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Global Trends by Martin Khor

Monday 22 June 2015

Crunch time for TPPA and for Greek crisis

This week will see the resolution for two important issues – the fate of the Trans Pacific Partnership and of the Greek debt crisis – both of which will affect Malaysia.

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Two major developments are taking place internationally that affect developing countries, including Malaysia.

The United States Congress is in the midst of a complicated series of measures that may give or reject a fast track trade authority to the President and the outcome will determine whether the Trans-Pacific Partnership Agreement (TPPA) is concluded.

For Malaysia, this is a big issue, as the TPPA itself will have a major impact on the country’s economy and social policies.

Meanwhile, the high drama over the Greek debt crisis is reaching a climax.  A summit meeting of European leaders will be held today in a last-minute and last-chance bid to prevent a Greek debt default, which in turn could lead to Greece exiting the euro.

If that happens, we can expect quite a lot of turmoil in Greece and Europe for some time, and the volatility in currency and stock markets can be expected to spill over to developing countries, including Malaysia.

Therefore, it is wise to pay great attention to these two developments that will play out this week.

The TPPA negotiations should have concluded already, according to schedules.  But they have not because the United States’ partners, including Malaysia, want to be assured that President Obama has fast-track authority, before they give their final call on the outstanding and most politically sensitive issues.

A meeting of Ministers planned for this week supposedly to conclude the TPPA has been cancelled.

That’s because the US Congress still cannot get the final votes needed to give fast-track authority to the President through two related components, Trade Promotion Authority (TPA) and Trade Adjustment Assistance (TAA).  

With fast-track, Obama can put the TPPA to Congress for it to vote yes or no, but without any changes.  Without fast track, Congress can make amendments to the TPPA, which would unravel the agreement, undo the countless days of negotiations and frustrate the 11 other TPPA countries. 

That’s why the fate of the TPPA now hinges on Obama getting fast-track.  The bills have to be passed by both the Senate and the House of Representatives.

The Senate passed both the TPA and TAA components, but the House only passed the TPA component, dealing a blow to Obama, especially since it is a majority of his own Democrat Party that is voting against the fast track.

This week, the drama continues with the Senate again taking a vote on the House-approved TPA while the House will also likely vote again on the TAA component it had already earlier rejected.

Obama and his team are exerting themselves, ironically backed mainly by the Republican leadership in Congress, but they face such strong opposition that the votes on the bills can go either way.  

The TPPA is very controversial in the US, with big opposition from most Democrat Congress members, trade unions, NGOs and the public.  Prominent economists like the Nobel winners Joseph Stiglitz and Paul Krugman are also against.

Trade agreements are no longer popular in the US.  They are blamed by the opponents for taking away industrial jobs and suppressing wages.  

There is also a raging controversy on the TPPA in other countries including Japan, Australia, Malaysia, Chile and New Zealand.

Besides fast track, Malaysia faces another challenge from the US because it has been labelled a ‘Tier 3 country’ (the highest category) with regard to smuggling and treatment of immigrants.

According to a provision in the Senate-approved fast track bill, the fast track cannot apply to Tier 3 countries, and thus the TPPA cannot be given the fast track status unless Malaysia is excluded from the TPPA, or Malaysia’s level is moved to a lower tier, or the Senate bill is amended.

The recent negative publicity surrounding the finding of graves of smuggled Myanmar migrants and other ill treatment does not bode well for prospects of lowering of the country’s Tier 3 level.

Even if all goes well at the US end (a big ‘if’), there are still the outstanding issues to iron out at the TPPA negotiations, including market access, patents and medicines, state owned enterprises, investment, and Malaysia’s request to exempt the Bumiputra policies from TPPA disciplines.

Altogether, it’s a messy and uncertain situation regarding the TPPA.

Equally messy is the Greek debt crisis situation.  The Greek government came to power on a popular wave of protest against how the country has been treated by its creditors.

It cannot accept the terms that the European Union, the European Central Bank and the IMF are insisting on to release the next tranche of bail-out funds.

Greece is asking for relaxation of austerity measures, a lower target for primary budget surplus, and different policies regarding pension cuts and its own plans for raising taxes.

Without the extra bail-out funds, Greece will most likely default on a 1.5 billion euro payment to the IMF; Greek banks may be unsupported by crisis loans and face collapse; and the country may have to exit from the euro. 

Greece would have to temporarily impose capital controls and limit withdrawals from banks, as well as re-introduce its own currency.

This is of course a frightening prospect for any country, but in exchange Greece re-gains some policy space to determine its currency level, and its fiscal, monetary and social policies.

Greece will also likely undertake a unilateral debt restructuring that includes a cut in its debt stock, with bond holders taking some losses, a measure that the three creditors have so far disallowed.

Greece is driven to consider this alternative by a deteriorating economic situation (a fall in GNP by a quarter and 25% unemployment) that the austerity policies of the creditors have not solved and may even have worsened.

Today’s EU summit meeting may be really the last chance for a deal. They may strike one, because deals like these are done at the last minute.

If not, we should brace ourselves for the fallout from the crisis, as it will affect not only Greece and Europe but the developing world as well.

 


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