The TPPA presents opportunities as well as challenges to SMEs. In order to reap the benefits, SMEs need the Government to help them negotiate the pitfalls and move up the value chain via capacity-building programmes.
Many have been asking what the Trans-Pacific Partnership Agreement (TPPA) is, and whether Malaysia should sign the agreement.
It’s no surprise that the business community and the public are uncertain about the pros and cons of joining the TPPA, as the agreement deals with many issues and requires in-depth study to fully comprehend.
It’s much more comprehensive and complicated than any other free trade agreements Malaysia has signed. Some of the key areas covered include trade-related issues, technical barriers to trade, trade remedies, investment, services, electronic commerce, government procurement, intellectual property, labour and the environment.
Trade agreements bring opportunities as well as challenges. Countries would have to examine the overall gains and losses.
The TPPA will open up access to a market of 800 million people, 40% of the world’s gross domestic product, and a third of global trade. This should promote growth, create jobs and improve economic well-being.
In addition, the TPPA include provisions that would uplift the standard of governance, and enhance labour and environmental protections. By opening up market access to goods and services, investment, and free movement of skilled labour, it encourages innovation and enhance the competitiveness of our enterprises.
But we should be aware of the challenges as well. From the point of view of the SME community, the key questions are: What does it offer? Are SMEs ready to reap the benefits? What are the challenges?
One of the benefits that TPPA could offer to SMEs is greater market access, in particular to Canada, Mexico, Peru and the US. It is anticipated that Malaysia would be able to increase exports to these countries following the removal of or reduction in tariff.
The TPPA includes a chapter on facilitating information exchange and capacity-building among SMEs. Member countries are required to provide open access to information on tariff schedules, rules of origin, regulations and procedures that concern intellectual property rights, customs, employment, taxation, technical regulations and standards relating to importation and exportation.
In addition, a committee on SMEs will be established to help SMEs take advantage of the opportunities.
Several provisions have been introduced to assist SMEs in expanding exports. The chapter on Rules of Origin makes it easier for SMEs to choose a rule from among several options that will be applicable for its exports. It also promotes re-manufacturing activities by SMEs through a clear and standard definition and rule of origin for re-manufacturing.
With the cumulation of raw materials via TPP countries, SMEs should be able to source from all 12 countries. This will expand the selection of materials to meet demands for export to TPP countries.
However, there are challenges that Malaysian SMEs need to overcome in order to reap the benefits. Many SMEs are not ready to face increased competition and the high standards and requirements set by the TPPA. Our SMEs lose out in terms of productivity.
Malaysia is lowly placed with a ratio of 4:1 and 7:1 as compared to Singapore and the US, respectively.
The majority of the SMEs will not be able to enjoy the TPPA provisions, which are aimed at facilitating the expansion of export. Only 17.8% of SMEs in Malaysia are export-oriented, with the rest still focused on the domestic market.
The SME community will fully support the Government’s decision to sign the TPPA only if the Government takes serious measures to assist them in overcoming the challenges.
First of all, the Government must introduce measures that help all Malaysian SMEs become part of TPPA partner countries’ supply chains. Their interests would not be protected if such measures were not in place since many are still at the bottom of the value chain.
Furthermore, such measures would open up opportunities for all Malaysian SMEs to move up the supply chain, increase exports, and advance in technology and innovation.
The Government must ensure that the measures cover all Malaysian SMEs, regardless of industry, size or ethnic group.
Secondly, the Government should work with business associations to set up five-year, capacity-building programmes for all level of SMEs with full public funding. The programmes should focus on assisting SMEs add value by taking a comprehensive approach, i.e. developing entrepreneurial skills, improving branding, adopting technology such as ICT and e-commerce, increasing productivity through automation and skill training, enhancing quality of goods and services by attaining certification, and assisting SMEs to go into global markets.
The programmes should be carried out directly by business NGO (especially SME associations), and not via agencies. This is to ensure that they effectively address the needs of SMEs and have a real impact.
The Government must work hand-in-hand with SMEs. Malaysia would not be able to maximise the potential gains from the TPPA should SMEs lag behind.
Michael Kang is the national president of the SME Association of Malaysia.