Malaysia’s impending involvement in the Trans-Pacific Partnership Agreement (TPPA) has set tongues wagging about the potential impact it would have on various industries in the country in particular the local automotive sector.
One argument is that signing such an agreement would open the markets to countries with closed markets, hence putting Malaysia and local car companies at a disadvantage.
It is known that Japanese, South Korean, Chinese and European cars could benefit from the national status of Asean countries, merely by being assembled in those (Asean) countries with a minimum of 40% local content such as batteries, tyres and a few other components.
Some industry observers, however, believed that the TPPA would benefit local car companies.
“There will be greater market access to export to TPPA participating countries but one fundamental component that remains is that local companies must be competitive,” said one industry observer, adding that the 40% to 50% of local content criterion is a benchmark across free trade agreements (FTAs) of other countries, such as the South Korea-US FTA and others.
The industry observer also added that the issue of using local content, which some parties claimed resulted in higher cost, was as a result of lower economies of scale.
“Many believe that this is a chicken and egg situation. But the car manufacturer needs to find ways to increase its production volume by exporting,” he said, adding that market access provisions under all FTAs were meant to increase exports.
Another industry observer said having local vendors would save logistic and other costs – but not tooling amortisation costs if the volume is small.
“Other factors that cause higher costs are the absence of technology such as foundry, forging and casting. Imports of these components will ramp up to the cost.”
One industry expert said based on several engagements with the Government, the revised National Automotive Policy would address this gap and enhance the local automotive industry’s eco-system or linkages.
The TPPA is a multilateral free trade agreement currently being negotiated by 12 countries, led by the United States.
The agreement covers a broad spectrum of areas and has 29 chapters. The signatory countries are Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, Vietnam and Japan. The TPPA is expected to be concluded and signed in October 2013.
Another industry observer pointed out that the practicability of an FTA should not be solely based on how well Malaysia was able to sell its products overseas.
“A regional FTA such as Afta should be looked at from a bigger scale within all industry sectors, adding that the success or failure of this (FTA) cannot be judged upon failure in a particular sector - for example the ability of automotive companies to export in Asean.”
An industry expert noted that Malaysia would lose out if it was not part of an FTA.
“In terms of trade, Asean external trade has increased from US$615bil (RM1.97 trillion) in 1995 to US$2.3 trillion (RM7.36 trillion) (2011) while the intra-Asean trade has increased from US$123.8bil (20.1%) in 1995 to US$598.2bil (26%) in 2011.
“By not participating in Afta, Malaysia will be singled out and will not benefit from the increase in trade within inter and intra Asean.”
The expert points out that imports within the automotive industry have also increased.
“Malaysia recorded higher imports compared to exports. In 2012, Malaysia’s automotive-related imports amounted to RM21.8bil against exports of only RM5.3bil. About 90% of the exports were automotive components and the remaining 10% being vehicles.”