Malaysian PM’s TPP Stance Could Backfire Domestically

Arguably the most important issue to test Malaysian Prime Minister Najib Razak’s stranglehold on power is his enthusiastic backing for the Trans-Pacific Partnership, the omnibus trade pact between the 12 Pacific Rim nations that is one of the capstones of US President Barack Obama’s time in office.

The TPP, as it is known, could destroy the elaborate patronage system put together over decades to perpetuate the ruling national coalition in power, according to sources in Kuala Lumpur. The pact, however, may not come up in the US congress, where it must be ratified, until after the November 2016 general election. Malaysia has time to act on it as well.

The prime minister has been impervious to attempts to remove him for more than a year and a half as major scandals have festered in his administration. Najib had been close to Obama, golfing with him in Hawaii in January. That apparently has been ended by sensational stories in the Wall Street Journal and the New York Times about family wealth in US homes and the 1MDB machinations and by US embassy warnings of widespread corruption. He at least partly owed his relationship with the president to his energetic support for the trade pact in Southeast Asia.

TPP Provisions Call for Open Government Tenders

Ironically, the TPP contains provisions that directly threaten the way the Malaysian government does business, and particularly the way it has long steered government contracts to cadres of the United Malays National Organization, which Najib heads as president. He owes much of his invulnerability to the loyalty he is reported to buy from the 192 division chiefs and others in UMNO via contracts and outright bribes.

In repeated interviews, Najib has said Malaysia must be a party to the TPP because its economy is heavily geared towards trade and that although the agreement poses challenges, the benefits will outweigh the cost. He now must ask the parliament to ratify the agreement, as must each of the nations before it becomes a working agreement.

For instance, Chapter 15 of the document, according to the United States Special Trade Representative, says that “TPP parties share an interest in accessing each other’s large government procurement markets through transparent, predictable, and non-discriminatory rules.”

Individual governments must make project specifications public in a timely manner to allow sufficient time for suppliers to obtain tender documents and to submit bids. That gives governments all the way around the Pacific Rim the opportunity to bid on Malaysian infrastructure and other government contracts.

Contract Favoritism Outlawed

State-owned enterprises and government-linked companies will be required to make commercial purchases and sales on the basis of commercial considerations, that those that receive subsidies do not harm the businesses and workers of the other members of the trade pact, that there is no discrimination against their enterprises, goods and services and that member nations establish rules that provide transparency with respect to the SOEs.

The agreement, according to the USTR, “has undertaken the most ambitious upgrade of trade enforcement in the history of modern US trade policy, building a far more capable enforcement system. The result has been a record of quality enforcement victories that are helping to level the playing field for American workers, businesses and farmers.” The trade office will be in charge of identifying, monitoring, enforcing and resolving international trade issues to make sure US exporters “receive the maximum benefit under our international trade agreements.”

Following the 1997-1998 Asian Financial Crisis, UMNO leaders, “as they turned away from state-run companies and offered more contracts to the private sector, favored companies linked to the party through nominee owners,” according to authors Alisdair Bowie and Danny Unger in a 1997 book, “The Politics of Open Economies.” While more government projects were offered to private sector firms, the contracts were often no-bid contracts and "the winners were often UMNO-linked.”

GLCs Siphon Money to UMNO

Indeed, as Asia Sentinel reported in 2010, at least 23 of Malaysia’s biggest companies appear to have been vehicles for UMNO to siphon off vast amounts of money in government contracts for highways, light rail and others. These companies have never had to compete for contracts. If faced with real competition from across the Pacific region, it is questionable if they can survive and continue to deliver fortunes into UMNO’s – and the cadres’ – coffers.

Almost since Malaysia became a nation, government contracts have provided patronage that has kept the Barisan Nasional, the ruling coalition, in place. In particular, since Najib became prime minister, these contracts have been the glue that has kept the UMNO cadres behind him. Thus he is asking the 222 members of the Barisan, including the 88 members of UMNO, to vote away their meal ticket.

There is little doubt that these contracts are riddled with corruption, and that opening them to competitive bidding would put the cadres at a disadvantage. One of the flashiest was so-called Cattlegate in 2011, in which a RM250 million no-bid contract to operate a national feedlot corporation to finish and slaughter beef under halal, or Muslim dietary rules, was given to the Women Family and Community Development Minister, Shahrizat Abdul Jalil’s. Shahrizat was forced to step down temporarily after it was discovered that large amounts of the money were misappropriated by her husband and three children, who became chief executive and executive directors and who bought luxury cars and a RM10 million condo in the Bangsar section of Kuala Lumpur.

Also, as Asia Sentinel contributor Murray Hunter wrote earlier this week, Malaysia’s version of industrial strategy has too often ended up with an economy skewed towards state planning and intervention, with attempts to pick winners in which massive funds were allocated in the pursuit of achieving success in sunrise industries that turned out to be the wrong ones, such as the Malaysian Biotechnology Corporation, along with various state funded biotechnology companies such as Melaka Biotech, J-Biotech in Johor, K-Biocorp in Kedah, and Kelantan Biotech, which were all well-funded with hundreds of millions of ringgit in grants, but have little, if anything, to show for it.