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Textile trade balance of Malaysia to fall with the signing of TPPA deal

YarnsandFibers News Bureau 2014-10-22 15:00:00 – Malaysia

Malaysia being warned by group against the trade deal that with the signing of the Trans Pacific Partnership Agreement (TPPA) by year-end, it could stand to lose RM5 billion annually with the faster increase in imports than its exports.

The TPPA is a free trade agreement involving 11 countries namely Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.

Bantah TPPA chairman, Mohd Nizam Mahshar, said that the bigger imports would result in an unfavourable trade balance with a net loss on the country.

Malaysia exported US$93.7 billion (RM305.7 billion) worth of goods to TPPA countries last year, and imported US$73.9 billion (RM241.1 billion) worth of goods from them.

Malaysia thus enjoyed a surplus in its trade balance with the 11 countries of US$19.8 billion (RM64.6 billion).

However, Rashmi Banga, a senior economist in the UN's Unit of Economic Cooperation and Integration among Developing countries, or Unctad, said in her report that Malaysia's trade balance with its TPPA partners will fall to US$18.37 billion (RM59.94 billion), after the TPPA comes into effect.

Once the TPPA is implemented, Malaysia’s exports to the 11 countries will increase by US$1.5 billion (from US$93.7 billion to US$95.2 billion). But its imports will rise by more than that - by US$2.9 billion (from US$73.9 billion to US $76.8 billion), Nizam said.

This means that Malaysia will not have net gains from the increased trade resulting from the TPPA. As imports will rise faster than exports, Malaysia will suffer a net loss in its trade balance. The loss is significant - US$1.465 billion or RM4.79 billion per annum.

Nizam said that the situation may be worse than what was predicted in Banga's report, as she had assumed that Malaysia would be able to export more textiles and clothing to the US at zero tariffs and without any other impediment.

He warned that the US was insisting on a "yarn forward rule", where TPPA countries like Malaysia can only use yarn from other TPPA countries when producing textiles and apparel items.

As such, production cost for Malaysian textiles and clothing will be higher as they cannot use yarn from lower cost countries like China or even Indonesia.

The estimated increase in Malaysian exports of textiles and apparel items to the United States by about RM454 million (US$139 million) may exaggerate the gains for Malaysia. If the increase of textiles exports is less than this RM454 million then the loss in trade balance for Malaysia could be even more than RM5 billion per annum.

Nizam said Prime Minister Datuk Seri Najib Razak must explain the "rosy picture" he had painted, saying it was now shown to be untrue.

Bantah TPPA calls on the Minister of International Trade and Industry, Datuk Seri Mustapa Mohamed, and also Najib to clarify their stance.

Najib had previously said that the TPPA deal would be completed by year-end on terms acceptable to the country, adding that negotiations would continue even if the deadline could not be met as the contents of the deal were more important.

He had said the aim of the TPP agreement was to achieve two main objectives of expanding trade and market access in terms of economic and investment growth, as well as to uphold the country's sovereignty based on current principles.

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