FDIs and investment chapters.
“No correlation, but we are going ahead to sign it anyway,” Charles told reporters when met in Petaling Jaya today.
A common feature in BITs is a provision for foreign investors to sue governments in an international court of arbitration. These provisions are also found in TPPA's investment chapter.
According to the UN Conference on Trade and Development's (Unctad) website, Malaysia has 49 BITs in force as well as others that have been signed but have yet to come info effect.
Malaysia is also a party of 13 existing free trade agreements.
Charles said the federal and state governments need to discuss and determine who should foot the bill should a state or local government policy result in a lawsuit by a foreign corporation.
He said the national interest analysis had highlighted this as a potential downside to the TPPA.
It reads: 'This may have a negative impact on Malaysia, as breaches by state governments are attributable to the federal government except where reservations on certain sectors are provided.'
Two sets of policies danger
The TPPA's investment chapter allows foreign investors to sue governments if the government's policy results in diminished future profits.
Charles highlighted that legal fees alone for these investor-state dispute settlement (ISDS) lawsuits would cost at least US$8 million (RM34.2 million) and the damages could run in the tens of million or even billions of US dollars if the investor wins the case.
The highest award ever for an ISDS case was US$50 billion (RM214 billion) against Russia and there is no prospect for any government to win anything from such a suit except to recoup its legal fees, he pointed out.
He pointed to an academic paper, which says that a bilateral investment treaty (BIT) can reduce FDI inflows when it comes to countries with high political risk – a category that Charles argues includes Malaysia.
The paper reads: “Where a country exhibits high levels of political risk, there is a marginal benefit in signing a treaty and, for particularly risky countries, BITs may actually have "a negative effect on FDI inflows.”
The paper was authored by the US-based law assistant professor Susan D Franck, and was published in the Global Business & Development Law Journal in 2007.
In addition, Charles pointed out that several other studies have shown that the data is inconclusive on whether trade agreements can indeed improve FDI inflows.
In contrast, other factors such the the size of a market turned out to be stronger determinant of FDI flows and trade agreement by itself cannot turn a weak investment climate into a strong one.
These issues, he said, should have been highlighted in the national interest analysis on the TPPA, which was conducted by Institute of Strategic and International Studies (Isis) and was released yesterday.
“The Isis study should have pointed these out, that there is no strong, significant correlation between FDIs and investment chapters.
“No correlation, but we are going ahead to sign it anyway,” Charles told reporters when met in Petaling Jaya today.
A common feature in BITs is a provision for foreign investors to sue governments in an international court of arbitration. These provisions are also found in TPPA's investment chapter.
According to the UN Conference on Trade and Development's (Unctad) website, Malaysia has 49 BITs in force as well as others that have been signed but have yet to come info effect.
Malaysia is also a party of 13 existing free trade agreements.
Charles said the federal and state governments need to discuss and determine who should foot the bill should a state or local government policy result in a lawsuit by a foreign corporation.
He said the national interest analysis had highlighted this as a potential downside to the TPPA.
It reads: 'This may have a negative impact on Malaysia, as breaches by state governments are attributable to the federal government except where reservations on certain sectors are provided.'
Two sets of policies danger
The TPPA's investment chapter allows foreign investors to sue governments if the government's policy results in diminished future profits.
Charles highlighted that legal fees alone for these investor-state dispute settlement (ISDS) lawsuits would cost at least US$8 million (RM34.2 million) and the damages could run in the tens of million or even billions of US dollars if the investor wins the case.
The highest award ever for an ISDS case was US$50 billion (RM214 billion) against Russia and there is no prospect for any government to win anything from such a suit except to recoup its legal fees, he pointed out.
“
When we asked in the caucus meeting, they (the government) said there
is no issue. Now when you read more carefully, it all depends on the
arrangement that (the states) have with them.
“ It is an issue that needs to be resolved [...] when you have two governments, two sets of policies and the mismatch of policies can lead to some challenge,” he said.
If the opposition governments such as Penang and Selangor set up policies that are not in line with the federal government's policy and they results in a lawsuit, for example, the federal government may opt to foot the bill first and extract payment from the state governments later.
He said issues such as these need to be worked out so that there is clarity on how the fees and damages would be paid.
“ It is an issue that needs to be resolved [...] when you have two governments, two sets of policies and the mismatch of policies can lead to some challenge,” he said.
If the opposition governments such as Penang and Selangor set up policies that are not in line with the federal government's policy and they results in a lawsuit, for example, the federal government may opt to foot the bill first and extract payment from the state governments later.
He said issues such as these need to be worked out so that there is clarity on how the fees and damages would be paid.
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