July 17th, 2013 by Hafiz Noor Shams
Joseph Stigliz argues that the Trans-Pacific Partnership (TPP) will disrupt pre-existing efficient Asian supply chain. That essentially suggests that the TPP creates trade diversion away from non-TPP Asian countries. While this argument is true if it stands in isolation, it is not applicable for Malaysia.
This is because Malaysia already maintains free trade deals with major Asian economies. Either through bilateral means or through Asean, Malaysia has free trade agreement with China, India, Korea and Japan among others (also, Australia), never mind that Malaysia is also a part of Asean Free Trade Area. Combined, they are Malaysia’s major Asian trade partners. Other Asian export destinations are small compared to the combined exports to the aforementioned countries. Major trading Asian countries also have multiple free trade agreements among themselves.
At the same time, Malaysia does not have an FTA with the US. With the TPP, Malaysia will.
So if anything, it is these Asian FTAs that Malaysia maintains which are creating trade diversion away from Malaysia-US trade, contrary to Stigliz’s assertion that the TPP will create diversion away from intra-Asian trade.
That means, if agreed upon and implemented later, the TPP will help in neutralizing some of the trade diversion Malaysia-US trade is suffering from. TPP makes diversion less of a factor and creation, more.